China: Improved First To File System In Legislation And Practices In China

In China, trademark applications have been increasing rapidly during the past 10 years (see below chart 1). The number reached to about 7.83 million in 2019¹. The applications have far exceeded the real demand of commercial activities, among which a great number weren't filed for use but for handsome profits. It's blamed that the problem of malicious applications is the direct result of implementing first to file system, as it's inherently flawed in granting exclusive rights separately from actual use. The inherent drawbacks, market players' pursuing for interest, misunderstanding on the real value of trademark rights and the decrease of official application fees collectively lead to the increasing trademark squatting and hoarding. China has been endeavoring to abate the negative impacts by improving the protection system in legislatures and practices.

1. First to file system established in 1982 China Trademark Law.

Since the promulgation of first Trademark Law, first to file system has been established². No real use intention or good faith was required for applying trademarks, while certain signs were prohibited to be used as trademarks i.e. "signs that are detrimental to socialist moralities, customs or having other harmful influences". Unregistered trademarks were not protected. Non-use cancellation procedure has been set up and nowadays still plays a great role in eradicating useless trademarks.

Provisions on prohibiting certain signs to be used as trademarks have been developed, functioning well in practices. Lately, some Chinese applicants preempted marks in close relation to coronaviruses, having harmful influences. The China National Intellectual Property Administration (CNIPA) responding quickly declared to reject applications 'LiWenLiang" (the name of the coronavirus whistle-blower) and to monitor trademarks i.e. "Huoshenshan" and "Leishenshan" (the names of two special hospitals built in Wuhan). Until March 16, among the 1580 monitored applications, 328 directly refused and 866 were withdrawn by the applicants³ . Two trademark agencies were warned and fined of 100,000 yuan for assisting these applications.

2. "Registration obtained through other illicit means" barred in amendment of 1993.

The Chinese legislature started to improve the first to file system by absorbing good faith principle in 1993. It was added "if a registration is obtained through fraudulent or other illicit means, the Trademark Office shall cancel such registered trademark; other entities or individuals may request the Trademark Review and Adjudication Board to make a ruling cancelling such registered trademark". This article though amended has been maintained⁴ and frequently applied to restrict bad faith trademarks.

3. Major improvements on protecting unregistered trademarks in 2001.

Responding to the actual problems occurred, in the amendment of 2001, important provisions have been included to protect unregistered trademarks in the certain circumstances. It marks the momentous transition from absolute first to file system to a more flexible one.

Protection of unregistered well-known trademarks has been provided and now the authorities don't hesitate to grant protection when necessary. In the typical case decided by Shanghai Intellectual Property Court, it's recognized the unregistered trademark " 拉菲" used by the plaintiff as the equivalence of "LAFITE", had been well-known on the wine products before the alleged infringement occurred⁵ . In another case decided in 2020, the local court affirmed well-known status of the unregistered trademark " 奔富" (Chinese transliteration of PENFOLDS) and decided using the trademark " 奔富" in sales and promotions have infringed upon the trademark rights derived from prior durable and extensive use⁶ .

Protection of unregistered trademarks in prior use with certain influence shall be granted when three requirements are met, which include, 1) the trademarks in prior use have acquired certain good fame, 2) the contested trademark is filed by unfair means namely in bad faith, 3) protection should be limited to the same or similar goods or services. In the retrial case decided by the Supreme Court, having met the aforesaid requirements, prior use and good fame of the trademark "PPStream" have been well protected. The disputed trademark reg. No. 5787553 "" was cancelled on the similar services⁷ .

Prohibiting unauthorized registration of trademarks of the principals or the represented parties have been stipulated and implemented. In the case against the trademark No. 3644066 "", the Beijing High People's Court decided, the legal representative of the applicant of the opposed mark was a business partner of the opponent and had good knowledge of the opponent's trademark. Filing the opposed mark without proper authorization constituted preemption of the principal's trademark⁸ .

4. "Good faith" expressly required for filing and using trademarks in 2013.

The amendments of 2013 further stressed the importance of use and good faith principle. Article 7 "registration and use of a trademark shall observe good faith principle" was added as a general clause to regulate malicious application and trademark infringement. In practices, the administrative and judicial authorities' decisions also reflect the emphasis on "good faith". The CNIPA directly applies "good faith article" in oppositions when the opposed parties filed a great number of trademarks or plagiarized other reputable or strongly distinctive trademarks. In the famous Uniqlo case decided by the Supreme Court⁹ , the plaintiffs filed more than 2600 trademarks and proposed to transfer the cited trademark reg. No. 10619071 " " at the price of 8 million yuan to Uniqlo. The plaintiffs maliciously lodged 42 trademark infringement lawsuits against Uniqlo, its affiliate and their shops in different cities. The Supreme Court reiterated good faith principle in obtaining and enforcing trademark rights, deciding the plaintiffs' actions constituted abuse of trademark rights.

Protection on trademarks in prior use has been stipulated in the amendments, limiting junior registrants' exclusive rights¹⁰ . Now in the infringement cases against the bona fide prior users, the Chinese courts pursue for substantive justices and lighten the burden of proof on the prior users in establishing the alleged good fame to defend against pernicious infringement claims. In the case decided by Shanghai Pudong Court¹¹ , the plaintiff having no actual businesses, obtained the trademark reg. No. 18766213 "Ambitmicro". In this infringement lawsuit the defendants confronted "Ambiq Micro" is their trademark and tradename in prior use with certain good fame on the concerned goods. The cited mark was the malicious preemption and the plaintiff had no rights to stop their use. The Court affirmed the defense, rejecting the infringement claims.

5. "Bad faith applications lack of use intention" constrained in 2019.

As discussed above, trademark hoarding is a great concern in China. Data from January to December of 2017 shows, a Chinese individual filed 5767 applications ranking first, and another individual filed 3605 applications ranking seventh in the list¹². In 2018, two commercial companies (respectively incorporated in 2017 and 2018) ranked the second and the third in the list, each filed 6506 and 5754 trademark applications¹³. According to the latest published data, among the 50 top applicants in the first half of 2019, four Chinese natural persons filed more than 1800 trademark applications in total¹⁴ .

In recent years, the CNIPA has been taking effective actions against the abnormal applications. In 2018, about 100,000 and in 2019, about 39,000 abnormal applications (including squatting trademarks) were refused in examination and opposition proceedings¹⁵ . The Chinese courts in the administrative litigations reject or cancel the hoarded trademarks by defining them as "registrations obtained by other illicit means". In the case against the trademark reg. No. 13888086 "360 安钱宝" decided by the Supreme Court¹⁶ , the registrant filed more than 1000 trademarks and most were similar to others' reputable trademarks. Its shareholders were publicly selling trademarks. The Court canceled the disputed trademark as "the registration obtained by other illicit means".

At the legislative level, the amendments approved on April 23, 2019, for the first time expressly provide trademarks filed in bad faith apparently lacking use intention shall be refused to register¹⁷ . It requires the reasonability or justification of trademark application actions. The trademark authorities shall, observing the amended article 4, ex officio reject the malicious applications devoid of use intent. The CNIPA may following article 29 require the applicant to submit statement explaining their filing actions, if considers the applicant is a possible trademark squatter or hoarder. Oppositions and invalidations can be raised by anyone applying article 4 to attack the trademarks not being filed or registered for use. The present provisions have perfected the trademark legal systems, emphasizing "use" and "bona fide" to regulate registration and use of trademarks.

Accordingly, the State Administration of Market Supervision issued Some Several Provisions on Regulating Trademark Applications on October 11, 2019, further emphasizing use purpose and good faith¹⁸ , in article 8 specifying the factors to be considered in deciding whether an application has been filed breaching article 4 of the Trademark Law.

The present laws and regulations have constructed a relatively complete system. It's believed more influential cases would follow to curb the chaos in registration and use of trademarks.

6. Suggested improvements on first to file system in future.

As greater protection for intellectual property rights and better business environment have been stressed in China, the latest amendments are crucial to enhance trademark protection. It's yet far from eradicating the chaos. On one hand, it's essential to insist first to file system, and on the other hand, we shall absorb the advantages of first to use principle to build a finer legal system. The following suggestions can be considered:

First, certain requirements can be imposed on getting a trademark registered by adopting "intent to use trademark application". The applicant submits "an intent to use application" to obtain an early application date. If the applicant fails to establish use within a certain period, the application would still be rejected. It would increase the burden of potential squatters or hoarders in securing trademark registrations and to certain degree decrease the bad faith applications.

Second, use evidence can be required to renew trademark registrations. The validation period of a trademark registration is quite long i.e. ten years. If a trademark is still not used after ten years, it has no real value in the market and shall not be renewed.

Third, since a great number of trademarks have been filed just for sale, some legal constraints are suggested to be made about transferring trademarks like trademark registrations without actual use shouldn't be transferred. Only in special occasions like the business successors of the registrants from mergers, separations and alike, or their heirs may obtain the unused trademarks through transfer. By this, preemptive trademarks or trademarks invented only to be sold as products would lose their values.

(First published in Asia IP April issue )

Footnotes

1. China National Intellectual Property Administration, http://www.cnipa.gov.cn/zscqgz/1145388.htm.

2. 1982 China Trademark Law, article 4 provided "to acquire exclusives rights over a trademark, any enterprise, institution or self-employed industrialists and businessman shall file an application for registration of goods trademark with the Trademark Office".

3. China National Intellectual Property Administration, http://www.cnipa.gov.cn/zscqgz/1146741.htm.

4. 1993 China Trademark Law, article 27 provided "if a registration is obtained through fraudulent or other illicit means, the Trademark Office shall cancel such registered trademark; other entities or individuals may request the Trademark Review and Adjudication Board to make a ruling cancelling such registered trademark". It was amended and stipulated in article 41.1 in 2001 Trademark Law and it was amended and provided in article 44.1 in 2013 Trademark Law.

5. Chateau Lafite Rothschild v. Shanghai Baochun Industrial Development Co., Ltd., Shanghai Intellectual Property Court, (2015) Hu Zhi Min Chu Zi No. 518.

6. Southcorp Brands Pty Limited v. Huai'an Huaxia Manor Brewing Co., Ltd., Nanjing Intermediate People's Court, (2018) Su (01) Min Chu No. 3450.

7. YUE Jin Jun v. Trademark Review and Adjudication Board, Supreme People's Court, (2017) Zui Gao Fa Xing Shen No. 3104.

8. LIU Yue Er v. Trademark Review and Adjudication Board, Beijing High People's Court, (2017) Jing Xing Zhong No. 1818.

9. UNIQLO v. Guangzhou Compass Exhibition Service Co. Ltd., Guangzhou Zhongwei Enterprise Management Consulting Services Limited, Supreme People's Court, (2018) Zui Gao Fa Min Zai No. 396.

10. 2013 China Trademark Law, paragraph 2, article 59 provides, "where, before a registrant applies for trademark registration, another party has used an identical or similar mark with certain reputation on the identical or similar goods, the registrant has no rights to preclude such other party from continuing to use the trademark for original purposes".

11. Ambitmicro Technology Limited v. Ambiq Micro, Inc., Shanghai Pudong Court, (2018) Hu (0115) Min Chu No. 46794.

12. IPRDAILY, https://www.sohu.com/a/210290219_99919423.

13. IPRDAILY, http://www.iprdaily.cn/news_20721.html.

14. Guo Fang Software: https://www.sohu.com/a/327437676_120044144.

15. China National Intellectual Property Office, http://www.cnipa.gov.cn/zcfg/zcjd/1143141.htm , http://www.cnipa.gov.cn/mtsd/1146434.htm.

16. Wuhan Zhong Jun Campus Services Co., Ltd. v. the Trademark Review and Adjudication Board, Supreme People's Court, (2018) Zui Gao Fa Xing Shen No. 4130.

17. 2019 China Trademark Law, article 4 provides, "a bad faith application for trademark registration for a purpose other than use shall be rejected".

18. Some Several Provisions on Regulating Trademark Applications issued by State Administration of Market Supervision of China, http://www.cnipa.gov.cn/zfgg/1143015.htm.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.