China has long been a hotbed for trade mark piracy. China’s first-to-file system, together with its complicated trade mark classification, has attracted numerous trade mark squatters to initiate malicious filings with the aim to free-ride on the goodwill of famous brand names. Unfortunately, the existing trade mark laws and regulations are far from effective in coping with this phenomenon. Under the current practice, one of the more effective ways to remove such registrations is to wait three years from the actual registration date, and file a non-use cancellation. However, if the registration is not yet vulnerable to attack for non-use or the non-use action is defended, famous brand owners would encounter substantial obstacles if looking to expand into China, with many eventually having to buy back their trade marks from trade mark squatters for a substantial sum.
With the aim of improving the business environment, the Standing Committee of the National People’s Congress (“NPCSC”) announced a decision on 23 April 2019 to introduce a series of amendments to the China Trade Mark Law, to take effect on 1 November 2019. To curb the notorious practice of bad faith filing, the NPCSC has introduced the ‘intent to use’ requirement to the China Trade Mark Law.
‘Intent to use’
The revised Article 4 of the China Trade Mark Law stipulates that “Natural persons, legal persons or any other organizations that need to obtain exclusive rights to use a trade mark for their commodities or services in the course of their manufacturing and business activities shall apply for the registration of the trade mark with the Trade Mark Office. Any application for trade mark registration that is malicious and is not filed for the purpose of use shall be rejected.” By the virtue of Article 33 and Article 44, “intent to use” will become a ground for opposition and invalidation, whilst “malicious filing” seems to be vague, the draft regulation, namely “Several Provisions on Regulating the Application for Registration of Trademarks”, which was published in February 2019 by the China National Intellectual Property Administration (“CNIPA”) provides some insights including eight criteria to identify “abnormal applications”, which are summarised below:
- marks that freeride on the goodwill of others or those that copy marks which are widely recognised by the relevant public;
- pre-emptive filings for marks that enjoy a certain degree of influence;
- marks that are identical or similar to those of others and where the applicant knows or should have known of the other’s prior rights;
- repeatedly filing with a clearly improper purpose;
- marks that are filed without a real intent to use;
- marks filed in large numbers within a short period of time that exceeds reasonable limits;
- filings that violate the principle of good faith; and
- parties acting as trade mark agents in the aforementioned situations.
Liability of Trade Mark Agencies
Apart from the above, the revision also targets trade mark agencies that assist in bad-faith applications. After revision, Article 19 of the Trademark Law will hold trade mark agencies liable for accepting instructions if they have actual or constructive knowledge that their clients are filing without intent to use or in bad faith. Furthermore, Article 68 sets forth the legal basis that penalties, including administrative and judicial penalties, would be imposed on trade mark agencies if they violate the law.
Implications for brand owners
At first glance, it is questionable if China’s trade mark registration system has transformed from “first-to-file” to “first-to-use” by the introduction of “intent to use” such that applications will be refused if they fail to show intent to use. Some expressed their concern on whether defensive trade mark applications will be blocked, leaving genuine brand owners in an even more difficult position when attempting to protect their brand names. Whilst the revision to the Trade Mark Law empowers CNIPA to request evidence from applicants of abnormal filings, filing evidence of use / intent to use is not mandatory at the time of filing. This power is only discretionary and the applicants will only be required to provide evidence upon request. Whilst the amendment does not change the “first-to-file” system, its practical effects will be to provide a clearer statutory ground for brand owners to rely on. Under the current law, in case of bad faith filing, oppositions, invalidations and lawsuits usually rest on Articles 7, 10 and 44 of the Trade Mark Law. However, the definitions of the existing laws are considered by trade mark practitioners to be vague and may lead to inconsistent decisions. While some commented that the new law is still unclear, for example, how much evidence should suffice to show intent to use and what constitutes a “certain degree of influence”, the amendments to the existing law are at least a step-up in efforts by the authorities to clarify the law, although substantive guidelines are yet to be rolled out. Indeed, it is difficult for the authorities to set a hardline on such substantive matters. Influence, goodwill and bad faith are abstract concepts that require evaluation on a case-by-case basis. The somewhat “unclear” laws may in fact provide more flexibility for the authorities to exercise discretion and keep their decisions up-to-date.
Back in March 2019, the American Intellectual Property Law Association (“AIPLA”) in their letter to the CNIPA.expressed their concern that defensive trade mark applications, used by overseas brand owners to widen the scope of protection for their trade marks in China, would be blocked as a result of the Trade Mark Law revision. On interpretation of the terms, the revisions focus on bad-faith purpose in addition to “without intent to use”, rather than targeting all applications that are “without intent to use”, and they do not explicitly prohibit defensive trade mark applications. The wording of the new terms as a whole are suggestive that the lawmakers have no intention to ban defensive trade mark applications. In the long run, if the new law is successful in combating bad faith filings, brand owners could significantly reduce their filing costs as they are not required to file and maintain the trade marks for purely defensive purposes.
The latest review and revision of the China Trade Mark Law reflects the Chinese authorities’ endeavour to remediate the difficulties brand owners are facing in China. Laws and regulations, especially on intellectual property, require timely adaptation to the ever-changing social and business environment. Although the effectiveness of the revisions remains to be seen, they are a reassuring sign that the authorities have become more proactive in strengthening trade mark protection.
This article was written by Dorothy Chan and Joerg Sosna.
 A. (2019, March 13). AIPLA Comments on Certain Stipulations on Regulating Behavior of Application for Trademarks (Draft) of CNIPA: https://www.aipla.org/docs/default-source/advocacy/aipla-comments-on-cnipa-draft-stipulations-on-bad-faith-trademark-applications-2018march13.pdf?sfvrsn=463020de_0