Brand owners continue to see bad faith trade marks in China as a big problem impacting their businesses, according to panellists at the China IP Magazine’s 9th annual forum.
With an ever increasing volume of trade marks being registered in China and the trend towards lower registration fees and cutting down on trade mark examination time, there is a clear disconnect between the filing of trade marks and the reasons to have trade marks.
Tom Duke, IP attaché to China & Hong Kong at the UK IPO, stated that bad faith trade mark applications is the single most common problem raised by UK businesses in China. "Over the past seven years, the issue has become huge and it has gotten worse since the Trademark Law amendment in 2013," said Duke.
With the volume of trade marks growing exponentially in the past few years, the problem has gotten worse and the Chinese judiciary is grappling with tit. Duke offered some ideas on how the problem could be dealt with by looking at the differences between the UK and Chinese system for bad faith trade marks.
One important difference is that bad faith is not a grounds for opposition or invalidation in China, unlike in the UK. Duke recommended that the Chinese legal principle of “honesty and credibility” could be used as a specific grounds in bad faith cases.
Duke recommended China considers the UK’s mandatory counter statement system. If applicants fail to respond with evidence to an opposition based on bad faith grounds then the application is withdrawn.
Duke also suggested that China could consider in the future a declaration of use and/or intention to use as part of the application process. In the UK this declaration has been used in bad faith cases, and could cut down on the number of trade marks and minimise trade mark squatters as applicants are filing large number of marks without any intention to use them.
Duke highlighted suggestions by others in China to address the bad-faith problem, including a blacklist system and whitelist system to pinpoint squatters and only allow non squatters to register marks. Another recommendation is that both the court and trade mark office could invalidate trade marks even without anyone invalidating them to cut down on the burden on brand owners. Duke said that these were not methods implemented in the UK, and there could be legal challenges to consider. But the scale of the bad faith problem in China could justify drastic measures, perhaps for a limited time period, in order to better align China’s trade mark system with the fundamental principle that a trade mark is a sign for use in commerce, not a commodity for accumulation, trading and extracting payments from legitimate businesses.
Amanda Yang, executive at Lusheng, shared insights on the sectors that are experiencing the most number of bad faith trade marks. According to a study Yang and her team did, the top sectors include fashion, hotels/restaurants, food and beverages and technology, with the fashion industry seeing the worst. Interestingly, the number of companies registering for bad faith trade marks is higher than individuals, which could be attributed to the ease of company registration when the law was changed in 2017. In terms of recommendations, what will be useful in the future is the need to provide use in applications and better review of non-use for trade mark office, in addition to the need to provide evidence of use in maintaining trade marks and transfers of trade marks.
For brand owners faced with bad faith trade marks, trying to get high damages is very challenging as damages tend to be low. But the problem is being recognised.
According to Yao Bingbing, chief judge of the Nanjing IP tribunal, the courts when assessing damages consider the well-known level of the trade mark and the level of severity of the infringement, including whether there was bad faith. The level of damages awarded is based on the amount of loss incurred, the quantity of products involved and the profit rate. The amount can be one to three times of the statutory damages depending on the level of economic losses as a result of the infringement and to punish the behaviour of the infringer as a way to deter similar behaviour. Yao emphasises the need to provide evidence of the loss, but admits that it may be challenging for brand owners to do so sometimes because information such as profit rate may be a trade secret. However, such information can help brand owners get higher damages.
Beijing Higher People’s Court judge Su Zhipu agrees and admits that the lack of evidence for losses often results in low damages being awarded in trade mark infringement cases. However, he identified an upward trend in the amount of damages being awarded with the Beijing High People’s Court’s trade mark cases awarding an average of Rmb 529,000 ($78,000) in damages.
According to Yang Boyong, chief judge of civil adjudication tribunal No.3 (IPR division) at the Beijing Higher People’s Court, the Beijing courts are seeing unprecedented volumes of cases but resources have not increased at the courts. Lower courts have been given guidance to focus on more and more challenging cases, including bad faith trade marks cases, and judges need to increase their quality and efficiency in adjudicating cases to maintain a high level of standard and consistency while working more closely with CNIPA in targeting the problem of bad faith trade marks.
