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China trade marks: Decisions shine new light on bad faith filings

Bad faith filings by registry pirates in China continue to pose enormous challenges to brand owners, large and small, foreign and domestic.

Chinese pirates, well-informed about the current limitations of the law, have become increasingly adept at extracting ever higher compensation from victim companies. These victim companies often have little choice but to pay up in order to eliminate potential obstacles to the production and distribution of their brands in China.

In May 2014, the National People's Congress passed an amendment to the PRC Trademark Law that introduced several provisions intended to permit victim brands to address bad faith registrations and thereby cut down on the overall number of filings and their related administrative burden. Regrettably, each of these new tools has proved to be of limited utility to date (see below).

However, recent decisions by the Chinese Trademark Office (CTMO) in oppositions involving "serial pirates" suggest a potentially important policy shift in the making.

Article 7 – Good faith

The CTMO's ground-breaking decisions are based upon Article 7 of the Trademark Law. Newly-added in 2014, this provision requires applicants to abide by the principle of good faith when applying for marks, thereby implicitly prohibiting the filing of applications in bad faith.

During the drafting process, many brand owners had hoped that Article 7 would provide a safety net for resolving disputes over bad faith registration that would not otherwise be actionable under the law's other provisions (see below). But Chinese authorities made clear during the draft law's consultation period that Article 7 could not be solely relied upon to sustain an opposition. As a result, it had been assumed that Article 7 would only be useful in unusual situations, and only following costly appeals to the Beijing IP Court and the Beijing Higher People's Court. Fortunately, the CTMO began issuing decisions in late 2015 that suggest a willingness to apply Article 7 even in decisions in the first instance.

CTMO decisions

In 2014, the well-known US supermarket chain Whole Foods filed oppositions against two applications by a local serial pirate for the mark 365 Everyday Value covering food and beverage items in classes 29 and 32.

In decisions issued on December 28 2015, the CTMO ruled in favour of Whole Foods. The contents of the decisions addressed the use of Article 7, but also included other apparent innovations.

  • The CTMO's holding in both oppositions was explicitly based on Article 7 of the Trademark Law. To ensure compliance with the Trademark Law's procedural requirements (ie, the fact that Article 7 could not sustain an opposition by itself), the CTMO referenced Article 7 by means of reliance on Article 30 of the law, which provides a general prohibition against registration of any marks "that do not conform to the law."

  • The existance of pirate's bad faith was confirmed by the CTMO based on evidence he had filed for over 150 other trade marks, many of which were deemed "famous" in China and had been the subject of numerous prior oppositions and invalidations by the victim brand owners.

  • The CTMO's decisions did not address whether Whole Foods' mark was "famous" or whether it had previously been used in China. Nor did the decisions assess whether the goods covered by the pirate marks were "similar" to the goods or services of Whole Foods. The foregoing suggests that the CTMO did not regard these factors as preconditions to protection under Article 7.

  • Finally, the CTMO decisions noted that the pirate had failed to provide a "reasonable explanation" for applying for the 365 Everyday Value mark. This is potentially significant since (as compared to UDRP rules), the PRC Trademark Law does not require alleged bad faith pirates to prove their "good faith" interest in filing for marks. The CTMO's decisions therefore suggest that, once an opposing party has presented reasonable evidence of bad faith, the burden can be shifted to the alleged pirate to prove its good faith.

Whole Foods does not appear to be the only beneficiary of the CTMO's new policies. In another opposition involving the famous Swiss watch brand DOXA, the CTMO rejected an application by a pirate that had filed over 2,000 trade marks, including many globally famous brands.

Take-aways

The pirate in the above Whole Foods case is not expected to appeal. (Indeed, the pirate did not file arguments or evidence in response to the oppositions before the CTMO.) As a result, only time will tell whether the Trademark Review and Adjudication Board (TRAB) and the courts will support the CTMO's approach with respect to Articles 7 and 30. It likewise remains to be seen whether the CTMO will adopt the same policy in other bad faith registration cases it deals with in the near term that involve a different fact pattern.

Regardless, victim brands are well advised to cite Articles 7 and 30 in oppositions and invalidations against serial pirates – or indeed any case where bad faith is evident but the evidence does not appear to neatly satisfy the requirements found in other provisions in the law.

In cases that are already under judicial appeal, the courts may well reject any new arguments on the basis they were not raised in earlier proceedings before the TRAB. In that case, consideration can be given to filing a fresh (and much cheaper) invalidation to the TRAB, rather than persevering with further appeals before the courts.

Other grounds for addressing bad faith piracy

The CTMO and TRAB have previously relied upon other long-standing provisions in the Trademark Law to address serial pirates, including Article 4 (intent to use), Article 10(1)(8) ("unhealthy influences on society") and Article 44 ("registrations obtained by deceptive or other improper means"). However, more recently the CTMO, TRAB and courts have refrained from citing these provisions in oppositions and invalidations involving bad faith registrations, thus underscoring the potential value of the above decisions.

In the meantime, bad faith registrations that do not involve blatant evidence of serial piracy can be addressed under the following provisions. The chances of success under each will depend greatly on the facts and evidence available, as well as the subjective views of the TMO and TRAB examiners.

  • Article 15: This provision prohibits unauthorised filings by an agent, representative, or a party with whom the victim brand has had a "business or other relationship". Of course, most registry pirates do not have prior business relations with the victim brands, nor do they engage in competing businesses – thus undermining the value of this new provision.

  • Article 32: This provision permits action against bad faith filings that violate prior rights, including copyright, rights in personal names, trade names and "merchandising rights". Article 32(2) also offers protection where the victim brand has been used and achieved a definite degree of fame before the pirate's filing date. However, Chinese law requires that such use and fame occur in China, rather than overseas, thus (again) undermining the practical utility of this provision in many cases.

  • Article 19: This new provision in the Trademark Law allows oppositions or invalidations against trade marks filed by trade mark agencies other than those needed for their own operations. However, Article 19 is not at present applied to cases where the trade mark agency has assigned its application or registration before a decision is issued in an opposition or invalidation – thus providing trade mark agencies with an easy way to avoid harm.

Draft Rules from Supreme People's Court (SPC)

In October 2014, the SPC issued a draft regulation for public comment intended to assist courts in handling appeals involving bad faith registrations, among other things. Drafting of this regulation stalled in 2015, but there are indications the SPC has resumed research and drafting. It remains unclear when it will be issued.

(See previous articles published in Managing IP December 2014, May 2015 and November 2015.)


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