Use it or Register it? How to protect an unregistered trademark?
In China, just like in most countries, registration is the quickest and cheapest means to get trademark protection: just 9 months and 100 $. Normally, you have no reason not to register if you really want to be protected.
But, if you are already using your trademark, but for whatever reason, you have not registered it, and someone else has already filed or even registered the same trademark, what can you do ? If you do not have another prior right (copyright, design, personnel name...) that could invalidate the "obstacle" trademark, what is the solution? In that case, you still have several possibilities that are based on when and how you use your own trademark and also on the subjective status of the prior trademark owner.
Well-known trademark (13.2)
If your trademark is well-known in China after your extensive use or for other reasons (international traveling, spillover effect of TV or Internet, or just promotion), you can, according to article 6bis of the Paris Convention and article 13.2 of the China Trademark Law, oppose or invalidate this prior trademark and attack the registrant directly if he uses it.
Representative or agent (15.1)
If your trademark is not well-known trademark (actually, this is difficult to prove), but the owner of the prior trademark was your representative or agent, you can , according to article 6quinqies of the Paris Convention and article 15.1 of the China Trademark Law, oppose or invalidate the registration and attack the registrant if he uses the trademark.
Minimum use and blatant bad faith (15.2)
But very often, the owner of the prior trademark is not your agent or distributor. In this case, article 15.2 of the new Trademark Law (2013), brings a possible solution. If (1) your trademark has been used (anywhere in China and no requirement of extensive use) and (2) if you can prove that, for reasons related to contractual or business contacts or to geographical circumstances, the owner of the prior trademark definitely knew the existence of your trademark, this is a valid ground for opposition or invalidation
Certain influence and relative bad faith (32 in fine)
Finally, if you have none of the above, you still have article 32 of the Trademark Law to fall back on: "…nor shall an applicant pre-emptively register in an unfair manner a mark that is already in use by another party and enjoys a certain influence". In this case, you do not need to prove any relationship with the prior trademark owner, you just need to prove that, because of your own use, your trademark had obtained "a certain influence" when the prior trademark was filed.
There is a seesaw effect between the two factors, reputation and bad faith. When you have a relatively high influence, you need a low level of applicant's bad faith, and vice versa. There is no minimum influence as such. It all depends on how much evidence of the prior trademark applicant's bad faith you can produce: the less evidence you have the more you need to elaborate on your own use.
Sometimes, none of the above works, or maybe you missed the statutes of limitation deadlines (3 months after preliminary publication for oppositions, or 5 years after registration for invalidation).
In that case you could be sued….
Certain influence and right to continuously use (59.3)
But, even if you are sued, you might still be able to get away and be allowed to continue using your trademark. Article 59.3 of the new Trademark Law can save you. If you had started using your trademark before (a) the application date of the prior registered trademark, and (b) the owner of the prior trademark started using his own mark, and if you can show that you had acquired a certain influence, then you are safe. The owner of the registered trademark cannot stop you from continuing using your trademark "within its original use scope". All he can do is ask you to add some other signs in order to facilitate the distinction…
This concept of "original use scope" is not defined in the law, and is rather vague…
In a case启航（Sail）(selected in the 2015 top ten influential cases of Beijing IP protection), the Beijing IP court enumerates a lot of factors to define the "original scope" (such as the same person, same or similar goods…) but does not mention any geographic limitation. This could be good news for the prior user, but bad or even sad news for the later registrant who will be unable to stop a prior use from growing. The court should find a balance between the use and registration.
How to file? Directly in China with the CTMO or through international extension to China?
In China, a trademark application can be directly filed with the China Trademark Office (CTMO) or be extended to China via the Madrid system. Which one is better? Both have their pros and cons but in the end, it seems that the national application might have a little more advantages.
Necessary work to be done before filing
Whether you wish to extend your trademark to China or file it directly with the CTMO, you need to perform a few verifications. You need to verify that the trademark is intrinsically registrable in China (there are, sometimes, obstacles due to local culture that you might not know about) and, of course, that it is available. So, even if you prefer the simplicity of the Madrid system, do not hesitate to seek local Chinese advice for this verification. It might save you some expenses in the future.
Which one is simpler?
Extending a national registration or application to several countries, and for several classes at the same time, definitely seems the simplest way. You work "from home", with your national trademark agent, and all he/she has to do is to notify WIPO.
However, this simplicity may only be apparent.
You only know if the trademark is registered in China at the expiration of the period of 12 or 18 months, if the CTMO has not notified any objection to WIPO. During that examination period you have no contact with the examiner of the CTMO. So, if for any reason, the examiner finds a problem with the trademark, you only find out after it has been refused and then, you have to file an application for review with the Trademark Review and Adjudication Board (TRAB).
Which one is more flexible?
The CTMO does not accept domestic applications that are too general and too vague in regard to a certain type of products. It is necessary to list exactly what products are designated. Besides, the CTMO divides each international class into several sub-classes, and the similarities of the goods and services are basically judged on the basis of the sub-classes. The same trademark covering goods that fall into different sub-classes could co-exist, e.g., balls for games, body-training apparatus, machines for physical exercises, gloves for games are not similar as they respectively fall into sub-classes 2804, 2805, 2807 and 2809. As a result, it is advisable to have full discussion with a Chinese counsel on what goods and services to be covered to make sure the trademark could be well protected by covering all the related sub-classes. Also, the Class heading will be classified into the specific sub-classes, and can't cover the goods and services in the whole class.
So, even when filing an international extension, it is necessary to carefully select the list of products and services, otherwise you might believe that your trademark is protected for certain products because you believe they are similar, and you will find out later that it is not.
Actually, in certain circumstances, the international application may still have an advantage over the domestic application. The examiners of international applications are not the same as those of domestic applications. They are less strict and less prone to refuse an application for certain products, due to a lack of precision or other reason. The CTMO seldom objects the descriptions of goods and services for an international trademark unless the goods/services are not accepted in China such as gambling. Thus, if some goods/services are not accepted in a domestic application, the applicant might still be able to have such goods/services covered by the Madrid system trademark.
Which one is faster?
For domestic applications, CTMO must conclude the examination within 9 months. Compared with the international trademark application (12 or 18 months according to the Madrid Agreement and Madrid Protocol) the advantage to domestic application is obvious. This difference of time can have disagreeable consequences: it is not unusual that the CTMO does not input right away into its system the data received from WIPO about international trademark extensions. So, if an international trademark is filed only one or two months before a domestic application, the examiner would not be aware of the existence of this international trademark when he performs the examination of the domestic application. Therefore, the domestic application will be accepted and published, even though there was a prior application, which eventually will mature to registration. And in the end, the owner of the international trademark has to file an opposition against the domestic trademark application.
Which one is easier to enforce?
In theory, there is no difference in the validity and enforceability of both domestic and international trademarks.
In practice, there is a difference, because the enforcement authorities of China (administrative or judicial) require the submission of a national trademark certificate, to be issued by the CTMO. The certificate issued by WIPO is not accepted, and the right holder has to specifically request the issuance of registration certification by the CTMO to prove its trademark rights, which can take an additional two to four months.
Moreover, where there is any modification, assignment, renewal of the international trademark, the owner has to request a new registration certification to prove its right. According to the current practice, it may take months for the CTMO to update the renewal and/or assignment record of an international trademark in its system, and during this period, the right holder can not enforce its rights because no registration certification can be produced to prove the existence of the right.
Discretion of the Madrid system trademark
In a potentially conflictual background, it happens that you want to file a trademark even though know that it might be opposed by others. In that case, it may be advisable to go through the Madrid system. Indeed, it is more difficult to monitor the International Trademark Gazette for opposition purposes. Therefore, the risk of opposition is lower.
Filing a trademark in foreign language and/or in Chinese language?
In China, if you want to find a McDonald's store and ask for directions saying "McDonald's", you may probably get nowhere. However, if you say "Mai-Dang-Lao", which is the Chinese transliteration of McDonald's, then you will immediately be directed to the closest shop. This example shows why it is essential to file a trademark in Chinese language in China.
A well-chosen Chinese mark is easily accepted by Chinese consumers, and this can help marketing the product in China. A good example is Coca-Cola's Chinese name "可口可乐" (Ke-Kou-Ke-Le, literally means "tasty and pleasing" in Chinese).
China follows the "first-to-file" principle. Therefore, whenever you prepare for filing your trademark in your own language, do it in Chinese at the same time. If you don't, you might have to face negative and costly consequences.
Choose and register Chinese mark without delay
New Balance vs Lelun Zhou
New Balance Athletic Shoes Inc. ("New Balance"), owns the English mark "NEW BALANCE" on shoes since 1983, but the Chinese trademark "新百伦" (Xin-Bai-Lun), was adopted and used much later in 2003.
Before that, a Chinese individual, Lelun Zhou, had filed applications for the Chinese mark "百伦" (Bai-Lun) in 1994 and "Xin-Bai-Lun" (Xin means "new") in 2004. New Balance had opposed Zhou's trademark "Xin-Bai-Lun", but failed and it was approved for registration.
In 2013, Lelun Zhou sued New Balance and its distributor for trademark infringement. In 2015, the Guangzhou Intermediate Court recognized the infringement and ordered New Balance to pay an amount of US$15 million as damages, half of New Balance's profits in China. The court held that, New Balance was aware of the risk but still continued the use of the infringing mark.
New Balance appealed. The case is now under trial by the higher court.
Castel vs Daozhi Li Yu
CASTEL FRERES S.A.S ("Castel") had been using the Chinese mark "卡斯特"(Ka-Si-Te) on wine since August 1998, but Castel did not register this Chinese mark.
A Chinese company in Wenzhou applied for the registration of the trademark "Ka-Si-Te" in September 1998, and obtained the registration in March 2000. The mark was later transferred to a Chinese-Spanish Daozhi Li Yu.
Castel tried to settle the issue by trademark purchase negotiation, non-use cancellation and invalidation, but all failed. Meanwhile, Castel was still using the Chinese mark "Ka-Si-Te".
In 2009, Daozhi Li Yu sued Castel and its distributors for trademark infringement. In 2012, the Wenzhou Intermediate Court recognized the trademark infringement and ordered Castel to pay an amount of US$5 million as damages. Castel appealed. The higher court maintained the judgment. Castel filed a re-trial application to the Supreme Court and decided to change its Chinese mark to "卡思黛乐" ("Ka-Si-Dai-Le"). In January 2016, the Supreme Court rendered its judgment, reducing the amount of compensation to US$77,000, which was a relief for Castel.
Conclusion: When you launch a product under a foreign brand, do not assume that this will be sufficient to protect you against the use of a Chinese equivalent. Always create and use the Chinese equivalent. Of course, be careful when you choose the Chinese mark, and do risk assessment before deciding whether to continue using the trademark if it is in conflict with a prior right.
Be tolerant and smart when dealing with a nick-name
Pfizer vs Viamen
Pfizer Inc. ("Pfizer"), is the owner of the mark "VIAGRA", which was filed in China in October 1996. Two years later, Pfizer adopted a Chinese name "万艾可" (Wan-Ai-Ke) and filed the application in July 1998. However, the Chinese media and consumers had already created a sort of "nick name" for the Viagra blue pill, "伟哥" (Wei-Ge), which means "big brother". This name was already popular and widely accepted.
A Chinese company, Guangzhou Viamen Pharmaceutical Co., Ltd. ("Viamen"), filed the application for "Wei-Ge" in June 1998.
Pfizer opposed Viaman's application, lost, appealed, and lost again. The court found that, Pfizer had never advertised its products under the name "Wei-Ge", and on the contrary, claimed that its Chinese mark was "Wan-Ai-Ke". Pfizer sued Viamen, in a civil action, trying to stop the use of "Wei-Ge" but failed again, as Viamen was able to resist such action by claiming its registered trademark.
Sony Ericsson vs Jianjia Liu
Sony Ericsson Mobile Communications AB, is a joint venture set up in 2001, between Sony Group and Ericsson Group. It is the owner of the Chinese mark "索尼爱立信" (Suo-Ni-Ai-Li-Xin), which is the transliteration of "Sony Ericsson".
However, such a long name was soon shortened by the consumers to become "索爱" (Suo-Ai) and this short version became widely accepted. But, Sony Ericsson did not admit this abbreviation, at least not until October 2007.
A Chinese individual, Jianjia Liu, had filed a trademark application for "Suo-Ai" in March 2003 and had obtained the registration in August 2004.
Sony Ericsson filed an invalidation application against this mark in June 2005. The TRAB refused the invalidation and maintained the registration of "Suo-Ai".
Sony Ericsson appealed. The first instance court overturned the TRAB's decision and cancelled the trademark, finding that "Suo-Ai" is widely accepted by the Chinese consumers as the source identifier of Sony Ericsson's products and that Jianjia Liu had not been acting in good faith when he registered the "Suo-Ai" trademark.
Jianjia Liu appealed. The second instance court reversed the judgment, finding that, Sony Ericsson had no evidence of prior use of "Suo-Ai", and had even denied many times that "Suo-Ai" was the abbreviation for "Suo-Ni-Ai-Li-Xin". So, Sony Ericsson did not own the mark "Suo-Ai". Sony Ericsson filed a re-trial application with the Supreme People's court, but was dismissed.
Conclusion: It was not a good option for Pfizer and Sony Ericsson to deny the relation between their names and the Chinese nick names created by the consumers. If they had taken appropriate actions when the nick-name came out, the situation may have been in control. A nick-name is not always bad, and it can constitute an extension of your protection.
The names of celebrities are easy targets
Michael Jordan vs Qiao Dan Sports
Michael Jordan, famous NBA player, is widely known and recognized by Chinese people as "乔丹" (Qiao-Dan, Chinese transliteration of his last name Jordan). Michael Jordan and Nike Inc. ("Nike") cooperated to launch the world famous basketball shoes since 1985. Nike registered the mark "MICHAEL JORDAN" in June 1991, but never registered the corresponding Chinese transliteration.
A Chinese company, Jinjiang Mai Ke Shoes and Plastic Company, which later change its name to Qiao Dan Sports Co., Ltd., in 1999, filed the logo mark (flying man), and in 2000, the words "Qiao-Dan" in Class 25. Both were recognized as well-known trademarks by the Trademark Office. It later registered over 200 Qiao-Dan related trademarks, including " " (jersey number 23), "杰弗里乔丹" (Jie-Fu-Li Qiao-Dan, the Chinese name of Michael Jordan's elder son Jeffrey Jordan), "马库斯乔丹" (Ma-Ku-Si Qiao-Dan, the Chinese name of Michael Jordan's younger son Marcus Jordan).
Nike Inc. took opposition/invalidation actions against the earlier trademarks, but failed. Then, Michael Jordan himself came out and continued the fight, but lost before the courts again.
Michael Jordan filed re-trial applications to the Supreme Court, and the court hearing was conducted in April, which may be a positive signal.
Conclusion: Foreign celebrities are commonly referred to by the Chinese transliterations of their last names. This should be included into your filing strategy.
Designation goods or services by using general terms or a more specific description?
When registering a trademark, it is essential to provide the exact description of the goods and services to be designated by the trademark. This determines the protection scope of the registered trademark and also, can be a protection against possible future non-use attacks. However, due to the complexity of the sub-class system adopted by the CTMO and to the Examiner's attitude when examining trademark applications, which is sometimes capricious and rigid, it is not always easy to select the right goods and services. Yet, the description must be accurate and specific.
Referring to the class heading does not mean protection for the whole class
We see this quite often with international trademarks. The description of goods mirrors the class heading of the Nice Classification. But, in the sub-class system, the class heading usually only covers a few sub-classes in that particular class. For instance, the official Nice heading for Class 25 is "clothing, hats and shoes". If you file a Madrid application with that class heading, you might think your trademark will cover all products in Class 25, but in fact your trademark will not have any protection for socks, gloves, scarves or belts.
The specific description may help to obtain the co-existence
The amount of trademark applications increased sharply in China in the recent years. In 2015, the CTMO received over 2.87 million new trademark applications. The total amount of registered trademarks now exceeds 10.3 million. With such a large amount of trademark applications and registrations, the likelihood of conflict with earlier marks increases. Therefore, a specific and precise description of goods may help the applicant to find space and co-exist among earlier marks.
In October 2013, Microsoft applied to register the trademark "LAUNCHWORKS" in respect of "game software", but was refused by the CTMO due to the earlier trademarks "LAUNCH" which was registered in respect of "management software for motor vehicle maintenance and repair" and "computer peripheral devices". All these goods fall into the sub-class 0901 according to the Classification Book. Microsoft appealed against the refusal decision but was dismissed by the TRAB. Microsoft further filed an appeal to Beijing IP Court. After the hearing, the Judge found that "game software" is provided to the game players for amusement, while the "management software for motor vehicle maintenance and repair" is a tool provided to the drivers for auto repairing and maintenance, and such goods can be deemed as dissimilar goods due to their different function, providers, sales channel and consumer groups. Thus, the Judge ruled to cancel the refusal decision made by the TRAB.
Inaccurate description of goods may be vulnerable to non-use cancellation
The requirement of evidence proving that a registered trademark is used has become more and more strict. If the goods description is different from the products on which the mark is actually used, even they could be regarded as similar goods, the trademark registration faces a high risk of being cancelled for non-use.
In previous practice, the evidence of use on one designated item was enough to maintain the entire registration on all the designated goods before the CTMO. The TRAB was stricter, but normally the use of one item at least could maintain the registration on all the similar goods in the same sub-class. However, in a recent decision made by the TRAB in March 2016, the TRAB accepted the use evidence provided for "facial creams, skin-care creams" but still cancelled the registration in respect of the similar goods "perfume, lipsticks, hair lotions, etc.". In late April, the Supreme Court issued its 2015 Annual Report citing a retrial case in which the use on "scraping-wall greasy powder" fails to maintain the registration on "paints" in a non-use cancellation action.
Inaccurate description may jeopardise the enforcement of the trademark
The accurate description is also of high importance for the enforcement of the trademark, especially in a criminal case which requires the use of an identical trademark on identical goods.
In early 2012, a Chinese company named DU GAO was raided by the police for manufacturing and selling "ink-jet printing machines" with the trademark "DOMINO", which was identical to the registered trademark " ", owned by DOMINO PRINTING SCIENCES PLC. ("DOMINO"). The Court of first instance found that "ink-jet printing machines" should be deemed identical to the designated goods item "ink jet marking apparatus" of DOMINO's trademark. The Court ruled, therefore that DU GAO company and its proprietors had committed the crime of counterfeiting a registered trademark. But, this case had a big turnaround in the second instance. The Court of appeal found that the "ink-jet printing machines" manufactured by DU GAO company is a kind of industrial machines and should be classified into Class 7, while the "ink jet marking apparatus" of DOMINO in Class 9 are provided for the domestic or commercial purpose, so they could not be deemed as the same products. Therefore the Court said that DU GAO did not commit a crime.
Using the registered trademark "as is" or using variants?
In principle, you should use your registered trademark in your business exactly as it is registered. However, sometimes, for various reasons (change of the brand image, suit the needs of the market in a certain area, etc.), you may actually be using a variant of the registered trademark. Is there a risk?
Unfortunately, yes… there may be a risk. If the alteration is such that it changes the "distinctive feature" of the registered trademark, you might end up losing it or be unable to enforce it against others.
The risk of being cancelled for the alteration (49.1)
In principle, according to article 49.1 of the Trademark Law, the AIC may order you to rectify the alteration, and if the rectification is not implemented within a given period, the CTMO can cancel the registered trademark ex-officio.
However, till now, this has never happened. In fact, it would be easy to defend against such an action by claiming that the (variant) used trademark is a different and unregistered trademark. So, no need to worry too much about this
On the other hand, you might be in the opposite situation: a third party has registered a trademark and, in actual use, has substantially transformed such trademark to the point that the "variant" has become an infringement of your own. Then you might want to enforce fully the potential of article 49.1. Just be aware that this is not easy…
The risk of being cancelled for non-use (49.2)
According to article 49.2 of the China Trademark Law, a trademark can be cancelled if it has not been used for a period of three consecutive years. In an Opinion issued in 2010, the SPC specified that if the trademark is so altered that the distinctive feature of the registered trademark has been "substantially" changed, such use of the modified trademark shall not be deemed as use of the registered trademark. Therefore, if you only use the substantially changed version, your registered trademark can be cancelled for non use.
The law does not specify to what extent a trademark needs to be altered so that it runs into the risk of being considered as not used. In practice, usually, the changes in the font/case of English characters or in the type of Chinese Characters (simplified/traditional), and in the orders of the components (words/device) will not be deemed as substantial change.
However, if you really change the trademark or any of its components, it may be a problem. For example, in the "鐵力士TINIT" case, the registered trademark was 鐵力士TINIT but the actual used mark was 铁力士LISHIX. The Beijing High Court held that the use of 铁力士LISHIX is not the use of the registered trademark because the distinctive component "TINIT" was changed into LISHIX, and therefore upheld the cancellation based on non-use
Risk of not being awarded damages in a civil lawsuit (64.1)
The new amended Trademark Law (article 64.1) provides that the right owner needs to prove that its trademark has been actually used when claiming the damage. And the civil courts hold the same opinion as the CTMO about variants (sometimes even stricter). So if it is only a variant that is used, but the case is based on the registered trademark "as is", the court may affirm the infringement but refuse to grant damages because it considers that the registered trademark is not actually used.
The bright side…
In China, the courts do not accept infringement lawsuit from one registered trademark against another registered trademark. This is the result of article 1.2 of a SPC Interpretation issued in 2008, which, however, provides for an exception: when the "target" trademark has been substantially altered so that its distinctive features are changed, it is possible to file a lawsuit against such registered trademark.
For example, Lacoste was able to sue the registered trademark because it had been modified into (Lacoste's TM is ), and BMW was allowed to sue the registered , because it had been altered into TM (BMW's TM is ).
Conclusion: you need to monitor how your registered trademark is actually used. If, for some reason, the manner in which you use it steps away from the original, it is advisable to file a new trademark and make sure you maintain a sufficient amount of use of the original.
Using the trademark in OEM export business
Original Equipment Manufacturing or OEM is the business model that is used when a trademark owner is "sourcing", i.e., looking for a factory to manufacture its products, using its trademark. China is one of the most favoured countries by business operators sourcing OEM products. If you are one of them and want to ensure the safe exportation of the OEM products, is there anything you need to do? And if, assuming you do not own a registration of the trademark in China, you want to prevent others from registering such trademark, can you rely on your prior OEM export business?
Due to the lack of specific regulation in China, the nature of the trademark use in OEM export business is still an unstable issue. And the opinions of the authorities (CTO/TRAB) and courts vary according to the type of procedure.
So it is better to understand this issue as the way suggested by Oliver Wendell Holmes Jr., that is, "The life of the law has not been logic; it has been experience" (The Common Law, 1881). Below we analyze a few issues based on recent precedents:
Can OEM use protect against a cancellation action for non-use?
If you have already registered your trademark in China, but you only use it for OEM export, anybody could claim that you are not using your trademark in China, since you are not selling anything in the country. Is the use of the trademark in OEM export business sufficient to defend against a cancellation action for non-use？
Before 2010, such cancellations actually happened, for the above reason: no sales in China was considered as no use
This opinion changed after 2010. The Beijing High Court in the "SCALEXTRIC" case, and, more recently the TRAB in the "MIRRO" case (2015) accepted that OEM use, if it reflects the true intention of using the trademark by the registrant, is sufficient to resist a cancellation action for non use. For the purpose of showing such true intention, single or occasional exportations may still be weak. Comprehensive evidence of long-time and consistent OEM exportations is necessary.
Opposition based on article 32: can OEM use generate a "certain influence" ?
Article 32 of the Trademark Law allows the prior user of a (not registered) trademark, which has acquired a certain influence, to oppose the registration, or request the cancellation of a subsequent identical or similar trademark, if such trademark has been filed by improper means (commonly called "pre-emptive application").
The article is very often used, but… what if our prior use is only through OEM business? Does such use count for the application of article 32?
Well… it does not. In the famous MUJI case (2012), the Supreme People's Court held that the use in OEM business is not able to generate "a certain influence" because the OEM products have not entered the local market at all,.
From then on, although there are few cases affirming that OEM business can also bring "a certain influence" in special circumstances, most of the cases followed the principle laid down by the SPC.
Can OEM use be affirmed as trademark infringement ?
If another person has obtained the registration of "your" trademark, and you are using this trademark in OEM practice for export, can you be sued?
The answer to this question is the most controversial and least stable of all. The courts have changed their minds several times; they found that OEM export is an act of infringement and found the exact opposite.
In November 2015, the SPC handed down a "retrial" judgment in the famous Focker v. Yahuan case, also called the PRETUL case, with a reasoning according to which since the goods were exported from China the trademark Pretul that was affixed on such goods was not "used" in the sense of the Trademark law, and therefore, no infringement was committed. The Court noted, further, that the defendant owned the trademark in the country of destination.
It is very unlikely that the Supreme People's Court intended to deliver a message to allow the free exportation of infringing goods from China. Letting the batch of goods be exported to Mexico seemed a "fair" decision in the circumstances. It remains that, if it was systematically followed, this case would deprive all legitimate trademark owners of the right to seek the assistance of the Customs when infringing goods are exported.
Several weeks later, the Court of Jiangsu rendered a judgment in another OEM case Shanghai Diesel v Jiangsu Changjia, which did not follow the SPC's reasoning. The court found that the defendant should have conducted some due diligence and should have known that there was a conflict between the Chinese plaintiff trademark owner, and the Indonesian purchaser of the goods. The OEM factory was, therefore, declared infringing and the good were not exported.
Still, the Jiangsu court declared that "Generally speaking, it would be advisable to find the Chinese OEM manufacturer's act not constituting trademark infringement if the OEM products are all for exportation and are not intended for distribution in China."
Given the above, it can be preliminary concluded, for the time being, that if you have the trademark registration in the destination country and perform OEM business in good faith, there will be little risk of being found infringing.
This being said, the above case law is controversial, for a number of reasons. Affirming that a trademark is not used because the goods are exported can be easily challenged. Likewise, making the finding of infringement or non-infringement contingent on the good or bad faith of the exporter, or on whether the purchaser owns the trademark in the destination country, is also very arguable.
Therefore the best advice is of course to use the trademark in China, and be the first to do so before others try to register it. But if your trademark has been pre-emptively registered by another person and if there is nothing you can do about it, it seems that, for the time being, OEM business is safe.
How to make the best use of a cease & desist letter?
In China, the cease and desist letter is commonly used to warn infringers. Experience showed that you may have 50% of chance to get a reply to your cease and desist letter. The cease and desist letter usually works well with straightforward counterfeit case and against small infringers. When it comes to complicated case and big infringer, it is critical that you carefully evaluate the risk of being sued before sending out the cease and desist letter.
The recognition of non-infringement lawsuit:
The recognition of non-infringement lawsuit was first accepted in a patent case in 2002. Then Article 18 of the SPC's Judicial Interpretation on Several Issues Concerning the Hearing of Patent Infringement Cases (2010) set up the procedural requirements: 1) the right owner sends the cease and desist letter; 2) the recipient urges the right owner to file the civil lawsuit; 3) the right owner does not withdraw the cease and desist letter or does not file the civil lawsuit within a reasonable period; 4) the recipient can then file a recognition of non-infringement lawsuit.
Now, the recognition of non-infringement lawsuit extends to all IP cases, and the courts are lowering the procedural requirements: the recipient is sometimes allowed to file a lawsuit as soon as it receives the cease and desist letter.
The biggest inconvenience of being sued for non-infringement is that, you lose the control of the lawsuit: 1) you have no more choice of the jurisdiction which is very important in a lawsuit strategy; 2) you have limited time to prepare the evidences, and sometime even worse, the evidences will disappear if you did not secure them before sending the cease and desist letter.
In the Honda case (selected in the 2015 top ten IP cases by the SPC), Honda sent cease and desist letter to Shuanghuan, a Chinese car maker based in Shijiazhuang city, and its distributors, asking for immediate cease of design patent infringement. Shuanghuan filed non infringement lawsuit in Shijiazhuang in October 2003. Hongda then filed infringement lawsuit in Beijing in November 2003, claiming huge damages (RMB 3.4 billion). According to the SPC's first-file principle, Beijing High Court transferred the infringement case to Shijiazhuang Intermediate Court in 2004 for a combined trial.
In the meanwhile, Shuanghuan filed invalidation action in December 2003, and successfully cancelled Honda's patents in September 2007.
In April 2008 and then in April 2013, Shuanghuan lodged additional claims requiring Hongda to pay RMB 3.6 billion for the damages caused by the cease and desist letters.
Finally, in December 2015, the SPC decided that Hongda shall pay RMB 16 million for the damages caused to Shuanghuan.
How to use the cease and desist letter:
It is recommended to make a website notarization and/or notarized purchase before sending a cease and desist letter.
If the infringer ignores the cease and desist letter, you can arrange another round of notarization to prove the infringer's bad faith, and then file the lawsuit.
For complicated and important case, it is advisable to do the forum shopping and directly file the civil action without sending the cease and desist letter.
Administrative route or civil action?
How to make the best of China's double track enforcement system?
Unlike most of other counties, China provides, besides the civil action, an administrative route (AIC action) to solve trademark infringement. When you have trademark enforcement issues, you need to compare the pros and cons of each of the solutions provided by Chinese law, and then deploy the most appropriate strategy to crack down on the infringers.
The AIC action:
The AIC action has been known for its simplicity and cost-efficiency.
Anyone, not necessarily a licensed lawyer, can represent the right owner to file a complaint. For straightforward counterfeit case, the AIC usually cooperates with the right owner and takes actions rather quickly. The AIC seizes the counterfeits and in exceptional circumstances the transaction records. A penalty (cease of infringement plus fine) will be issued within 2-3 months and the counterfeits will be destroyed afterwards.
If an infringer is punished two times for trademark infringement in 5 consecutive years, or three times for unfair competition in 2 consecutive years, the AIC can put him into a "black list" for special supervision.
It is, however, becoming more and more difficult to push the AIC to take action unless the case is a simple and straightforward counterfeiting case. This is due to a number of legal changes and administrative decisions. As a result, the official statistics show that the number of AIC actions is declining: 66,230 in 2012, 56,870 in 2013, 42,450 in 2014, and 34,000 in 2015.
The newly revised Trademark Law (2013) contains some of these changes. It sets up a short time limit for the examination of trademarks (9 months) and for opposition procedures (12 months). It further stipulates that in case of failure in the opposition, the trademark is immediately registered (article 35.2). Finally, and this is not something new, according to an SPC's judicial interpretation on the conflict with prior rights (2008), a registered trademark cannot sue another registered trademark.
The combination of the above rules explain why it is becoming difficult to motivate the AIC: if the target explains that it just filed a trademark, the AIC prefers to wait until the end of the examination period. Even if an opposition is pending, the AIC prefers to wait and make sure that it is not going to raid a trademark that would become automatically registered if the opposition fails.
Moreover, the AIC is now reluctant to take action against the distributor. According to the new Trademark Law (article 60.2), when the distributor has evidence to prove that he obtained the infringing goods through legitimate channels and indicate the name of the supplier, the seized product shall be returned with simple prohibition to sell.
Finally, since the right owner is not legally a party to the AIC procedure and cannot officially "push" the case, the efficiency of the action largely depend on the AIC motivation. And for the reasons below the AIC's motivation is not anymore what it was:
- The central government's recent policy is to weaken the AIC's functions and powers in order to alleviate their interference on the market economy;
- The AIC is merging with other enforcement agencies (TSB, FDA, etc.) into a Market Supervision Administration. Since the focus is food and drug security, the FDA is taking the lead on both manpower and resources.
- The quota of fines is no more a factor of performance evaluation for the AIC.
- The newly revised Administrative Procedure Law (2014) requires that, in case of administrative lawsuit against an administrative agency, the person in charge of said agency shall appear in court.
Even so, the AIC action remains the most cost efficient way to deal with straightforward counterfeit case.
Moreover, it can be used as well to preserve infringing evidence or get the sales records or other information about the supplier or counterfeiting chain in a combined litigation strategy.
The civil action:
The civil action is, of course, more expensive and time consuming than the AIC action. But it is the primary choice when you have to deal with complicated cases, like copy of trade name, imitation of trade dress, use of look-alike trademark (even already registered if you can prove your trademark is well-known) etc. and if you want to obtain damages.
First, the civil action is more flexible. Unlike the AIC action in which you only rely on the ex officio investigation, you can build your civil case, from the evidence collection to the forum of the case.
Second, the judges are usually well trained and more open-minded, and have a rich experience in dealing with complicated cases. You have better chance to get comprehensive protection in a civil action.
Last but not the least, the civil action is the only legal procedure that allows you to get damages. The new Trademark Law has raised the statuary damages up to RMB 3 million. The SPC is encouraging the judges to grant punitive damages against repeat offenders. You can also use the evidence preservation and property preservation measures to increase the chance to get as much damages as possible.
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