China trade marks: Lack of divisional application and partial assignment

August 24, 2017

After the new Trademark Law came into effect on May 1 2015, the China Trademark Office (CTMO) started to accept multi-class trade mark applications. Unfortunately, voluntary divisional application and partial assignment, which are common in other multi-class trade mark jurisdictions, are not yet available in China. This deficiency may cause dilemmas from time to time in practice.

When we encounter a senior mark in a trade mark registration procedure, three commonly used ways to overcome the citation are asking for a letter of consent from the owner of the senior mark, removing the senior mark by non-use cancellation and buying the senior mark to eliminate conflict.

However, the Trademark Review and Adjudication Board (TRAB) and the courts only accept letters of consent with reservation. When the marks and goods/services are identical or very similar, letters of consent may not be accepted. Furthermore, notarisation and legalisation of a letter of consent could be costly and inconvenient.

Initiating a non-use cancellation against the senior mark may or may not be able to remove the prior obstacle, as the senior mark could be in use. Furthermore, the TRAB and the courts now tend not to wait for the final outcome of relevant non-use cancellation. Consequently, in some cases, the senior mark is finally cancelled in a non-use cancellation action, but the rejected mark has already lapsed without benefiting from the cancellation.

No requirement of assigning goodwill along with trade marks makes assignment easier in China, but if the senior mark is in use, assignment of the whole mark is not an option for most of the senior mark owners.

On the other hand, senior marks generally cover a broader scope of goods and services than what the owners really need in China. As the official fee in one class remains the same as long as the items of goods/services do not exceed 10, and China does not require use evidence or a declaration before registration like some other jurisdictions, trade mark applicants tend to file for more goods and services than what they really need when filing new trade mark applications.

As a result, not-in-use portions exist in most senior trade marks, which are not needed by their owners, but will definitely block the registration and use of latecomers. After multi-class applications became acceptable, it is conceivable that these not-in-use portions will be even bigger in multi-class trade marks. Given the lack of divisional application and partial assignment, a portion such as this can be a really hard nut to crack when the conventional ways cannot work.

The law firm Liu Shen recently cracked such a hard nut successfully. In the case Obi Pharma Inc v TRAB (2016), Obi's own trade mark was rejected by citing a senior mark. Obi initiated a non-use cancellation against the senior mark, but through investigation, Obi found the senior mark was in use, and it was difficult to convince the court to hold the case pending the outcome of non-use cancellation which is unpredictable per se.

Liu Shen was appointed to represent Obi before the litigation phase started. As the marks of the two parties are very similar, a letter of consent could not guarantee to secure Obi's registration. Furthermore, the senior mark was in use and the goods were in stock, so the owner of the senior mark had refused to assign the trade mark to Obi. During the negotiation with the owner of the senior mark, Liu Shen found that this senior mark was only used on some of its registered goods, but not used on the other goods, which are exactly the goods Obi needs to register. And luckily, these two parts of goods were not similar per local criteria.

Upon confirmation from Obi, Liu Shen persuaded the owner of the senior mark to file an application with CTMO to remove the conflicting goods which they did not need and meanwhile keep the goods they were actually producing and selling. As a consideration, Obi provided some monetary compensation and withdrew the non-use cancellation. After the partial removal of the conflicting goods was approved by the CTMO, the court ruled that Obi's mark should be registered since the prior obstacle had disappeared. This is a win-win solution for both Obi and the owner of the senior mark, wherein the former gets to register its later mark while the latter benefits from cancelling an unneeded part from its senior mark.

The key to this Obi case lies in not only the partial removal, but also thorough negotiation, suitable agreement and proper escrow beforehand. In teh absence of divisional application and partial assignment, this Obi case has provided a feasible solution when conventional ways do not work.

However, compared with the feasible solution from this Obi case, divisional application and partial assignment obviously would be safer and less time-consuming. When they become available, not-in-use portions could be easily divided from the senior marks and assigned to other parties in real need, which would foreseeably save legal resources and stimulate the market at the same time. Nevertheless, before the adoption of divisional application and partial assignment, authorities need to come up with measures to discourage over-filing, especially in bad faith.