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Implementation of the revised Trademark Law of 2014

Four years later, Anna Mae Koo and Ann Xu of Vivien Chan & Co evaluate the revised Trademark Law of 2014, analysing its treatment of trade mark squatters

The overriding objective of the revised Trademark Law of 2014 (the Law) is to streamline procedures associated with obtaining trade mark rights, enhance protection for rightful owners and alleviate problems caused by trade mark squatters. Since the revision, detailed regulations, judicial interpretations and examination standards have been implemented to further such objectives. In this article, we highlight the trends in the application of law and practices associated with the key changes.

Bad faith and the latest trend in cases

Trade mark squatting has long been a major concern for foreign companies who wish to enter the Chinese market. The Chinese first-to-file trade mark system grants protection to those who file first in China, and no proof of use is required to register. Trade mark squatters or bad faith filers register up-and-coming brands in China anticipating their entry into China, with the intention of profiting from selling the marks back to the international brand owner, or riding on the reputation of the international brand to advertise their own products or services.

International brand owners who do not already have a trade mark registration in China in respect of the goods or services to which the dispute relates will have to resort to Article 32 of the Law (Article 31 of the 2001 Trademark Law) to oppose or invalidate trade marks filed by trade mark squatters. Under this article, the opponent has to provide evidence that its mark has attained a certain degree of fame in China, which is a significant hurdle, especially for brands that do not yet have a strong presence in China.

The revised Trademark Law, however, also introduces alternative routes for brand owners to fight against trade mark squatting, especially in the most common circumstance where a trade mark is pre-emptively filed.

Mixed application of the good faith principle

The general principle of good faith was first introduced in Article 7 of the Law and states: "The application for trade mark registration and the use of trade marks should follow the principle of honesty and credibility."

Nearly four years after its implementation, we can see that administrative authorities consider this article as an overarching principle and are reluctant to rely on it alone to reject or invalidate a trade mark.

Occasionally, however, the authorities have taken a more flexible approach, taking into account different factors to find a violation of the principle of honesty and credibility.

For example, in the Chinese Trademark Office (CTMO) Opposition Decision No 0000012861 (2016), we were able to persuade the CTMO to reject registration of the markon the basis that the applicant applied for registration of many marks which were all identical or similar to others' registered marks and was therefore acting in bad faith and in breach of the general principle in Article 7.

In the CTMO Opposition Decision No 0000001877 (2017), we were again successful in persuading the CTMO to reject registration of the mark AMWAY & device based on Article 7, taking into account the fame of the opponent's mark in China, the high level of similarity between the mark in dispute and the opponent's mark, the close connection between the designated goods/services and the fact that there was no reasonable explanation from the applicant on why it adopted the mark.

However, more often, the notion of bad faith is used as a factor in support of other specific provisions, especially on the ground of "deceptive or other improper means" under Article 44(1), and in finding similar marks on similar goods/services under Article 30.

Use of Article 44(1) against large volume squatters

Article 44(1) of the Law provides that any trade mark that has been registered through deceptive or other improper means may be invalidated. Although this article was already in the 2001 Trademark Law, prior to the revision, it was considered to be applicable only to invalidate registered marks, but not as a ground to oppose trade mark applications.

However, after the implementation of the Law, we see increasing reliance on this article to reject or invalidate trade marks where the applicant has copied many famous trade marks of others. In practice, the CTMO, the Trademark Review and Adjudication Board (TRAB) and the courts occasionally use Article 44(1) in combination with Article 7.

Where a trade mark application is subject to a preliminary refusal due to a prior similar mark, the most common tactic for the applicant is to file non-use cancellation, opposition or invalidation against the prior mark

In the TRAB Decision No 0000055952 (2017), we successfully obtained a ruling that the fact that the registrant applied for over 300 marks identical or similar to other distinctive or well-known trade marks led to the finding that the registrant intended to copy others' well-known trade marks through improper means pursuant to Article 44 of the Law, and that such improper trade mark registration would disrupt the normal order of trade mark registration and fair competition and is therefore in breach of the principle of good faith.

The CTMO rarely adjudicates cases together. Each case is generally adjudicated on its own merits. However, the CTMO unified the adjudication of cases against Guangzhou 4399 Information Technology Co Ltd, who applied for more than 9000 trade marks, among which 210 applications were challenged by different right owners. The CTMO adjudicated 39 opposition cases together and rejected all applications on the basis that the massive trade mark squatting by the applicant was an act of bad faith.

Foreign brand owners may be comforted by this trend as many trade mark squatting activities are operated by professional entities holding hundreds of trade marks. However, more recently, more sophisticated squatters have registered a number of companies to hold trade marks, thereby lowering the total number of trade marks held by each company. Brand owners may need to prove that the applicant is related to well-known squatters, which may be difficult as the syndicate may use different individuals (mostly relatives or friends) to act as directors of the trade mark holding companies.

Prior dealings

The Law also expanded the circumstances where the authorities may reject or invalidate a trade mark for the reason that it was squatted by a party related to or who has had prior dealings with the rightful owner.

Article 15(1) of the Law provides that a trade mark which is squatted by its agent without the rightful owner's authorisation will be refused. Agent is further defined in Regulation 15 of the 2017 Supreme People's Court's Interpretation on Issues Relating to Administrative Trademark Litigation Involving the Grant and Determination of Trademark Rights (the SPC Interpretation) to include trade mark agent or representative, sales agent or distributor and persons having a family relationship with the mentioned agent or representative.

Article 15(2) of the Law expanded this principal-agent relationship, so that any attempt to register a mark by a party who (a) has a contractual relationship, business relationship or other relationship with the trade mark owner and (b) should have known the mark of the trade mark owner in registering an identical or similar mark, will be refused. "Contractual or business relationship" includes a wide range of activities. According to Part 11.3 of the Examination Standards issued by the TRAB in 2016 (Standards), the relationship encompasses sale and purchase, a contract for manufacture, a franchise (trade mark licence), investors, sponsors or co-organisers in a joint event, business visits or negotiations, advertising agencies, other commercial dealings and family relationships. Further, pursuant to Regulation 16 of the SPC Interpretation, "other relationships" include family kinship, employment relationships and geographical proximity of business addresses.

The above would include circumstances where the parties are in negotiation for a principal-agency relationship or commercial relationship but have not established a legal relationship.

Part 11.3 of the standards has further given examples of evidence required to prove the existence of such a special relationship for example, contracts; letters, transaction documents and procurement information which may show an agreement or business dealing; corporate payroll, labour contracts, social insurance, medical insurance materials or household registration certificates.

In practice, in the common scenario where a former shareholder or director of the original equipment manufacturer/distributor sets up a new shadow company in Hong Kong and registers the brand owner's trade mark in China, rightful owners may be able to convince the court via a detailed chain of evidence. An example of a complete chain of evidence to show a prior relationship would include: (1) distribution contract between the original equipment manufacturer/distributor and brand owner; (2) employment contract or other documents between the current trade mark applicant and the manufacturer; (3) documents showing communication between brand owner and current trade mark applicant to demonstrate knowledge of the brand on the part of the applicant; (4) when the trade mark applicant is a company, evidence showing the relationship between the former shareholder/director of the original equipment manufacturer/distributor and the current applicant.

While the above provisions have expanded the legal scope of protection to the rightful owners, it remains difficult to obtain evidence to show that the applicant of the trade mark is a family member of the person who has been in contact with the rightful owner. Personal information such as marriage certificates and personal identification cards showing a family relationship are very difficult to obtain.

Creative use of Article 10(1)(7) against marks obviously benefiting from other parties' fame

Article 10(1)(7) of the revised Trademark Law prohibits the use of deceptive marks which would mislead the public as to its features including the place of origin. It was originally meant as an absolute ground for all refusals, preventing marks that contain misleading or deceptive elements. In practice, the authorities have in many opposition decisions extended Article 10(1)(7) to circumstances where the opposed mark is found misleading in connection to the trade origin.

For instance, in the CTMO Opposition Decision No 0000011239 (2016), we successfully persuaded the CTMO to reject registration of(ELAN ENGLISH EDUCATION TO HARVARD and design) in Class 41 on the basis that the word Harvard in the opposed mark was likely to mislead the consumers into believing that the applicant was related to Harvard University which is well-known in the education field. It is therefore misleading as to the trade origin.

Similarly, in the CTMO Opposition Decision No 0000040841 (2016), we obtained a successful CTMO recognition of the reputation of Alticor's marks including 安利 (Amway in Chinese) and 安利Amway among consumers in China. It therefore rejected the registration of the same mark 安利 by an applicant in Class 35 (drug retail or wholesale) as consumers were likely to be misled into believing that the services provided by the applicant with the mark were provided by Alticor or related to Alticor in some other way.

This article is useful for brand owners with a strong reputation, helping them to combat other business entities trying to benefit from their fame by using similar marks in related industries, yet with a mark that does not fall squarely within the similarity framework for both the mark and the goods and/or services, or the strict requirements of other articles.

Combating trade mark squatting: a prime initiative of the CTMO

Aside from the above application of law, the CTMO has emphasised combating trade mark squatting as its prime objective in various events, including putting forward the following measures.

The CTMO has actively rejected trade mark applications at substantive review stage when they are obvious bad faith filings. For example, the CTMO rejected an application where the applicant had applied for over 200 marks which were similar to well-known marks used on the same or similar goods or services including, and, ruling that the applicant intended to benefit from others' reputation and was in breach of the principle of good faith.

The CTMO is considering the development of a database for suspected bad faith trade mark applicants, and referring to such a database in their official examination.

Examination timelines prescribed by the new law

General timeline

The Law has prescribed in detail the statutory time limits for the CTMO and TRAB to deliver decisions. The CTMO must complete preliminary examination of new applications in nine months, non-use cancellation cases in nine to 12 months and opposition cases in 12-18 months. The TRAB must issue review on refusal of application and non-use cancellation review in nine to 12 months, and opposition review and invalidation decisions in 12-18 months.

In practice, the CTMO and TRAB have met such timeframes, and most recently have returned decisions even earlier than the prescribed deadlines. The CTMO and TRAB are still continuing their efforts to shorten the timeframe for trade mark prosecution. In December 2017, the CTMO announced its new goal to cut down the trade mark examination period to six months and refusal review period to seven months by the end of 2018.

Suspension in review cases

The above statutory timeline is, however, also affecting the suspension practice of the TRAB. Where a trade mark application is subject to a preliminary refusal due to a prior similar mark, the most common tactic for the applicant is to file non-use cancellation, opposition or invalidation against the prior mark.

As such, it is a common practice to file a review against the refusal at the TRAB, and at the same time apply for a suspension on the examination of the review pending the outcome of any invalidation or non-use cancellation procedure regarding the cited mark. However, whether to grant the suspension is solely at the discretion of the examiner. As the TRAB is under pressure to complete the review process in nine to 12 months, the TRAB is reluctant to grant such suspensions. Currently, if the actions against the cited marks are initiated only when the applicant is officially informed of the citation in the Notification of Refusal issued by the CTMO, the suspension request will not be accepted.

The TRAB would usually only suspend the review process if the non-use cancellation procedure against the cited mark is filed at the same time or shortly after the trade mark application and if the non-use cancellation procedure is expected to be concluded within half a year. Applicants are advised to conduct a pre-filing search and take action against potential cited marks before filing.

TRAB to issue all decisions online

The TRAB launched an online database in December 2017 making all its decisions public and immediately available online, except for those concerning trade secrets, personal privacy or other inappropriate elements.

This is a watershed moment for Chinese trade mark practice, as the use of precedents will likely become more prevalent and important. It is expected that decisions will be published on the site within 20 working days of being issued to the relevant parties.

Although China is yet to adopt a binding precedent system and each TRAB review case is decided on its specific facts, such a database may allow parties to refer to the evidence or arguments made by the counterparty in previous cases. It is yet to be seen how the court considers inconsistent evidence, self-admission or different positions adopted by a party in different cases. Nevertheless, such a system may ensure the authorities act more consistently in arriving at decisions.

The law continues to evolve with practice four years later. The first four years have brought many improvements and we expect there to be many more changes with practice, as the authorities move towards a higher degree of transparency when it comes to decisions.

Anna Mae Koo
Anna Mae Koo is a partner at Vivien Chan & Co, where she practises non-contentious, contentious and transactional intellectual property law. She advises on all areas of intellectual property, including licensing, franchising, due diligence, prosecution and unfair competition law in China and Hong Kong.

Ms Koo is a Techstars mentor and is involved in the litigation committee of the International Bar Association and the internet committee of the International Trademark Association. She is consistently named as a Rising Star in intellectual property in Asialaw Leading Lawyers. She was a Prince Philip scholar at the University of Cambridge, where she graduated with an MA in law.

Ann Xu
Ann Xu is a trade mark attorney at Vivien Chan & Co with more than 20 years’ experience in intellectual property cases in mainland China. She has trade mark, copyright and designs expertise. She regularly advises on prosecution and portfolio management.

Ann is consistently nominated as an International Who’s Who Trademark Lawyer.

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