How China Hopes New Amendment Will Modernize Trademark Law

On January 13, 2023, the China National Intellectual Property Administration (CNIPA) published the draft fifth amendment to the Trademark Law and some explanatory notes calling for public comments.

In these notes, CNIPA highlighted the main current problems, such as “trademark registration without use,” which is relatively common; the malicious registration of trademarks, which still exists; the protection of trademark rights, which is still difficult; the improper exercise and abuse of rights, which occurs from time to time; and the problem of profit-making through litigation, or even malicious litigation, which is becoming more and more widespread.

CNIPA analyzed the reason for these problems and discovered that trademark law has not developed with the needs of the market: the system “emphasizes registration, but not use”; the scope of the fight against malicious trademark registration is still narrow; and well-known trademarks are not being strongly protected.

CNIPA understands the problems and what causes them to happen. This article discusses three important points of the proposed amendment: (1) the obligation to use registered trademarks; (2) the prohibition of bad-faith registration and use; and the protection of well-known trademarks.

Obligation to Use Registered Trademarks

In China, the exclusive right to use a trademark is based on registration, not use. However, successive amendments to the Trademark Law have strengthened the obligation to use a trademark once it is registered.

The draft amendment adds an obligation to use the mark or undertake to use it at the application stage (Article 5) and establishes a system whereby the registrant must submit, every five years after registration, explanations of how it is doing so. If the registrant fails to explain the use without justification, the trademark is deemed to have been abandoned, and if, through random checks, it is found that the explanations are false, then the trademark is revoked (Article 61).

We analyze these two proposed changes below.

The U.S. trademark system is obviously the inspiration for China’s proposed new system. The U.S. Trademark Law Revision Act of 1988 allows for the filing of a trademark application based on intent to use while allowing a grace period of up to 36 months to honor that commitment.

Concerning the requirement to submit a statement of use every five years, which also appears to be modeled on U.S. trademark law, it is not yet known what the specific requirements would be, including the following:

• The level of detail of the statement of use;
• How the requirements will differ from the current evidentiary requirements in revocation proceedings; and
• Whether interested parties can read the file or request a random inspection from the competent authorities.

It is not yet possible to assess how much of a burden a statement of use will be for trademark owners, but it is conceivable that those that do not use their trademarks will inevitably be under greater pressure, and those that use them will bear an additional burden of proof.

If we turn our attention to European Union Trade Mark (EUTM) legislation, we find a different answer to the same question. The EUTM Regulation and Directive provide that when the holder of an earlier trademark that has been registered for more than five years, files an opposition or an invalidation action, then the defendant may request that the holder of the cited earlier trademark produce evidence of use during the five years preceding the date of application of the later trademark, and that, if the holder fails to do so, trademark authorities should reject the opposition or the application for invalidation.

Therefore, China could borrow these practices from Europe and the United States by requiring, on the one hand, that the trademark applicant undertake to use the trademark, in order to be reminded of its obligation to do so and, on the other, that where the holder of a trademark that has been registered for more than three years files an opposition or an invalidation action against a subsequent trademark, the applicant or owner of such subsequent trademark may request that evidence of use of the cited trademark be produced.

One can add that in such a system, that when the examiner refuses ex officio a new trademark application on account of a cited prior trademark, the applicant shall have the right to request in the appeal procedure that evidence of use of the cited trademark be produced. This should considerably simplify and facilitate the registration of future trademarks. Needless to say, all owners should be relieved of the obligation to file a declaration of use every five years.

We shall address the issue of defensive marks later in this article in the context of well-known marks.

Prohibition of Registration and Use of Trademarks in Bad Faith

The basic principle of China’s trademark law is that it protects registered trademarks provided that the holder respects the basic principle of honesty and good faith.

The draft amendment explicitly includes bad faith as an independent ground for the refusal of a trademark application. Article 22 provides that applicants shall not apply for trademark registration in bad faith, of which it gives these examples:

1. Disrupting the order of trademark registration by applying for large numbers of trademarks without intention to use;
2. Applying for the registration of a trademark by deceptive or other improper means;
3. Applying for the registration of a trademark which is detrimental to national, social, and public interests, or brings other serious and bad influences;
4. Violating the provisions of Articles 18 (well-known marks), 19 (agent), and 23 (infringement of prior rights) of this Law, intentionally infringing the rights or legitimate interests of others, or seeking undue advantages; and
5. Filing other malicious applications for trademark registration.

The provisions of this new article need to be analyzed one by one:

1. The inclusion of bad faith as a separate condition for refusal throughout the examination, opposition, and invalidation procedures is undoubtedly a major step forward, as well as a response to international treaties to which China is a party, such as the RCEP (Regional Comprehensive Economic Partnership), the free trade agreement (FTA) between the 10 member states of the Association of Southeast Asian Nations (ASEAN) and its five FTA partners (Australia, China, Japan, New Zealand, and the Republic of Korea).
2. The current provision, “a large number of applications without intent to use,” becomes directly equivalent to bad faith.
3. Since the violations of Articles 18, 19, and 32 are already grounds for invalidation, it would be advisable to expressly include these cases as exceptions to the five-year limit for filing an invalidation action.
4. Unlike the above provisions, this general clause, which includes all “other bad faith applications,” is not mentioned as a ground for invalidation in Article 44, which we regret. We believe that bad faith should always constitute a ground for invalidation. The European Court of Justice’s verdict in the Sky case (C-371/18) provides inspiration.

Such bad faith may, however, be established only if there is objective, relevant and consistent indicia tending to show that, when the application for a trade mark was filed, the trade mark applicant had the intention either of undermining, in a manner inconsistent with honest practices, the interests of third parties, or of obtaining, without even targeting a specific third party, an exclusive right for purposes other than those falling within the functions of a trade mark.

In addition, the draft amendment does the following:

• Specifies the amount of fines applicable to bad-faith trademark registration (Article 67);
• Provides that where a bad-faith trademark application harms the interests of the State or the public interest, or causes significant adverse effects, the authorities or the Prosecutor may file a lawsuit with the People’s Court against the trademark applicant (Article 83.2);
• Allows the registered trademark owner who has successfully opposed or obtained the invalidation of a trademark applied in bad faith, to obtain compensation via a new civil litigation if such trademark application or registration has caused harm (Article 83). In that regard, it has been suggested that such compensation, or at least a proper reimbursement of legal fees, should be awarded at the end of the administrative litigation, without having to resort to a new civil case; and
• Introduces a system of counterclaim in a case of bad-faith civil litigation (Article 84).

These provisions, which introduce existing judicial interpretations and practices into the law, aim to make bad-faith applications economically unprofitable, which will certainly have a considerable deterrent effect on potential malicious applicants.

Finally, it is worth mentioning that the draft amendment also specifies that when a trademark is invalidated, the owner of that infringing trademark is liable to pay compensation for the damage caused by the infringing acts committed after registration and before invalidation (Article 48). But unfortunately, such liability is not automatic: it only applies if the infringer acted in bad faith.

Such a condition of bad faith is controversial. Indeed, at present, under Article 47(2), the invalidation has a retroactive effect, and the trademark is deemed to have been nonexistent from the beginning. However, if the trademark had been enforced against an infringer, or had been the object of a contract, and if the judgment or the contract had been executed, the money involved would not be reimbursed, except in the case of bad faith. Adding the condition of bad faith as a condition for an infringer to be liable raises serious questions and would make it more difficult to obtain damages.

Protection of Well-Known Trademarks

The draft amendment (Article 18) adds a new third paragraph about the concept of dilution and free riding on the reputation of the well-known trademark, which reproduces the definition that the Supreme People’s Court already provided in its Interpretation of 2009. However, the draft maintains unchanged the precedent paragraph, which refers to “misleading the public and harming the interests of the right holders.” Since the Supreme Court has already explained the expression “mislead etc.,” it seems better to simply delete it as there is no need to explain it anymore.

A question remains regarding unregistered well-known trademarks. The remedy in the current law and in the draft is only an injunction prohibiting the registration and use of a confusing trademark. There is nothing about the possibility of obtaining damages, which would imply that the acts are considered infringing acts. In a famous case concerning the XINHUA dictionary (新华字典), the Beijing Intellectual Property Court ruled in favor of the plaintiff on the ground of the Tort Liability Law. The Trademark Law could also clarify this issue.

We should also note that the special protection of a well-known trademark applies not only when the conflicting trademark is used on non-similar goods but also when it is used on identical or similar goods.

However, Article 18(3) considers that a well-known mark must be well known among the “general public,” which seems too demanding and not conducive to the protection of well-known marks and is not in line with the definition of well-known marks in Article 10(1) of the draft, which refers only to the relevant public.

The concept of “relevant public” is more flexible. The European Court of Justice pointed out in the Intel case (C-252/07) that the issue can be resolved depending on the circumstances: in dilution and tarnishing cases, the mark only needs to be well known to the relevant public of the plaintiff, whereas “free riding” requires proof of reputation in the relevant public of the defendant.

Finally, what about “defensive marks”? They serve the purpose of providing protection even though they are registered in relation to goods or services for which the owner has no activity.

A number of countries used to have a system of defensive marks, but fewer and fewer still do. It is generally only applicable to a small number of types of marks or is limited to well-known marks. In fact, what the owner wants is to obtain a larger scope of protection than what the registration of its trademark provides in its field of activity.

The system of well-known trademarks should normally provide such wider protection; as Article 10(2) of the draft stipulates, the scope and strength of protection shall be proportional to the distinctiveness and reputation of well-known marks.

So, the question about defensive trademarks only arises when it is particularly difficult to obtain recognition of well-known mark status: one can view trademark defense and well-known trademark status as two sides of the same coin.

Therefore, if we insist that only used marks can be protected, then lowering the threshold of protection for well-known marks should and can solve the problem that defensive marks are supposed to.

In other words, the more of a role well-known marks can play in combating dilution and free riding, the less of a need there is for the defensive mark system, and the better the balance that will be maintained between registration and the use of marks, thereby smoothing out the relationship between registration and the use of marks and achieving the ideal state of “those marks that are registered are used, and those marks that are used are registered.”

Wanhuida is a long-time leader in the IP industry. It has 10 offices covering major IP hubs throughout China and serves clients worldwide across a broad spectrum of industries. Wanhuida is an INTA Strategic Sponsor.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest.

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