The term 'bad faith' is not directly defined in either the existing Trademark Law or the revised draft that was published by the Legislative Affairs Office of the State Council on September 1 2011. However, the concept has been adopted in China and has played an important role in both trademark law and practice. In the discussions surrounding the revision of the law, there have been calls to place greater emphasis on the concept of bad faith. This update analyses the measures in the revised draft that seek to address the issue.
The existing law has no specific provision on the subject of bad faith, but there are provisions on:
- protection of well-known trademarks (in Article 13);
- action against pre-emptive registration by agents (in Article 15); and
- protection of prior rights and trademarks which have been used and enjoy a certain reputation (in Article 31).
In practice, two principal articles have often been used as a legal basis for opposing bad-faith applications or cancelling registrations, although their use in this way continues to be strongly disputed.
Trademarks acquired by fraud or other unfair means
Article 41 prescribes that the registration of a trademark which was acquired by fraud or other unfair means must be cancelled. Trademark attorneys have often sought to interpret the phrase "by other unfair means" to mean 'by means of bad faith' (ie, in violation of honest principles). Although this is not the legislature's original meaning, this interpretation has sometimes been supported by the China Trademark Office and the Trademark Review and Adjudication Board. It has even been upheld by the courts in the past, although a court has not accepted such an interpretation for some time.
Trademarks with "unwholesome influences"
Article 10(8) provides that "trademarks having other unwholesome influences" may not be registered and used. It is sometimes also cited as providing a basis to oppose or cancel bad-faith applications or registrations. The Trademark Office has previously referred to this article in decisions on opposition to pre-emptive registrations. For example, a Mr Ye filed 522 applications, of which 233 were opposed, including applications to register trademarks that are identified with world-famous brands, including HERMES, DUNHILL, GUCCI, PRADA and BOSCH. The Trademark Office has cited Article 10(8) in deciding in favour of opponents. However, this article mainly refers to trademarks for which there are inherent problems in terms of registrability, rather than an issue over a potential conflict, and this legal basis is not accepted by the courts or the Trademark Review and Adjudication Board.
The revised draft reflects some important new ideas in Chinese trademark practice, but it also includes problems or deficiencies that should be addressed. The revised draft for the Trademark Law 2010 included a separate article which explicitly required good faith on the part of applicant as a condition of registration. However, this article has been deleted from the current draft. Therefore, parties that wish to act against any form of bad-faith application or registration still lack a dedicated provision as a basis, and must rely on Articles 13, 15 and 31.
The greatest improvement in this respect is in Article 34 of the revised draft. The present version states that an application for trademark registration may not harm another person's prior rights, and no pre-emptive application by unfair means may be allowed for registration if the trademark has been used by another person and has a certain reputation. The revised draft adds two options which will be beneficial to legitimate rights owners.
Pre-emptive action by a related entity
Under the terms of the revised draft, a trademark may not be registered if:
- the applied-for trademark is identical or similar to another person's trademark that has prior use in China in respect of the same or similar goods; and
- the applicant has a contract, business contacts, a geographical relationship or other relations with the prior trademark user, so that it definitely knows of the existence of the latter's trademark.
This provision could provide protection for legitimate rights owners that meet the relevant requirements. For example, a legitimate rights owner might use a trademark that has not acquired sufficient reputation; however, if the rights owner has a relationship with the pre-emptive trademark applicant or registrant as described in the provision of the revised draft, this will provide a definite basis for taking action. However, if the trademark has not been used in China, this door is closed, even if the rights owner has a close relationship with the pre-emptive applicant or registrant. Many foreign brands that have not been formally launched in China have gained a reputation outside China or globally, with some becoming popular with Chinese consumers who encounter them abroad. Moreover, information about brands spreads quickly and easily online. In these circumstances it seems more reasonable to amend the law so that no use in China is required.
Plagiarism and trademarks with reputation
An application for trademark registration will be rejected if:
- it is made in respect of dissimilar goods;
- it is an act of plagiarism of another person's registered trademark that enjoys a strong distinctive quality and a certain reputation; and
- the trademark would easily cause confusion.
This is a more flexible article than Article 13. It provides grounds for protecting a trademark that has enjoyed a certain reputation, but has not yet attained the status of a well-known trademark. However, the term 'plagiarism' is ambiguous - for example, it is unclear whether it includes identical trademarks and similar trademarks. Moreover, confusion will be difficult to prove for dissimilar goods.
Another key proposal would reform the approach to bad-faith opposition in two ways, by providing that:
- only the prior rights owner or an interested party can file an opposition; and
- if the Trademark Office approves the registration, the decision will take effect, rather than an appeal procedure being initiated and registration being delayed.
However, if an owner of a prior right files an opposition, it faces two serious risks:
- If the opponent loses the opposition procedure, the pre-emptively registered trademark will be registered immediately. As a result, the opposed trademark can be legally used and protected and the opponent will have little scope to take action against its use. In practice, even in the case of a trademark which has been opposed and has not been registered, or a trademark registration certificate which has been issued by mistake, the local authorities and even certain courts may be reluctant to take action.
- Even if the opposition is successful, the cancellation procedure at the Trademark Review and Adjudication Board may take several years. If the party that uses the opposed mark argues for the co-existence of both parties' trademarks and claims that preventing such use may cause disruption on the market, the result may not be favourable to the opponent. The courts have previously issued similar judgments under the current law. Although the opponent may ultimately succeed in having the opposed trademark cancelled, the provisions of the law make it difficult to recover losses caused by the use of the opposed trademark (which may have lasted for years).
Therefore, balancing the interests of both opponents and opposed parties, it would be more reasonable to allow an opportunity to appeal if an opposition fails.
Although the revised draft has reformed some of the measures to act against bad faith, there is still room for improvement. The progress of the revisions to the law has attracted wider interest in society and many comments and suggestions are expected to be submitted to the Legislative Affairs Office. The trademark community will continue to watch closely and hope for further favourable reforms in the next edition of the revised draft.
For further information on this topic please contact Li Bin at Wan Hui Da Law Firm & Intellectual Property Agency by telephone (+86 10 6892 1000), fax (+86 10 6894 8030) or email ([email protected]).