Background
Changing judicial practice
Changes in draft third amendment
Comment
The Trademark Law 2001 does not require commercial use of a registered trademark by the registrant (or use controlled by the registrant, such as licensed use) as a condition of asserting a trademark right against unauthorised use. However, case law and judicial opinions are placing an ever-greater onus on trademark registrants to prove actual use of their own trademark, either in order to prove 'actual confusion' under the law or as a prerequisite for damages claims. This trend has culminated in the draft third amendment of the Trademark Law.
Article 52 of China's Trademark Law provides that:
"A person infringes the exclusive right to use a registered trademark if he:...
(1) uses a trademark that is identical with or similar to a registered trademark in relation to identical or similar goods without consent of the owner of the registered trademark."
The law does not require the trademark registrant to have used the trademark. Numerous court decisions have rejected defences based on claims that the registrant had not used the trademark in question. In a civil lawsuit against CCTV's unauthorised use of trademark GLAD MEETING DURING THE WEEKEND, which had been registered by the plaintiff, the Beijing Number 1 Intermediate Court held that "the plaintiff admitted that it has never used the trademark, but this admission cannot be used as valid defense of non-infringement by the defendant".(1)
In a civil lawsuit involving the trademark SU FEI YA, the Court of Shanghai Pudong New District held that non-use of a registered trademark is a valid basis for revocation in administrative actions, but not a valid defence in a civil suit.(2)
Changing judicial practice
However, some courts have reached a different conclusion, finding no infringement on the part of the defendant if the trademark registrant has never used its trademark. In such cases the court has held that there can be no confusion with the plaintiff's goods or services if the plaintiff has not used the trademark. In Red River, a notable case retried by the Supreme Court in 2008,(3) the court vacated the first and second instance decisions and held that as the plaintiff had not used its registered trademark RED RIVER on beer, the trademark had not functioned to distinguish the plaintiff's goods from those of others; therefore, consumers would not associate the defendant's Red River Red Beer with the plaintiff. However, the court found the defendant's use of "Red River Beer" in advertising to be infringing. The court reduced the claimed damages from Rmb10 million to just Rmb20,000.
Red River was cited as a precedent in the Supreme Court's 2009 Annual Report on IP rights. The court further clarified the policy in Judicial Opinion 2009/23. Article 7 of the opinion provides that:
"If a trademark registrant seeks protection while his trademark has not been put into commercial use, in determining civil liabilities one may use 'ordering to stop infringement' as the main way of bearing liabilities; in determining compensation liabilities one may take into consideration the fact of non-use. Besides reasonable expenses for protecting a trademark right, one should not usually base compensation on the infringer's profits if the plaintiff suffers no actual loss or other detriment. If the trademark registrant or assignee has no intention of using the trademark, but is using the registered trademark as a tool to seek compensation, he may not be compensated; if the registered trademark has constituted non-use of three successive years as provided by the Trademark Law, a claim for damages may not be upheld."
Part of the rationale behind this article is that before 2009 a number of bad-faith litigants took legal action against large companies, alleging infringement on the basis of their registered or assigned trademarks and seeking large sums in damages, despite never having used the trademarks in question in China. The plaintiffs invariably claimed damages based on the profits of the alleged infringers. The court issued its judicial opinion in order to deter such bad-faith actions.
Changes in draft third amendment
Article 67 of the draft third amendment of the law incorporates the above judicial opinions, and goes further in requesting the plaintiff to provide evidence of use of its trademark:
"The amount of compensation for infringing the right to exclusive use of a trademark shall be determined in accordance with the actual losses suffered by the right holder as a result of the infringement, and where it is difficult to determine the amount of the actual losses, the amount of compensation shall be determined in accordance with the proceeds obtained from the infringement by the infringing party. The amount of compensation shall also include the reasonable expenses paid by the [right holder] to stop the infringing acts.
In claiming damages, the owner of a registered trademark shall provide evidence to prove the use of the registered trademark in the prior three years and other related evidence."
The draft amendment diverges from existing law in making the trademark registrant's loss the first factor to consider. The logic behind this telling change is as follows:
- If the trademark registrant has not used the trademark, the unauthorised use of the trademark by a third party will not cause confusion among the relative public.
- Since there is no confusion, the trademark registrant has suffered no losses.
- As no loss has been suffered, no compensation is due.
The draft of Article 67(4) goes further by requiring that in order to claim damages, a trademark registrant must provide evidence of its own use of the trademark in the preceding three years. If it fails to do so, the court may order the defendant to cease infringement, but may not award damages. If the trademark was registered more than three years previously, with no use in the interim, the plaintiff exposes itself to the risk of revocation, if the defendant chooses to file such an application with the Trademark Office.
Foreign companies should review their trademark use and protection strategies in China in light of this change. In the past years foreign companies have registered numerous trademarks with the Trademark Office, but many of them have not been used in China. Rather, such registrations have been purely defensive, like patent registration. Foreign companies that register trademarks are often either laying plans to tap into the Chinese market in future or aiming to stop the outflow of fake goods into the international market. China has become the world's factory and may soon become its largest exporter. The counterfeits among its exports pose a serious threat to IP rights holders. With a registered trademark, a foreign company can take legal action to stop unauthorised use by means of administrative raids, interceptions by Customs or lawsuits, and may even collect handsome damages. So far, this strategy has worked relatively well. However, changing judicial practice and the imminent amendment of China's trademark law mean that foreign companies must give more thought to serious commercial use of their trademarks registered in China, both to maintain the validity of their registrations and to provide solid grounds before taking actions against unauthorised use by third parties.
For further information on this topic please contact Zhang Shuhua at Wan Hui Da Law Firm & Intellectual Property Agency by telephone (+86 10 6892 1000), fax (+86 10 6894 8030) or email ([email protected]).
Endnotes
(1) Civil Court decision, Yi Zhong Min Chu Zi 1747, 2007.