Some of our previous Focus Papers have touched on the territorial nature of trade mark rights and the importance of protecting your brand in each country in which you intend to trade.  The cultural, political and economic relationships between China and Australia have grown considerably over the past few decades.  In this respect, China is now arguably Australia's most significant trading partner and many brand owners are seeking to take advantage of this relationship.  China is now taking significant steps to modernise its intellectual property laws.  In particular, this includes significant changes to China's Trade Mark Law (China TML) (due to take effect from 1 May 2014).

These developments are important for clients engaged in (or intending to do) business in China, both in respect to exporting goods to the Chinese market, as well as traditional manufacturing activities undertaken in China on the part of Australian businesses for export overseas.

China TML – Key Changes

On 30 August 2013 revisions to the China TML were passed by the National People's Congress.  The new China TML represents substantial changes and amendments to the current TML and modernises a number of important aspects of this legislation.  More recently, the Legislative Affairs Office of the State Council issued a draft of the Implementing Regulations which are proposed to accompany the China TML.  These proposed Implementing Regulations were recently open for public comment in China.  Some of the key changes to the China TML are outlined below.

Trade Mark Applications

  • The current single class trade mark filing system will be modernised to allow multi-class applications (more in line with the Australian trade mark procedure).  Further, applications will now be able to be filed in electronic form.
  • The Chinese Trade Marks Office (CTMO) will now be able to seek an amendment, or clarify the content of, a new application by dealing directly with the applicant rather than issuing a formal Notice of Refusal.  The rationale here is to enable applicants to attend to minor issues concerning applications without the CTMO taking the formal step of issuing a Notice of Refusal.  However, the time frame for rectifying an application has been reduced from 30 days to 15 days, further tightening the challenging time frames faced by foreign applicants seeking registration of their marks in China.
  • The "splitting" of an application will also now be available, in circumstances where the CTMO partially rejects an application.  This appears to be similar to the divisional application procedure available in Australia and some other countries.  This has the capacity to enable an applicant to progress its mark to registration for uncontested goods or services, while retaining the option to address objections raised by the CTMO during examination of the mark in respect to the remaining goods or services.
  • Trade mark applicants will be able to seek to register sound marks.  Applications for sound marks should contain an explanation with respect to how the sound will be used and a musical notation of the mark.  The written description should accord with the sample of the mark that accompanies the application.
  • A more robust requirement will also be adopted that applications for registration and use be made in good faith.  It will be interesting to see how this is applied in circumstances for example, where an applicant files for a trade mark it is aware is already in use by another trader, or what else might constitute "bad faith".  Additionally, a trade mark agency will be unable to take instructions to file a new application if it knew (or should have known) that the trade mark being applied for is being filed in bad faith, or has infringed a third party's rights, or is being filed to attempt to usurp the rights of the rightful owner.  This is an interesting development – and if breached the trade mark agency can face administrative penalties.  Bad faith will also be a ground to oppose an application.

CTMO - Timeframes

  • The CTMO will be statutorily bound (by reason of the China TML) to limit time frames to between 9 and 12 months (usually from the filing of a specific document) for various matters that it has responsibility for, including applications, oppositions and opposition appeals, invalidation actions and cancellation actions.  This is a promising development, given that time frames under the current legislation can be significantly longer than this and often uncertain.  This change should assist trade mark applicants and owners to gain greater clarity in respect of their trade mark rights in China within these more limited and defined time frames.

Well-Known Marks

  • Well-known trade marks will be considered on a case-by-case basis and a determination that a mark is "well-known" will only be undertaken when necessary; for example in matters where an infringement claim is raised involving use of the relevant mark on goods or services that are outside the scope of the registered protection of the relevant mark.

Oppositions

  • The relevant standing of an opponent to registration of a trade mark application has been changed, whereby only the owner of a prior registration/pending application, or an interested party, will have standing to file an opposition on relative grounds, or in respect to geographical indications.  However, any person can file an opposition on the basis of the other absolute grounds (descriptiveness/non-distinctiveness of a mark among other grounds).
  • After the CTMO has issued a decision in respect of a Trade Mark Opposition hearing, only the applicant (if unsuccessful) will be able to appeal the CTMO's decision to the Trademark Trial and Appeal Board (TRAB) (not an unsuccessful opponent).  In circumstances where the CTMO dismisses the opposition, the mark will be registered and the only action available to the unsuccessful opponent will be to seek invalidation of the mark before the TRAB. It is possible, however, that the removal of the right of appeal for an opponent might be considered contrary to China's obligations under TRIPS Article 41(4) (in which case the position may change).
  • The TRAB may also, with the relevant parties consent or at its own discretion, elect to hold an oral Hearing in respect to a matter.  This rarely occurs under the current law in China.  Further, in the event that the parties negotiate a settlement of a matter while the before the TRAB, it is at the TRAB's discretion to then close the case.

Recordal of Trade  Mark Licenses on Chinese Trade Marks Register

  • Under the current Chinese law, a trade mark license needs to be recorded on the Chinese Trade Marks Register within three months of execution (to ensure it is effective against third parties).  The new China TML allows the valid recordal of a trade mark license at any time during the term of the license agreement.  The license, however, will only be formally recognised from the date of recordal on the Register, so it should, as a matter of practice, be registered promptly.

Exceptions to One Year Freeze Period

  • The CTMO will not accept a fresh application for registration of a trade mark that is substantially similar to a mark that has lapsed due to non-renewal, revocation or is the subject of a declaration of invalidity for a period of 12 months.  There are, however, certain exceptions to the "freeze rule" in circumstances where the relevant mark has been:

a)   Removed for non-use;b)   Declared invalid due to bad faith; orc)   The new applicant is the same as the owner of the expired mark.

Infringement

  • The newly defined "facilitating trade mark infringement" will also catch those assisting others to infringe.  This includes, for example, circumstances whereby an alleged infringer assists with the transport and storage (among other aspects) of infringing goods.
  • The current position has been retained whereby a seller of goods who is not aware that those goods constitute infringing goods (and can prove the goods were sourced from a legitimate supplier) does not assume a financial liability to the legitimate trade mark owner.  The seller must be able to prove its position by provision of invoices, contracts for sale or other documentation that indicates that the goods were authentic at the time of purchase.  Further, if a non-use defence is raised and the applicant cannot prove necessary use, then no damages will be payable by the suspected infringer.
  • The penalties in respect to trade mark infringement have increased significantly from CNY 500 000 to CNY 3 million (approximately AU$85,000 to AU$550,000).  There is now a concept of punitive damages.  For example, assessed damages can be tripled where it is shown that the infringer acted in "bad faith" or the court considers the relevant infringing circumstances to be sufficiently serious to warrant such a penalty.

Infringement Defences/Squatting and Prior Use

  • Unlike Australia, China has a "first to file" rather than a "first to use" trade mark system.  This can cause problems for brand owners who fail to promptly (or pre-emptively) register their brands in China – and the trade marks are secured by would be squatters.  (For example, Apple was reported as having paid such a squatter $60M to gain back control of its IPAD trade mark in China).
  • In addition to the bad faith provisions outlined above, there will also now be available the Right of Prior Use defence to infringement.  The premise being that if a brand owner has used its unregistered trade mark in China, and obtained a certain level of influence or reputation (prior to the filing date of the trade mark alleged to have been infringed) then that trade mark applicant will not be able to prevent continued use by the unregistered trade mark owner (within the scope of the prior use).  This is quite a shift in the position which has previously existed in China and will be welcomed by brand owners as a step in the right direction.
  • A Fair Use defence has also been adopted in relation to use which is determined to be honest non trade mark use – for example descriptive of generic use of a trade mark.  On the issue of generic use, the new laws also include, as a ground for cancellation of a trade mark, the fact that the trade mark has become generic.  It is therefore very important that brand owners operating in China (as in Australia) ensure that their brands are not being mis-used, particularly in a descriptive or generic sense.

Obligations of Trade Marks Agents

  • In addition to the bad faith requirements outlined above, trade mark agents will also be bound to advise their clients where relevant trade marks cannot be registered according to the China TML.
  • Trade mark agents also cannot file trade mark applications in their own name and designate goods or services other than those associated with the reasonable activities of a trade mark agent.  This should reduce arguably inappropriate actions by trade mark agents to file applications extensively on behalf of applicants, which constitutes an abuse of process.

Conclusion

The above outlines some of the significant changes under the China TML, which will take effect shortly.  There remains some uncertainty as to how the CTMO, the TRAB and Chinese Courts will apply these changes, particularly with respect to well-known trade marks and the application of damages in infringement matters. However, the majority of these changes appear promising and are genuine attempts to modernise these laws, for the benefit of trade mark users, applicants and owners in China.

Clients seeking to register and enforce their valuable trade marks in China should be aware of these changes, particularly the further tightening of deadlines for applications and opposition matters, as this can impact time frames available for attending to application and opposition matters.  Finally, as raised in early Focus Papers, if you plan to trade in China then you should be considering your trade mark protection strategy and seeking trade mark protection in China.