China has recently amended both its Anti-unfair Competition Law and its Trademark Law in ways that will allow both IP owners and administrative authorities to better prevent sophisticated and aggressive forms of infringement driven in part by intense competition in China’s technology and consumer products sectors.
Better trade secrets protection under the Anti-unfair Competition Law
Preventing and punishing misappropriation of trade secrets is challenging in nearly every jurisdiction, often due to difficulties acquiring relevant evidence or bringing claims against ostensibly indirectly-connected infringers. China’s revised Anti-unfair Competition law (issued and effective April 23, 2019) attempts to address some of these issues by significantly expanding the types of parties, information and activities that can be prosecuted under the umbrella of trade secrets misappropriation, including as follows:
- Expanding the definition of trade secrets to include any “commercial information that (a) is unknown to the public, (b) has commercial value and (c) has been secured by its holder through relevant confidentiality protections”. Previously, trade secrets officially encompassed only “technical information” and “business information”, which created opportunities for infringers to argue that the allegedly misappropriated information, regardless of whether misappropriated or not, was simply not a trade secret under the law;
- Expanding the scope of parties that can be accused of trade secrets misappropriation to include all entities and individuals, not just “business operators”, which again eliminates an easy defensive loophole;
- Adding “obtaining trade secrets by electronic means” as a specific violation. Trade secrets misappropriation that happened to occur via electronic means could be enforced under the prior law, but the addition of a specific category provides a more direct cause of action relevant to today’s pervasively networked business environment;
- Adding a specific violation of “instigating, luring or helping others to violate a confidentiality obligation or a requirement by the rights holder to maintain trade secrets, so as to obtain, disclose, use or allow others to use trade secrets of the rights holder”. This is a very significant change that explicitly expands liability to include the ultimate beneficiary of the misappropriation, often a new employer, new business, or third-party purchaser of the stolen information, and is reflective of the challenges faced by businesses globally in keeping their information secure from competitors.
- Reversing the burden of proof from the plaintiff to the defendant in those situations where the plaintiff’s preliminary evidence reasonably demonstrates the existence of an infringement.
- Increasing statutory damages from 500,000 CNY (general circumstances) and 3 million CNY (serious circumstances) to 1 million CNY and 5 million CNY respectively.
Better protection against trademark squatting under the revised Trademark Law
The highlight of the recent amendment of China’s Trademark Law (issued April 23, 2019 and effective November 10, 2019) is to shift the first possible defense against trademark squatting from a trademark owner action initiated during the opposition period to a direct action by the reviewing official during the submission period.
Specifically, the new law requires trademark review officers to directly reject trademark applications where the official has good reason to believe that the application is a “malicious trademark registration application not for the purpose of use”. The exact standard for “good reason” has not been published, but is generally understood to at least include situations where the applicant has a very large number of prior or current applications, and/or appears to have a history or intent of not using the subject mark in its own or its client’s actual business, which would be a classic indicator of likely trademark hoarding or squatting.
Significantly, this is now an affirmative duty for the Trademark Office (TMO), to be undertaken for every application. This means that the TMO will need to update its review procedures in order to take account not only of technical compliance and uniqueness (as previously) but also the intent of the applicant to actually use the trademark.
This is a significant change, and we would anticipate numerous disputes and appeals both to and against the TMO before the details of how the TMO proposes to undertake such reviews become clear. Nevertheless, this change has the potential to become a very strong preemptive block against known trademark squatters, and removes the burden of search and enforcement from the legacy trademark owner to the TMO.