They say it is the Spring of IP in China. We say it is hot as summer with the speed at which laws and guidelines are being passed. Over the last six months China has built a new national level Patent Appeal Court, passed the Foreign Investment Law, amended the Technology Import and Export Regulations, and on 23 April 2019, the Standing Committee of the National People's Congress ("NPC") passed a decision to amend the Trademark Law and the Anti-Unfair Competition Law.
The amendments to the Trademark Law will become effective from 1 November 2019. We have included reference translation of the new provisions at the end of this article.
1. Bad faith application without intent to use
A new provision is added to Article 4 which provides that "Any bad faith trademark applications without intent to use shall be dismissed." Articles 33 and 44 are amended correspondingly such as Article 4 can be invoked in an opposition action before the CTMO or an invalidation action before the TRAB. Closely connected to that, bad faith trademark applicants could face administrative penalty by the authority including warnings or fines. Courts could also impose punishments if a trademark litigation is initiated in bad faith (Article 68).
Article 19 is also amended to impose an obligation on trademark agencies to censor bad faith applications. A trade mark agency should not accept instructions if it knew or ought to know that the applicant's trademark filings are in bad faith as provided under Article 4. Violation of Article 4 by trademark agencies could be subject to a warning, a fine or even criminal liability if the case reaches the criminal threshold (Article 68).
Foreign as well as domestic brand owners have long suffered from the problem of trademark squatting which flooded the register. As of the end of 2018, there are in total 180.49 million valid trademark registrations in China, and just in the year of 2018, China received 7.371 million new trademark filings. Contributing to the millions of applications are those filed by squatters and those filed by legitimate brand owner in a defensive registration plan to fend off the endless applications in nearby classes which get too close for their comfort. For example, Alibaba (baba reads as papa in Chinese) has famously filed a whole family including Ali-mama, Ali-brother, Ali-sister, or Ali-granpa. When the draft amendments were submitted to the NPC for review, the first draft of Article 4 originally read as "any trademark application without intent to use shall be dismissed." which would cut both ways of squatting activities as well as defensive filings. In fact, it might be easier for an infringer to get through the requirement than for a legitimate brand owner to submit evidence of use in related business that they do not operate in. The bad faith requirement is added later on to address this.  The real challenge now is to define what bad faith means in order to sieve the grain from the kernel correctly. Otherwise, inconsistent application of the rules would cause more harm than good.
The Beijing High Court Guideline made an attempt to characterise "bad faith". Commenting on Article 4, the Beijing High Court said an applicant with no real intent to use could be found breach of the provision if the application also falls within one of the following:
a mark which is identical or similar to trademarks belonging to multiple entities which enjoy certain level of reputation or a relatively strong distinctive features, and such circumstance is serious;
a mark which is identical or similar to trademark(s) belonging to another person which enjoys a certain level of reputation or a relatively strong distinctive feature, and such circumstance is serious;
a mark which is identical or similar to another person's commercial logo(s) other than trademark, and such circumstance is serious;
a mark which is identical or similar to the name of a well-known place, tourist attractions, architectures, and such circumstance is serious;
a mark which is one of a large number of trademark filings without justifiable reasons.
Trademark owners must note that the above grounds (1) to (2) hinge on the existence of a prior mark already registered in China. There are no standalone grounds based on overseas reputation with no prior use.
2. Statutory damages increased to RMB 5 million
Premier Li said in July 2018 that punishment against bad faith infringement must be severe enough to "let them bankrupt". Many said now is the best time to bring enforcement actions in China, as we observe a consistent increase in the amount of damages being awarded. Article 63 of the 2019 amendments further increases the maximum amount for statutory damages amount from RMB 3 million to RMB 5 million, and increases the punitive multiplier from three to five. This is often said that infringement would not stop unless the infringing costs are higher than the litigation costs. This amendment purports to reverse the costs account, and alleviates the pain of brand owners who often spent more than the infringer in bringing enforcement actions.
3. Destruction of counterfeit goods and moulding
Article 63 also adds a remedy in court proceedings to order destruction of counterfeit products, material and tools for manufacture counterfeits. It prohibits redistribution of counterfeits even after the infringing mark is removed.
Destruction of manufacture moulding is one of the most effective ways to stop repeat infringements. The actual implementation would be challenging however, as it would impose on the execution judges the challenge to identify where the tooling is and to determine whether it is "used predominantly" for the counterfeits. Infringers would of course argue otherwise, and try to cause more pain in the execution process on top of the existing issues.
There are still 6 months away for the new amendments to take effect. It is expected that amendments to the Implementation Rules of the Trademark Law will follow to provide more certainty.