Since the promulgation of 2019 amendments to the PRC Trademark Law, China has made groundbreaking strides in the ensuing two years to curb bad faith piracy at both the administrative and judicial levels. The last few years have seen a number of encouraging developments for brand owners dealing with registry piracy in China. For instance, the China Trademark Office (“TMO”) is now actively rejecting thousands of pirate applications and publishing some of its decisions online. In November 2020, the China National Intellectual Property Administration (“CNIPA”) reported having commenced a campaign targeting online adverts for the sale of trademark registrations, leading to the deletion of adverts for over 1.6 million marks held by 2,500 warehousers. Even more encouragingly, the first quarter of 2021 has witnessed several meaningful developments that continue to bolster brand owners’ arsenal in the fight against bad faith piracy, and which indicate that China may finally be getting serious about this perennial problem. 

This article discusses some of these latest developments in China’s judicial and administrative spheres and recommends additional best practices brand owners should observe to help navigate the changing climate for “bad faith” trademark filings.

CNIPA Campaign Against Bad Faith Registration

To more effectively implement the provisions of the 2019 PRC Trademark Law and the related implementing regulations, on March 15, 2021, the CNIPA announced an Action Plan for Combatting Bad Faith Trademark Registration (“Action Plan”). 

The Action Plan is effectively a nine-month campaign designed to identify and penalize bad faith filers and trademark agencies with the aim of creating deterrence against a range of behaviors and bringing the problem to heel, both under the provisions of the Trademark Law as well as under China’s “social credit” penalty system.[1] (See SIPS article: The PRC Social System and IP Protection).

Targeted Behaviour

The new campaign targets a wide range of behaviors by pirates, including malicious filing of trademark applications, seeking improper benefits, disrupting the order of trademark registration management, as well as causing greater adverse social impact.  

In addition to bad faith registration of various types of marks that are against the public interest, such as the names of major public security events, catastrophes, key competitions, and importantly for brand owners, the Action Plan explicitly focuses on the following aspects that are of particular relevance to brand owners: 

  • “Bad faith registration of third-party trademarks or other commercial markings that have a relatively high reputation or have strong distinctiveness, damaging the prior rights and interests of others”; and
  • “Bad faith registration of the names of public figures, well-known works or character names with a high reputation[2]”.

New Measures Against Bad Faith Filings

The Plan also sets out several mission measures that are intended to help eliminate or at least reduce the targeted behaviors. Most notably, the Action Plan calls for “precision strikes” around the entire process of trademark registration, including a number of new measures that will be deployed against bad faith marks. Among these are the following:

  • Adoption of a “rapid rejection mechanism” for applications identified as having been filed in bad faith (e.g., fast-tracking decisions against bad faith filings, oppositions or invalidations);
  • Consolidation of bad faith cases connected to each other;
  • Crackdown on bad faith registrations where no intent to use can be discerned;
  • Disallowance of transfer of bad faith filings for profit; and 
  • Imposition of “social credit” penalties against bad faith actors, including through insertion of their names into the national public credit database.

Implementation Timetable for Action Plan

The Action Plan will be carried out in three phases. Phase I – which had already concluded by end of March – essentially provided time for Chinese trademark authorities across the country and hierarchy to mobilize and deploy the Action Plan. 

The current stage – Phase II – is expected to run through this October and requires, among others, that the Trademark Office and local trademark examination and cooperation centers actively seeking out indications of bad faith filings during the trademark registration process. For trademarks already undergoing opposition and invalidation proceedings, the TMO is slated to review and select a batch of “typical” trademarks for invalidation. 

The final phase should take place in the last two months of 2021 and conclude with analysis of results from the Plan’s implementation. Ideally, authorities take practical and aggressive action throughout the Campaign and transparently report on those results, eventually implementing systemic changes that build upon the Campaign’s successes, failures and lessons learned. 

Rejections of Assignments for Bad Faith Marks?

The TMO’s new policy on the possible rejection of assignment applications for marks applied for in bad faith discussed above is positive. Nevertheless, it carries with it issues of real concern for victimized brand owners that have been able to successfully purchase a trademark back from a pirate.

In China, assignments of trademarks are not effective until they have been reviewed and approved by the TMO. In the past, this has not been a serious issue, where the assignment approval process primarily only involved checking the parties’ signatures and seals, and confirmation that all similar marks owned by the registrant have been transferred together. Although the TMO has always had the authority to reject assignment applications deemed to cause “adverse effects” under Article 42 of the Trademark Law, such rejections were exceedingly rare.

In the wake of the current CNIPA crackdown against pirate trademark filings, however, the TMO has now begun issuing examination notices threatening refusal of applications to assign marks suspected of having been initially applied for in bad faith. The TMO has cited that “other adverse effects” language from Article 42 in support of these rejections. To illustrate, in one recent case, the TMO issued an examination notice to an assignor and assignee in respect of their application for assignment, stating the following:

“After investigation, [it has been determined that] the assignor has applied for and registered a large number of trademarks, and it has assigned a large number of trademarks to various assignees.

The assignor is suspected of hoarding trademarks for profit, which has adverse effects. As such, please provide evidence of use or intent to use the trademark being assigned.

If there are no valid reasons for failing to provide evidence or if the evidence provided is invalid, this Office will rule that the aforementioned assignment application is an assignment having other adverse effects, as provided under paragraph 3 of Article 42 of the Trademark Law.”

In cases where such examination notices have been issued, the assignor and assignee are required to provide evidence of use or intent to use within 30 days after receiving the TMO’s notice. If this is a classic “bad faith” warehouser situation, it seems most unlikely that the assignor would be able to provide evidence of an intent to use sufficient to overcome the TMO’s objection.

Implications for Brand Owners

Positively, broad application of this new policy could significantly deter future warehousers from pirating marks. Unfortunately, it could also work against victimized brand owners who, with a bona fide intent, have purchased a pirated mark from a known pirate in hope of avoiding expensive and time-consuming opposition or invalidation procedures. If this new policy is applied strictly, any of a “bad faith” filer’s trademarks – even ones assigned to their lawful owner – could be permanently vulnerable to invalidation due to their original applicant’s lack of intent to use at the time of filing.

Regrettably, neither the Action Plan nor the TMO’s latest policies provide guidance on just how the TMO or the Trademark Review and Adjudication Division (TRAD, the body that hears invalidation cases) will deal with cases where the assignee of such pirated marks is the rightful owner. This is because the real scope of the TMO’s inquiry is directed towards the warehouser and its actions, not the assignee/victim brand owner.

Given the uncertainty created by this policy, and before purchasing any pirated trademarks (or where any such marks have already been purchased) brand owners should consider the following steps:

  • Conduct due diligence against the assignor – if assignor’s background bears all the hallmarks of being a dyed-in-the-wool trademark pirate, e.g., they have filed for a huge number of trademarks, the mark being assigned has never been used, the risks of an assignment being rejected must be accounted for.
  • File back-up trademark applications – in case the risk of rejection for the assignment application is heightened due to the registrant’s background, buyers should strongly consider also filing their own applications for the mark, too, rather than relying entirely on the assignment of the pirated mark.
  • Clarify consequences of rejection in assignment agreements – any assignment agreement with a bad-faith filer should clarify that if the TMO rejects the assignment application, the purchase price will be reduced and the pirate will agree to voluntarily de-register the mark in lieu of assignment. Alternatively, payment could be made in stages, with the final instalment payable only after the TMO has approved the transfer.
  • Seek other cooperation from pirate – consideration should also be given to requiring the pirate to provide contractual assurances that it will cooperate with any office actions initiated by the TMO, including provision of evidence of use (if any) and allowing the assignee’s trademark agent to respond to the TMO’s request to clarify the rightful owner’s involvement in the assignment process.

The BRITA Case: The Door Cracks Open for Civil Damages Claims Based Purely on Bad Faith Trademark Filings

Clearly, the once fuzzy lines surrounding “bad faith” in trademark filings in China have come more clearly into focus over the last few years, particularly at the TMO and TRAD. Nevertheless, Chinese courts have mostly remained unwilling to acknowledge the real and practical impacts of bad faith trademark filings on victimized brand owners, particularly the monetary impact. Instead, courts have almost universally held that filing of pirated trademarks does not qualify as a “civil act” by the pirate. As a result, the sole means of resolving any issues surrounding such trademarks can only be resolved through trademark opposition and invalidation procedures. Such actions can take years to resolve, and involve significant costs, costs that victimized brand owners have always had to bear and for which reimbursement was simply not a viable option.

That said, a recent decision by a district court in Shanghai awarding compensation to a victimized brand owner on the basis of China’s Anti-Unfair Competition Law (AUCL) offers a hint that the door to obtaining civil relief – including compensation for damages – may be starting to crack open for brand owners willing to try their luck with the judicial system.

BRITA Case Background

The decision, issued in October 2020 by the Shanghai Minhang District Court and now final following the pirate’s failure to appeal, involved the German company Brita Gmbh (“Brita”), owner of the BRITA marks used in connection with its well-known water filters. Brita first registered its “BRITA” trademark in China in 1993. BRITA-branded water filters formally entered the Chinese market in 2008. Following years of advertising, sales and media coverage, the plaintiff’s brand became widely known to the relevant public in China.

The defendant was local company Kangdian Co. Ltd. (Kangdian). Beginning as early as 2011, the defendant began selling counterfeit water filters through its Alibaba store, which used the trade name BRITA. The defendant similarly opened a WeChat media account, but with plaintiff’s trademarks contained within its formal account names “britachina” and “EuBrita” and in their profile photo. During the same time period, the defendant also filed 21 pirate applications targeting the BRITA trademark – all of which were eventually successfully opposed or invalidated by Brita. The defendant unsuccessfully appealed one such invalidation to the Beijing IP Court and then, the Beijing Higher People’s Court. In parallel, the defendant aggressively filed its own oppositions and invalidations against Brita’s trademark applications and registrations. Notably, however, the defendant did not have a record of pirating other famous brands.

In 2017, the plaintiff filed a civil action with the Shanghai district court, seeking relief on the basis of trademark infringement and unfair competition. As part of its claims, Brita sought compensation for economic losses directly resulting from the defendant’s bad faith filings.  This included a claim for reasonable enforcement costs, including legal fees and the cost of notarizations, library searches and court filing fees. The plaintiff also demanded a public apology from the defendant published in China’s Intellectual Property Magazine.

BRITA Court’s Decision

The Shanghai court found the defendant unlawfully engaged in the production, advertising and sale of infringing water filters using the “BRITA” trademark in various formats, awarding Brita statutory damages of RMB2.3 million (~US$350,000) plus RMB500,000 (~US$80,000) for legal and other expenses incurred in bringing the case. Most remarkably, the court also expressly held that the defendant’s malicious filing of applications for the plaintiff’s trademark and its interference with the plaintiff’s just use of its own mark through offensive trademark procedures itself constituted a form of unfair competition. 

Even though the plaintiff’s trademark rights had ultimately been protected, the court found that the plaintiff’s normal business operations had been severely disrupted and adversely affected as a result of the defendant’s history of bad faith filings and abuse of trademark prosecution procedures. This included the pirate’s appealing an invalidation decision to the Beijing Higher People’s Court as well as its initiation of a number of opposition and invalidation actions against the plaintiff’s own trademarks. 

In the decision, the court did not dispute that corporate entities have a legal right to file trademark registration applications, oppose / request the invalidation of registered trademarks belonging to third parties, etc. However, the court also noted that commercial entities must exercise their rights legally and must not use ostensibly legal means in order to achieve substantively illegal ends.

The court therefore held that the defendant’s actions against plaintiff’s marks were designed to and did interfere with the plaintiff’s exercise of its trademark rights and to undermine its competitive advantage. These actions were therefore deemed a type of unfair competition. 

Although the AUCL does not explicitly address the abuse of administrative and judicial procedures, the court was comfortable finding that this activity was prohibited by the general provisions set out under Article 2 of the AUCL, which require commercial entities to abide by the principles of honesty and business morality.

Measure and Method of Damages Assessment by the BRITA Court

Notably, the court’s holding included explicit language indicating that a portion of the damages awarded were expressly in respect of the defendant’s aggressive strategy of both filing for marks containing “BRITA” as well as its filing oppositions and invalidations against the plaintiff’s marks. The court also referred to four other factors when calculating the economic loss of the plaintiff, including: (1) the defendant’s bad faith and recidivism, including its reopening of a WeChat account after it had been closed; (2) the high degree of reputation of the plaintiff’s mark; (3) the duration and scope of the infringing behavior; and (4) economic losses caused by the defendant’s bad faith filings. 

Implications of the BRITA Decision

Under China’s Civil Law system, decisions by the courts – particularly those at the regional level – are not binding on other courts, even within the same district. That said, this decision will hopefully encourage courts throughout China to recognize the clear economic and commercial damage done by registry pirates and to hold them accountable under the AUCL.  If more broadly accepted, this decision could act as a significant deterrent to bad faith trademark pirates, particularly those aggressively targeting individual brand owners via dozens of pirate trademark applications and attacks against the brand owners’ portfolio of rights. 

The full impact of this decision could be amplified by the Supreme People’s Court’s February 2021Interpretations on the Application of Punitive Damages in Adjudicating Civil Intellectual Property Rights Infringement Cases (最高人民法院关于审理侵害知识产权民事案件适用惩罚性赔偿的解释) (“SPC Interpretation”), which clarifies the conditions under which courts may impose punitive damages in all major IP legislation in China, including the AUCL and the Trademark Law. In that regard, in cases of “bad faith infringement and where the circumstances are deemed “serious, Article 63 now allows Chinese courts to award punitive damages up to five times (increased from three times under the earlier law) the number of damages determined by one of the prescribed calculation methods: actual loss, profits or royalties.

The interpretation also confirms that enforcement-related expenses (such as legal fees, notarial charges for sample purchases and other investigation costs) are to be awarded separately from punitive damages and may not be the subject of multiplication.

Conclusion

China has made considerable strides in the last 3-4 years in providing brand owners with stronger tools to combat bad faith trademark filers. Hopefully, the CNIPA’s focused “bad faith” campaign and the exciting BRITA decision point towards further positive changes to come in the next 3-4 years. In any event, with the landscape shifting so rapidly, brand owners victimized by bad faith warehousers will need to pay close attention to developments in this space, both to maximise their odds of success against such pirates, as well as to avoid potential pitfalls arising from the CNIPA’s broad application of these new measures.