The Chinese Intellectual Property Office has recently published a draft amendment to the Chinese Trademark Law. The draft aims to address the issues of malicious trademark filings and trademark squatting practices. If adopted in its current version and without further modifications, this amendment would considerably impact many aspects of trademark law and practice in China.

In January 2023, China’s National Intellectual Property Administration (CNIPA) released the Draft Amendment to the Trademark Law of the People’s Republic of China (Draft for Comment). The Draft expands the Trademark Law to 10 chapters and 101 articles. Among them, 23 new articles were added, 6 new articles were split from existing articles, 45 articles were substantially revised, and 27 existing articles were maintained. The primary focus of the amendments are the continuous efforts to reduce malicious registrations of trademarks. Amongst everything, the new Draft introduces a system to force the transfer of maliciously squatted trademarks.

Malicious trademark filings

Many companies tend to delay registering their trademark or file for a trademark only in their home country but not in other countries where they might expand their business someday. When they eventually file their application, they might find out that somebody has already done it. This practice is known as domain or trademark squatting, when a company intentionally registers a trademark or domain including a trademark of another company, to take advantage of its reputation or sell later for a profit. Trademark squatting can be done to sell the trademarks back to the original owners for a higher price, to sell counterfeits, or to impersonate the brand in order to damage its brand reputation.

China is a so-called ‘First-to-File’ country, meaning the CNIPA grants trademark rights to the first entity that files an application to register a trademark. This also means that you may not have a chance to seek legal protection in China if a similar trademark has already been registered in China. First-to-File approach has been condemned by many because of its vulnerability to trademark squatting practices. However, the suggestions proposed in the new Draft Amendment aim to make it easier to identify such malicious filings and prevent them at an early stage.

Proposed amendments

The New Draft installs a new requirement for trademark applicants to only apply for marks that are being used or that the applicant undertakes to use in trade at the moment of application. In order to monitor the use of trademarks, according to Article 61, the Draft proposes a US-style requirement that requires trademark owners to submit a statement of use every five years after registration. If the trademark owner fails to do so, the trademark will be considered abandoned and cancelled by the CNIPA. As a result, the brand owner would be unable to reapply for the mark within one year of cancellation.

In Article 22, the Draft introduces the list of specific circumstances indicating bad faith filings. The list will be used by the CNIPA and the courts to indicate that an application has been made in bad faith. This can lead to the rejection of the application in the examination stage, or possibly in opposition or invalidation proceedings. Furthermore, the genuine trademark owner may be able to claim compensation, and trademark agencies may be fined if they apply for trademarks in any of these circumstances. It is important to note that, in addition to existing circumstances that are generally accepted to constitute malicious filings under current legislation, the new article also states that “applying for large numbers of trademarks with no intent to use” is now considered to be an indication of malicious filing.

Articles 45-47 introduce mandatory transfer of malicious filings to the genuine trademark owner in invalidation procedures. Instead of the mere invalidation of the trademark, which was the case prior to the new Draft, genuine trademark owners may request the transfer of the squatted trademark. This change brings genuine brand owners multiple benefits, including acquiring desired trademarks in a shorter time.

Trademark registration in China

China understands that small and medium-sized enterprises (SMEs) and venture companies are a source of the country's industrial competitiveness, and therefore there is a need to support their activities from the aspect of intellectual property. The new Draft shows that the Chinese authorities recognize current issues within IP rights protection processes and the damages that it brings to both domestic and international companies. The new amendments in Chinese trademark law make it easier to reject malicious trademark applications, providing more security and stability to businesses operating in China.

Any business looking to expand internationally should have China as a priority country on the list. Whether you are already doing business there or just considering starting out, registering trademarks in China offers numerous benefits and, therefore, should be an essential part of your international trademark plan.