China’s National People’s Congress Standing Committee held its regular legislative session on April 20, 2019.  One of the legislative readings is the amendments to the Trademark Law.  The proposed amendments are a fairly significant improvement to the current system, in terms of dealing with bad faith trademark applications and trademark enforcement. 

While the detailed draft of the amendments is not available yet for public comments, the State press has revealed several key points (http://www.npc.gov.cn/npc/cwhhy/13jcwh/2019-04/21/content_2085549.htm). 

First, the proposed amendments require that trademark applications that are filed with no intent to use shall be rejected (Art. 4).  This provision will also be a legal basis for opposition and invalidation applications.  It seems that China may soon ask each applicant to submit a declaration of intent to use. 

Second, the proposed amendments increase the obligations of the trademark agents.   Trademark agents shall not accept client assignments to file the applications which they know or should know are filed without intent to use or in bad faith. The violations may subject the agents/lawyers to administrative penalties.  This special rule reflects the problem that some trademark agents have intentionally filed large numbers of bad faith trademark applications.  The government has now decided it will not tolerate this anymore. The above misconduct by the trademark agents will also be the legal basis of opposition and invalidation applications.

Third, the China National Intellectual Property Administration (CNIPA) has the authority to impose penalties specifically over bad faith trademark applications under the proposed amendments.  It is unclear what constitutes bad faith trademark applications in this context, but we believe that CNIPA will be given a great deal of discretion to penalize the parties who filed large numbers of trademark applications which seem to have no relevance to their own business.

We proposed to CNIPA recently that,  under the general principle of good faith in the General Principles of Civil Law and Trademark Law, legitimate trademark owners should be allowed to file civil infringement claims against those bad faith trademark applicants for damages.  We hope this civil liability may be allowed in the future.

Fourth, another significant feature is the proposed amendments deal with enforcement, particularly intensifying measures against trademark infringement.  The proposed amendments increase the maximum statutory compensation for trademark infringement from RMB 3 million yuan to RMB 5 million. Punitive damages will be allowed up to five times actual loss of the trademark owners, the illegal gains of infringers or reasonable multiples of trademark royalties. Under the current Trademark Law, punitive damages are only allowed up to three times the above calculations, and its application in civil cases is uncommon. 

Last but not least, a notable change is the way counterfeit goods will be handled at the infringement proceedings, assuming infringement is found.  Under the proposed amendments, counterfeit goods may be destroyed at the request of the trademark owners in the civil proceedings.  Counterfeit goods shall not be allowed to enter into the commercial distribution channel after merely being removed of counterfeit labels. Materials and tooling that are mainly used for manufacturing counterfeit goods shall be destroyed without any compensation, or in special circumstances shall be excluded to enter into commercial channels without any compensation.

All the proposed changes are very substantial.  The adoption of the changes will generate meaningful benefits to the brands around the world, including the domestic brands.