On 23 April the Standing Committee of the National People’s Congress issued the Decision of Revision of Eight Laws, which includes the fourth revision of the Trademark Law. This has attracted much attention from the international IP community as it addresses the issue of bad-faith registrations – one of the most significant challenges to protecting international brands in China. In addition, on 24 April the Beijing High Court issued the Guidelines for the Authorisation and Confirmation of a Trademark.

Regulation against bad-faith applications and registrations

The provision for rejecting bad-faith applications and registrations without intent to use is included in a new article in the Trademark Law:

Article 4: Natural persons, legal persons or any other organisations that need to obtain exclusive rights to use trademark for their commodities or services in the course of their manufacturing and business activities shall apply to a trademark bureau for trademark registration. Any application for trademark registration that is malicious and is not filed for the purpose of use shall be rejected.

(The new provisions are in bold.)

Further, bad-faith applications without intent to use will be regarded as legal grounds for opposition and invalidation:

Article 33: A prior right holder or a stakeholder who holds that a preliminarily validated and gazetted trademark violates the provisions of the second and third paragraphs of Article 13, Article 15, the first paragraph of Article 16, Article 30, 31 or Article 32 of this Law, or any person who held that a preliminarily validated and gazetted trademark violates the provisions of Article 4, 10, 11, 12 or 19.4 of this Law may raise an objection to the trademark bureau within three months from the date of gazette. Where no objection is raised during the gazette period, the trademark shall be registered, a trademark registration certificate shall be issued and the registered trademark shall be gazetted.

Article 44.1: Where a registered trademark violates the provisions of Article 4, 10, 11 or 12 of this Law, or the fourth paragraph of Article 19.4 of this Law, or the registration is obtained by fraudulent means or other improper means, the registered trademark shall be invalidated by the trademark bureau; any other organisation or individual may request that the trademark review and adjudication board declares the said registered trademark invalid.

Analysis Under the first-to-file principle of the current Trademark Law, a party who files an application first is granted registration. As a result, a large number of pre-emptive registrations have been filed, with the purpose of free-riding on the high reputation of brand owners. In addition, trademark squatters have registered marks with the intent to sell them to brand owners or other third parties for profit.

The new provisions clearly establish that bad-faith applications made with no intent to use will be rejected. In addition, the absence of requisite intent to use is now included as grounds for opposition and invalidation proceedings.

Requirement of intent to use the mark

Article 33 of the revised Trademark Law states that bad-faith applications that are made with no intent to use are grounds for opposition. Further, the law specifically provides two articles: Article 4, which requires intent to use and Article 19, which prohibits a trademark agent from applying for a mark which covers goods or services that exceed the scope of its business, as absolute grounds for rejection in an opposition procedure. As a result, any person is authorised to file an opposition.

Article 44.1 provides that a bad-faith application with no intent to use is a ground for invalidation. With regard to this, Article 4 requires intent to use and Article 19 which prohibits a trademark agent from applying for a mark which covers goods or services that exceed the scope of its business as absolute grounds for invalidation. As a result, any person can file an invalidation accordingly.

Consequently, according to Article 4 and other related provisions, anyone is authorised to file an invalidation action. Moreover, invalidation on the basis of this article is not subject to the five-year statutory limitation, which means that invalidation requests can be filed after five years from the registration date.

The provision focuses on the prohibition of bad-faith applications made with no intent to use. It does not prohibit defensive applications made by brand owners for bona fide purposes. According to the Interpretation on Draft of Revision made by the state council, Article 4 aims to restrict bad-faith applications and registrations for the purpose of trademark storage and transfer. The revision made during the review of the National People’s Congress added the expressions ‘bad-faith’ applications and ‘without intent to use’, which not only confirmed the definition of ‘intent to use’, but also reflected the opinions of the legislators of the National People’s Congress that the legitimacy of defensive applications even without intent to use should not be rejected at this stage. Therefore, defensive applications made by brand owners should not be prohibited by this provision.

Further, it is the applicant’s duty to be attentive and to not submit a bad-faith application, otherwise it will be penalised.

New Guidelines for the Trial of Cases on Trademark Authorisation and Affirmation

The New Guidelines for the Trial of Cases on Trademark Authorisation and Affirmation specify what constitutes a bad-faith application without intent to use.

Article 7.1 of these guidelines states that:

Where it is clear that the applicant does not hold true intent to use and meets one of the following circumstances, the applicant shall be held as violating Article 4 of Trademark Law:

(1) Applying for registrations of the marks identical with or similar to those marks with certain famousness and relatively high distinctiveness that belong to various entities and in serious circumstance.

(2) Applying for registrations of the marks identical with or similar to those marks with certain famousness and relatively high distinctiveness that belong to various entities, and in serious circumstance.

(3) Applying for registrations of the marks identical with or similar to other commercial signs than marks, and in serious circumstance.

(4) Applying for registrations of the marks identical with or similar to famous name of place, scenic spot, building and others with certain famousness, and in serious circumstance.

(5) Applying for registrations of the marks at large amount without appropriate reasons.

Where the trademark applicant mentioned above claims that it has true intent to use but fails to provide evidence, the claim shall be dismissed.

Analysis The first paragraph identifies trademark squatters who apply for marks identical or similar to the marks owned by multiple brand owners and the case is serious. The second paragraph identifies trademark squatters who apply for marks identical or similar to the marks owned by one brand owner and the case is serious.

Rampant trademark squatting in China can be generally divided into two categories. The first includes applications that are made for profit by transferring registrations, while the second covers applications that free-ride on the reputation of others. In recent cases, Chinese trademark authorities have agreed to provide remedies against both of the aforementioned two categories of matters according to the Article 4 of the new law.

New articles in the Trademark Law

New articles have been added with regard to the legal liability of a trademark agency that represents a bad-faith application without intent to use.

The fourth paragraph added to Article 19.3 reads:

Article 19.3.4 Where a trademark agency is or should be aware that the trademark to be registered by the entrusting party falls under the circumstances stipulated in Article 4, 15 or 32 of this Law, it shall not accept the entrustment.

The third paragraph added to Article 68.1 states:

The violation of the provisions of Article 4 of this Law or the third and fourth paragraphs of Article 19 of this Law. As a result, the trademark agencies who handle the applications can be penalised with fines or warnings by enforcement agencies.

Analysis The article provides that the the representation of bad-faith applications by trademark agents as well as well as bad-faith litigations will be administratively penalised and judicially sanctioned.

Legal liability of applicants of bad-faith application without intent to use

The fourth paragraph added as Article 68.4, reads:

Whoever maliciously applies for trademark registration shall be subject to a warning, a fine or any other administrative punishments, as the case may be; and whoever maliciously lodges a trademark lawsuit shall be penalised by the People's Court according to law.

Analysis This revision is the first time that the law has provided sanctions against bad-faith litigation.

The revision is vague about which entities are subject to administrative penalties and judicial sanctions. Specifically, the language used in Article 68.4 appears to refer to applicants. This must be clarified by further legal documents (eg, the Implementing Rule).

Increased penalties for infringement

The increase in the amount of damages awarded for intentional trademark infringement are as follows:

Article 63: The amount of damages for infringement on the exclusive right to use a trademark shall be determined based on the actual loss suffered by the right holder as a result of the infringement; if it is difficult to determine the actual loss, the amount of damages may be determined according to the proceeds gained therefrom by the infringer, if it is difficult to determine both the loss of the right holder and the proceeds gained by the infringing party, the amount of damages may be reasonably determined by reference to the multiples of the trademark royalties. Where an infringer maliciously infringes upon another party's exclusive right to use a trademark, in the case of serious circumstances, the amount of damages may be determined as not less than one time but not more than five times the amount that is determined according to the aforesaid methods. The amount of damages shall cover the reasonable expenses paid by the right holder for stopping the infringing act.

Where it is difficult to determine the actual loss suffered by the right holder as a result of the infringement, the proceeds gained by the infringer from the infringement or the royalties of the registered trademark concerned, the people's court shall render a judgment awarding damages in an amount not more than RMB five million based on the circumstances of the infringing acts.

Analysis This is an increase in the amount of damages that can be claimed. Specifically, the calculation of damages on the basis of reference to the multiples of the trademark royalties has risen from between one and three times to between one and five times the amount of royalties. The highest amount of statutory damages was increased from Rmb3 million to Rmb5 million in an attempt to deter infringements.

Destruction of counterfeit products as well as materials and tools used to manufacture related products

Paragraph 4 has been added to Article 63:

The People's Court hearing a trademark-related dispute shall, as requested by the right holder, order to destroy the commodities bearing a counterfeited registered trademark, with the exception of special circumstances; for the materials and tools mainly used to manufacture the commodities bearing a counterfeited registered trademark, the People's Court shall order to destroy them, without any compensation; or in particular cases, the People's Court shall prohibit the said materials and tools from entering commercial channels, without any compensation.

The commodities bearing a counterfeited registered trademark shall not enter commercial channels even though they do not bear the said trademark any longer.

Analysis The destruction of infringing products, as well as the tools used to manufacture them, has long been an unresolved issue. This revision is a big step forward on this. However, it is likely that there will be disagreements about whether an infringing product constitutes a counterfeit or an imitation of a famous brand.

In the past, there have been cases in which courts have removed the trademark labels and sold off the goods via auction. As a result, there have been concerns that the infringing products may re-enter the circulation channel due to the absence of supervision procedures for the auction. The revision specifically prevents counterfeit products from re-entering distribution channels and provides for their destruction.

With regard to manufacturing tools, there have been legal challenges as to whether the courts are authorised to destroy tools and materials (e.g., moulds), because the return of these tools to the infringer would easily facilitate the resumption of infringing behaviour. This revision finally addresses the issue of destruction of materials and tools that are mainly used to manufacture infringing products and should thus deter repeated infringements.

Charles Feng

East and Concord Partners

 This article first appeared in World Trademark Review. For further information please visit https://www.worldtrademarkreview.com/corporate/subscribe