The third round of revision of China’s Trademark Law is reaching the end of the process. The People’s Congress has issued an ultimate draft calling for public comments to be filed before the end of January 2013 (“the NPC Draft”).

Looking at the evolution of the draft since the versions of June 2009 (by SAIC) and September 2011 (by the State Council), the general impression is that the direction taken is more coherent. Choices are being confirmed and some of the past approximations are being clarified.

1. Positive clarifications and choices

The NPC Draft (Article 8) opens, definitively, the door to new types of non-conventional trademarks: sound and colors.

Article 9 of the NPC Draft confirms the principle of good faith. This principle had been introduced in the June draft, but was deleted in the 2011 draft. It is now reaffirmed.

In Article 15, reproduces the second option introduced in 2011 by the State Council under article 31 of the Law: contractual or geographical circumstances showing that the applicant of a trademark knew the existence of the prior mark. Furthermore, the words (used) in China are deleted. This seems to indicate that a prior trademark may be protected even if it has not been used in China. Yet, it seems preferable to clarify further the language of the law and specify that the trademark may be used in China or elsewhere.

Article 14 of the NPC Draft specifies that a trademark shall be recognized as well-known where such recognition is “a necessary fact of the case”. We want to understand this language as being in line with article 9 of the “Interpretation of the Supreme People’s Court on Certain Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Involving Protection of Well-Known Trademarks” (April 2009), which introduces the general principle of “dilution” of trademarks. However, there is still a doubt that such is really the intention of the Legislator, as long as article 13.2 is not amended to reflect the excellent definition set out by the SPC.

The NPC Draft deletes the reference to “local famous trademarks”, introduced by the State Council in 2011, which had raised serious concerns. The deletion is most welcome.

The procedure for acquisition of trademark rights is made more practical:

  • It is possible to apply directly (NPC 18) or through an agent.
  • It is possible to apply in electronic format (NPC 21);
  • Multiclass applications shall be available when the Trademark Office formulates specific procedures (NPC 22);
  • The method of “examination opinion notice” during the application procedure is retained (NPC 29). This procedure (already in the State Council Draft) brings flexibility to the application process since it will allow the applicant to amend the application in accordance with the examiner’s opinion.

The procedures for opposition or cancellation are adjusted:

  • Oppositions are, now, open only to prior right owners (NPC 33). As such, this choice is welcome. However, in its current state, this amendment leaves a loophole: the situation where a trademark application is subject to “absolute grounds” (article 10) of refusal, but has nevertheless be approved by the examiner. In such case, any party should still be allowed to oppose the trademark. Otherwise, it would be necessary to wait for its registration and start a cancellation action.
  • The deadline to appeal to the TRAB (NPC 34) is doubled (30 days instead of 15).
  • The cancellation application or “dispute” (NPC 44.2) is reserved to prior right owners or a “party concerned”.

The procedure of revocation based on non-use or becoming generic is clearly separated from other causes of cancellation (NPC 48) and becomes subject to an application by any entity or individual.

Enforcement procedures are strengthened, with increased penalties and damages.

  • NPC 56.5 provides a more comprehensive definition of the indirect infringement by third parties; ”to intentionally provide a person with … or facilitate such person’s infringement…” .
  • In article NPC 57, the act of using a trademark of another person as a trade name – regardless of whether the trademark is well-known or a “simple” registered trademark, is considered as an act of unfair competition to be treated in accordance to the “Unfair Competition Law”.
  • The penalty for infringement (NPC 59) is raised to a maximum of five times the illegal turnover, if a threshold of 50,000 RMB is reached, and a maximum of 250,000 RMB if the threshold is not reached). This penalty is higher (no precision) if the infringer is a repeat offender within 5 years. An exception is provided for the seller who does not know about the infringement or proves that the goods were obtained from legal channels and reveals the identity of his supplier.
  • An enforcement procedure may be suspended by the administration if the trademark owner files a civil action, against the infringer or if the ownership of the trademark is in dispute (NPC 61).

Civil enforcement

  • NPC 62 adds a new method for the calculation of the prejudice based on the amount of royalty
  • In case of “serious circumstances”, the amount of compensation may be multiplied by three (maximum).
  • The maximum statutory damages (when it is difficult to prove the exact amount of the prejudice) is raised from 500,000 to 1,000,000 RMB.
  • The Court may order the infringer to disclose his account books, and in case of refusal, draw the consequences and determine the amount of compensation on the basis of the claim.

2. Concerns

The most serious concern is about the opposition procedure.

NPC 35.2 provides that if the Trademark Office rejects an opposition, the opposed trademark becomes immediately registered while the opponent is left with the possibility to institute a “dispute” before the TRAB, in order to obtain the cancellation of the trademark.

This modification may have serious negative consequences, for three reasons:

  • In China, the invalidation procedure takes a long time (three levels of decision: TRAB, Intermediate and High People’s Court) : 5 years or more.
  • During the procedure, the opponent is deprived of any means to prevent the use of the trademark, since it has been registered. Meanwhile, the registrant enjoys the corresponding time to establish a presence in the market.
  • According to the “Opinion on How to Exploit Intellectual Property Trials to Further and Enrich the Socialist Culture and to develop Self-Reliant and Balanced Economy”, issued by the Supreme People’s Court on December 11, 2011 (article 19), where two similar trademarks have established a significant presence in the market, “market realities must be respected… (and) proprietors are encouraged to live peacefully with each other”.

The consequence is that, in practice, the invalidation procedure launched after an opposition has been refused may become ineffective: if, during the time the procedure follow its long track, the defendant has invested enough in the development of his trademark, the two trademarks will eventually have to “coexist peacefully”. Therefore, the owner of the prior registered trademark might have, in practice, only one chance to prevent the registration and use of the opposed trademark. This could constitute a TRIPS compliance issue.

Other changes, in the enforcement procedures, still require some adjustments.

NPC 47 introduces an additional precision to the definition of “use” of a trademark; “…affixing a trademark to commodities etc…. to distinguish the origin of the commodities” This precision is likely to open a range of defense arguments by infringers who will claim that they are not using the (other person’s) trademark in order to distinguish their own products, but for any other reason.

NPC 58.3 provides that if another person had been using an identical or similar trademark before the registration, the owner of the registered trademark has no right to prohibit the continuation of such use “within its previous usage range”. It may only ask the user to “properly attach distinguishable markings”. This is problematic. Indeed, the term ‘within its previous usage range’ is only conceivable for certain categories of service marks, such as restaurants, hotels or any local shops where services may be rendered.

NPC 62 provides, in its last paragraph, that if the trademark registrant does not prove that it has used the trademark during the preceding three years, nor justifies the amount of its loss, the infringer is exempt from having to pay any compensation. The problem is that, in the compensation there should be any reasonable expenses incurred to stop the infringement. At least, this should remain within the liability of the infringer.

NPC 63 deletes the reference to “measures for property preservation”, which exists in the current version of the law and remained untouched in all the previous drafts. Whether the Legislator intended to leave this under the Law of Civil Procedure, revised in 2010 (Article 93) is unclear, and thus raises concern.

Comments

The three rounds revision of the Trademark Law depicts the steadfast determination and steps the Chinese legislature has taken to bring the Law further in line with the international standards. The efforts and changes being made are most welcome. However, there are still room for further clarification and adjustment, which are expected to be made by the legislature by listening to the public opinion.