Another Round of Trademark Law Amendments

IP is a strategic national resource in the development of innovation and a core element in determining a country’s ability to compete in global markets.  A sound law is the modern equivalent of a “Great Wall” for IP asset protection.

The current China Trademark Law was revised and came into effect on May 1, 2014.  This year, the China Trademark Office is calling for public input into the Trademark Law with the aim to introduce new revisions between 2020-2022.

The Chinese trademark authorities face three main challenges: balancing the need for expedited examinations with the huge number of applications, addressing legitimate brand owners’ need for stronger legal provisions to protect against an increasing number of bad faith applications, , and addressing the growing demand for registered trademark rights in an already overcrowded register.  The purpose of any amendment to the law is to balance these needs and to create a healthy environment for trademark prosecution and enforcement.

To match its large population and growing economy, China has the largest numbers of trademark filings and registrations in the world.  In 2017, the China Trademark Office received 5.74 million new applications, an increase of 56%[1].  By the end of 2017, there were nearly 15 million valid trademark registrations in China.  The CTMO has is legally required to complete the examination of new applications within nine months.  By the end of 2018, that period will be shortened to six months and then shortened again to four months in 2020. 

The CTMO is also handling a large number of oppositions, with 72,575 being received in 2017 (an increase of 26.9% over the previous year).  The CTMO supported opponents in 20,184 opposition cases, with registrations being prevented in 28.41% of those cases[2]

In 2017, the CTMO cancelled 28,000 marks for non-use, removed 14,000 marks at the request of registrants, and 16,390 registrations lapsed due to non-renewal.  A total of 33,190 trademark registrations were removed in 2017[3]

Against this backdrop, we have the following recommendations for amendments to the China Trademark Law:

  1. Whether to cancel or maintain the substantial examination

Driven by the goal of shortening the examination timeframe and clearing the overwhelming backlog, there are voices within the CTMO calling to cancel the CTMO’s relative grounds examination and instead allow applications to directly go to publication for opposition.  We do not believe this approach is appropriate for China given the history of trademark squatting and the still growing number of bad faith applications.  Amongst the explosion in the more than 5.7 million trademark applications filed in 2017, we observed one individual applicant who filed 5,767 trademark applications, earning the honor of filing for more trademarks than China’s “BAT” (Baidu, Alibaba and Tencent, China’s technology giants).  Turning off the “firewall” that the CTMO’s substantial examination process provides, would lead to a flood of bad faith applications and a huge surge in oppositions and increased burdens for rights holders.  This would greatly increase the cost of maintaining and protecting the trademarks that are legitimately used in commerce while reducing the obstacles for those who already strangle the system with bad faith applications.  Without significant reform to the opposition process, ending the CTMO’s substantial examination would lead to market confusion, an erosion of the value of brands, and an increasing number of disputes and litigation.

Allowing applications to publish and register without substantial examination will indeed help to shorten the time needed for examination, but it will give more opportunities to copycats to cause chaos both in the trademark register and in the marketplace.  In finding the right balance, we cannot trade small gains in speed and “efficiency” at the cost of protecting the integrity of the trademark register, the value of intellectual property, and Chinese consumers.  This substantial change in procedure requires serious consideration, thorough statistical analysis and input from the public and industry.

  1. Inclusion of “principle of honesty” into substantive clauses of the Trademark Law

Under the current law, the legal basis for opposition and invalidation are Article 32 (similar marks on similar goods), Article 13 (well-known trademarks), and Article 31 (prior rights).  Even though Article 7 says the application and use of the mark should comply with the principle of honesty and credibility, this article is regarded as a precatory general principle but is not the basis for opposition or invalidation.  Where bad faith is involved, if the case does not meet the situations prescribed above, there will be difficulties in winning the case. This is especially true where the bad faith applicant is not an agent of the true trademark owner or the true trademark owner cannot prove the bad faith applicant’s awareness of the mark before the application.  These kinds of “coincidences” happen more frequently than one would ordinarily expecte and yet there are few remedies.  Under current practice, apart from Article 44 (1) which applies only to registered marks, it seems no clause can be used for bad faith (other than the above situations) during an opposition procedure.  The lack of sufficient bad faith clauses invites difficulties in the daily work of the CTMO and the Courts.

We have seen a positive development in the introduction of the “principle of honesty” into Article 7 “filing in good faith” in the current Trademark Law.  However, it is a mere decorative concept with no clause citing the same to apply in use. In the next amendment, it would be more convenient to apply the “principle of honesty” directly, which requires the new law to include “filing in good faith” into the substantive clauses such as Articles 32, 44, 45. This would restrain bad faith trademarks through every examination procedure, from the examination of new applicaitons, to trademark oppositions, invalidations, and administrative litigation.  

  1. Imposing Responding Obligation to registrants in opposition and invalidation procedures, “default judgement”.

According to the current Trademark Law, the opposed party at the opposition procedure and the owner of the disputed mark at the invalidation procedure can respond to the opposition/invalidation within prescribed time.  Given that filing counter argument is a right rather than obligation, the opposed party and the owner of the disputed mark can choose whether to respond the challenge or not.  If they choose doing nothing, it will not affect the examination of the opposition and invalidation.  It is not fair for the brand owners who actively take actions to protect their marks.  The brand owners have an obligation to prove their prior right and the use of the marks in mainland China in order to increase the chances of success in the actions.  For the other side, even though they do not respond to the actions or explain how they created the coined Latin letter marks or devices, they are likely to overcome the opposition/invalidation if the brand owners do not submit strong evidence to show their rights.

Based on the article four of the law, the mark should be applied due to the need in doing business. If the marks are important to their applicants due to the need of use, their applicant should duly respond to the opposition/invalidation in order to obtain or maintain the registration.  For those which give up the rights with no legitimate reason, they should bear the consequence.  Although there is no definition of bad faith application, there are several factors that lead to this type of mark.  For example, the mark is a coined word with Latin letters, or is composed of unique device.  For the trademark authorities, when examining the opposition and invalidation against a suspicious bad faith mark, if the opposed party or the owner of the disputed mark does not file respond in time, the trademark authority should issue default judgment and issue unfavourable decisions against them.

  1. Trademarks “hoarding” or “unused”

The value of the marks is generated and accumulated in actual use.  Based on the article four of the law, the mark should be applied due to the need to do business.  If the owners have no intention to use the marks, they should leave them to the parties which need the marks to bring business to the market. 

Therefore, we suggest adopting the US practice.  When filing application for a mark, the applicant should submit evidence to prove intent to use.  Once the mark is registered, the registrant should submit evidence of use every three or five years in order to maintain the registration.  If no evidence is submitted, the trademark authority should ex officio cancel the registration.   In the meantime, a penalty should be applied if the registrant or its agents forge evidence of use to mislead the trademark authorities.

Alternatively, we may consider adopting annuity fee policy.  If the registrant does no longer intend to use the mark, it can stop paying the annuity fee and abandon its registration.

The CTMO welcomes comments to the amendments of the law.  The due date for public comment is 31 July 2018.  We will be submitting detailed comments and also hope brand owners will join to bring their thoughts to the trademark authorities.

 

Principles

Proposed amendments

Maintaining CTMO‘s substantive examination process

  • Maintain the process of substantial examination by CTMO based on relative grounds.
  • adopting the examination practice in the UK.

The principle of good faith

  • Include Article 7 “filing in good faith” into substantive clauses such as Articles 32, 44, 45, 57.
  • Include principle of goods faith into substantive clauses regards examination of new registrations, invalidations, trademark oppositions and trademark infringement.  Under such situation, provision of Art. 44.1 can be applied to trademark oppositions
  • Clause 2 of Article 15: to be removed, because the requirement of prior use is too harsh and the application scope of Article 15 is narrow.

Responding Obligation of registrants in opposition and invalidation procedures

  • Add one clause on provision of “default judgment” in opposition in Article 35
  • Request the applicant/registrant’s compulsory response to opposition and invalidation actions. Failure to respond to the trademark authority timely is the default and will automatically result in the removal/cancellation of the trademarks.

Trademarks “hoarding” or “unused”

  • Similar to USA practice, the registrant is compulsory to submit evidence of use on a regular basis to maintain the registration. No use will result in the cancellation of a registered mark by the CTMO ex officio. Imposing punishment to false evidence producers/suppliers
  • Evidence could be submitted on a three-year basis, and at the time of renewal and the assignment to add more responsibilities to the registrant.

 

 

[1] 2 3The numbers are cited from Annual Development Report on China’s Trademark Strategy 2017, China Industry & Commerce Press, edition 1 March 2018.