New Proposed Draft Chinese Trademark Law: Use Requirements, Compulsory Transfer of Bad Faith Trademarks and More!

Issue: 2023-02

The China National Intellectual Property Administration (CNIPA) kick-started 2023 by publishing its draft for the 5th amendment to the Chinese Trademark Law (the “Draft Amendment”) on 13th January 2023. The proposed amendments, if implemented, would amount to an overhaul of the Chinese Trademark Law, reflecting the CNIPA’s goal to combat bad faith filings and trademark hoarding. While we welcome some of the proposed amendments, for example the introduction of compulsory transfer of bad faith trademarks and civil remedies against trademark squatters, some may affect brand owners and hence impact brand protection and management strategies in China. Notably, the Draft Amendment seeks to introduce a new requirement for statements of use mirroring the US practice.

In this article, we will analyse the key proposed changes which may have significant impact on the trademark landscape in China and share our insights on how brand owners may get prepared for the overhaul.

Compulsory Transfer Of Bad-Faith Trademarks

One of the revolutionary changes in the Draft Amendment is a new mechanism for compulsory transfer of bad faith trademarks to the rightful owners. For registrations that are (1) owned by agents or representatives of rightful owners, or parties with a contractual or business relationship with rightful owners, without authorization, (2) pre-emptive registrations of rightful owners’ marks with certain reputation in Chinese Mainland, or (3) copies, imitations or translations of well-known trademarks in Chinese Mainland, rightful owners may apply for the registrations to be transferred to them. If the reasons for transfer are justified, and there are no other reasons for invalidating the registration and the transfer will unlikely cause public confusion or have other adverse influence, the CNIPA shall order the transfer of the registrations to the rightful owners. If the aforesaid conditions are not met, the CNIPA will invalidate the registrations instead.

The proposed transfer mechanism will become a powerful remedy to brand owners, especially those who have yet secured trademark registrations in China. This may spare the need for brand owners to file their own registrations, and eliminate the uncertainty that the brand owners’ own applications cannot go through due to other similar marks. The rightful owners may also benefit from the earlier filing date of the transferred registrations. While it remains to be seen how the CNIPA would exercise its power to order the transfer of marks, we expect such compulsory transfer to be a procedure many rightful owners can take advantage of.

Continued Effort In Curbing Bad Faith Filings

The Draft Amendment introduces a new article targeting bad faith filings, under which the following, amongst others, will be considered as bad faith:-

  1. 1.filing large number of trademark applications without intention to use;
  2. 2.obtaining trademark registrations by fraud or any other improper means;
  3. 3.unauthorized registrations by agents, representatives of rightful owners, or parties with a contractual or business relationship, pre-emptive registrations for marks used by others with certain reputation, or copies, imitations or translations of well-known trademarks, with the deliberate intention to damage others’ legitmate rights or interests or to the intention to obtain improper benefits; and
  4. 4. other malicious behaviors.

This is a codification of the current CNIPA’s examination practice against bad faith filings, drawing references from the existing examination guidelines and various administrative provisions. Bad faith is expressly indicated as a basis for opposition and invalidation, and a violation of the article prohibiting bad faith would attract penalties and civil liabilities.

New Civil Remedies and Penalties To Combat Bad Faith Filings

Following the trend of the Chinese Courts in recognizing bad faith filings as actionable under the Anti-Unfair Competition Law and awarding compensations to brand owners as seen in Brita GmbH v. Shanghai Kangdian Industrial Co., Ltd. (2020) and Emerson Electric Co. v. Xiamen Anjier Water Angel Drinking Water Equipment Co., Ltd and others (2021), the Draft Amendment introduces a new civil remedy entitling brand owners to apply to the Chinese Courts requesting for monetary compensations for loss caused by the bad faith filings, which amount shall at least cover the reasonable expenses incurred for combating bad faith filings. The Draft Amendment also specifies that bad faith applicants may face fines up to RMB50,000 (~US$7,400) or a maximum fine of RMB250,000 (~ US$36,800) under serious circumstances. Any illegal gains shall also be confiscated.

The new civil remedies and enhanced administrative penalties would hopefully help deterring bad faith squatters. Also, as the current law does not provide any cost award for rightful brand owners in the event of successful opposition and invalidation, this is an encouraging development allowing brand owners to recover some of their expenses in combating bad faith filings via court proceedings.

New Statement Of Use Requirements – A Mixed Blessing?

Another major focus of the proposed amendments is to reinforce the principle of obtaining registrations for use purposes. A new mechanism is introduced which requires trademark registrants to voluntarily file statements of use with the CNIPA within 12 months after the expiry of every 5 years from the date of trademark registration. If no statement of use or legitimate reason for non-use is filed within the aforesaid time limit, the CNIPA will issue notices to registrants requiring them to submit statements of use within 6 months from the date of issue. The CNIPA will conduct random inspection of the authenticity of the contents in the statement of use and may request further evidence for review. If no statement is filed within the time limit or if the statement of use is considered inauthentic, the registration will be cancelled.

This may be a mixed blessing to brand owners. This would likely help removing idle trademarks filed by bad faith trademark hoarders who tend not to put their marks into use. On the other hand, brand owners may also experience difficulties in establishing use of their defensive registrations. Clarifications on the extent of proof are to be expected, for instance whether a mere statement may suffice or what may amount to sufficient evidence in support, and to what extent evidence of a product can maintain use of similar designated goods.

Given the potential new use requirements, we strongly recommend that brand owners should regularly docket dated evidence of use of their marks on the designated goods or services.

A Ban On Trademark Re-filings?

The Draft Amendment seeks to prohibit registrants from re-filing marks identical to those of valid prior applications and registrations or registrations surrendered, cancelled or invalidated within one year of the filing date on identical goods/ services. Exceptions are available, for example registrants’ agreement to surrender the earlier registrations, minor amendments of trademarks for production and operation needs, or other valid reasons for re-filings. This new provision is said to target trademark filings with the intention to avoid the consequence of being removed by non-use cancellation, opposition and invalidation.

While this helps address the phenomena of squatters re-filing their marks, this may create problems to brand owners. An example will be trademark re-filing in refusal reviews. There is currently no formal procedural for suspension of trademark examination pending the disposition of cited marks, and it is at the examiners’ discretion to suspend the case. Examiners may refuse to suspend and treat cited marks as valid despite the pending actions against the cited marks and render their decisions on such a basis. Brand owners may have to refile their trademarks while waiting for disposition of the cited marks. It is unclear whether this constitutes a valid reason for re-filings and is allowed under the new regime.

To cope with the potential bar on re-filings, it is recommended conducting trademark searches and taking actions against potentially conflicting marks before trademark filing such that the potentially conflicting marks could be removed before the conclusion of the refusal review procedure, thus eliminating the need to re-file.

The Draft Amendment seeks to introduce significant changes to the existing legal framework. On the bright side, new measures and remedies are introduced to combat bad faith filings. While the legislative process may take some time to complete and not all proposed amendments may finally be adopted, we still recommend brand owners take the proposed amendments into consideration when formulating brand protection and management strategies. We will keep you posted on any further developments. If you have any questions or concerns on the Draft Amendment, please let us know and we are happy to discuss.

© Vivien Chan & Co., Newsletter issue 02, February 2023

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Vivien Chan & Co. is a full-service law practice with offices in Hong Kong (1985) and Beijing (1993). We are consistently recognized as a premier law firm for and in Greater China. With over 35 years of doing business in Greater China, our Hong Kong and China teams have an in-depth understanding and knowledge of the legal culture and market dynamics.

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Vivien Chan
Senior Partner

Ann Xu
Head of Beijing Office