The World Intellectual Property Review reports that one Chinese practitioner estimated bad faith applications may account for as many as one in three trade mark applications filed in China.
In Australia the first to actually use a trade mark will generally acquire ownership in the mark. China, however, is known as a “first to file” trade mark system because the first to file for the registration of a trade mark will acquire ownership in the mark (if the application is successful).
The Bad Faith Problem
It has been said that, ‘China’s trade mark system is a minefield of murky rules and opportunistic “trade mark squatters” that even the world’s biggest companies and their highly-paid lawyers find hard to navigate...’
The first to file system in China has contributed to what has been called the “Bad Faith Problem”. Namely, professional trade mark “squatters” will:
1. monitor the international market for developing brands;
2. file for the registration of a developing brand’s trade marks for “hijacking” purposes; and
3. if successfully registered, hold the trade marks to “ransom” until the brand owner agrees to purchase or license the rights to the marks.
Introducing restrictions on Bad Faith Applications
On 23 April 2019 the Standing Committee of the National People’s Congress in China issued an amendment to the Trademark Law of the People’s Republic of China (with effective date 1 November 2019) (“the Amendment”). The Amendment introduces the concept of bad faith to the Chinese Trade Mark Law via Article 4, amended to include:
Applications for the registration of trade marks in bad faith that are not intended for use shall be refused.
The Beijing High People’s Court has prescribed a trade mark application will violate Article 4 if:
1. The applicant obviously lacks the true intention of use; and
2. The applicant is applying for the registration of:
i. Trade marks that are identical with or similar to those of various entities with certain popularity or high distinctiveness, where the circumstance is serious;
ii. Trade marks that are identical with or similar to those of an entity with certain popularity or higher distinctiveness, where the circumstance is serious;
iii. Trade marks that are identical with or similar to any other commercial signs other than trade marks of others, where the circumstance is serious;
iv. Trade marks that are identical with or similar to any name of a well-known place, scenic spot, building and others with certain popularity, where the circumstance is serious;
v. A large number of trade marks without goods reasons.
In this context, “true intention to use” means an intention that is capable of being supported by evidence. To date, no guidance has been provided regarding the particular issues that may be relevant when assessing evidence of true intention to use. (It is therefore unclear whether legitimate defensive filings will be considered bad faith filings for the purposes of Article 4.)
The International Trademark Association has commented that one lingering issue with this language is that it could, theoretically, justify the approval of a trade mark application filed in bad faith if the applicant can show the mark was filed with an intention to use. For example, a squatter that intends to use a hijacked trade mark for licensing purposes could arguably satisfy the intention to use requirement.
Even so, Article 4 is significant because it will allow the China National Intellectual Property Administration to reject bad faith applications during examination whereas, under the current law, bad faith applications can only be challenged once accepted and/or registered. Article 4 will also serve as a ground upon which opposition or invalidation proceedings can be commenced.
Bad Faith Applications and Trade Mark Agencies
The IP Watchdog reports that it is very common in China to see trade mark agents acting as squatters in their own interest or on behalf of others. To help address this, Article 19 is amended to introduce a prohibition against trade mark agencies from representing a client where it knows or should know that the trade mark application to be filed violates Article 4.
Why Comply with the Trade Mark Law?
A range of administrative penalties can now be enforced against trade mark agencies that are not compliant with the new bad faith provisions. These include:
- an increase in the maximum amount for statutory damages for infringement from RMB 3 million to RMB 5 million (about AU $1 million);
- an increase of the punitive multiplier from three to five; and
- empowering the People’s Court to order (without any compensation):
- the destruction of goods bearing counterfeit registered trade marks;
- the destruction of materials and tools used predominantly for the manufacture of goods bearing counterfeit registered trade marks;
- the prohibition of the aforementioned materials and tools from entering commercial channels.
While the effectiveness of the Amendment remains to be tested, it undoubtedly seeks to curb the Bad Faith Problem in China, which is encouraging for foreign brand owners.
However, we suggest the best strategy for brand protection in China remains filing for the registration of your trade marks as early as possible.
If you are a foreign brand owner that anticipates one-day entering the Chinese market, or that wishes to enforce your trade marks against third parties in China, see our Top tips to protect your brand in China article.
Co-Author: Harriet Young, Lawyer