Chinese Trade Mark Law – major changes and practice notes, following the third amendments

This article discusses the major changes in the new Chinese Trade Mark Law, and the related practice notes, a number of possible contentious issues, and whether the new Law addresses changes in the commercial world and the international trade mark practice.

The third amendment of the Chinese Trade Mark Law was passed by the Chinese People’s Congress on 30 August 2013 after almost a decade of discussions on the amendments. This new Chinese Trade Mark Law (“the new Law”) came into force on 1 May 2014. The last amendment, the second amendment to the Chinese Trade Mark Law (“the old Law”) was in 2001, and as many readers may know, there have been substantial changes to the commercial environment and the international trade mark practice since then. There were a lot of expectations to the new Law to satisfactorily address such changes.

i. Extension of registrable subject-matter

Under the old Law, a distinctive visual element was one of the requirements for trade mark registration in China. This excluded other subject-matter like sound, smell and the like, even though such non-visible subject-matter could identify sources of goods or services.

The new Chinese Trade Mark Law removes the “visibility” requirement, and has expressly specified that sound can now be registered as a trade mark in China.

Although not specifically excluded by the new Law, the current position of the Chinese Trade Mark Office is that smell cannot be registered as trade mark in China. It appears that this exclusion is currently based on administrative orders, and more specifically on the Chinese Trade Mark Examination Guidelines.

ii. Clarification of grounds of revocation/cancellation due to lack of distinctiveness

A registered trade mark must have distinctiveness to survive in China. However, under the old Law, it was not clear how to revoke or cancel a registered Chinese trade mark which lost its distinctiveness due to trade mark dilution. It was only specified that a registered Chinese trade mark could be revoked ab initio due to lack of distinctiveness.

Under the new Law, in addition to the revocation of registered Chinese trade marks due to lack of distinctiveness, it is now specified that registered Chinese trade marks can be cancelled due to trade mark dilution. An application to cancel should be filed with the China Trade Mark Office. A “diluted” registered trade mark will only be cancelled from the date with the announcement of the cancellation. One example is the revocation of the Chinese registered trade mark “ ” due to trade mark dilution: these two Chinese words now mean a USB flash drive in China.

On the other hand, it should be noted that the cancellation of Chinese registered trade marks due to dilution can only be based on the ground that the trade mark becomes the general name of the goods or services; this does not include other circumstances such as the trade mark is used to represent the quality, major material, function, uses, weight, quantity or other qualities of the related goods or services. These other circumstances may have to be tested in future cases.

iii. Possibility of multi-class applications

Under the old Law, a multi-class trade mark application is not allowed in China. That is, an individual trade mark application has to be filed for each intended class.

It is now possible to file a multi-class application under the new Law. However, it is stipulated that the divisional application can only be filed when there is a partial objection from the China Trade Mark Office on examination of the multi-class application. What worsens the situation is the very tight deadline to file the divisional application(s): within only 15 days from the date of receipt of rejection of the trade mark application. Otherwise, a divisional application will not be accepted by the Chinese Trade Mark Office.

iv. Re-establishment of office action mechanism

Before the old Law, if the Chinese Trade Mark Office believed that it was possible to amend and/or further explain an application for registration, trade mark office actions would be issued to invite reply from the applicant. However, this mechanism was abolished under the old Law, and refiling was the only way to rectify a rejected application from the Chinese Trade Mark Office.

This office action mechanism is now re-established under the new Law. That is, for a trade mark application which was considered to be defective but rectifiable by a Chinese trade mark examiner, an office action will now be issued inviting a reply from the applicant. An absence of reply is expected to result in the rejection of the application.

However, it is not clear whether the office action from the Chinese Trade Mark Office may include substantive examination opinions like absolute and/or relative grounds of objection, or is only limited to formality of the application. The re-establishment of this mechanism is expected to prolong the prosecution of Chinese trade mark application, although the next change apparently targets this issue.

v. Specification of time limits for trade mark prosecution and re-examination in the law

In the old Law, time limits for prosecution and re- examination of trade mark applications are not specified. This received a lot of complaints from the industry due to the prolonged prosecution of Chinese trade mark applications.

In response, the new Law stipulates that:

• Time of prosecution of a trade mark application is limited to nine months.

• Examination of opposition against a trade mark application is limited to 12 months, which is extendable for six months.

• Re-examination against a rejection decision of a trade mark application is limited to nine months, which is extendable for three months.

• Re-examination of opposition decisions is limited to 12 months, which is extendable for six months

• It is possible to suspend examination / re-examination / opposition for cases involving prior rights that rely on decisions from another case handled by the Chinese People’s Court or administration.

The introduction of these time limits is excellent news to Chinese trade mark applicants. However, it is not clear how to handle cases in which the above time limits are not observed. More specifically, it is unclear of the sanction or complaint mechanism to the administration in such cases. It will be encouraging if the Chinese Trade Mark Office would issue a set of protocols specifying such mechanisms and/or punishment.

vi. Increase of time period for renewal of registered trade marks

In the old Law, a registered trade mark can only be renewed within six months before its expiration date.

In the new Law, this renewal period is increased to 12 months: a registered Chinese trade mark can be renewed within 12 months before its expiration date, which provides more time and degree of freedom to Chinese trade mark owners.

vii. Various changes to the trade mark opposition procedure

Before the old Law, a decision of the Trade Mark Re- examination Board (“the Board”) was the final decision on oppositions against trade mark registrations. That was changed in the old Law, so that a request for re-examination of the opposition decision could be filed at the Board, and after that, a total of two appeals could be filed at the Chinese People’s Court. Opposition could be filed on any grounds under the old Law. Business competitors could use this to delay trade mark registration through such opposition procedures for an extensive period of time and it was noted that some oppositions were even filed in bad faith for extortion of settlement fees. Those who are familiar with patent invalidation in China might note that the above trade mark opposition procedures are similar for those in patents:

for trade marks, there was an additional chance to file a request for re-examination of the opposition decision. For the appeals at the Chinese People’s Court, the overturn statistics for trade mark opposition decisions was in fact even lower than that for patents at about 10%, compared to about 18% for patents in the last few years.

In light of the above, the new Law introduces several changes:

  • Grounds for opposition are more limited. Specifically, the new Law restricts opposition based on prior rights: only the prior rights owner and/or its licensees are entitled to file the opposition. By contrast, any person could file an opposition based on prior rights under the old Law. Both the old Law and the new Law allow anyone to file opposition based on absolute grounds, such as state name, identical or similar to the name or logo of an International organization, well-known geographical names, contrary to morals, and so on.
  • The new Law allows registration of a trade mark directly after an unsuccessful opposition. By contrast, the opposition applicants have additional three chances to delay the trade mark registration after an unsuccessful opposition (specifically, re-examination of the opposition decision at the Board, and two appeals at the Chinese People’s Court). This change is in line with TRIPS Article 62(5).

Although it is possible for the Chinese Trade Mark Office to directly register a trade mark after an unsuccessful opposition, this would not occur if there are multiple oppositions, as all of these multiple oppositions have to be examined. As such, it is still possible to delay registration of Chinese trade mark by filing multiple opposition requests.

Registration of trade marks directly after an unsuccessful opposition, however, shifts the balance of rights more to the trade mark owner side. This is because, although it is still possible to invalidate a registered trade mark after an unsuccessful opposition, the invalidation decision does not have retrospective effect on administrative and/or court decisions on infringement and/or compensations

viii. Good faith stipulations in the new Law

This is new to the new Law. However, it is uncertain how this provision is going to be used in practice. It appears that this is currently only a back-up principle that could be utilised by the authorities when necessary.

ix. Various changes with respect to the famous trade mark system

Under the old Law, there are various issues with respect to the use of a famous trade mark in China. Specifically, in practice, other than the function of prohibiting others to register and/or use trade mark that is the same or similar to a famous trade mark, a Chinese famous trade mark is frequently used for the promotion of goods or services as an honour. Such commercial use resulted in an artificial raising in standards of the recognition of famous trade marks in China.

In light of this, the new Law introduces the following changes:

  • Now, the only requirement of becoming a famous trade mark in China is that the trade mark is well known to the relevant public.
  • Recognition of famous trade marks has to be based on specific request from the parties involved in a specific case, and based on the facts established in that case to determine such recognition. The new Law also specifies that recognition in a case that a trade mark is a famous trade mark is only recognition of facts of that case, and is only relevant to the case in contention; it is not an honor granted to the respective goods or service. It is hoped that this would prevent the artificial lifting of the threshold for the recognition of famous trade mark in China.
  • The new Law also now prohibits the use of the expression “famous trade mark” on goods, packaging or container, commercials, exhibitions or any other commercial activities in the hope of removing the incorrect understanding by the public of the expression “famous trade mark”.

It has long been criticised that there are no clear rules on the recognition of clearly famous trade marks in China, and it is disappointing that the new Law also does not specify any. However, on 3 July 2014, the Chinese State Administration for Industry and Commerce (SAIC) issued a protocol. The major points to be noted from this protocol are:

  • The term “relevant public” is now specified to be:
    • Consumers of the relevant goods or services.
    • Manufacturers of the relevant goods, or providers of the relevant service.
    • Sales, marketing, and relevant personnel involved in the sales channels of the relevant goods/service.
  • The cases involving the Chinese Trade Mark Office in which famous trade mark may be recognized are specified as the examination of trade mark applications, handling of disputes involving trade marks including opposition, cancellation, invalidation and ownership, and cases involving invalidation of trade marks.
  • Materials which may be submitted when requesting recognitions of famous trade mark at the Chinese Trade Mark Office are specified in the protocol as follows:
    • Materials proving recognition of the mark by the Chinese public.
    • Materials proving the continuing time of use of the trade mark. For unregistered trade marks, the materials should not be less than five years, while for registered trade marks the materials involved should not be less than three years.
    • Materials proving time of continuity, level, and geographic scope of advertisement of the mark. Will foreign advertisement be accepted?
    • Evidence showing that the trade mark was protected in China or other countries and territories.
    • Other materials that could be used to show recognition include sales figures within the recent three years, market share, net profit, tax paid, and sales territory.
    • The time specified in the above requirements (three years, five years) refers to the trade mark application date for opposition and invalidation cases, and the date of application for protection for trade mark infringement cases.
    • For a request for recognition of a famous trade mark made at opposition, cancellation, invalidation, or infringement cases handled by the Chinese Trade Mark Office, such a request is subject to time limits on handling such cases (see section V above).

It is believed that this protocol will be welcomed by trade mark users as it clarifies various requirements on recognition of famous trade mark in China.

x. Prohibition of registration of trade marks used by business partners

This addresses an area which has been a major concern of businesses outside China. The new Law now specifies the above. The requirements to invoke this ground are:

  • The applicant has contractual or any business relationship with the partners and is apparently aware of the existence of the relevant trade mark.
  • The trade mark has been used by the business partner.

However, it is not clear whether such use must be in China only, or the ground is equally applicable if such use is in other places. Furthermore, evidence supporting this ground is expected to be subject to the same requirements in other legal proceedings in China, i.e. proper notarization and/or legalization are required. We have to wait and see the effect of this provision.

xi. Introduction of prior use defense

Mirroring the similar mechanism under the Chinese Patent Law, the new Law now introduces a prior use defense. Specifically, trade mark owners cannot prohibit a prior user from using the relevant trade mark within the original scope of use. The trade mark owner can, however, request suitable distinctive markings to be added in such a case.

It is believed that this new introduction would be welcomed as one of the remedies of trade mark hijacking. However, there are a lot of unclear points, particularly on the original scope of use including geographical territory, licensing and sublicensing, quantities and actual commercial scope, and so on.

xii. Enhancement on good faith and responsibilities of trade mark agencies

Some specific changes can be noted, including that trade mark agencies are not allowed to register trade marks in their own name that are not directly related to their business. This is an interesting requirement, reflecting that there are trade mark agencies in China doing this.

It is worth noting that the examination of trade mark agents was abolished in the old Law, and it is disappointing that the new Law does not re-introduce such examination. In fact, there is no regulation prohibiting anyone from calling themselves a trade mark attorney or agent in China at present. Cases involving so-called “black agents” running away and damaging the interests of trade mark applicants/owners without being punished are not unheard of. Although the Chinese Trade Mark Office has now introduced an agency recordal system, this system only records business details of the trade mark agency on a voluntary basis. As such, trade mark applicants/owners are recommended to scrutinize their Chinese trade mark attorneys more rigorously.

xiii. Various enhancements on trade mark enforcement

a) Raise in fines in administrative enforcement of trade mark infringement

Under the old Law, the maximum fine was:

  • three times of the turnover of the infringing act, if the turnover can be ascertained; or
  • if the turnover cannot be ascertained, 100,000 RMB.

Under the new Law, the maximum fine is based on the turnover of infringement as follows:

  • For turnover of infringement over 50,000 RMB, the fine can be up to five times the turnover.
  • For Infringement turnover of less than 50,000 RMB or with no infringement turnover, the fine can be any amount up to 250,000 RMB.

b) Increase of amount of statutory compensation

The statutory compensation (applicable when the loss to the trade mark owner, gain of the infringer, or compensation based on trade mark licence fees cannot be ascertained, which should be the primary basis of compensation to the trade mark owner if available) has been increased from

500, 000 RMB under the old Law to 3,000,000 RMB.

c) Introduction of punitive damages

This is newly introduced in the new Law. Compensation (loss to the trade mark owner, gain of the infringer, or multiple of licence fees, if any of these can be ascertained, or statutory damages) can be increased by up to three times as punitive damages for bad faith infringement of a serious nature. The introduction of such punitive damages was explained by the Chinese Trade Mark Office in that, in practice, the cost for defending a trade mark owner’s right is too high in comparison to the compensation obtained from the infringement actions.

However, is this really the case? The writer believes that the root of the problem is the difficulties for trade mark owners to prove the damages and cost for defending their rights at the court. Further, it is unclear what is the definition of “bad faith” and “serious nature”. In any event, it will be interesting to follow how such punitive damages would be effected in practice.

d) Introduction of evidence submission order

This only affects evidence in relation to the calculation of compensation in an infringement case. Specifically, when the trade mark owner has presented reasonably available evidence while books and information of the infringement is in possession of the infringer, the Chinese People’s Court can order the infringer to provide such books and information to ascertain the amount of compensation. In the event that the infringer does not provide, or provides false evidence, the court can refer to the claim and evidence of the trade mark owner to ascertain the amount of compensation. However, in practice the courts are already doing this, and the new Law merely makes this practice formal.

In actual practice, it is rare that any infringer would provide any information with respect to the infringement amount. Even if such information was provided, it is very difficult to ascertain its authenticity. In such cases, the court would have full discretion, but in most cases, the Court would merely reconcile difference regardless of principles.

e) Clearer definition of infringement

Under the old Law, in a trade mark infringement case involving use of the exact same trade mark on the same goods/services, it was possible to put up a defense that such infringing use would nevertheless not easily result in confusion.

However, under the new Law, it is no longer necessary to consider whether confusion would easily result when the same trade mark is used on the same goods/services; consequently, the argument of “not easily result in confusion” is no longer applicable as a defense in such cases.

However, it is still necessary to consider whether there would readily be confusion, as a requirement for trade mark infringement, for a similar trade mark used on the same goods/service, or same or similar trade mark used on similar goods/service.

f) Introduction of contributory infringement

Introduction of contributory infringement is introduced in the new Law. The provision of storage, transport, mailing, concealment and the like for trade mark infringing actions intentionally is also considered as infringement.

Although it is not clear what would constitute “intentional”, it is generally believed that prior warning in writing would assist in the establishment of intention.

Conclusion

It can be seen that the third revision to the Chinese Trade Mark Law has brought many changes, and most of these would be considered as positive. In general such changes would be welcomed by all trade mark users in China. However, some issues remain to be clarified, for example the definition of bad faith infringement. It is believed that such may become clearer when the new Law is put into real practice.

Author: Toby Mak, Tee & Howe Intellectual Property Attorneys. ©2014.

These articles were published in the August 2014 issue of the UK Chartered Institute of Patent Attorneys (CIPA) Journal, and are re-posted here with the kind permission from the UK CIPA. The UK CIPA Journal covers updates, articles and case law reviews on IP in the UK, Europe, and around the world. The Journal is available for subscription at GBP130 per year.

Further articles of the author can be accessed here.

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