Chinese Trademark Law – major changes and practice notes, following the third amendments2014-03-15

The third amendment of the Chinese Trademark 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 Trademark Law (“the new Law”) came into force on 1 May 2014. The last amendment, the second amendment to the Chinese Trademark 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 trademark practice since then. There were a lot of expectations to the new Law to satisfactorily address such changes.

This article discusses the major changes in the new 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 trademark practice.

I      Extension of registrable subject matter

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

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

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

II     Clarification of grounds of revocation/cancellation due to lack of distinctiveness

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

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

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

III    Possibility of multi-class applications

Under the old Law, a multi-class trademark application is not allowed in China. That is, an individual trademark 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 Trademark 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 trademark application. Otherwise, a divisional application will not be accepted by the Chinese Trademark Office.

IV    Re-establishment of office action mechanism

Before the old Law, if the Chinese Trademark Office believed that it was possible to amend and/or further explain an application for registration, trademark 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 Trademark Office.

This office action mechanism is now re-established under the new Law. That is, for a trademark application which was considered to be defective but rectifiable by a Chinese trademark 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 Trademark 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 trademark application, although the next change apparently targets this issue.

V     Specification of time limits for trademark prosecution and re-examination in the law

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

In response, the new Law stipulates that:

  • Time of prosecution of trademark application is limited to 9 months
  • Examination of opposition against trademark application is limited to 12 months, which is extendable for 6 months
  • Re-examination against a rejection decision of trademark application is limited to 9 months, which is extendable for 3 months
  • Re-examination of opposition decisions is limited to 12 months, which is extendable for 6 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 trademark 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 Trademark Office would issue a set of protocols specifying such mechanisms and/or punishment.

VI    Increase of time period for renewal of registered trademark

In the old Law, a registered trademark can only be renewed within 6 months before its expiration date.

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

VII   Various changes to the trademark opposition procedure

Before the old Law, decision from the Trademark Re-examination Board (“the Board”) was the final decision on opposition against trademark registration. 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 trademark 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 trademark opposition procedures are similar for those in patents: for trademarks, 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 trademark 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. Of course, 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 name, contrary to morals, and so on.
  • The new Law allows registration of a trademark directly after an unsuccessful opposition. By contrast, the opposition applicants have additional three chances to delay the trademark 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 Trademark Office to directly register a trademark 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 trademark by filing multiple opposition requests.

Registration of trademark directly after an unsuccessful opposition, however, shifts the balance of rights more to the trademark owner side. This is because, although it is still possible to invalidate a registered trademark 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 not sure how this provision is going to be used in practice. It appears that this is currently only a back-up principle that could be utilized by the authorities when necessary.

IX    Various changes with respect to the famous trademark system

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

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

  • Now, the only requirement of becoming a famous trademark in China is that the trademark is well known to the relevant public.
  • Recognition of famous trademark 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 trademark is a famous trademark 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 trademark in China.
  • The new Law also now prohibits the use of the expression “famous trademark” 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 trademark”.

It has long been criticized that there are no clear rules on the recognition of clearly famous trademark 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 Trademark Office in which famous trademark may be recognized are specified as the examination of trademark applications, handling of disputes involving trademarks including opposition, cancellation, invalidation and ownership, and cases involving invalidation of trademark.
  • Materials which may be submitted when requesting recognitions of famous trademark at the Chinese Trademark 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 trademark. For unregistered trademark, the materials should not be less than five years, while for registered trademark 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 trademark 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 trademark application date for opposition and invalidation cases, and the date of application for protection for trademark infringement cases.
  • For a request for recognition of famous trademark made at opposition, cancellation, invalidation, or infringement cases handled by the Chinese Trademark Office, such request is subject to time limits on handling such cases (see section V above).

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

X     Prohibition of registration of trademark 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 trademark.
  • The trademark 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, trademark owner cannot prohibit a prior user from using the relevant trademark within the original scope of use. The trademark 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 trademark-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 trademark agencies

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

It is worth noting that the examination of trademark 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 himself/herself a trademark attorney or agent in China at present. Cases involving so-called “black agents” running away and damaging the interests of trademark applicants/owners without being punished are not unheard of. Although the Chinese Trademark Office has now introduced an agency recordal system, this system only records business details of the trademark agency on a voluntary basis. As such, trademark applicants/owners are recommended to scrutinize their Chinese trademark attorneys more rigorously.

XIII  Various enhancements on trademark enforcement

Raise in fines in administrative enforcement of trademark 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, RMB100,000.

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.

Increase of amount of statutory compensation

The statutory compensation (applicable when the loss to the trademark owner, gain of the infringer, or compensation based on trademark license fees cannot be ascertained, which these should be the primary basis of compensation to the trademark owner if available) has been increased from RMB 500,000 under the old Law to RMB 3,000,000.

Introduction of punitive damages

This is newly introduced in the new Law. Compensation (loss to the trademark owner, gain of the infringer, or multiple of license 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[Ed1] . The introduction of such punitive damages was explained by the Chinese Trademark Office in that, in practice, the cost for defending a trademark 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 trademark 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.

Introduction of evidence submission order

This only affects evidence in relation to the calculation of compensation in an infringement case. Specifically, when the trademark 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 trademark owner to ascertain the amount of compensation. However, in practice the court 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[Ed2] , but in most cases, the Court would merely reconcile difference regardless of principles.

Clearer definition of infringement

Under the old Law, in a trademark infringement case involving use of the exact same trademark on the same goods/services, it was possible to put up a defense that such infringing use would neverthelss 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 trademark 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 are requirement for trademark infringement, for a similar trademark used on the same goods/service, or same or similar trademark used on similar goods/service.

Introduction of contributory infringement

This is newly introduced in the new Law.  The provision of storage, transport, mailing, concealment and the like for trademark 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 Trademark Law has brought many changes, and most of these would be considered as positive. In general such changes would be welcomed by all trademark 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.

Authors: Toby Mak, Jie Zhang

©2014


 [Ed1]Does this mean that the owner can recover up to 300% of the compensatory amount [Toby: this], or that the owner can recover 100% of the compensatory amount AND up to 300% punitive damages?

 [Ed2]Is this correct? Toby: Yes. Sorry my typo

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