China issues Draft Amendment to the Trademark Law – Will this change the game?

The Draft Amendment to the PRC Trademark Law (“the Draft”) was issued on 13 January 2023 by the China National Intellectual Property Administration (“CNIPA”) for public consultations and comments. This is the 5^th Amendment to the PRC Trademark Law which, since first came into effect in 1983, has experienced four Amendments respectively in 1993, 2001, 2013 and 2019.

In this 5^th Amendment, it seems China is determined to make some significant changes addressing the issues which have always been debated, in particular, the recurrence of bad faith filings despite the attempts made in the previous Amendments; worsening trademark hoarding which hinders entities with normal business needs and disrupts market order; repetitive yet unfruitful procedure leading to real challenges in trademark protection; and intensified abuse of rights up to increasing malicious litigations. It is specified in the legislation intent that the laws shall serve the “high-quality” development of the economy and society (Article 1).

Whilst the consultations and comments are due on the 27 February 2023, we believe the Draft – if finalised – will bring great influence on brand protection and management in China. Some of the key changes in the Draft include the following: 

1. Combatting bad faith filings

   A new Article (Article 22) is added in the Draft to specifically cover situations which would be considered as bad faith filings, including: 1) massive filings without intent to use; 2) filings in deceptive or other informal means; 3) filings which cause damage to the state interests, public interests or  other significant negative influence; 4) filings in violation of Articles 18 [well-known trademark], 19 [pre-emptive registration by agents or representatives], 23 [prior rights], deliberately damaging others’ legitimate rights or benefits or seeking unlawful profits and 5) other bad faith behaviours. It is worth noting that the Draft specifically adds “company name which has been registered and obtained certain influence” to prior rights under Article 23.

   Rejected or punished?

   The above bad faith filings may not only face rejection at the examination stage but also administrative punishment under the Draft.  The applicants for the bad faith filings may receive warnings from the trademark enforcement authorities or be imposed a fine of less than RMB 50,000; when serious circumstances are founded, the fine imposed can be up to a maximum amount of RMB 250,000 and any illegal gains could be confiscated (Article 67).   

   Another new Article added relating to bad faith filings is civil compensation (Article 83). It is stipulated that any parties which suffer losses from the bad faith filings may lodge civil actions and claim compensation covering at least reasonable legal costs for stopping such bad faith filings; if state interests or public interests are harmed, the procurators may initiate a public prosecution with the Courts.

   Mandatory transfer

   The Draft also introduces a new system under which it is possible for brand owners to retrieve their brands pre-empted by others through administrative proceedings (Articles 45-47).

   If a registered mark violates Articles 18 [well-known trademark], 19 [pre-emptive registration by agents or representatives], 23 [prior rights], the prior right owner can request such mark to be transferred back to its own name in an invalidation action. The CNIPA may accept such request if it finds the ground for such request sound and considers that the transfer would not cause confusion or negative influence, or it may simply decide to invalidate the mark.  In case a transfer decision is made, it shall become effective if the registrant does not file any appeal. The applicant who requests the transfer will then enjoy the trademark right upon publication of the transfer decision.

2. Strengthening use obligations and tackling trademark hoarding

   Another significant change made under the Draft is the requirement of use.  To file a trademark application, the applicant should have the needs of trademark rights due to its actual use on the goods/services or commitment to use (Article 5).

   Statement of use

   Trademark registrants will be required to submit statement of use. It is stipulated under a new Article that a registrant should, within 12 months after each 5 years since a trademark is registered, file a statement with the CNIPA proving status of use or providing any legitimate reason for non-use (Article 61). The statement will be subject to spot check on its authenticity and the registered mark will be cancelled if the statement is founded to be unauthentic.

   If no statement is filed voluntarily within the required time limit, the registrant will receive a notice from the CNIPA and if no response is filed to such notice within 6 months, the registered mark will be deemed as abandoned.

   In relation to trademark use, it is added in the Draft that use through information networks such as the Internet would constitute trademark use (Article 59).

   Cancellation not just based on non-use

   It is commonly known that a registered mark can now be cancelled by any third parties based on the ground of non-use.  In the Draft, a cancellation action can be filed on other basis (Article 49): if the use would mislead public on characteristics of the products such as quality or place of origin or would cause harm to public interest or any significant negative influence, the CNIPA can make ex officio decision to cancel the registered mark.

   Repeated filings not allowed

   Re-filing may no longer be that straightforward under the Draft. It is provided that a trademark applicant shall, in respect of the same goods or services, own only one registration when it comes to the same mark (Article 14).

   A new Article is added in the Draft prohibiting repeated registrations (Article 21): a trademark application shall not be the same as prior application filed or registration owned by the same applicant.  Besides, a trademark applied for shall not be the same as a prior mark which has been revoked, cancelled or invalidated within one year (Article 21).

   There are exceptions provided under the Draft - repeated registration would be allowed if the applicant agrees to revoke the prior mark or if:

   1) At the needs of production and operation, minor changes are made to the prior mark in use and the differences can be explained; 2) The prior mark fails to be renewed due to the reason not attributable to the applicant; 3) The prior mark is cancelled due to failure of filing statement of use, but the prior mark has been in use; 4)  The prior mark is cancelled as, due to the reason not attributable to the applicant, no valid use evidence was submitted in defence of a non-use cancellation but the mark has been in use; 5) The prior mark has been invalidated on the basis of others’ prior rights but such prior rights no longer exist; 6) there are any other legitimate reasons.

3. Streamlining trademark procedure

   Changes to opposition proceedings

   Under the Draft, it may take less time for a trademark to be registered.  First, the opposition period is shortened from 3 months to 2 months from the date of publication (Article 36). Second, the review procedure is completely removed for opposition proceedings. According to the current Trademark Law, the opponent would not be able to file review if the opposition is dismissed but the opposed party is entitled to file a review if the opposition is upheld. In the Draft, no review procedure is available to the opposed party – it can only file a court appeal if the opposition is upheld (Article 39).

   For trademarks which are in violation of Article 15 [signs not allowed to be used due to inherent non-registrability], the Draft provides that the CNIPA can revoke the publication ex officio (Article 37).

   Suspension

   When the outcome of an administrative action is hinged upon the status of related cases, the CNIPA or the Courts may now exercise their discretion whether to suspend the examination or adjudication pending the related cases.  

   In the Draft, the CNIPA may keep such discretion, but the Courts are required to, unless obviously contravening the principle of fairness, adjudicate based on the status of the related cases at the time when the CNIPA’s decisions were made. In other words, if the circumstances have changed after the CNIPA’s decisions were made e.g., there are updates on the related cases, such change shall not be considered by the Courts in making the rulings on the appealed decisions (Article 42).

4. Banning abuse of right 

Other than state interests and public interests, the Draft specifically provides that legitimate rights owned by others shall not be harmed by any abuse of trademark rights (Article 9), or the relevant parties may request the CNIPA to cancel the trademark in question (Article 49).

No right to preclude

Under the current Trademark Law, a trademark owner cannot preclude others’ use of the mark when the latter have used the identical/similar mark on identical/similar goods and have obtained certain influence prior to its trademark application.

In addition to the above, to make the boundaries of exercise of trademark rights clear, the Draft further clarifies the scenarios where a trademark owner has no right to preclude others’ use which should be considered as normal practice in commerce (Article 62):  1) when the use of one’s own name, title or address is in good faith;2) when the use is to describe the type, nature, quality, function, usage, weight, quantity, value, geographical origin and other characteristics of the goods, or when the name of a place, generic name of the goods, graphic, model, technical term or other descriptive sign is used and contained in a registered mark; 3) when the use only has the purpose of indicating the function, applicable object or context of the product, except if such use would mislead the public.

Malicious litigation

Malicious litigations have been mentioned since the 4^th Amendment to the Trademark Law in 2019 - in the event of malicious trademark litigation, the Court shall impose penalties on the parties who filed it.

The Draft further adds that it is possible to make counterclaims if losses are caused to the other party. It is provided that the amount of compensation shall include the reasonable expenses paid by the other party to stop the malicious trademark litigation (Article 84).

Other than the highlights above, the Draft contains other amendments which would also be of importance, such as broadening the protection of well-known trademark, refining Articles in relation to trademark infringement, tightening requirements on trademark agencies, digitalising the trademark industry, and emphasising the national strategy on brand protection. Overall, the Draft expands the PRC Trademark Law to 10 chapters and 101 Articles; hence we can see that the extent of change is significant and may have great influence on strategizing brand management and protection in China. We very much look forward to finalisation of the Draft and the following Implementing Regulations in the near future.

Please see the link below for full text of the Draft (in Chinese): https://www.cnipa.gov.cn/art/2023/1/13/art_75_181410.html