For anyone having experienced the Chinese trade mark process, they will be well aware it can be a difficult system to beat. In 2012, for example, Apple’s dispute over the iPad trade mark cost them £40m in a settlement to buy the registration from a Chinese owner before Apple could use it in China. Whilst not technically a trade mark squatter the Chinese company had registered the trade mark long before Apple was ever interested in the mark, which highlights some of the issues caused by China’s first-to-file trade mark system.
The overwhelming problem for seeking registered trade mark protection in China is the number of ‘bad-faith’ filings made by, among others, trade mark squatters wanting to take advantage of the system. For owners of high profile and luxury consumer brands this has caused many a headache in the past but now the Chinese authorities are trying to ease the problems with proposals to change their laws and practices which would help clear the Register of filings made in bad faith and act as a deterrent to squatters carrying out bad faith activities.
The intent behind the proposed changes is set out in Article 1 of the proposed new Chinese legislation which includes objectives to protect the legitimate rights and interests of trade mark owners and to safeguard the rights and interests of consumers and social public interests, among others. Whilst there is at least another three to five years before the draft legislation becomes law, for many legitimate trade mark owners the proposals will be pleasing. Below we comment on the key changes proposed.
Bad faith is a serious claim
- The proposals to strengthen the remedies available against bad faith filers can only be a positive development and are very much welcomed. Whether the proposals will work in practice remains to be seen, however, given the nature of bad faith allegations and the high burden of proof involved. Successful claims will presumably be dependent upon the extent of evidence required to show bad faith.
- The increase in fines for bad faith applicants is pleasing. Penalties need to be high in order to act as an effective deterrent especially where, for example, Chinese counterfeiters use trade mark squatting as an additional side line to maximise profits. It is noted that the proposed Article 32 provides the possibility of a fine of up to RMB 100,000 (circa £12k) for an applicant who provides false information or documents in support of an application which seems very onerous but for the purposes of trying to purge the Chinese Register of bad faith filings we would hope is key in deterring bad faith filers. The introduction of minimum and capped fines of RMB 50,000 (circa £6k) and RMB 250,000 (circa £30k) in more serious cases of bad faith activities will hopefully reduce the number of bad faith filings.
Fabricated evidence of use
- The draft legislation proposes the introduction of an obligation to file a statement of use in respect of registered trade marks every five years. This does not strike us as a particularly useful tool, other than to perhaps avoid the need for filing non-use cancellation proceedings against unused marks. Of more concern is the frequency in which fabricated evidence is submitted in defence to cancellation actions, which suggests that statements of use will still be filed in China even if the marks in question are not actually in use. In the US, the US Trade Mark Modernisation Act was recently implemented to address similar problems with the rise in fraudulent registrations. The US Trade Marks Office, in combatting similar instances of fraudulent specimens, has deployed a number of methodologies including rapid image matching and AI assisted filtering to analyse specimens for authenticity. We wonder how stringent checks of specimens will be and whether the Chinese Trade Marks Office will use similar technology (if at all) to the US. Whilst the draft changes indicate there will be ‘spot checks’ of evidence we assume the extent of these will effectively determine a bad faith registration from a genuine one.
- High profile brands have often been the target of trade mark squatting. The draft legislation proposes an extension to the grounds of cancellation to encompass conflicts with earlier well-known marks and to strengthen protection for these to encompass enforceability against dissimilar goods/services. Whilst this is clearly a positive development, clarity on what evidence is required to show that a mark is well-known would be of value. For example, what kind of evidence would be required to prove ‘the value of the trade mark’ which appears to be an additional consideration under Article 10.
Moreover, given the introduction of ‘dilution’ to broaden the protection for well-known marks, it is unclear what evidence and arguments would be needed to prove this, and whether the burden of proof would be high in this regard.
There are many well-known brands we could name but past experience tells us that not all of them would satisfy the high evidential benchmark set in the current laws.
Prohibition of illegitimate re-filings
- Any proposals with the aim of reducing the number of bad faith and defensive filings is pleasing. The prohibition of repeat trade mark filings will be very welcome, and will hopefully address the problem of a third party refiling for the same mark whilst non-use cancellation proceedings are ongoing against that party’s earlier mark (which at present can render the non-use cancellation action wholly superfluous, since even if successful there may still be a conflicting right on the register). Of course, there will be instances where legitimate repeat filings are made which are likely to be caught by the proposed Article 21 exceptions but how strictly these are interpreted will likely determine the effectiveness of these proposals. Will the permitted instances of re-filings be non-exhaustive for example?
- The draft proposals allow for suspension of the prosecution of pending trade mark applications until related cancellation (non-use) proceedings have been determined. This situation often occurs where a vulnerable prior right is raised by the examiner as an objection to a trade mark application and a non-use action is filed against said prior right. It is often the case that the examination of the pending application is concluded sooner than the cancellation action, such that the application is refused. Then, if the non-use action is successful, it becomes necessary to file a fresh application. We see this change as helping many legitimate brand owners work their way through the registration system in a more efficient and cost-effective manner.
E-commerce and social media in China
- In regards to e-commerce, internet and on-line proof of use, the proposals to update and align trade mark laws with the reality of on-line use and infringement is very positive. It seems that cases of online trade mark infringement will have a much stronger legal basis to prove an infringement has occurred, than previously. However, we see some potential conflict between this opening up of on-line infringements and the Chinese government censorship of the Internet and social media, particularly for western and US businesses. We wonder how the two will interact and it will be interesting to see how these types of cases fare under the new laws.
Streamlined trade mark procedure
- The removal of the review procedure following an opposition is aimed at streamlining the trade mark process, as well as reducing costs. In the case of an application that is successfully opposed, if the applicant wishes to challenge the decision it will be necessary to file an administrative appeal with the courts. However, this would effectively force the applicant straight into the courts which, compared to the current review procedure, is an often expensive and bureaucratic process, particularly if you are a foreign appellant. This is unlikely to be appealing to an applicant.
- From the perspective of a first to file territory, an interesting proposal is the introduction of prior ‘use’ where the user and a later filer both use an identical or similar trade mark that has gained a ‘certain level of influence’ prior to the registration for its use on similar goods. In this situation, the owner of the trade mark is not permitted to prohibit the user from continuing to use the trade mark in the way it was originally used. However, it is unclear as to how a ‘certain level of influence’ of the prior use will be interpreted. Moreover, what is the value of this proposal if in any event the proprietor can request the addition of another element to distinguish the trade marks? Overall, however, this seems another positive step in the right direction of preventing abuse of registered rights to prevent legitimate, bona fide use. Perhaps Apple may have had a better experience over the iPad trade mark if this was law at the time.
- Preventing the abuse of registered trade mark rights has also heavily influenced the proposals for new defences to infringement. They resemble those of the UK’s Trade Marks Act 1994 and provide for defences for use of one’s own name, descriptive use, and use indicating the function of an object (unless misleading) if the uses are considered as ‘normal practice in commerce’ which seems akin to the UK’s requirement of use in accordance with honest practices in industrial or commercial matters. Again, these changes are positive and welcomed in combatting unscrupulous users of the Chinese trade mark system.
Tighter regulation of agents
- Whilst the vast majority of Chinese agents offer their services in a professional and ethical manner there are those that do not and so stricter regulation and controls on those that practice is good to see. It is pleasing to see, for example, provisions that will make Chinese trade mark agents accountable if in breach of ethical codes and practices.
It remains to be seen whether the proposed new legislation in China will be implemented in its present form, and we will continue to monitor developments in this regard moving forward.