Can the Legitimacy of a Trade Mark Be 'Cleansed' through Assignment and Use?

In recent years, there have been frequent disputes regarding the assignment and invalidation of ‘bad faith’ registered trade marks. The core issue at hand is whether the assignment and subsequent use can effectively “‘legalise” these bad faith trade marks. In this article, we will discuss the adjudication logic of the judicial and administrative authorities through three typical cases, while also exploring the jurisprudential disputes surrounding this matter.

Case 1: Invalidation of the Trade Mark “XIAOMI CERAMICS” Case [(2023) Jing Xing Zhong No. 5554]

The disputed trade mark “XIAOMI CERAMICS in English and Chinese characters with the MI logo” (Registration No. 10601582), was originally registered by Company A for tiles and other goods in Class 19 and was later assigned to Company B. Xiaomi Technology Co., Ltd. (a technology company in China famous for providing smartphones and electric cars) filed a petition for invalidation on the grounds that the registration was a result of large-scale trade mark squatting. The China National Intellectual Property Administration (CNIPA) determined that the original registrant and the assignee were affiliated with each other, noting that the legal representatives were cross-serviced and the shareholders were overlapping. The CNIPA concluded that Company A’s bulk registration of more than 20 marks or signs similar to the well-known marks of others, such as Xiaomi, constituted a case of “obtaining registration by other improper means,” and ruled that the disputed registration should be invalidated. The courts of both the first and second instances upheld the decision, stressing that the illegality of registration in bad faith would not be eliminated by the transfer of ownership.

Case 2: Invalidation of the Trade Mark “Love Rice Island” and reversal of the case [(2023) Jing Xing Zhong No. 7385].

The disputed trade mark “Love Rice Island in Chinese characters” (Registration No. 8475783) was registered by a company in Class 43 for services such as restaurants and underwent several assignments to Mr. Fan. Subsequently, Mr. Wang filed a request for invalidation, citing that the aforementioned company had hoarded trade marks and maliciously snatched others’ brands for profit, which constituted “obtaining registration by other improper means.”  The CNIPA rejected the petition, partly because Mr. Fan had already used and advertised the trade mark. The court of first instance upheld CNIPA’s decision [(2023) Jing 73 Xing Chu No. 6959]. However, the court of second instance overturned the original decision, noting that the original registrant had applied for over 80 trade marks, many of which imitated famous brands. The court emphasised that the transfer of ownership and actual use could not rectify the inherent flaws associated with registrations made in bad faith.

Case 3: “Yuanbei Driving Test” Unfair Competition Case [(2022) Shaan Zhi Min Zhong No. 139]

Nanjing Yuanbei Information Technology Co., Ltd. (“Nanjing Yuanbei”) used the trade name “Yuanbei” (in Chinese) for driving test training services and developed mobile applications, “Yuanbei Driving Test” and “Yuanbei Coaching,” which gained a substantial user base and reputation.

Xi’an Love Technologies Co., Ltd. (“Xi’an Love”) acquired the trade marks “Yuanbei” (in Chinese) and “Yuanbei Driving Test” (in Chinese) (Registration Nos. 14484123, 15442805 & 14485042) from a Shanghai company for computer programming, vocational retraining and other services. Xi’an Love licensed these trade marks to its subsidiary, Xi'an Yuanbei Technology Co. Ltd. (“Xi'an Yuanbei”).

Subseuqently, Xi'an Yuanbei filed several trade mark infringement complaints against Nanjing Yuanbei, resulting in the removal of Nanjing Yuanbei’s apps from online markets. In response, Nanjing Yuanbei sued Xi'an Love and Xi'an Yuanbei for unfair competition.

The court of first instance ruled [(2021) Shaan 01 Zhi Min Chu 1770] that Xi'an Love and Xi'an Yuanbei, as competitors, should have avoided infringing on Nanjing Yuanbei's prior use of its reputable trade names and app names, finding them liable for unfair competition for failing to do so. The court of second instance found that the original trade mark registrant, the Shanghai company, had hoarded nearly seven hundred trade marks, many of which were similar to famous brands. It concluded that the trade marks in question resulted from improper appropriation of Nanjing Yuanbei’s brand and should not be legally protected. Additionally, the court determined that the acquisition and subsequent use of these trade marks demonstrated an intent to exploit Nanjing Yuanbei’s goodwill. Consequently, it found that both Xi'an Love and Xi'an Yuanbei jointly committed acts of unfair competition. Subsequently, these trade marks were declared invalid.

Divergence between Judicial and Administrative Discretion

From the above cases, it appears that the CNIPA places greater emphasis on formality checks, such as whether the assignee is an unrelated party and whether the trade mark is actually in use. This approach tends to favour bona fide assignees and seeks to maintain an already established and relatively stable market order, unless there is evidence of collusive malice. In contrast, the courts conduct a more thorough examination of the motives behind registration and the chain of rights transfer, adhering to the principle that defects in original rights cannot be remedied by subsequent actions and applying the theory of malicious continuation. The courts emphasise that if the registration act is illegal, then the transfer of ownership and subsequent use cannot alter the inherent defects in the rights, and furthermore, if there is a connection or collaboration between the original registrant and the assignee, the malicious attributes can extend to the assignee.

This divergence in discretionary considerations may reflect the efficiency orientation of administrative review, which favours maintaining transactional security, whereas judicial review focuses more on protecting prior legitimate rights and interests, highlighting the judicial principle that "malice cannot be rectified," aiming to fundamentally combat trade mark squatting and pre-emption.

Takeaways for Businesses

When determining whether a trade mark registration can be upheld, it is increasingly important for businesses to assess the motives of the original registrant. To safeguard their investments, enterprises should conduct thorough due diligence before acquiring high-value trade marks. This involves researching the registrant's background, their relationships with other entities, the number of trade marks they own, and any history of infringing on others' rights. By taking these steps, businesses can effectively avoid inheriting malicious trade marks that could jeopardise their investments.

Furthermore, if an enterprise discovers that its own trade mark has been squatted upon, it is crucial to proactively gather evidence of the original registrant's malice—such as trade mark hoarding, imitation registrations, and opportunistic use. In cases where the disputed trade mark involves a transfer of ownership, demonstrating the connection between the original registrant and the assignee can significantly enhance the likelihood of successfully invalidating the registration. Additionally, if the trade mark in question is being actively used, the enterprise should consider filing a civil lawsuit for unfair competition and seek damages. 

By taking these proactive measures, enterprises can better navigate the complexities of trade mark regulations, protect their investments and legitimate rights, and enhance their competitive position in the market, ensuring the integrity of their brand and reputation.