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How to Respond to Drastic Amendment to China Trademark Law by the Right Holder

Unitalen Attorneys at Law China


On January 13, 2023, the China National Intellectual Property Administration (hereinafter referred to as the "CNIPA") issued the Bill to Revise the Trademark Law of the People's Republic of China (Exposure Draft) (hereinafter referred to as the "exposure draft"), officially commencing the fifth amendment to the Trademark Law of China. As can be seen from the published exposure draft, the number of articles in the Trademark Law has been expanded from 73 to 101, with only 27 in the existing Trademark Law retained, 45 substantially amended, and 23 newly added. This amendment is a "major surgery" on the existing Trademark Law, and many knowledges and practices formed in the past will be changed.

Starting from the background of the amendment of the Trademark Law, this paper will sort out the key amendments that have the greatest impact on trademark practice, and discuss the reasons behind the amendment, the possible influence and the countermeasures that shall be taken by a right holder. Obviously, the amendment of the Trademark Law in question is only an exposure draft instead of a formal law. Hence, it is all the more necessary for us to explore the motives and possible influence of the amendment. In the face of such significant amendment, it may be too late to deliberate over countermeasures after the formal law is issued.

Background of Amendment

Prior to the discussion of the detailed amendment of the Trademark Law, let's first take a look at the background and intent of the amendment from two key words for better understanding.

The first is quantity. According to the data released by the CNIPA at the beginning of this year, the number of valid registered trademarks existing in China is 42.672 million, and the number of trademark application last year is 7.516 million. Up to 40 million trademark registrations and millions of trademark applications each year would pose tremendous pressure on the examination and administration of any country's intellectual property office. Not to mention, the huge number of applications and registrations is only a tip of the iceberg, and the rising number of cases such as rejection, review, opposition, cancellation, invalidation and the like brought about thereby puts more pressure on the CNIPA. Therefore, one of the main purposes of this amendment is to bring down the quantity.

The second is speed. Over the years, the CNIPA has been devoting to speeding up the examination, regarding speed as one of the most important indicators of achievement. This is understandable, since speed is easier to quantify than the quality of examination, and in most trademark proceedings, faster examination does meet the expectations of the parties involved. There is no doubt that it is best to take both efficiency and quality into consideration in the process of examination, but when the quantity is large enough, it becomes difficult to consider both. As a result, the contradictory complex of quantity and speed has always controlled the change direction of examination practices and law amendments.

Next, this paper will introduce the relevant amendment in the exposure draft from the two aspects of procedure and substance, in which the above two keywords can be seen everywhere.

Procedural Amendment

I. Prohibition of Repetitive Application

According to Article 21 of the exposure draft, a trademark for which an application is filed shall not be identical with the applicant's earlier trademark which the applicant has applied for, or has been registered, or has been removed, canceled, or invalidated within one year before the date of the application, for identical goods. In short, the same applicant cannot own two identical trademarks for the same goods or services. Besides, if the applicant's registered trademark has been removed, canceled or invalidated, the applicant is not allowed to repetitively apply for the same trademark for the identical goods within one year. The core motive of this amendment is to control the quantity of trademark applications, by preventing applicants from repetitively applying for registration of the same trademark for the identical goods due to trademark rejection or for defensive purposes.

In the current practice, many trademark applicants whose applications have been rejected will file the same application again while removing the right obstacles caused by citations. Therefore, in view of the above amendment, the applicant will certainly have a concern, that is, after the trademark application is rejected by the CNIPA based on prior trademarks, how to ensure that his/her application can fill the vacancy in the proper order after the status of the citations is determined, if therepetitive application is not allowed. In particular, since the CNIPA generally does not consider suspending the examination of review of refusal in practice, and the speed of the examination of review cases has been continuously accelerating, it appears that the applicant has nothing but one option to appeal the review decisions with the court if the repetitive application is prohibited. Such concern makes the amendment of prohibition of repetitive application highly controversial.

However, the good news is that on June 13, 2023, the CNIPA issued a notice regarding the Criteria for the Suspension of Examination of Review Cases, which introduced the specific circumstances in which the examination of various types of review cases should or can be suspended. According to this notice, the suspension of examination is applicable to most of the circumstances in practice, such as the above-mentioned review of refusal in the case where the stability of right of citations is to be determined. This change occurred just five months after the release of the exposure draft, which can be seen as the CNIPA’s positive response to the trademark right holders' long-term appeal for suspension, and can also be viewed as necessary preparations for the implementation of the new trademark law to prohibit repetitive application. Thus, the prohibition of repetitive application will be very likely to appear in the new trademark law. In addition, although some exceptions are set for the prohibition of repetitive application in the exposure draft, there are some restrictions on application, which would bring about difficulties and uncertainties in practice. Therefore, the trademark right holders should prepare for prohibition of repetitive application.

How to prepare is a question. First of all, while there is still no restriction, the applicant should actively apply for the trademarks that require backup applications, in which the priority shall be given to the core trademarks and the defensive trademarks. For core trademarks, most right holders will build a "moat", that is, adequate trademarks are registered to maintain the stable rights of the core trademarks on key goods. However, quite a few right holders might be trapped in some misunderstandings, two of which are quite typical. One is that a key trademark is registered in a variety of designs or in combination with other elements for greater protection. China's current trademark use examination is very focused on the consistency of registration and use. If ten styles of one trademark are registered, but only one or two styles are used, the other styles would have a great risk of being canceled. In this way, the so-called "moat" is full of loopholes. So, for core trademarks, adequate registrations shall be accumulated in accordance with the forms of use. The other is that the classes of trademark registration are very scattered. Although many core trademarks are registered, some are in a variety of designs or in combination with other elements, others for non-key classes. The protection seems strong in amount, but actually weak in effect. In order to avoid such misunderstandings, the trademark right holders should have a clear understanding of both their key trademarks and the designated goods covered by them, should be meticulous when formulating the strategies for trademark registration, and cannot simply focus on the number of registrations alone.

The impact of prohibition of repetitive application on defensive trademarks is apparently fatal. When it comes to defensive trademark, the applicant does not use the registered trademark on the designated goods, and the registration only aims to prevent others from registration or use. In order to sustain the defensive effect, many applicants will repetitively apply for registration of the same trademark on the identical goods to prevent the trademark from being canceled by others due to non-use in three consecutive years. Once the amendment of prohibition of repetitive application in the exposure draft is adopted in the new law, this tactic will no longer work. In addition, as will be mentioned later, obligation of use is also added in the exposure draft, which further squeezes the living space of defensive trademarks.

 

II. Significant Adjustments in Trademark Opposition Procedure

In simple terms, there are two adjustments in the procedures related to trademark opposition. One is that the period of publication for opposition is reduced from three months to two months, and the other is that there will be no review procedure if a trademark is disapproved for registration upon opposition. The purpose of the two adjustments is to shorten the procedures and speed up the determination of rights. The shortened publication period requires the right holder to monitor the trademark publication in a more timely and accurate manner, and to decide whether to file an opposition more quickly, so as not to miss the opportunity for opposition, especially in the context of the cancellation of the review procedure upon opposition. Generally speaking, the cancellation of the review procedure should be good news for true right holders, since they are opponents in most cases. The cancellation of the review procedure means that, once the opposition is successful, review before the CNIPA will not be an option anymore and the opposed party can only file a lawsuit with Beijing IP Court. In view of the high cost and procedural complexity of the lawsuit, many opposed parties, especially trademark squatters, may give up the lawsuit. In this way, the true right holders can accomplish the purpose of combating trademark squatting through the opposition procedure alone.

In addition, shortening the period of publication for opposition may be a signal. If the amendment is brought into effect, it is likely that more procedures shall be shortened, such as the supplementary period after opposition, invalidation, or review of refusal is filed. Therefore, the right holders should not only keep an eye on the publication for opposition, but also make more efforts in the preservation of evidence of trademark use and reputation in advance, which will be specifically discussed below when obligation of use is introduced.

Substantive Amendment

This substantive amendment is huge but could be summarized as "emphasis on use" and "combat against bad faith" in general. Hence, this paper will introduce the substantive amendment in this exposure draft from the two points.

I. All-round Emphasis on "Use"

1. Higher Threshold and Requirements for Application

When a trademark application is submitted, the exposure draft requires that only trademarks that are used or undertaken to be used can be applied for registration, that is, the requirement of intended use is added. In practice, the CNIPA may require the applicant to submit a statement of use or a letter of commitment to use. There is obviously no great difficulty in meeting this requirement. However, there is another very controversial article existing in this exposure draft, that is, "a large number of applications for trademark registration which are not filed for the purpose of use" will be regarded as malicious applications that disrupt the order of trademark registration. At first glance of the provision, we probably think of the situation where trademark squatters register a large number of trademarks copying or imitating others’ for profit. But the reality is certainly more complicated than that.

Carefully investigating the constitutive elements of the above article, we will find that the core constitutive elements are "use" and "a large number". How to check whether a trademark application is for the purpose of use? As mentioned above, the most the CNIPA can do is to request the applicant to submit a statement of use or a letter of commitment to use. So the constitutive element of “use” can be easily fulfilled. In order to realize the purpose of reducing the number of applications, the examination focus of the CNIPA will naturally fall on the other element, "a large number". If the threshold for "a large number" is too high, the newly added article will perform practically no function; if the threshold is too low, many applications for normal protection will inevitably be affected. The above amendment is well-intentioned, but it is a difficult task to strike a balance between "purpose of use" and "a large number".

Given that one of the purposes of the amendment is to reduce the number of applications, once the above amendment takes effect, we should expect that if an applicant applies for several trademarks or one trademark in several classes, such behavior is apt to be treated as malicious applications. In fact, since 2022, the CNIPA has begun to issue office actions on some trademark applications, on the grounds that these applications are suspected of being malicious applications that are not filed for the purpose of use. Therefore, the addition of the above article in the exposure draft can be seen as a reflection of the changes in trademark examination practice in the amendment of the Trademark Law. Moreover, in line with the current practice, the threshold for triggering malicious applications is not high. Therefore, there is a high probability that once the above amendment takes effect, the trademark application will become more difficult.

2. New Obligation to Submit a Statement of Use after Registration

Use requirement is not just added for trademark applications. The exposure draft also brings the obligation to use the trademark after registration to our law for the first time. To be simple, the applicant is required to voluntarily submit a statement of use every five years after registration of trademark. This is similar to the "Declaration of Use" system in the United States. Since China implements the “first-to-file” system, it is of great significance to add the requirement of "voluntarily submitting a statement of use" under this system.

According to the provisions in the exposure draft, the registrant shall take the initiative to file with the CNIPA a statement of use of the trademark within 12 months every five years after registration; if the registrant does not take the initiative to file a statement of use within the time limit, the CNIPA may require he/she to make a statement within six months; if no statement is submitted, the registration will be canceled by the CNIPA. In order to prevent any false statement, the exposure draft also provides a spot check system, that is, the CNIPA or the local intellectual property authority delegated by the CNIPA can conduct spot checks on the statement and require the registrant to submit supporting evidences, and if the statement is found to be inauthentic, the trademark registration will be canceled. Obviously, the above provisions need to be further specifiedin practice, but it is certain that once the law is amended in accordance with the above, the use of trademark will be an issue that enterprises must take the initiative to pay attention to. In addition, it should be mentioned that the exposure draft also provides penalty provision for submitting false materials in all trademark procedures. If any party involved deliberately submits false materials, in addition to bearing adverse consequences in the corresponding proceedings, it may be given a warning and fined not more than RMB 100,000 by the trademark administrative authority according to the circumstances.

While the prohibition of repetitive applications and a large number of applications both aim to reduce the number of trademark applications, the requirement for statement of use of trademark is to reduce the number of registrations. There is no doubt that once the amendment goes into effect, trademark applications, especially applications for defensive trademarks, will become extremely difficult. For defensive trademarks, they cannot be repetitively filed due to the added prohibition, and also face the requirement for statement of usefive years after registration. Thus, the registration space shall be completely compressed. What’s more, the trademark registrant who is negligent in using his registered trademark will also face the same dilemma as defensive trademarks.

3. How to Deal with New Requirements for "Use"

First of all, the right holder needs to have a clear and accurate knowledge about its trademark applications and registrations in China, mainly focusing on two points: first, whether the trademark protection is in place, and second, whether the registered trademark is used. Trademark protection in place should focus on both trademarks and goods, that is, the key trademarks should be registered on all relevant goods. For those trademarks that do not have protection in place, or are not used but with intent to use or need to be defended, it is advised to file an application before the amendment has not yet taken effect. Despite the introduction of the requirement for statement of use, China remains to be a first-to-file country, the importance of trademark application not been cut down, and application still the most important, convenient and cost-effective way to achieve trademark protection. Even if some trademarks may face the risk of being canceled later because they are not used, such the risk of cancellation is not worth mentioning and the cost is low, compared with the at least 3-5 years' protection brought by registration.

In addition, trademark registrants, especially foreign registrants, need to establish trademark use plans and evidence preservation systems that are consistent with the characteristics of their industries and the conditions of their businesses under the guidance of Chinese trademark lawyers. In the future, timely preservation and submission of evidences of use will be crucial for trademark protection in China. In the face of new changes such as the shortening of the publication period for opposition and the addition of the obligation to state the use of trademarks, the registrants will be on a very passive position if having to collect evidences of use from everywhere when be requested to do so. And, in addition to the new changes, there are old problems. At present, the letter of consent is still difficult to be recognized in practice. Coupled with the possibility of suspending the review examination, it is foreseeable that more trademark applicants will file nonuse cancellation applications for the need to clear up prior rights, which itself is a realistic challenge for trademark right holders.

 

II. Combat against "Bad Faith" in All Procedures

"Bad faith" is a perennial problem in China's trademark practice. The amendment of the Trademark Law has given great attention to the solution of this problem, and a large number of articles have been amended to solve the problem of bad faith, which is undoubtedly good news for the true right holders. Most obviously, the revised articles in the exposure draft greatly expand the circumstances under which bad faith can be determined. These circumstances of bad faith can not only be used in the procedures of trademark right granting and verification such as rejection, opposition and invalidation, but also serve as the basis for administrative complaints and civil litigations.

1. Expansion of Circumstances of Bad Faith and Introduction of Compulsory Transfer

As said, circumstances determined as bad faith are expanded in the exposure draft. The first is that a large number of applications not for the purpose of use, as mentioned earlier when talking about "use", shall be taken as bad faith. Although it is stated earlier that such a "quantity" measurement is easy to exert an adverse effect on the true right holder, this provision undoubtedly provides the true right holder with a valuable weapon from the perspective of combating the bad faith. Like the old saying goes, anything is a double-edged sword. The second is that applying for trademarks by fraud or other illicit means is bad faith. According to the current Trademark Law, "fraud or any other illicit means" is, strictly speaking, only applicable to the procedure of invalidation. The amendment expands the application of this provision to both rejection and opposition procedures, and would undoubtedly combat the applications in bad faith in broader scopes. Beyond that, the circumstances of squatting well-known trademarks, squatting trademarks by the specific interested party, and squatting trademarks infringing others’ prior rights or others' trademarks in prior use and with a certain influence by illicit means, which are only applicable in the procedures of opposition and invalidation in line with the current Trademark Law, is also defined as bad faith in this amendment, and the CNIPA can ex officio reject the relevant applications.

The exposure draft also introduces a system of compulsory transfer of trademarks squatted in bad faith. Under the three circumstances of squatting well-known trademarks, squatting trademarks by the specific interested party, and squatting others' trademarks in prior use and with a certain influence by illicit means, the right holder may request either the invalidation of the trademark or the transfer of the trademark to himself/herself when filing the invalidation application. This amendment has been expected by many true right holders for a long time and thus quite encouraging. Nevertheless, there are limits to the compulsory transfer. First of all, the compulsory transfer is only aimed at registered trademarks, that is, it can only be requested in the invalidation procedure, and not applicable in the opposition procedure. Secondly, the request for compulsory transfer can be made only under the above-mentioned three circumstances of squatting. That is to say, the trademark can only be transferred to the true right holder. Furthermore, there must be no absolute grounds for invalidation of the trademark; and the transfer must be less likely to create confusion or adverse effects. Otherwise, it is only the request for invalidation of the trademark that can be made in an invalidation application.

How should true right holders respond to the expansion of circumstances of bad faith and the introduction of compulsory transfer? First, it is necessary to do a good job in the preservation of the evidences of their own use of trademarks. As stated above, a compulsory transfer can only be requested under the three squatting circumstances. It should be acknowledged that the essential connotation of “squatting” is the right holders’ use of their own trademarks. Besides, the effective and timely preservation of evidence is also crucial given the new requirements for "use" as introduced above. Second, it is still necessary to file a backup application when an opposition or invalidation is filed based on bad faith. This strategy is strongly recommended in the current trademark practice, mainly to prevent trademark squatters from filing an application again, and to let the true right holder acquire the right. It will still be recommended after the amendment. First of all, there is no compulsory transfer in the opposition procedure, and in order to acquire the right, the applicant must apply for it. At the same time, it is necessary to prepare for the failure of invalidation, and even if it could be successful, it would still be necessary to assess whether the transfer could be granted due to the constraints of compulsory transfer. In addition, although the repetitive application is prohibited, it is advisable to take precautions against the possibility that the trademark squattersmight file backup applications in a new identity. In short, as repeatedly emphasized in this paper, no matter how the application is restricted, the use is emphasized or bad faith is combatted, it is still the most important thing for the true right holders to make every effort to register their trademarks, according to China's current trademark practice. Whenever it comes to the foremost concern in making trademark strategy in China, it must be “application for registering trademark”.

2. Increase of Administrative and Civil Liability for Bad Faith Squatting

In addition to expanding circumstances of bad faith and introducing compulsory transfer, the amendment is also added with administrative and civil liability for bad faith squatting.

First, let's look at administrative liability. In the circumstances of bad faith introduced earlier, the amendment raises the upper limit of the administrative fines for applicants in serious cases to RMB 250,000 yuan, and requires that the illegal income shall be confiscated. Moreover, the trademark agency that obviously knows or should have known the bad faith of an application but still acts for it can also be fined up to RMB 100,000 yuan, and will be suspended from trademark agency businesses in serious cases. Therefore, once the above amendments take effect, for any application or registration in bad faith, the true right holders can not only file opposition or invalidation, but also entrust a law firm to send a letter to the applicant in bad faith or the agencies acting for the application in bad faith to demand them withdraw or cancel the application or registration in bad faith , or directly file an administrative complaint with the local Market Supervision Administration to request  administrative penalties on them.

Then let's look at civil liability. When the application or registration in bad faith involves the circumstances of bad faith of squatting well-known trademarks, squatting trademarks by the specific interested party, and squatting trademarks infringing others’ prior rights or others' trademarks in prior use and with a certain influence by illicit means, the applicant with bad faith shall give the true right holder civil compensation, and the compensation shall at least include the the right holder’s reasonable expenses in acting against the bad faith application. With reference to the current cases of seeking compensation for bad faith squatting based on the Anti-Unfair Competition Law, such “reasonable expenses” may include the expenses on filing opposition and invalidation, the necessary costs of right protection, the losses caused by the forced shelving of business plans, and the like. Such amendment is good for the true right holder, not only because the right holder can get compensation for the losses caused by bad faith squatting, but also because this penalty will effectively deter the trademark squatter, thereby bringing down the bad faith squatting from the source.

3. Introduction of a System of Compensation for Bad Faith Litigation

If a registrant files a civil lawsuit against the true right holder based on the trademark registration squatted in bad faith, the court may not only reject its requests, but also directly impose penalties on the registrant. The true right holder as the defendant may also require the bad faith registrant to make civil compensation in the lawsuit, and the compensation should at least include the reasonable expenses of the true right holder to act against the bad faith litigation. This amendment will also greatly deter those squatters who seek illicit benefits through trademark squatting, and at the same time resolve the infringement risk caused by squatting for the true right holders.

Summary

At the beginning of this paper, it is stated that this amendment is a "major surgery", and thus the contents introduced herein are inevitably not exhaustive. Nevertheless, if there had to be a summary of the contents of this exposure draft, the following keywords should suffice: "bad faith", "application", and "use". The exposure draft is comprehensive for the determination of and combat against the circumstances of bad faith. The true right holders can have adequate confidence to actively protect their rights, and due to the added liability of civil compensation for bad faith squatters, the true right holders should also be more motivated to spend money on trademark protection. But it must be reiterated that the basis of trademark protection is to have trademark rights in hand. The fact that China's trademark protection system is still based on the first-to-file principle has been unchanged, and the idea of trademark registration going ahead of commercial use needs not be swayed. Enterprises should still put trademark application at the core to plan the trademark protection strategies, making their registrations the sharpest spear in enforcement and solidest shield in defense. In addition, it must be realized that the life of a trademark lies in its use, and trademark registration should never be in the way of flood irrigation, but in the way of shooting arrows at the target.

The Chinese trademark protection environment has been continuously improved in the recent ten years since the dramatic amendment of China Trademark Law in the year of 2013. And with the advance of the amendment this time, it could be believed that the environment shall be even more dramatically improved. In order to make the best use of the amendment, the trademark right holders should re-examine their own trademark protection strategies, combine application and use organically, and pursue proper protection of their own rights and interests.

In a word, with equal attention to "combating bad faith", "taking the initiative to apply" and "attaching weight to use", the trademark right holders will achieve a robust success in the context of the new law.

Unitalen Attorneys at Law



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Unitalen Attorneys at Law

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