China: Introduction to the draft of the New Trademark Law of the PR. China

published on 14 September 2023 | reading time approx. 6 minutes

Since its promulgation in 1982, China’s Trademark Law has undergone four revisions. In order to prevent infringement, the Chinese government is in a constant fight to adapt its trademark law in all relevant legal fields. Because of a very dynamic and more digitalized business world, there is constantly increasing pressure for new adaptions and amendments.

In January 2023, China National Intellectual Property Administration (CNIPA) released the Draft of the Trademark Law of the People’s Republic of China (hereinafter referred to as the “Draft”) which aims to especially hinder the hoarding of trademarks and protect existing trademarks. Furthermore, the Draft strengthens measures to strike down malicious applications through various approaches including the increase of fines and the compulsory transfer of the trademarks at issue. This article focuses on the significant changes in the Draft, reflecting the trends of changes from the existing Trademark Law, other laws, and current judicial practice.

Since the Standing Committee of the National People’s Congress has not included the revision of the Trademark Law in its legislative work plan for 2023, it is likely that the new Trademark Law will be formally implemented no earlier than 2024.

Strengthening Obligation to Use Registered Trademarks

For a long time, it has been common for trademarks to be “registered but not used”, and the “hoarding” of trademarks has caused great damage to the innovation of market entities. One of the significant changes reflected in this Draft is to abolish the “registered-orientated” system adopted in previous versions of the Trademark Law for decades and to strengthen the obligation of the trademark proprietors to use the registered trademark.

The Draft specifies that when applying for registration of a trademark, it is necessary to “use or commit to use” the trademark. Further, the Draft also requires trademark proprietors to report the status of use of a registered trademark to the authority every five years after the registration. Failing to report or failing to provide reasonable explanations will be considered as abandonment and result in cancellation. From a practical point of view, if this revision is enacted, the status report shall be submitted on the fifth year after registration and the subsequent report shall also be submitted on the tenth year when the trademark is due to renew.

Although under the current Trademark Law, it has been set forth that any application for trademark registration that is malicious and is not filed for the purpose of use shall be rejected, these proposed revisions aim to promote the use of the registered trademarks, purge “zombie” registrations, in order to avoid the waste of trademark resources in general, making trademarks available for those applicants who has genuine intention to use. However, it is unclear whether the practice of filing defensive applications will be subject to this scrutiny. Moreover, additional costs will be incurred to proactively report the use status of the trademark concerned, which will aggravate the burden of the trademark proprietors.

Prohibition on Repetitious Application

According to the Draft, a trademark applicant shall not apply for identical trademark on the identical or similar goods or services in general, unless the later application is made under six exceptional scenarios, such as necessity of raising out of business needs to make minor changes to the trademark, failure to renew trademark or trademark being cancelled for the reason unattributed to the applicant. This revision has specified the rule for “a single application for a single trademark”.

The purpose of this revision is to attack a common practice of making “rolling application”, under which circumstance the applicant files the same application on three-year rolling basis, in order to eliminate the risk of the trademark being cancelled (in non-use cancellation proceeding, which is actionable after three years of the registration). Under the current Trademark Law, any third party can file the non-use cancellation application to cancel the registration of a trademark, if the trademark has not been used by its trademark proprietor for three years upon its registration.

In fact, this is the most controversial proposal which has received the strongest challenges in the IP field. On one hand, for those trademarks which lack genuine intention to be used, the risk of being cancelled in the non-use cancellation would be increased. On the other hand, other common approaches with the aim to secure a trademark registration (prior to registration) would no longer be available, i.e., filing the same trademark application while waiting for the outcome of co-pending proceedings, such as opposition, invalidation or assignment.

Cracking down on Malicious Application through Various Measures

In recent years, Chinese legislators have focused on cracking down on malicious registration applications. This Draft is no exception. First, the Draft explicitly lists the following circumstances that constitute malicious trademark application, which provide the legal basis for the relevant punitive mechanisms:

applying for trademark registration in large numbers without the purpose of use, thereby disturbing the order of trademark registration;
applying for trademark registration by fraud or other improper means;
applying for the registration of a trademark that is detrimental to national interests, social public interests or has other significant adverse impacts;
intentionally harming the legitimate rights or interests of others, or seeking improper gains in violation of the provisions of Article 18 (Protection of Well-Known Trademarks), Article 19 (Squatting by Agents, Representatives, and Interested Persons) or Article 23 (Protection of Prior Rights) of the Draft;
Other circumstances of malicious trademark registration.

To strengthen the crackdown on malicious application, this Draft increases the fine up to RMB 250,000 and specifies the confiscation of unlawfully obtained income and the possibility of damage claims for infringed persons. Furthermore, the infringed person or entity can request the compulsory transfer of the bad faith trademark now. In the following, we elaborate on these measures in detail:

1. Compulsory Transfer of Bad Faith Registration

The legal remedy for a trademark proprietor will not be limited to invalidation, but will also include the compulsory transfer of the trademark at issue, provided that the registration of the trademark violates the following provisions:

Article 18 (protection of well-known trademark);
Article 19 (squatting by agent or representative);
Article 23 (bad faith registration acquired by improper means for other’s trademark that had obtained certain high level of influence); and
Articles 24 and 25 (identical or similar trademark on the same or similar product).

If this proposed revision is enacted, the trademark proprietor will no longer need to make a separate filing once the bad faith registration is revoked, but will take over the bad faith registration straightly. The effect of this amendment could simplify the process as well as save the enforcement and prosecution endeavors. However, it is still ambiguous whether the similar trademarks covering the same and similar goods/services shall be transferred at the same time.

2. Penalty for Malicious Trademark Registration

In case of the malicious registration, the administrative authority may issue a written warning or impose a fine (up to RMB 250,000) against trademark squatters, and confiscate illegal incomes, if any. Comparing with the current Trademark Law, the Draft increases the amount of the fine.

3. Damage Claim against Trademark Squatter

Where the filing of a bad faith application has caused damage to a party, that party shall be entitled to sue the bad faith applicant for the recovery of the damage caused. It is the first time that the Draft specifies the amount of damages shall include, at least the reasonable costs incurred in preventing the bad faith trademark from being registered.

The measures mentioned in Points 2) and 3) above aim to raise the costs of trademark squatting for violating the law by imposing an obligation on trademark squatters to reimburse the trademark proprietors. Both would be effective measures in curbing malicious applications.

4. Damage Claim for Malicious Lawsuit

Damage shall be payable when a malicious lawsuit causes damage to the bona fides trademark proprietor. The amount of the damage shall cover, at a minimum, the reasonable costs incurred in the course of the prevention of the malicious lawsuit.

This will be a legal remedy available for trademark proprietors for the recovery of damage where the trademark squatter misappropriates the trademark and then lodges infringement action against the real trademark proprietor relying on this bad faith registration, thereby causing economic damage on the part of the trademark proprietor.

It is known to the public that the cause of action of this type had been admitted in the procedural laws. In judicial practice, plaintiffs typically rely on the Anti-unfair Competition Law or Tort Law (under the Civil Code of PRC) to support this claim. While the competition law and tort law are intended to be applied in a general sense, this proposed revision will provide an explicit legal remedy specifically in trademark regime.

Simplifying Examination Proceeding and Shortening Timespan of Trademark Registration Procedure

Another notable revision is the period for raising an opposition would be decreased from the current three (3) months to two (2) months. Further, the review proceeding for the opposition decision which renders the application overruled is proposed to be removed in the Draft.

Both rules are intended to shorten the timespan spent in the trademark registration procedure and meet the urgent need of trademark applicants. Thereby, a registration for a trademark would possibly be available within six (6) months once the application is filed. Currently, it takes about four (4) months for a trademark to pass the substantial examination process (excluding opposition).

Conclusion

The Draft aims to close loopholes in the current Trademark Law. More than half of the legal provisions in the existing Trademark Law are subject to change in this Draft. Certain fundamental changes have led to a lot of controversies, especially the afore-mentioned prohibition of repetitious application for identical trademark and obligation to submit evidence of use for registered trademarks for each five (5) years. Both provisions would be obviously unfavorable to the defensive applications of trademark proprietors in the practice. Other highlights of the Draft are the effort of Chinese legislators to crack down on bad faith applications at every stage of trademark exanimation and to shorten the timespan of trademark registration procedure. However, since this Draft is still under review, at the moment it is not clear whether the amended provisions will eventually come into effect.