In early 2018 the China Trademark Office launched a consultation for the fourth revision of the Trademark Law. The consultation gave both national and foreign parties three months to submit suggestions.
Meanwhile, China and the United States were engaging in active negotiations on a wide range of topics, including the protection of intellectual property.
The partial – but fast – revision of the Trademark Law (which will enter into force on 1 November 2019) is one of the consequences of the aforementioned events.
The revision focuses on two important issues:
- the proliferation of trademarks, which was one of the main comments submitted; and
- enforcement actions against infringers, which were considered to be insufficiently deterrent.
Each year more than 7 million trademarks are applied for. The scope of this filing activity is becoming a problem as many of these trademarks are applied for and registered with the mere intention of being hoarded and resold. Some of these trademarks are even filed in bad faith.
The revision focused on two articles of the Trademark Law:
- Article 4 – the general principle defining who may apply for a trademark; and
- Article 7 – the principle of good faith in applying for and using trademarks.
Who can apply for a trademark? In particular, Article 4 provides a general description of who can apply for a trademark: anyone who "Need[s] to obtain the exclusive right to use a trademark for (one's) goods or services during production and business operations". This could imply that someone who does not have production means for goods or services would not be entitled to file a trademark. However, this is not specified anywhere else in the law.
On 20 April 2019 the State Council proposed to add the following text to Article 4: "Any application for the registration of a trademark that is not intended for use shall be rejected."
This far-reaching proposition created a problem. Members of the National People's Congress objected and said that it is not unusual for legitimate businesses to file defensive trademarks in order to:
- protect their marks in classes of goods related to their core business;
- avoid the risk of dilution; or
- avoid having to file difficult oppositions based on reputation.
Further, this proposed amendment contradicted Article 49, which provides that where a trademark has not been used for three consecutive years without proper reason, any person may file an application with the Trademark Office for the revocation of the trademark. Since Article 49 does not impose any obligation to use the trademark during the first three years following the registration, how could a trademark application be refused for lack of intention to use?
Bad faith Thus, after deliberation, the National People's Congress added the phrase 'bad faith' (which is directly related to the principle of Article 7). The final text states that: "Any bad faith application for the registration of a trademark that is not intended for use shall be rejected."
Therefore, two independent conditions are needed to reject a trademark application:
- the person filing must have no intention to use the mark; and
- the mark must be filed in bad faith.
As it is difficult for an examiner to assess whether an application is made in good or bad faith, the amendment was extended to:
- the responsibility of trademark agents; and
- oppositions and invalidation procedures.
Article 19.3 now provides that trademark agents should not accept being entrusted where they know or ought to know that Articles 15 and 32 and the amended Article 4 have been violated. Further, Article 68 states that if a trademark agent files trademarks in bad faith they may be warned or punished, and if trademark proceedings are initiated in bad faith, they may be punished by the courts.
Article 33 (oppositions), as amended, provides that oppositions may be filed by any party that believes that Articles 10, 11 (absolute grounds of refusal) and 12 (3D trademarks) and also the amended Articles 4 and 19.4 have been violated. For Article 44 (invalidations) the same reference to Articles 4 and 19.4 is added.
Two other modifications were made to Article 68 concerning trademark agents, which ultimately appear redundant:
- Article 68.1.3 added a reference to Article 4, which seems redundant because the new Article 19.3 already included the new Article 4; and
- the new Article 68.4 stipulates the liability for bad-faith registration and litigation, but it is not clear who it is aimed at:
- if it is aimed at the agent then the previous paragraph of Article 68 already stipulates the punishment; and
- if it is aimed at the applicant then its placement seems odd. It is also not supported by the legislative history because the State Council proposal was aimed at the agent only.
Will it have a retroactive effect? Another question remains: will the new Article 4 apply to the registered trademark during the process of registration? Theoretically, it should not because a new law should not have a retroactive effect. However, the Trademark Law 2001 was applied retroactively for well-known marks when it was introduced. On the other hand, the court already has recourse to the old Article 4 to combat bad-faith applications and non-intention to use the mark, which is enumerated in Article 7.1 of the new Beijing High Court guidelines, which were published two days after the new law. It will be interesting to see how this will be implanted in the new law.
Article 63 provides that, where an act of infringement is committed in bad faith and the circumstances are serious, the amount of compensation calculated according to the law may be multiplied by three. The new Article 63 raises this possible increase up to five times.
Article 63 also provides for statutory damages (with a maximum of Rmb3 million) in case it is difficult to calculate the exact amount of prejudice or illegal gains. The amended law raises the statutory amount to Rmb5 million.
Finally, the revised Article 63 deals with the stock of counterfeit goods and provides that – except in special circumstances – they should be destroyed, together with the materials and tools used to manufacture them. Further, the materials and tools, if they are not destroyed, cannot re-enter business channels. Finally, the revised Article 63 clarifies a long-debated issue and provides that counterfeit goods cannot re-enter business channels even if the trademark has been removed.
This is an encouraging improvement as, in addition to tools, the court can – at the request of the rights holder – order the materials that are used for the manufacture of the counterfeit goods to be destroyed. This amendment corrects an omission and is welcomed.
However, this improvement is not without limitations. For example:
- it concerns registered trademarks only and excludes unregistered well-known marks; and
- 'counterfeiting' under the amendment concerns double-identity cases only (ie, the same trademarks plus the same goods), so it is less broad than Article 60, which concerns all infringing goods (eg, similar marks on identical or similar goods). It is restricted to "commodities bearing a counterfeit registered trademark", which excludes all other infringing goods or any goods bearing unregistered well-known trademarks.
As the new law was promulgated in such a hurry, further explanation and information on how the law will be implemented is necessary.
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