China introduces "intent to use" to combat trademark piracy in its recent trademark law amendment

18 July 2019


On 23 April 2019, just three days before the World Intellectual Property (IP) Day the national legislature in China swiftly approved the fourth amendment to the country’s Trademark Law. Compared with previous amendments, this amendment is relatively small scale, but it appears to focus on two themes: (a) combatting bad faith trademark filings; and (b) increasing damages and improving measures to fight counterfeiting. The new law will take effect on Nov. 1, 2019.

Below is a summary of the trademark law changes.

1. Intent to use

For the first time, China is introducing the concept of "intent to use" into the trademark application procedure. The new law requires that "Bad faith trademark applications filed without intent to use shall be refused". Procedurally, this clause becomes a legal ground for trademark opposition and invalidation.

It's clear that the "intent to use" requirement has been introduced in order to combat trademark piracy, which has been a long-standing problem for brand owners. There are even plenty of "professional" trademark squatters, individual or corporate, who scan the market and register trademarks in large quantities, without any intent to use those marks but instead to later sell them to brand owners for a profit.

China has acknowledged the problem since the third amendment of its Trademark Law took effect in 2014. This change gradually made it easier to oppose or invalidate such bad faith trademark applications. However, non-use cancellation remains the best way to remove such trademarks from the Registrar. The problem is that this process only applies to trademarks that have been registered for more than three years.

Therefore, the "intent to use" requirement is a significant step forward in deterring trademark piracy. Brand owners can now oppose any pending trademark applications, or invalidate any registered trademark less than three years old, based on the absence of an intent of use. This means that trademarks can be challenged on the ground of "use", either intent to use or actual use, throughout the lifespan of trademark application and registration. Detailed guidelines are yet to be rolled out regarding, for example, what evidence satisfies the criteria for judging the concept of intent to use. However, it's likely that any new guidelines will be based on and adapted from the "intent to use" rules of other jurisdictions such as the US.

2. Trademark agency responsibilities

The new law has tightened the responsibilities of trademark agency by requiring that "Trademark agency shall not accept client instructions in case they know or should know the applications are filed without intent to use or in bad faith". This clause also becomes a legal ground for trademark opposition and invalidation. Furthermore, trademark agency is subject to an administrative penalty for violating this rule.

Trademark agents (and agencies) are not regulated in China at the moment, contrary to the practice of many other jurisdictions. There are virtually no examinations or practice license requirement for trademark agents or agencies. Unfortunately some trademark agencies have actively assisted trademark pirates, and in even worse cases, trademark agency itself becomes trademark pirate. This has plagued the Chinese trademark system and its credibility. The new law has been designed to increase sanctions against such behaviour and restore the credibility of the trademark agency industry.

As a side lesson, foreign brand owners must be very careful in selecting reputable and ethical trademark agents (and agency firms) to work with in China. Price, service and ethical behaviour should be considered as a whole. Otherwise, not only might the quality of service be poor, but those owners may also face administrative penalties as a result of their association with an irresponsible trademark agency, which can be detrimental to their invaluable trademark assets in China.

3. Increased damages

China has continuously been increasing the size of damages awarded for trademark infringement over the last decade, both from legislation and trial practice. Large financial penalties have been awarded more frequently, especially since the establishment of three specialised IP courts. Under the new law, statutory damages have increased from RMB 3 million to RMB 5 million, and punitive damages have risen from three to five times greater than the actual loss of the right owner or the amount of illegal profits made by the infringer.

It is interesting to note that the "five-fold" multiple of punitive damage might be the highest in the world, as most jurisdictions adopt a maximum of "three times" punitive damage, as far as we are aware. Apart from the actual deterrent value, the increase in punitive damage to five times the loss or profit appears to demonstrate the Chinese government's strong will and commitment to improving IP protection.

4. Handling counterfeit goods

Anti-counterfeiting is another central activity for trademark matters in China. The new law has improved measures related to the handling or destroying of counterfeit goods. Specifically, counterfeit goods must be destroyed at the request of the right owner except in special circumstances, and the products cannot be put into a commercial distribution channel after counterfeit labels are removed. The materials and manufacturing tools used mainly to create counterfeit goods must be destroyed without compensation, or in special circumstances, the products are prohibited from entering into a commercial channel, and again, no compensation is applicable.

In conclusion, this new trademark law amendment in China is small scale yet targeted. It carries special significance in combatting trademark piracy by introducing the "intent to use" clause. The improved damages have consistently demonstrated China's willingness and determination to improve IP protection. Foreign brand owners are advised to become familiar with the changes and make use of these new tools in order to strengthen their trademark protection in China.

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