The fourth revision of the Trademark Law of the People's Republic of China (PRC) came into effect on 1st November 2019. It is yet another example of the shifting landscape of intellectual property protection in China.
The amendments were made in line with the International Trademark Authority's recommendations to combat bad faith filings and crack down on trademark infringement. There has been a three-pronged approach within these revisions:
- to provide grounds to oppose bad-faith registrations;
- to increase the accountability of trademark agencies; and
- to increase penalties for trademark infringers.
1. Bad-faith registrations can be opposed & trademarks invalidated
China has had a history of trademark 'squatters' and the new amendments tackle this problem. Previously, the first-to-file system meant that third parties could register marks of well-known brands in China without any intent to use them. Whilst there were legal grounds for brands to challenge the validity of these marks, it could be a long process and many would resort to buying the ownership instead. Now the registrations themselves can be opposed.
This has been achieved by adding the following wording to Article 4 of the PRC Trademark Law: "any trademark application that is filed in bad faith and is not filed for the purpose of use shall be rejected".
This wording alone would have little effect - the sheer volume of trademark applications would prevent the Trademark Office from being able to review any evidence for intent to use. However, Article 33 now provides that "any person who holds that a preliminary validated and gazetted trademark violates the provisions of Article 4... may raise an objection to the trademark bureau within three months from the date of gazette." This means applications can be opposed on the grounds that they were filed in bad faith.
Article 44 provides that invalidation actions (which can occur at any time after the mark has been registered) can also be filed on the grounds of bad faith:
"Where a registered trademark violates the provisions of Article 4… or the registration is obtained by fraudulent means or other improper means, the registered trademark shall be invalidated by the trademark bureau; any other organisation or individual may request that the trademark review and adjudication board declares the said registered trademark invalid".
Whilst this was permitted previously, this now codifies bad-faith invalidations.
2. Trademark agencies who assist with bad-faith filings will be penalised
Article 19 introduces a requirement that a trademark agent shall not file any registration when it knows, or should know, that the application "falls under the circumstances stipulated in Article 4…". Article 4's new amendment means that trademark agents need to be confident that their client intends to use the mark, and refuse to act if they are not.
To further support this, Article 68 provides enforcement action when trademark agencies act in 'violation of the provisions of Article 4'. The agencies 'shall be … subject to a warning and a fine ranging from RMB10,000 to RMB100,000'.
In addition, 'the person(s)-in-charge who is/are directly responsible and other directly accountable personnel shall be subject to a warning and a fine ranging from RMB5,000 to RMB50,000'.
Generally, this should be considered good news for the market and trademark agencies, which used to be an oligopoly of companies certified by the China Trademark Office (CTMO). To limit their own legal liability whilst providing trademark filing services, agencies will be motivated to improve their professional skills.
However, one concern is that good faith applicants may end up struggling with their own trademark agents in the future, should agents become overly cautious. Agents could end up refusing to register a mark with the unjustified fear that the CTMO might consider it to be in bad faith (for example, being too similar to another registered trademark in China) or not fit for the purpose of use (for example, filing a trademark in a numerous classes of products or services which won't actually be used for broader protection) and therefore penalise the agent. The realities are that the practicalities for implementing this amendment remain to be seen - it is not yet clear how the CTMO will be informed of bad-faith filings, or how exactly the lawful trademark holders will obtain compensation.
3. The penalties for infringers have increased
The amount of damages granted is determined either by 'the actual losses suffered' or 'the gains derived by the infringer'. Article 63 has been amended to increase the maximum amount of statutory damages available from RMB 3 million to RMB 5 million. In addition, punitive damages allow, 'in serious cases', for the compensation amount to be up to five times this amount (previously the maximum was three times). Having said this, the punitive multiplier is rarely used on the basis that it is hard to calculate the amount of actual losses or gains derived in the first place. Therefore, the increase in statutory damages is expected to have more of an impact.
Furthermore, a new provision in Article 63 provides the People's Court with the additional remedy of '[ordering the destruction] of the commodities bearing a counterfeited registered trademark… [and] the materials and tools mainly used to manufacture the commodities bearing a counterfeited registered trademark'. In addition, the commodities are now prevented from entering commercial channels even if they no longer bear the infringing trademark.
In summary, Chinese laws are ever moving in favour of trademark owners, giving them more opportunity and authority to act against infringers. When operating in a global market, it is important for brands to take note and register their rights in China.