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Asia IP Profiles 2020 ranks IP firms across APAC.
30 April 2020
Since China’s first-to-file trademark regime was established in 1982, the country’s courts and legislators have worked to improve and refine the system. Yang Shi describes how the once-abused trademark law has evolved to become an enviable mix of first-to-file and first-to-use.
In China, trademark applications have been increasing rapidly during the past 10 years (see Table 1). The number reached about 7.83 million in 2019. Applications have far exceeded the real demand of commercial activities, among which a great number weren’t filed for use but for handsome profits. The significant number of malicious applications is the direct result of implementing the first-to-file system, which is inherently flawed in granting exclusive rights separately from actual use. The inherent drawbacks – including market players’ pursuit for of trademarks for interest, misunderstanding the real value of trademark rights and the decrease of official application fees – collectively lead to increasing trademark squatting and hoarding. China has been endeavoring to abate the negative impacts by improving the protection system in legislation and in practice.
Table 1. Total number of trademark applications for each year in China, in millions. Source: China National Intellectual Property Administration.
Since the promulgation of China’s first trademark law, the first-to-file system has been established law in China since the promulgation of the first trademark law which, in Article 4, provided “to acquire exclusives rights over a trademark, any enterprise, institution or self-employed industrialists and businessman shall file an application for registration of goods trademark with the Trademark Office.” No real use intention or good faith was required for applying for trademarks, while certain signs were prohibited to be used as trademarks, i.e. “signs that are detrimental to socialist moralities, customs or having other harmful influences.” Unregistered trademarks were not protected. A non-use cancellation procedure was set up and nowadays still plays a great role in eradicating useless trademarks.
Provisions on prohibiting certain signs to be used as trademarks have been developed, functioning well in practice. Recently, some Chinese applicants have preempted marks in close relation to the novel coronavirus which causes the Covid-19 disease. The China National Intellectual Property Administration (CNIPA), responding quickly, rejected applications for LiWenLiang (the name of the coronavirus whistle-blower) and began to monitor other coronavirus-related trademarks, i.e. Huoshenshan and Leishenshan, which are the names of two special hospitals built in Wuhan. Through March 16, among the 1,580 monitored applications, 328 were directly refused and 866 were withdrawn by the applicants. Two trademark agencies were warned and each fined Rmb100,000 (US$14,150) for assisting these applications.
The National People’s Congress started to improve the first-to-file system by implementing the good faith principle in 1993 when it added “if a registration is obtained through fraudulent or other illicit means, the Trademark Office shall cancel such registered trademark; other entities or individuals may request the Trademark Review and Adjudication Board to make a ruling cancelling such registered trademark” to the law. This article, though amended, has been maintained and is frequently applied to restrict bad faith trademarks.
Responding to the actual problems which had occurred, in the amendment of 2001, important provisions were included to protect unregistered trademarks in certain circumstances. This change marked the momentous transition from an absolute first-to-file system to a more flexible one.
Protection of unregistered well-known trademarks was provided for in these improvements, and now the authorities don’t hesitate to grant protection when necessary. In a case decided by the Shanghai Intellectual Property Court, it was recognized that the unregistered trademark 拉菲 – used by the plaintiff as the equivalent of Lafite – had been well-known on wine products before the alleged infringement occurred. In another case decided in 2020, the local court affirmed the well-known status of the unregistered trademark 奔富 (the Chinese transliteration of Penfolds) and decided using the trademark 奔富 in sales and promotions have infringed upon the trademark rights derived from prior durable and extensive use.
Protection of unregistered trademarks in prior use with certain influence shall be granted when three requirements are met: 1) the trademarks in prior use have acquired certain good fame; 2) the contested trademark was filed by unfair means, namely, in bad faith; and 3) protection should be limited to the same or similar goods or services. In a retrial decided by the Supreme Court, having met the aforesaid requirements, prior use and good fame of the trademark PPStream were considered to have been well-protected. The disputed trademark Reg. No. 5787553 PPS私人助理 was cancelled for similar services.
Prohibiting unauthorized registration of trademarks of the principals or the represented parties has been stipulated and implemented. In the case against trademark No. 3644066 for adinc., the Beijing High People’s Court decided that the legal representative of the applicant of the opposed mark was a business partner of the opponent and had good knowledge of the opponent’s trademark. Filing the opposed mark without proper authorization constituted preemption of the principal’s trademark.
The amendments of 2013 further stressed the importance of use and good faith principle. Article 7 “registration and use of a trademark shall observe good faith principle” was added as a general clause to regulate malicious application and trademark infringement. In practice, the administrative and judicial authorities’ decisions also reflect the emphasis on good faith. The CNIPA directly applies the “good faith article” in oppositions when the opposed parties have filed a great number of trademarks or plagiarized other reputable or strongly distinctive trademarks. In the famous Uniqlo v. Guangzhou Compass Exhibition Service Co. Ltd., Guangzhou Zhongwei Enterprise Management Consulting Services Limited case decided by the Supreme Court, the plaintiffs filed more than 2,600 trademarks and proposed to transfer the cited trademark Reg. No. 10619071 at the price of Rmb8 million (US$1.13 million) to Uniqlo. The plaintiffs maliciously lodged 42 trademark infringement lawsuits against Uniqlo, its affiliate and their shops in different cities. The Supreme Court reiterated the good faith principle in obtaining and enforcing trademark rights, deciding that the plaintiffs’ actions constituted abuse of trademark rights.
Protection of trademarks in prior use has been stipulated in the amendments, limiting junior registrants’ exclusive rights. The 2013 China Trademark Law, Paragraph 2, Article 59, provides “where, before a registrant applies for trademark registration, another party has used an identical or similar mark with certain reputation on the identical or similar goods, the registrant has no rights to preclude such other party from continuing to use the trademark for original purposes.” Now, in infringement cases against bona fide prior users, Chinese courts pursue for substantive justice and lighten the burden of proof on the prior users in establishing the alleged good fame to defend against pernicious infringement claims. In Ambitmicro Technology Limited v. Ambiq Micro, Inc., decided by Shanghai Pudong Court, the plaintiff, having no actual businesses, obtained trademark Reg. No. 18766213 “Ambitmicro”. In this infringement lawsuit the defendants confronted “Ambiq Micro” is their trademark and tradename in prior use with certain good fame on the concerned goods. The cited mark was a malicious preemption and the plaintiff had no rights to stop their use. The court affirmed the defense, rejecting the infringement claims.
As discussed above, trademark hoarding is a great concern in China. Data from January to December of 2017 shows that a Chinese individual filed 5,767 applications (ranking first), and another individual filed 3,605 applications (ranking seventh) in applications for 2017. In 2018, two commercial companies (respectively incorporated in 2017 and 2018) ranked second and third on the list, one filing 6,506 and the other filing 5,754 trademark applications. According to the latest published data, among the 50 top applicants in the first half of 2019, four Chinese individuals filed more than 1,800 trademark applications in total.
In recent years, the CNIPA has been taking effective action against these abnormal applications. In 2018, about 100,000 abnormal applications (including squatting trademarks) were refused in examination and opposition proceedings . In 2019, about 39,000 abnormal applications were refused. The Chinese courts in administrative litigations reject or cancel the hoarded trademarks by defining them as “registrations obtained by other illicit means.” In the 2018 Wuhan Zhong Jun Campus Services Co., Ltd. v. the Trademark Review and Adjudication Board case against trademark Reg. No. 13888086 for 360安钱宝 decided by the Supreme Court, the registrant filed more than 1,000 trademarks, most of which were similar with others’ reputable trademarks. Its shareholders were publicly selling trademarks. The court canceled the disputed trademark as “the registration obtained by other illicit means.”
At the legislative level, the amendments approved on April 23, 2019, for the first time expressly provide that trademarks filed in bad faith apparently lacking use intention shall be not be registered. (The China Trademark Law, 2019, Article 4 provides that “a bad faith application for trademark registration for a purpose other than use shall be rejected.”) The law requires the reasonability or justification of trademark application actions. The trademark authorities shall, observing the amended Article 4, ex officio reject the malicious applications devoid of use intent. The CNIPA may, following Article 29, require the applicant to submit a statement explaining their filing actions, if it believes the applicant a possible trademark squatter or hoarder. Oppositions and invalidations can be raised by anyone applying Article 4 to attack the trademarks not being filed or registered for use. The present provisions have perfected the trademark legal systems, emphasizing “use” and “bona fide” to regulate registration and use of trademarks.
Accordingly, the State Administration of Market Supervision issued Several Provisions on Regulating Trademark Applications on October 11, 2019, further emphasizing use purpose and good faith, in Article 8 specifying the factors to be considered in deciding whether an application has been filed breaching Article 4 of the Trademark Law.
The present laws and regulations have constructed a relatively complete system. It’s believed more influential cases would follow to curb the chaos in registration and use of trademarks.
As greater protection for intellectual property rights and a better business environment have been stressed in China, the latest amendments are crucial to enhance trademark protection. However, we remain far from eradicating the chaos. On one hand, trademark applications in China are required to follow the first-to-file system, while on the other hand, we shall continue to absorb the advantages of the first-to-use principle as we build a finer legal system. The following suggestions can be considered:
First, certain requirements can be imposed upon applicants by adopting an “intent to use trademark application.” The applicant submits “an intent to use application” to obtain an early application date. If the applicant fails to establish use within a certain period, the application would be rejected. This would increase the burden on potential squatters or hoarders in securing trademark registrations and, to a certain degree, decrease the bad faith applications.
Second, use evidence can be required to renew trademark registrations. The validation period of a trademark registration is quite long at 10 years. If a trademark has not been used after 10 years, it has no real value in the market and shall not be renewed.
Third, since a great number of trademarks have been filed just for resale, some legal constraints should be made, such as trademark registrations without actual use shouldn’t be transferred. Only in special occasions, such as when ownership of the registration needs to change because of mergers, separations and the like, or when an heir may obtain the unused trademarks, should such transference of unused trademarks be permitted. By this restriction, preemptive trademarks or trademarks invented only to be sold as products would lose their value.
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