31 August 2023
Recently China has been active in updating its laws to enhance its protection of IP rights to better address persistent problems such as bad faith trademark filings. On January 13, 2023, the China National Intellectual Property Administration (CNIPA) released draft amendments to the trademark law, which is the fifth amendment following the latest update in 2019. The State Administration for Market Regulation (SAMR) also released an exposure draft of revisions to the Anti-Unfair Competition Law on November 22, 2022, making it the third revision after the amendment in 2019.
While both amendments are perceived as proactive measures in strengthening IP protection, they also raise attention, as companies might have to adjust their management strategies consequently.
James Lau, a special counsel at Baker McKenzie in Hong Kong, explained what measures are included in the draft amendments to the trademark law to address the problem of bad faith trademark filings.
“For a start, it clarifies what constitutes a bad faith registration by listing five specific circumstances in Article 22. It also imposes stricter penalties for such filings, such as subjecting bad faith filers to fines of up to Rmb250,000 (US$34,000) (Article 67), civil liabilities to compensate brand owners for losses, and potentially criminal liabilities if national or public interests are harmed (Article 83),” he said. “A mechanism that allows the transfer of bad faith trademarks to their rightful owners under certain conditions is also built into the draft, which helps brand owners retrieve marks pre-emptively registered by bad faith filers (Articles 45-47).”
Lau added: “The draft amendment also addresses issues such as bad faith trademark hoarding by requiring the submission of a statement of use every five years after registration (Article 61) and prohibiting repeated filings for identical marks (Articles 14 and 21). It also tackles the problem of opportunists taking unfair advantage of the fame of well-known brands by prohibiting the use and registration of a mark that dilutes the distinctiveness of a well-known trademark or tarnishes its reputation (Article 18). The list of factors used to determine whether a trademark is well-known has also been expanded, allowing brand owners to leverage this broadened list to obtain recognition and corresponding protection for their well-known trademarks (Article 10).”
Lau commented that the draft amendment proposes extensive revisions to the PRC Trademark Law, particularly focusing on combating bad faith filings and trademark hoarding. “Measures are introduced to tackle these issues at various stages of the trademark lifecycle, from registration application to the use of the mark. If well implemented, and with ambiguities in the current draft clarified, these measures have the potential to greatly mitigate these longstanding issues.”
However, Lau pointed out that despite the proposed amendments, there are still unresolved issues within China’s trademark system. One of them is the use of consent letters, which are often “employed in trademark prosecution when a prior existing trademark blocks a new application. In such cases, the applicant may seek to obtain trademark registration by submitting a consent letter issued by the owner of the prior mark.”
“Unfortunately, the current stance of the CNIPA is generally disapproving of consent letters, and they are rarely accepted in application appeals,” he said. “The absence of any clear legal provisions regarding consent letters in the trademark law further compounds the issue, as it leaves practitioners and brand owners uncertain about potential future changes. Addressing this issue within the law would bring much-desired clarity to the trademark system.”
As for the impacts on brand owners, Lau believes that the proposed prohibition on repeated filings for identical marks and the new requirement for statements of use are likely to have significant implications for brand owners.
“Currently, some brands file trademarks broadly for defensive purposes and to block third-party registrations, even if they do not use the mark on all claimed goods and services. However, these defensive filings risk cancellation on non-use grounds three years after registration, so one strategy is for brands to re-file every three years to reset the clock,” he explained. “The proposed prohibition on repeated filings would limit such re-filings, and defensive registrations would also face the risk of being lost if the registrant fails to demonstrate use five years after registration.”
The statement of use requirement also means additional work and costs for brand owners, who will need to diligently track the deadlines for filing the statement of use. The preparation and filing of these statements will also lead to increased operational expenses.
Given the enhanced focus on the use of trademarks, Lau advised that brands may need to reassess their defensive filing strategies and appropriately limit the specification of goods and services based on their actual products and business development plans. He also suggested brands should systematically maintain evidence of mark usage to prepare for the statement of use requirement.
“Finally, the shortened opposition period for preliminarily approved applications (from three to two months) also means that brands will have to monitor third-party trademark filings more frequently, as they will have a shorter window to decide whether or not to oppose third-party applications,” said Lau.
Catherine Zheng, a partner at Deacons in Hong Kong, explained that the exposure draft of revisions to the Anti-Unfair Competition Law is in line with the needs in practice and the development trend of the digital economy. She said: “Article 7 of the draft relates to IP, which prohibits the use of identical or similar labels, packaging, decoration or webpages and setting others’ commercial labels as search keywords. It is notable that the draft has expanded to the prohibition on committing confusing acts to include confusing commodities and services, and providing aid or facilitating confusing acts of others.”
Meanwhile, “Article 10 of the draft relates to trade secrets, which prohibits acts of infringing upon trade secrets, including acquiring trade secrets by illicit means, disclosing, using or allowing others to use trade secrets acquired by illicit means or in violation of confidentiality obligation or requirements, and abetting, tempting or aiding a person in acquiring, disclosing, using or allowing others to use trade secrets in violation of confidentiality obligation or requirements.”
Although the Anti-Unfair Competition Law does not deal with personal data, Zheng said that new provisions under Articles 18 and 19 of the draft provide prohibition from improperly obtaining or using the commercial data of another business and implementing unreasonable dissimilar treatment or imposing unreasonable restrictions by using algorithms and analysing user preferences, trading practice and other characteristics.
As the draft broadens the scope of unfair competitive practices, Zheng suggested business operators or brand owners to be mindful of whether their acts fall within the definition of unfair competition; otherwise, they may face legal liabilities. “If the revisions to the Anti-Unfair Competition Law are made, business operators or brand owners should be expected to exercise reasonable judgment when using labels, packaging, decoration, webpages and search keywords for their businesses, and when selling commodities or providing services or aiding others,” she said.
Zheng believes more stringent standards for comparison should be established as the law now regulates similar and identical situations. In addition, business operators or brand owners should carry out due diligence to avoid being considered as having subjective intentions if cooperating parties commit unfair competitive practices. She further advised that they should be more careful when committing online acts.
“Even if their acts cannot be classified as acts prohibited by Articles 18 and 19 of the draft, they may also be caught by Article 20 of the draft, which is a catch-all provision covering all other online acts of unfair competition, and violations of Article 20 will lead to identical legal liabilities as violations of Article 18 or 19. Thus, business operators or brand owners should develop an internal review mechanism before they commit their online acts,” she said.
-Ivy Choi
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