China: Will New Chinese Law Help In Battle Against Trade Mark Squatters?

Last Updated: 19 December 2013
Article by Ashley Benjamin

Much anticipated revisions to the Chinese Trademark Law are due to take effect from 1 May 2014. These revisions are said to be significant and wide-ranging, but will they lessen the scourge of trade mark squatting that has beset many an international brand owner in recent years? Or could the revisions actually make the problem even worse?

The problem under the current law

In China, as in many other countries, trade mark rights are granted on a 'first-to-file' principle. For owners of many internationally-used marks, this has proven a serious problem, with other parties having beaten them to it in applying to register their marks in China. The international brand owners are then faced with the prospect of not being able to use their own trade marks in China, even on goods manufactured in China for export elsewhere. At the same time, the parties registering the marks are free to use them in China, potentially causing enormous detriment to the business interests of the international brand owner.

Under the current Chinese Trademark Law, it has been notoriously difficult for international brand owners to prevent this type of trade mark squatting, other than by ensuring that they are the first to seek registration of their marks in China, and that the protection sought is sufficiently broad. The position is particularly difficult where the international brand owner cannot show that their brand is already well known amongst Chinese consumers, even if the mark is well known in other countries.

Not surprisingly, many unscrupulous parties have taken advantage of this situation by deliberately applying to register overseas brands in the hope of selling the registrations back to the 'legitimate' owners for vast sums of money. This type of "bad faith" behaviour is by no means unique to China. However, the provisions for dealing with it under the current Chinese law have left much to be desired, and there had therefore been great hope that the revised law would improve things.

Introducing the principle of "good faith"

The revised Trademark Law introduces a new principle of "good faith" to trade mark use and registration in China. There will also be express provisions to prevent distributors, agents and others who have business contacts with a particular trade mark owner from registering, in "bad faith", the same or similar trade marks, for the same or similar goods/services. However, it seems unclear whether these revisions will provide grounds for opposing a "bad faith" application, particularly where the would-be opponent has no obvious business connection to the applicant.

It is also seems unlikely that opponents will be able to rely on "bad faith" arguments where the mark applied for clearly has a reputation outside China, but where the opponent is not able to prove repute within China. Therefore, hopes that the new law might address this issue appear to have been dashed.

Continued uncertainty regarding use of a mark on goods for export

Another unresolved issue is whether affixing a mark to goods manufactured in China solely for export purposes will be deemed to infringe a third-party Chinese registration of the same mark, for the same or similar goods.

In the revised law, the list of acts of registered trade mark infringement has been modified to include a "likely consumer confusion" requirement. This change, together with a new definition of "trade mark use", suggests that 'consumer exposure' may become a prerequisite for a successful infringement action. If this is the case, it could potentially provide a defence to infringement for brand owners manufacturing, but not selling, their goods in China. Indeed, there have already been reports under the current law of courts ruling that such use does not constitute infringement.

However, the continued legal uncertainty on this issue remains a serious cause for concern.

End to opposition appeals

One particularly worrying change under the revised law is the removal of the appeal option in trade mark opposition proceedings.

Under the current law, where the trade mark office rejects an opposition (which is very often the case), the opponent may appeal the decision to the Trademark Review and Adjudication Board, which typically has more discretion to rule in the opponent's favour where it is implausible (though not necessarily proven in evidence) that the application was filed other than in "bad faith". The opposed application also remains pending for as long as the appeal proceedings are ongoing.

Under the revised law, where an opposition is rejected by the trade mark office, the opposed mark will proceed straight to registration, whereupon the owner will have standing to take action for infringement of the rights conferred. The only recourse then available to the opposing party will be to apply to invalidate the registration. As well as potentially making it even more difficult to successfully oppose "bad faith" applications, this change could potentially increase the threat of infringement actions by trade mark squatters against 'legitimate' brand owners. As a result, this could also strengthen the bargaining position of the trade mark squatter in any negotiations to assign an opposed application to the opposing party.

New law, same old advice

Whilst the revised law could be seen as a positive step towards modernising trade mark protection in China, it seems that international brand owners should not be rushing to crack open the Champagne just yet.

There is still considerable uncertainty as to what will constitute trade mark infringement under the new law, as well as continued uncertainty on the issue of trade mark applications filed in "bad faith". There are also signs that, in some ways, the revised law will in fact make it even harder to deal with trade mark squatting.

Thus, the general advice to international brand owners seems to be unchanged. If you have any current or future interest in using your trade marks in China, or in preventing others from doing so, you should:

  1. look to register your marks in China without delay;
  2. proceed with extreme caution before using, or licensing others to use, any mark in China on an unregistered basis, even if this use only extends to goods manufactured there for export;
  3. ensure that any trade mark registrations you own or apply for in China are sufficiently broad in terms of the goods and/or services covered; and
  4. as appropriate, aim to protect your marks in China in both Chinese script and Latin alphabet characters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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