Your brand in China: Important changes to the trade mark system
On 1 May 2014, new trade mark law will come into effect in the People’s Republic of China.
There has been a boom in trade mark applications in China, with foreign companies keen to secure registered rights in the wake of brand hijacking and with registrations being key to securing a robust supply chain. For the last 10 years, China has ranked first in both trade mark applications and registrations according to WIPO World IP Indicators, yet this is the first significant amendment to the law since 2001.
Chinese trade mark practices can be frustrating due to short response deadlines to refusals and the fact that it takes significant amounts of time and money to reclaim a brand from an unscrupulous third party. The changes to be made are welcomed but many allege they do not go far enough for a country which is now a trade and brand powerhouse and a key supplier and manufacturer of branded goods too many countries.
The changes have 3 key aims which are outlined below:
Streamlining the trade mark application process
In addition to 3-D designs and colour combinations that are currently registrable, more nonconventional marks, such as sound marks, can now be protected.
Multiclass applications and electronic filing will be available. These measures should improve procedural efficiency and cut costs.
Statutory time limits will be introduced, in particular:
- For new trade mark applications, examination must be completed within 9 months.
- Appeals against the rejection of a trade mark application must be completed by examiners within 9 months, with the possibility of extension for another 3 months
- Oppositions and appeals against decisions sustaining oppositions must be completed within 12 months, extendable for another six months under special permission.
- Invalidation based on distinctiveness/descriptiveness of a trade mark must be completed within nine months, extendable for another three months under special permission.
- Invalidation based on prior rights must be completed within 12 months, extendable for another six months under special permission.
- Cancellation based on non-use of a trade mark must be completed within nine months, extendable for another three months under special permission.
Fairness in the marketplace
The existing practice on “Well-Known” trade marks has been codified as follows:
- In trade mark disputes, anti-counterfeiting actions and civil or administrative suits, the trade mark owner may apply for recognition of well-known trade mark status.
- The use of a registered trade mark or unregistered well-known trade mark as part of a trade name constitutes unfair competition, which is prohibited under the Anti-Unfair Competition Law in China.
Registration and use of a trade mark shall follow the good-faith principle, which includes:
- Good-faith use of a trade mark in a generic or descriptive manner will not be prohibited by an existing registration of an identical or similar trade mark.
- Bona fide prior use of a trade mark “of certain fame” may continue within the existing scope of goods/services despite registration of identical or similar trade marks by others.
- The Chinese IP Office may suspend its examination of an appeal or invalidation proceeding pending the result of another relevant proceeding.
- The new law includes a bad-faith clause that goes far beyond the previous language, which referred to bad-faith behaviour only in the context of relationships between two parties. Now it is any relationship in which there is evidence of bad faith, thus greatly reducing the burden of proof on legitimate trade mark owners.
- Trade mark agents are prohibited from acting as representative on any trade mark application that demonstrates bad faith or infringes others’ prior rights
- For oppositions based on conflicts with prior rights, only the prior right owner or an interested party may initiate the action. Under the current law, anyone may file such oppositions, which often causes bad-faith delays in registration.
Strengthening penalties with respect to infringement of trade mark rights
Infringement generating illicit business revenue over RMB 50,000 (EUR €6,000) may incur fines up to five times of the profit value, while infringers showing illicit business profits under that amount may be fined up to RMB 250,000 (EUR €30,000).
The court has the discretionary power to grant compensation up to RMB 3 million (EUR €361,000/US $490,000) in cases where no basis at all for calculating damages is available.
Where a trade mark owner’s losses or the infringers’ profits resulting from the infringement cannot be determined, royalties under a trade mark license may be used for assessing damages, which may be raised by up to three times the license royalty in cases of serious infringement.
Trade mark proprietors will no doubt welcome a more transparent application process and stricter penalties for infringement. Also it does appear that the provisions relating to bad faith trade mark applications have been strengthened, although possibly not as far as some would like. How these new provisions are implemented in practice will need to be monitored closely for proprietors to assess the real benefits.
Although the changes do not remove some of the more obvious “frustrations” for applicants under the existing system, such as extending the exam response deadline and revising China’s unique sub-class system of classification which has resulted in inequitable decisions in trade mark oppositions and invalidity actions in the past, it is a step in the right direction but is certainly not far enough based on the demand for brand protection in China.