Proposals to amend Trademark Law may have impact on trademark squatting

The Chinese government has recently published the latest revised proposals to amend its Trademark Law, many of which already appeared in earlier drafts. This update examines the proposed amendments which may help to fight trademark squatting and bad-faith applications.

In early December 2012 the Beijing No 1 Intermediate Court acknowledged that trademark squatting had attracted professional squatters, and even lawyers and trademark agencies. The court was critical of this because such a phenomenon not only contradicts the basic ethics of honest trading, disrupts fair competition and damages legitimate business interests, but also hampers China’s efforts to convert its economy from manufacturing to brand building, and blemishes the country's image in IP rights protection. The latest proposals suggest adding a general requirement that those who apply for, and use, trademarks must do so under the principles of honesty and integrity. Such principles should also apply to the trademark agency profession, and the proposals contain suggestions for disciplinary penalties and administrative fines should a trademark agency act in breach of these principles.

Currently, if a former agent or distributor applies for its principal’s trademark, the application will fail if the principal opposes it. It is now proposed that this protection should be extended to third-party marks (but only in respect of identical or similar goods) if there has been a contractual relationship, business dealings and other contact between the parties which show that the applicant was aware of the third-party mark.

Many trademark owners have been forced to pay exorbitant sums of money to obtain a licence or assignment from squatters. It has been proposed that, if a trademark is an abusive registration because it (i) reproduces, translates or imitates a well-known mark, (ii) is registered by an agent or previous/prospective business partner who ought to have known about the true owner of the mark or (iii) is a pre-emptive registration of a third-party mark which is already in use and has a certain degree of influence, such registration will be deemed void ab initio once it has successfully been revoked. Although, generally, this does not retrospectively affect court or administrative decisions, or assignments or licences, the proposals suggest that, if the non-return of trademark infringement damages, licence fees or assignment fees is obviously against the notion of fairness, the whole or part of it should be returned. Further, if the registrant caused any damage to others in bad faith, he or she should pay compensation for such damage. Depending upon how liberally this is interpreted, this may mean that mark owners who were held at ransom may have a potential financial claim against the squatter for the licence or assignment fee paid.

One of the difficulties many trademark owners have faced with Chinese trademark squatters is that the latter often threaten to take administrative, customs and court actions to disrupt the true owner’s production or trademark activities in China. This poses an immense threat as many of these trademark owners use China as a manufacturing base to produce and supply products to their many overseas markets. Under the proposals, it is still unsettled whether OEM activities in China constitute trademark infringement. In an earlier draft of the amendments, OEM was expressly said to be regarded as an infringement. Yet, the approach has changed since the financial tsunami, and increasingly courts have decided that, as OEM for export would not cause confusion within China, there has been no infringement (see "Court confirms that OEM activities do not constitute trademark infringement").

The proposals include a provision which states that, if a person has used a mark which is similar or identical to a registered trademark prior to the date of application for registration in respect of the same or similar goods, that person may continue to use the mark in respect of the original scope of use, but the trademark registrant can ask that person to include an appropriate sign to better distinguish the mark. Further, the proposals reiterate that, if a registrant has not used its registered mark for three years and cannot prove loss from infringement, an 'infringer' may not have to pay infringement damages. This may lessen the threat that a squatter may represent to the true owner of the mark.

On the other hand, it should be noted that the definition of 'use' has been elaborated to cover use on products, packaging, containers and business papers, or use in advertisements, at exhibitions and for other business activities to designate the origin of the products. This may lessen the onus on squatters to prove use if their registration is challenged for non-use.

Kenny Wong, Mayer Brown JSM, Hong Kong