Trademark Law amendments: how will they change Chinese trademark practice?

China

The Standing Committee of China's National People’s Congress finally approved the amendments to the Trademark Law on August 30 2013, following over seven years of deliberations and discussions. The amendments will become effective as of May 1 2014.

The final version of the amendments is very similar to the version that the National People’s Congress reviewed during the second reading of the amendments earlier this year. The latest version does not provide many surprises: it increases the cap on statutory damages to Rmb3 million and adjusts the time limits within which the Trademark Office and Trademark Re-examination Board (TRAB) must complete examination, opposition and cancellation proceedings, as well as appeals. 

The major changes include:

  1. Trademark applications - one of the widely-recognised benefits brought by the amendments is that they provide the possibility to apply for the registration of a mark in multiple classes in a single application. In addition, sound has been added as a new subject matter for trademark registration. 


  2. Opposition and registration:
  • An opponent that wishes to cite grounds for opposition such as similarity and bad faith must have pre-existing rights (eg, trademarks, trade names, design patents and copyrights) or be an interested party. 
  • Once an opposition decision has been issued by the Trademark Office, it will take effect immediately. Should the opponent be unsuccessful, it will have to file an invalidation action to continue the fight. 
  • There is a new ground of opposition to fight trademark squatters: if a trademark squatter has had some “contractual”, business or “other” relationship with the trademark owner such that it must have known the cited mark, the squatter's application may be opposed.
  • The registration and use of trademarks must be carried out in good faith. This new rule could be used as a general ground to prevent all sorts of bad-faith activities in the future; however, one must wait for the issuance of a judicial interpretation to see whether this will be a viable approach. 
  1. Time limits for trademark prosecution - a significant change is that the National People’s Congress now sets out time limits for the Trademark Office and the TRAB to complete various key processes: nine months for the examination of applications; nine months for the re-examination of applications; 12 months for the adjudication of opposition appeals; and nine months for invalidation proceedings. Some proceedings may be extended by three or six months subject to approval. 


  2. Infringement - 'likelihood of confusion' has been added as a criterion for determining whether there is infringement where a similar mark is used on the same kind of goods/services, or where a similar or identical mark is used on similar goods. This is the first time that China has officially introduced this ground into its Trademark Law, which could raise very interesting issues in future trademark infringement cases. To what extent a plaintiff needs to establish confusion will be clarified in a future judicial interpretation or in the implementing regulations.

    Another notable point is that the amendments now clearly allow a party that has used a mark identical to a registered mark before the trademark owner and has acquired a certain degree of fame to continue to use its mark in the same way. However, the trademark owner may ask the prior user to add graphic elements to distinguish the marks. This 'prior use' defence is likely to require clarification via the implementing regulations and/or a judicial interpretation.


  3. Administrative enforcement:
  • The Administration for Industry and Commerce now has the power to seize and confiscate tools that have been “predominantly” used for infringing activities.  
  • The statutory fine for infringement has been increased to Rmb250,000 if the illegal revenues are less than Rmb50,000. In cases where the illegal revenues exceed Rmb50,000, the local authorities may impose a fine of up to five times the “illegal business revenue” obtained by the infringer. 
  1. Civil enforcement:
  • The final version of the amendments introduce punitive damages. The detailed rules on how to determine whether wilful infringement has taken place are expected to be provided in the implementing regulations or in a judicial interpretation.
  • The final version increases the cap on statutory damages to Rmb3 million (nearly $490,000). The amendments do not set a minimum amount of statutory damages. 
  • A new defence relating to damages has been introduced: a defendant may request that the trademark owner demonstrate the actual use of its trademark; failure to prove actual use may result in no damages being awarded. This provision could arguably help legitimate brand owners if they are sued by trademark squatters. As most squatters do not actually use the marks, this new provision will prevent them from obtaining meaningful monetary damages from legitimate trademark owners. 
  • The current rules on the contributory liability of parties that facilitate infringing activities have been incorporated into the amendments.

Among other changes, the amendments now ban the use of the term 'well-known mark' in advertisements. This apparently aims to prevent the abusive use of the term in business practices.

The final version of the amendments will arguably introduce some significant changes into Chinese trademark practice. China clearly intends to improve enforcement by granting higher damages to trademark owners and imposing higher penalties on infringers. The newly established punitive damages, the increased cap on statutory damages and the related evidentiary rules are likely to be endorsed in the upcoming patent law and amendments to the copyright law. 

In addition, the introduction of time limits for trademark prosecution may force the Trademark Office and the TRAB to act within a more predictable timeline. 

However, several significant issues remain:

  1. Bad-faith applications - foreign brand owners may be concerned as to how the changes in the opposition procedure could impact their fight against trademark squatters. The amended opposition procedure could make their position difficult, as a trademark squatter's mark will become effective immediately should the brand owner lose the opposition. This means that squatters could even sue the brand owners to obtain an injunction following an opposition decision in their favour. The newly added ground of opposition (ie, the squatter has had some “contractual”, business or “other” relationship with the trademark owner) is helpful, but the evidentiary burden is still very high. This issue remains to be dealt with in future implementing regulations or judicial interpretations. 


  2. Original equipment manufacturer (OEM) manufacturing - none of the rules in the final amendments address the controversial OEM liability issues. For those foreign brands that have been sourcing their manufacturing activities in China and suffer from trademark squatting problems there, this is not good news.  


  3. Online counterfeiting - the amendments do not address any issues specifically related to online counterfeiting, such as whether online trading platforms may be liable for blindly allowing the sale of counterfeited goods. 

These questions will hopefully be addressed in the implementing regulations and the Supreme Court's judicial interpretations. The new law provides solutions, but also brings up a set of new issues.

He Jing, AnJie Law Firm, Beijing

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