Zhong Lun Law Firm
There are typically two types of trademark litigation in China:
- civil litigation – which covers trademark infringement and contract disputes to secure private rights; and
- administrative litigation – which follows the administrative procedures against trademark authorities granting and affirming a trademark right.
There are several key tactics which may enhance the chances of success in trademark litigation in China.
Where to lodge civil litigation in China
In judicial practice, the standards of understanding and enforcement regarding trademark infringement vary greatly from region to region. Plaintiffs are generally familiar with the local courts and therefore usually choose this route first.
In most civil litigation cases in China, the plaintiff initiates the litigation at the defendant’s domicile. Following an update to the Civil Procedure Law, a plaintiff’s domicile is now available for online infringement cases. The new Civil Procedure Law provides supplementary provisions for the jurisdiction of online infringement, making it possible for trademark infringement litigation cases to bring lawsuits in the court where the plaintiff is located. It is advisable to organise the work for the lawsuit as efficiently as possible, so as to gain a psychological advantage over the other party.
At present, the Trademark Law does not clearly stipulate jurisdictional issues regarding online trademark infringement. The published judgments of the Beijing Intellectual Property Court and the Shanghai Intellectual Property Court show that if the trademark infringement can be proven to have occurred online, the plaintiff’s trademark infringement lawsuit, as lodged in the court of domicile, will be accepted.
In 2014 specialised IP courts were established in Beijing, Shanghai and Guangzhou, where brand owners can turn to more open-minded judges and a standardised examination criteria. As China set up IP courts in Beijing, Shanghai and Guangzhou to hear IP cases on a full-time basis, the examination criteria for trademark litigation trials is being gradually unified. Since 2014 IP tribunals have been set up in 16 central cities – including Nanjing, Suzhou, Wuhan, Chengdu and Hangzhou – to centralise superior trial resources to hear IP cases across the regions. China is making significant and welcome efforts to develop the trial level in IP cases, resulting in more opportunities for practitioners and brand owners to solve disputes as a result of changes in the markets.
Pre-trial injunctions have been applied to more and more cases in recent years. For cases with clear infringement backgrounds, as well as urgent and irreparable damage, it is highly advisable to seek a pre-trial injunction to protect rights and interests. In 2016 the Beijing Intellectual Property Court took into account the possibility of winning a lawsuit and the urgency of damage in the trademark case Good Voice of China, and made a pre-trial injunction for an order to immediately cease the trademark use, which provided guidance for similar cases. In future, courts in China are likely to support pre-trial injunctions in more trademark lawsuits. In light of case urgency and straightforward backgrounds, brand owners could seek for injunction before trial to prevent irreparable injury.
Preliminary investigation, evidence collection, preservation and notarisation play a decisive role in civil litigation cases. Nowadays, trademark infringement is becoming increasingly concealed, and it is therefore imperative to devise a strategy of evidence investigation before commencing any action. An onsite investigation on an anonymous basis may prove helpful to locate an infringer’s identity, obtain evidence in a notarised manner and preserve the infringement. In the process of notarisation, special questions will be asked of the infringer, improving the process by allowing for sound recordings to be used as evidence. The statement in terms of intentional infringement of the suspected infringer (with supervision of notary public) will have an important effect on the judge’s hearing in the lawsuit.
Meanwhile, China is more likely to admit various types of evidence (eg, market surveys, expert opinions and digital evidence) adopted in many cases as useful support. In Provisions of the Supreme People’s Court on Several Issues Concerning Trial of Cases by the Internet Courts (effective 7 September 2018), if the authenticity of electronic data (eg, electronic signatures, trusted time stamps, hash checks, block chain or any other technical means of collection) is proved, the internet courts will confirm and consider such evidence when examining the case. It is also advisable to collect and submit precedents to influence the judge, even though China is not a case law country.
Further consideration of party’s bad faith initiating a lawsuit
From the defendant’s perspective, it is important to explore the plaintiff’s legal basis if the case is a malicious lawsuit. Provided that the plaintiff is a trademark squatter, it will be difficult to obtain support from the courts if the legitimate grounds come from malicious behaviour. The courts will inspect background information when dealing with the civil litigation. For registered trademark rights obtained through pre-emptive registration, if the trademark registrant brings a trademark infringement lawsuit, the court will consider whether the registrant’s rights are maliciously or illegally achieved. Although the trademark right (as a legal basis held by the plaintiff) has not been revoked (via an invalidation or cancellation procedure which should be separately decided by the Trademark Office), the court may decide that the rights obtained are malicious and will not grant any protection to such registered trademark. In Gelisi, the Supreme People’s Court determined that such acts constitute abuse of trademark rights and it does not consider them to be trademark infringement.
Punitive damages and execution of effective judgment
A punitive damages system is expected to be established in China. President Xi Jinping expressed that China will further severely punish IP rights infringement, introduce a punitive compensation system and significantly increase the cost of violations. Simultaneously, the Supreme People’s Court has started to take actions against the rejection to enforce effective judgments, which is expected to smooth the execution of the judgment in trademark infringement litigation. Under the current system, legitimate owners will be better protected in a civil litigation and have more courage act against infringers.
Determination of OEM in civil litigation cases
In the PRETUL case, the Supreme People’s Court ruled that the defendant (a local factory and manufacturer for a foreign brand with the purpose of exporting purely to Mexico) did not infringe the plaintiff’s trademark rights, based on the facts that:
- the foreign brand had been registered in Mexico before the application date in China of the plaintiff’s mark;
- the defendant was commissioned by the owner of the foreign brand and all products were manufactured according to its orders; and
- all the original equipment manufacturer (OEM) products were not entered into the Chinese market but were exported to Mexico.
The mark at issue does not achieve the function of identifying the source of goods and there is no likelihood of confusion among the relevant public in China. The nature of OEM trademark infringement has been determined by the Supreme People’s Court, but still needs to be judged case by case. China is not a case law country and the published precedents serve mainly as a reference and shed some light on any relevant trends.
If the disputed IP rights are important to the parties, or if both parties are strategic partners, both parties should carefully consider whether to reconcile in time. In many cases, although one party could win in the litigation, it will affect the relationship between the two sides and ultimately affect the commercial development of each party. Jumping out of the litigation strategy while seeking a settlement solution in parallel could deliver a win-win result or at least help avoid a rigid relationship if both parties become business partners in the future.
Since 2014 the Beijing Intellectual Property Court has exclusive jurisdiction over all trademark administrative litigation.
In trademark refusal cases, the Chinese courts have a more open-minded attitude to accepting a letter of consent. This is closer to international practice and makes it easier for foreign brand owners to overcome prior citations. Unless the trademarks are identical and the designated goods or services are the same, it is likely that the court will recognise the letter of consent and approve the later filing application for registration. Instead of removing the prior obstacles by taking aggressive action, obtaining a letter of consent is a more amicable and efficient method to solve the problem.
Since 2016 the Beijing Intellectual Property Court has built teams specialising in reviewing refusal cases. It is reported that relevant cases can be concluded in an average of 31 days. This is because of the sharp increase in trademark applications in China (more than 5 million applications per year) and subsequent increase in trademark refusal cases. In this type of case, the authorities mainly examine trademark similarity issues through visual comparison, taking relatively less time than other cases. In view of such judicial trends, in administrative litigation cases based on refusal, more effort should be devoted to revoking, transferring and achieving coexistence with prior trademarks. It seems unwise to collect substantial evidence with detailed grounds in support of the legitimacy of the current trademark. One downside of this trend is that the timeline of procedure at the court level will be shorter than at appellate level. Brand owners should consider how to balance time and costs when lodging a lawsuit.
In trademark invalidation cases the court will apply more consideration to bad-faith issue, to be used as a weapon against the significant pre-emptive registration and bad-faith application due to former business connections. Evidence collection and submission may provide a focus when proving such facts.
The Beijing Intellectual Property Court has attached increasing importance to the goodwill of trademark applications. If one party can fully prove that the other party knew the brand when applying for the trademarks, as a result of competition within the same industry or through other commercial links (eg, contracts), such evidence will play a key role.
For hoarding trademarks, it is likely that there will be more successful judgments in favour of legitimate owners, resulting in the court severely curbing such improper activities if there is a large number of registrations of other well-known brands.
Non-use cancellation action
In non-use cancellation actions, settlement between the parties is available in some cases. If the parties reach a settlement, the court will consider the situation and lower the criteria for examining the use of evidence requirements accordingly.
Some brand owners prefer to register multiple trademarks with slight differences in, for example, style, form or structure, for flexible use or defending against the possible non-use cancellation action. However, when examining the evidence in use, if such use indicates to the other registered mark owned by the same registrant, even if the other trademark is comparatively similar to the registered trademark that will be revoked, the court has gradually formed a unified standard in this regard and will not consider it as the required use of evidence. Therefore, it is necessary to pay attention to the criteria for the use of evidence and, more importantly, using the trademark in actual business with the same specimen as registered.
The courts seem more likely to acknowledge the use of a trademark in the form of an OEM trademark if the brand owner uses the mark only in this way. The foreign brand owner could rely on such use to maintain the registration if there is no business operation in China.
With a revised Trademark Law in force since 1 May 2014, opponents are unable to initiate the review of opposition after the failure of the opposition procedure, and will be unable to initiate administrative proceedings for the review of opposition accordingly. However, the opposed party may initiate the appellate procedure and an administrative lawsuit to keep pursuing the opposition case. As a result, due to the change in law, it is unfeasible for the opponent to enter into lawsuit proceedings while the opposed party can do so.