Fourth revision of China’s Trademark Law

China is planning to revise its Trademark Law for the fourth time. The previous revisions took place in 1993, 2001 and 2013. Fewer than five years after the last revision, the government is aware that there are still issues that need to be addressed. However, this time round the government is proceeding in a completely different way from the previous instances. Instead of entrusting the China Trademark Office (CTMO) to issue a first draft, launch consultations, collect comments and re-write the draft, on 20 March 2018 the government called for a large consultation aiming at collecting opinions, comments and suggestions as to what should be changed in the law. The call opened a three-month period during which proposals could be submitted. The period for submission ended on 31 July 2018.

Many comments and suggestions have been submitted. An exhaustive list of the comments, following the order of the articles of the law, would be tedious and perhaps impossible to compile given the variety of opinions. Rather, the issues can be classified according to their characteristics.

Four categories can be identified:

• issues related to the number of trademarks in China, which would lead to a necessary examination of the problem of registered trademarks that are not used and bad faith trademark applications;
• issues resulting not from the law but from the (erroneous) interpretation of the law by the judicial authorities;
• issues that constitute improvements created by the judicial authorities and should be in the law; and
• issues that are shortcomings or legal loopholes and that should be rectified or adjusted.

Number of trademarks in China

In China, the real problem is the number of trademarks. Too many trademarks are applied for and eventually registered (there were 7,371,000 applications in 2018). Many trademarks are filed not for the purpose of identifying goods or services, but because they are seen as a commodity, cheap to obtain and carry the potential of a significant profit when sold at a later date. As a result, it is becoming increasingly difficult for genuine and sincere trademark applicants to find space in the market.

Unused trademarks

It is necessary to introduce provisions in the law or implementing rules that discourage rather than encourage the filing of so many trademarks.

It should be easier to eliminate unused trademarks. Many commentators agree that when an application for revocation of a trademark based on non-use is filed, the level of use of such trademark should be examined with greater scrutiny so as to eliminate symbolic, insufficient or fake evidence of use. It would be helpful if the law could provide some guidance regarding the level of use necessary to avoid revocation. In this regard, Chinese courts are beginning to become stricter in their interpretation of what is considered to be ‘genuine use’ able to resist revocation. However, some procedural issues can be identified – for example, it is highly inconvenient that evidence of use submitted before the CTMO by a trademark owner cannot be examined by the party who filed the application for revocation. Such an examination can be made only if the case is reviewed by the Trademark Review and Adjudication Board (TRAB). What should be provided in the law is that if, within the prescribed time, the trademark registrant has not filed any evidence of use with the CTMO, without reason, the trademark should be automatically and definitely revoked.

Unused trademarks should not constitute an obstacle for the registration of future marks. Since it is impossible for the CTMO examiner to know whether a trademark is in use, the law should provide for a procedure that allows the quick resolution of disputes. Whenever a trademark is refused by the CTMO, based on the citation of a prior trademark, if the trademark applicant files a review before the TRAB, the owner of the prior trademark should be called to participate in the procedure so as to enable the TRAB to deal with all the issues of the conflict. The owner of the prior trademark should be asked to provide evidence of use. If it fails to do so, the CTMO refusal should be reversed by the TRAB.

Unused trademarks should not be permitted to be used by their owners for filing oppositions or invalidation applications against later filed or registered marks. The CTMO and the TRAB should request justification of genuine use before ruling on cases where the trademark has been registered for more than three years.

Whenever a trademark is successfully opposed or invalidated, the applicant or registrant should pay. This could help to lower the number of trademark applications and improve the whole trademark eco-system.

Insufficiently used trademarks are often re-filed on expiration of the three-year period to artificially maintain the presence of a prior right. This method artificially maintains a large number of unused trademarks and could be expressly prohibited in the law.

Bad faith

Bad faith is the most commonly written and talked about trademark issue in China. In 2013, when the law was revised for the third time, a new Article 7 was introduced in the law that established the general principle of good faith – “trademarks should be filed and used in good faith”. Unfortunately, it was soon discovered that, according to the administrative and judicial interpretation of the law, Article 7 could not be cited independently in an opposition or invalidation action. Good faith was only a general principle, not a legal ground. It seems that the future law should rectify this and provide that bad faith constitutes an independent ground for invalidation or refusal.

Article 45.1 provides that after five years a registered trademark cannot be invalidated unless by the owner of a well-known trademark and unless the trademark was registered in bad faith. This is too restrictive, particularly as there is no justification for excluding ordinary trademarks from requesting the invalidation of a subsequently registered trademark if it is infringing. Bad faith registration should never be tolerated. Further, the automatic five-year period is too rigid and too short. The European solution (tolerance for more than five consecutive years) could be adopted in China.

Finally, there are cases in China that reveal the most sophisticated form of bad faith where the applicant obtains registration of a relatively different sign, avoiding the risk of opposition, and then in actual use changes the registered sign into a pure look-alike trademark, thereby infringing the rights of a previously registered trademark. An invalidation action should be directly available to the prior trademark owner. Unfortunately, the law as it stands provides for no such recourse. Article 49.1 concerns where a registered trademark is unilaterally altered. In such a case, the administration may issue an order to rectify it and the CTMO may cancel the trademark if no rectification is made.

Inconsistent judicial interpretation

Nature of exclusive right to use and protection of prior rights

The term ‘exclusive right to use’ can be found in Article 3 and Article 56:

• Article 3 – “the trademark registrant shall enjoy the exclusive right to use the trademark which shall be protected by law”.
• Article 56 – “The exclusive right to use a registered trademark shall be limited to the trademark which has been approved for registration and to the goods in respect of which the use of the trademark has been approved”.

The Supreme People’s Court places emphasis on the term ‘right to use’ and sees this as a positive right: the registrant is granted a right to use the distinctive sign. In two interpretations (2008 and 2009), the court held that where the registrant of a trademark needs to sue a later registered trademark, claiming that it infringes its own right, it must go through the administrative procedure for invalidating such registered trademark, unless it can prove that it owns a well-known trademark which was already well-known on the date of filing of the defendant trademark.

Many commentators consider that this interpretation is incorrect and inconsistent with the court’s own opinion concerning the protection of other prior rights. Indeed, other prior rights (eg, copyright, design or enterprise names) are not subject to this restriction. It is only a prior registered trademark owner which must first go through invalidation.

But why should a registered trademark have weaker protection than a copyright? This has many negative consequences – for example, even if the invalidation procedure is successful, the plaintiff will not be allowed to claim damages covering the period prior to the invalidation because, in the court’s interpretation, the defendant had a ‘right to use’ and therefore did nothing wrong.

There seems to be a misunderstanding regarding the nature of a trademark right. A trademark is not a positive right, as the Supreme People’s Court holds, but a negative right. It consists only in the right to prevent others from using the same or a similar sign on the same or similar goods. It should not protect the owner of a registered trademark from the complaints of prior trademarks owners.

The future revision of the law should clearly reflect the true ‘negative’ meaning of trademark rights. The legislature could find inspiration in a recent European directive (2015) which provides that “without prejudice to the rights of proprietors acquired before the filing date or the priority date of the registered trade mark, the proprietor of that registered trade mark shall be entitled to prevent all third parties”.

This concept of ‘without prejudice to’ could be introduced in Article 57, which defines acts of infringement.

Further, Article 56, which is actually unnecessary, could be deleted.

Private right

China does not acknowledge the strictly private nature of trademark rights. The trademark is still considered a tool for protecting public interest, hence, the possibility for the parties in case of ex officio refusal of registration based on the presence of a prior trademark, to voluntarily coexist, is very limited.

Improvements made by judicial authorities

In many instances, the courts show the way.

Well-known trademark

For example, according to Article 13, a well-known trademark can only obtain the refusal, invalidation or cessation of use of an identical or similar sign, while nothing is said about obtaining damages. In 2002 the Supreme People’s Court specified that using an identical or similar trademark on different goods than those covered by the registration (Article 13.2 of the 2001 law, renumbered Article 13.3 in the 2013 law) should be considered as an act of infringement (hence, allowing the award of damages). Very recently the courts began to rule that even an unregistered well-known trademark (Article 13.1 of the 2001 law, renumbered Article 13.2 in the 2013 law) also deserves damages (Xinhua Zidian and Lafite cases). The future law should introduce these judicial solutions and expressly allow the granting of damages in situations covered by Article 13.

Likewise, the revision could be an opportunity to introduce under Article 13 (concerning well-known trademarks) the concept of dilution, which is well understood by the Supreme People’s Court’s 2009 judicial interpretation and the lower courts. This must be clarified in the law and it should be clear that dilution may occur in any circumstances, including when a conflicting sign is used on identical or similar goods.

Intervening rights

Another example can be found in the Supreme People’s Court 2009 interpretation concerning the protection of well-known trademarks, which provides that where a trademark owner invokes its well-known status against the defendant’s trademark, it should justify that such well-known status existed on the date of filing of the defendant’s trademark. This is an application of the general principle called ‘intervening right’, which is well defined in European trademark regulation and could be introduced in future Chinese law. In short, it means that where, after registration, the reputation or distinctive character of a trademark grows as a result of its use, the benefit of such acquired reputation cannot retroact against another already registered trademark. It is necessary to prove that, at the time that the other trademark was filed, the prior trademark had reached the required level of reputation, distinctiveness or use.

Other issues

There are a number of issues concerning various shortcomings and loopholes which result from the wording of the law and could be rectified.

Original equipment manufacturer goods

Article 57.1.3 defines the ‘act of selling infringing goods’ as infringement of a trademark. This definition is correct, except that it needs to be read in combination with Article 48, which defines the ‘use of a trademark’. Article 48 provides that a trademark is used when it is affixed on, among others, goods or packages “to distinguish the origin of the goods”. Based on these two articles, Chinese courts have ruled that, when original equipment manufacturer goods are exported, the trademark does not fulfil its function of distinguishing the origin of the goods in relation to the Chinese consumers and is therefore not ‘used’. Consequently, the export of fakes becomes free, which contradicts customs regulations, according to which Customs has the power to control the export of infringing goods.

Prior use

Article 59.3 provides for the protection of the prior user of a sign, later registered by a third party, against an infringement action initiated by such third party. The prior user can continue using the sign within its previous usage range, and the owner of the registered trademark may ask the prior user to attach distinguishable marks. The concept is accurate, inasmuch as it provides some protection to the first user of a sign, which is the equivalent of an unregistered trademark (not well-known but nevertheless with a certain influence). However, the previous usage range is extremely vague and many difficulties are seen in practice. It is hoped that clarification will come in time.

Innocent distributor

Article 64.2 concerns the ‘innocent seller’ of fake products, who may escape liability if he or she provides the name of the supplier. The problem here, however, is that Article 80 of the Implementing Rules provides that the enforcement authority may only order an innocent seller to stop selling; it provides nothing regarding how the illegal stock of fake products should be disposed of. As a result, most of these fakes are actually sold in the market without control.