The battle against bad faith filing (sponsored discussion)

Anna Mae Koo: The Chinese Trademark Law is the first port of call for brand owners in the fight against trademark squatters and to proactively protect the brands. Some commonly used Articles include Articles 7, 10.1(7), 10.1(8), 15 and 32, in which Articles 7 and 15 are the newest additions to the Law in 2014.

Article 7: The general principle of good faith

Ann Xu: Article 7 sets out that “The application for registration and the use of trademarks shall follow the principle of good faith”. Although Article 7 was never intended to be a stand-alone provision, and cases post-revision have confirmed the same, since late 2015, the Chinese Trade Marks Office (CTMO) has occasionally applied Article 7 more liberally for serial trademark squatter situations. Therefore, Article 7 may have a role to play although only in the most unusual cases where bad faith is highly evident but the evidence submitted is not sufficient in satisfying the requirements provided by the law.

Article 15: Agency and other prior relationship

Anna Mae Koo: Another amendment made in the 2014 revision was the expansion of the scope of protection under Article 15 from agency relationship to include “other prior relationship”, which directly targets the problem of parties who have prior relationships with brand owners and who abuse their position and file brand owners’ marks in bad faith.

Article 15 states: “Where an agent or representative, without the authorization of the principal, seeks to register in the agent’s name the principal’s trademark and where the principal objects, registration shall be refused and the use of the mark shall be prohibited. Where a trademark applied for registration is identical or similar to an unregistered trademark in prior use by another party, in respect of identical or similar goods, and the applicant has contractual, business or other prior relationships other than those prescribed by the preceding paragraph, with the prior trademark user and knows the existence of the unregistered trademark, the trademark shall not be registered upon opposition from the other party.”

Ann Xu: The intention to expand the scope of protection is further cemented by the latest draft of the Supreme People Court’s Opinion on bad faith cases, where it was stated that “other relationships” will be presumed if the trademark is used in the same geographical area or industry as long as the mark enjoys relatively strong distinctiveness. This may suggest a relaxation of the current rule that requires a complete chain of evidence proving the prior relationship of the applicant and the brand owner without any missing links.

Articles 10.1(7) and 10.1(8): Deceptive signs and signs having unhealthy influence

Anna Mae Koo: Article 10.1(7) sets out that a mark should not be registered if it is “deceptive and easily misleads the public regarding the quality or origin of the goods or ­services provided under it”. We have successfully argued and won cases at the CTMO against bad faith filing purely on this as a ground. By submitting evidence of use and promotion materials of our client’s mark NUK in China, the CTMO accepted our argument in an opposition proceedings against bad faith filing despite the dissimilarity of the opposed mark’s goods and our client’s goods. Using this clause allows us to circumvent the need to prove fame in China, which is typically a stumbling block for brand owners.

Ann Xu: Article 10.1(8) stipulates that “signs detrimental to socialist morality or having any other unhealthy influence” may not be used as trademarks. The original legislative intent was to have this clause prohibit marks such as the Nazi symbol. However, in practice, we have succeeded in arguing that marks subject to trademark squatter behaviour should not be allowed under this clause. This is because trademark squatter behaviour is “contrary to morality and is unhealthy to society”. Since the enactment of Article 7, however, we have seen the TRAB and courts shying away from this expanded definition of Article 10.1(8).

Article 32: Prior rights and certain influence attained through use

Anna Mae Koo: Another important and useful weapon in the battle against bad faith filing is Article 32. There are two parts to Article 32: first, it prohibits the registration of a mark that would infringe upon another party’s existing prior rights; second, it sets out a two-prong test that if a mark has been used and attained certain influence in the market, its registration by another party of the same shall not be allowed. For the second part of the test, the authorities generally only allow oppositions for marks that are used on similar goods or services.

Ann Xu: On the other hand, the first part of Article 32 referring to prior rights, would provide cross-class protection to brand owners if successfully established and is an important weapon in the battle against bad faith filing in China.

For instance, if the mark involved is a device mark, one of the most straightforward ways in dealing with the problem of bad faith filing may be to rely on Article 32 by claiming the prior copyright of the device mark. It is recognized in the Supreme People Court’s Opinion and in subsequent cases that a prior copyright recordal may be sufficient evidence on its own to establish the brand owners’ prior right claim. It is therefore advisable to conduct copyright recordals for all devices, as it protects brand owners from subsequent bad faith filings—the fact that copyright recordals are not class-dependent is a further advantage.

Anna Mae Koo: Another form of prior right is merchandising right of character name. Here, we have successfully argued before the Trademark Review and Adjudication Board (TRAB) for our client that 007 and JAMES BOND, being the role names of 007, enjoy a high reputation among general public before the application date of the opposed mark. The TRAB recognised that the reputation of the character names 007 and JAMES BOND due to the substantial investment, endeavour and resources placed on promoting and publicizing 007 films in China. TRAB concluded that the merchandising right of character name in such a famous film was considered an existing prior right. Similarly, by submitting evidence that shows the word mark being used and attaining a high degree of reputation in China, we established the merchandising right based on the commercial value and opportunity obtained as a result of creative work. This was held to be a form of prior right under Article 32.

Ann Xu: A company trade name may also be regarded as a form of prior right. A good example here is how we have successfully established the corresponding relationship between FORD’s trade name and its trademark before the Beijing Intellectual Property Court by submitting a notarised Certificate of Assumed Name.

As seen from the above, given the comparatively liberal view of the CTMO and TRAB, with the appropriate evidence, prior rights are useful in helping brand owners to definitely win against subsequent bad faith filings.

Anna Mae Koo: In order to use the Articles successfully, the collection and preservation of evidence is of ultimate importance. For instance, when applying Article 15, prior contractual or business relationship between the bad faith applicant and brand owners has to be established. However, sometimes there can be scenarios where contracts in written form between the parties cannot be produced despite the business relationship between them. We have in such instances even worked with notarised audio evidence—it is important to remain flexible and creative in obtaining different sources of evidence.

Ann Xu: With respect to preserving evidence, it is a good practice to conduct an audit and to conduct notarization of evidence in China regularly. Notarization of evidence increases the evidentiary value of the same and therefore is worthwhile to conduct.

Anna Mae Koo: This is a very good question which is often asked. Based on the cases we see, it is really the examiner’s discretion in adjudicating whether or not the applicant has a pattern of filing trademark applications in bad faith. Here, a number of factors will be taken into consideration as well, in addition to the number of filings; and that is degree of similarity of the applicant’s marks and other brand owners’ marks, the degree of similarity of the goods designated and the fame of the marks filed. Generally speaking, if the trademark squatter files for over 50 marks, we find the CTMO more receptive to bad faith arguments.

Ann Xu: From our experience too, the CTMO, the TRAB and the relevant courts do not always share the same view. The further up the ladder, the more substantive the decision usually is, and the more likely that bad faith of the trademark squatter will be established with good evidence.

Anna Mae Koo: Trademark squatters hijack brand owners’ marks with the hope of cashing out their investments through a buyback of the mark by the brand owners. To engage in a buyback may be seen as encouraging the ­industry, as it effectively allows trademark squatters to cash out. However, in some instances, the mark is critical and a buyback is the only option and must be entertained. What should brand owners be wary of in these instances?

First, it is not uncommon for trademark squatters to change their mind at the very last minute. Brand owners need to be prepared for the same. We have had multiple cases whereby we have had months of negotiations for the buyback and had even arranged for the notary to attend the signing only to have the squatter decided he wasn’t selling anymore.

Secondly, due to the number of fraudulent assignments being made in China, the CTMO is more wary of the formality of assignment documents. Therefore, it is essential to arrange the signing of any documents before a notary to avoid the later rejection by the CTMO.

Ann Xu: Brand owners should also understand the relevant tax and currency issues involved. Further to what Anna Mae said above, in order to sustain leverage on the trademark squatter, it is important to continue all legal means of redress so as to reach a more reasonable price and to ensure that the trademark squatter is incentivized to seal the deal.

Anna Mae Koo: Bad faith activities do not just end at the border. Given the ease in forming a company in Hong Kong, trademark squatters have been forming shadow companies in Hong Kong in order to support their trademark filings and counterfeiting activities in China. Shadow company is the phenomenon whereby the infringer incorporates the well known trademark of brand owners as part of its company name, thereby posing additional evidential burden on brand owners to disprove the bad faith applicant having any legitimate interest in the registration of the trademark.

Finally, can you each share one important insight with brand owners in fighting the battle against bad faith filing in China?

Anna Mae Koo: As above, you may see that there is a plethora of ammunition in the fight against bad faith filings in China. What is important is to use each of these in conjunction at the right time in order to achieve the specific objective.

Further, to have a better chance in winning against bad faith filing in China, it is important to have a holistic strategy, not just domestically, but as a whole before commencing the prosecution/invalidation of bad faith trademark applications/registrations in China.

Ann Xu: I agree with Anna Mae. Counsel is also important. It is key to engage counsel who understand not only the written provision, but more importantly, who understand the unwritten practicalities inside out when fighting the battle of bad faith filing in China.

Anna Mae Koo is a solicitor at Vivien Chan & Co. practicing non-contentious, contentious and transactional IP law. Anna Mae regularly advises on all areas of intellectual property including licensing, franchising and other transactional intellectual property, IP due diligence and strategic acquisitions, prosecution, technical assistance and technology transfer agreements, trade practices and unfair competition law in China and Hong Kong.

Anna Mae is a Techstars Mentor, and actively involved in international associations, including the Litigation Committee of the International Bar Association, the Internet Committee and the Anti-Counterfeiting Committee of INTA. She was named the Intellectual Property Rising Star Lawyer in the Asia’s Leading Lawyers Award by Euromoney Legal Media Group in both 2013 and 2015. Anna Mae was a Prince Philip Scholar at the University of Cambridge where she graduated with an MA in law. She has also obtained a Masters in real estate from the University of Hong Kong.

Ann Xu is a trademark attorney at Vivien Chan & Co. with over 20 years of experience in China. Ann regularly advises on all areas of intellectual property including IP portfolio management in Greater China, trademark prosecution, licensing and enforcement strategies, administrative litigation, copyright and customs recordation and protection, comparative advertising and internet IP rights disputes.

Ann was nominated as a leading lawyer by The International Who’s Who of Trademark Lawyers in 2014. She has acted for a world-renowned sports shoes manufacturer on tracking down and investigating infringers, conducting raids in various parts of China. She has also advised multinational corporations on confidentiality obligations on intellectual property rights generated by their investors in China, anti-unfair competition and breach of trade secrets with successful outcomes.