Exploring the starting point of ‘preceding three years’ in China’s Trademark Law

Condé Nast is one of the most famous media publishers in the world. It owns a number of brands in multiple sectors, covering services in classes 35 and 41 of the Nice Classification, which encompass “advertising, marketing and promotional services” and “cultural, educational or entertainment services”, respectively. Condé Nast suspended certain services during the COVID pandemic due to the Chinese government’s lockdown policy, which hampered the use of service marks. Therefore, when the brand owner sued an infringer, the infringer defended itself by quoting the first paragraph of Article 64 of China’s Trademark Law and arguing that it should not bear compensation due to non-use of the mark in the preceding three years, as calculated retroactively from the date of initiation of the lawsuit.

A Tahota team including Charles Feng, a co-author of this article, acted on behalf of Condé Nast and won this milestone case. The ruling found that the “preceding three years” under Article 64 of the Trademark Law shall be calculated from the date of infringement rather than the date of filing of the relevant lawsuit. This has been a controversial issue and subject to divergences in understanding in court decisions until now. The ruling included an injunction and a significant amount of damages.

The first paragraph of Article 64 reads as follows: “If the owner of the exclusive right to use a registered trademark requests compensation, and the alleged infringer puts forward a defence that the owner of the exclusive right to use a registered trademark has not used the registered trademark, the people’s court may require the owner of the exclusive right to use a registered trademark to provide evidence of the actual use of the registered trademark within the preceding three years. [If] the exclusive right owner of the registered trademark cannot prove that the registered trademark was actually used within the preceding three years, and cannot prove that it suffered other losses due to the infringement, the alleged infringer does not bear the liability for compensation.”

However, because there is no specific judicial interpretation concerning the starting point of “the preceding three years”, there is a divergence in the current theoretical standing and practice in China.

In the civil judgment of (2022) Jing Min Zai No. 72 concerning Beijing Yanjing International Travel Agency Company Limited’s retrial over infringement of a trademark right, the Beijing Higher People’s Court determined the starting point of “the preceding three years” as “the date of filing of the first instance of the case”.

The court stated the following: “In this case, Beijing Yanjing Company did not dispute the second-instance court’s finding of trademark infringement, but disputed the second-instance court’s failure to uphold its three-year non-use defence. Beijing Yanjing Company claimed during the retrial that Yanjing Zhihui Company’s registered trademark in question had not been used according to the Trademark Law for three years (i.e., from October 26 2015 to October 25 2018) prior to the date of its first-instance lawsuit, and that it should not be held liable for damages in accordance with the provisions of Article 64 of the Trademark Law. In this regard, the court held that, given that the filing date of the case of first instance was January 7 2019, which was the starting date of the basis of Yanjing Zhihui Company’s claim, the period during which Beijing Yanjing Company claimed the defence of three years’ non-use of the registered trademark in question should be from January 8 2016 to January 7 2019 [emphasis added].”

In (2018) Yue Min Zhong No. 1741, concerning a second-instance civil judgment in a dispute between Jiangzhong Pharmaceutical Company Limited and Guangdong Oulaishi Biotechnology Company Limited over infringement of trademark rights, the Guangdong Provincial Higher People’s Court determined the starting point of “the preceding three years” as the date of the infringing act.

The court stated the following: “The determination of ‘preceding three years’ in Article 64 of the Trademark Law should aim at realising the legislative intent and focusing on balancing the interests between the trademark owner and the infringer; therefore, the ‘preceding three years’ should be determined as ‘three years before the infringement [emphasis added].’ ”

Considering the above points of view, the authors believe that taking the date of infringement as the starting point of “the preceding three years” is more legitimate and reasonable. The analysis is as follows.

Firstly, taking the date of infringement as the starting point is aligned with the mainstream of judicial rules, and a large number of effective judgments have taken the infringement date as the starting point of “the preceding three years”. The Supreme People’s Court has also maintained the date of infringement as the starting point for the purposes of its judgment in a number of decisions.

Secondly, taking the infringement date as the starting point is more in line with the legislative purpose and intent of the Trademark Law. To understand and apply the law, one should consider, in addition to its literal meaning, the essence of the law and the purpose of the legislation, and focus on balancing the interests of the trademark owner and the infringer.

Thirdly, the basis of the right to claim compensation is the infringement loss. Whether the infringement will cause losses mainly depends on the use of the trademarks of the parties when the infringement occurred.

The premise of a compensation claim against an accused infringer lies in the fact that, before the occurrence of the alleged infringement, the trademark right involved in the case has been used to distinguish the source of goods or services, and thus has already generated goodwill and other interests that should be protected by the law. Furthermore, the accused’s infringement behaviour has caused damage to the goodwill of the right holder through imitating the trademark right and misappropriating the goodwill that has been created, thus resulting in losses for the trademark right holder.

In other words, when judging whether the relevant public will be confused by, or misidentify, a mark, the focus should be on whether the relevant public would confuse the plaintiff’s trademark with the allegedly infringing mark.

The point in time when the case is filed or prosecuted has no direct relationship with the actual use of the trademark of the plaintiff or the defendant and whether it is likely to cause confusion. Therefore, the starting point of “the preceding three years” should be calculated from the point at which confusion may have been caused; that is, three years before when the plaintiff claimed infringement occurred, to examine the actual use of the trademark.

The above view has been recognised in a large number of decisions, such as by the Guangdong Higher People’s Court in (2018) Yue Min Zhong No. 1741 concerning the dispute between Jiangzhong Pharmaceutical Company Limited and Guangdong Oulaishi Biotechnology Company Limited over infringement of trademark rights. In this case, the court held that using the date of infringement as the starting point is more in line with the legislative purpose and intent of the Trademark Law.

Furthermore, the law is a deterministic norm; it must make clear provisions on the rights and obligations of the parties, as well as the corresponding legal consequences, so that the parties to the consequences of their behaviour are able to have sufficient pre-judgement. If taking “the preceding three years” as the three years before the infringement, the perpetrator can consider the situation before the act to effectively predict the consequences of their behaviour. And if “the preceding three years” is determined as being before the prosecution, the consequences of the behaviour of the perpetrator may change due to facts that come to light after the occurrence of infringement, which is not in line with the legal certainty requirements.

Finally, in considering the legislative purpose and legal effect, taking “the preceding three years” as three years before the infringement can prompt the trademark owner to use the trademark, while it can also prevent the trademark owner from not using the trademark for a long time before, after learning that other people are using the trademark, attempting to obtain undue benefits without truly using the trademark. Therefore, taking “the preceding three years” as three years before the infringement is conducive to encouraging the use of trademarks and activating trademark resources but can also effectively prevent the trademark owner from taking advantage of the registered trademark for improper speculation.

In addition, the provisions of the Trademark Law on the trademark revocation system also suggest that the starting point of “the preceding three years”, as set out in Article 64, should be from the date of infringement.

Firstly, according to Article 55, paragraph two, of the Trademark Law, “The trademark office shall announce the revoked registered trademark, and the exclusive right to use the registered trademark shall be terminated from the date of announcement.”

The revoked registered trademark is still valid before such an announcement by the trademark office, and even if the trademark office has announced the revocation of the registered trademark, the registered trademark is rendered invalid from the date of the announcement but is still valid before the termination. Therefore, if an infringement occurred before the date of a revocation announcement, the defendant still needs to bear the responsibility of infringement. In other words, the goodwill formed by the plaintiff’s long-term, continuous use of the trademark before the infringement will not disappear because of a subsequent revocation.

Secondly, according to Article 50 of the Trademark Law, “If a registered trademark is revoked, declared invalid, or not renewed at the end of its term, the trademark office shall not approve an application for registration of a trademark that is the same as or similar to the trademark within one year from the date of revocation, declaration of invalidity or cancellation.”

In this case, a registered trademark has been used before an announcement of revocation and has had a certain influence in the market. Article 50 of the Trademark Law sets forth restrictions for a certain period for a trademark that is the same as, or similar to, a trademark registration application, in order to maintain economic order in the market; protect the interests of consumers; prevent unnecessary misunderstanding and loss, even if the registered trademark has been revoked; and protect the prior goodwill of the registered trademark before revocation.

Finally, taking the date of infringement as the starting point is also in line with the relevant provisions of China’s Civil Code, Article 1184 of which stipulates the following: “If the property of another person is infringed upon, the property damage shall be calculated according to the market price at the time of the damage or in other reasonable ways [emphasis added].”

According to this provision, any property damage should be calculated according to the time when the loss occurs. Trademark rights, as intellectual property rights, are also a kind of property right, for in disputes concerning infringement of a trademark, infringement occurs when the trademark right holder suffers a loss.

To sum up, taking the date of infringement as the starting point of “the preceding three years”, as set forth in Article 64 of the Trademark Law, is the most appropriate method, as it complies with the legislative intent of the Trademark Law and the relevant provisions of the Civil Code.