China’s revision of trademark law and the impact on CNIPA practices

The Amended Trademark Law of the PRC has been implemented for more than two years since it became effective on November 1 2019. It is therefore a good time to take stock and to analyse the real effect of the changes. Further steps have been taken by the China National Intellectual Property Administration (CNIPA) to ensure its effective implementation and crack down on bad faith filings.

This article discusses the significant updates on CNIPA practices with insight on how brand owners may effectively benefit from such positive moves.

One of the most important amendments made to the Trademark Law was the codification of prohibition against bad faith filings. Article 4 was specifically amended to state that “applications for trademark registrations in bad faith which are not intended for use shall be refused”. The amended Article 4 confers power on the CNIPA to pro-actively reject bad faith trademark applications with no intent to use.

The CNIPA has since taken a more active role in rejecting bad faith filings. In 2021, the CNIPA rejected over 450,000 bad faith trademark applications for lack of intention to use based on Article 4.

To align the examination standards across examiners, and to bridge the gap between the previous edition of the Trademark Law and the Amended Trademark Law, the CNIPA has further published the new ‘Guidelines for Trademark Examination and Trial’ (the Guidelines) which came into effect on January 1 2022.

In particular, section 2 of the Guidelines elaborates on the standards in examining applications which are not intended for use, and sets out the factors that the CNIPA may consider when applying Article 4:

• Applicant’s company status and scope of business;

• Number of trademarks filed and classes designated by applicant and their affiliates;

• Number of applications filed within a short interval and number of classes designated;

• Whether marks applied for:

• Are similar to others’ prior marks with certain degree of reputation or high distinctiveness;

• Incorporate geographical names, scenic spots, industry terms or other names/terms within the public domain;

• Incorporate famous individuals’ names, trade names, online shop names, and character names;

• Incorporate famous and distinctive slogans, artistic works, designs and other commercial symbols;

• Previous offers for sale of trademarks and failure to provide evidence showing the intent to use before sale or assignment;

• Whether the applicant has compelled others to enter into business cooperation arrangements with them;

• Applicant’s demands for high assignment fees, license fees, monetary compensations for infringements and settlement fees; and

• Prior decisions holding that the applicant lack the intent to use, commence infringement actions or lawsuits for profit or is acting in bad faith.

While we may not fully assess the impact on the Guidelines on practice of the CNIPA at this stage, it is expected that the Guidelines will encourage examiners to take a more consistent and holistic approach in determining bad faith.

Apart from pro-active steps taken the CNIPA against bad faith filings, the amended Article 4 can also be relied upon by brand owners as a basis of opposition and invalidation against bad faith applications/registrations. It is encouraging to note that since the implementation of the Amended Trademark Law, the CNIPA has adopted a more flexible approach in finding bad faith.

Traditionally, a large number of filings has always been seen as a prerequisite to establish that an applicant is a squatter. However, the CNIPA has been shifting away from such a rigid approach. Apart from the number of filings made by the applicant, the CNIPA considers other factors, such as those listed above. Further, in one of the examples given, the CNIPA found an applicant to be acting in bad faith on the basis that it was unable to establish its intent to use nor explain the origin of the mark applied-for, despite holding only 20 trademarks.

When filing opposition or invalidation against bad faith filings, especially those filed by squatters holding a relatively small number of marks, it is therefore helpful for brand owners to elaborate on the creation of their mark(s) and adduce supporting evidence. Brand owners should also draw the examiner’s attention to the fact that it is not a mere coincidence for the squatter to have filed/registered a mark that is highly similar or identical to the brand owners’ mark(s) despite the small number of marks held by the squatter.

When the amended Trademark Law was first implemented, there was a concern on whether defensive and gap filings may accidentally be caught by Article 4 as applications which are ‘not intended for use’. Such concern has been addressed in the Guidelines. The Guidelines has explicitly set out two exceptions to Article 4, namely (i) defensive applications; and (ii) reasonable number of applications for future business needs.

The CNIPA further clarified that Article 4 intends to only combat trademark squatting and elaborated on the scope of the two exceptions in its ‘Answers to Key Questions to the Guidelines’ (the ‘Q&A’) published in February 2022. In particular, it was discussed in the Q&A that:

• For ‘defensive applications’, it refers to acceptable filings for marks similar/identical to the core brand on goods/services outside the applicant’s principal business for the purpose of preventing others from riding on or damaging the reputation already formed in the principal business and the core brand; and

• As for ‘reasonable number of applications for future business needs’, the CNIPA acknowledges that there may be a time gap between trademark filing and actual rollout of the products and services, and early trademark filings to prevent trademark squatting or avoid infringement shall be allowed.

That said, the CNIPA emphasised in the Q&A that the above exceptions are not absolute, and brand owners should avoid excessive filings beyond the reasonable and necessary scope when devising defensive and/or gap filings strategy.

If the marks filed are for future business needs, it is also prudent for brand owners to docket evidence related to such business plan which can illustrate genuine intention to use the marks filed.

In China, trademark assignments must be approved by the CNIPA before they may become effective, and the CNIPA has power to disapprove trademark assignments which would easily cause confusion or have adverse effects on the public. The CNIPA traditionally would only invoke such power to raise objections if similar marks covering similar goods/services are not assigned together.

However, we have seen a recent trend for the CNIPA to disapprove assignment applications where trademark squatting may be involved. The Guidelines has further codified this examination practice and has specified that objections may be raised by the CNIPA if a registrant owns a relatively large number of trademarks and has previously assigned the marks to various assignees. The objection may only be overcome only if valid evidence showing the intent to use the assigned trademarks is submitted.

While this practice may deter trademark squatting, it may not be favourable for those brand owners who have already reached an agreement with the squatter to buy back the mark. In such situations, it is advisable to include clauses in assignment agreements to deal with possible disapproval of assignment applications. For example, brand owners should put in place clauses stipulating that if an objection is raised by the CNIPA, the squatter should cooperate with the brand owners in responding to the same, and in case the assignment is eventually disapproved, the squatter should voluntarily surrender the relevant trademark(s). Back-up trademark applications should also be filed by the brand owners to protect its rights.

It is expressly prohibited under the Amended Trademark Law for trademark agencies to assist in bad faith filings:

• Article 19 provides that “trademark agency is forbidden to represent the client where it knows or should know the trademark to be filed for registration by such client falls under the circumstances prescribed in Article 4…”.

• Further, under Article 68, the assistance of bad faith filings in violation of Article 4 or Article 19 is included as a new situation where administrative penalty such as warning and a maximum fine of RMB100,000 (approximately $15,000) may be levied. The trademark agency’s person in charge and other directly responsible personnel may also be fined up to RMB50,000.

In March 2020, the above Articles 19 and 68 were first invoked in penalising the agencies who assisted in filing of bad faith trademarks related to the coronavirus epidemic.

In early 2021, the CNIPA further issued the Special Action Plan to Combat Malicious Squatting of Trademarks (the ‘Action Plan’). The trademark agency which knows or should know that its client is engaged in the malicious filings, but still accepts its instruction in violation of the Amended Trademark Law was identified as one of the acts to be curbed in the Action Plan. It was also stated in the Action Plan that such trademark agencies shall be investigated and penalised.

Since then, enforcement of penalties against trademark agency has rapidly expanded beyond the scope of those who assist with bad faith filings with notable political and social impact, but to those who has assisted squatters in applying for trademarks imitating or copying foreign brands in bad faith. In most cases, the CNIPA will work closing with local administration of market regulation authorities in rejecting such bad faith filings and in imposing fines and other penalties on the squatters and their trademark agencies.

To further step up the effort against trademark squatting, the CNIPA has maintained an internal blacklist of bad faith applicants. Blacklisted applicants’ applications may be provisionally rejected, and the applicants will be required to produce evidence and explanation showing that the application was not filed in bad faith. The same greatly saves the time and costs for brand owners to launch oppositions against each of the applications made by the squatter.

While the process is informal and yet to be codified, the CNIPA has been increasingly receptive to brand owners filing informal complaints against bad faith applications during the examination stage.

From our experience, to enhance the chance of the complaints being fully considered by the CNIPA, it is helpful to include prior favourable opposition/invalidation decisions obtained against the applicant and to draw the CNIPA’s attention to the applicant’s history of bad faith filings. The same will assist in establishing that the applicant is a habitual squatter.

It is apparent from the above that reducing bad faith filings and related activities has been a focus of the CNIPA. Brand owners can further rely on these measures in protecting their marks in China.

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Vivien Chan

Founding and senior partner

Vivien Chan & Co

T: +852 2522 9183

E: vivchan@vcclawservices.com

Vivien Chan is the founding and senior partner of Vivien Chan & Co. She has over 40 years of experience in mergers and acquisitions (M&A), information technology, IP and related tax issues.

Vivien is a justice of the peace and a past president of the Inter-Pacific Bar Association. She is a notary public, a notarial attesting officer in China, and an arbitrator at the China International Economic and Trade Arbitration Commission, Shanghai International Arbitration Center and the Shenzhen Arbitration Commission. She was awarded the Lifetime Achievement Award in 2017 by the American Chamber of Commerce in Hong Kong SAR and has also been awarded the Bronze Bauhinia Star and Silver Bauhinia Star by the Hong Kong SAR government for her outstanding contributions to Hong Kong SAR.

Vivien received her law degree from King’s College London, and is admitted as a solicitor in England and Wales, Hong Kong SAR, Australia and Singapore.

Ann Xu

Head of Beijing Office

Vivien Chan & Co

T: +852 2522 9183

E: annxu@vcclawservices.com

Ann Xu is a trademark attorney and heads the Beijing office at Vivien Chan & Co. She has more than 20 years’ experience in IP cases in mainland China.

Ann has trademark, copyright and designs expertise. She regularly advises on prosecution and portfolio management.