Background

Bad faith trademark registration, or “trademark squatting”, has long been a serious problem in thePeople’s Republic of China (“PRC”). For trademark registrations, the Chinese Trademark Office (“CTMO”) adopts a “first-to-file” system instead of “first-to-use” system. With very few exceptions, whoever files the trademark application first owns the trademark.

As a result, “trademark squatters” in the PRC often register the trademarks of famous foreign brands in bad faith and wait to be bought out. Many foreign companies may find that their trademarks have already been registered in the PRC by someone else. Under the current Trademark Law of the PRC, theCTMO does not have sufficient legal basis to tackle the problem of bad faith registration.

Amendments to Trademark Law

To tackle this problem, on 23 April 2019, the Standing Committee of the National People’s Congress of the PRC approved the amendments to the PRC’s Trademark Law.

Bad faith registration

It was added into Article 4 of the Trademark Law that “applications for the registration of trademarks in bad faith that are not intended to be used should be rejected.”CTMO will be able to deny such bad faith applications. The onus will be on trademark agencies to refuse clients who file bad faith applications; accepting such clients will result in a warning or fine.

Article 4, which now covers bad faith registration, is also cited as a basis for opposing a third-party trademark (Article 33), and as a basis for invalidating a registered trademark (Article 44). Parties would be able to oppose third-party trademarks registered in bad faith, and in the case of trademarks already registered which are in violation of Article 4, the CTMO would be able to invalidate all such trademarks.

These amendments codify and expand the current practice of the courts and administrative authorities in dealing with malicious filings. They provide a legal basis for rejecting bad faith trademark applications, challenging them in opposition, and invalidating them. However, bad faith filers may still make some use of the marks filed by them, or file bogus evidence of use to show their “intention to use” under Article 4. Further clarifications by implementing rules and guidelines are needed to address the potential misuse by bad-faith filers.

Other amendments

The amendments also impose harsher penalties on trademark infringements. The punitive damages for malicious trademark infringement were increased from “up to three times of the actual losses” to “up to five times of the actual losses”, which is considered heavy by global standards. The statutory limit for damages is also increased from RMB 3 million to RMB 5 million.

The Courts are authorized to order the destruction of articles bearing counterfeit registered marks as well as the tools and materials used to make such articles, and to sanction malicious filing of trademark lawsuits.

Implications

The amendments will take effect on 1 November 2019. These recent amendments bring positive changes to the PRC Trademark Law which can enhance protection for companies against trademark squatters. The amendments may also respond to some of the criticisms raised by the US in the recent US-China trade negotiations. Nevertheless, further clarifications on the amendments are needed before their practical impact could be analysed in full. In particular, it is noted that the China National IP Office (“CNIPA”) had in February 2019 issued draft Regulations to deal with “abnormal trademark applications” on its official website for public consultation, which include the proposal to enable the CTMO to, during examination of trademark applications, request the applicant to provide evidence of their intent to use, which is not currently required under the current practice. Such rules have yet to be implemented, and in view of the new amendments to the Trademark Law, it remains to be seen whether such draft rules will be implemented as is, or whether the CNIPA will issue further rules to assist and enable the relevant authorities in battling bad faith trademark piracy in the PRC.