Ignorance of prohibitory rights of marks inherent in cancellation system

By Jiang Fengtao and Wang Hua, Hengdu Law Offices
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The second section of article 49 of the Trademark Law specifies that “where a registered trademark is becoming a generic name in a category of approved goods, and the mark has not been used for a period greater than three consecutive years without any justifiable reasons, any entity or individual may request that the Trademark Office make a decision to cancel such registered trademark”. This provision is the so-called “trademark cancellation after three years unused”, which has a pronounced function to prevent trademark squatting by cleaning out idle and unused trademarks. The provision aims to benefit market entities that have a bona fide intent to register and use the trademarks.

Jiang Fengtao Managing Partner Hengdu Law Offices
Jiang Fengtao
Managing Partner
Hengdu Law Offices

Other than reasons such as force majeure, government policy restrictions or bankruptcy and liquidation, the sole criterion for identifying dead trademarks is to verify whether they perform the identification function in commercial use by trademark rights holders. Plenty of trademarks, especially defensive marks and/or associated marks of well-known and famous trademarks, are cancelled due to this provision.

However, the aim of registering these trademarks is to take advantage of the prohibitory rights, instead of simply using them as identification marks. Considering usage as the sole criterion of a trademark and ignoring the value of prohibitory rights puts relevant enterprises in a dilemma in administrative trademark cases.

Registered trademark rights

Generally speaking, registered trademark rights consist of right to use – including the right to own, use and disposal – and prohibitory rights, including the right to prohibit others to register and use a trademark. The scope of the right to use is limited to the goods for which the trademark has been designated and the marks whose use is approved, whereas the scope of prohibitory rights extends to like products and similar marks.

Wang Hua Attorney Hengdu Law Offices
Wang Hua
Attorney
Hengdu Law Offices

Compared to the right to use, the prohibitory right is more extensive and independent from the right to use. Pursuant to the Interpretations of the Supreme People’s Court on Issues Concerning the Application of the Law in the Trial of Civil Dispute Cases Involving the Protection of Well-Known Trademarks, if a registered trademark infringes rights of a well-known trademark, the court may issue an order to forbid using the registered trademark. However, the prohibitory right will remain effective unless the trademark is invalidated.

Furthermore, article 64 of the Trademark Law specifies that if a trademark rights holder fails to demonstrate that it has actually used such trademark during the three years prior to the lawsuit, or fails to demonstrate that it was suffering any losses due to the infringement, the court may order that the infringement must cease, but no compulsory compensation may be awarded. In other words, the actualisation of the prohibitory rights does not necessarily depend on the use of trademarks. Based on legal practices related to these provisions, we may come to the conclusion that the prohibitory rights can exist independently and create value.

The cancellation of a non-use trademark sets use as the only cause, while paradoxically leading to the result of revocation of both the right to use and prohibitory right.

Defensive and associated marks

There are no concepts of defensive marks and associated marks in trademark law of China. Well-known trademarks all have defensive marks or associated marks. The trademark rights holders have no intention of applying those trademarks, but they need to prohibit others from registering or using the same marks. They register these marks to safeguard the distinctiveness and goodwill of their marks.

Furthermore, article 13 of the Trademark Law provides that well-known trademarks – even without defensive registration – must be given protection in multiple classes. Article 42 of the law specifies that if someone plans to transfer a registered trademark, he or she will be required to transfer identical and similar trademarks for identical and similar goods simultaneously. Obviously, associated trademarks are tightly associated with the principal marks, and ought to be protected. In summary, although defensive marks and associated marks do not have commercial value, it is necessary to obtain protection, and they should not be subject to cancellation after three years of non-use.

Is partial cancellation reasonable?

In some trademark cancellation cases, trademark right holders can only provide partial trademark or services usage evidence. In the 国泰人寿 case, the registered trademark 国泰人寿 was designated for goods and/or services of lease of immovable property, immovable property agency, immovable property brokerage, banking, appraisal (insurance, banking and real estate), insurance brokerage, financial information, etc., but the trademark rights holder was unable to provide evidence for use of the trademark on lease of immovable property, immovable property agency and immovable property brokerage. The court rendered a judgment to cancel the registration on the above-mentioned services.

It is the authors’ opinion that the partial cancellation of such a trademark that is in actual use does not have real meaning. Furthermore, ignoring the fact that the three services are similar to appraisal (insurance, banking and real estate) for which registration was retained, and looking at the issue solely from the legislative objective of the system, such a partial cancellation will not release trademark resources and will give rise to disputes or redundant applications. Accordingly, with respect to such trademarks, respecting the value of the right to prohibit their use for goods or services for which they are not used, and retaining them for all goods and services, is much more reasonable.

The positive significance of the cancellation of a non-use trademark is obvious, but its application in specific litigation cases must consider balancing the interests of trademark rights holders and other market entities, as well as sweeping away dead trademarks and protecting trademark rights, the core of the trademark law system. The application of a system that will cancel registered trademark rights has to be strictly limited, and use should not be the sole criterion.

Where unused trademarks are registered not out of bad faith but based on production and operational needs, and such registration does no harm to the orderly trademark system, their independent value in prohibiting use should be recognised and their registrations upheld.

Jiang Fengtao is the managing partner and Wang Hua is an attorney of Hengdu Law Offices

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