Legal attributes of deceptive marks in China’s Trademark Law

Article 6 of the Paris Convention for the Protection of Industrial Property says trademarks covered by this article may be neither denied registration nor invalidated, with a number of exceptions including the following: “when they are contrary to morality or public order and, in particular, of such a nature as to deceive the public.”

In trademark examination in China, the China Trademark Office and China Trademark Review and Adjudication Board (TRAB) frequently refuse a mark by concluding that it deceptively describes the character of the goods so as to cause “consumer misunderstanding and from that a mis-purchase”, which is defined as one of the so-called “adverse effects”.

The applicable law is article 10.1(8) of the Trademark Law, which provides that “those detrimental to social morality and custom or having other adverse effects [shall not be used as a trademark]”. The TRAB, in issue 2 of its 2012 Legal Newsletter, explained: “the fundamental function of a trademark is to ‘label products to distinguish from others’ so that market entities can compete fairly and effectively.

Consumer confusion

“If a mark could cause the consumers to misunderstand the function, quality, place of origin and source of the products, the consumers’ purchase decision may be affected. Not only is the public interest damaged, but also the mark owner is entitled with unfair competition advantage so as to adversely affect the competitors.

“Under this situation, this mark has shifted away from its fundamental function, and violates the legislative purpose of the Trademark Law, as specified by article 1 – ‘safeguarding the interests of consumers, producers and business operators’. Since there is a specific article to regulate ‘consumer misunderstanding and mis-purchase’, applying an ‘adverse effect’ clause is appropriate.”

The authors believe that in the context of the existing Trademark Law, the application of an “adverse effect” clause is clutching at straws but is not jurisprudentially correct. On one hand, the interpretation of “adverse effect” must be seen in the entire context of the Trademark Law. Article 10 of the Trademark Law is aimed at the protection of public interest and public order. Therefore, the application of “adverse effect” premises the detriment of public interest and public order. Nevertheless, it cannot be said that any action detrimental to public interest and public order should be defined as causing “adverse effect”.

Trademark refusal

For trademark refusal grounds, it either is absolutely public interest-related – for example, a racially discriminative mark – or protects public interest incidentally when it is mainly aimed for the protection of private interest – for example, the first-to-apply principle and cross-class protection for well-known marks.

Because consumers are indispensible parts of public interest and public order, if “consumer misunderstanding and mis-purchase” is viewed as an “adverse effect”, the “adverse effect” could become a silver bullet that could be easily misused by the trademark authorities.

In addition, the “adverse effects” in the law itself are restrained by the word “other” (those detrimental to social morality and custom, or having other adverse effects), therefore, the “adverse effect” should be in the same nature as “detrimental to social morality and custom”, which seems not to include consumer misunderstanding or mis-purchase.

Deceptive marks

On the other hand, the current Trademark Law does not have an independent clause to regulate deceptive marks. Article 10.1(7) says that “those representing promotion in an exaggerated manner and deceptive in nature [should not be used as a trademark]”. However, this clause focuses on and is restricted by the prerequisite “promotion in an exaggerated manner”.

Article 41 of the Trademark Law provides that “registration was obtained by deceptive or other improper means [may be cancelled]”.

This clause is widely acknowledged as referring to a deceptive act in applying for trademarks, such as using a forged company name. Article 16 of the Trademark Law only involves false geographical indications. Because of the lack of an independent clause, the trademark authorities have to cite the “adverse effect” clause.

Drawing on experience

Experience can be drawn from section 2(a) of the US Trademark Law, which is an absolute bar to the registration of deceptive matter on either the Principle Register or the Supplemental Register. Deceptive marks may include marks that falsely describe the material contents of the product and marks that are geographically deceptive.

Based on the American Trademark Manual of Examining Procedure, the US Court of Appeals for the Federal Circuit has articulated the following test for whether a mark consists of or comprises deceptive matter: (1) are the terms misleadingly descriptive of the character, quality, function, composition or use of the goods? (2) if so, are prospective purchasers likely to believe that the misleading description actually describes the goods? (3) if so, is the misleading description likely to affect the decision to purchase?

NPC amendments

On 30 August 2013, the standing committee of the National People’s Congress approved amendments to the Trademark Law, which will take effect on 1 May 2014. Among the changes, article 10.1(7) was changed into “[marks] that are deceptive so as to easily cause the public to misunderstand the quality or other characters, or place of origin of the goods [should not be used as trademarks]”.

After the change, the examination standards of deceptive marks will be very close to those of the US. It is further recommended that in the application of this clause, trademark authorities also take the three-step examination method of the US as a valuable reference.

Damien Wang is a senior associate and client manager, and Si Jiamu is a trainee at Chang Tsi & Partners