Trademark Law clamps down on pirate registration of trademarks

In recent years, cases of pirate registrations of trademarks in bad faith have been a frequent occurrence, even spawning a group of “professional pirate registrants” who specialise in the pirate registration of others’ trademarks to make a profit, with a certain number of agencies engaging in the provision of trademark legal services even taking a hand therein, adding fuel to the fire.

First to file principle

The feature common to pirate registrants is their exploitation of the first to file principle of the Trademark Law, searching for trademarks that have a certain degree of notoriety in China or abroad but have not been registered on the mainland, and compelling the victims of the pirate registrations to “buy back” their trademarks if they wish to continue to lawfully use and register them. However, at such a juncture, the transfer price proposed by the pirate registrants will often freeze the victims in their tracks. This phenomenon damages China’s image and is in sore need of resolution.

The measures to rein in the pirate registration of trademarks are some of the key provisions that were added to the third amendment to the new Trademark Law, which was promulgated by the National People’s Congress standing committee on 30 August 2013.

Firstly, article 7 of the new Trademark Law expressly includes the principle of good faith. In terms of value guidance, it prominently emphasises that market entities should secure legitimate commercial benefits through operating in good faith, rather than taking advantage of the legal space to finagle profits and harm the healthy and orderly market environment. This constitutes a direct rejection of pirate behaviour and a supplement to specific laws and regulations.

The following provisions added to the new Trademark Law are also related to the effort to rein in pirate registrations in bad faith.

Article 15 adds a provision prohibiting someone who, through a contractual relationship, business relationship or other relationship with a prior user of a trademark, is well aware of the existence of that person’s trademark from pirating the registration of such trademark. Article 15 of the Trademark Law previously only had a provision prohibiting agents and representatives – i.e. distributors of products, trademark registration agents, etc. – from pirating the registration of trademarks. Accordingly, numerous pirate registrants are well aware of the existence of another’s trademark, but because they do not fall within the scope of “agents and representatives” mentioned above, they are repeatedly successful.

The new Trademark Law adds a provision to the effect that where someone is well aware of the existence of another’s trademark through a contractual, business or other relationship but nevertheless pirates the registration of such trademark, and a third party that had prior use of such trademark files an opposition with China’s Trademark Office (TMO) in respect of the applicant’s pirate registration, the TMO may directly deny registration in accordance with the law, closing a loophole in the current Trademark Law.

Article 59 sets forth a provision protecting prior users of trademarks. Under the current Trademark Law, once a trademark is granted registration, it is exclusive, which implies that if a registration in bad faith occurs, the prior user of the trademark is required to first cease using any trademarks identical or similar to the registered trademark, even if there was no bad faith involved, and all goods bearing the trademark face the prospect of being completely pulled from shelves. The loss incurred by the prior user of the trademark as a result is often unbearable.

Original scope

The new Trademark Law gives the prior user of the trademark the right to continue using the trademark within its original scope, greatly reducing the loss incurred as a result of the registration in bad faith, and also causing the bad-faith pirate registrant to lose the bargaining chip of using this to blackmail the prior user.

Article 64 adds a provision to the effect that the holder of the exclusive right to use a registered trademark, when seeking damages, is required to provide evidence of its actual use of the trademark during the preceding three years, at the request of the defendant. A bad-faith registrant usually has no intention of actually using a trademark that it has pirated, and in general the trademark will not actually be used. However, in certain past cases, because use of a registered trademark did not fall within the scope of consideration of the current Trademark Law, it also did not fall within the scope of trials by the people’s courts. Accordingly, cases even arose where the bad-faith registrant did not actually use a registered trademark, but the court nonetheless rendered a judgment ordering the actual user of the trademark to pay damages.

Exclusive right

The new Trademark Law imposes on holders of the exclusive right to use a trademark the burden of proof, namely that if an accused infringer argues in its defence that the holder of the exclusive right to use a registered trademark has not used the trademark, the people’s court may require such holder to use the registered trademark to present evidence of its actual use of the registered trademark during the previous three years, failing which its request for damages will be denied by the court. It is hoped that this provision will stop short-term gains using lawsuits and wasting judicial resources, yet securing damages.

Article 68. The new Trademark Law strengthens oversight of trademark agencies and increases their review obligations in respect of pirate registrations in bad faith. In practice, some agencies have ignored professional ethics for profit-making purposes. Some agencies even have themselves become professional pirate registrants. The new Trademark Law specifies that if a trademark agency is aware, or ought to be aware, that a client is pirating a registration in bad faith, it must refuse to act as that client’s agent. Additionally, other than applying for registration of a trademark for its agency services, a trademark agency is not permitted to register other trademarks.

Marked effect

The authors believe the new Trademark Law will have a marked effect in putting a stop to the increasingly serious phenomenon of pirate registrations in bad faith. However, how these provisions are to be specifically implemented still awaits the detailed implementing rules for the Trademark Law, the relevant judicial interpretations of the Supreme People’s Court and related regulations of relevant authorities for further improvement.

Wang Yadong is the executive partner and Lu Lei is a partner at Run Ming Law Office