Fourth revision of PRC Trademark Law

This partial, but fast, revision of the PRC Trademark Law is probably one of the consequences of the ongoing trade negotiations between China and the United States. The revision focuses on two important issues: (1) the proliferation of unused trademarks, and (2) the enforcement actions against infringers.

Proliferation of unused trademarks

More than 7 million trademarks applied for one year is, indeed, becoming a problem. Obviously, many of these trademarks are applied for and registered for other reasons than using them (e.g., receiving subsidies, re-selling, etc.). Some of these trademarks are even filed in total bad faith.

The revision touches mainly article 4 (the general principle defining who may apply for a trademark), indirectly by reference to article 7 (principle of good faith in applying for and using trademarks). Article 4 provides that a person who “…. needs to obtain the exclusive right to use a trademark for (one’s) goods or services during production and business operations” may file an application for a trademark.

The State Council proposed, on 20 April 2019, to add the following wording: “Any application for the registration of a trademark that is not intended for use shall be rejected.” This far-reaching proposition created a problem.

This proposed amendment was in contradiction with article 49 of the law which provides that where a trademark has not been used for three consecutive years without proper reason, any person may file an application with the Trademark Office for the revocation of the trademark. Since article 49 does not impose any obligation to use during the first three years following the registration, how could a trademark application be refused for lack of intention to use?

Besides, members of the National People’s Congress (NPC) objected that it is not unusual for legitimate businesses to file “defensive” trademarks in order to protect their marks in classes of goods more or less related to their core business, and avoid the risk of dilution or having to file difficult oppositions based on reputation.

This is why, after deliberation, the NPC decided to add the word “bad faith” (which is directly related to the principle of article 7), so that the final text reads: “Any bad faith application for the registration of a trademark that is not intended for use shall be rejected.”

Two independent conditions are, therefore, needed: no intention to use, and bad faith.

As it may be difficult for an examiner to appreciate whether an application is made in good or bad faith, in order to be fully effective, this amendment was extended to (1) the responsibility of trademark agents, and (2) oppositions and invalidation procedures.

In term of (1), Article 19.3 now provides that a trademark agent should not accept being entrusted where he knows or ought to know that the amended article 4 is violated. Furthermore, article 68 adds that if a trademark agent files trademarks in bad faith it may be warned or punished, and if proceedings are initiated in bad faith, it may be punished by the Court.

In term of (2), Article 33, as amended, provides that oppositions may be filed by any party that believes that the amended article 4 and the article 19.4 are violated. For article 44 (invalidations) the same reference to article 4 and article 19.4 is added.

Another question could be asked: will the new article 4 apply to trademarks already registered or trademarks in the process of registration? Theoretically not, because a new law should not have a retroactive effect. But one may recall that the 2001 Trademark Law had such retroactive effects for well-known marks. It will be interesting to see whether the new law will be able to deal with the stock of already registered/filed, and not used, trademarks.

Enforcement of trademarks

Article 63 provides that, where an act of infringement is committed in bad faith and the circumstances are serious, the amount of compensation may be multiplied by three. The new article 63 raises this possible augmentation up to “five times”.

Article 63 also provides for the maximum statutory damages of RMB3 million (US$436,000) in case it appears difficult to calculate the exact amount of prejudice or illegal gains. The amended law raises the statutory amount to RMB5 million.

And finally, the revised article 63 deals with the stock of counterfeiting goods, and provides that, except in special circumstances, they should be destroyed, together with the “materials” and tools “mainly” used to manufacture them. Furthermore, the said materials and tools, if they are not destroyed, may not re-enter the business channels. Finally, the revised article 63 clarifies that counterfeit goods may not re-enter the business channels, even if the trademark has been removed.

This is quite an encouraging improvement, as in addition to tools, the court can order the destruction of materials mainly used for the manufacture of counterfeit goods. This amendment fills a gap and is welcome.

This improvement is not without regret:

1. It concerns only registered trademarks which exclude unregistered well-known marks;
2. It is restricted to “commodities bearing a counterfeit registered trademark”, which excludes all other infringing goods (similar trademarks) or any goods bearing unregistered well-known trademarks. Is this restriction made on purpose? Why should the powers of the courts be narrower than that of the administration?

Since the new law was promulgated in such a hurry, we by all means need to wait for further explanation or any implementing rules/regulations and observe what will happen in the future.

Huang Hui is a senior partner at Wanhuida Intellectual Property. He can be contacted at +86 10 6892 1000 ext. 201 or by email at huanghui@wanhuida.com

Paul Ranjard is an of counsel at Wanhuida Intellectual Property. He can be contacted at +86 10 6892 1000 ext. 388 or by email at ranjard@wanhuida.com

Cindy Shu Qi Zhen, a partner at Wanhuida Intellectual Property, also contributed to the article. She can be contacted at +86 21 6448 6066 ext. 701 or by email at cindyzhen@wanhuida.com