Clifford Chance

I. Bad faith trademark filings - the problem

The issue of bad faith trademark filings faced by brand owners or rightful trademark owners is not new. (Bad faith filings are trademark applications made by third parties, in countries where the brand owner has not already registered their trademarks, sometimes by franchisees, distributors or others with which the brand owner previously had a relationship, if not independent third parties, not intending to bona fide adopt or use the trademark, but to take improper advantage such as by piggy-backing on the reputation of the established brand owner or in the form of misappropriation including coercing assignment of the trademark registration to the brand owner at a profit. Trademark squatting tends to refer to the latter circumstance where no or minimal use of the registered trademark secured is involved.)

Bad faith filings are a barrier to brand owners expanding or entering into a new market. They not only lead to the problem of having to deal with any claimed alleged infringement of the squatter's trademark, but they may also cause consumer confusion, hamper the brand owner's ability to protect and enforce their legitimate trademark rights and otherwise cause damage to the brand owner. Have to rebrand or being prevented from entering into a new market such as China can be a costly consequence. Indeed, the problem is so widespread that the British Embassy in Beijing cites bad faith trademark applications as the "single most common business irritant" reported to it.

According to a resolution adopted by the International Trademark Association (INTA) in November 2020, combatting bad faith is its priority. The resolution referred to a survey conducted by its bad faith task force finding that whilst the majority of jurisdictions recognise bad faith in the trademark registration process, some do not. Even where bad faith filing is recognised, there is tremendous various between jurisdictions in what constitutes bad faith and how it is established.

In this series of two articles, we discuss Mainland China's approach to this issue; this first article discusses the approach under the current Trade Mark Law, the practical issues and inadequacies of the current approach, and how brand owners may otherwise obtain civil relief in the form of injunctions and damages from the PRC courts, and the second article will discuss how CNIPA proposes to resolve some of the issues through proposed amendments to the Trademark Law.

II. How the current Trademark Law deals with bad faith filings

The current Trademark Law deals with bad faith trademark applications as follows:

• The principle of good faith and conversely, bad faith in trademark application is recognised under the PRC Trade Mark Law.
• Brand owners can rely on their existing prior rights against bad faith trade mark applications.
• Well known marks are recognised.
• CNIPA may ex officio refuse bad faith trademark applications made not for the purpose of genuine use of the trademark during the process of initial examination.
• Brand owners may oppose bad faith trademark applications or invalidate bad faith trademark registrations.
• Specifically, pursuant to Article 15 of the Trademark Law, applications for registration made by agents or representatives of their principal's trademarks in their own name without authorisation and to which the principal objects shall not be approved. Further, in circumstances other than agency or representation, where the applicant is aware of the existence of the trademark due to a contractual, business or other relationship, and applies for registration of the same or a similar trademark to an unregistered trademark of the brand owner, and the brand owner objects, the application shall not be approved.
• Trademark agents engaged to file bad faith trademark applications may themselves be fined or their business suspended. The fine is capped at RMB100,000 (about USD14,000) as imposed against the agent firm. The actual applicant for a bad faith trademark registration is in fact subject to a lower fine capped at RMB30,000 (about USD4,200).
• A number of CNIPA decisions have highlighted that an indication of bad faith trademark filing is making a large number of trademark applications unsupported by business use.

However, practical issues remain. There are sometimes evidential problems, for example, proving knowledge by way of a prior business or other relationship pursuant to Article 15. The fines imposed are limited. A rejection or successful opposition / invalidation does not prevent the same third party from continuing to file new applications. Whilst CNIPA recognised the need for a record of bad faith filers, which may serve as evidence of bad faith in subsequent applications or proceedings, there is currently no such record. Further, the successful party in opposition or invalidation proceedings is not able to claim legal costs against the unsuccessful party.

III. Recourse to the courts for injunctions and damages

Whilst the Trademark Law has not been able to sufficiently discourage bad faith filings or provide sufficient relief to brand owners, new developments in judicial practice in recent years show that recourse to the courts may be available as against trademark squatters, making available to brand owners civil relief in the form of injunctions and damages, on the legal basis of unfair competition.

Two case examples are discussed below:

• On the facts of Emerson Electric v Xiamen Angel Potable Water System, Xiamen Haina Baichuan Network Technology and Others (2021), the Plaintiff owned the brand and trademark "InSinkErator" and the associated Chinese language trademark "爱适易". The Plaintiff had obtained registrations in China in two classes of goods and services. The Defendants subsequently made applications for registration of 48 identical or similar trademarks in 14 classes of goods and services over 9 years. (The Defendants were also found to have committed trademark squatting against other well-known brands such as DOW.) Whilst the Plaintiff did engage in opposition, invalidation and administrative proceedings, and successfully obtained administrative relief, the Defendants incorporated a subsidiary to make further bad faith filings.
• The Plaintiff ultimately issued unfair competition proceedings against the Defendants purely on the basis of trademark squatting. The court confirmed that the Defendants' mass bad faith trademark filings involving incidental commercial use of the trademarks are regulated by the PRC Anti-Unfair Competition Law (AUCL) and found a contravention of Article 2. Whilst the Defendants argued that they had only acted to initiate administrative procedures in making trademark applications, not causing consumer confusion or interfering with the Plaintiff's operations, the court found that the significant costs the Plaintiff had had to incur in dealing with the multiple administrative and court proceedings did disrupt the order of fair market competition and damaged the legitimate rights of the Plaintiff. The court ordered damages in the amount of RMB1.6 million (about USD224,000) and additionally imposed an injunction ordering the Defendants to cease applying for the same or similar trademarks in the future. The court's order was not disturbed on appeal.
• Perhaps more controversially in the Emerson Electric case, the Defendants were held to be jointly liable and comprised the main corporate culprit; the subsidiary subsequently incorporated; one Mr Wang, the legal representative, executive director, general manager and major shareholder of the two companies; and the trade mark agent engaged to make the bad faith filings. Mr Wang was held to be jointly liable, as he was found to be the de facto controller of the two companies, clearly aware of the infringement, even incorporating the subsidiary to make further bad faith failings after the Plaintiff had obtained successfully administrative remedies. The trademark agent was found to be jointly liable, as it was involved in nearly all of the two companies' bad faith filings and would have known of their bad faith nature by the time the Plaintiff's success in the administrative proceedings became public.
• In Bayer Consumer Care Holdings and Bayer Consumer Care AG v Li Qing and Zhejiang Taobao Network (2017), the Plaintiffs owned copyright in two graphic works which were used on its sunscreen packaging. Li Qing (the Defendant) secured trademark registrations in Mainland China over the graphic works. On the basis of such registrations, the Defendant also offered to assign the same to the Plaintiffs for RMB700,000 (about USD98,000) and made infringement claims against the Plaintiffs and their distributors directly and/or by filing complaints with administrative authorities / the e-commerce platform Taobao. As a result, the Plaintiffs' products were removed from Taobao and the Defendant did receive some compensation from settlement with distributors. (It is interesting to note that in this case, the Defendant was also found to be a serial trademark squatter.) The court ultimately held that the Defendant's conduct constituted unfair competition in contravention of Article 2 of the AUCL and ordered him to pay damages in the amount of RMB700,000.

IV. Conclusion

The current Trademark Law has not been able to sufficiently discourage bad faith filings or provide sufficient relief to brand owners. Trademark squatters had been left with the belief that they had nothing to lose other than the official filing fee for trademark applications. However, the two cases discussed show that brand owners may have recourse to the courts for civil relief in the form of injunctions and damages on the legal basis of unfair competition. Where the trademark squatting is substantial and takes place over a long period of time and the brand owner takes steps to challenge the same, or where other acts of bad faith are apparent such as offering to assign the trademark registration to the brand owner at a profit or making opportunistic claims of infringement against the brand owner or their distributors, there will be a basis for a finding of unfair competition. In terms of liability on the part of the effective controller of the trademark squatter and the trademark agent, it remains to be seen where the line will be drawn. Where there is a basis for knowledge of bad faith on their part such as a public court ruling and further bad faith conduct thereafter, they may well be found jointly liable.

Part 2 of this series of two articles discussing how CNIPA proposes to amend the Trademark Law to address the problem of bad faith filings can be found here.