Clifford Chance

Part 1 of this series of two articles outlined: (i) the bad faith trademark filing problem; (ii) the practical issues and inadequacies of the approach under the current Trademark Law; and (iii) how brand owners may otherwise obtain civil relief in the form of injunctions and damages from the PRC courts on the legal basis of unfair competition (see here).

To support the fight against bad faith trademark filings, CNIPA proposed in January 2023 the following amendments to the PRC Trademark Law, which are discussed below. Due to concerns raised regarding one of the proposed amendments, it is expected that there will be substantial revision of the amendments, or the amendments may be put on hold.

• Trademark applications are to be based on use or undertakings to use (Article 5)

Requiring trademark applications to be based on prior use of the subject trademark or undertakings to use the same should at least give second thoughts to trademark squatters who have no intention to bona fide adopt or use the trademark from making applications. Currently, there is no requirement for use to support trademark applications in Mainland China. Non-use is dealt with by allowing a person (including the brand owner) to apply for cancellation of the registration if no use for three consecutive years can be shown. However, the proposed amendment does not require demonstration of use at the time of application for a trademark, rather every five years thereafter as discussed below.

• Use required to maintain registrations (Article 61)

The proposal is to require trademark registrants to demonstrate to CNIPA the use of the trademark every 5 years commencing from the registration date. If no use of the trademark has been made, legitimate reasons for non-use will need to be provided. Failure to timely file the relevant statement of use will lead to cancellation of the registration.

To brand owners, five years is still a long time to wait for the hijacked trademark to be released to enable them to proceed with entry into the market in Mainland China. However, the proposal is an improvement to the current situation, where trademarks are registered for 10 years and then require renewal, and brand owners may be waiting for squatters to fail to renew.

The costs of this proposal may therefore outweigh the benefits, as this requirement to demonstrate use every 5 years may also affect brand owners that register trademarks as a defensive or preventive measure against trademark squatters even if there is yet an intention to sell or offer their services in Mainland China. It remains to be seen whether this will be considered a legitimate reason for non-use. The requirement also creates an administrative burden on brand owners where there is genuine use of the trademark.

• New procedure to directly transfer trademarks from bad faith registrants (Article 45)

In line with the practice for domain name disputes, it is proposed that for certain categories of bad faith filing, as an alternative to invalidation, the brand owner may apply for direct mandatory transfer of the registered trademark from the bad faith registrant back to them. The advantage of this remedy is that the brand owner is able to obtain a registration with an early filing date, and need not make its own application and deal with the issue of any intervening third party trademarks.

• Restrictions on repeated filings (Articles 14 and 21)

To address the problem of trademark squatters making repeated filings including after brand owners successfully oppose, invalidate or cancel squatters' registrations, it is proposed that a person may only hold one registration for a trademark covering the same goods or services. Where a registration has been deregistered, cancelled or invalidated, the same person may not refile an application within one year, subject to certain exceptions such as a failure to renew or submit evidence of use in cancellation proceedings for reasons not attributable to the applicant.

• Civil compensation for bad faith applications (Article 83)

Whilst the Emerson case discussed in Part 1 of this series plugged the gap to give recourse to civil remedies in the form of injunctions and damages to some extent, the proposal to provide for civil compensation for bad faith trademark applications pursuant to the Trademark Law is welcomed. The proposal is to provide brand holders who suffer losses from bad faith trademark applications a basis to commence civil proceedings against bad faith applicants and claim damages covering both their losses and reasonable legal costs. This provides for wider grounds than the cases discussed in Part 1 of this series, which concerned trademark squatting in specific circumstances and required unfair competition to be demonstrated. For example, bad faith filings under the Trademark Law also cover the circumstances of agents and representatives making unauthorised trademark applications. Indeed, this provision for civil relief is accompanied by the definition of bad faith in trademark filing being clarified in a proposed new Article 22; the definition does not contain new principles, but encompasses current practice including pursuant to CNIPA decisions and guidelines such as expressly including "application for a large number of trademark registrations without the purpose of use" as a category of bad faith trademark filing.

• Increase in maximum fine against bad faith trademark applicants (Article 67)

The maximum fine that may be imposed by local Market Supervision Bureaus (MSB) against applicants for bad faith trademark filings is proposed to be RMB250,000 (about USD35,000) (increasing from RMB30,000, about USD4,200 under the current law).

Conclusion

Whilst the intention to address bad faith trademark filings through amendment of the PRC Trademark Law is welcomed by brand owners, including the proposal for an additional (and wider) basis to seek civil damages and costs, the main concern coming out of the proposed amendments is the requirement to demonstrate use every 5 years. This will be an issue for brand owners where they register trademarks as a defensive or preventive measure against trademark squatters even if there is yet an intention to sell or offer their services in Mainland China. It will also create an additional administrative burden in relation to trademark registrations that are used. The proposed amendments are currently being reviewed and it is understood that they may be substantially amended or even put on hold.