Trademark Enforcement

Recent Developments in Combatting Bad Faith Trademark Piracy in China

SIPS Trademark Enforcement

There have been a range of new legislative developments in China attempting to tackle the widespread problem of bad faith trademark piracy, including the following:

  • On April 23, 2019, the Standing Committee of the National People’s Congress passed the fourth amendment to the Trademark Law, which came into effect on November 1, 2019 (“the Amendment”).
  • On October 11, 2019, the State Administration of Market Regulation issued the Measures on Regulating the Application and Registration of Trademarks, which came into effect on December 1, 2019 (“the Measures”).

Both of the provisions:

  • provide for opposition/invalidation against marks filed in bad faith and with no intention to use (Article 4 of the Trademark Law);
  • hold to account those trademark agencies that, inter alia, knowingly facilitate those bad faith trademark filings under Article 4; and
  • provide for the possibility of (1) administrative fines against applicants who file marks in bad faith for a purpose other than use under Article 4; or (2) judicial punishments against pirates that bring trademark infringement lawsuits against pirated brand owners in bad faith.

While the new provisions go some way towards addressing brand owners’ concerns, many questions remain, including what can be done about copycat marks that were registered with the intent to use, which has led to the prolific rise of “legal fakes” in China.[1] As discussed above, the new bad faith provisions in Article 4 of the Trademark Law appear to be limited to those marks filed in bad faith with no intention to use.

Marks filed in bad faith

The Amendment to the Trademark Law

Prior to the Amendment, the Trademark Law did not have any provision expressly prohibiting bad faith trademarks. However, Article 7 of the Trademark Law stated that “the principle of good faith shall be upheld in applications for trademark registration and in the use of trademarks”. As a result, brand owners have long argued that, by stating that marks should be filed in good faith, Article 7 effectively prohibited marks filed in bad faith. The argument, however, had uneven success with PRC authorities – on many if not most occasions, the argument was rejected on the grounds that Article 7 was only a general provision (or guiding principle) of the law, but it could not, in itself, be used as a basis of a registry action, such as an opposition or invalidation.

The Amendment addressed this problem by inserting the following sentence at the end of the first paragraph in Article 4 of the Trademark Law:

A bad faith application for trademark registration for a purpose other than use shall be rejected.

Further the Amendment also revised Articles 33 and 44(1) of the Trademark Law so that Article 4 can be used as an independent basis of oppositions or invalidations.

The purpose of Article 4 was to tackle marks filed by professional trademark squatters who routinely hoard third-party brands, sometimes in the dozens or even hundreds. Filings at such scales make clear that these hoarders do not have the intention or capacity to use those marks.

There are limitations built into Article 4, however: it appears that it cannot be employed against pirates who actually use the marks that they target (where the second part of Article 4 stating “for a purpose other than use” suggests that marks actually in use are not vulnerable to an Article 4 attack, even if filed in bad faith).

The Measures

The Measures complement the Amendment and flesh out what the term “bad faith” in Article 4 of the Trademark Law is precisely intended to mean.

In that regard, Article 8 of the Measures states that the following factors should be considered in determining whether a mark breaches the bad faith provisions under Article 4:

  1. the number of marks filed by the applicant (or affiliated people or entities), the classes of goods for which the trademark is designated for use, and any transaction information relating to the trademark;
  2. the industry and operating conditions of the applicant;
  3. whether the applicant has previously been determined to have filed marks in bad faith;
  4. whether the mark is identical or similar to others’ trademarks with a certain reputation;
  5. whether the mark is identical or similar to the name of a famous person, company or other commercial marks; and/or
  6. other factors determined by the trademark registration department.

These criteria appear promising, but the condition of non-use in conjunction with even blatantly clear bad faith remains in Article 4.

It is worth noting that criteria 1 and 2 appear aimed at targeting those marks filed by serial trademark hoarders. This is often assessed by evaluating the number of marks filed by the applicant and its business scale: if the number of filings is large and outside the scope of reasonable use (having reference to the applicant’s specified scope of business), then it may be presumed that they were filed with the bad faith intent to hoard for profit.

Criteria 3 is helpful if a bad faith or infringement determination has already been made against the pirate. Its usefulness is boosted by the fact that Article 11 of the Measures states that the Trademark Office will publish decisions made under Article 4 of the Trademark Law; hence brand owners may find it easier to effectively determine whether a given pirate has already been adjudged a bad-faith filer.

Criteria 4 and 5 represent existing grounds for opposition or invalidation under Article 32 of the Trademark Law. As a practical matter, however, brand owners have had limited success using Article 32 against bad faith pirates (see discussion below). By bringing criteria 4 and 5 under the umbrella of “bad faith” in Article 4, brand owners may now find it easier to attack marks meeting those criteria.

By way of explanation, Article 32 of the Trademark Law states that:

No application for trademark registration may infringe upon the existing prior rights of others, and may not pre-emptively register a third-party mark that is already in use, and has already achieved a certain level of influence.

It has been a longstanding practice that those “existing prior right of others” includes personal name rights of influential people, company names and copyright works. However, the application of Article 32 against pirated marks has had very uneven success.

  • For starters, brand owners who found that their marks had already been stolen before they even entered the Chinese market could rarely prove that their marks had achieved the required “certain level of influence” in China.
  • Further, even for marks that are already famous in China, the trademark authorities still routinely dismiss Article 32 claims if there is no evidence that the famous brand was used on the same goods/services covered by the pirated mark. Hence an Article 32-based opposition against a mark already famous in China for “cosmetics” would be likely to fail against an identical pirated mark covering “eye-glasses”.

It is possible that criteria 4 and 5 (above) may make it easier to argue that marks infringing on prior rights should be classed as bad faith marks and therefore in breach of Article 4 of the Trademark Law. However, the issue of ‘no intent to use’ remains.

Trademark agencies

The Amendment and Measures state that a trademark agency can be subject to warnings and fines of between RMB10,000-100,000 (approximately US$1,420-14,200) if they accept instructions to file trademarks that breach Article 4 of the Trademark Law – though only in circumstances where the trademark agent knew or should have known that registration of the mark would be a breach (see Articles 19 and 68 of the Trademark Law and Article 13 of the Measures).[2]

As discussed above, Article 4 includes a prohibition against registration of bad faith marks that are not intended for use.

Given the criteria for “bad faith” marks under Article 8 of the Measures (also discussed above), it is arguable that trademark agents should know that, if their clients file for a massive number of unrelated marks in a short period of time, then the marks are likely to be in breach of Article 4. Hence trademark agents who accept instructions to file such marks could be liable for fines if they cannot prove why they believed that the instructions were bona fide.

This provides one additional pressure point that brand owners can use to combat trademark hoarders and those who suborn their bad faith filings. Again, however, there is no indication that this section can be used against pirated marks that were filed with an intent to use, regardless of the degree of classic “bad faith” otherwise present.

Administrative fines against applicants 

One of the more innovative provisions in the Amendment and Measures is the potential imposition of fines against applicants of marks that breach Article 4 or against bad faith litigants (i.e. pirates who sue brand owners) (see Article 68(4) of the Trademark Law and Article 12 of the Measures).

The potential fine can be up to three times the illegal income of the applicant but capped at RMB30,000. If there is no illegal income, the fine may be less than RMB10,000.

For certain, pirates who target numerous brands for the purpose of hoarding marks are now on notice that they could be held personally liable.

While most pirates of this nature use work-arounds (they file through their individual names, through relatives, or through multiple affiliated companies to reduce the number of pirated marks filed under any particular name), Article 8 of the Measures clearly states that, when determining whether a mark breaches Article 4, the Trademark Office will look at the number of marks filed by the applicant or natural persons, legal persons, and other organizations that have an affiliation with the applicant.

The key for brand owners hot on the heels of these pirates is to prove that the pirate is connected to a wider network of individuals/entities who also engage in piracy. This can sometimes be as easily accomplished through online company searches, but, as pirates bury themselves deeper and deeper underground to make it harder to tie them down, deeper and more intensive online and onsite investigations are often needed. The investigations can also be used to collect evidence that the pirate is in no position to use the pirated mark (for instance if the applicant is an individual with no business).

Conclusion

The Amendment and Measures provide much-anticipated assistance for brand owners faced with bad faith pirates, particularly if the brand owners can prove that the pirated marks were not filed with the intent to use (i.e. filed by trademark hoarders). They also open the door to new strategies for victims of bad faith trademark piracy, including:

  • sending letters warning of the potential penalties to pirates and their agents (thereby putting the agents on notice of their clients’ conduct and rendering them vulnerable to fines under the Amendments); and
  • conducting online and onsite investigations to link the pirate with any affiliated entities engaged in similar bad faith filings (Article 8 of the Measures makes clear that, when determining bad faith, the activities of entities or people related to the applicant will be considered); and
  • collecting evidence to prove that the pirate is not in a position to use the pirated mark (e.g. based on its business model or resources); and
  • reviewing published Trademark Office and Review Board decisions to confirm whether the pirate or its affiliated entities have already been determined to breach Article 4 (Article 8 of the Measures list a prior Article 4 determination as a factor in determining bad faith).

However, they are both noticeably silent on the issue of bad faith marks or copycat marks that are being used – which are arguably the more insidious pirates, ones that are already profiting off the fame of the mark. The Amendment and Measures are unfortunately not likely to be a silver bullet in the case of “legal fakes.” Brand owners will therefore have to continue to rely on old fashioned defensive registrations (including for logos and artwork), aggressive monitoring of the Trademark Office publications, and actions based on other claims (such as copyright where logos are involved) to protect their brands from copycat competitors.

Dan Plane and Courtney Macintosh


Endnotes:

[1] A recent example of a case of “legal fake” is a high-profile dispute brought by the owner of a famous streetwear brand, Supreme New York, against a pirated copycat brand, Supreme Italia. The copycat brand became so successful in China that it even entered into a brief business partnership with Samsung.

[2] Prior to the introduction of the Amendment and Measures, Article 19 of the Trademark Law had only prohibited trademark agents from knowingly (or in circumstances where they should have known) accepting instructions to file trademarks that breach Articles 15 and 32. As discussed in this article, Article 32 protects prior rights, including those marks that achieved a certain level of influence (also discussed above). Article 15 relates to applications to register a principal’s trademarks, which were filed by an agent or representative of the principal without authorization. This covers cases where a sales representative applies to register its principal’s mark without the principal agreeing.