Trademark Registration

Prosecuting Trademarks in China: An Insider’s Guide for Foreign Brand Owners in 2019 (Part I)

SIPS Trademark Registration

This article is the first of two parts and is intended to provide outsiders with information on recent developments, tips and tricks that are vital when navigating the People’s Republic of China’s (“PRC”) trademark system.

Numbers, Numbers, Numbers

2019 is looking to be another banner year for trademark application filings in China – at least in terms of sheer volume. Statistics show the number of new trademark filings rose from 3.6 million in 2016, to nearly 6 million in 2017 (statistics for 2018 are still being compiled). By any metric, China now leads the world in the number of trademark applications filed.

The increase in output poses many questions for foreign brand owners and their representatives in the United States Patent and Trademark Office, the United States Trade Representative, the World Trade Organization, and other business organisations. How on Earth are trademark examiners coping with the flood of applications? How many of these applications are “bad faith filings,” e.g. applications filed by trademark squatters intent on ripping off third-party rights? Will the standards of examination review at the PRC Trademark Office (“TMO”) be impacted by an insufficient number of trained examiners needed to be on-boarded to handle the massive volume of work? There are also continuing concerns regarding protectionism of domestic over foreign brands and the potential use of the trade mark system as a political tool in negotiations with the United States over trade issues.

In the very recent past, China has responded to this and other issues in the following notable ways:

  • the TMO has drastically increased the number of trade mark examiners on duty;
  • last year, the Chinese government restructured the State Intellectual Property Office (“SIPO”), consolidating trade marks and patents under a single roof (previously SIPO was only responsible for administering patents); and
  • the TMO launched a campaign against bad faith filings last year aimed at encouraging TMO examiners – who are notoriously conservative – to grant more favourable rulings in oppositions where the brand owner lacks a prior trade mark covering similar or identical goods.

Other key changes which impact the trademark application review and approval process are further outlined below:

 Shortening Approval Process

To deal with the flood of applications, serious efforts have been made to streamline the trademark review, approval/rejection process, thereby cutting backlog. At this point, the time frame for review of applications filed directly with the TMO has been reduced to around six months. For Madrid Protocol registrations, the time frame is now nine months,[i] with further reductions expected over the next few years.

Electronic Filings

One of the most significant developments of late has been the introduction of the TMO’s e-filing system, launched on 1 September 2018. With electronic filings, applicants now receive a filing number within 24 hours instead of the one to two months it takes in the case of paper filings. In the very first month in which this new system was in place, over half of all international filings used the e-filing system. After the email is sent, a short message and an email acknowledging delivery is sent back to the trade mark agent of record. Note that now, too, most notices are sent by the TMO electronically instead of by traditional mail. This includes filing receipts, notices of amendment, notices of refusal/partial refusal, notices of non-acceptance, etc.

Results – How is the TMO handling the Stress?

Despite best intentions and some major improvements, the trademark system in China is still a bit of a work in progress – and the effects of the changes outlined above remain to be seen.

For example, the SIPO administrative reorganisation will take time for the changes to trickle down, and it is our understanding that lower-level agencies involved are still working to internalize and confirm new divisions of labour that have been ushered in by the restructuring.

At the TMO itself, the effects of having so many new and untested examiners quickly onboarded to review new trademark applications has led to major concerns regarding the quality of the standard of review. There is strong anecdotal evidence that more “valid” applications are being rejected due to examiner error, quick decision making, high quotas for case clearance, or a combination of all three. This raises a clear concern that applications may be moved through the system quickly by rejecting them, thus shifting the burden to applicants to file an appeal with the Trademark Review and Adjudication Board (“TRAB”) to contest the decision. Regrettably, this still allows many pirate applications to get through unscathed.

A larger question down the road is whether the TMO Register will itself become swamped, making it more and more difficult to navigate the multitude of registrations, many of which were filed without any intention of use whatsoever (which is NOT a requirement of PRC Trademark Law). Worst case, this could spur on the market for trading and purchasing trademarks, creating greater challenges for policing the marketplace – and increase the risk of infringement claims against operators unable to obtain rights in their own marks.

Practitioners will need to keep a very close eye on the TMO’s rejection rates, and corresponding incidences of trademark squatting, to see which way the wind is blowing on this point.

Top 7 Tips

While we are all waiting to see how all these changes will shake out, it is worthwhile to consider practical suggestions of which a trademark owner interested in launching its product should be aware? Below are some quick pointers combining both tried-and-true lessons with newer practice points necessitated by shifts in TMO practice and policy over the last few years.

1. File, File, File!

The first thing anyone new to the China trademark system needs to know is that China is a first-to-file country. Because it is “first-past-the-post” system, prior use of a mark, as well as intent-to-use, are not required and cannot pre-empt a prior-filed mark. While this regime has certain advantages, such as easing administrative costs for filers, it also encourages pirate filings – concomitantly increasing costs for legitimate trademark holders who must oppose or invalidate those filings to deny the pirates.

Given that, the only sure way to stave off potential squatters is to file pre-emptively, ideally before launching any products or services. Applications should be considered not only in key goods and services classes, but if budget permits, in closely “related” classes that pirates would view as close enough to cover their illegal acts,[ii] as well. Defensive filings are and should be the norm in China – NOT an exception.

2. Chinese Brands

Aside from filing a mark in roman script, it is always a good idea for foreign companies entering the Chinese market to consider developing a Chinese character logo or brand with appropriate filings in relevant classes. Given the importance of China globally, and the fact that English proficiency is still extremely limited in many cities, a new brand that is imported can quickly be “localised” by PRC consumers and take on its own identity and even Chinese name. Once a Chinese name attaches to the brand it can be difficult to change. Therefore, Western companies who plan to sell in China are well-advised to spend time developing a Chinese brand that takes into account the company’s values and aspirations. In many cases a marketing team will use outside agencies to come up with Chinese characters that are suitable for widespread use, not just in China, but in other Chinese-speaking jurisdictions.

A great example of the difficulties is when Coca-Cola entered the Chinese market. While doing the research for four suitable characters that sounded like Coca-Cola, the employees found that some of the shopkeepers had also been experimenting with Chinese equivalents for Coca-Cola. Some had made signs that adopted any, seemingly random, group of characters that sounded remotely like “Coca-Cola”, but without giving thought to the meaning of them. One of these homemade signs sounded like “Coca-Cola” when pronounced, but meant something along the lines of “female horse fastened with wax.”

In adopting a translation, one can choose to translate the foreign mark, or use a transliteration, i.e. a Chinese mark that sounds similar to the foreign mark, or indeed translate the word that approximates the logo itself, such as Apple (whose Chinese character trade mark is “苹果” – a direct translation of the word “apple”). The sky is the limit in this regard. It is normally recommended to use a company skilled in development and clearing of Chinese language marks. It is never a good idea to wing it.

3. Priority Filings – Dos and Don’ts and Risk of using Non-Standard items in an application

 China’s Sub-Class system

The PRC trademark system differs from many other jurisdictions in requiring applicants to choose goods and services from both general classes as well as PRC-designated subclasses (and sometimes sub-paragraphs). This is as opposed to countries like the United States of America that only have subject headings within classes. The result: similar or even identical trademarks from different applicants are allowed to register within the same class as long as they do not cover overlapping subclasses.

To deal with this slippage, many large companies, such as Disney and Starbucks, opt to file in every single class and subclass. That’s just not viable for most companies, however, especially since a mark that has not been used for three years following registration can be cancelled for non-use (though such applications have their own challenges, particularly due to use of fraudulent evidence by pirates, and a seeming TMO inclination to let registered marks stay registered). Given that, companies with smaller budgets tend to focus on ensuring “class-wide” coverage, i.e., all or most subclasses/subparagraphs, in key classes, and perhaps a defensive application or two in classes likely to be targeted by pirates making competing products.

Refusal of “Non-Standard Items”

Besides relying on subclasses, the PRC also requires applicants to choose items solely from the TMO’s Classification of Goods and Services index, modelled on the last Nice Classification Series. Creative designations are prohibited and any deviation from the index invariably results in a “Notice of Amendment” being issued during the time of examination.

At that point, the applicant has a stark choice: it can delete the non-standard item, replace it with a suitable standard item, or have their mark rejected in respect of that item. Since many of the standard items are broader, many applicants would like to insist on retaining the original item. While it was formerly possible to seek an exception, this is no longer possible. Instead, the TMO will now simply issue a rejection forthwith if the applicant doesn’t play ball. For that reason, and in respect of domestic applications, it is always smart to choose “standard” items, using the current version of the TMO index to avoid unnecessary delays and costs.

That being said, there is a bit of leeway for international registrations extended to China. If an applicant wants to use non-standard descriptions, then it may make sense to file an international registration via WIPO. There are downsides to this approach, however, in terms of later enforcement and coverage. Further, certain designations – such as “retail sales” in Class 35 – will be refused extension, despite the IR filing.[iii]

Finally, what about priority applications? By law, applicants are required to use the exact specification used with the underlying registration. Unfortunately, in nearly every case we encounter, the underlying goods/services are considered non-standard by the TMO. In the past, it was common for many applicants to either forego the priority claim or simply file the specification “as is” with the understanding that it would draw a Notice of Amendment in due course. Lately, however, the TMO has shown itself amenable to allowing applicants to amend a non-standard description to a “standard one, while still retaining the priority as long as the revised description does not exceed the original description in scope. Example: “computer software for photographic purposes” now becomes “computer software.” That appears to be the trend these days and we view it as a reasonable compromise between trademark owner’s rights and uniformity in the system.

4. What to File: Plain marks or Design marks? Black and White or Colour?

 Applicants often inquire as to which is better: filing for the plain-letter mark or in stylised format and/or in colour? Several factors come into play in answering this question, including whether prior marks exist on the registry and the distinctiveness of the sought-after trade mark. In general, filing in plain-letters and in black and white offers the greatest protection for the word elements. As well, and for distinctive marks, this should provide greater protection against later filings for the same or similar mark in different colours and/or in a stylised form. The rule of thumb is filing in non-colour allows the registrant the option of using the mark in whatever color it wants.

That said, if the applicant is already using a heavily-stylised mark, and suspects it may be subject to piracy, it makes sense to file for that version of the mark independently as well.

5. Copyright as Added Protection

 Given the large number of classes and the many ways a mark can be and are rendered in China (in Chinese, English or both), it is not possible for brand owners to protect themselves against every registry pirate out there.

In light of that reality, a key weapon to add to a rights owner’s arsenal is an application for a PRC copyright certificate covering the design mark. Protection can be obtained not only for logos and device marks, but for stylised marks as well. Copyright applications do not undergo substantive review in China and, more importantly, they can be used directly in the context of oppositions against applications for marks containing a similar or identical design under Article 32 of the PRC Trademark Law, which prohibits marks that pre-empt “prior [IP] rights” of trademark owners, including copyright.

Examples of works that can be registered are artworks (including stylised trade marks which include a logo); written works (books, literary works); audio-visual works (music, drama, cinematography, choreography); works of applied arts (furniture designs for example) and architecture; graphic works such as drawings of engineering designs, product designs and product packaging; and computer software.

In this regard, it is important that businesses take steps to ensure they are able to demonstrate copyright ownership when copyright works are created – and retain those documents. This may require copies of contracts with external graphic design firms, or in-house creative teams clarifying the circumstances surrounding the work’s creation and all parties’ understanding of ownership of the same. In short, the following documentation is necessary:

  • an application that includes samples of the copyright;
  • proof of ownership;
  • description of the work;
  • proof of identity of the copyright owner (such as a certified copy of the Certificate of Incorporation);
  • deed of assignment (if the work was not owned by rights owner at creation); and
  • Power of Attorney in favour of the agent handling the registration.

6. Non-Use Cancellations

Non-use cancellations are one of the best and least expensive ways to clear the deadwood on the registry – and to fight trademark squatters’ pirate registrations. Three years following registration (the day the mark is published in the TMO Gazette as “registered”), a trademark becomes potentially vulnerable to cancellation for non-use upon filing of a formal petition by a third party. Key things to note in relation to this weapon: the cancellation must first be initiated by a third party, the TMO will NOT initiate it on its own. Second, if no non-use cancellation is filed, even a wholly unused mark can exist on the registry in perpetuity, as long as it is renewed every ten years.

One practice point: many applicants wait until their own application is blocked before filing a non-use cancellation. This makes sense in most cases, as there is often no means of knowing ahead of time – except by guesswork – whether a mark will be cited or not. Due to recent changes in the Trademark Review and Adjudication Board (“TRAB”)’s practice, however, there are now risks to taking that tack: while an applicant can appeal the refusal of its TM application to the TRAB, supporting its appeal with evidence of its having now filed the non-use cancellation action against the cited mark, the odds are VERY high that the TRAB’s appeal decision will be issued well before the non-use cancellation is decided (or final, if the TMO’s initial decision is appealed). In the past, the TRAB was willing to suspend its review of such trademark appeals pending a decision in the non-use case, but in order to clear its own backlog, the TRAB will only suspend where the non-use cancellation is filed BEFORE the trade mark application was filed.

That does not dictate that a non-use action against possible cited marks is always required. Another strategy is to conduct a fresh clearance search upon rejection of the TM application, and if the coast is clear, to file a secondary application as an additional back-up. That way, even if the appeal decision is unfavourable, client can rely on a second mark to keep their rights “alive” pending the outcome of the TRAB’s (and potentially the court’s) review. Multiple applications may be required over an extended fight.

7. New – Filing Interferences

Finally, a recent development that is nascent, but offers some hope to address pirate marks going forward: interferences.

The PRC Trademark Law allows applicants with standing to file a trademark opposition after a mark is preliminarily approved and before registration, and there is a specified three-month period to do so.

But what happens when a trademark owner has already sighted the pirate application before it is gazetted and wishes to take action? Currently, there is no prescribed legal procedure to do so. The owner must simply wait for the end of the examination period.

Recently, however, the TMO has begun to allow brand owners to submit “interference letters” for the examiners’ review. The idea is to try to put the TMO on notice of a pending pirate mark – and of the brand owners’ superior rights – requesting the examiner to reject the pirate mark outright. While this is a step in the right direction, there are limited circumstances where such interferences are technically allowed, and in any case, there is no guarantee the letter will ever be reviewed. Still, it is one way to register disapproval – and increase the odds that overworked examiners will reject the mark, preventing an opposition fight.

Recap of TMO Best Practices
  1. Conduct pre-filing similarity and conflict searches and consider taking action against conflicting marks prior to filing the related trademark application (including via interferences, where appropriate).
  2. Devise and register a proper Chinese-character trademark and ensure the mark is suitable in all regions of Greater China from a cultural, marketing and corporate image perspective.
  3. Consider classes and sub-classes to register marks in, and keep in mind the issue of standard vs. non-standard descriptions, particularly when dealing with international and priority applications.
  4. Check if the mark is likely to include any of the elements that would solicit a refusal on absolute grounds under the PRC Trademark Law. Sometimes, simple changes prior to filing can assist in avoiding amendments, or worse, a lengthy appeal process later.
  5. Register copyrights in tandem to supplement and strengthen trademark protection.

In summary, companies must be hyper-vigilant when devising and executing their China trade mark protection strategies. While recent practice shows that the trademark registration process is more efficient, there are many areas that are still difficult to navigate in this field. Still, keeping these best practices in mind may offset some of these.

The next article in this series will examine unique issues rising in the appellate context, including TRAB and court appeals.

Dan Plane and Doug Berman


Footnotes:

[i] It remains 18 months for international applications filed under the Madrid Agreement Concerning the International Registration of Marks (1981).

[ii] Pirates commonly look for gaps in brand owners’ portfolio, filing applications in the same class (filling “subclass” gaps left by the brand owners (see the discussion on China’s subclass system later in this article)), or in other classes the pirate deems “close enough. They use those registrations as (1) a defensive tool when threatened with infringement, particularly by administrative authorities (who are sensitive to threats of lawsuits for abuse of their authority in dealing with “complicated” cases); and (2) a sales tool, where they give the pirates’ customers comfort that the sellers have ownership of registered (even if unrelated) trade mark rights.

[iii] Obtaining coverage in Class 35 for retail services really requires a carefully crafted local PRC application designating goods in each subclass therein. That application should be filed with the recognition that enforcing any such registration against pirates running shops using the trade mark may be difficult and could require an unfair competition claim to be filed in conjunction with a trade mark infringement claim.