How China Is Dealing With Bad Faith Trademarks

Ilianna Soto,

In the world of trademarks, few things have driven Corporate Counsel and IP Attorneys crazier than China’s bad faith trademark epidemic. Filers seek to extract money for the transfer of marks (trademark squatting) or piggyback off the reputation of established brands. Whatever the underlying goal, according to the UK government, bad faith trademarks are “the single most common business irritant reported to the British Embassy in Beijing, affecting hundreds of marks each year across all industry sectors.

To counter bad-faith trademarks, China has passed a new law which will come into force on 1 November 2019. Aimed at reforming the rampant abuse resulting from the first-to-file regime which currently means businesses have to race to file for a mark in China, the new regulations will remove the need for organizations to register under as many categories and sub-categories as is economically viable.

Trademark Law Amendments

The changes come in the form of amendments to the Trademark Law (TML). A new provision has been added to Article 4, which provides that "Any bad faith trademark applications without intent to use shall be dismissed."  In addition, Articles 33 and 44 are amended correspondingly so Article 4 can be invoked in an opposition action before the China Trademark Office (CTMO) or an invalidation action brought before the Trademark Review and Adjudication Board (TRAB).

Under Article 19, trademark agencies now have an obligation to evaluate trademark applications for good faith.  If they receive an application which they know or ought to have known is in bad faith, they are obliged to refuse the instruction.

Historical data behind China’s bad faith trademark applications

To understand the extent of China’s bad faith trademark applications, it is useful to look at the historical data. The following illustrates the scale of the issue:

  • In 2008, China had 640k filings. Ten years later, this had increased to a whopping 7.2 million. Compare that to the United States, where there were over 290k filings in 2008, increasing by over 60% to almost 470k in 2018.
  • Specific classes of trademark applications also increased dramatically between 2008 and 2018. For example, class 9 (covering science, computer software, recorded and downloadable media, etc) filings increased from 42k to over 400k.  Class 25, which covers clothing, footwear, and headwear (products which are notorious for bad faith filings in China) saw a jump from 60k to almost 550k.
  • The biggest jump in filings was under class 35 (covering advertising; business management; business administration; office functions) which leapt from 34k in 2008 to over 880k in 2018. Note that China specifically excludes from class 35 “the activity of an enterprise the primary function of which is the sale of goods”. An exception was created in 2013 for pharmaceutical, veterinary, and sanitary preparations and medical supplies and there are signs that the CTMO is moving towards conforming with international standards and commercial realities.
  • As of the end of 2018, there were over 22 million valid trademark registrations in China. And in that year China received over 7 million new trademark filings. Not only are these incredible numbers due to bad faith filings, they are also contributed to by legitimate brands desperate to fend off squatters who are filing in nearby classes.

Trademarks filed in three class-01-1

The cost to the Chinese administration and legitimate corporations resulting from bad faith trademark filings is incomprehensible. Therefore, the new laws will be welcomed across the globe. Bad faith trademark filers will now face penalties in the form of warnings and fines. Under Article 68, trademark agencies who violate Article 4 may even be subject to criminal liability.

How is ‘bad faith’ defined?

The Certain Provisions for Regulating Applications for Trademark Registration  (Draft Provisions), published in February 2019 by the China National Intellectual Property Administration (CNIPA) for public comments, set out guidelines to assist the TMO in identifying and acting against bad faith applications (described as “abnormal trademark applications” in the Draft Provisions).

The guidelines state:

  • “Abnormal applications” include:
    • applying for trademarks that are widely recognized by the relevant public, or have attained a certain degree of fame, and riding on the goodwill of others;
    • pre-emptively applying for trademarks identical or similar to trademarks belonging to a third party where the applicant knew, or should have known, of the other’s prior rights;
    • applying for an unreasonably large number of trademarks within a short period of time;
    • repeatedly filing applications with a clearly improper purpose; and
    • applying for trademarks without a real intent to use and without any actual need.”

A backlist of bad faith applications may be created and published on the CNIPA’s website.  Names may also be published on China’s National Enterprise Credit Information Sharing Platform, which rates citizens behavior and imposes consequences if it falls short.  This may act as a significant deterrent for potential trademark squatters.

Final words

Although there are uncertainties about the practical implications of the new laws, one can hear a collective sigh of relief from Counsel around the globe that China is finally taking steps to tackle its rampant trademark filing abuse problems. 

Watch our webinar to discover more about Chinese trademark law and its impact on your business strategy in China today!

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