Author: Ceilia Y. Li, Tai Guo

The third Amendment to Trademark Law of PRC has been published by NPC Standing Committee on 30th Aug. 2013. Several substantial and procedural provisions are made significant changes in this Amendment. For the foreign entities who are engaging or will engage in doing business in China, it is important to keep abreast of these changes in order to develop their business plans accordingly. This article will discuss the main changes made in this Amendment along with possible legislative intent behind them.

1 Introduction of Background

Since the issuance of the current Trademark Law of PRC in 1982, the Chinese Trademark Act has been amended twice, first in 1993 and again in 2001 when China joined the WTO. After the second amendment in 2001, the number of trademark applications filed with the Trademark Office increased dramatically. In 2001, 270,417 applications were filed and 202,839 applications were approved for registration by the Chinese Trademark Office. This trend continues so that in 2012 this administrative authority received trademark applications totaling 1,648,316 and issued 1,004,897 approvals for registration over the year. Of the total trademarks filed in 2012, 15% were filed by foreign applicants and 48,586 were applications from national entry of trademark registration under the Madrid agreement.

In view of the drastic increases in the filing of trademarks and in response to the needs of the economical development, the State Administration of Industry and Commerce (the "SAIC") initiated the amendments to the current Trademark Law in 2003, which are typically called the draft of the amendments. After 10 years of survey and analysis, the Draft of amendment of the Trademark Law had been approved by the NPC Standing Committee on 30th Aug. 2013, and will come into effect on 1st May 2014.

2 Guidelines for the Amendment

2.1 Learn from and coordinate with relevant international conventions/treaties
Nowadays, the importance of IP protection has been recognized worldwide for purposes of economy and trade developments. Regionalization, assimilation and internationalization are the main trend in development of IP legal system.

Generally speaking, the following conventions/treaties provides the basis of the worldwide trademark protection, the trademark international protection system: the Pairs Convention (1883), the Madrid Protocol (1891), the Nice Agreement (1957), the Trademark Law Treaty (1994) and the TRIPs. One of the common goals of the captioned conventions/treaties is to reduce the difference among the trademark protection systems in contracting States, and therefore accelerate the harmonization of trademark protection systems in the worldwide.

China, as a contracting State of the above conventions/treaties, has a duty to amend its IP laws to meet the requirements of these treaties correspondingly. At the same time, as a developing country, the reality of China’s IP development level and understanding must be taken into account as well. The reality is that although a huge number of trademark applications filed in China daily, China has few trademarks that bear international influence.
Thus, this current amendment to the IP laws is rooted in the reality of the China business environment along with the needs to meet the requirement of relevant conventions/treaties. More specifically, the amendments to China’s IP laws need to satisfy the minimum protection standard as required by relevant conventions/treaties. At the same time, the amendments need to be appropriate to the level of IP understanding in China, some of which may be based on the history of the IP law developments in other countries.

2.2 Meeting the needs arose from economic development
One: optimization of the prosecution procedure for trademark applications and improvement of efficiency and effectiveness of trademark disputes

According to the current Trademark Law, the prosecution time for a trademark application is relatively long so that an applicant must wait a relatively long time in order to obtain the trademark protection. In addition, the trademark dispute resolution mechanism is too complicated to protect a trademark owner’s the trademark right effectively.

Two: Restricting of trademark right

Nowadays, more and more countries recognize that it is necessary to restrict the trademark right to the extent that it conflicts with the public interests or third party’s lawful right. However, the current Trademark Law does not have any provisions that effectively deal with this issue.

Three: Development of Internet related trademark laws

The recent hot topics, such as the relation between territoriality of trademark and Internationalization of Internet, hyperlink trademark infringement, search engine trademark infringement, etc., are not stipulated under current Trademark Law of PRC.

3 Significant Changes made in this Amendment

In response to the above needs along with the requirements of International conventions/treaties, significant amendments are made in the following areas:

3.1 Trademark Registration
a) Extension of scope of registerable marks
Under the current Chinese Trademark Act, only visual marks that can distinguish the goods or services from those of others can be recognized as registerable marks.

Article 8 of the third Amendment expands the protection scope by adding sounds as registerable marks. Under the current law, sounds cannot be registered as trademark.

Significantly, a single color still cannot be registered as an independent trademark; and further, only around 100 colors that can be recognized by human being can be used a component of a trademark. From the NPC’s point of view, allowing a single color to be an independent trademark is improper because it may cause trademark monopoly.

b) Explication of the time schedule for trademark administrative processes
The current Trademark Law of PRC does not expressly impose time schedule for certain trademark administrative procedures, such as application for trademark registration, trademark opposition, trademark cancellation dispute, etc,.

In the Amendment, the legislator demonstrates the following time schedule for acceleration and regulation of trademark administrative procedures.

c) Improvement of Trademark application process
Simplifying the application process is one of the main purposes of the Amendment. Under the current law, applicant needs to file trademark applications separately if he or she wants to register one trademark in different classes of goods or services. Article 22 of the Amendment allows "Multiple-class Application", which means an applicant may apply for trademark registration in multiple different classes within one application. Hopefully, this amendment will not only reduce the workload of trademark examiners, but also save prosecution costs for the applicants.

In addition, according to the current law, there is no remedial measure before a final refusal of the trademark application is issued. Instead, applicant needs to appeal to the Trademark Review and Adjudication Board (the "TRAB") if he or she does not accept this final refusal. In order to offer an alternative to this time-consuming appeal process, the Article 29 of the Amendment provides an official written comments system. Under this system, if the CTO considers the certain content of the application needs to be modified, they shall inform the applicant accordingly and the applicant has an opportunity of amending the application within 30 days of receipt of the official notice.

Furthermore, Article 21(2) of the Amendment stipulates that filing documents and related information can be submitted in writing, such as electronic format or other formats prescribed by the trademark office. Thus, it appears that the Chinese Trademark Office will introduce an e-filing system for trademark applications, which are currently not available under the present trademark laws.

d) Elimination of potential bad faith opposition
According to the current Trademark Law, anyone has the right to file an opposition against a trademark application within three months after the preliminary publication. In practice, it provides opportunities for the abuse of the system because the opponent who has no proper standings is able to file an opposition.

In order to eliminate such situation, Article 33 of the Amendment stipulates only those who own certain prior rights or who is an interested party can initiate the opposition proceedings in a process based on the relative prohibited ground .

3.2 Trademark Protection
a) Protection for unregistered trademarks against bad faith registration
Article 15 of the Amendment provides protection for owners of unregistered trademarks against "bad faith" registrations of other parties on the following conditions: a) The bad faith application concerns a mark that is identical or similar to the unregistered trademarks for identical or similar goods; and b) the applicant is aware of the existence of the unregistered trademark that is already used in China through contractual, business, geographical or other relations with the owner of the unregistered trademark.

This change is considered as a significant improvement of the protection of unregistered trademarks in addition to the protection offered by the Act against Unfair Competition.

b) Extension of the protection scope against registration of trademark as a business name
At present, if the owner of a well-known trademark believes that another person has registered its well-known trademark as a business name, which would mislead the public, an application, can be initiated the process for cancellation of the registration of the business name.

According to Article 58 of the Amendment, the scope of protection shall extend to the owners of registered trademarks that are not recognized as "well-known" trademarks. The infringer’s behavior shall be dealt with under Anti-unfair Competition Law of PRC accordingly.

c) Recognition of the well-known trademark in case-by-case base
Article 14 of the Amendment stipulates that the determination of well-known trademark shall be only made based on the necessity of specific case. That is to say, it only provides passive protection for the well-known trademark.

In addition, the Amendment also prohibits manufacturers and dealers using the wordings "well-known trademark" on their products, packages or containers of the products; or in advertising, exhibition or other commercial activities. This is to prevent enterprises from taking "well-known" as an honorable title, or as a short-cut to market their products as more popular and competitive, or even as a means to confuse customers.

d) AIC actions
In the current trademark law, the AIC only has right to impose fine no more than 3 times of the illegal operation amount; in the case of the amount cannot be determined, the fine cannot be over CNY 100,000. Due to this action cannot achieve the desired results, Trademark right holders sometime does not like to apply for AIC actions.

The new trademark law grants AIC a right to issue more severer punishment against infringer. Article 60 of the new trademark law stipulates that AIC has the right to impose fine no more than 5 times of illegal operation amount which the amount is over CNY50,000; in the case of the amount is less than CNY50,000 or cannot be determined, the cap of the fine is CNY250,000. More significantly, the infringer, who conducted infringing activities and was punished by relevant AIC twice within 5 years, will be imposed heavier punishment.

3.3 Infringement Compensation
a) Punitive Damages
Because the current law does not provide the Punitive Damage system, the judicial system does not have a legal basis to suitably punish certain bad faith infringers. In response of this situation, Article 63 of the Amendment imposes the punitive damage against willful infringement and stipulates that the amount of punitive damage could triple the amount of the potential registered trademark-licensing fee, right holders’ actual loss or infringer’s benefit.

b) Increasing of the Statutory Damages
The maximum statutory compensation is RMB 500,000 according to the current law. For the purposes of improving the protection of trademark rights and further cracking down on trademark infringement, the maximum statutory compensation is increased to RMB 3 million according to Article 63(3) of the Amendment.

c) Reversion of the Burden of Proof
The Chinese civil law system does not have a discovery process. Therefore, it can be difficult for claimants to obtain proofs of the extent or scope of the defendant’s sales, the amount of its profit and the plaintiff’s loss.

This issue is addressed to a certain extent in the Amendment by allowing for the courts to order infringers to produce books of account and records, in situations that the claimants are unable to obtain sufficient evidence by its own efforts under Article 63(2) of the Amendment.

4 Tips for Foreign Enterprises

a) Trademark Registration
Significantly, Article 15 of the Amendment grants protection for unregistered trademark against bad faith registration. However, China is still a civil law country and does not have case law to support prevail right of unregistered trademark as common law country does. That is to say, trademark registration is still the very first step foreign entities shall do in protection of their trademark right in China.

According to the new trademark law, the whole process of a smooth trademark registration application shall be completed within 9 months from receipt of the application documents. Article 22 of new trademark law also allows multiple-class application. Article 21 introduces the e-filing system. All these improvements will definitely save both time-consuming and pecuniary costs for applicants.

b) Evidence Collection
Collection of Evidence is crucial in handling trademark dispute or infringement cases.

In trademark registration, as new trademark law demonstrates that sound can be recognized as a registerable trademark element independently and dependently, the entities who have the need or intention to register sound trademark shall initiate the preparation works at present and apply for registration promptly after the implement of the new trademark law on 1st May 2014. The potential applicant shall apply the sound to promotion in China frequently before the implement of new trademark law and collect this use as proof, in case of opposition occurred in course of application.

In AIC actions, it is advice to take this protection method seriously in protection of trademark right as the new trademark law impose heavier penalty against infringer. In course of filing an AIC action application, on-site investigation should be taken into account seriously. It is crucial for right-holder to collect relevant evidence before file a complaint in conducting an AIC action application. If the amount of infringing products found in the warehouse exceeds CNY50,000, the infringer could be imposed very heavy penalty. Through on-site investigation, we also may find repeat infringers who may be punished even more heavily.

In trademark proceedings, the Warning Letter shall take very important position in determination of "bad-faith". In addition, due to the new trademark law introduces the "non-use for three consecutive years" as a defense against compensation claim, it is crucial to collect and retain proofs of use in Chinese Market.

c) Preparation of Contractual Documents
"Good faith" principle has been illustrated in Article 3 of the new trademark law. In an actin against bad-faith registration, a well-prepared contract or agreement with Chinese subcontractor would be a nuclear weapon. In our point of view, a well-prepared contract shall, at least, demonstrate the acknowledge of right-holder’s unregistered trademark by the counterparty expressly. By doing so, any potential trademark squatting conducted by the contractor shall be deem to be "bad faith", and therefore will be rejected by CTO according to Article 15 of the new trademark law.

5 Conclusion

Through the amendment to the Trademark Act, the Chinese legislators hope to speed up the registration process at the Trademark Office and strengthen the protection of registered, unregistered and well-known trademarks.

It must also be pointed out that in this Amendment, several substantial and procedural provisions are made significant changes. That is why the Amendment will be enacted next year on 1st May 2014. During the transitional period, Chinese relevant Administrative authorities, Court and legal practitioners shall learn the Amendment in-depth and make corresponding adjustment.

[1] Including Articles 10, 11 and 12 of the Amended Trademark Law of PRC.
[2] Including Articles 13(2), 13(3), 15, 16(1), 30, 31 and 32 of the Amended Trademark Law of PRC.
[3] Including Articles 13(2), 13(3), 15, 16(1), 30, 31 and 32 of the Amended Trademark Law of PRC.