Tackling Bad Faith Filings: China’s Recent Amendments to Trade Mark Law

China is notorious for its problem with “bad-faith” trade mark applications: unauthorised applications for trade marks that the applicant knows to have been used and developed by others. Bad-faith applicants in China target both domestic and foreign businesses, typically seeking to piggyback on the reputation of established brands or to extort payment from the legitimate brand owner.

We regularly help businesses facing such difficulties. In a recent case, we were approached by a UK company whose well-known brand had been registered by a third party in China and the registered right had subsequently been recorded with Chinese Customs. Customs then seized the UK company’s genuine branded products and prevented the export of those products out of China.

Ultimately, the UK company made the difficult choice of paying an exorbitant sum to purchase the mark from the registrant. This was primarily a commercial decision, as the process of purchasing the trade mark was undoubtedly quicker than seeking to recover the trade mark by means of legal proceedings before the Chinese Trade Mark Office.

The landscape in China is still difficult to navigate, but the recent introduction of a new Chinese law gives brand owners additional legal grounds for challenging bad faith filings. In addition, it imposes greater sanctions against trade mark attorney firms for facilitating bad faith filings.

The key changes are set out briefly below, but it is worth noting that preventative measures in China are still likely to be more effective than being forced to rely on the bad faith provisions.

Amended Law: what is new?

• New grounds for contesting bad faith filings

China has introduced the notion of ‘intent to use’: when filing a trade mark application in China, the applicant must now have an intention to use the trade mark or else the application or registration may be challenged (via opposition proceedings or invalidation proceedings) on the ground of bad faith.

In addition, the new legislation imposes a duty on trade mark attorney firms to reject instructions where they know or should have known that the applications are filed in bad faith without intent to use.

• Sanctions against bad faith filings and litigation initiated in bad faith

A trade mark attorney firm that assists with bad faith filings will be subject to administrative penalties including warnings and fines. In addition, a trade mark attorney firm that initiates trade mark litigation in bad faith should be penalised by the courts.

• Destruction of counterfeit goods and mouldings

New measures have also been introduced to assist with preventing the manufacture and sale of counterfeit goods. For example, at the request of the trade mark holder, the courts may order the destruction of the counterfeit goods, and the materials and tools used to manufacture those goods, with no provision for compensation for the counterfeiter. The counterfeit goods should not be allowed to enter commercial channels even after the infringing mark has been removed.

• Increased statutory damages for infringement

Under the new law, statutory damages for intentional infringements have increased from RMB 3 million (just over £300,000) to RMB 5 million (just over £500,000) and punitive damages from “up to three times” to “up to five times” the actual loss of the right owner or any illegal profit of the infringer.

What about defensive filings?

Legitimate brand owners often "file defensively" in China, in an effort to inhibit bad faith filings. One question that has been raised is whether the introduction of the ‘intent to use’ requirement may obstruct legitimate applications filed by brand owners purely for defensive purposes. It appears that this is not the intention of the new law; in particular, the inclusion of a further requirement of bad faith indicates that the goal is to deter trade mark pirates. Even so, there remains a possibility that third parties may try to oppose or invalidate trade marks filed by brand owners for defensive purposes on the ground that there was no real intention to use.

What does this mean for my business?

The new law is a welcome step forward for brand owners in China, but the problem of bad faith filings will no doubt continue to pose challenges.

In reality, legal proceedings are time consuming and costly and the best advice is to take preventative measures and seek to register your trade marks in China at the earliest possible opportunity, especially where manufacturing will take place in China. As well as registering the English version of your mark, you should consider protecting the mark in Chinese characters as, contrary to common belief, many Chinese consumers do not understand English and will create a ‘Chinese version’ by which they will refer to your brand. As a final point, once you have taken steps to protect your trade marks in China, it is advisable to record your rights with the General Administration of China Customs (GACC), so that they can monitor for, and alert you to, potentially infringing goods.

Do get in touch if your brand or manufacturer operates in China and you would like to discuss your circumstances in relation to this article in more detail, or if you have any other trade mark matter you wish to explore whether in the UK, EU or worldwide.