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In this article Partner Ian Gill discusses the upcoming changes to Chinese Trade Mark Legislation regarding bad faith and the impact this is likely to have on trade mark owners
China’s revised trade mark legislation, effective from 1 November 2019, has a number of changes that will be welcomed by foreign companies operating in China, but there are some questions regarding how the new legislation will be implemented.
Bad faith filings
The legislation introduces a new ground for refusal, namely applications that are not intended to be used shall be deemed to be filed in bad faith and rejected. This challenge will also be available for use in post-grant invalidation proceedings.
The legislation is primarily intended to stop “squatting” and “warehousing” in relation to trade marks filed in China.
Trade Mark Squatting
Many people are familiar with trade mark squatting in China where a local Chinese entity registers a foreign brand in the hope that they can extract money from the owner of the mark. The current legislation provides limited opportunities for foreign businesses to effectively recover the mark and it is not uncommon for significant payments to be made to purchase the mark from the local applicant. Larger companies may use wider ranging “defensive” registration programs to protect their marks from trade mark squatters but this may be beyond the means of smaller entities.
Trade Mark Warehousing
Trade mark warehousing involves the speculative registration of large numbers of marks – these are not marks owned by third parties but just marks that the applicant thinks might be of interest to others. There are companies in China who have registered thousands of marks on this basis and offer them for sale to others.
Both trade mark squatting and trade mark warehousing have, as a common theme, the registration of the mark purely for financial gain rather than with the intention of using the mark in commerce.
The new legislation also introduces more significant penalties on trade mark attorneys who knowingly cooperate with applicants filing applications that are not intended to be used and also increases the damages available to a trade mark owner who can show the mark has been registered in bad faith. The increase may be up to fivefold where it can be shown the other party was acting in bad faith.
Is not yet clear whether the legislation will be retroactively applied to enable trade mark owners to launch fresh proceedings against a trade mark squatter if they tried and failed to recover the registration under the existing legislation. It is also unclear whether the practice of filing defensive applications might fall foul of this legislation. Defensive applications cover goods which are outside of the normal commercial interests of the applicant to provide a broad scope of coverage and so they could be seen as applications on which the applicant has no intent to use the mark. The current thinking is that these defensive applications will not be caught by the legislation as the applicant is not registering the mark purely for financial gain but this issue, and the other aspects of the new legislation, will only become clear sometime after 1 November 2019 when we see how the Chinese courts interpret it.
If the legislation is successful in achieving its intended purpose it is to be expected that the number of trade mark applications filed in China will be reduced and it will give legitimate trade mark owners a better opportunity to recover their marks from trade mark squatters.
If you would like to discuss this topic, or any other related matter you can contact the writer, or alternatively member of our Trade Mark Team.
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