As a “first-to-file” system is adopted in China, where no intention to use or evidence of use is required as part of the trademark application process, so Chinese squatters can easily file applications for trademarks which are identical or similar to foreign brands. Squatters have been making a tidy profit “selling” these pre-emptively registered marks to the owner of the brand when they enter the Chinese market. If the squatter has not had any prior dealings with the brand owner, it can be difficult to allege traditional “bad faith” on the part of the squatter, and such pre-emptively registered marks can rarely be removed based solely on the existing opposition or invalidation grounds available. This has caused a real headache to foreign brand owners.
In response to this, the China National Intellectual Property Association (“CNIPA”) published draft Regulations on regulating “abnormal trademark applications” on its official website for public consultation in February 2019. Some of the features of the draft Regulations are highlighted below:
Definition of the ‘Acts of Abnormal Trademark Applications’
Article 3 of the draft Regulations sets out eight acts which are considered as “acts of abnormal trademark applications”:
- Copying trademarks which are widely recognized by the relevant public and riding on the goodwill of other parties;
- Pre-emptively applying for trademarks which have been used by other parties and have attained a certain extent of influence, and riding on the goodwill of other parties;
- Pre-emptively applying for the same or similar trademarks where the applicant knew or should have known of the other party’s prior rights;
- Filing trademark applications repeatedly with a clearly improper intention;
- Applying for a large number of trademarks in a short period of time which obviously exceeds the reasonable limit;
- Applying for trademarks without a real intent to use and actual need;
- Other acts of filing trademark applications which violate the principle of good faith, infringe against the legitimate rights and interests of other parties or disrupt the market order;
- Assisting others or acting as a trademark agent in the aforementioned situations.
There are existing laws and regulations in place to tackle some of these “bad faith” behaviors. According to the draft Regulations, the acts of “repeated filings”, “large number filings” and “filing applications without real intent or actual need” will be considered as “abnormal” and can themselves be a ground of rejection. Furthermore, the draft Regulations also capture the acts of trademark agents who assist in filing such abnormal trademark applications.
Article 4 of the draft Regulations provides that the ‘acts of abnormal trademark applications’ may be dealt with as follows:
(1) The Chinese Trademark Office (“CTMO”) may require the applicant to submit evidence and explanations for filing the abnormal trademark application. Under the current regime, as the “first-to-file” principle is adopted, there is no need for the trademark applicant to file any evidence or explanations as part of the application process. With this power in place, this should certainly increase the costs on squatters and possibly discourage them from filing large volumes of squatting applications.
(2) The CTMO may invalidate abnormal trademark registrations. Under the current regime, any party may file invalidations against any trademark registrations within five years of its registration where it is deemed to have been filed “improperly”. That said, from our experience, it can be difficult to invalidate those marks unless there is traditional bad faith evidence. The draft Regulations extend the scope for rejecting trademark registrations to situations where bad faith is not so obvious.
(3) The CTMO may reject applications for assignment of “abnormal” registrations, on the ground that their transfer would create “adverse effects” under the Trademark Law. This provision should be helpful to reduce squatters simply transferring rights to another “cleaner” shell company.
(4) Trademark agents who have assisted in filing abnormal trademark applications may be sanctioned and a note recorded in the agent’s “credit file”, and its business license may even be cancelled where the circumstances are serious. It appears the CNIPA is planning to take more active steps to tackle bad faith and abnormal trademark applications. The draft Regulations are quite high level, and so it remains to be seen how these Regulations will be implemented and whether they do discourage squatters from filing pre-emptive trademark applications. The consultation period concludes on March 14, 2019 and we shall await to see what CNIPA announces thereafter.