Evolving trade mark law and practice in China – optimising trade mark protection

3 ways to optimise trade mark protection in China

3. Use official channels when recording a registered trade mark

Recordal of registered marks with the Chinese Customs office can be a powerful tool.

The Chinese context for trade mark protection

The number of applications being filed has placed a huge burden on the Chinese Trade Marks Office (CTMO), in terms of training sufficient examiners and processing applications. It has been reported that 5.7 million trade mark applications were filed in 2017 [1] and presumably even more were filed in 2018, and estimated that there are 27 million pending applications in China. Compare this with approximately 72,000 trade mark applications filed in Australia in 2018, and less than 75,000 pending applications.

For Chinese traders or individuals, trade mark registrations of foreign owners’ brands are viewed as a legitimate business tool, to provide business advantage, to enforce rights against foreign traders, and as saleable assets. Registration of foreign brands is not perceived as improper and to date have only been challenged on very limited grounds.

The burden of the number of registrations and applications in China has many impacts. The most common at the moment are the surprising decisions made at examination of applications, the limited or time restricted opportunity to challenge or overcome official objections, and the likelihood of encountering serious citation objections, including registrations for the applicant’s own mark. In the face of this, the earlier businesses initiate brand protection in China, the more strategies are likely to be available.

Why file early for trade mark registration in China?

China is a rapidly growing market and for many businesses, the prospect of either manufacturing or sourcing product in China, or selling products or service, is likely to be on the horizon. Obtaining protection early is far less expensive than initiating or defending litigation.

In China it is the party that files first that obtains trade mark rights. This is a different situation to most other countries, where creation of a mark confers ownership, which rights can be enhanced by use and registration. Because the first to file is the owner of a trade mark in China, it is useful to bear in mind that it is considered merely good business sense for potential Chinese manufacturers, distributors, licensees or any interested party, to file for registration for products with which they are dealing. A diligent business may require proof of registration before entering into an agreement, or itself file for registration, often without advising the trade mark owner, which can cause problems further down the track.

Therefore it is important to file before having any discussions about manufacture, licencing or distributing products in China.

Trade mark searches in China

Pre-filing searches in China are not expensive, and are useful to predict likely objections. The CTMO processes are straightforward and examination of applications follows predictable rules. For this reason pre-filing searches can help in developing a protection strategy. To deal with likely citation objections this may include filing cancellation actions for unused registrations, entering into negotiations for consents or assignment, investigating the possibility of challenge on the basis of bad faith filing, and devising a filing strategy to avoid citation objections. These strategies can be implemented concurrently with the filing of an application.

Are you infringing if you manufacture products in China for export only?

For foreign companies having products manufactured in China for export only, the question frequently arises whether use of a trade mark on an export product would infringe prior similar Chinese registrations for the same goods.

Courts in China have recently commenced issuing decisions that use of a trade mark for products for export only, is not infringing use. However, as there are no laws or regulations in force which stipulate that trade mark use for export products is not trade mark infringement, there remains a risk of an action for infringement.

Equally problematic is the risk that the export products might be seized by customs, especially if Chinese owner’s registered marks are recorded with the Chinese Customs IP protection system. Customs officials do not make judgements on controversial legal issues, such as the question of whether export products are infringing, and it is not easy to convince a customs officer to release product without initiating a law suit. In addition there is the possibility of a fine from customs for the seizure of the export products.

Piracy or malicious hoarding of trade marks in China

In recent years, Chinese businesses and individuals have approached trade mark registration as a business activity for financial gain. Foreign companies have experienced this when seeking to register marks in China, only to find that their marks, logos, labels and copyright material have already been registered. This is a problem not only in relation to well-known marks, it is much more widespread. For example, exhibiting products at trade shows anywhere in the world can be a catalyst for filings in China.

This behaviour was exacerbated by companies such as Guangzhou 4399 Information Technology Co., Limited, which applied for over 9,000 trade marks and participated in over 200 oppositions. Shanghai Yuwuyue Information Technology Co., Limited filed more than 500 applications, was involved in 77 oppositions [2]. The filing of a large number of marks to hinder the business needs of others or for the purpose of selling the marks and obtaining financial benefit is called ‘malicious hoarding’.

The Chinese National Intellectual Property Administration (CNIPA) is using data analysis programs to identify acts of hoarding but the outcome of these efforts is not yet obvious. However, the IP courts are issuing decisions which reject illegitimate business use of registrations caused by hoarding or squatting, and it is becoming easier to establish bad faith trade mark filing as a ground to obtain successful outcomes in opposition or removal proceedings.

Summary: China is important for foreign business

China is a complex jurisdiction for trade mark protection whether by trade mark registration, registration of brands at Customs or copyright registration. It has to be acknowledged that very few trade mark applications filed in China automatically proceed to registration. However, against this sobering fact, is the reality that China is and continues to grow as an important market for foreign businesses.

All indications are that the Chinese government and associated intellectual property bodies recognise the importance of harmonisation of Chinese law and practice for trade marks with that in other countries, and positive changes are an ongoing feature, improving prosecution, streamlining opposition and combatting piracy. If trade with China is a possibility, being diligent, acting early and being strategic is the key to reducing risk and securing enforceable rights.