On the 3rd Revision of Chinese Trademark Law

May 10, 2008
By Qiang Ma, Unitalen Attorneys at Law

The Chinese Trademark Law (the Trademark Law) was promulgated on August 23, 1982 and underwent its first revision in 1993. With its entry into the World Trademark Organization, China modified the Trademark Law in 2001 in accordance with TRIPS to keep her promises to protect intellectual property, covering among other aspects the qualification for registration of Chinese natural persons, geographical indications, well-known trademarks and juridical examinations. The Trademark Law, after the two revisions, has played an important role in securing the lawful rights of trademark owners, encouraging fair competition, maintaining market order and promoting economic development.

With the fast-growing national economy and increasing foreign investment, more and more businesses have recognized the great importance of the use of trademarks as a competitive tool, resulting in the mounting number of trademark filings. Taking the filing of new trademark applications with the Chinese Trademark Office (CTMO) as an example, the number trademark filings in 2005 were 664,000, which surpassed 700,000 in 2006. In order to meet the registration requirements prior to 2002, it took at most one and half years for a trademark application to mature into a completed registration. Presently the examination period for trademarks takes at least two and a half years, and may take up to three years or longer for filings in big classes such as Class 25. Currently, it will take about 3~4 years for completion of a refusal review and 5~8 years for an opposition review and cancellation before the Trademark Review and Adjudication Board (TRAB). The severe delay in trademark examinations before the CTMO and TRAB has caused serious consequences such as the uncertainty of trademark rights and ambiguity of trademark ownership, resulting in difficulties for the investment and marketing activities of domestic and foreign trademark applicants and an adverse impact on the economy and trade. To overcome this serious lack-of-manpower issue and expediate the examinations, the State Administration for Industry and Commerce which supervises CTMO and TRAB, in March of 2008, recruited 300 new CTMO examiners and 100 new TRAB re-examiners.

In March 2006, the World Intellectual Property Organization (WIPO) hosted a diplomatic conference in Singapore for the enactment of the Singapore Treaty, which is an updated and modified version of the 1994 Trademark Treaty, both of which are related but distinct from each other. Although the Chinese government subscribed to the final document of the Singapore Treaty, she did not formally join it. Indeed differences exist between the 2001 Trademark Law and the two international trademark treaties. For instance, both treaties allow “multi-class applications” which was not adopted in the 2001 Trademark Law. Additionally, the Singapore Treaty addresses new types of trademarks, electronic filing procedures and remedial measures for failure to reply before the deadline. Yet the 2001 Trademark Law does not involve the forgoing aspects, and thus is different from the requirements of the two treaties.

Due to the inherent defects in the current laws as well as the gaps existing between the 2001 Trademark Law and the two international trademark treaties, the Chinese State Administration for Industry and Commerce (SAIC) has organized a Draft Team for preparing a modification of the trademark law and issued two Revision Drafts on the 2001 Trademark Law for public opinions respectively in April 2006 and September of 2007. According to some authority in the TMO, the 3rd draft will be completed at the end of 2008 and then submitted directly to the State Legislation Office, which will issue the same to the public for comments and opinions. The author, after analyzing the two old drafts and communicating with the competent director of the Drat Team, expect that the 3rd draft will reflect the following changes:

1. Establishment of “defensive registration” system for well-known trademark
Different from the 2001 Trademark Law, the Revision Draft incorporates the “defensive-registration” arrangement prevailing in Japan and other foreign jurisdictions. Art.49 provides that “it shall be considered as justifiable even if a well-known trademark is not used with respect to the goods or services covered by the registration”. With this article, it is clear that defensive-registration application will increase after the revised Law takes effects.

As there is no concept of “defensive trademarks” in the current trademark legal systems, the owner of a well-known trademark has to be very careful in monitoring the status of an infringing mark on dissimilar goods and services, frequently instituting opposition and invalidation before the CTMO and TRAB, but at the same time worry about the fate of its registration on dissimilar goods/services for defensive purposes. In a recent case, a famous Japanese auto company lost its “defensive” registration in Class 7 for industrial machines as the consequence of the non-use cancellation filed by the infringing party who counter-attacked the Japanese automaker. By the new arrangement of defensive registration by the Revision Draft, the Japanese company would maintain its registration against the non-use cancellation, under which situation normally a registrant just burdens the proof of reputation of the mark in respect of the goods or services of interests, not proof of actual use on the challenged goods/services.

As to protection for well-known trademarks, Art.26 of the Revision Draft treats conflicting with a prior well-known trademark as prohibitive registration circumstance and says that the list of well-known trademark shall be decided by the CTMO. The author objects to this provision based on two considerations: 1) active examination on the conflict of a mark applied for with a prior well-known trademark is in contradiction to the initial purpose to abandon relative-ground examination and affords the owner unfair and overdue advantages over common marks; 2) as long as the “dual criteria” issue for recognizing and protecting a domestic and foreign trademark is not settled, the protectionism currently existing in the enforcement of trademark right will be expanded to the examination proceeding at the CTMO and TRAB; 3) with the reputation of a trademark dynamic and changing according to its actual use and promotion, it is inappropriate and infeasible to set and update the list without in-advance systematic design for implementation. The current case-by-case practice in protecting a well-known trademark should be insisted under the new law.

2. Construction of legal framework for right of unregistered trademark

Art.3-2 of the Revision Draft goes that a user of an unregistered trademark enjoys lawful rights under the Law based on prior good-faith use; Art.7-2 says that the good faith doctrine should be followed when seeking for registration or using a trademark; Art.30-1 provides that if the applicant clearly or presumably knows the existence of a third party’s prior used trademark, the trademark applied for should be refused for registration; Art.34-1 addresses the protection of an unregistered well-known trademark but sets limits for the owner by restricting the right merely on identical and similar goods; Art.84 further affirms the right for continuous use of a prior mark consecutively used in good faith; Art.96 makes it clear that the junior user of an unregistered mark prior used by a third party shall pay damages to the owner.
The Revision Draft also affords the procedural rights to an owner of a prior unregistered trademark for instituting opposition and invalidation.

Although Art.31 of the current trademark law also protects an unregistered trademark having enjoyed certain influence from domestic use, the purpose of the statutory provision is to provide legal basis for opposition or bad-faith registration. The rights holders, when enforcing the right of an unregistered trademark, have to rely on Art.5-1 of the Unfair Competition Law, which regards the rights of an influential unregistered mark as a competition right for “peculiar name, packaging, decoration of well-known goods”. Within the contexts of the forgoing articles, the prior rights owner has more legal room in challenging unlawful use of a later identical or similar mark. As absence of registration cannot be attributed to the owner in the circumstances among others that the mark is becoming distinctive from inherently descriptive, and the mark is known to domestic public due to internet information transmission, parallel importation and transnational flow of travelers, the law should recognize the right of an objectively existed unregistered mark under good-faith doctrine.

3. Reconstruction of trademark opposition system
Under the regulations of the 1982 and 1993 Trademark Law, a trademark opposition may undergo two administrative proceedings with the CTMO and TRAB respectively, the latter of which will issue a final decision. Due to the obligations as a WTO member, in accordance with TRIPS, the 2001 Trademark Law established two judicial review procedures: the first instance is before Beijing No.1 Intermediate People’s Court and the appeal court is Beijing High People’s Court.

With Art.45 and Art.46 of the Revision Draft, the CTMO reconstructs new trademark opposition system, which remedies the current opposition defects. The advancement shown by the reconstruction can be seen from the following aspects:
1) The CTMO, if finding no absolute refusal grounds for a trademark applied for, will publish it in the Trademark Gazette for four months. In case that no opposition is filed, the trademark will be approved for ten years with the valid term counting from the publication date.
2) It is the TRAB rather than the CTMO that will be in charge of examining opposition cases. The administrative review proceeding appealed from a opposition is abandoned.
3) Borrowed from the Japanese Trademark Law, Simple Opposition Procedure is arranged in the Revision Draft so that the possible increase of opposition cases can be partially overcome.
4) An appeal proceeding can only be initiated when the opposed party loses the opposition. If the opponent fails, the opponent can only turn to lodge an invalidation action before the TRAB. But the opposed party as the losing applicant can appeal to the court.

Strictly speaking, the current Chinese trademark opposition procedure is not very scientific or precise. Under current practices, an opponent, after initiating the proceeding with the CTMO, will not know whether and when the opposing party files any reply or evidence and has no chance to check and question the same. Besides, the unnecessary two-level administrative proceedings affect the efficiency for settling trademark conflicts. Under the Revision Draft, opposition, as one of the three Inte Partes case types before the TRAB, will be subject to the Rules for Trademark Review and Adjudication, thus the procedural rights of the parties will be systematically secured.

4. Clear definition and division of cancellation, opposition and invalidation
Provided by the 2001 Trademark Law regarding determination of disputes concerning registered trademarks, the CTMO shall cancel a trademark in case it is in violation of the relevant legal regulations or registered by deceitful or other illegitimate means; any unit or individual may request the TRAB to make a ruling to cancel such a registered trademark. The CTMO may cancel a registered trademark if it violates the relevant regulations thereof or the registration itself is acquired by deceptive or other improper means. The law also prescribes that one may petition to cancel a registered mark in other statutory situations. It is obvious here that the division of “cancellation” and “dispute” is imprecise, resulting in a confused use of the two concepts in practice.

The Revision Draft divides trademark opposition, cancellation and invalidation procedures in a clear and distinct manner. Opposition against a published trademark, as a procedure initiated by the earlier rights owner or by any other interested party before the TRAB, is intended to guarantee the earlier rights by stopping the smooth registration of the mark. Invalidation is a legal procedure in which a registered trademark shall be annulled by order of the TRAB due to its illegitimate nature. Cancellation of a registered trademark is either subject to ex officio disposal by the CTMO, or before the TRAB upon request by an interested party, for canceling a registered mark either unused for three years or used in an improper manner.

Invalidation is a new legal procedure established by the Revision Draft, and includes three types:
1) Invalidation based on absolute grounds, referring to violation of the regulations on prohibitive or descriptive trademarks, 3-D marks and marks registered by deceitful means, which indeed removes the administrative power of the CTMO to cancel ex officio these types of improperly registered trademarks;
2) Invalidation based on a prior trademark or a geographical indication, referring to the conflicts between the trademark in question and a prior registered trademark, well-known trademark or a trademark owned by the licensor of the registrant, or conflicts with a geographical sign, in which cases a prior trademark owner or any other interested party may petition with the TRAB to invalidate the mark, or even request assignment to itself;
3) Invalidation based on another’s earlier rights or bad-faith registration, referring to those initiated by trademark owners or interested parties of name rights, portrait rights, copyrights, patent rights and other civil rights or contravening the good faith doctrines embodied by the laws.

5. Establishment of separate civil and administrative trial routes
The 2001 Trademark Law set up judicial review procedures for decisions concerning refusal review, opposition review, non-use cancellation and disputes brought by the TRAB. A losing party may sue the administrative body issuing an unfavorable decision at the courts, which will then examine the case in accordance with the Chinese Administrative Procedure Law. Recognizing that the legal authority for the judicial review for trademark cases falls into the sphere of administrative law, the defendant in these administrative cases is the TRAB itself, notwithstanding the fact that the conflicts in an opposition or dispute case exist between the parties themselves. With reference to the trademark trial systems of some foreign jurisdictions, the Revision Draft definitively divides the cases into a refusal review case and an opposition/cancellation/invalidation case, the former of which will be subject to the Administrative Procedural Law with the TRAB as the defendant, while the latter is subject to the Civil Procedure Law with the adverse party being the defendant.

Complying with this statutory change, the TRAB, in the opposition and invalidation proceedings, shall consider the actual civil conflicts between the parties and assess the confusion caused by the actual use of the marks in question in the marketplace where some trademark applicants and registrants have altered the mark filed or commercially registered it with the consequence of causing actual confusion and disturbance to the market. With the clarification that opposition and invalidation proceedings are indeed preliminary proceedings to settle civil disputes between parties, both parties may collect and submit actual evidence to support their respective arguments, which are indeed of key importance to judge the legitimacy of the questioned trademark regardless of the registered form of the trademark itself.

This re-arranged judicial review routes also highlights the current embarrassed practice that the TRAB often appears in the court as defendant whilst the party succeeding the review absent in the court proceeding. Under the Revision Draft, the first-instance civil court will be more active than now in finding the substantial issue in the case and judge the actual conflicts between the parties.

7.Multi-class application and divisional application/registration
From the very beginning of trademark legislation, China has adopted the system requiring one application per mark in one class, in which the same applicant can only file applications respectively in various intended classes according to the classification guidelines. The Revision Draft changes this to allow “multi-class applications” by providing that, “If an applicant intends to register the same trademark in different classes, it may file one application for all the classes”. In light of this provision, an applicant may file divisional applications: “The applicant may request divisional examinations for the application. The application date shall apply to each application after the division”. q
The “Multi-class application”, as prevailing in the US, EU, Japan and other countries, is an important part of the Singapore Treaty with benefits for both the applicant to acquire trademark rights based on its business needs and for the CTMO to examine the applications. It is also a real commercial interest of the applicant or registrant to divide an application or registration so as to realize such business purposes as separate licensing activities.

The “Multi-class application” and “division application/registration” are natural consequences of the modern development of the application system for registered trademarks. Yet the specific implementations thereof are subject to the detailed regulations under the law.

8. Addition of pre-refusal pleading procedure and extension of time limits
The Revision Draft provides a pre-refusal pleading procedure for various applications before the CTMO, granting an opportunity for the applicant to question a refusal that may be made by the CTMO. According to the revision, the CTMO, upon finding lawful grounds for the refusal, will give the applicant a one-month period for arguments. It is compatible with the requirements of the Singapore Treaty, according to which the applicant shall have a chance to set forth arguments prior to the refusal. It is still unknown whether the applicant for registering a trademark can utilize this procedure to file evidence. Due to the function and duty of the CTMO to examine whether a trademark can be registered, the use of evidence sufficient to establish the acquired distinctiveness should be acceptable. From the perspective of legal rationality, the procedure for examining the use of evidence to establish a “secondary meaning” shall be set before the CTMO during the examination rather than the TRAB in the review proceeding.

The Revision Draft also provides a two-month extension period for a pre-refusal pleading in Art.139, which is in line with Singapore Treaty and coordinative to the international practice. The applicant, when applying for extension, needs to file genuine identity information, application or registration number and explanation for the extension.

The Revision Draft also covers the following phenomenal respects:
1) Types of trademarks qualified for registration are expanded to non-traditional trademarks. By abandoning the requirement that a trademark needs to be visually perceptible, the Revision Draft leaves the room for sound, smell, dynamic and other non-traditional trademarks.
2) Geographical indications are provided in a separate chapter in the Revision Draft. Currently the geographical indications can be registered as either a collective mark or certification mark, but under the Revision Draft the applicant can just register it as a geographical indication trademark.
3) Examination of a new trademark application shall be completed within 12 months.
4) Time limit for responding an amendment notification for a foreign applicant is extended to 60 days.
5) Applicant shall expressly abandon the exclusive right of a non-distinctive part in the trademark.
6) In case for correction, recordal of change of name/address or assignment for two or more applications or registrations held by the same owner, one application indicating all the information will be sufficient;
7) The bad-faith party lost in an opposition shall pay for the loss and reasonable costs suffered by the other party.
8) Recognition of a local famous mark by local AIC to is allowed for encouraging local economy.
9) The CTMO reserves the ex officio administrative right to invalidate a trademark registered illegitimately, or cancel a trademark unused for three years or used improperly.
10) The second-instance appeal trial only addresses legal issues. The factual issue will not be considered in the proceeding.
11) The printing of a similar trademark is included as an infringing type; etc.

With the current Revision Draft, the Chinese trademark prosecution and protection system will undergo phenomenal changes.

Note:It is expected that the draft Trademark Law will be submitted to the State Legislation Office in early 2008 which will issue the same to the public for opinions at the last time, then submitted to the Standing Committee of the People’s Congress in late 2008 or the yearly session of the People’s Congress in early 2009. The draft Patent Law was submitted to the State Legislation Office in December 2006.