The early bird catches worm – this is an old saying, but it still goes well even in the entrepreneurial and business circles. I believe this phrase is always a reminder that the early bird gets an insider’s advantage over the others. Talking of business, trademark matters, in particular, this blog is focused on why I always suggest our clients to be the early birds if they want to expand their business operations in the People’s Republic of China (“P. R. China” or Mainland China). Instead of sleeping until the eve and suddenly making a decision, I encourage them to pre-plan their expansion when it comes to trademark registrations in this market.
It is sometimes tough to tell what “early birds” are. But, I usually encourage clients to file and register their trademarks in Mainland China since the very first day they have the idea of expanding or developing their business in this market. They can also do so when they set up a company with the ambition to grow their business in this market as part of globalization. In the concept of the market, a trademark may be called a brand. As regular consumers, we know well enough about brands when we purchase products or receive some services under a brand. But, in the concept of law, a trademark may be understood as a registered brand. If a brand is registered legally as a trademark, it will be protected by law.
According to the China Trademark Law (“the Law”), Mainland China adopts the principle of “First-to-File” (FTF) instead of the principle of “First-to-Use”. So, those who first apply for their trademarks may be able to obtain the exclusive rights to the same. However, in our practice, most clients experience a lot of troubles as they fail to be the early birds in the registration of their trademarks in Mainland China. Moreover, the marks are generally grabbed by squatters adding onto the difficulties.
Of course, clients have a different thought process than lawyers. Sometimes, they think a perfect law may impeccably protect their trademarks. However, what they do not understand is that having a good law is one thing, but taking actions early to register their marks in a jurisdiction is totally another thing. They cannot take shelter under any law and term it as a savior, even if the law is perfect.
About The Trademark Law
China Trademark Law (“the Law”) was first adopted in the year 1982. Since then, we have been perfecting the Law bringing about several amendments. A few of these include amendments made in 1993, the amendments in 2001, and the amendment in 2013.
As a fact, we have been making great efforts to create a better environment for the protection of trademarks (brands) for commerce. And once again, on the 10th Session of the Standing Committee of National People’s Congress on April 23, 2019, the Legislature decided to amend the Law to fight bad faith in trademark applications and relevant matters. These New Amendments became effective on November 1, 2019 (“New Amendments”).
These New Amendments aim to fight trademark applications filed in bad faith and stifle such bad faith actions in the cradle. The amendments in Article 4, Article 19, Article 33, Article 44, Article 63, and Article 68 firmly express the determination to fight bad faith actions and constitute a perfect system.
- Article 4 – Prohibiting Bad Faith
Before these New Amendments, Article 4 of the Law was set up as a principle for operators in commercial activities such as manufacturing and operation. It mentioned that operators must apply only when they needed to obtain the exclusive rights for their trademarks. By this principle, those who did not want to use trademarks in their business were not required to register.
However, it is only in recent years that quite a significant number of applicants have started registering trademarks for their business without actually having an intent to use these in the future. Such applicants do not use or have the ability to use so many registered trademarks. Instead, they just hoard these trademarks and hope to sell them to those who need these for their businesses. In some cases, these applicants also sell the marks back to those who did not register but used them previously.
So, here comes the main problem – after these trademarks get registered and hoarded, those who really need to use them may get rejected from registering their applications since these marks were filed and registered previously in bad faith.
But after the amendment, the (revised) Article 4 states, “Any bad faith trademark applications without the purpose to use shall be rejected.” In simple words, trademark applications that are filed in bad faith, without any appropriate intention to use, will be rejected by CNIPA (China National Intellectual Property Administration). This has been the most noteworthy modifications added to the Law.
- Article 33 and 44 – More Grounds for Opposition and Invalidation
The amendments in Article 4 have set the general principles of fighting bad faith actions. Together with it, amended Article 33 and 44 become absolute grounds for filing an opposition to trademarks published with malicious interest and request to invalidate such registered trademarks, respectively. The amended Article 33 states that if any party believes an applicant of a trademark has no purpose of use and has been filed in bad faith, the party may file an opposition to the trademark within the period stipulated (i.e., three months) for the same. On the other hand, the amended Article 44 states, any party may file a request to invalidate a registered trademark if they believe the registrant of the trademark has no purpose of using it, and it is registered in bad faith.
Besides the above, the following amended articles are also a part of the system of fighting bad faith in trademark applications without the purpose of use.
- Article 19 – Obligations of Agencies
The amended Article 19 puts more responsibility on trademark agencies, including agents and attorneys. It stipulates that none of the trademark agencies shall accept the entrustments of such applications made in bad faith, i.e., without the purpose of use. Thus, as trademark attorneys, if we find out that there is no purpose of use in the applications filed in bad faith, we should refuse to handle them.
- Article 68 – Penalties for Agencies
Besides the directive laid down under amended Article 19, the amended Article 68 stipulates that applications made in bad faith, without the purpose of use, filed by trademark agencies may be imposed with an administrative warning and/ or penalty. In fact, lawsuits related to trademarks lodged in bad faith shall be penalized accordingly by the people’s court.
- Article 63 – Compensation for Infringement
According to the amended Article 63, the amount of damages, in case of infringement committed on trademarks in bad faith with severe circumstances, may go up to five times higher than the amount calculated on a regular basis, which previously was stipulated as “three times” by the Law. However, in case the base amount is impossible to be calculated, the statutory amount of damages may be up to five million RMB, which previously were “three million” RMB as specified by the Law.
Furthermore, the New Amendments also stipulate that upon the request of the trademark owner, the counterfeited goods and the materials/ tools primarily used for the manufacturing of such counterfeits shall be destroyed without any compensation.
There is no doubt that these New Amendments will practically be very helpful because they constitute a good system for fighting bad faith by combining the purpose of fighting bad faith, the responsibilities of agencies, and the penalty and punishment on such bad faith actions. However, in our experience, the Law has been perfecting, and we still need to take action to file and register their trademarks in Mainland China as early as possible. Or else, we would have to face a lot of troubles that are hard to settle.
We come across several cases wherein the client’s trademarks may be grabbed by squatters, opportunists, or even competitors. So, in recent years, one such client of ours too experienced these troubles for not being an early bird. This client has been in the business of catering services offering eating, drinking, socializing, and entertainment sections as a part of their trade. It is a unique business model because they provide a brand-new experience to the consumers, and the consumers enjoy it very much. They had also come up with several outlets all over The States. Plus, with increasing popularity, they decided to expand their business globally with stern planning of coming into Mainland China as well.
Now coming to what needs attention in this case – the client filed the trademarks (brands) for their business by the Madrid System and requested to extend the protection of their trademarks (brands) to Mainland China in August 2018 before they expanded their business in the market. At first, I thought this client did a great job with this move, as they took action to extend the protection of their trademarks (brands) to Mainland China at the time they filed the applications with WIPO (World Intellectual Property Organization). However, after proper analysis, I found out that it was very late for them. Their requests for protection in Mainland China would be blocked by a prior application, which was filed about a year ago by a squatter before their application with WIPO. The wording from the previous application was totally the same as that of our client’s trademarks (brands).
Obviously, the squatter just copied the trademarks (brands) of the client and filed for registrations in Mainland China. When the prior application was published for opposition, we filed an opposition to it on time before the deadline. We argued that the previous application was filed in bad faith and presented all the supporting evidence we could collect. During the process of the opposition, the requests to extend the protection of their trademarks (brands) to Mainland China were rejected by China Trademark Office (TMO) because of the prior application filed by the squatter. According to the Law, we had to file the applications with TRAB (Trademark Review and Appraisal Board) for reviewing the rejections made on the trademarks (brands) before the deadline and wait for the result of the opposition. Else, our requests would have been rejected, resulting in the closure of the case.
In the opposition, we were conveying a signal of strong deterrence to the squatter. Maybe, the squatter thought they would lose in the end, so they reached out to us and offered to talk about transferring (selling) the prior application to our client at a price of xxx US Dollars. Obviously, the cost of moving the prior application was not as low as we imagined. But, the squatter believed the mark was essential to the client’s business in Mainland China, so they tried to “kidnap” the client. We did not agree and tried to cut the price by three-quarter. They did not agree. And then, the negotiation came to a deadlock. After a while, they came again and asked us if we were still interested in buying the application if they lowered by one third. We said no again and told (threatened) the squatter we would keep fighting with them by all the legal means according to the Law.
Meanwhile, we also told the client that we were getting the upper hand as “fists” were coming and going back and forth in the fight. After rounds of disputes and negotiations, the squatter (opponent) accepted the negotiated price at xxx dollars, our client bought back the trademark (brand), and the squatter legally assisted us throughout the transferring process. Although it was not a small sum of money, but we tried our best to cut the price during the negotiation significantly, and the client was happy with that. Anyway, luckily enough, we won the case after hard fighting, but it was not an easy battle. It did cost a lot of time, money, and efforts on both our and the client’s part. For some clients, these efforts just go waste, as they cannot win, even when they are willing to pay us to take all the remedies.
For cases similar to the one above, clients may always blame the squatters, opportunists, or the competitors for their misconduct and wrongfully grabbing the brands (trademarks). However, when they are squatting and grabbing the brands (trademarks), I would suggest the brand owners to do something better, like filing and registering the trademarks as early as possible. Instead of delaying it till the time when you finally come up with the idea of expanding your business in Mainland China, do the needful first!
In the end, let us once again applaud for the New Amendments to the Law, as they ease the legal processes and provide better legitimate grounds for us to fight the bad faith actions. Of course, when there are troubles, we, as experienced attorneys in intellectual property, may always be able to find remedies or solutions according to the Law and fight for clients whole-heartedly. However, our top recommendation to clients is that you need to be the early bird and take action to file and register your trademarks in Mainland China as earlier as possible.