Written By: Lawrence A. Maxham, January 2019
China has a history of entrepreneurialism, innovation, and technological advancements spanning thousands of years, but in the modern era, China has only had a trademark system for about 35 years. Since all products and services are sold with trademarks, China’s relatively new status as a major international business player has come with many challenges that might be expected with a new trademark system.
Why, you might ask, should you care?
Because China is a major trading partner, not only of the US, but of many countries. We are in an international trading world, and trademarks are essential aspects of buying and selling goods and services across the globe. Major innovative companies now file patent applications in China for all of their significant inventions. Trademarks are closely related to the advancement of innovation and intellectual property (IP) because new products are intertwined with new trademarks.
As a relatively new member of the WTO, China is very aware of the importance of trademarks and having a trademark system that is fair, functions efficiently, and is respected worldwide. Experience has shown that improvements are necessary and China has now revised its trademark system four times, the latest as of 1 December 2019.
Both China and the US are being faced with a spate of abnormal (read, “bad faith”) filings which not only clog the systems but create problems for legitimate new trademark applications. Under the prior trademark system in China, one of the biggest problems is trademark squatting. This is registering either well known marks or marks of new companies and products outside of China that are likely to enter the Chinese market in the future. In the US, obtaining such registrations is much less likely, but very large numbers of bad faith filings, primarily from China have, indeed, tended to clog the system.
Dealing with Bad Faith Filing
The US has confronted such bad faith actors by requiring a US lawyer to be the responsible representative of all non-US-originated trademark applications. In this way, the US lawyer’s license is on the line as a deterrent from representing bad faith filers.
China’s approach is different. In their attempt to mitigate bad faith filings in their country, the business applying for the trademark is deemed the responsible party. The definition of “bad faith” filing include lack of intention to use, and violation of the principle of honesty and credibility. Actual use for registering a trademark in China is not required, as opposed to the US requirement of actual use of a mark in order to obtain a registration. Since use is not required to register a trademark in China, it has become common practice to “warehouse” trademarks. In an attempt to crackdown on squatting and warehouse filings, any application that is found to have been filed in bad faith can be rejected at the application level, or invalidated after registration, on that basis. There is also a possible monetary fine, but the real kicker is that there could be a credit penalty in egregious situations. The bad credit determination will be published nationally. The ramifications of such a determination are severe: the guilty person will not be able to get bank loans, or ride in airplanes or high speed trains or book good hotels.
There are six specific criteria in the new Chinese trademark law that enter into a possible bad faith determination. The sixth is interesting: “any other element . . . necessary for consideration.”
The representatives are not left free and clear. An agency that knowingly assists a bad faith filer may be required to take corrective action and they may be assessed a significant fine. The agency’s direct manager can be personally fined, although at a lower level.
The Future of Trademark Filings in China
In the several months since this trademark revision was published, filings have already decreased by 4%, after many years of dramatic increases.
While there are always going to be bad faith actors, China’s revised rules are making it easier to root them out in order to clear the path for legitimate trademark filers. If you are a legitimate trademark filer you have nothing to fear when entering the market in China. And given the international business market, trademarks should be filed in China for any and all products and services sold or likely to be sold in China in the foreseeable future.
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