Trademarks in China: Keeping Up with Fast-Changing Local Practice

Since then, the authorities have been perfecting the IP system at the levels of legislation, governance, policy, and rules in general. As a result, trademark guidance has experienced a rapid change in the system and practice on the ground.

One of the authorities’ focuses in the area of trademark is to continue vigorous measures to curb bad faith issues. Bad faith trademark squatters have plagued the China trademark registration system for many years. This is causing brand owners to try to protect their IP rights by defensively filing trademark applications, in an effort to avoid preemptive filings by those looking to file in bad faith, as well as the potential for repeated filings while taking action against bad faith filings. New statistics from the China National Intellectual Property Administration (CNIPA) found that the register was bloated with more than 42.6 million valid trademark registrations in 2022, a considerable portion of which are bad faith ones or defensive ones with no plan to be used.

While the challenges of effectively tackling bad faith trademark filings and the resulting negative impact on brand owners continue to persist, the CNIPA has made positive achievements resulting from its efforts to crack down on those filing for trademarks in bad faith. The CNIPA has managed to slim down the trademark register considerably, with 755,000 trademark applications filed in the first two months of 2023, a drop of more than 50% compared with a year earlier.

To address trademark issues from a holistic and systematic perspective, the CNIPA released the Draft Amendment to the Trademark Law in January 2023. With the goal of strengthening the regulations relating to bad faith trademark registration, some of the suggested amendments include stronger measures to ensure that trademark applications are made with intention to use, that those trademarks that are registered are used, and that duplicate trademark applications are prohibited. Though these amendments have not yet come into force and will be under rounds of further discussion, it is clear that, among other burning issues, bad faith will be further curbed, and use of a registration will be emphasized.

Bad faith issues have been rife for a long time and have been the root of many of the problems China’s trademark system is facing. This article analyzes how the CNIPA utilizes a “use requirement” to discourage bad faith or suspicious filings and how adjusted portfolio management strategies should be considered in light of the use requirement in the Draft Amendment to the Trademark Law. Authorities’ current practice on absolute grounds rejection, view on consent, and recent attitude toward accepting nonstandard specifications are also discussed to further demonstrate authorities’ intention to slim down the size of the register, strengthen the protection of public order and public interest, and improve the current system and practice to better accommodate market needs for trademarks.

Emphasis on Actual Use or Use Intention

The most significant amendment to Article 4 of the Chinese Trademark Law was adding the provision that “any application filed in bad faith and not filed for the purpose of use shall be rejected.” Article 4 has been widely used across the spectrum of trademark proceedings, from tackling bad faith filings in various administrative actions to challenging the filing of a large number of trademark applications in a short period of time.

The CNIPA has been issuing Article 4 examination opinions to applicants whose number of new trademark filings is considered large in a short period of time, requesting applicants to submit use evidence or explain use intention of the questioned applications. In order to get their trademark applications approved, the applicants need to show evidence of use or intention to use, and if the evidence is not submitted or not considered sufficient, the applications will be rejected. While this law is in place to stop applications being made in bad faith, some conglomerates or multinational companies that have a real business need for a large number of trademarks in place have been accidentally injured by office opinions such as these.

For trademark assignment, if the CNIPA suspects that the assignor is hoarding trademarks or is acting in bad faith, it will issue an office action requiring the assignor to submit evidence proving the use of or intention to use the assigned marks. If the evidence submitted is not persuasive enough, the assignment will not be approved. If the CNIPA determines that an applicant is a trademark squatter, then it is unlikely to approve the assignment—even if the assignee is the original brand owner.

As part of the CNIPA’s efforts to crack down on bad faith actors and clear zombie registrations, it has raised the standards of the use requirement in defending a nonuse cancellation, noticeably at the China Trademark Office (CTMO) level. For a long time, the CTMO had relatively loose standards—for example, if one piece of effective evidence showing the use of one item of goods/services was submitted, the entire registration could be maintained. Its requirements have been made stricter, resulting in more and more cancellation decisions for nonuse of a trademark. Nowadays, the CTMO adopts the same standards on use evidence as the Trademark Review and Adjudication Department (TRAD), a higher-level authority within the CNIPA, which reflects the CNIPA’s determination to remove “deadwood” from the register through strict requirements on use evidence.

The fifth draft amendment to the Trademark Law introduces new use requirements in different ways, at both the filing stage and the post-grant stage. To prepare for these potential changes, brand owners will need to adjust their trademark portfolio management strategies. Some of the short-term and long-term takeaways brand owners need to consider include:

• Contemplate the need for defensive or gap filings, bearing in mind Article 4 objections based on intention to use.
• Focus on goods/services where there is use, intention to use, or likely infringement.
• Be mindful of purchasing trademarks, particularly from those potentially acting in bad faith.
• Create and maintain a bank of evidence of use for trademark applications.
• Audit the use status of all registered marks.

Absolute Grounds Refusals

In recent years, the CNIPA has become increasingly stricter in trademark examination on absolute grounds, with two major refusal grounds being nondistinctiveness and misleading issues. So far, these refusals seem to be an effective measure to deal with the increasing number of trademark applications in order to further slim the overcrowded trademark register.

Absolute grounds refusals on the basis of misleading issues have increased, particularly since 2019, while refusals on the basis of nondistinctiveness are lower than they were in 2019. For example, there were 14,951 filed refusal appeals involving misleading issues after initial rejections and 13,194 refusal appeal decisions maintaining initial rejections involving misleading issues in 2019; those numbers rose to 17,609 and 16,618, respectively, in 2022. In 2019, there were 17,253 filed refusal appeals involving nondistinctiveness issues after initial rejections and 16,137 refusal appeal decisions maintaining initial rejections involving nondistinctiveness issues; those numbers fell to 16,650 and 15,940, respectively, in 2022.

In March 2021, the Beijing Intellectual Property Court held a briefing on administrative litigations of trademark refusal appeal cases involving misleading provisions. According to the court, it accepted over 1,000 appeal cases involving misleading provisions from 2018 to 2020, with a maintenance rate of 81.3% for refusal decisions.

The Trademark Review and Adjudication Board (TRAB) has become increasingly unlikely to overturn the CTMO’s refusals on the basis of absolute grounds, and the same goes for the courts. In practice, for some extreme cases a trademark can be rejected on the basis of both relative grounds (for example, applying for prior similar marks) and absolute grounds. A mark can also be misleading and lack distinctiveness. An example of a recent refusal appeal decision issued by the CNIPA involved an application for a trademark for BISCUIT TEA, which was rejected as it was determined to be:

1. too similar to cited marks BISCUIT and BI SI KAI in Chinese, BISEUIT HOUSE, and BESCUIT on similar goods;
2. likely to cause confusion to consumers when used on goods other than “biscuit” and “tea”; and
3. lacking distinctiveness when used on “tea” related products.

When undergoing examination, misleading issues can vary, and the CNIPA may not specifically indicate why the mark is misleading or which part of the mark will mislead the consumers in the refusal notice. Trademark clearance search is now more important for brand owners to carry out before filing an application—they certainly do not want to have a “misleading” refusal record for their filings.

Under the current examination practice, brand owners need to have a clear view on whether to file applications for those marks that may risk being rejected due to absolute grounds, particularly on grounds where the marks are prohibited from use. For any marks that are of great importance to a brand, the trademark applicants may need to be prepared for possible court appeals to overcome the issue.

According to the Trademark Law, marks that violate Article 10.1.7—those that are likely to mislead the public in terms of the quality and characteristics of the goods and place of production—cannot be used as trademarks and are subject to administrative fines and penalties. The CNIPA enacted the Standards for General Trademark Violation, effective January 1, 2022, for local administrative authorities to follow, but administrative punishments based on Article 10.1.7 have not been common. Instead, punishments are mainly reserved for those that are determined to have an “adverse social effect” or have been applying for trademarks out of bad faith.

There is no sign that the trend of authorities making refusals on absolute grounds will slow down. Trademark applicants should be aware of the current practice and be cautious about their marks and mindful of increased instances of absolute grounds objections.

Letter of Consent/Coexistence Agreement

With the register as crowded as it is, trademark refusals are common. A letter of consent/coexistence agreement (collectively, LOC) used to be a practical way to overcome a citation refusal, as a LOC has been accepted in trademark examination practice despite not being written in the law. Some of the guidelines about LOCs are as follows.

Several Legal Issues in the Current Trials on Intellectual Property (2018) by the third civil division of the Beijing High People’s Court provides that

in the administrative litigation of trademark refusal appeal, the cited mark owner expressly agrees to the registration of the disputed trademark in the form of a “co-existence agreement” or a “letter of consent.” The “co-existence agreement” and “letter of consent” can be used as evidence to preliminarily exclude confusion if there is no damage to the interests of public notice or intentional circumvention of the law. However, if the cited mark is the same or basically the same with the disputed mark and is used on the same or similar goods, registration of the disputed mark cannot be granted merely on the basis of the consent of the cited mark owner.

The Beijing High People’s Court Guidelines for the Trial of Trademark Right Granting and Verification Cases provide that

when judging whether the trademark in dispute is similar with the reference trademark, the coexistence agreements may be used as prima facie evidence to exclude confusion. . . . If the marks of the reference trademark and the trademark in dispute are identical or substantially identical with each other and used on the identical category of goods or similar goods, coexistence agreements shall not be only taken as the basis for approving the application for registration of the trademark in dispute. If the marks of the reference trademark and the trademark in dispute are similar with each other and used on the identical category of goods or similar goods, and the owner of the reference trademark issues a coexistence agreement, in the event that there is not any other evidence to prove that the coexistence of two trademarks above is sufficient to make the relevant public confusing the sources of goods, then these two trademarks may be determined to be dissimilar with each other.

In late 2021, the situation changed when the CNIPA seemed to have closed the door to overcoming refusals by submitting a LOC. This made it less easy for brand owners to overcome a refusal by commercial arrangement, particularly for those applications that are not vulnerable to nonuse cancellation. The court has still considered LOCs in some administrative litigation for refusal appeals, with a large drop in the acceptance.

A review of court rulings issued between March and June 2022 shows that 14 out of 52 cases where LOCs were presented to the court were accepted. Between January and February 2023 however, the acceptance rate for LOCs dropped to 4%, with only one out of 27 cases involving LOCs supported by the court. It is hard to see the pattern in these decisions with no rules or consistent guidelines to follow. Even for the LOCs issued by related companies, the courts tend to make different decisions in similar cases.

The Beijing High People’s Court’s comments in the decision on Google’s G logo application give an idea of the general rules around granting a trademark registration based on a LOC:

The coexistence agreement should be authentic, legitimate and effective, and there is no damage to the state interests, social public interests and the legitimate rights and interests of the third parties. To determine whether the mark in dispute and the cited mark constitute similar trademarks, the coexistence agreement can be used as prima facie evidence to exclude confusion. If the cited mark and mark in dispute is the same or basically the same, and used in the same or similar goods, the coexistence agreement alone cannot be used as the basis for granting the registration of the mark in dispute.

Although the odds are very low, there have been times when the courts have accepted LOCs. Some factors that applicants need to consider in case a LOC is submitted include:

• Meet the formality requirements: the LOC should be in written form, it is better to submit a certificate of corporation registration and proof documents for the signatory power, notarization is needed for domestic entities, and notarization and legalization are needed for foreign entities.
• The LOC should not be attached with certain conditions or a time limit.
• Detailed information on marks to be granted registration is to be included in the written LOC.
• If the cited mark has been assigned, the owner stated in the LOC should be the trademark right holder when the case is heard by the court.

Specification of Goods/Services

The third amendment of the Trademark Law, effective May 1, 2014, stipulated a time limit on trademark examination. Since then, an applicant is only given one opportunity to make amendments (with a few exceptions). If responses are not made in time, or if the amendment is not acceptable to the CTMO, the application will be rejected in its entirety.

The applicant would normally have to choose the goods/services that are listed as standard goods/services, or accepted by the CTMO, in order to deal with the office actions on the specifications. The reasons why examiners have less flexibility to accept goods/services not listed as those standard by the CTMO are as follows:

• The examiners have no time to review or classify the nonstandard goods/services due to very short examination time limit (the applicant can expect an office action in around one week after filing the application).
• The goods/services are too broad and may fall into different classes/subclasses.
• Different examiners may act on their own discretion as to the classification of nonstandard goods/services. Different classification on the same or similar nonstandard goods/services may cause future inconsistency in trademark examination under the current subclass system in China.

The standard goods/services descriptions are lagging behind reality. In order to overcome office actions, applicants would have to amend the nonstandard goods/services to standard ones that may not be close to the goods/services used in reality, or simply delete them.

In line with the improvements to the services of the CNIPA, applicants can now get in touch with the responsible examiners via a phone call to discuss any amendments. For those goods/services that are of great importance, applicants can communicate with the examiners to discuss the possibility of their acceptance, or how they can make alternative acceptable descriptions through trademark agents. For instance, standard goods/services with certain limitations on features or usage can be accepted. Compared with the broader description of the goods/services in China, the examination of goods/services tends to be more specific, and the allowance of limitation of goods/services helps match the same goods/services in the U.S. applications.

Conclusion

While the CNIPA’s crackdown may make it more difficult to file trademarks, it is vital to guard against the increase in trademark squatters and those acting in bad faith. It may seem like there are a lot of hoops for applicants to jump through to get trademarks approved, especially for those big multinational brands that may need to file a large number of them in China, but following some of the advice above should make it seem simpler.