Highlights of the new Draft

The Draft contains a number of important changes compared to the current version of the Law. The highlights of the new Draft are as follows:

1. Curbing bad faith filings
   • List of specific circumstances indicating bad faith filings (art. 22): the newly inserted article 22 contains a list of circumstances which will be presumed by the CNIPA and the courts to indicate that an application is made in bad faith. This will lead to those applications being both rejected ex officio by the CNIPA at the examination stage, or potentially later in office procedures such as oppositions and invalidations. Furthermore, such applications may also serve as a basis for a claim for compensation by the genuine trademark owner (see below) and trademark agencies are also prohibited from applying for trademarks in these circumstances and may be fined if they do. Importantly, apart from circumstances which are already widely accepted as indicative of malicious filings under the current Law, article 22.1 also includes “applying for large numbers of trademarks, with no intent to use, disrupting the order of trademark registration”. Compared to Article 4 of the current Law (which requires a large volume of filings and bad faith to meet the CNIPA's threshold to reject them ex officio), an important change here would be that the cumulative requirement of bad faith would be abolished, so that merely applying for a large number of marks without the intention of using them may be sufficient. When this is read together with the Examination Opinions issued by CNIPA at the end of 2022 against some entities (including large domestic and international companies) with comparatively large filing volumes in one go, it seems that CNIPA is now sending the message that large filing volumes without use intentions (even if in good faith) would no longer be accepted. This provision, if it would become effective, risks impacting seriously on the good faith defensive filing strategies and refiling strategies (for the marks which are not put in use for three years) which are currently widely implemented by genuine brand owners in China.
   • Mandatory transfer of malicious filings to the genuine trademark owner in invalidation procedures (art. 45-47): a comparatively bold change would be the new right for the genuine trademark owner to request the transfer of the squatted trademark under some circumstances (like the squatted mark hijacks well-known marks, infringes other’s prior rights or the squatting is conducted by the brand owner’s representative/agent), instead of the mere invalidation, which is currently the case. This would offer various benefits to the genuine trademark owner, including obtaining the earlier filing date of the squatted mark. The Draft adds that the transfer will not be granted if it could lead to market confusion or other adverse effects, and in such cases the mark would simply be invalidated, as is currently the case.
   • Right to compensation for genuine trademark owner based on malicious trademark squatting (art. 83 and 84): the Draft would grant the right to genuine trademark owners who have fallen victim to trademark squatters to claim civil compensation from squatters for the losses caused by both the squatting activities and by any malicious litigation (i.e., infringement litigation against the genuine brand owners based on squatted registrations). This can be considered a codification of recent legal developments in China, whereby some courts have considered squatting activities itself a type of unfair competition, which may therefore give rise to damages. It should be noted that squatters would even face criminal liabilities in cases where the national or public interests are at stake.
2. Use is key
   • Use or undertaking to use requirement upon filing (art. 5): the Draft would adopt a requirement for trademark applicants to only apply for marks that are being used or that the applicant undertakes to use in trade at the moment of application. This means that applicants may need to file an undertaking of use when filing new applications.
   • Declaration of use is required for the marks registered for 5 years (art. 61): Furthermore, the Draft would also adopt a US-style requirement for trademark owners to file a statement of use every five years after registration. If a trademark owner fails to file such statement, the mark would be considered abandoned and cancelled by the CNIPA, and the brand owner would not be able to re-apply for the mark within 1 year after the mark is cancelled (article 21 Draft). The CNIPA may arrange random inspections of the authenticity of the declaration and may require the trademark owner to supplement the use evidence filed. The penalty for filing forged declarations would be the cancellation of the mark.
   • Large volume applications without intention to use considered bad faith filings (art. 22.1): as stated above, under the Draft, large-volume applications without the intention of being used would risk being labeled as bad faith filings.
3. Reducing the enormous filing volume of trademark applications
   • Prohibition of identical registrations, i.e., including the common practice of good faith back-up registrations (art 14 and 21): the Draft would prohibit the current practice of filing and registering back-up applications which are identical to prior trademarks, and would make this also a ground of opposition/invalidation. Under the Draft, the same entity would no longer be allowed to file a mark identical to a prior application or registration for the same goods. In addition, it would no longer be allowed to file an identical mark for identical goods within 12 months after an owner’s prior mark was invalidated or cancelled (whether due to non-use, the lack of submission of the statement of use (see above), or failure to renew). There are some exceptions providing room for companies to protect brand upgrades. It appears that this measure is meant to cut back the number of bad faith backup applications filed by squatters to prevent the loss of their rights after losing non-use cancellations or invalidation procedures. However, this measure would also risk prohibiting good faith backup applications filed by genuine brand owners (e.g., to protect against non-use cancellations, to file backup applications pending for review of senior applications etc.).
4. Other substantial changes
   • Shortening the period for opposition and abolition of the review on opposition procedure (art. 39): the Draft would shorten the opposition period from 3 months currently to 2 months and would entirely abolish the review procedure that is currently available against opposition decisions. This would mean that the only remedy for a trademark applicant whose application is rejected by the CNIPA in an opposition procedure would be to file an administrative appeal with the courts. This change aims to streamline the trademark procedure and improve efficiency.
   • Procedural issues relating to connected trademark procedures (art. 42): the Draft also proposes a very important procedural change relating to the consideration of the changed status of marks involved in office actions and court appeals if no suspension is granted to await the outcome in connected proceedings. Under the current practice, the CNIPA generally does not suspend review proceedings based on pending connected oppositions, invalidations, non-use cancellations which attempt to remove prior marks blocking the mark for which the review was filed. This currently results in many court appeals where the courts then decide about the status of the review procedure based on the outcome in the interrelated opposition, invalidation or non-use cancellation procedure and overrule the earlier decisions made by CNIPA to take into account the outcome in the connected procedure. However, under the Draft, the courts would have to assess court appeals in review decisions only based on the facts at the time when the appealed decision was made, i.e., regardless of whether the status of the relevant trademark has changed (e.g., regardless of whether the obstacle was successfully knocked out afterwards in a parallel procedure), unless this would cause a clear violation of fairness. This change may risk causing substantial procedural uncertainties and unfair outcomes in administrative appeal cases, which may be somewhat counterbalanced if the CNIPA changes its current practice of rarely granting suspensions for the review proceedings.

What happens next?

There have been a number of substantial changes proposed by the Draft which reflect the determination and efforts of the CNIPA to resolve the issues in the current trademark system. It continues to be challenging to strike the right balance in curbing malicious filings, streamlining the procedure and protecting the interests of genuine trademark owners.

The Draft has now been submitted for comments from stakeholders and the public. The CNIPA has announced that the comment period will run through 27 February 2023. This offers all stakeholders an opportunity to voice support and/or suggest revisions to enhance the current Draft.