China’s New Trademark Law Amendment: Could discouraging squatters detrimentally affect foreign tech firms?

Written by: Brendan Everton

There appears to be good news coming from China for brand owners. The 10th Session of the Standing Committee of the 13th National People’s Congress in China (NPC) has amended the Chinese Trademark Law and will go into effect on November 1, 2019. [1] The changes are meant to help prevent trademark squatting in China, which has long been a problem. [2]

Trademark squatting or trademark piracy is “the registration or use of a generally well-known foreign trademark that is not registered in the country or is invalid as a result of non-use…”. [3] The intent is to “sell the trademark back to the real owner; … distribute products labeling the trademark to consumers who believe the products are real; … exclude the real owner from the market by establishing a claim of trademark infringement; or … use the trademark to market products which are different from those sold by the real owner.” [4]

The Chinese Trademark system is a first-to-file system. [5] First-to-file systems give an exclusive right to the trademark filed first. [6] Consequently, this system results in a race to file, which encourages bad faith filers to take advantage of the system. There are some safeguards in the Chinese regime to fight against trademark squatting. [7] The courts in China have thus far interpreted these protections narrowly making it difficult for foreign companies to protect their trademarks. [8] This is in contrast to the first-to-use system, which gives exclusive rights to the person who uses the mark first. [9] Through the use of this system, countries largely are able to avoid the problem of bad faith filings. [10]

Hoping to resolve this problem, the new amendment moves ever so slightly towards a first-to-use system. Article 4 of the Trademark Law has been amended to clearly state that “applications filed in bad faith without intention to use should be rejected.” [11] This is a significant change which allows the China Trademark Office to weed out bad faith applications during the examination process. [12] Anyone is now empowered to challenge bad faith applications during the examination process at relatively low cost. [13] This will benefit start-up companies who currently do not have the deep pockets needed to challenge the legitimacy of trademarks.  Additionally, trademark agencies are no longer able to represent an applicant if they know the individual is applying for the trademark in bad faith and has no intent to use the trademark. [14] Penalties are applied to both the trademark applicant and agency for violations. [15]

The new system appears to be an excellent start to tackling a problem that has long plagued China. However, some analysts worry the lack of a definition for bad faith may limit the effect that the law could have. [16] Too broad of a definition may harm foreign companies looking to take advantage of the Chinese markets. [17] Including the phrase “no intent to use” has worried some individuals. If this phrase is applied to include foreign firms filing defensive trademarks, it would deny trademarks to companies with legitimate business interests. [18] Unfortunately, the courts in China have been known to side with domestic companies when disputes over trademarks have occurred with American companies. [19]

There is a reason to be optimistic. This is not the only major change that China has made in the last year concerning intellectual property abuse. [20] This suggests that the Chinese government is attempting to improve the climate for foreign firms. There is hope it will attract more foreign companies to the Chinese market, suggesting the courts may start to change course.

While many of the components of the new amendment are encouraging, successfully attracting foreign companies by improving the trademark conditions will require the Chinese government to toe a thin line, allowing international firms to file patents for strategic defensive purposes and preventing bad faith filers from driving foreign business away.

[1] Benny Yip and Catherine Zheng, Good news about bad faith: China amends its Trademark Law, LEXOCOLOGY (June 21, 2019), https://www.lexology.com/library/detail.aspx?g=1add3fb0-713c-4637-9f48-02ffe23be3c3 [https://perma.cc/C9HU-SQ65].

[2] Yip, supra note 1.

[3] WIPO Intellectual Property Handbook: Policy, Law and Use, WORLD INTELLECTUAL PROPERTY ORGANIZATION 90 (2008).

[4] Kitson Sangsuvan, Trademark Squatting, 31 Wis. Int’l L.J. 252, 259 (2013).

[5] WIPO Intellectual Property Handbook: Policy, Law and Use, supra note 2, at 90.

[6] Sangsuvan, supra note 3, at 263.

[7] Yip, supra note 1.

[8] Id.

[9] Sangsuvan, supra note 3 at 262.

[10] Id.

[11] Yip, supra note 1.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] See Frank Ready, China’s Move Against Trademark Trolls Isn’t Sure Bet with U.S. Tech Companies, LAW.COM (July 30, 2019 at 9:30 AM), https://www.law.com/legaltechnews/2019/07/30/chinas-move-against-trademark-trolls-isnt-sure-bet-with-u-s-tech-companies/?slreturn=20190913133554.

[17] Yip, supra note 1.

[18] See Robert Burrell and Michael Handler, Dilution and Trademark Registration, 17 Transnat’l L. & Contemp. Probs. 713, 729 (2008).

[19] Id.

[20] Id.



Leave a Reply

Your email address will not be published. Required fields are marked *