Legal News Alert: Draft of the Chinese Trademark Law Third Amendment Released for Public Comment

Legal News Alert: Draft of the Chinese Trademark Law Third Amendment Released for Public Comment

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The Draft of the Trademark Law Third Amendment (Draft) was released for public comment by the Chinese State Council's Legislative Affairs Office on September 2, 2011. While the vast majority of the clauses will not change, trademark owners should note that certain provisions in the Draft reflect the realities of the way in which trademarks are globally recognized and used, thereby adding efficiencies to the prosecution process and enforcement of valuable brands in China.

Sound and Single-Color Marks Allowed to Register

Under the current law, trademark protection is only available for non-traditional trademarks that are visually perceptible and color marks that contain multiple colors. In the Draft, trademark eligibility is expanded to include protection for sound marks and single-color marks. (Article 8). As non-traditional trademarks become important mechanisms to distinguish the goods and services of brand owners, this signals a new opportunity for brand owners to seek protection in one the largest markets in the world.

The Arrival of E-Filing

Trademark owners longing for the convenience of electronic filing will be pleased to learn that the Chinese Trademark Office (CTMO) will prepare to begin accepting electronic trademark applications. (Article 21) The proposed amendment suggests that trademark applications can be sent electronically, but it is unclear if this submission will take place via email or via an electronic submission vehicle, like the USPTO's Trademark Electronic Application System (TEAS).

Multiple International Classes in One Application Still Unconfirmed

Previously, under Chinese Trademark Law, a separate trademark application was required if a party sought registration in multiple international classes. The Draft now contemplates the filing of multiple class trademark applications (Article 22). Brand owners are hopeful that this will lead to a more streamlined and efficient prosecution of marks that are broadly used in the marketplace on various goods.

Strengthened Protection for Foreign and Famous Brands

One of the greatest challenges for brand owners is the practice of trademark squatting - the act of registering other parties' brand names for the purpose of extorting money from the legitimate brand owner. If the brand owner does not acquiesce and purchase the mark, the squatter can prohibit the brand owner from selling products bearing the mark in China, manufacture products bearing the mark in China for export, or introduce into the marketplace illegitimate goods bearing the brand owner's mark. The Draft, while not eliminating this activity, does reflect that the interests of foreign brand owners have been taken into consideration. Under Article 34, the examiner may refuse registration on the basis of confusion with a prior use in China mark, if said applicant is found to be familiar with a mark as a result of a business relationship, contract, geographic relation, or other relationship. This new change also applies to even those foreign senior trademarks that have not acquired a certain level of fame in China.

The scope of the protection for the owner of a famous trademark (a mark acquired certain level of fame) is expanded as well. Under current practice, only well-known trademarks in China enjoy broad, cross-class protection. The Draft proposes that registration may be refused if a mark may cause confusion with a distinctive and famous registered trademark that has been filed or registered in a different international class of goods. (Article 34 proposal 2).

Eliminating Bad Faith Opposition and Cancellation

There also are key procedural changes for streamlining trademark opposition and invalidation proceedings. Under the current law, anyone is eligible to oppose the registration of a mark during the three-month publication period or request invalidation against a registered mark based on relative invalid cause of action. This places an unnecessary burden on the right owners who must defend against frivolous oppositions. The proposed Draft only permits prior rights holders or interested parties to file an opposition or request cancellation of the registration within five years from the date of registration (Article 48). However, the Draft still does not have a definition for "interested party," so it is unclear whether this new limitation will result in a drop in the number of opposition and invalidation proceedings filed with the CTMO.

Another significant change is that the applicants will have 30 days to decide whether to appeal to the Trademark Review and Adjudication Board (TRAB) the rejection decision to CTMO. This doubles the current statutory time period of 15 days, viewed by many foreign brand owners as unreasonable. (Article 58).

Raising Statutory Damages to $159,000 USD

The Draft doubles the present limit for maximum statutory damages from RMB 500,000 to 1,000,000 (currently about U.S. $159,000) (Article 67) to enhance trademark enforcement of owners. A party infringing twice within a five-year period will be subject to the aggravated penalty (Article 64). Notably, to be eligible for damages for trademark infringement, the brand owner must produce evidence of actual use of the mark for the previous three years. Brand owners who have defensively registered many variations of their trademarks should note this new requirement and endeavor to maintain, internally or with outside counsel, evidence of actual use. A definition of "actual use," or any indication of what constitutes "actual use," is not clearly addressed in the Draft.

The Draft retains some of the key features from the 2009 version, including providing for the rejection of a mark if its literal translation can be confused with a registered or unregistered foreign brand. However, the adoption of substantive trademark examination is not part of the new Draft. Relative examination remains the examination model. This means clients must remain vigilant in monitoring the market and the trademark register to prevent the registration of confusingly similar marks.

The comment period is from September 2 - October 8, 2011. Any entity or individual may submit a comment through mail, email, or the Chinese government's online system (http://www.chinalaw.gov.cn).

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