Changes Being Considered to China's Trademark Legislation
Ella Cheong
In recent months, the economic crisis has created havoc with many businesses worldwide, impacting greatly upon China, which is extremely dependent on its manufacturing and exports to the world at large. This has meant the slowing down of its economy, reducing the growth of its GDP to 9.9 per cent for the first three-quarters of 2008, 2.3 per cent lower than for the same period last year.
This in turn affected Hong Kong greatly, as ever since its return to China in 1997, Hong Kong is bound intrinsically with China in most aspects, not least in economic terms. Similar to China, the growth of the Hong Kong economy also slowed, notably so in the third quarter, with GDP down by 1.7 per cent, down further from 4.2 per cent in the second quarter. This is further reflected in the numbers of filings for trademarks in Hong Kong for 2008 - a review shows from January to September (except February which is Chinese New Year and is usually slower for businesses), the numbers hovered well over 2,000 per month, with the peak in April reaching 2,432, but for October this decreased to 1,924, and for November to an extremely low 1,688.
So how does this economic recession affect trademark owners? And should trademark owners continue to apply for and secure trademarks despite the downturn? The answer is a resounding "yes", since without registration it is practically impossible to have protection in some countries, which includes China, while for Hong Kong it is extremely difficult, although not impossible, based on passing off which requires a high standard of evidence of reputation. The cost (in terms of financial loss) in not securing trademark registration is high, compared to the cost of trademark registration which is fairly insignificant in most countries. In addition, one must take into account that it can take three to four years to secure registration in China, which means that even if at present the trademark owner is not intending to market or manufacture in China, the odds are that this may change in the foreseeable future, since China is potentially the biggest market in the world with its 1.2 billion population.
The IP laws in China are fairly new, compared to those of most other developed countries, but nevertheless are strong, although not quite so strong as regards implementation of enforcement. Although there has been much concern on this aspect by foreign trademark owners, enforcement does not merely favour the domestic as opposed to the foreign registrant (reflected in a recent case where the owner of the well-known trademark Coach was awarded 300,000 renminbi (US$44,000) damages). However, the laws being fairly new, and as with any developing country, it is only to be expected that there is room for improvement on many fronts. In China, the trademark laws were first put in place only in 1982, since which time there have already been two amendments, the latest of which took place in October 2001. The government places great emphasis on IP (with articles on IP issues constantly dominating the news), and is keen to further improve IP laws and practices to bring them to the highest international standards, thus IP is high on its agenda for reform. We now examine what amendments are being contemplated.
CHINA - BACKGROUND TO THE THIRD AMENDMENT OF THE CHINA TRADEMARK LAW
Since the second amendment of China's Trademark Law in 2001, and China shortly thereafter becoming a member of the World Trade Organization (WTO) and its related TRIPs Agreement in December 2001, the Chinese economy developed rapidly by leaps and bounds. So both domestic and overseas trademark proprietors have felt it necessary not only to ensure there is registration of their trademarks in China, but have also considered use and enforcement of such trademarks. In March 2007, China also signed the Singapore Treaty on the Law of Trademarks (Singapore Treaty), for harmonisation of trademark practice worldwide, so far adopted by only eight member states, although more than 50 countries have signed the treaty itself. The economic situation therefore demands Chinese authorities optimise all resources and substantially improve administrative efficiency in all aspects of trademark protection.
Improvements have increasingly been loudly demanded by the public to remedy the following drawbacks:
• excessively lengthy time involved for registration, opposition and review;
• trademark filings and oppositions in bad faith appearing endlessly; and
• increasing vending of registered trademarks (those not for self-use).
Among these, the most desired improvement is to shorten the time cycles in the various procedures. To resolve such issues, it is necessary to further amend the China Trademark Law. From May to September 2008, the panel responsible for suggesting any amendments has invited the legal division of QBPC (Quality Brands Protection Committee), multinational corporations, the China Trademark Association, other domestic trademark agents, domestic enterprises, experts in the academic and judicial field, and local Administrations for Industry and Commerce (AICs) to hold seminars to discuss suitable amendments.
THE MAIN PROPOSALS:
Abolishing the "relative grounds examination" system
In recent years, the annual number of applications filed in China increased exponentially, reaching upwards of 700,000 alone in 2007 (but possibly due to the economic recession has dropped to about 600,000 as of November 2008). At present, it usually takes at least three years from filing to registration, but will last much longer if there is any rectification or opposition. There was thus a demand to abolish the "relative grounds" to accelerate the examination cycle.
On the other hand, there are voices with counter arguments, which believe that such problems cannot be resolved in such a radical manner, and that doing so this way will in the long run bring more serious problems. This could mean that many more applications for similar or identical trademarks may be filed in bad faith. Accordingly, most foreign enterprises are extremely opposed to this proposal.
With respect to this issue, it appears there is need of a balancing act whereby China does not rush to abolish the "relative grounds examination" at this stage without regard to possible repercussions, but speeds up examination. A possible way would be the training of many more examiners.
Authority for accepting oppositions
Currently, any third party may file an opposition within three months from the date of the pre-grant publication. When such opposition arises, the China Trademark Office (CTMO) shall suspend the grant and first examine the opposition, which usually takes about three years. If any party is not satisfied with the decision made by the CTMO, it may appeal to the Trademark Review and Adjudication Board (TRAB). Another three years ensue for the TRAB to make a decision, which may be further appealed to two courts which usually takes at least another year. Accordingly, where there is a dispute, it can take anything up to seven years or more (three years for examination by the CTMO, three years for the TRAB appeal, and one year for court appeal) for the matter to be resolved, adversely affecting the trademark owner.
In order to curtail such lengthy procedures, there is a demand by the public to let the TRAB accept oppositions directly and have the initial hearing, seemingly more logical and reasonable, followed by court appeals.
It may also be better to restrict conditions whereby an opposition may be filed, strengthen the rules of cross-examination concerning evidence filed, and for a compulsory delivery of such evidence by each party to the other (as the CTMO currently does not have to do).
To add the principle: "Honesty and creditworthiness shall be followed when an application for registration is filed or when a trademark is used"
This provision can serve as a "catch all", to prohibit other unfair registrations or use which are not specifically mentioned in the law, thus deterring bad-faith applicants.
New provision of multiple-class applications
Currently, the CTMO adopts the principle of one trademark, one application. This change will be consistent with the Singapore Treaty. An applicant is also entitled to file divisional applications.
New provision of time limit for trademark examination
It has been recommended to stipulate 12 months to complete the examination of any application. If adopted, the procedure will be much accelerated and applicants will be able to rapidly secure their trademarks. Regrettably there is no similar recommendation for restricting the time for any trademark review, which should also be considered.
New provision of claiming compensation of expenses incurred during opposition and review proceedings with the CTMO or TRAB
To ensure all applicants are fully aware of the risks and liabilities involved in bringing such proceedings, and to avoid frivolous and vexatious requests, the losing party shall pay the official expenses and other reasonable costs (including legal costs) incurred by the counterparty. If the parties cannot agree the amount of such reimbursement, the party concerned may institute court proceedings.
Increase the time limit to appeal to the TRAB from 15 to 30 days
Currently, the time limit to appeal to the TRAB is 15 days from the date of receipt of the decision issued by the CTMO, but this is too short for an applicant (especially a foreign one) to thoroughly consider whether or not to appeal. This proposal would help the applicant to make a comprehensive study before making a final decision.
Provide an opportunity for the applicant to make a statement before the CTMO finally rejects the application
Currently, there is no opportunity for the applicant to make any statement before the decision is made by the CTMO, thus if the applicant wishes to challenge the decision, it must appeal to the TRAB. Providing such opportunity could mean that fewer challenges will be made of CTMO decisions, and may thus lessen the burden on the TRAB.
Problems encountered due to the distinctive sub-classes adopted in China
Currently, although the CTMO has adopted the Nice Classification of Goods and Services (Nice Classification), it has its own work-manual classifying each class into specific groups, with sub-class headings depending on the similarities of goods or services. The CTMO normally only accepts a specification listed in the work manual, and will not accept class or sub-class headings. Furthermore, goods or services in different sub-classes shall not be deemed as similar goods or service in principle unless it is clearly mentioned in the work manual. It is therefore not surprising to see two or more identical trademarks in the same class, but in different sub-classes.
A recent decision of a case which lasted 11 years proves this. The trademark OË (zhuyou) was registered by the Japanese company Sumitomo in class 31 in 1984. When the trademark filed by Rudong (also in class 31 but in a different sub-class) was published by the CTMO in 1998, Sumitomo opposed it based on its former registration, and claimed that its trademark covered similar goods, thus the use of Rudong's trademark would result in confusion. The CTMO held that there was much difference between the goods covered by the two trademarks in respect of the function, use, targeted customers and sales channel, and decided to accept Rudong's trademark in 1999. Sumitomo appealed to the TRAB, which also favoured Rudong, so Sumitomo further appealed to Beijing No. 1 Intermediate People's Court and then to Beijing High People's Court in 2008. Both courts maintained the decision of the TRAB, as both felt that the evidence provided by Sumitomo could only prove its reputation in Japan, but failed to prove its well-known status in the Chinese community, therefore could not enjoy the broad protection of a well-known trademark.
Therefore, to avoid any possible confusion or any bad-faith application, the usual practice is for applicants to choose goods or services covering all the sub-classes, which of course means increased costs. Most regrettably, however, this problematic issue has not been considered or addressed in the present proposed amendments. It is hoped that this can be included in future discussions for amendments.
EFFECT OF AN INTERNATIONAL REGISTRATION
Apart from filing a trademark application directly in China, since 1989 foreign applicants may choose to file an international registration through the Madrid Agreement Concerning the International Registration of Marks (Agreement), or since 1995 through the Madrid Protocol Concerning the International Registration of Marks (Protocol), by designating China.
The protection secured by such international registration is identical in all respects to a national registration, thus any concerns by foreign registrants that such an international registration may be weaker than a national one is totally unfounded. However, although the international registration does not affect any national registration or application, according to the principle of "central attack" in the Agreement, if the original registration is wholly or partly revoked within five years from the international registration date, the corresponding international registration in each of the designated countries shall be wholly or partly revoked. Due to this "central attack", international registrations are vulnerable to such attack for the first five years. Fortunately, under the Protocol, a trademark owner may convert its own international registration to a new national one in each designated jurisdiction within three months from the successful revocation, and this converted registration would enjoy both the priority and the international filing date. Therefore, it is best for trademark owners to file for any international registration through the Protocol and timely convert it into a new national application, should the original application meet this problem.
International registrations are time and cost saving for applicants, thus filings through Madrid have increased, with China being the country most designated, according to recent figures released by WIPO. Besides that, some practices which are not acceptable to the CTMO become feasible under the international registration system, such as multi-classes applications and choice of the specification of goods or services. As mentioned above, according to the Chinese practice, an applicant must adhere to the exact specification of goods or services as published in the manual by the CTMO, but cannot choose the headings of classes or sub-classes on such specification, which are deemed non-standard terms, and required to be amended to comply with the standard terms. However, through international registration, an applicant has the freedom to use class headings and some non-standard terms.
In addition, the following issues should be taken into consideration when filing under the Madrid Agreement or Protocol:
• If the international application is finally rejected by the CTMO, in theory the time limit to appeal with the TRAB is 15 days from the date of receipt of the notification issued by WIPO, but in practice, the TRAB adopts the 30 day-time limit of notification from WIPO.
• The CTMO does not issue any registration certificate for an international registration, except upon request from the registrant. As it usually takes around three to six months for the CTMO to issue this, it is advisable for international registrants to immediately request this to ensure ability of taking action quickly against infringements, since such a certificate is mandatory evidence for enforcement of trademarks.
ARBITRATION
Since China's Arbitration Law came into force in 1994, it has become popular to settle disputes (including IP disputes) by this method, especially as almost every cosmopolitan city now has an arbitration commission.
HONG KONG
There has been no recent amendment to the Trademark Law as such in Hong Kong. However, the Hong Kong Trade Marks Registry has provided several new guidelines in certain trademark areas and updated its relevant work manuals in 2008, as well as rendering decisions concerning registrability:
Specifications
It is commonly known that registered trademarks in Hong Kong (except defensive trademarks) must be used, as non-use may attract revocation (either wholly or partially). Therefore an applicant's specification should not be too broad. During examination, the registry has the power to ask an applicant to justify its intention to use the trademark for the entire specification applied for, but in the past such queries were seldom raised, unless circumstances clearly indicated that the applicant's business could not justify this broad specification.
However, in July 2008, the relevant work manual was updated to state that this objection will not be raised lightly, account being taken of the capacity of most applicants to trade in a wide range of goods and services, unless the range claimed is so unrealistically broad in commercial terms it is unlikely the applicant would trade in that full range. If raised, an applicant has to show it honestly intends to use the trademark for the full range, with each case considered on its own merits. Accordingly, trademark applicants should limit the proposed specification, unless there are sufficient supporting documents (eg, relevant catalogues and marketing plans) to justify a broad one.
Sound marks
Sound marks are registrable in Hong Kong, but not so easy to secure in the absence of evidence of use rendering them distinctive. Audio recordings were previously not accepted as part of the application since the examination of a sound mark is on the basis of the graphical representation of that mark. However, in October 2008, this was updated to encourage submission of a sound recording of a sound mark application, which will be used solely for the registrar's reference, and will not be treated as or form part of the graphical representation of the sound mark, which remains the sole basis for registrability.
As an illustration of sound marks, two applications for two sound marks for various services in classes 35, 39 and 43 both in the name of Deutsche Lufthansa were refused for being devoid of any distinctive character. The registrar held that when the subject marks are used in the course of provision, advertising or promotion of various designated services, the consumers would (on first impression) regard such sound as background, entertainment music or as a means to attract consumers' attention to the provision, advertising or promotion of various designated services, rather than to denote the trade origin. Hence, an applicant for a sound mark has to be aware that the registrability of a sound mark must depend on whether the sound will serve to identify the trade origin of the goods or services for which it is to be used.
Languages
Any supporting document filed with the registry, if not in Chinese or English, must be accompanied by a verified translation of the document into the language of the proceedings. Previously, there was no guideline as to the wording of such verification, but it is now specified that the translation has to be verified by the translator or by a person who has a qualification or knowledge to certify such translation, with a standard certification form available.
Registrability
The registry published a recent decision regarding registrability of an application., by Oceanic Beverages Co, Inc after a hearing where the Registrar refused the application for a composite mark of a red apple on a yellow background with the Chinese characters œS (meaning "apple cider") across the middle for goods in class 32. The reason for refusal is that the Chinese characters is a term commonly used by traders in relation to juice, drinks and other beverages; and, despite the device and the coloured background, there is nothing which renders the subject mark distinctive as a whole. Hence, an applicant has to be aware that a composite trademark, if composed of non-distinctive characteristics, would still not be registrable.
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In general, it is felt that, although many improvements on the IP front have been implemented in China, there is still room to ease the flow of trademark applications in China to encourage more filings, to increase the awareness of intellectual property rights by the general public, and to ensure that enforcement procedures are streamlined to effectively stem the tide of infringements and counterfeits which have given a negative image to China in the past. Change is in the air, but as with all changes this requires time, so patience is necessary.
It should also be borne in mind that as of 1 August 2008, there is mutual recognition of judgments between China and Hong Kong, and that reciprocal enforcement is possible for some of these judgments, but so far limited only to monetary compensation and not injunctions. This could open up a possible option to enforce judgments regarding monetary disputes arising from certain agreements, eg, trademark licences, in one or other of the two jurisdictions.