What does it mean?
A. Concrete factors to be considered in finding bad faith under article 4 of the TML.
The key provisions in the Regulations are articles 3, 5 and 8, which implement article 4 of the TML. Articles 3 and 5 of the Regulations stipulate that bad faith applications filed without the intention of actual use, as required under article 4 of the TML, breach the principle of good faith, and shall be rejected at the examination stage. Article 8 of the Regulations provides some flesh to the bare bones of article 4 of the TML, setting out a non-exhaustive list of the factual elements which indicate bad faith, and which may trigger a rejection in the examination phase. These factual elements include:
- the trademark filing volumes, the designated goods and services as well as the trademark transfer situation of the applicant and/or its related entities/individuals (e.g. excessive amounts of trademarks going beyond business needs);
- the specific industry and operating conditions of the applicant;
- prior judicial or administrative decisions finding that such person or company conducted bad faith filings;
- applying for marks identical or similar to marks which have some reputation in the market;
- applying for famous personal names, company names, company abbreviations or other commercial signs; and
- a 'catch-all' provision: any other factors that the Trademark Registration Department ("TRD") may consider relevant.
Article 9 of the Regulations also contains a welcome clarification, by codifying the existing practice that the assignment of applications and trademarks will not affect the assessment of whether an application was initially filed in bad faith. In other words, assigning a bad faith application to a company who may have an actual intention to use it, or to a company which does not have a disproportionate amount of marks is not an escape route for squatters against rejections for bad faith.
Nevertheless, considerable uncertainties remain regarding such rejections of bad faith applications at the examination stage. How will examiners of the TRD assess whether a specific application is filed in bad faith under Article 4 of the TML? Given the extremely high volume of applications with the TRD and its current backlog, it remains to be seen whether examiners will mainly rely on their discretion, and assess bad faith on a case-by-case basis, or whether examiners would welcome and encourage brand owners to report potential bad faith applications. Another aspect that remains unclear is whether the TRD will allow applicants to file evidence of intended or actual use for applications which it presumes are filed in bad faith.
Another aspect which is not covered in the current Regulations (but which was covered in previous drafts) is whether applicants of multiple bad faith filings, i.e. 'frequent offenders', risk being blacklisted by the TRD, or whether there may be an impact on their social credit score and whether hearings may be held to contest these measures.
B. Direct punishment of bad faith trademark agents and applicants as an extra deterrent.
The Regulations contain a number of provisions, codifying existing practice and the corresponding provisions in the existing TML, aimed at curbing the activities of both bad faith trademark agents and, more important even, of applicants themselves (the infamous trademark 'squatters').
Firstly, in line with prior legislation, article 4 of the Regulations provides that trademark agents are prohibited from filing for trademark applications if they know or should know that the trademark applications are filed unlawfully (e.g. applications in bad faith, applications for trademarks owned by a business partner or principal and applications for third party marks that have already obtained some fame in China). Article 13 of the Regulations provides that trademark agents which engage in such unlawful application activities may be punished in several ways, in order of severity: (1) an order to correct their behaviour within a time limit and a warning; (2) a fine of not less than RMB 10,000 but not more than RMB 100,000; (3) a warning and/or a fine of between RMB 5,000 and 50,000 for the person in charge and other directly responsible personnel; and (4) the revocation of the trademark agency license in serious cases.
Under article 12 of the Regulations, individual trademark squatters can now also be directly punished for bad faith applications. Punishments range from warnings to fines. Squatters who have obtained an illegal income with their squatting activities may be fined three times their maximum illegal income, up to RMB 30,000. Squatters who have not obtained an illegal income with their squatting activities may be fined up to RMB 10,000.
It is hoped that these direct punishments and fines (fairly low though they may be) may serve as an extra deterrent for bad faith trademark agents and squatters.
The newest version of the TML came into effect on 1 November 2019, and the new Regulations will come into effect one month later, on 1 December 2019. The new TML and these Regulations taken together will have a profound impact on the Chinese trademark practice. In particular, the provision regarding the spontaneous rejection of bad faith trademarks by the TRD at the examination stage is one the important legal breakthroughs in the battle against bad faith filings in recent years. At the same time, the Regulations still contain a number of lacunas, and remain quite vague. Further guidance may be issued by SAMR in future additional implementing rules to provide further details on the implementation of the new TML.
Authored by Helen Xia and Stefaan Meuwissen.