Seven years and still not right – New draft of Trademark Law fails to impress

Another lawyer, Chen Jihong from Zhong Lun Law Firm agrees: “It is very likely it will be passed this year.”

This is reinforced by the Plan for Intensifying the Implementation of the State Intellectual Property Strategy for 2013 (2013年国家知识产权战略实施推进计划) released on Monday, which states that the promulgation of the Trademark Law should be accelerated.

Key amendments

Colours and sounds have now been included under the scope of trademark registrations. This could be interesting for smart phone companies, who possess unique ringtones. “Anything can be used as a competitive advantage – especially in the smart phone market,” said He.

Registering distinctive colours will prove useful to high-end luxury brands, as their colour and patterns become synonymous with their brand. But registering these marks could prove to be difficult.

“An applicant should bear in mind that if they intend to apply for a colour or sound mark, the applicant must show that their proposed non-traditional colour or sound mark is capable of distinguishing its goods or services,” said George Chan of Rouse in Beijing.

The current Trademark Law permits the registration of marks comprised of two or more colours, but as Chan points out, the China Trademark Office (CTMO) is of the view that colour combination marks are not inherently distinctive. Accordingly, the applicant must evidence, to the CTMO, that its colour combination mark has acquired distinctiveness. Meeting this evidentiary burden is not an easy task.

For the first time, the draft permits multiple class registrations, allowing applicants to register the same mark in multiple classes for goods. This will simplify procedures and reduce costs with no increased risk as the mark can only be cancelled in classes that are opposed.

But no time frame has been set for multiple class applications: “Even though the proposed Trademark Law mentions that multi-class applications will be introduced in the future, there has been no indication as to when they will be available nor how they will be addressed under the accompanying amended Trademark Implementation Guidelines,” said Chan.

Punitive damages are now possible under the latest draft. The thinking behind this is that owners often incur high costs when protecting their rights and the current damages system does not provide adequate compensation.

Punitive damages will act as a deterrent to wilful infringers. “Technically speaking, in the past, a Chinese court could award a form of punitive damages for trademark infringement, if the trademark owner could show that that there was a need to deter future infringement,” said Chan.

Referring to the Supreme People's Court, Opinion on Several Issues Concerning the Serving of the Main Objective When Handling Intellectual Property Trials in View of the Current Economic Situation (最高人民法院关于当前经济形势下知识产权审判服务大局若干问题的意见), where Article 5 provides that Chinese courts may raise compensation awards for the purposes of deterring infringement.

The last major change regards opposition proceedings. The draft only allows the owner of prior rights or an interested party to lodge oppositions before the trademark is registered. “This will not decrease the number of opposition cases, but it can partially contain bad faith opposition cases,” said Chen.

Failing to impress

While accepting colours and sounds to be registered as trademarks and multiple class filings have been praised, allowing punitive damages and limiting opposition hearings to certain parties have raised concerns.

Bad faith filing is rampant in China, partly because the country works under a system of first to file. For foreign companies whose mark has already been registered by a trademark squatter, punitive damages could be costly.

“People are hesitant over punitive damages, as it has the potential to be used against legitimate owners,” said He.

Legitimate owners often use a third party to oppose a potentially infringing mark. This strategy is widely adopted so legitimate brand owners do not expose their identity during opposition hearings. The fear is that if legitimate owners lose they are then totally exposed to an infringement lawsuit.

Owners would oppose marks anonymously, so as not to draw attention to the case if they did lose. In addition, any losses could increase the chances of other squatters registering the mark in different classes.

"Besides the changes to sounds, colours and multiple class filings, given the way the amendments are and how complicated they will make the situation of trademark squatting, many believe that it may not be a bad idea to stay with the current system," said He.

By David Tring

Further reading:

PRC Trademark Law (中华人民共和国商标法)

Supreme Court hands down landmark ruling on OEM infringement

Three ways to rescue the Trademark Law