The Fourth Revision of China Trademark Law

We have a first-to-file trademark regime in China. Over the past three years, we have witnessed a rapid increase of trademark filings in China, reaching more than 7.5 million in 2019. Along with the rapid increase of trademark filings, we have also encountered trademark squatting and mass hoarding.

The fourth revisions to China Trademark Law have become effective since November 1^st, 2019. In accordance with Article 4 of the amended China Trademark Law, bad faith applications not intended for use should be rejected from registration. The good faith rule is not only a general principle referenced throughout the law, but also an absolute ground to be applied in the examination of opposition and invalidation action, as well as in examination of a trademark application.

Article 4 is referenced in Article 19.3 with respect to trademark agencies, stipulating that the trademark agencies shall not accept filing instructions if they know or should have known that the trademark application filed by the client is a bad faith filing violating Article 4. Violation of this article can result in administrative penalties including issuing a warning and imposing a fine.

The highest statutory damage for trademark infringement is raised to RMB5 million (about USD706,434). Infringement, committed in bad faith and with serious consequences, may be subject to punitive damages up to five times of amount of the losses of the right holder, the illegal profits, or reasonable times of the license fee.

CNIPA’s efforts to crack down bad faith trademark filings

CNIPA announced on October 11, 2019 the Provisions on Regulating Applications for Trademark Registration (thereafter as the Provisions), effective as of December 1st, 2019. The Provisions provide guidelines to trademark examiners to implement Art. 4, as well as other relevant articles of the amended China Trademark Law in examination of the trademark applications, oppositions and invalidation actions.

According to the Provisions, there are five major circumstances to determine if an application is in violation of Art. 4, including the number of trademark filings, various classes involved, trading of trademarks, the business and industrial circumstances, any precedent court verdicts or administrative decisions wherein the trademark applicant has ever been convicted as a bad faith applicant or a trademark infringer, filing trademarks being identical with or similar to others’ famous brands, and filing trademarks being identical with or similar to the names of celebrities, trade names or other commercial signs.

Statistics show that in 2018, over 100,000 abnormal applications were refused for registration, either by direct rejection or through opposition. With the implementation of the new law and the provisions, bad faith trademark filings are now further cornered.

Judicial guidance

The Beijing High People’s Court, which has the jurisdiction of second-instance trial of appeals of decisions of CNIPA, issued the Guidelines for the Trial of Trademark Administrative Litigation in 2019, setting specific criteria to determine bad faith from the judicial angle.

The Supreme People’s Court (SPC) declared China’s judicial attitude against bad faith trademark filings by selecting and announcing judgements on typical trademark disputes over bad faith registration, such as the Jordan trademark retrial judgement, which is selected and announced as a SPC Guiding Case, with binding effects to courts of all levels. Recently, SPC issued the “Opinions on Comprehensively Strengthening Judicial Protection of Intellectual Property Rights” to again reiterate China’s determination to curb bad faith trademark filings.

In order to provide an additional measure to preserve and compound evidence, particularly in the case of method patents, the 2019 Amendment of the Patent Act introduced and adopted the SASHO (evidential review by experts) procedure. Although the details of the procedure had to be filled up by rules of the Supreme Court soon, it became law April 1, 2020. Then, the Supreme Court promulgated the rules of SASHO on Aril 22, 2020 even during the State of Emergency.

This is available for a plaintiff as a patentee to petition the court after the plaintiff files a complaint with the court. The plaintiff must show the court 1) how seriously necessary it is for them to preserve certain evidence in the hands of a defendant as an alleged infringer for proof of patent infringement, 2) how likely a patent infringement will be found, 3) the difficulty of collecting such patent infringement evidence in ways other than SASHO, 4) a minimum burden on a defendant even though the procedure of SASHO applies to the defendant.

After the plaintiff’s petition and the court decides to issue an order to proceed with SASHO, the defendant has a chance to appeal to the court to stop the procedure. On the other hand, even if such appeal is rejected, the court can appoint an expert to conduct the SASHO procedure at an appropriate venue, usually somewhere relating to the defendant’s business. The court can decide the issuance of an order by even using an in-camera process. The court appointed expert can investigate evidence which the plaintiff requested to preserve and can even utilize or operate real machines or systems to obtain data and review technical mechanisms, etc.  The expert has to submit to the court a written report of the SASHO procedure. This report will be used as evidence to prove patent infringement if the plaintiff files it with the court.

On the other hand, the defendant still has an opportunity to conceal their trade secrets before the expert submits his/her report. The court must allow the defendant to have such opportunity to do so.

The defendant may still refuse an enforcement of the SASHO procedure even though the court issues such order. In such situations the defendant who refuses the enforcement must accept disapproval from the court which is likely to consider the patent infringement argument as provided by the plaintiff to be the truth.  Provided however, there are no criminal or civil penalties associated with such refusal of the SASHO procedure.

As set forth above, the SASHO procedure was implemented in Japanese patent infringement litigation. However, its future is still unclear.  In the case of document submission orders which were expected to inspire more disclosure of patent infringement evidence, it has not been so widely used or successful in practice yet. It has additionally adopted an in-camera process by the court to encourage the issuance of document submission orders.  But the number of document submissions petitioned by parties is still relatively low because patent litigation practitioners are still sceptical regarding the easy issuance of document submission orders.

It is strongly desired that the SASHO procedure will inspire more evidential investigation by parties for expediting Japanese patent infringement litigation, though its requirements still appear to be rather narrow. Lawyers and judges should continue making efforts to develop better ways of practice using the SASHO procedure.