China’s new trademark law, which takes effect May 1, 2014, is designed to discourage the trademark hijacking and piracy that have caused headaches for foreign companies attempting to do business in China.
In July of 2012, Apple paid a $60 million settlement to the Chinese company Proview Technology to acquire the right to use the iPad name in the Chinese market. Proview had registered the name in China in the year 2000. Apple also lost a claim that Proview was infringing Apple’s trademark when Proview sold its own “iPad” product.
Under the current version of the Chinese trademark law, foreign companies are subject to China’s “first to file” trademark system. This system allows “trademark hijacking” by applicants who file Chinese trademarks that are similar or identical to trademarks used abroad.
These trademark applications are routinely granted. The Chinese Trademark Office does not require applicants to establish that they have either used or intend to use the marks on actual products.
Foreign companies are then forced to buy back “their” trademarks when they wish to enter the Chinese market. In addition to Apple, John Lewis, Sainsbury’s, and Top Shop are among the companies which paid to obtain the rights to use their marks in China.
Under the current law, a trademark registration made in bad faith or for a well-known mark may be cancelled. However, the cancellation process is cumbersome and expensive.
Under the new law, trademarks must be registered and used “by the principle of honesty and credibility.”
A trademark application will be denied if the mark is identical to another party’s mark that has been used (but not yet registered) in China in connection with the same or similar products if:
- The trademark applicant has a contractual or other business relationship with the other party and knows or should have known of the other party’s prior use of the mark; and
- The other party challenges the application.
The new trademark law also expands the list of actions that will constitute trademark infringement. For example, it will be a violation of trademark law if someone purposefully facilitates or assists trademark infringement activities. This assistance can include transporting counterfeit goods.
Civil damages for trademark infringement have also been increased. For “malicious” infringement, the trademark owner will be able to recover up to three times the owner’s loss or a reasonable royalty. Trademark owners will also be able to recover their reasonable enforcement costs including trademark attorney’s fees. Where it is difficult to determine the amount of the trademark owner’s loss, a Chinese court will be able to award compensation of up to three million Chinese Yuan (RMB) (about US$500,000).