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Trade War and China’s Changing Trade Mark Law

By Peter Collie, Associate

A newly amended Chinese trade mark law has been approved. The amendments take place against the backdrop of an ongoing trade war between China and the USA, which has its roots in international complaints over unfair Chinese trade practices. The new law holds some significant and positive changes.

Certain aspects of China’s current system for trade mark protection result in brand owners often encountering difficulties when trying to secure robust protection over their trade marks. China’s trade mark registration system is based on a “first to file” rule, rather than a “first to use” rule. It has resulted in vast numbers of “bad faith” applications: an application made by an individual who knows that the trade mark belongs to someone else. China has also received criticism for not taking firm enough action against the infringing use of trade marks on counterfeit goods.

Effective from 1 November 2019, the amended China trade mark law includes a number encouraging developments to address these issues.

Intent to use

Perhaps the most notable amendment is the introduction of an “intent to use” requirement. The amendment aims to tackle the problem of bad faith filings in China by moving away from a purely “first to file” rule. The Chinese Trade Mark Office will be able to dismiss an application if they have reason to believe that the applicant has no intention to use the mark and it has been made in bad faith.

It is unclear how the “intent to use” requirement will be implemented. The provision will need clarification through judicial interpretation. However, the penalties for bad faith filings include warnings, fines and punishment by court depending on the circumstances.

Damages and liabilities

Damage compensation in IP cases has been steadily on the rise in China. The new law reflects the court’s willingness to grant right holders compensation for infringement of their trade mark rights.

The maximum statutory damage has increased from RMB 3 million to RMB 5 million. In addition, the punitive multiplier has increased from three times to five times the actual or compensatory damage.

The potential for greater compensation should encourage right holders to engage in litigation proceedings if they think that their rights have been infringed. The increase in punitive damages should act as a deterrent to trade mark infringing activities.

Destruction of counterfeits

The updated law reflects a firmer stance being taken on counterfeit goods. It goes beyond giving the court the power to destroy the goods, but also the “materials and tools used predominantly for the manufacture”. The goods are prohibited from being redistributed even if the infringing trade mark is removed.

Overall, the amended Chinese trade mark law has the potential to significantly improve the effectiveness of the system in helping businesses protect their brands. The focus on clearing up the bad faith filing problem should result in a smoother registration process and a more credible system of trade mark protection. In addition, the increases in damages and liabilities, along with new rules surrounding counterfeit goods, should give businesses greater confidence that their intellectual property will be respected in the Chinese market.