On 23^rd April 2019, the National People's Congress of China adopted a revised version of the Trademark Law, modifying several articles, particularly article 4, which now reads as follows:

"Any natural person, legal person or other organization that needs to obtain the exclusive right to use a trademark for its goods or services during production and business operations shall apply for trademark registration with the trademark office. Any bad faith application for the registration of a trademark that is not intended for use shall be rejected."

The concept of good/bad faith was already present in several articles of the law, either in its positive form, like in Article 7 : "Trademarks shall be filed and used in good faith", or in its negative form, such as "unfair means" (article 32), "fraudulent or other unfair means" (article 44), "registration obtained in bad faith" (article 45), or even without reference to any specific word but through a description of bad faith behaviours, like in article 15.

The Supreme People's Court has provided guidance (Judicial Interpretation of 2017) on how to assess whether a trademark applicant has used "other unfair means" under article 44 : it is necessary to take into account the reputation of the cited trademark, the applicant's reason for filing the litigious trademark, the status of the use of such trademark, etc.

All the above relates to situations where a trademark applicant acts in bad faith to the prejudice of a prior trademark owner (whether registered of not registered).

In this new article 4, the concept of bad faith is not connected to any prior right owner. It is merely linked to the lack of intention to use the trademark, which can be construed as an extension of the concept of “need”, added in the preceding sentence by the previous revision.

The question that inevitably arises is: what is, exactly, the meaning of bad faith in article 4? Is the simple fact of filing a trademark without intention to use it, an act of bad faith? Or is it necessary to prove circumstances in addition to the lack of intention to use, and in the affirmative, what circumstances should that be?

SAMR regulation on bad faith trademark application

On October 16, 2019 the State Administration for Market Regulation (SAMR) published "Certain Provisions for Regulating Applications for Trademark Registration". It's article 8, which focuses on how to ascertain whether a trademark application breaches Article 4 of the Trademark Law, distinguishes three categories of facts that the trademark authority should take into account :

The first category of facts is (a) the number of trademark applied by the same person, and whether such person has been conducting transactions (like reselling) any of such trademarks, and (b) the business activity of the applicant. Individuals, with no business activities, who file hundreds of trademarks as pure commodities for the sole purpose of reselling them are the target of this category.

The second category also relates to the trademark applicant's profile : whether the applicant has already been identified as a bad faith trademark applicant, or as an infringer.

The third category concerns the trademarks themselves (a) whether they are identical with or similar to trademarks of other persons, having a certain influence (as in article 32 of the law), or (b) whether they are identical with or similar to the name of a celebrity, the trade name of a business, the abbreviation of a business name of other business signs.

This third category refers to relative grounds, i.e., situations normally handled via opposition or invalidation procedures based on article 33 or 45 of the law.

It is not clear to what extent each of the above three categories can be taken into account, separately or combined. For example, it seems that a very large number of trademarks filed by a person who has no business activity should be sufficient.  Or, should it be to prove additional circumstances described in categories 2 and 3?

In any event, what is definitively new is that the examiner of the CNIPA has now the power to refuse, ex officio, the registration of trademarks that obviously fall under the above definitions.

Furthermore, with the new article 4, it is possible for any person to request the invalidation of such a trademark at any time, if it can be argued that it has been filed "in bad faith without intention to use". Since the words "any person" include prior rights owners, this should create for such prior rights owners, a new possibility to act, in addition to article 45 which restricts the possibility for invalidation to five years after the registration of the trademark unless the prior right holder owns a well-known trademark and the trademark to be invalidated has been registered in bad faith.

Sky case in Europe

In Europe, cases have been recently submitted to the European Court of Justice that deals with similar issues. They allow an interesting comparison and some additional reflexions.

On the same day as the promulgation of the SAMR regulation, October 16, the Advocate General Tanchev, delivered to the European Court of Justice the Opinion in the case Sky International AG v. SkyKick UK Limited (C-317/18), examining whether, when Sky International filed an application to register the word "Sky" as a trademark designating the entire category of "computer software", while it only had the intention to use the mark on some of the products listed in this highly diversified category, such application was made, at least partially, in bad faith.

Advocate General Tanchev was clearly considering that applying for the registration of a trademark covering a large range of products, without intention of using the trademark for all the products, could be deemed as made in bad faith: " …the applicant is improperly seeking a monopoly to exclude potential competitors from using a sign he has no intention of using. That amounts to an abuse of the trademark system"(par.114).  However, the conclusion of the Opinion is slightly less affirmative :" In certain circumstances, applying for registration of a trade mark without any intention to use it in connection with the specified goods or services may constitute an element of bad faith, in particular where the sole objective of the applicant is to prevent a third party from entering the market, including where there is evidence of an abusive filing strategy, which it is for the referring court to ascertain". (emphasis added).

A few weeks before the European Court of Justice adjudicated another case Koton Magazacilik Tekstil Sanayi v. Ticaret AS and M. Joaquin Nadal Esteban (C-104/18 P) which inter alia provided a clear definition of what is bad faith in a trademark application : " Consequently, the [bad faith] applies where it is apparent from relevant and consistent indicia that the proprietor of an EU trade mark has filed the application for registration of that mark not with the aim of engaging fairly in competition but with the intention of undermining, in a manner inconsistent with honest practices, the interests of third parties, or with the intention of obtaining, without even targeting a specific third party, an exclusive right for purposes other than those falling within the functions of a trade mark, in particular the essential function of indicating origin recalled in the previous paragraph of this judgment (par.46). The intention of an applicant for a trademark is a subjective factor which must, however, be determined objectively". (emphasis added).

Comparison and discussion

The comparison between China and Europe shows that, despite the use of the same terms (bad faith trademark applications), the situations are quite different. China is facing a phenomenon of trademark proliferation while Europe deals with a few individual conflicts between trademark applicants.

However, some of the comments provided in the European cases could be useful in the assessment of future conflicts in China.

Bad faith should be assessed objectively, keeping in mind that it is a subjective factor. It is necessary to determine the intention of the applicant.

For instance, filing a trademark designating products or services that the applicant has no intention to exploit does not automatically mean that his intention is to abuse the trademark system. The applicant may, quite legitimately, wish to prevent competitors from taking advantage of the reputation of his trademark – either already acquired or that he intends to acquire – by occupying categories of products or services that have a certain relation with his core activity. This is the concept of "defensive trademarks" which remains useful as long as the reputation of the core trademark is not sufficient to claim the status of well-known trademark.

Even Advocate Tanchev seems to agree: " … the fact that the applicant has applied for registration of the trade mark in respect of a broad range of goods or services is not sufficient to demonstrate bad faith if the applicant has a reasonable commercial rationale for seeking such protection in the light of his use or intended use of the trade mark". (par. 109, emphasis added). Of course, he said also, when an applicant files an application for registration of a trade mark without any intention to use it, the rationale for the application for registration falls away. (par.110)

EU seems to adopt a stricter criterion in assessing bad faith, leaving little room for the practice of defensive trademarks. In China, the defensive practice appears to be a factor taken into account when accepting the legitimacy of the application of a trademark, but said trademark remains subject to cancellation in case of non-use.  The main problem is the bad faith strategy of applying for the registration of a large number of different trademarks without intention to use any of them. In that respect, the recent revision of the Trademark law gives hope that this highly prejudicial phenomenon will be progressively eradicated.

Contributors: Paul Ranjard & Dr. Huang Hui