Why Registering Trademark in China Will Become More Significant in the Future

Since the adoption of its policy of reform and opening up, the Chinese Government has been paying increasing attention to the importance and role that IP plays in socioeconomic development and consistently working to improve the country’s IP system. The Trademark Office of the administrative authority for industry and commerce under the State Council shall be responsible for the registration and administration of trademarks throughout the country. The Trademark Review and Adjudication Board, established under the administrative authority for industry and commerce under the State Council, shall be responsible for handling matters of trademark disputes.

In the year 2019, the Supreme People’s Court’s newest regulations on interim and preliminary injunctions came into effect. The Regulations clarify the existing procedure and standards for IP trials, and provide typical cases illustrating them. China’s latest Trademark Law Amendment was passed by the Standing Committee of the thirteenth National People’s Congress on April 23, 2019 and the revised articles (Articles 4, 19, 33, 44, 63, and 68) became effective on November 1, 2019. The latest amendment addresses two longstanding concerns of the business community in the country – tackling bad faith trademark applications and intensifying the punishment for trademark infringement.

 

Besides registration, the prior use of a trademark can also be protected in China. For example, a bona fide prior use of an unregistered mark can defend against the tort claim of infringement. An unregistered well-known trademark can be protected against copy or imitation by a third party on similar goods/services, through oppositions or invalidations, as stipulated by the China Trademark Law. China has had specialist IP tribunals in the Chinese courts to deal with patent (and other IP-related) cases. Article 19 of the 2013 Trademark Law provides inter alia that a trademark agency should not accept representation of a trademark applicant client if it knows or should know that the application for registration of a trademark by its client violates a third party’s prior rights (in violation of Articles 15 and/or 32 of the Trademark Law). The 2019 amendment expands the scope of Article 19 to include violations of revised Article 4, thereby requiring that an agent refuse representation of a client if it knows or should know that the subject trademark is being filed in bad faith and without an intent to be used.

The amount of damages granted is determined either by ‘the actual losses suffered’ or ‘the gains derived by the infringer’. Article 63 has been amended to increase the maximum amount of statutory damages available from RMB 3 million to RMB 5 million. In addition, punitive damages allow, ‘in serious cases’, for the compensation amount to be up to five times this amount (previously the maximum was three times). Having said this, the punitive multiplier is rarely used on the basis that it is hard to calculate the amount of actual losses or gains derived in the first place. Therefore, the increase in statutory damages is expected to have more of an impact.

Trademark has a value not only to the owner due to its distinctiveness but also to customers who associate this trademark to a specific product or service. Moreover, if a foreign company wants to enter into a licensing agreement with a Chinese distributor, the foreign firm has to register trademark in China first. Most of the renowned Chinese distributors will only form business relationship with the overseas enterprises whose trademark is registered in China.

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Still Haven’t Registered your Trademark in China? See the Consequences

China has been one of the remarkable economic success stories of the past decades. Nobody believed that China would be able to grow its GDP at an average of 10% per year and expected to outsmart the United States of America to become world’s largest economy by 2025. Fueled by massive government spending on developing manufacturing sector, this Asian country has become the number one manufacturing hub on the planet. China has become the decadent destination for the foreign companies to source products and stetting up manufacturing plants.

This country has witnessed a massive overseas investment and as the foreign brands set up factories and sharing their technical knowledge, the Chinese labors have developed their skills greatly. The scale, speed, and efficiency of Chinese manufacturing outstrips every other country. Whether it is the American multinationals like Apple, GE, AT&T, General Motors, Coca Cola, P&G or the SME’s – they all have outsourced their production house to China and transferred technology.

However, the down is, as foreign companies shared their expertise and know-how with the Chinese manufacturing houses, numerous manufacturing contractors started to produce counterfeit products of their clients and when the company (the original one) finds about the entire matter, it is already too late. The long-standing court battles between Apple and Proview Technology Shenzhen over the iPad trademark in China is a well-known story. Just think, the brand like Apple had a hard time securing its trademark, so what about small companies with limited financial strength have to endure. If you manufacture products in China and still haven’t registered your trademark, I am afraid to say you are taking a huge gamble with the security of your brand.

Take a look at the risk factors of not registering your trademark in China

A threat to the credibility of your brand

It takes years for a company to build their image and earn trust from their clients and customers. It is a hard process for any company to take their product to a stage where it can be termed as a “Brand”. Not registering your trademark in China will give unauthorized parties a scope to use your trademark without authorization. This can immensely harm your image, your brand, your business and your bottom line. You can lose your credibility and trust from your loyal customers and they will shift to a different company. Regaining the credibility after losing it once is next to impossible.

Takedown request for infringing listings will not be granted

The domestic Chinese e-commerce sites like Taobao and 1688.com will not takedown infringing listings of your product from their sites if you don’t have a Chinese trademark registration. In this situation, your registered trademark in the US or in the EU will not come to your rescue. Without a registered trademark, if somebody else starts using a similar name to yours in your industry, you have very little power to stop them.

Fall victim of Trademark Squatters

This is an area where even the most prudent and prepared business person may get fooled while doing business in China. Trademark squatters exploit the loopholes of Chinese trademark registering system and pre-registered the trademarks of international brands before they enter China, and the moment the company enters China, the squatters try to sell them back their own trademark for exorbitant sums to earn profits. It has become quite a common practice in China.

Your goods could be seized by custom

If you’re manufacturing in China only for export and your trademark is not assigned, your goods could be seized by customs for breach of trademark law. It could jeopardize your entire investment, effort and energy of your China sourcing. There is a possibility that you may find yourself in a tricky situation. You have to pay hefty damages and fight out a long legal battle.

Final Thoughts

There are significant advantages associated with registration and numerous risks for those who choose not to register their trademarks. Without a trademark registration, a brand is vulnerable to misuse by third parties with limited available recourse. Registering a trademark in China remains the best and most cost-effective method of protecting a brand and allows you to enforce your trademark by filing law against infringers.

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