“Considering the difficulties the China Trademark Office already encounters in dealing with the huge amount of yearly filings, the success of this legislative initiative will depend a lot on technology.”
On February 12, the China Trademark Office (CTMO) published a draft regulation titled “Several Provisions on Regulating the Application for Registration of Trademarks” for public comment. This draft is the first attempt at providing a vetting system to spot and reject fraudulent trademark applications by malicious squatters and punishing bad actors and their trademark agents for such activity.
The Bad Faith Boom
China is a first-to-file trademark system. In recent years this, among other factors, has allowed for the proliferation of professional squatters, i.e. companies, trademark agents and individuals that file the unregistered trademarks of others in bad faith with the sole intent of holding them ransom. Until now, there were no provisions making it harder for squatters to file such malicious trademark applications. CTMO required only minimal personal information from the applicant, but no proof of his/her intent to use the filed mark in a legitimate business. Most legislation thus far has focused on making remedies for recovery more accessible and effective or on defusing the risks of trolling by squatters. No provisions in the current law outline procedures and requirements to prevent fraudulent acts in the first place.
In the absence of ad hoc legislation, CTMO and the Chinese IP Courts began to identify certain filing and registration patterns (filing of unreasonably high amounts of trademarks, non-use of the registered marks, attempts at resale without use, etc.), and admitting them as presumptions of bad faith on the part of the applicant in opposition and invalidation procedures. However, no changes were adopted by the Office in the examination of applications with the intent of vetting and filtering genuine from malicious ones.
The February 12 draft now attempts to put in place provisions that will allow trademark examiners to conduct some vetting of new applications to identify whether they belong to an illegal filing pattern. This will allow examiners to reject these applications and avoid additional expense to legitimate right holders and the various CTMO offices, which can become backlogged by bogus cases that take time and resources away from serious matters.
Preventive Measures Against Squatters
Under the current law, there are few or no documents an applicant needs to file to prove its status or intention to use a mark in China. Sole individuals with no businesses are allowed to file hundreds of marks with no need to provide a copy of a business license or proof of business activities related to an intent to use.
Once the draft legislation is approved, examiners will be able to research and verify application patterns and to request applicants to supplement evidence of their intent to use. In particular, articles 2 and 3 of the draft provide that an applicant filing for the registration of a trademark will have to prove that he or she runs an actual business and has a business need for such a registration. When making such determination, the applicant and its filing agents must abide by the principle of good faith and shall not engage in filing “abnormal applications”. In particular, and aside from filing marks of others that are known or have a certain reputation in China, an application is also considered abnormal if:
- It is one of many other applications filed by the same individual or entity in a short period of time, all together being in excess of the business needs of the applicant.
- If the applicant has shown no intention of using the trademarks, or if there is no actual need to obtain the right to exclusive use of the trademark on given goods and services.
To ensure concrete implementation of the above provisions, the draft further provides that the applicant shall be required to submit relevant evidence and explain the reasons for his or her application. Where there is no justified reason or the evidence is insufficient, the application will be rejected. If the application still slips through this preliminary vetting, the lack of “explanation” will be evidence of bad faith and a ground for invalidation of the unlawfully registered mark.
Identifying Bad Agents
It is very common in China to see trademark agents acting as squatters in their own interest or on behalf of others. In China, there are no special requirements for the registration of a trademark agent. Therefore, there are myriad small agents whose work quality and ethic is beyond regulation. In order to ensure effective implementation of the above provisions, the draft provides that trademark agents engaging in any unusual act of applying for trademark registration shall be blacklisted and, in serious cases, their license may be suspended.
Another provision provides that, in case a trademark agent has knowledge of filing of abnormal applications, the agent should act in good faith and refuse to prosecute such filings. If the agent does not exercise such restraint, he or she may have to rectify the work done and could be subject to disciplinary measures.
Additionally, applicants in breach of the above provisions may lose privileges such as the right to obtain government incentives or rewards, or such rewards or incentives may be revoked if already granted. In severe cases, the applicant may also face criminal liabilities.
Any organization or individual may report to the state intellectual property office any abnormal application for trademark registration. Where the state intellectual property office receives a report or finds any abnormal application for trademark registration, it shall deal with the case in accordance with the law without delay.
Long Term Effects
Once this draft will enter into force, CTMO will be on the lookout for abnormal applications. In this respect, the draft will allow examiners to make use of all the necessary search and statistical tools to identify abnormal applications and to start a verification process if they receive reports of abnormal filings by third parties. The hope is to see the number of squatted marks reduced within the next few years through automatic vetting of all applications.
Considering the difficulties CTMO already encounters in dealing with the huge amount of yearly filings, the success of this legislative initiative will depend a lot on technology. The introduction of digital searching tools and the use of artificial intelligence may be the key factors in making such provisions effective and drastically reducing the amount of junk applications still filed in China.
Given that companies and individuals can also report abnormal applications, thereby triggering examiner intervention, we could soon see the emergence of private software products that may help agents and brand owners create such reports along the traditional monitoring functions.
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