Defensive registration is a strategy commonly used under the Chinese legal and administrative IP protection system, especially regarding trademark protection. After registration of the main trademark under the classes of the key business scope, the proprietors would typically extend the registration over other related classes or classes in which the goods or services would potentially bring about competitive or negative impacts. The extension of a TM registration is typically considered as defensive registration.

Now due to the continuous evolution of the Chinese legal system, in particular respect to the enforcement of the new Trademark Law in 2019, we may have to shift the focus of IP protection strategies from defensive registration to more proactive measures.

 

  1. Registration—the First to File Rule and Malicious Squatting

When discussing about how to protect the IP of a foreign company newly entering the Chinese market, a country well-known for its massive administrative measures, an aspect to highlight first is always the registration.

Instead of the First to Use Rule, China is a typical country that adopts the First to File Principle. Take trademark protection as an example, the trademark shall be registered by the Trademark Bureau to receive protection as per the law, and when two or more applicants apply for the same or identical TM for the same or similar goods or services, the approval will be granted “for the trademark that was first filed”[1].

China also adopts the Nice classification regarding trademark registration, which means you may choose to register the trademark under 45 classes of goods and services and the relevant subclasses within.

The combination of the two mechanisms has created and continues to create many bad faith registrations in China, as the cost of such registration for a company is typically acceptable.

Therefore, if asked how to avoid malicious trademark infringement, we would always suggest that:

  • The main trademark shall not only be registered under the subclass of the main business scope but also under some necessary classes such as classes involving the internet and mobile services and products, under the classes involving potential future business, and under the classes of related or similar business;
  • Register similar TM under the same class your own trademark is registered, under the class your business is related, and under the class which may have negative effects on the reputation or impression of your business;
  • If financially practical, register the main trademark under full classes.

The second suggestion asserts the notion of defensive registration in the IP protection strategy by building up a network of registrations to form a shield of prior rights ahead of any potential infringement. However, with the newly revised Trademark Law of P.R. China, things may become a little different.

 

  1. Defensive Trademark and Revised Trademark Law

China does not have a Defensive Trademark system as Japan & Australia both do, with the mass Trademark piracy and even an internet market for the trading of registered Trademarks, applicants simply register mass defensive trademarks as normal trademarks. To avoid the revocation/cancellation they have to use the trademark to meet the use requirement, otherwise, they are likely to lose the defensive trademark.

Prior to the Trademark Law revision, the legal grounds to stop defensive registrations or squatting was not strong enough, and the filter for malicious squatting during the substantive examination was unable to comprehensively cover all of them. There wouldn’t be much ground to raise an objection in China to stop the registration when the trademark user was not a registered owner, which was the situation many foreign companies have faced. Additionally, if the counterfeit trademark passed the registration, there wouldn’t be much grounds to argue a nullification either, the original user would have to wait 3 years to file for cancellation for non-use or had to purchase the counterfeit trademark.

However, under the Trademark Law, newly revised in 2019, Article 4 adds,

The application for trademark registration that is malicious and not filed for the purpose of use shall be refused.

The condition “malicious and not for the purpose of use” has also become a legal basis for Objection, which can cause hindrance to the malicious and defensive registration[2], and Nullification, which will be an important remedy, and provide a strong filter before and after the registration. Meanwhile, the judicial interpretation of the Supreme Court has not been released, and the CNIPA has not issued the standard guide for review and adjudication, therefore, regarding how to define “malicious and for the purpose of use”, the legal updates need to be closely followed.

It is very possible that under the grounds of non-use and malicious, the defensive registration will not get approval so easily in the future, and the bar for the defensive registration will be set higher.

It is currently not clear whether the intention within the defensive strategy may constitute “knowingly, with bad faith” in business competition. For example, some companies may choose to register trademarks similar or identical to or potential trademarks of the competitors to prevent them from developing in or entering the Chinese market. Many Chinese local brands have been put to death in the name of Intellectual Property protection due to such strategies carried out in competition with multinational businesses.

Meanwhile, while the defensive trademarks are arguably malicious, the “not for use” condition, to some extent, is part of the defensive registrations’ nature. They are not intended for the purpose of use since most of the time they will not be used at all, hence they are called defensive. Currently, from the intention of the legislation to stop bad faith squatting, free the non-use trademarks and provide the proprietor stronger protection methods, “malicious” is estimated to, by experience, cover the meaning of “knowingly and with bad faith”, and “for the purpose of use” may be interpreted from regulations regarding the non-use cancellation that for the purpose of use, the trademark has to be intended to be used “openly, authentically, legally and in business”. Even though some owners of the defensive trademarks will have minimal use of the trademark, still, it barely meets the requirement.

The reasoning is an increasing intention from the Chinese Government to open its domestic market and to try to introduce more new foreign players. In order to do that, China is clearing out the IP environment. We can see this from the New Foreign Investment Law and the implementation regulations[3], the New Economic and Trade Agreement between China and USA[4], which is primarily about IPR protection, as well as the ongoing draft of the Amendment of Patent Law. We can clearly see the commitment of the Chinese Government to strengthen the protection for intellectual property rights.

  1. Shift to Proactive Measures

From all of the above, we estimate a shift of strategic focus from the defensive registration to more proactive measures.

The proactive measures, in the context of trademark protection, refers to a monitoring-based detecting system, with the legal and administrative measures to be taken to stop infringement, such as opposition (objection), invalidation (nullification), and revocation (cancellation for non-use).

Revocation-The revocation has always been a remedy for owners or interested parties when faced with trademark infringement. However, due to the restriction of the 3 years time period after registration, it may be a little less effective compared with Objection and Nullification.

Objection – If any individual or entity wants to oppose the trademark application within the 3-month public notice, the newly revised trademark law offers a broader legal basis to raise objections to stop the counterfeit trademark from registration. The block of the objection will hinder the registration for approximately a further 9 months.

Nullification– If the counterfeit passed through the review and is registered, the original owner or interested parties may file for nullification and try to have it cancelled. The nullification will also impose further costs on behalf of the infringer.

Other measures-To cease the infringement, measures such as reporting to administrations and civil litigation shall also be considered on the basis of the above measures. Chinese administrative authorities are granted a wide and significant power to investigate and can take quick protective measures, such as seizures. If the infringement is confirmed by the authorities, administrative punishment such as fines may be imposed, and criminal punishment will be imposed if the requisite criminal liability is found. While civil litigation, although time-consuming, would grant you financial compensation, which is legally enforceable.

 

To be proactive requires faster and earlier reactions, more effective and more professional handling to the detected situations. In order to take active measures aggressively, monitoring is the core basis on which to build upon. We offer the following suggestions by means of improvements in your company’s activities:

  • Monitor licensee/ franchisee/OEM suppliers. Among the various uses of intellectual property, use by 3rd parties under licensing and franchising or OEM etc. always embodies a risk of misuse and dilution, even OEM’s can be involved in malicious TM registration. If such uses exist, be aware that licensee’/franchisee’/supplier’s registration for a trademark similar or identical to the original shall not be allowed to pass, for that will lead to dilution of your brand.
  • Pay Attention to the duration of authorization. When monitoring the IP related activities, the duration of the authorization shall be taken into reconsideration, specifically, if any evergreen clauses/automatic renewal clauses are involved. Although these clauses will save the costs of re-negotiations, if attention is not paid, they would prolong the validity of the contract automatically and cause dilution regardless of the will of the owners, which will ultimately lead to the dilution of the trademark.
  • Monitor competitors. In regards to information from your competitors, frankly speaking, the more the better., Their research and development activities for patents, marketing, and any IP related activities such as trademark registration shall all be monitored if practical. It will be a great fight for the protection of confidential trade secrets, so aggressiveness is needed, but still, some honour needs to be shown: there shall be no unfair competition.
  • Monitor the market. Aside from allies and the competitors, the market, whether domestic or international, also needs to be monitored, especially in an era where most commerce and businesses is conducted on the internet.
  • Put the Trademark on the record of Customs. Reporting Customs in order to put your trademark on its records is a practical method for IP protection, yet easily forgotten by many owners. Normally it will take 3-5 months, and if approved it will be effective for 10 years. The moment the trademark is put on record, Customs will help to detect and locate the infringing goods (whether imported or exported) and exercise its administrative power to cease the infringement in time (e.g. seize the infringing goods).
  1. Conclusion

From the above, we conclude:

  • Though the trend for IPR moving forward is uncertain., still, the time for the Chinese government to make some changes has come and they have taken the initiative with great passion.
  • Defensive Registration is still a good strategy and recommended, though the review for registration will be stricter, and the whole application process will be easier challenged by a 3rd
  • The owners of Intellectual Properties need to find a balance between the expenses, time consumption and expected results of the measures to be taken when considering to choose the various proactive measures.

[1] Trademark Law of P.R.China (Revised in 2019) Article 31

[2] Trademark Law of P.R.China (Revised in 2019) Article 33, 44, 68.

[3] Foreign Investment Law (Jan 1, 2020) – Art. 22,23

Foreign Investment Law Implementing Regulation (Dec 26, 2019)-Art. 23 24

[4] Economic and Trade Agreement between the Government of P.R.China and the Government of the United States of America (January 15, 2020),