28 legal eye
MARCH 2014
China:
www.ragtrader.com.au
K&L Gates gives you the low down
on what you need to know about
new landmark laws in China.
know your rights
O
n 1 May 2014, China will adopt the first
changes to its trade mark law in over 12
years. This important development is a
move that will be welcomed by brand owners around the world, especially those in the
fashion industry, given the important role
China plays in the global textile manufacturing industry.
Background – “trade mark squatting”
China has a “first-to-file” trade mark system
that requires no evidence of prior use or ownership before a trade mark application can be
filed. This differs to Australia and most other
countries, where rights are determined on a
“first to use” basis.
As a result, brand owners are vulnerable
to “trade mark squatters” registering trade
marks and then trying to sell the registration to the legitimate owner for a fee. Many
brands will also be aware of trade mark applications being filed by manufacturers or
other business associates seeking to capitalise on a brand without the true trade mark
owner’s permission. Historically, attempting
to resolve the situation through the China
Trademark Office (CTMO) and Trademark
Review and Adjudication Board (TRAB) has
been a long, expensive and often frustrating
process for legitimate brand owners trying to
“get their marks back”.
Clamping down on bad faith
In an attempt to address the “trade mark
squatting” problem, the new law requires that
a trade mark application must be filed and
used in “good faith”. There are also special
provisions for applications made in cases of
pre-existing contractual relationships between
the parties (for example, where a manufacturer applies to register a trade mark that is, in
fact, owned by one of its customers). If a “bad
faith” application is filed, the true owner of the
brand may rely on the lack of “good faith” (but
may still need to consider specific provisions
set in the law) in opposing the application
through the CTMO and the TRAB.
The new law will also include provisions
designed to prevent parties from commencing trade mark opposition proceedings in bad
faith. “Bad faith” opposition proceedings
can occur when a legitimate trade mark application is opposed without merit by a third
party, which results in the application being
“bogged down” in an opposition proceeding. The third party has no prospects of succeeding in the opposition, but aims to extract
money from the legitimate brand owner in exchange for withdrawing the opposition.
Damages
Brand owners will also welcome new provisions that are expected to make it easier for
them to obtain compensation when their
trade mark rights are infringed.
Firstly, the Courts will now be able to order
the infringing company (or person) to make
disclosure of their financial records – making
it easier to determine the financial extent of
their “ill-gotten gains”. Secondly, the maximum amount of damages available when
there is a finding of trade mark infringement,
will be increased. Under the current law, the
maximum damages available when a trade
mark is infringed is the largest of the infringer’s profits, the trade mark owner’s lost profits,
or a license fee. However, under the new law,
the available damages will increase to three
times those amounts the infringement on
the trademark right is committed maliciously
and involves serious infringement and allowances can also be made for the costs incurred
in stopping the infringement. If the amount
of damages is difficult to determine, the new
trade mark law also provides that the court
may still award up to 3 million RMB (or approximately AUD565,000) in damages.
It is hoped that these measures will
make litigation a more viable and
cost effective option for brand
owners who become aware of infringing activity.
Faster timetables
Brand owners with experience of proceedings before CTMO and TRAB
would have experienced the unpredictable length of examination
and opposition proceedings
and often lengthy delays.
The amended trade mark law attempts to
rectify this situation by imposing time limits
on the CTMO and TRAB so that decisions
on trade mark applications, oppositions, invalidations and cancellation actions are issued
more quickly. These changes should provide
trade mark owners with quicker resolutions in
trade mark disputes. However, it will be up to
the CTMO and TRAB to meet these shorter
time frames in practice.
Conclusion
Overall, brand owners should be optimistic
that when the new trade mark law comes into
effect it will strengthen their rights in their
brands in China, although the practical effect
of these changes will have to be observed over
the coming months and years.
Despite these changes, brand owners should
remember that China is still a “first to file” country. Applying to protect your brand in China
before someone else does (either in “bad faith”
or legitimately) is likely to be much simpler and
less expensive than having to attack a similar application which has been filed first in time. ■
K&L Gates can assist brand owners to protect their
brands in China. For more information about any of the
issues raised in this article, please contact Alex Dunlop
(alex.dunlop@klgates.com) or Lisa Egan (lisa.egan@
klgates.com).