Last year, right holders in China have seen a number of major developments including; a milestone Supreme Court judgment dealing with trademark squatting, new specialized cyberspace courts, a new E-Commerce law, clarification on OEM trademark infringement; and the first court appeal granting registration of a sound mark. This year, further developments are expected with; the potential publication of a new draft trademark law, further increases in China’s record-setting trademark registration and litigation numbers, trade negotiations between China and the USA, and improvements in countering bad faith applications.

This post provides insight into these highlights and forecasts.

2018 Highlights

• SPC case deals blow to trademark squatters: In the milestone judgment in the Shanyin vs Zhongjun case regarding the “闪银” mark, published in the autumn of 2018, China’s highest court, the Supreme People’s Court (“SPC”), dealt a significant blow to trademark squatters. The case is noteworthy for several reasons: first of all, the case was likely selected as a landmark case by the SPC, since the Court accepted the retrial procedure, even though it fully maintained all the previous decisions. This suggests that the SPC earmarked this case to set the record straight on invalidations on the catch-all basis of “illegitimate means”. Secondly, the case now confirms, at the highest level, that hoarding and registering trademarks without the intention to put them to genuine commercial use may lead to the invalidation of such hoarded marks. Finally, the SPC further clarified the application of the catch-all article by stating that it is generally applicable to acts that pursue illegal interests by jeopardizing the public interest, unreasonably occupying public resources etc. It is expected that this case will become a useful precedent in the fight against trademark squatters in China.
• New specialized Cyberspace courts: On 9 August and 28 September 2018, the new Cyberspace Courts in Beijing and Guangzhou were officially opened. These new specialized courts, along with their equivalent in Hangzhou, are meant to tackle the quickly swelling stream of internet-related court procedures in China. The establishment of these specialised courts is an encouraging step for the Chinese internet sector as well as for IP owners: it promises a quicker prosecution of online counterfeiting, a more flexible procedure, less bureaucracy in obtaining evidence and higher quality judgments, handed down by specialist judges.
• E-commerce Law: On 31 August 2018, China enacted its first E-Commerce Law. The new law contains a full chapter on IP protection, providing a formal framework and minimum standards for IP notice-and-takedown procedures. The notice-and-takedown procedures are made adversarial, both the IP owner and the vendor get the right to submit arguments, and the law provides for quick resolution by the e-commerce platforms. In case the e-commerce platforms fail to perform their duties under the E-Commerce Law they can be held jointly liable. Finally, an interesting aspect about the new law is that it is broadly applicable to all e-commerce activities, regardless of the type of platform. This makes it possible to deal with online infringement through social media, chat apps, blogs etc.
• OEM trademark infringement clarified by SPC: In a landmark decision published in April 2018, the Supreme People’s Court (“SPC”) reversed the remarkable appeal decision in the Dongfeng trademark case about the very controversial topic of Original Equipment Manufacture (“OEM”). In its judgment, the SPC reiterates its view expressed in its November 2015 landmark ruling in the Pretul case, holding that the production and export of branded products produced through OEM generally cannot infringe upon Chinese trademarks, as long as the goods are not put into commercial circulation within China, and are all exported to the trademark owner abroad.
• First court judgment granting sound mark: On 27 September 2018, the Beijing Higher People’s Court confirmed, on appeal, the grant to Tencent of a sounds mark for its “Di-Di-Di-Di-Di-Di” notification sound of its popular instant messaging app QQ. The application was initially rejected by both the CTMO and the TRAB, on the basis that the sound was too simple, functional and lacked distinctive character. On appeal, the Beijing IP Court overturned this decision, holding that the notification sound has a special, high-pitched and unique rhythm, which is uncommon in daily life and can acoustically identify the product and its origin. As to the functional nature of the sound, the Beijing IP Court held that while the sound is functional in that it notifies a user of a new message, the sound is specifically chosen and not an inevitable technical effect caused by the features of the chat app. The Court therefore held that it is not merely functional. Finally, the Beijing IP Court also held that the sound has been in use since February 1999, and has a high market share and reputation, and that therefore, the sound mark has acquired distinctiveness through use. Upon appeal, the Beijing Higher People’s Court confirmed this judgment. This case is interesting as it is the first sound mark granted after a judicial appeal, since the adoption of the new Trademark Law made sound mark applications possible.
• IP authorities restructured: On March 17, 2018, a far-reaching restructuring of governmental administrative organs was approved, with the aim to consolidate government resources and make the administration more efficient. For the IP sector, the most important changes are: the CNIPA (“China National Intellectual Property Administration”), formerly named SIPO, will become the overarching government agency with oversight over all IP prosecution matters, including patents, trademarks and geographical indications. CNIPA is in turn made subordinate to a new State Administration for Market Supervision (“SAMS”), which will also absorb the former Administrations for Industry and Commerce (“AICs”). The SAMS will have broad powers, including but not limited to administrative enforcement of patents and trademarks. Hence SAMS’s enforcement teams will be in charge of trademark and patent enforcement, with guidance from CNIPA. The dust has not yet settled on these changes, and we will continue to publish updates as developments arise.

2019 Forecast

• New Draft Trademark Law: It is likely that the China Trademark Office (CTMO) will publish a first new Draft Trademark Law for public comments in the second half of 2019. On 2 April 2018, the CTMO officially announced the start of the revision process of the Chinese Trademark Law, calling for public comments on the consultation. It is therefore expected that the review of the public comments will be finalized, and a first new draft proposed on the basis of these comments in the second half of 2019.
• Rise in trademark registrations and litigation: It is likely that the remarkable upward trend of Chinese trademark filings and trademark litigation statistics (see here) will continue throughout 2019. Trademark owners therefore need to prepare for China’s crowded trademark register by filing applications early and strategically, and by preparing to conduct office actions (such as non-use cancellations) to clear the register. Simply using filings through the Madrid Protocol often does not cut it for China, where a country-specific strategy is almost always needed (think of the China-specific sub-classes, frequent office actions and Chinese character marks).
• Trade tensions with USA: Trademark owners and IP owners in general should monitor the developments in the current trade negotiations between China and the USA. While most of the negotiation points are currently about patents and trade secrets, it is also expected that trademarks and counterfeits will be a point of discussion in the on-going negotiations.
• CTMO takes action against bad-faith trademarks: In the course of 2018, the CTMO has started an unofficial program to pro-actively reject trademark applications that are obviously filed in bad faith (e.g. an individual applying for over 200 famous brand names in different classes of goods and services). This new practice, promising though it may be, currently only has a limited scope and is rarely applied. However, the CTMO’s superior agency, CNIPA, has now published Draft Regulations regarding trademark applications (see here in Chinese) which formalizes and expands this practice and contains additional measures to prevent and spontaneously reject bad faith trademark filings. Comments can be submitted until 14 March 2019.

We will monitor and report on these and other developments over the coming year.

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