China’s National People’s Congress enacted the third amendment to the trademark law on August 30, 2013, and it will come into force on May 1, 2014.  The amended trademark law appears to be a significant improvement on the past version of the trademark law as it potentially reduces trademark squatting, potentially significantly improves the amount of damages available, imposes time limits on the Chinese Trademark Office (CTMO) and Trademark Review and Adjudication Board (TRAB), and allows for sound marks and potentially other types of marks. 

Some of the key changes include:

Squatting

As many foreign companies can attest to, squatting (bad faith trademark registration) is a problem in China.  The amended trademark law may decrease the prevalence of squatting.  

Specifically, Article 7 now requires applications for registrations to be in good faith. Further, Article 15 prevents registrations of a first party’s unregistered mark by a second party having a relationship with the first party. This will hopefully prevent the situation where a distributor registers a supplier’s mark or a contract manufacturer registers a designer’s unregistered mark.  Thirdly, Article 64 prevents the awarding of damages if the registered mark at issue has not been used by the plaintiff.  However, this could backfire if judges grant injunctions since damages are not available.  Finally, non-use cancellations must be decided within nine months, which is a significant improvement over current cancellation timelines.  Nonetheless, hiring a trademark watch service is highly recommended so oppositions can be filed timely to prevent registration.

Damages

Statutory damages will be increased to 3 million RMB (about $490,000) from only 500,000 RMB (about $81,000).  Statutory damages are available when it is difficult to prove actual damages, which is a common occurrence since discovery has been generally unavailable in China.

However, if a plaintiff in a trademark infringement action provides all available evidence, the People’s Court can now order a defendant to produce their accounting data for determining damages.  Whether Chinese courts will actually do this in practice is unknown since the law does not require the courts to order defendants to produce.  Further, the penalties under the trademark law for failing to produce or producing false evidence are only that the People’s Court may reference plaintiff’s evidence when making a damages determination.

Punitive damages, up to treble damages, are available when infringement occurs in bad faith.  As in the current trademark law, the plaintiff can also recover the reasonable cost of stopping the infringement.

Time Limits

For the first time, the amended trademark law places time limits on the actions of the CTMO and TRAB. The main time limits are nine months for preliminary examination for registration; nine months for rejection appeals, cancellations based on generic names or three-year non-use cancellations, and other actions; and 12 months for oppositions and other actions.  Extensions may be available under special circumstances.  While preliminary examination tends to be fast in China, other CTMO and TRAB actions tend to be slower.  These time limits may significantly increase their speed.

Sound Marks and Other Nontraditional Marks

Article 8 of the amended trademark law specifically recites that sounds can be registered.  However, it is unclear in what manner a sound trademark can be registered, e.g., via musical notes, a written description of the trademark, a recording of the mark, etc.  Most likely, this will be clarified when the implementing regulations are released, presumably sometime in 2014 before the amended trademark law comes into force.

Article 8 also removes the requirement that the mark be visual.  While other nonvisual marks besides sounds were not specifically mentioned in Article 8, it may be possible to register other types of nontraditional marks including motions, scents, tastes, etc.

Finally, Article 8 retains the term “combination of colors” implying that single colors, e.g., Owens-Corning’s trademark for the color pink for insulation products, may not be registrable.

Additional Changes to Note

The amended trademark law allows for multiclass registrations for the first time by removing the requirement of one application per class.  This should streamline the application process.

Administrative enforcement of trademark infringement has also been strengthened to allow for the enforcement of trademark rights via the Administration of Industry and Commerce (AIC) instead of the court system.  Administrative enforcement may be preferred when the amount of damages may be small, when damages may be unavailable, and/or when speed is required as AIC proceedings tend to be much quicker than court proceedings.  Under the amended trademark law, AIC-imposed fines can now be up to five times the unjustified business income. Further, the AIC is entitled to seize and/or destroy “primary tools” instead of just “specially used tools” used in the manufacture of infringing goods.

While the amended trademark law appears to be quite an improvement for foreign applicants, we will need to wait to see the implementing regulations and how courts and the AIC handle infringement in practice to make such a determination.