The Trademark of China’s Progress; Beijing is finally embracing better brand protections for domestic and foreign firms

The Trademark of China’s Progress

Beijing is finally embracing better brand protections for domestic and foreign firms.

LOKEKHOON TAN AND DAVID WU

Oct. 23, 2013 12:46 p.m. ET

Some observers have speculated for years that Beijing would start taking intellectual property rights seriously once the economy had developed to a point where Chinese companies themselves had valuable intellectual property to protect. That appears to be the case. Witness a set of amendments to the trademark law, approved in August and set to take effect in May, which come as Beijing is eager for domestic firms to move further up the value chain.The amendments bring Chinese trademark law more closely in line with the existing trademark regimes in developed economies. Officials have drawn a clear line connecting this legislation and the authorities’ broader goals for the economy. The Minister of the State Administration for Industry and Commerce, Zhang Mao, said in September that the new law “is an important measure to accelerate the transformation in the mode of economic development, and to implement a new development strategy that is driven by innovation.” But domestic companies may not be the only beneficiaries of these belated improvements.

One important change is that for the first time in its 31 year history, the trademark law now sets a fixed timeframe for processing registration and examination procedures. Electronic filing will also be officially recognized. A straightforward trademark application with no objections or oppositions raised is expected to proceed to registration as soon as 12 months from the date of filing. This ambitious target, if accomplished, would make the Chinese system comparable with or even faster than its counterparts in the U.S., the EU and Japan.

The amendments also tackle the longstanding problem of “trademark squatting,” where individuals could abuse the first-to-file system by claiming an established company’s unregistered trademark and then selling rights to that trademark back to the company. These “trademark pirates” are often unscrupulous trademark agents. In this regard, the new law imposes duties of good faith and confidentiality on agents, and specifically prohibits them from filing applications where they know or ought to know that the applications would infringe the prior rights of another party. Companies that have long used their trademarks will soon have new grounds to challenge identical or similar trademarks that were registered in bad faith.

The amendments also clarify the definition of the term “well-known trademark.” This refers to trademarks that are so widely recognized that they qualify for protection even if they are not formally registered. Over time, this concept has been eroded as marketers have used the term “well-known trademark” itself on labels to suggest to customers that the product is from an established brand. The new law will prohibit that kind of promotional use, reducing confusion about the term’s legal significance.

Finally, the new law beefs up penalties for infringers. Under the existing regime, the compensation payable by the infringer is the actual damages suffered by the trademark owner or the illegal profits made as a result of the infringement, and trademark owners often struggle to prove the damages they have suffered. From May, punitive damages of up to three times the normal compensation may be imposed in cases where serious infringements have been committed in bad faith. The ceiling for statutory damages has also been raised from 500,000 yuan ($82,000) to 3,000,000 yuan, so as to alleviate situations where the trademark owner is unable to recover adequate compensation due to evidential difficulties.

In key respects, the new law aligns China’s trademark law more closely with models that have worked reasonably well in other jurisdictions. The law will feel more familiar to foreign companies, considering the addition of consumer confusion as part of the legal test for trademark infringement, and the introduction of the “prior use” and “non-use” defenses against infringement lawsuits.

On the other hand, the single-minded pursuit of a more efficient system has led to certain sacrifices. For example, in an effort to reduce the number and duration of oppositions, an opposed trademark will automatically proceed to registration once the opposition fails, and the opponent is no longer entitled to a right of appeal. While it would still be possible to attempt to invalidate the registered trademark, the applicant will nevertheless be able to use it in the meantime, which may cause irreparable harm to the opponent and render any subsequent victory in the invalidation a hollow one.

And although the new law will permit distinctive sounds such as MGM’s lion’s roar to be registered as a trademark, policy makers have decided to continue China’s prohibition on recognizing single colors as trademarks. That is a disadvantage for companies such as Christian Louboutin, which was held to have a valid and enforceable trademark for the use of its iconic red outsoles in the U.S.

Beijing will eventually need to address those shortcomings to finish its updating of the Trademark Law. And as always, the real test will lie in how fairly and efficiently authorities enforce the new rules once they take effect. But in the meantime, there’s no denying that the journey of a thousand miles begins with a single step.

Mr. Tan is the head of, and Mr. Wu is an associate in, Baker & McKenzie’s intellectual property practice group in Hong Kong and China.