Combating pre-emption in China

The last year was an important one for trademark registration and protection in China, with the long-awaited amended Trademark Law coming into force on May 1 2014. This article examines some cases that are likely to have an impact on future examinations, as well as on brand owners’ attempts to combat trademark pre-emption.

Cross-class (sub-class) protection

According to Article 30 of the Trademark Law, if a trademark is found to be identical or similar to another party’s prior mark in respect of identical or similar goods, it will be rejected. Determining the similarity of goods or services is an important issue in opposition, invalidation and judicial infringement cases. For efficiency and consistency of examination, the China Trademark Office’s (CTO) Classification of Similar Goods and Services has served as something of a bible in this area, especially with regard to the preliminary examination of trademark applications and oppositions before the CTO. The CTO’s classification is based on the Nice Classification, with each class further divided into several sub-classes based on the features of the goods or services. Unless special remarks are made, goods or services falling into different classes or sub-classes are deemed to be dissimilar.

However, the classification has at times proved difficult to apply in the face of rapid economic development and the increasing sophistication of consumers, with matters being complicated by the expansion of companies into different business sectors. Although the classification is updated every year, there have been several conflicts with the practical realities of determining similarities between goods and services. The Supreme People’s Court and the Trademark Review and Adjudication Board (TRAB) have both stated on several occasions that the classification is merely supposed to be a reference in determining similarity between goods and services, rather than the only standard. Instead, similarities should be determined based on a comprehensive comparison of the relevant goods’ or services’ function, use, distribution channels, raw materials, manufacturing techniques, target consumers and other such considerations. A new trend – whereby the TRAB grants cross-class (sub-class) protection based on similarities between goods and services – has been broadly welcomed. The following two cases illustrate the main factors being considered when the TRAB goes beyond the CTO’s classification in order to decide on the similarity between goods and services.

Yamaha

The Yamaha Corporation applied for a review of opposition against a trademark designating an electric door opener in Class 9 based on its prior registrations for ‘雅马哈’, ‘雅玛哈’ and YAMAHA, designating earphones, magnifiers and public address systems in Class 9. The opposition was not upheld by the CTO, since the two parties’ goods were considered to fall within different sub-classes and were deemed to be dissimilar in accordance with the classification. In addition to elaborating on the likelihood of confusion due to the close correlation between both parties’ goods, the Yamaha Corporation submitted a substantial amount of evidence concerning the reputation of its mark and the bad faith of the opposed party, as illustrated by its imitation of Yamaha and other parties’ famous brands.

In its decision the TRAB deemed that the goods “electric door openers” designated by the opposed mark and the goods “magnifiers, etc” designated by the cited marks were all electric apparatus and instruments, which had close correlations since they were similar in terms of function, use, target consumers, distribution channels and venues. Considering the reputation of the cited prior marks and the exclusive and corresponding relation between the cited marks and the Yamaha Corporation, it could be deduced that the opposed party applied for the opposed mark in bad faith, and that the opposed mark was likely to be mistaken for one of Yamaha Corporation’s marks, which would lead to confusion among the relevant public. Accordingly, the opposed mark and the cited marks were held to constitute similar marks in respect of similar goods.

Belkin

In this case, the opposed trademark was designated for a range of goods, including rubber sheaths, rubber cases, silicon cases, rubber pouches, rubber film, rubber film for protecting screens and machines, flexible non-metal tubes, compositions to prevent the radiation of heat and insulators for electric wires in Class 17. Opponent Belkin International Inc’s prior registrations for BELKIN and ‘贝尔金’ were mainly designated for computer peripheral devices, data processing equipment, junction boxes, mouse pads and other Class 9 goods. Despite the similarity of the marks, the CTO did not find the opposition tenable because the two parties’ goods fell into different classes and were consequently held to be dissimilar.

The TRAB deemed that the goods of both parties were closely related in their functions, use, distribution channels and target consumers. It consider that the prior marks BELKIN and ‘贝尔金’ had established reputations in relation to computer peripheral devices; thus, the use of the identical marks on the above-mentioned goods was considered to be likely to cause confusion among the relevant public. As a result, the TRAB affirmed that the opposed mark and the cited marks were similar marks in respect of similar goods.

Under the current Trademark Law and examination practice in China, a rights holder will typically resort to Article 13 (ie, a claim that its mark is well known) in order to secure protection against a similar or identical mark in a different class or sub-class. However, it is extremely difficult to establish well-known mark status before the CTO or TRAB, due to the strict evidentiary requirements. Given the trend of granting protection based on a close correlation between goods and services of different classes or sub-classes, rights holders would do well to consider Article 30 in addition claiming that their marks are well known. Yet, as mentioned above, the CTO’s classification has always been an important reference for determining similarities between goods or services. To avoid inconsistencies in examination criteria and maintain the legislative balance between Article 13 (well-known mark claims) and Article 30 (prior identical or similar marks on identical or similar goods), the relevant authorities are unlikely to abandon entirely the classification without prerequisites. The following factors – especially considerations of the prior mark’s reputation and any bad faith on the part of the opposed party – have been considered important when it comes to granting cross-class (sub-class) protection based on such close correlation:

• The prior mark is relatively original and has a reputation among the relevant public;
• The disputed mark is identical or confusingly similar to the prior mark;
• The goods of both parties have a sufficiently close correlation so that the opposed mark is likely to be linked to the prior mark; and
• The opposed party has acted in bad faith – this can sometimes be proved by its application of multiple famous brands or deduced from the fact that its marks are identical or highly similar to the prior well-known marks.

Registration by other illicit means

According to Article 44 of the Trademark Law, if a trademark registration is acquired by fraud or any other illicit means, then any organisation or individual may petition the TRAB to have it declared invalid. In practice, this article is also used in opposition to combat trademark squatters. Previously, according to the TRAB’s examination criteria, ‘other illicit means’ mainly referred to situations where the disputed or opposed mark was filed or registered when the disputed or opposed party was or should have been aware of another party’s prior used mark; as support, evidence of prior knowledge through business contacts and other channels was required.

Previously, it was extremely difficult to combat egregious trademark pre-emptions, as many foreign marks were little used in China and it could thus be difficult to establish reputation. However, recently the TRAB has been exploring an expanded interpretation of Article 44 in order to protect rights holders against trademark copycats, as confirmed by the Supreme People’s Court.

In two review cases concluded in 2015, the opposed party had filed applications for nearly 200 marks including CARLA FRACCI (a perfume brand and the name of a ballet dancer) and NAJ-OLEARI (a perfume brand). As neither of these marks had yet been registered or even applied for in China, the opposition and review were primarily based on the prior use and reputation of the two marks by their rightful owner and the prior name right of Carla Fracci. Violation of the principle of good faith set out in Article 41 of the Trademark Law was also argued.

Due to the limited evidence on review, the TRAB deemed that it could not be proved whether the mark CARLA FRACCI or NAJ-OLEARI had been in prior use and had a certain reputation either as a trademark or as the name of a ballet dancer. However, regarding the violation of the principle of good faith, the TRAB considered that this fell within the scope of registration by ‘other illicit means’, according to Article 44. As the cited prior marks were the name of a ballet dancer and a coined word – both of which were considered to be highly original – it was no coincidence that the opposed marks were identical to the prior marks. In addition to the opposed marks, the opposed party had applied for many other marks – including ERES LINGERIE and DURAS AMBIENT – which were all identical or similar to famous marks belonging to other rights holders. It was therefore deduced that the opposed party intended to copy or imitate other parties’ famous marks, which would not only lead to confusion among consumers, but also disturb the trademark management order and harm fair competition, as well as violate the principle of good faith.

The TRAB thus decided to reject the marks based solely on the fact that the opposed party had applied for a large number of marks which were copies or imitations of other parties’ famous marks. To some extent, it appears that violation of the principle of good faith alone may be sufficient to combat significant pre-emptive registrations. This practice on the part of the TRAB has been confirmed by the Supreme People’s Court in its recently issued Provisions on Several Issues Concerning the Trial of Administrative Cases Involving the Authorisation and Determination of Trademark Rights (draft for public comments): “Article 3: the court shall support if the TRAB rejects the application or declares a trademark registration invalid based on violation of Article 4 and Article 44 of the Trademark Law, where a trademark registrant extensively applies for or registers other party’s trademarks with certain fame or trademarks identical with or similar to geographical name with certain fame while it obviously lacks the true intention of use, or applies for a large number of trademarks without fair reasons.”

Although these provisions have not yet come into force, they have been widely welcomed and interpreted as confirmation of the TRAB’s practice. Rights holders should pay special attention to such changes and check to see whether significant pre-emptions have been made by the opposing party before beginning the onerous task of gathering sufficient evidence to prove that their marks are well known.

Prior-use rights upheld

China has adopted the first to file principle for trademark registration. Once a mark has been registered, the registrant is entitled to use it exclusively in relation to its designated goods and services. Trademark pre-emption not only risks diluting a trademark, but also can even infringe it. The latest round of amendments to the Trademark Law specified the prior-use right of trademarks for the first time (excluding cases of unregistered well-known marks). The new provision in the current Trademark Law regarding the prior-use right of a trademark reads as follows: “Section Article 59: where, before a trademark registrant applies for trademark registration, another party has used an identical or similar mark with a certain reputation on identical or similar goods prior to the trademark registrant, the holder of the right to exclusively use the registered trademark shall have no right to preclude such other party from continuing to use the trademark within the original scope, but may require such other party to add an indication of distinction.”

A recent judgment issued by a Beijing district court has attracted a great deal of attention, as it appears to be the first case in which the prior-use rights of trademarks have been upheld.

An infringement lawsuit was brought by Ms Tan against Beijing Shang Dan Ni Hairdressing Centre. The plaintiff had filed an application for the mark ‘尚丹尼’ (SHANG DAN NI) in 2012 and obtained its registration in 2014 in respect of hairdressing services. However, she never used the mark.

The defendant was founded in 2008, when it used ‘尚丹尼’ (Shang Dan Ni) as its company name and trademark. This mark acquired a certain reputation as a result of extensive use in relation to its various branches and promotion through Weibo and other media. Meanwhile, the plaintiff’s husband had previously worked for the defendant from 2010 to 2011.

The plaintiff alleged that the defendant’s use of ‘尚丹尼’ (Shang Dan Ni) infringed her registration of the same mark and demanded damages of approximately $31,000.

The court confirmed that the mark at issue and the services it designated were identical to the plaintiff’s registration and designated services. However, the defendant was able to produce evidence that it had used the mark ‘尚丹尼’ (Shang Dan Ni) in relation to hairdressing services prior to the application date of the plaintiff’s registration, and that its use of this mark had acquired a certain reputation. As a result, the court deemed that such use complied with Article 59(3) and found against the plaintiff. The court also remarked that the defendant’s use of the mark ‘尚丹尼’ (Shang Dan Ni) should not exceed the range of designated services concerned in the current case, and that the plaintiff was entitled to request that the defendant add a distinguishable sign to its mark in order to clearly distinguish the source of services.

Clearly, the prerequisite for the application of Article 59(3) is that the mark of the prior user have acquired a certain reputation before the application date of any subsequent registration. Currently, there is no provision that specifies how many years of prior use is required and to what extent the prior user’s mark must be known to the relevant public; although it is widely held that such criteria shall not be stricter than the evidence required to prove that a mark is well known. However, if the prior user’s mark is used only for original equipment manufacturing in China, which is commonly the case for many foreign brand owners, such use may not be considered sufficient to establish prior reputation.

This decision is encouraging for victims of trademark pre-emptions, as it means that they can enjoy continued use of their marks within the original scope while trying to invalidate any pre-emptive registrations. Meanwhile, as Article 59(3) applies to prior use with a certain reputation, the court’s adjudication will also serve as a helpful reference in any invalidation actions before the TRAB.

Conclusion

Trademark pre-emption in China has been a concern for many rights holders, as well as for the trademark authorities. Although the precise impact of the various new practices on future examinations is uncertain and the above-mentioned Supreme People’s Court decisions are yet to be promulgated, it would appear that rights holders have good reason to be optimistic.