Put ethics or letter of the law first in pre-emptive filings of unregistered marks?

By Jiang Fengtao, Meng Aihua, Hengdu Law Offices
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Article 32 of the Trademark Law sets out that “an application for trademark registration may not prejudice the existing prior rights of another nor may improper means be used to pre-emptively register the trademark of another that is already in use and has a certain degree of influence”. This is an exception to the trademark registration and first to file principles, and it aims to prohibit others from pre-emptively registering in bad faith, or squatting, on unregistered trademarks with a certain degree of influence and being protected doing so.

江锋涛 Jiang Fengtao 恒都律师事务所 管理合伙人 Managing Partner Hengdu Law Offices
江锋涛
Jiang Fengtao
恒都律师事务所
管理合伙人
Managing Partner
Hengdu Law Offices

Two conditions must be satisfied for this provision to be applied. First, the unregistered mark must have been in use on identical or similar goods and it must have possessed a certain degree of influence prior to the filing date of the disputed trademark. Second, the registering party must have used improper means in its attempt to squat on the mark.

There has been contention over whether the “certain degree of influence” of this clause has any value in identifying a malicious registration. The question is whether requiring that the trademark being squatted have a certain degree of influence is to protect the commercial reputation of the prior rights holder created via the disputed trademark, or to establish the subjective bad faith of the trademark applicant.

Conflicting views

One view holds that setting a precondition of a mark being in prior use and holding a certain degree of influence, and making that precondition the basis for protecting an unregistered trademark is objectively useful. This view can be seen in Beijing Municipal Higher People’s Court’s decision in the appeal case over the trademark
超极” (chaoji, in English, “super”).

The judges held that at least two conditions needed to be satisfied in order to apply this provision and accord protection to an existing unregistered trademark. First, the trademark must actually possess distinguishability, either intrinsically or derived through use, and not merely hold the potential to identify the source of the goods or service. Second, the trademark could only be seen as having a reputation if it has achieved a certain degree of influence through use. Only by fulfilling these two conditions could the unregistered trademark be protected by the law.

The judges held that only in the situation where a trademark has been in prior use and is capable of distinguishing the source of a good or service and that trademark has a definite reputation it is possible to consider who owns that trademark’s reputation. If use has not given rise to a trademark’s requisite function, nor has it built up a reputation, then no interests exist under trademark law; thus, whether those interests should be vested would not need to be considered.

孟爱华 Meng Aihua 恒都律师事务所 律师 Lawyer Hengdu Law Offices
孟爱华
Meng Aihua
恒都律师事务所
律师
Lawyer
Hengdu Law Offices

An alternative view is that requiring a prior rights holder to provide evidence of a certain degree of influence is done with intent to determine that of which the trademark applicant subjectively had or ought to have been aware – the existing reputation of the mark. Namely, it is done to establish that the applicant has acted in subjective bad faith. Provided that it can be demonstrated the reputation of the existing trademark involved the applicant and that the applicant was aware of the existing trademark, then courts can render a finding that the registration is prohibited per article 32.

Protections for unregistered marks

Article 32 must be understood per its legislative intent. The provision affords a certain degree of protection to existing unregistered trademarks possessing a certain degree of influence. An overly strict reading will result in certain trademarks deserving of protection being cast outside the custodial net of the law. Yet too lenient a reading will have a negative effect on the registration and first-to-file principles under the Trademark Law.

One must first understand why trademarks are protected in order to understand the provision. Trademarks are protected primarily to avoid confusion, as the public have already made a connection between the trademark and the source of certain goods or services.

An existing unregistered trademark that lacks that connection with the public will not engender confusion if registered by another, therefore the prior user of the existing unregistered trademark lacks the right to prohibit another from registering that trademark. Protected unregistered trademarks should be those with a reputation – this is the “certain degree of influence” stipulated by the provision.

The alternative view raised above considers the certain degree of influence stipulated as a means or method of determining the bad faith of the disputed trademark applicant. This in effect denies the value of the key condition of possessing a certain degree of influence itself.

Having a certain degree of influence is an indispensable condition. It is true that it can be deduced that the trademark applicant ought to have known of the mark’s prior use and subjectively acted in bad faith on the grounds that the effect of using a trademark in prior use with a certain degree of influence extends to the trademark registration applicant.

Nevertheless, can the condition that the mark must have some degree of influence be ignored if it can be directly determined that the trademark applicant was well aware of the prior use and subjectively acted in bad faith as demonstrated by evidence that the trademark applicant “was expressly informed, had business dealings or contact”? The answer is clearly no. Otherwise the existing trademark rights holder would simply seek remedies under article 15 of the Trademark Law, the provision on agency relationships, without resorting to article 32.

In sum

When there is clear evidence that a trademark applicant has acted in bad faith, the probative requirements for a certain degree of influence may be suitably reduced. The most basic criterion that needs to be adhered to is that the disputed trademark both be able to distinguish the source of the goods or service and have given rise to reputation.

Without these, if the question of whether a pre-emptive mark registration is squatting as per article 32 is determined solely on the basis of bad faith, and the application – the first to be filed – is cancelled as a result, the situation will fall into the murky mire where pre-emptive registrations are assessed by ethics rather than law. This runs counter to the basic first to file principle for trademarks used in China.

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