China’s New Trademark Law

China has passed a new trademark law that will become effective May 1, 2014. The new law provides additional ways for trademark owners to prevent others from registering their established marks, and also provisions to pursue trademark infringers.

Under the United States’ trademark laws, trademark rights are granted based on first use of a trademark, however, under Chinese trademark law, rights are based on whoever first registers a trademark with the Chinese Trademark Office (CTO). Under this first-to-register principle, it is not uncommon for third parties to register a company’s established trademark in China, typically prior to the company entering the Chinese marketplace, and then subseqently attempt to sell the trademark registration to the company when the company begins conducting business in China. This is known as trademark hijacking in China, and the new law is designed to deter it. Notably, in some cases, trademarks are hijacked by Chinese business partners assisting the legitimate trademark owner in some capacity.

Specifically, to aid in the deterrence of hijacking, under the new law, a trademark application will be denied when the trademark applied for is identical or similar to another party’s previously used, but not yet registered in China, trademark, if: (1) the trademark applicant has a contractual or business relationship with the true trademark owner, and therefore, knows or should know of that party’s prior use of the trademark, and (2) the actual trademark owner challenges the applicant’s trademark application.

Additionally, the new law provides a list of actions that broadens the definition of trademark infringement. For example, the list details that a person who “purposefully facilitates or assists someone’s trademark infringement activities” constitutes trademark infringement. Thus, under the new law, if someone helps transport counterfeit goods, with knowledge that the goods are counterfeit, the transporter, along with the makers and sellers of the goods, can be subject to penalties for trademark infringement.

Finally, the new law also provides for civil damages in three scenarios. First, the amount of compensation for trademark infringement will amount to the actual financial loss to the legitimate owner caused by the trademark infringement. However, in cases where the actual loss to the legitimate owner is difficult to assess, then the compensation will be calculated from the trademark infringer’s profits from the infringement. Lastly, if both the legitimate owner’s actual loss and the infringer’s profits are difficult to assess, then the reasonable royalties for use of the trademark will amount for compensation.

Moreover, the new law provides discretion for severe punishment where a person maliciously infringes another’s trademark. In such a situation, the compensation can be multiplied up to three times the determined loss or reasonable royalty. These damages would include the reasonable costs incurred by the true trademark owner in connection with their efforts to cease the infringement. Notably, if any of the three compensation scenarios are difficult to assess, a court may determine the amount of compensation to be up to 3 million Chinese yuan based on the circumstances of the infringement.

If you seek foreign trademark registration, contact the trademark registration experts at Revision Legal at 855-473-8474.