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Determination of Bad Faith in Malicious Trademark Registrations

Trademark serves as an identifier of the source of goods or service and reflects the reputation of a business and the quality of the products and services.

The increasing awareness for brand establishment and protection has stimulated the demand for trademark registration applications and the trademark trading market has boomed. However, there are also some people, who are not business operators, but usurp this opportunity to rush register and hoard trademarks of others for profit. 

In practice, normal business operators, the true brand owners and right holders, often found that their trademark applications were being blocked by malicious registrations, meaning that a lot of time and money was spent overcoming the obstacles of the prior rights of these registrations. 

In China, the criteria for determining malicious trademark registration was set in the Standards of Trademark Examination and Adjudication as early as in 2009. However, at that time the standard was relatively high, requiring “sufficient evidence” to prove that “the trademark registrant knew or should have known that the trademark it applied for has been prior used by others, that its conduct has violated the principle of good faith, infringed on the legitimate rights of others and disturbed the market order of fair competition.” 

To succeed in the claim of bad faith, the true right holder would need to submit sufficient evidence to prove that the registrant was acting in malice or negligence when applying for the trademark. 

However, in most cases, the true right holder knows nothing about the registrant or his subjective status. Therefore, it was very difficult to meet the standard of proof of bad faith, unless the true right holder could obtain evidence of malice or negligence through some specific relationships with the registrant, e.g. agency relationship, trade contacts.

The unreasonably high standard of proof had made it quite difficult for the true right holders, especially foreign applicants, to safeguard their rights in China. 

Foreign brands emerging in overseas markets, but are not yet known to the Chinese public, are the easiest targets of malicious registrants. Since these foreign brands have not yet gained popularity in the relevant Chinese markets, it is difficult to say that rush registrations of such brands constitute an act of “registration by improper means of a trademark already used by others that has certain influence” under Article 32 of the Chinese Trademark Law. Therefore, foreign applicants often find themselves caught in a dual dilemma. 

On the one hand, the applicants are not able to register trademarks without first removing the obstacle of prior malicious registrations. While on the other hand, due to the high standard of proof, it is difficult to remove this obstacle in a legal manner, i.e. opposition or declaration of invalidation procedure.

In view of the above difficulties, it is recommended that the true right holders collect all types of evidence that might indicate the subjective state of the malicious registrant. 

For example, if a domestic applicant applies for a number of trademarks in foreign languages with strong distinctiveness, then the applicant is probably suspected of plagiarizing foreign brands. If an applicant applies for or transfer a large number of trademarks in a short period of time, or apply for trademark in various international classes, then the applicant probably does not intend to use the trademarks but to hoard them for sale. 

To prove the mental state and improper means of the malicious registrants, the true right holders are also advised to prove that the bad faith behavior would have “adverse effects” under Article 10(1)(8) of the Trademark Law. 

Case analysis
In the opposition against the trademark “ARRAN AROMATICS” No.6786641, the opposed party has applied for over 600 trademarks designating goods and services in more than 20 classes. A large number of trademarks contain words in different foreign languages, similar to many foreign brands including the brand of our client. However, as our client's trademark was not widely known in China, the Trademark Office found that there was a lack of sufficient evidence of malicious plagiarism or imitation of trademarks previously used by others with certain fame. 

In the subsequent review procedure, we emphatically demonstrated the irrationality of act of the opposed party by referring to its historical registrations, which clearly indicated an intention of seeking unlawful profits. 

We referred to the “adverse effects” of the applicant’s behavior that it has seriously disturbed the order of trademark registration and would have a continued negative impact on society. In the final decision, the Trademark Review and Adjudication Board accepted our claim on "adverse effects" and ruled that the opposed trademark was not approved for registration.

However, since the "adverse effect" clause itself is also an umbrella clause, there lacks a specific standard of application and it was applied very cautiously by the trademark examiners in real practice. Therefore, in many cases, foreign applicants would still have to overcome the malicious registrations by other means, such as trademark assignment or cancellation based on non-use for three consecutive years.

Standards of Trademark Examination and Adjudication 

In December 2016, the new Standards of Trademark Examination and Adjudication was jointly issued by the Trademark Office and the Trademark Review and Adjudication Board. This is the version currently in effect. The new criteria to determine malicious registration has been refined, and according to the new standard “improper means” can be presumed in the circumstances shown below.

(1) Where the registrant applied for a number of trademarks that are identical, or similar, to others’ trademarks of strong distinctiveness;

(2) Where the registrant applied for a number of trademarks that are identical,  or similar, to  trade name, business name, or unique names, packing and decoration of well-known goods of others;

(3) Where the registrant hoards a large number of trademarks without genuine intention to use; and

(4) Other circumstances which may be determined as improper means.

The above-mentioned provisions are still vague, for example, the terms “a number of” and “a large number of” do not have a scope, nor can be determined by reference to other criteria. However, they are much more specific than the 2009 criteria. 

In our experience in recent years, if the following two circumstances are found during an opposition or invalidation procedure, the applicant or registrant is usually considered to have the subjective intent to imitate and plagiarize the trademark of others: 

(1) The applicant applies for registration of a number of trademarks similar to others’, and many of its applications are refused by the Trademark Office or challenged by true right holders due to the high degree of similarity; or 

(2) The applied trademark is of strong distinctiveness and is substantially similar to a trademark previously used by others in China, even it is not well known in China, and the applicant is unable to provide a reasonable explanation on its purpose of application and inspiration of the design. 

With the refinement of the standard of malicious registration, the new regulations provide a reliable legal basis for claiming bad faith of those applicants who applied for a number of trademarks but lack genuine intention to use the marks in business operation. This is a strong support for the true right holders, especially owners of foreign brands, to safeguard their rights and interests.

Amendment of the Trademark Law

In April 2019, the 10th Session of the 13th National People's Congress issued a decision on the amendment of the Trademark Law, in which it added to Article 4 a provision stating that “trademark applications made in bad faith not for the purpose of use shall be refused”. 

The amendment reflects the legislator's firm belief on cracking down malicious trademark registrations and makes it that the fundamental purpose of registering a trademark is to “use” it in the daily business operation. 

The added provision emphasizes the distinction between the act of registering trademarks for the needs in production and business activities, and the act of registering trademarks not for use but for improper profits. 

The regulation also requires the trademark authorities to move the timing of cracking down malicious registrations forward, i.e. to suppress malicious applications by placing stricter scrutiny at the examination stage.

It means that, in addition to the opposition and invalidation procedures initiated by the true right holders or interested parties, the Trademark Office can begin to take effective measures to monitor and crack down on malicious registration at the stage of trademark application examination. To a certain degree, it effectively curbs the rush registration of trademarks and significantly lightens the burden of the true right holders.

On December 1, 2019, the Provisions of the Regulation on Trademark Application came into force. Under Article 3, the act of “applying for trademark registration not for the purpose of use” is listed as the first prohibited act that would result in refusal on application. 

In a conference on the above-mentioned provisions, the Chinese Intellectual Property Administration (CNIPA) demonstrated to the public the general practice of trademark registration authorities in determining malicious registrations

Examiners take into consideration various factors such as using the trademark examination system to inquire about the applicant's historical applications, trademark transfers and other related matters; screening for well-known trademarks and items prohibited for registration; inquiring about the business records of the applicant in the enterprise information publicity systems to detect illegal activities. 

In addition, if the examiner considers that the applicant is suspected of maliciously applying for or hoarding trademarks, the examiner may ask the applicant to provide explanation on its suspicious behavior.

To better exercise the notion of the new law, in practice we try to report clues of malicious applications to the CNIPA when they are still pending examination. This practice can help the examiners identify and refuse registration of the malicious applications at the examination stage, thus providing a faster solution for the true right holders whose trademarks could potentially be blocked by these malicious applications. 

Our attempt accords with the legislator's purpose of cracking down on malicious registration at an earlier stage, and it helps to reduce the administrative burden. 

In addition, in practice a trademark application is often linked to other related cases, of which the outcome depends on the status of the trademark. Therefore, to ensure that a malicious application is refused at the stage of examination is very beneficial to the fact determination in the related case. It could help avoid lengthy subsequent procedures or even administrative proceedings, lightening the burden on the relevant parties by reducing the excessive consumption of time and expenses. 

In the network era, data retrieval is getting easier and the trademark examination system is much more advanced. Loopholes from the past have been fixed making it more difficult for malicious registrants. However, as the Chinese idiom goes, “virtue goes one feet up, the devil goes ten”. To circumvent the examination, bad faith applicants are getting more “sophisticated” and the malicious applications are becoming harder to detect. 

For example, the applicants pick foreign brands that have not yet entered the domestic market of China as a target. Trademarks are registered under the names of relatives, friends or affiliated companies, so the total number of applications would be diluted. The fact that the original application is made in bad faith would be concealed by assigning the trademark to different parties for multiple times. Some malicious applicants also slightly modify the trademark of others, or add some commonly used non-distinctive elements to form a new trademark, so as to increase the difficulty of a similarity check.

In summary
To eliminate the malicious registrations that are overlooked, it is still necessary for the right holders or interested parties to timely initiate an opposition or declaration of invalidation against them. 

It takes the efforts of both administrative authorities and the relevant public to maintain a healthy and stable order of the trademark registration. Administrative authorities should carry out duties actively to improve the administrative efficiency, while the right holders are better to firmly hold the weapons of law to safeguard their legitimate rights and interests. 

As long as we constantly say “no” to unlawful activities, our experience accumulated through law practice will continuously influence on legislation, which in turn will curb the malicious trademark registration in a more comprehensive way. 

By increasing the cost of violation, defining the illegal behavior precisely, and shrinking its boundary, market condition will be continuously improved. Also, if full play is given to the role of public supervision and enhance the law-abiding consciousness of citizens, there will be no hiding for illegal acts.  

It is our hope that through the continuous efforts of the whole society, registered trademarks can truly represent the value and vitality of the business enterprises and become the symbol of trustworthiness.

The article was originally published in China IP Focus 2021 which is published by Managing Intellectual Property.

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