Legal Briefing

Recent developments in Chinese trade mark law

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Technology, Media and Telecoms | 01 February 2013

On 31 October 2012, Premier Wen Jiabao presided over an executive meeting of the state council, at which draft amendments to the Trade Mark Law of the People’s Republic of China were deliberated and adopted.

The draft was designed to simplify the trade mark registration procedure, tackle bad faith registrations and trade mark infringements, and promote market order and fair competition by strengthening the protection of trade mark rights.

The draft was submitted to the Standing Committee of the National People’s Congress for deliberation and approval, and on 28 December 2012, a further draft was released by the Standing Committee. A deadline of 31 January 2013 has been set for the receipt of public comments.

REGISTRATION IN RELATION TO 
RETAIL AND WHOLESALE SERVICES

From 1 January 2013, the China Trade Mark Office (CTMO) will accept trade mark applications for registration in relation to ‘retail or wholesale services for pharmaceutical, veterinary and sanitary preparations and medical supplies’ in Class 35. Although the amendment is welcome, we would hope to see a further extension to retail and wholesale services provided in relation to other types of goods.

The CTMO has made it clear that, in line with the Nice Classification, trade marks will now be registrable in relation to this category of retail and wholesale services, and that such services are not restricted to the act of selling goods, but include the various services rendered around the actual sale. Retail and wholesale services can be provided through different channels, such as physical stores or online.

A separate subclass, 3509, has been created in Class 35 for the new services. It contains seven standard service descriptions, one or more of which must 
be used by all applicants.

It should be noted that the current amendment is limited to services provided in relation to pharmaceutical, veterinary and sanitary preparations and medical supplies, and that the scope of the services must be consistent with the scope of the applicant’s business as described in its business certificate. Furthermore, the newly added services will be considered dissimilar to the goods in relation to which they are provided. They will also be regarded as dissimilar to the remaining services in Class 35, such as ‘sales promotion for others’. Many retailers will be dismayed by this statement, as it has been common practice for them to register their brands in respect of ‘sales promotion for others’ due to the unavailability of registration in relation to retail and wholesale services in the past.

There was a transitional period from 
1 January to 31 January 2013. All trade mark applications filed in relation to the new services during this period will have been treated as having been filed on the 
same day.

Brand owners providing the newly added services should file new trade mark applications as soon as practicable. Those who manufacture pharmaceutical, veterinary and sanitary preparations 
and medical supplies, but do not provide retail or wholesale services, may not 
need to file new applications; in fact, 
any registrations they secure may be vulnerable to cancellation on the grounds of non-use. The concern for these brand owners, however, is likely to be that third parties will make bad faith applications in relation to their marks, particularly as the new services are considered dissimilar to the goods being sold. The requirement for an applicant to provide a business certificate demonstrating that the 
services in respect of which registration is being sought are consistent with the scope of the applicant’s business should, however, deter most trade mark squatters – particularly in the field of pharmaceuticals, as obtaining a licence to retail pharmaceuticals is strictly controlled by the Chinese government.

OEM AND TRADE MARK ‘USE’

Whether or not manufacturing branded goods in China solely for export, ie original equipment manufacture (OEM), involves ‘use’ of a mark in China for the purposes of the Trade Mark Law, continues to be hotly debated.

The Trade Mark Law contains no specific guidance on the issue and consequently ‘use’ has been variously interpreted. There have been two opposing views: administrative authorities such as the CTMO, Trademark Review and Adjudication Board (TRAB) and China Customs have held that OEM does involve trade mark ‘use’, while a number of court decisions have taken a contrary view.

In a recent appeal from an administrative decision, Ryohin Keikaku Co Ltd v TRAB [2012], the Supreme People’s Court of 
the People’s Republic of China (SPC) held that OEM does not constitute trade 
mark ‘use’.

This case involved the Chinese character version of the ‘Muji’ trade mark (无印良品). 
Ryohin unsuccessfully opposed a 
third-party application for registration 
of the mark. It appealed from the TRAB’s decision, arguing, among other things, 
that it had used the mark in China prior 
to the date of the opposed application. 
The ‘use’ it relied on was the OEM of 
Muji-branded goods for export. The SPC found in favour of the respondent ie the trade mark applicant. The judgment was based on the legal principle that the main function of a trade mark is to distinguish the source of goods and services and as 
the goods in question had not been distributed, advertised or promoted on 
the Chinese market, there had been no 
‘use’ of the mark in China.

Because China is a civil law jurisdiction, decisions of the SPC are not technically binding on lower courts. They are, 
however, usually followed – particularly where they involve interpretation of 
the law. We would, therefore, expect 
this decision to carry great weight 
with lower courts and administrative 
authorities.

It seems that the question of whether or not OEM involves trade mark ‘use’ may be answered differently depending on the context in which it arises: (a) opposition proceedings; (b) non-use cancellation actions; or (c) trade mark infringement actions.

In the context of non-use cancellation actions, OEM has often been interpreted 
as involving trade mark ‘use’; however, 
this too is a grey area and the courts 
have, on occasion, taken a different view. In Hornby Hobbies Ltd v TRAB [2012], for example, the Beijing First Intermediate People’s Court held that OEM did not constitute trade mark use. As in the Muji case, the decision was based on the fact that, as the OEM goods had not been 
placed in the Chinese market, the mark 
was not functioning as an indication of origin. On appeal, the Beijing Higher 
People’s Court overturned the earlier judgment for public policy reasons, holding that, where OEM has taken place, it would be ‘unfair’ to cancel a registration on the grounds of non-use. This appears to be a sensible approach: trade marks genuinely not in use should be cancelled, but where effort has been made by foreign companies to manufacture goods in China, such use should constitute ‘use’, at least in the context of non-use cancellation actions.

In the context of trade mark infringement, Chinese customs have long held the view that the territorial principle applies and 
the registered proprietor of the mark in China has the right to apply for seizure 
of OEM products destined for export. However, some recent decisions have 
held that OEM exclusively for export, 
and undertaken for a principal who holds 
a valid trade mark registration in the jurisdiction of exportation, does not constitute infringement. Two notable 
recent decisions are Shanghai Shenda Electronic Co Ltd v Jiulide Electronic Co 
Ltd [2009], and Singapore Crocodile v 
Hong Kong Crocodile [2010]. In the former case, the Shanghai courts determined 
that Jiulide (whose parent Jolida owned 
the Jokida trade mark in the US) had 
not infringed Shenda’s China trade 
mark rights as the OEM goods were intended exclusively for export and 
Chinese customers would not be 
confused. (An important fact in the 
case was that the plaintiff, Shenda, 
had formerly been owned by Jolida and, 
in that capacity, had registered the 
mark). In the latter case, a Shanghai 
court ruled that use of the crocodile 
mark on goods destined for South Korea 
did not constitute infringement of the Chinese crocodile mark because the goods had been manufactured exclusively for export at the request of the legitimate brand owner in the destination country and there was no risk of confusion in the Chinese market.

From the above, it is apparent that some difficult questions of policy and law remain. On the one hand, in the context of trade mark infringement, China is keen to encourage OEM and regard it as not involving trade mark ‘use’; on the other, 
the country is keen to further strengthen 
its intellectual property system and 
attack counterfeiting, which may be 
best achieved by regarding OEM as 
involving trade mark ‘use’. Just how the law in this area is applied, and how the surrounding policy issues develop, remains to be seen.