New trademark rules leave owners unprotected
Jack Chang
Honorary Chairman of the Quality Brands Protection Committee, Beijing
原文刊自：China Law& Practice 2014年七/八月合刊
The third amendment to the PRC Trademark Law(TML) started from 2006 and took seven years to conclude the amendment process. The key objectives, according to the Explanatory Notes of the various draft amendments, were to expedite the trademark examination process and to strengthen trademark protection.
Despite positive changes to strengthen trademark protection in the revised Trademark Law, there still remain uncertain or even problematic areas caused by ambiguous wording contained in several articles of the revised TML and the revised Implementing Regulations for the PRC Trademark Law (IRTML).
Challenging OEM infringement
One question left unanswered is whether the original equipment manufacturer's (OEM) manufacturing goods that bear trademark(s) identical or confusingly similar to another's registered trademarks in China without being authorised for export constitute trademark infringement in China. The majority of IP judges view that it does not constitute an infringing conduct, as, since the goods are for the overseas market, Chinese consumers would not have access to the goods and would therefore not be confused by the trademark on the goods/packaging. As a result, the trademark affixed on the goods or their packaging does not serve to identify the source of the goods so this conduct does not qualify as "use" of the trademark according to Article 48 of the TML. Some judges, who support this view, elaborate further that Article 48 clearly stipulates that "For the purposes of this Law, the term "use of a trademark" means an act whereby a trademark is used on goods, the packaging or containers for goods and documents for the transaction of such goods, or in advertising, publicity, exhibitions and other commercial activities, in order to identify the source of goods."
The rest of the IP judges and many trademark owners, particularly the member companies of the Quality Brands Protection Committee (QBPC), however, are strongly against this majority view, because once the trademark is affixed on the goods and its packaging or container is used for advertisement or exhibition or documented in the territory of China, it serves to identify the source of the goods and technically constitutes the "use" of the trademark in China. Regardless of whether the goods are sold in domestic or overseas markets, the nature of "use" of the trademark in China cannot be challenged. The unauthorised use of another's registered trademark on the goods constitutes trademark infringement. Otherwise, the majority view of the judges would create a safe harbour for manufacturing infringing goods in China, as long as the goods are for (or alleged for) overseas markets.
QBPC has foreseen this problematic issue and recommended to adopt the wording "the use of a trademark shall not be determined on the sole condition that the goods are sold in China" in the revised IRTML. Unfortunately, this recommendation was not accepted. The question remains without a clear answer except that many judges tend to render non-infringement decisions while more judges and academic IP thought-leaders have begun to express views different from those of the majority. Any further delay in clarifying the OEM infringement issue may cause a nightmare for rights owners to protect their trademarks in China.
Facilitating infringers
Article 75 of the IRTML defines facilitating another party to conduct trademark infringement only as willfully providing "warehousing, transport, mailing, printing, concealment, a place of business or online merchandise trading platform, etc." to those who conduct trademark infringement. However, those who knowingly conduct the activities of providing primary raw materials or supplementary materials, semi-finished goods, packaging, production machinery/equipment, production technology, formula or services for internet connection, server operation, communication or payment collection shall be treated as joint-offenders of the crimes of violating intellectual property rights. This is provided by Article 15 of the Opinion on Several Issues Concerning the Application of the Law in Handling Criminal Cases of Intellectual Property Infringement (Opinion), issued by the Supreme People's Court (SPC), the Supreme People's Procuratorate (SPP) and the Ministry of Public Security (MPS) on January 10 2011. The joint-offender conduct was adopted into the Opinion based on lessons learnt from solid case studies by the judiciary and the police. The Opinion has been proven as an effective tool for conducting criminal enforcement against IP criminal offenders. QBPC strongly recommended that these activities should be included in the IRTML to identify them as acts of facilitating another party to conduct trademark infringement. However, the recommendations were not accepted.
Calculating illegal operation amounts
Article 78 of the IRTML provides guidance to the enforcement level of the Administration for Industry and Commerce (AIC) for determining the illegal operation amount of a specific trademark infringement case. The AIC will consider factors such as the sale price of already-sold infringing goods, the labelled price of not-yet-sold infringing goods, the verified average actual sale price of already-sold infringing goods, the market middle price of the infringing goods and the business profit made by the infringer due to the infringing conduct.
However, in cases involving the unauthorised use of another's identical trademark on the same goods, determining whether the illegal operation amount meets the criminal threshold of Rmb50,000 (US$8,000) for counterfeiting is set by Article 12.1 of the SPC and SPP's Interpretations of Several Issues in the Concrete Application of the Law in Handling Criminal Cases of Intellectual Property Infringement (Interpretations), which came into effect on December 22 2004. The formula for calculating the illegal operation amount is to add the prior sale amount of the already-sold goods to the value of the seized not-yet-sold goods, which is calculated according to the labeled price of the goods or the verified average actual sale amount of the already-sold goods. If neither of these is available, the market average price of the infringed goods is used to reflect the value of the seized goods.
Noticing the discrepancy between the formula and sequence requirement adopted in the IRTML and the Interpretations, disputes are expected to occur between the trademark owners and the AIC (and even police) as to which formula should be used and whether the amount of illegal operation has been accurately calculated. This can cause confusion on whether a trademark counterfeiting case should be transferred from the AIC to the police for criminal investigation.
Questioning "good faith" sellers
Article 59 of the draft amendment, which passed the first review of the National People's Congress (NPC) and was released in December 2012 for public comments, stipulates that for those who sell infringing goods without knowing that the goods infringe others' trademark rights and can prove that the goods were acquired legitimately as well as specify the supplier of the infringing goods, will be immune from any punishment other than being instructed by the AIC not to further sell the infringing goods. Confiscation and destruction of infringing goods are two different types of administrative punishments. Without deleting the phrase "immune from other punishment" and including wording that gives the AIC a clear authority to confiscate and/or destroy the infringing goods, it is totally impractical to expect the "good faith" seller to keep the infringing goods as part of his/her inventory. QBPC raised this issue with the NPC during the second exchange meeting on May 8 2013. As a result, the phrase was deleted from the final TML. Recognising the progress, QBPC further recommended to adopt clear wording that states the AIC has the authority to confiscate and destroy the infringing goods into the TML, or, at least, into the IRTML. Unfortunately, this was not accepted.
To complicate matters, Article 79 of the IRTML defines "lawfully" obtained goods in highly loose terms. The seller could easily "show" that the infringing goods were acquired legitimately. As a result, the AIC may face a situation where it will not be able to seize and finally confiscate or even destroy the infringing goods in the distribution channel. Trademark owners will continue to be frustrated with locating large volumes of infringing goods with no fruitful results as the AIC can only instruct the "good faith" seller to keep the infringing goods as inventory and not sell them.
Under these circumstances, it is unlikely that the trademark owners involved will be able to push the case forward to the police for criminal investigation, even when the case constitutes trademark counterfeiting and the illegal operation amount hits the criminal threshold.
Building cooperation
On the other hand, several important comments provided by the QBPC have been adopted into the TML. These include fixing the gap between trademark renewal and the customs trademark recordal in order to avoid border IP protection risk, further making the TML compliant with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) requirements and replacing "exclusive use" with "predominant use" of tools for manufacturing infringing goods.
During the entire process of amending the TML and IRTML, the NPC, the State Council Legislative Affairs Office, the State Administration of Industry & Commerce and the China Trademark Office were all transparent and professional in their work. More collaboration among all relevant stakeholders is required to resolve these significant issues and to further strengthen trademark protection.