Chinese Supreme Court: hoarding trade marks in bad faith falls within scope of “illegitimate means”

In a retrial proceeding (No 4191 [2017], Petition, Administrative Division, SPC, 29 June 2018, the Chinese desicion can be found here), the Supreme People’s Court of China (SPC) clarified that hoarding a large number of trade marks without intention to use falls within the scope of “other illegitimate means” prohibited by Article 44, Section 1 of China’s Trademark Law.

Background 

The trade mark at issue is “闪银” in class 36 (Filing No 13675000). Wuhan Zhongjun Ltd (hereinafter referred to as Wuhan Zhongjun) applied for registration in December 2013, and the trade mark was registered in February 2015. 

In December 2015, Beijing Shanyin Qiyi Ltd (hereinafter referred to as Shanyin Qiyi) initiated the invalidation proceeding against the “闪银” registration. It claimed that Wuhan Zhongjun was a trade mark squatter and had hoarded over 1,000 trade marks in bad faith.

On 19 October 2016, the Trademark Review and Adjudication Board of China (TRAB) invalidated the disputed trade mark. Dissatisfied with the unfavourable decision, Wuhan Zhongjun brought the case before the Beijing Intellectual Property Court and then the Higher People’s Court of Beijing. Both courts upheld the TRAB’s decision. Wuhan Zhongjun then submitted the retrial petition to the SPC. 

The SPC analysis 

"I say fish hoarding 🐟😎"

Wuhan Zhongjun has applied in total for over 1,000 trade mark registrations since its establishment in 2012. It makes little sense to discuss the amount in isolation – around 1,000 trade mark applications per year could be quite normal for certain enterprises. In this case, the lower courts and the SPC took multiple other facts into consideration and accurately spotted the trade mark amassments without intent to use as well as the suspected free-riding applications in bad faith. 

Wuhan Zhongjun’s trade mark portfolio contains a large percentage of trade marks that are similar to the better known marks (e.g. Alibaba’s AliPay, Chow Tai Fook jewellery, Lufax finance). The disputed trade mark was registered for financial services in class 36, yet that service was not claimed in Wuhan Zhongjun’s scope of business registered at the local administrative department of industry and commerce. While this is not illegal per se, Wuhan Zhongjun admitted that the disputed trade mark had not been put to use yet. 

The SPC referred to another 2015 case (Civil Ruling No 1272 [2015], Civil Petition, SPC, see the decision here), in which the SPC found that Wuhan Zhongjun’s major shareholders Fu Fachun and his wife had set up trade mark agency A in Beijing, and thereupon committed dishonest acts and pursued illegitimate interests which violated the principle of good faith that the trade mark agencies shall abide to; in 2017, on appeal (see the decision here) the Higher People’s Court of Beijing found that the couple were the shareholders of another trade mark agency B in Beijing as well, and agency B’s “online trade mark supermarket” was selling a good deal of Wuhan Zhongjun’s trade marks. A third-party investigation showed that Wuhan Zhongjun charged EUR 7578 for a trade mark registration which shared overall similarity with AliPay. 

The major point of contention

The SPC upheld the lower courts’ judgments, holding that Wuhan Zhongjun’s aforementioned way of trade mark application and registration was not based on the needs of its business-operation, but on the intention to hoard a large number of trade marks in order to pursue unjust benefits in breach of Article 4 of the Chinese Trademark Law: 

Any natural person, legal person or other organization that needs to obtain the exclusive right to use a trade mark for its goods or services during production and business operations shall apply for trade mark registration with the trade mark office. 

Wuhan Zhongjun argued that:

• There was no limitation in law on the numbers of trade mark applications that an enterprise could file;
• Their trade mark assignments were normal business activity in full compliance with the Chinese Trademark Law;
• The Chinese Trademark Law allowed the 3-year “preparation period” prior to the actual use of the trade mark (Article 49, Section 2). 

With regard to such claims, the SPC accepted that Chinese Trademark Law would pose limitations to neither the amount of trade mark applications nor lawful trade mark assignments. Yet both shall be based on the needs of the enterprise’s normal production and operating activities. The “3-year preparation period”, or “no genuine use in 3 consecutive years without a justiciable reason leads to the revocation of the registered trade mark” was enacted with the legislative intention to promote the genuine use of trade marks and maximize the real value of trade marks. In addition, Wuhan Zhongjun failed to prove the proper reasons for non-use as well.

The SPC also found that Wuhan Zhongjun’s actions did not only disturb the orderliness of trade mark registration, but also misappropriated public resources, undermined fair competition in the market, and were contrary to good faith. Therefore, the registration of the disputed trade mark fell within the scope of “other illegitimate means” prohibited in Article 44, Section 1 of the Chinese Trademark Law. The SPC therefore rejected the retrial petition filed by Wuhan Zhongjun.

Comment

In recent years, the volume of trade mark applications in China has continued to grow (by 20%-30% each year). An explosive growth happened in 2017 when the number of applications hit 5.748 million with the year-on-year growth of 55.7%. Among these there is a considerable amount of malicious or “grey” applications filed not for use but purely for hoarding and waiting for the right price to sell. 

Generally speaking, China’s trade mark law adopts the first-to-file principle, yet it does not explicitly stipulate the regulatory measures to adopt against malicious applications. It is submitted that there are several rather abstract or principled provisions that might be referred to as the legal basis for regulating malicious applications, e.g., Article 44, Section 1 of the Chinese Trademark Law (on registration obtained by fraudulent or other illegitimate means), Article 7 of the Chinese Trademark Law and also of the General Provisions of the Civil Law of China (on the principle of good faith), and Article 2, Section 1 of the Anti-Unfair Competition Law of China (on equality, fairness and good faith principles).

This time, the SPC sent out a clear and necessary message of its disapproval attitude towards the bad faith trade mark applications, and provided a good lesson for future cases. Together with the efforts made together with, for instance, the Trademark Office and its big data analysis technology, we might be able to expect much more positive and effective changes happening in the near future to better cope with malicious trade mark hoardings in China.

Photo courtesy: Hosico_猫