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1 May 2019

Amendments to the Trademark Law and the Anti-Unfair Competition Law Passed

On 23 April 2019, the Standing Committee of the National People’s Congress passed a decision to amend certain provisions of the Trademark Law of the People’s Republic of China (“Trademark Law”) and the Anti-Unfair Competition Law of the People’s Republic of China (“Anti-Unfair Competition Law”).

The amendments reflect a relatively focused approach aimed at cracking down on intellectual property (“IP”) infringements that are common in practice. Specifically, provisions for the trolling of trademarks—not for the purpose of use—and for the clarification and proof of trade secret infringements have been added while punishments for trademark infringement and unfair competition have been strengthened. The amendments should increase the cost of IP infringement and thus strengthen IP protection.

Amendments to the Trademark Law: Cracking Down on Trademark Trolls and Increasing Compensation for Infringement

This is the fourth time the Trademark Law has been amended since its promulgation in 1982. These latest amendments, to take effect on 1 November 2019, involve six articles and the following major changes:

Adding provisions on “malicious trademark registration not for the purpose of use”. The provision “a malicious application for trademark registration filed not for the purpose of use shall be rejected” is added into Article 4, and Article 19 is amended to specify that a trademark agency that knows or should know that its client is applying for a trademark not for the purpose of use shall not file the application for the trademark on the client’s behalf. In line with this, Articles 33 and 44 of the Trademark Law now specify that an application to object to or invalidate a trademark can be filed on the ground that “the application for trademark registration is malicious and not for the purpose of use”.

In the case of a trademark “not for the purpose of use”, prior to the amendments, a trolling trademark has not been subject to revocation until after the registration approval of the relevant trademark; furthermore, it has been possible to file the revocation application (through the invalidation procedure) only on grounds of “registration obtained through other improper means”, under Article 44 of the Trademark Law. The amendments thus grant the Trademark Office the authority to reject an application for a trolling trademark during the preliminary review stage, and also permit anyone to file an opposition, after the preliminary review announcement, with the Trademark Office on the ground of a lack of a real purpose of use. This facilitates timely and effective containment of trademark trolling.

However, what constitutes “a malicious application for trademark registration not for the purpose of use” and other relevant issues under the above provisions are pending further clarification in laws, regulations, judicial interpretations and judicial practice.

Strictly punishing malicious registration and malicious litigation of trademark agencies. To punish a trademark agency’s filing of an application for a trademark the agency knew or should have known to not be for the purpose of use, Paragraph 4 of Article 68 is supplemented to provide that malicious registration is subject to warnings, fines and other administrative punishments; moreover, in the same provision, malicious litigation is now subject to punishment imposed by people’s courts according to law.

These amendments provide further protection for holders of trademark rights who, especially in recent years, have been suffering from problems caused by trademark agents’ malicious registration of large numbers of trademarks for clients and their malicious litigations, after trolling the trademarks, against the real trademark holder-users.

Strengthening punishment for trademark infringements. In Article 63 of the Trademark Law, the statutory maximum compensation is increased from RMB 3 million to RMB 5 million and the multiple of punitive damages for malicious trademark infringements is increased from “more than one time and less than three times” to “more than one time and less than five times” the loss of the right-holder, the gains of the infringer or the license fee. Further, Article 63 now also provides for courts to order, at the request of right-holders, the destruction or prohibition (from commercial distribution) of commodities bearing counterfeit registered trademarks and their main materials and tools.

The amendment to Article 63 of the Trademark Law aims, by raising the cost of trademark infringement, to mitigate the problem arising from the simultaneous low cost of trademark infringement with the high cost of rights protection.

Amendments to the Anti-Unfair Competition Law: Improving Provisions on Trade Secret Infringement and Increasing Compensation for Unfair Competition

The latest amendments to the Anti-Unfair Competition Law, effective as of 23 April 2019, constitute the second ever since the Law’s promulgation in 1993 and involve four articles and the following major changes:

Improving the identification of trade secret infringements. Article 9 of the Anti-Unfair Competition Law is augmented for the identification of trade secret infringements from three aspects, namely, the perpetrator, the scope and the means of infringement:

  • The infringer is expanded from “operators” to “natural persons, legal persons and unincorporated organizations”, clarifying that individuals such as employees and organizations such as non-profit organizations can be infringers of trade secrets.
  • The scope of trade secrets is changed to cover other business information in addition to technical and operational information (which were already covered), thus expanding the scope of trade secrets to a certain extent.
  • The disclosing, using or allowing of the use of trade secrets “in breach of agreements”, as a means of infringement, is revised as “in violation of confidentiality obligations” to cover statutory confidentiality obligations. Thus, a right-holder will be entitled to adduce statutory confidentiality obligations against an infringer not bound by a confidentiality agreement. Statutory confidentiality obligations may arise from employment, entrustment, cooperation or other legal relationships.
  • “electronic intrusion” is clarified to be a means of trade secret infringement, and the original provision on contributory infringements is revised to “obtaining, disclosing, using or allowing the use of one’s trade secrets by teaching, tempting or helping others to breach confidentiality obligations or to violate the right-holder’s requirements on keeping trade secrets”, which further expands the coverage of means of trade secret infringement and clarifies the identification of contributory infringements.

Most of the above have already been recognized in judicial practice. Thus, these amendments for further clarifying the identification of trade secret infringements are a summary and refinement of the relevant judicial interpretations and judicial practices.

Clarifying the burden of proof in trade secret infringement. According to the newly added Article 32 of the Anti-Unfair Competition Law, if a right-holder can provide preliminary evidence to prove the “secrecy” and “infringement” of the trade secret, the burden of proof will be shifted from the plaintiff to the defendant, the latter needing to prove “not constituting trade secrets” or non-infringement.

As trade secret infringements are inherently veiled, the difficulty of proof has been a major obstacle in a right-holder’s protection efforts. The amendments, by shifting part of the burden of proof, will greatly facilitate the right-holder’s protection.

Strengthening punishment for unfair competition. In Article 17 of the Anti-Unfair Competition Law, the statutory maximum compensation for confusing acts and trade secret infringements is increased from RMB 3 million to RMB 5 million; in addition, the same Article now provides for multiples of punitive damages for trade secret infringements, specifically, “more than one time and less than five times” the loss of the right-holder, the gains of the infringer or the license fee. Moreover, with respect to administrative liability for trade secret infringements, the punishment of “confiscating illegal gains” is added to Article 21, with the maximum fine at RMB 1 million for general circumstances and RMB 5 million for serious circumstances.

The amendments to Article 17 of the Anti-Unfair Competition Law are thus in line with the amendments to Article 63 of the Trademark Law, particularly providing protection for trade secret owners by raising the cost of trade secret violations.

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