--Suggestions on Paragraph 3 of Article 48 of the Revised Trademark Law

Article 48 of the Amendment to the Trademark Law [Effect of a Trademark Invalidation Declaration]where a registered trademark is declared invalid pursuant to Articles 44 and 45 hereof, the intellectual property administrative department of the State Council shall issue a public notice, and the exclusive right to use such registered trademark shall be deemed non-existent ab initio.

A decision or ruling declaring a registered trademark invalid shall have no retroactive effect on: judgments, rulings and mediation instruments concerning trademark infringement cases rendered and enforced by people’s courts prior to the issuance of the invalidation declaration; handling decisions on trademark infringement cases formulated and enforced by authorities in charge of trademark law enforcement; and fully performed trademark assignment contracts or trademark licensing contracts. Nevertheless, compensation shall be paid for losses sustained by other parties as a result of the trademark registrant’s bad faith.

Where, after a trademark is approved for registration and before it is declared invalid, the use of such trademark infringes upon another person’s exclusive right to use a registered trademark, and the trademark registrant or licensee acts in bad faith, the matter shall be dealt with in accordance with the provisions of Paragraph 2 of Article 74 of this Law.

If the refusal to refund trademark infringement damages, trademark assignment fees and trademark licensing fees in accordance with the provisions of Paragraph 2 of this Article obviously contravenes the principle of equity, full or partial refund shall be made.

It is proposed to delete Paragraph 3 of Article 48 of the Amendment to the Trademark Law, or amend Paragraph 3 of Article 48 thereof to provide that: Where the use of a trademark, after its approval for registration and prior to its declaration of invalidity, infringes upon another person’s exclusive right to use a registered trademark, such act shall be handled in accordance with Article 72 of this Law.

Reasons are set forth as follows:

First: While this provision seemingly imposes heavier liabilities on bad-faith infringers, a careful analysis reveals that it will actually raise the threshold for trademark owners to pursue liabilities against infringers.

In judicial practice, a growing number of infringers take advantage of loopholes in the trademark registration system to deliberately hoard, purchase and preemptively register trademarks similar to well-known trademarks [especially trademarks with a registration term of more than five, ten or twenty years ]and use such marks as ostensible evidence of legitimate rights to commit infringement. Given that the infringers hold formally valid registered trademarks, right holders encounter tremendous obstacles when enforcing their trademark rights.

Where right holders adopt the remedy approach of filing an invalidation application first and then initiating trademark infringement litigation, after completing procedures including trademark invalidation proceedings, first-instance administrative trial and second-instance administrative trial, the infringers may have already had their business licenses revoked, undergone deregistration or absconded. It is already extremely difficult to hold them liable for infringement. If proof of bad faith is additionally required, the evidential burden on right holders will be further increased, making it impossible to achieve the goal of severely punishing bad-faith infringement. This provision may disrupt the existing liability system for trademark infringement.

Second: If the provisions of Paragraph 2 of Article 74 are applied, right holders may only file complaints with administrative law enforcement authorities regarding infringing acts committed prior to the trademark’s invalidation, and infringers shall bear only limited administrative liabilities. This would directly deprive right holders of the remedy to file civil infringement lawsuits directly. The rule that no civil liability attaches to infringements occurring before trademark invalidation would create a substantial discrepancy with the current framework of trademark infringement liabilities.

Paragraph 2 of Article 74 of the Amendment to the Trademark Law "where the authority responsible for trademark law enforcement determines that an infringement is established upon handling a case, it shall order immediate cessation of the infringement, confiscate and destroy the infringing goods as well as tools principally used for manufacturing infringing goods or counterfeiting registered trademark signs, and confiscate illegal gains. If the illegal business turnover is not less than RMB 50,000, a fine of not more than five times the illegal business turnover may be imposed; if there is no illegal business turnover or the illegal business turnover is less than RMB 50,000, a fine of not more than RMB 250,000 may be imposed.Where a person sells goods without knowledge that they infringe upon the exclusive right to use a registered trademark, and is able to prove that such goods are lawfully obtained and identify the supplier, the authority responsible for trademark law enforcement shall order him to cease sales, confiscate the infringing goods, and may notify the authority responsible for trademark law enforcement at the place where the supplier of the infringing goods is located of the case for handling."

This paragraph prescribes administrative liabilities only. Under the original liability framework for trademark infringement, where the use of a trademark after its approval for registration and prior to its declaration of invalidity infringes another party’s exclusive right to use a registered trademark, trademark right holders may either directly institute civil infringement proceedings against the registrant or user, or file a complaint with administrative authorities. The two remedy channels run parallel to each other; right holders may choose either one or resort to both simultaneously.

Therefore, if such infringements committed prior to the trademark’s invalidation are handled in accordance with Paragraph 2 of Article 74, right holders will only be allowed to file complaints with administrative law enforcement authorities, and infringers shall bear merely limited administrative liabilities. This will directly deprive right holders of the remedy to initiate civil infringement lawsuits independently. Stipulating that no civil liability shall be incurred for infringements occurring before the trademark is declared invalid creates a stark discrepancy with the existing trademark infringement liability system.

Thirdly, handling such cases under Paragraph 2 of Article 74 would render the pursuit of administrative liability against infringers virtually ineffective.

Infringers use valid trademarks as a cover to mass-produce and sell infringing goods during the trademark’s term of protection. Once they find that the trademark has been fully invalidated, they will immediately stop manufacturing infringing products, purchase another similar trademark as a cloak of formal legality, and carry out large-scale infringement again, repeating this cycle endlessly.

If such cases are handled in accordance with Paragraph 2 of Article 74, two problems will emerge. First, production of infringing goods may have already ceased after the trademark is invalidated, making it difficult for right holders to preserve evidence and file complaints. Second, right holders will have no alternative remedy but to submit complaints to administrative authorities in various regions, which places an additional burden on them, hinders fast and effective rights enforcement, and may even leave right holders unable to afford the costs of lodging complaints to safeguard their rights.

For example, an infringer may take advantage of a similar and formally valid trademark to engage in infringing activities for five to ten years and reap illegal gains of tens of millions or even scores of millions of RMB, before ceasing all production of infringing goods once the trademark is invalidated. Right holders will then face a predicament in enforcing their rights: by the time administrative law enforcement authorities launch an inspection, there are little to no infringing goods left in stock, all infringing products were manufactured during the term of the previously valid trademark, and the exact amount of illegal turnover cannot be ascertained. As a result, the administrative penalties imposed on the infringer will be extremely limited.

If such acts are dealt with under Paragraph 2 of Article 74, this provision may indirectly embolden infringers to mass-produce and sell infringing goods under the cover of formally valid trademarks. The mechanism for pursuing administrative liabilities against infringers will be rendered virtually ineffective and fail to produce any deterrent effect on infringing conduct.

Fourthly, Paragraph 3 of Article 48 may serve as a shield for infringers to continue large-scale infringement even after their trademark is invalidated.

If an infringer continues to engage in infringement after its trademark is invalidated yet labels the production date of the infringing goods as prior to the invalidation date, the infringer may raise a defense that the infringing products were manufactured before the trademark’s invalidity. Under this defense, the infringer would only bear administrative liabilities and be exempted from civil compensation liabilities. As long as no large quantity of infringing goods is seized, the infringer can avoid civil compensation or merely incur minimal administrative penalties. Accordingly, this clause may act as a shield for infringers to carry out rampant infringement continuously.