IP Enforcement

Defensive Trademark Filings in China – Time to Review Strategies?

SIPSIP Enforcement, Knowledge

Defensive trademark registrations are a critical tool for securing protection against piracy and preserving business opportunities for future lines of goods and services. By their very nature, defensive trademark applications are not intended to be “used” by their registrants, at least not in respect of the goods or services for which they are registered. Instead, they act as placeholders, preventing third parties from obtaining identical or similar rights for similar goods or services. In China, defensive trademarks play a particularly important role, where bad faith registrations are rampant and where there were a staggering 37 million registered trademarks crowding the register by the end of 2021.

Although there is no “intent to use” requirement for trademark filings in China, modifications to the People’s Republic of China (“PRC”) Trademark Law in 2017 raised concerns about purely defensive filings on precisely that basis. Those changes, intended to address bad faith trademark filings – particularly filings by “warehousers” who bulk file for third parties’ trademarks intending to ransom them to their rightful owners – indicated that at least as far as pirate’s were concerned, lack of intent to use the mark was evidence of their bad faith in filing. It was not clear, however, if those same provisions might be arbitrarily extended to defensive filings.  Fortunately, the Trademark Examination and Review Guidelines (“Guidelines”), released by the China National Intellectual Property Administration (“CNIPA”) after the amendments came into force, clarified that purely defensive filings would not be deemed bad faith filings, in spite of the lack of intent to use them.

Without any formal announcement, however, this practice was suddenly changed in mid-2022. Around that time, the CNIPA began issuing Notices of Examination (“Notices”) to certain applicants.  The issuance of those Notices appears to have been motivated by the relevant trademark applicants having filed a certain volume of new applications in one go. As a result, and in addition to being issued to obvious warehousers, they were also issued to reputable companies that had filed multiple trademark applications for clearly defensive purposes. Failures to submit evidence of use or of an intention to use those defensive filings in response to these Notices has been leading to the blanket rejection of those bulk filings. Moreover, appeals of such rejections to the Trademark Review and Adjudication Department (“TRAD”) of CNIPA, pointing out the purely defensive nature of the filings, have been unsuccessful. This throws the fate of defensive filings in China into question.

This update discusses the CNIPA’s recent policy developments regarding defensive filings and the implications for such filings going forward. It also suggests best practices for brand owners and practitioners to keep in mind in light of the new policy and other existing obstacles.

The Utility of Defensive Trademark Applications in China

In most jurisdictions, the perceived need for defensive trademarks is motivated by specific – and limited – factual scenarios. For example, a competitor may be using a “copycat” mark on goods or services somewhat related to those of the brand owner … but for which the brand owner does not possess trademark coverage. Here, a defensive filing may act as a block to the copycat mark’s registration in respect of those goods. Or perhaps a brand owner has long-range plans to expand their offering to wholly new goods/services. In that case, defensive filings would “reserve” its rights in respect of those new goods/services and prevent filings from third parties blocking the planned expansion. In neither of these instances would the scope of the brand owner’s defensive filings need to exceed a handful of filings to adequately protect their interests. In China, however, the sheer scope of trademark piracy forces brand owners to consider much broader defensive filing programs.

Another factor driving the perceived need for defensive filings in China is the fact that “well-known” trademark protection is exceedingly difficult to obtain here, particularly in respect of foreign brands. Under international practice, including in China, the recognition of a given trademark as “well-known” is intended to provide broad “cross-class” protection against filings for the same or similar marks in respect of dissimilar goods or services, ideally eliminating the need for defensive filings altogether. Absent the ability to reliably obtain well-known trademark recognition, however, owners of heavily-pirated brands must necessarily consider much larger-scale defensive filing programs.

As a result and given that it is much cheaper to file an application for a new mark, rather than to seek to oppose, invalidate or cancel a pirate mark, the need for defensive filings in China is rightly perceived by brand owners as acute. So acute, indeed, that it is not uncommon to see defensive trademark programs in China for some larger companies extend to filings in all 45 classes, even for entirely new marks.

“Bad Faith” in Trademark Filings under the PRC Trademark Law

Many of these issues could of course be solved by the CNIPA cracking down on “bad faith” filings, making them less of an active threat to reputable brand owners. Unfortunately, the picture regarding recognition of “bad faith” by the Trademark Office (“TMO”), the TRAD and even the courts remains decidedly hazy and unpredictable.

Prior to 2019, little mention was made explicitly of “bad faith” in the Trademark Law. As a result, it was exceedingly difficult to convince authorities that the given conduct of any pirate was sufficiently egregious to warrant invalidation on such grounds. Indeed, claims of “bad faith” in filing were readily dismissed by the TMO and TRAD where pirates in question owned literally dozens or even hundreds of clearly stolen trademarks, with the decisions dismissing such claims due to “insufficient evidence”.

Under Article 4 of the amended Trademark Law that came into effect in 2019, however, explicit reference was finally made to such filings [emphasis added]:

Any natural person, legal person, or other organizations that needs to acquire the exclusive right to use a trademark in the production and operation activities shall file an application for trademark registration with the Trademark Office. An application for trademark registration that is made in bad faith and not filed for the purpose of use shall be refused.

This provision gives CNIPA the authority to reject applications made both (a) in “bad faith”; and (b) not for the purpose of use, as well as to invalidate such registrations. While the provision is obviously intended to curb trademark piracy, the term “bad faith” nevertheless remained frustratingly undefined. That fact, as well as the conflation of the terms “bad faith” and “not filed for the purpose of use” raised a question amongst commentators as to whether even purely defensive applications may be at risk of rejection under Article 4 – where the lack of intent to use itself could arguably be deemed an act of “bad faith”.

That question was answered, albeit somewhat unequivocally, in November 2021, when the CNIPA published the Trademark Examination and Review Guidelines (“Guidelines”), suggesting that purely defensive filings will not fall afoul of Article 4 – provided that such filings do not also fall into other prohibited situations. In particular, the Guidelines include a chapter on the scope and applicability of Article 4. There, and in addition to setting out 10 examples of situations where Article 4 will apply, the Guidelines also referred to two situations where it will not:

  1. where an applicant registers its trademark for defensive purposes; and
  2. where an applicant registers an “appropriate” number of trademarks for future business with realistic expectation. [1]

Exactly what qualifies as “defensive purposes” was illustrated by a brief reference to a case on the issue. As well, defensive filings themselves were defined to include applications for trademarks that (1) are already in commercial use; (2) have gained a definite degree of fame; and (3) were filed with the intent of preventing trademark piracy by third parties.

These provisions clearly create potential impediments to a broad range of legitimate defensive filings. For example, a new mark that has not yet been put into use when filed would appear to clearly fall outside the scope of these provisions. Similarly, and even if the mark was in active use, the requirement that it possess a “definite degree of fame” – admittedly a much lower threshold than “well-known” – could still torpedo newer or less-promoted marks, depending on the nature and breadth of evidence required if the brand owner were pressed to prove such fame. Fortunately, and generally speaking, it does not appear that the TMO or TRAD are aggressively enforcing these provisions (yet). Instead, and at least for the time being, it would seem that if a company is sufficiently active in the PRC market and a victim of piracy, purely defensive filings should make it through to registration without Article 4 being invoked.

Nevertheless, and although the explicit exclusion of defensive registrations from the scope of Article 4 may offer comfort to owners of defensive registrations, the question raised by the second provision mentioned by the Guidelines must also be kept firmly in mind: what is an “appropriate” number of filings?

In that regard, a subsequent Q&A media release from CNIPA concerning the Guidelines explained that the underlying purpose of Article 4 is to curb “unjustified occupation of trademark resources and disruption of the order of trademark registration”. Accordingly, and while the filing of an “appropriate” number of defensive applications is allowed, there is an undefined line that, when crossed, can lead to such filings being rejected under Article 4 as “overly defensive” or “overly-preservatory” – even where there is not a whiff of bad faith behind the filings.

Worse yet, if the CNIPA concludes that the number of applications filed is too large to meet normal business requirements – suggesting lack of true intention of use – the applicant of such marks could, in the worst-case scenario, be placed upon the CNIPA’s “blacklist” of prohibited filers. This could potentially result in the rejection of all of their pending, and even future applications, due to their “disruption of the trademark registration order”.

The number of filings is not the only aspect that will be considered in such rejections, either. As well, examiners will consider the composition of the marks and their coverage when concluding whether there is sufficient demonstrated intent to use the marks. For example, and in a typical case provided in the Guidelines, the CNIPA noted that the applicant, a “science and trade” company, filed over 900 applications in all 45 classes – including in Class 1 (industrial chemicals), Class 36 (insurance consultancy) and Class 38 (radio services) where there are special industry attributes or qualification requirements. Moreover, most of the marks were completely irrelevant to the applicant’s house mark, or were otherwise deemed illogical in light of reasonable commercial use requirements. Given this, the CNIPA did not believe that this conduct had a legitimate commercial purpose and failed to evince a true intent to use the marks.

Most worryingly for defensive filers, CNIPA examiners also have the authority to request applicants to provide evidence of use or a statement of intent to use, together with corresponding supporting evidence in respect of Article 4 issues. In that regard, and in another illustrative case, the examiner asked the applicant, a small-scale individual business, to justify why it needed to file approximately one thousand applications in over 30 classes. The applicant explained that it “loved trademarks”, designing them for commercial clients, claiming as well that some of the applications were filed for defensive purposes. The examiner rejected the applicant’s arguments, noting they failed to show that the marks had already been put into commercial use or to had acquired the requisite degree of fame. Absent such evidence, the marks were deemed to have not been filed for legitimate defensive purposes.

The “Little Yellow Duck” Case

Clearly, the language around “bad faith” filings and an “intent to use” trademarks is designed to deter bad faith filings, particularly portfolios of large-scale warehousers filing hundreds of trademarks. That said, the open-ended and nebulous nature of the language surrounding “defensive filings” in both Article 4 and the Guidelines gives CNIPA examiners the scope to enforce these provisions as broadly as they please, whenever they please. As a result, these provisions can clearly impact legitimate brand owners seeking defensive protection.

On this point, Chinese media recently reported a case where the owner of the popular “Little Yellow Duck” logo was deemed a bad faith filer due to having filed almost 3,000 applications in one year, a number that admittedly seems excessive, at least at first blush.

That said, the brand owner, Semk Products Limited (“Semk”), is a Hong Kong company that is engaged in a range of industries, including the design of original products, marketing and promotion of its products, licensing its brands to third parties, etc. The Little Yellow Duck marks were first created by the company in 2005 and have since then been widely known throughout China. Semk had also developed several sub-brands and different forms of its duck design, and has continued to file new trademark applications for these designs over the years. Not surprisingly, it was also a regular victim of trademark piracy.

Up until February 2021, most of its trademark applications were successfully registered. At that point, however, the CNIPA started blanketly rejecting any and all applications filed by Semk. In 2021 alone, Semk filed a jaw-dropping 2,994 applications … but only 90 of those were gazetted for registration, and all of those in the first quarter of the year. In 2022, Semk filed another 126 applications, and all of these were rejected by the CNIPA out of hand.

Semk appealed most (if not all) of the refusal decisions to the TRAD, arguing that it is a large-scale brand creation company with many sub-brands and partnership deals with other famous brands. As well, it had continuously been victimised by pirates filing their own Little Yellow Duck-related trademarks. Given those facts, Semk argued, it clearly had a significant need for a large number of filings, a demonstrated ability to use those marks, and a genuine need for defensive filings. Semk also submitted copyright registrations, licence recordals, and a large quantity of evidence of fame and prior enforcement actions in respect of its trademarks.

In spite of all this, the TRAD sustained the refusals, noting that the applicant’s filing of such a large number of trademark applications in a short period clearly exceeded “normal business requirements”. Similarly, the evidence put forward to prove an intent to use the marks, their fame, and the need for protection against trademark pirates was rejected, with the TRAD noting that the applicant already owned a large number of registrations for similar marks. Thus, the applications did not fall within the safe harbour for “defensive filings” under Article 4 and the applicant itself was deemed a “bad faith” filer.

Best Practices in Respect of Defensive Filings in Light of Current CNIPA Practices

The number of trademark applications filed by Semk clearly make the Little Yellow Duck case an extreme example. As a result, it may well not be exemplary of the CNIPA’s current practice in reviewing defensive applications. That said, we have heard anecdotally of an applicant filing a few as 50 simultaneous applications receiving identical “lack of intent to use” refusals under Article 4. Thus, it remains unclear just where this line is to be drawn. Accordingly, careful thought should be given to how, when and, of course, how many defensive applications are to be filed to minimise the risk of Article 4 rejections in respect of all of those filings.

Applications filed by larger companies for new marks in all 45 classes to prevent pirates from exploiting gaps in coverage (Starbucks and Huawei being oft-cited examples of such “power filers”) are at the most immediate risk of such rejections. Given that, a means of avoiding such blanket rejections could be limiting filings for defensive applications to only a dozen or so classes that are clearly related or adjacent to the brand owner’s business, at least ensuring coverage in the classes most likely to be targeted by pirates.

If broader protection is deemed a “must have”, consideration could be given to filing applications in smaller batches, filing first in core classes, then following up with additional applications in secondary classes only after primary registrations in core classes have been secured. This would not only help to keep the number of applications within the perceived “safety zone”, but also ensure that the brand owner at least has protection in its core classes locked down in the event that later defensive applications are eventually rejected.

Just where that “safety zone” lies at the moment remains unclear. For now, and on balance, filing no more than 15-20 defensive applications in those “adjacent” classes would appear to be a reasonable number that would pass CNIPA scrutiny, particularly if those filings are confined to goods and services that are very arguably related to the brand owner’s active business. Nevertheless, and particularly before bulk filing trademark applications covering less-related, less-relevant classes, it would be worthwhile to ensure any changes or updates to CNIPA’s practice are fully understood and incorporated into any filing strategies.

Brand owners should also studiously avoid filing in certain classes or subclasses that require special qualifications in China unless they actually operate in that industry. For example, a variety of goods and services in Class 1 (industrial chemical), Class 5 (medicines), Class 13 (firearms), Class 34 (tobacco), Class 36 (financial services), and Class 38 (radio services) would be risky to specify in defensive filings. Positively, pirates also appear to find these classes less appealing (likely for just that reason), so the risks of foregoing defensive filings for such goods/services should be manageable.

Vulnerability of Defensive Filings to Non-Use Cancellation

A discussion of defensive filings in China would not be complete without considering the risk of non-use cancellation actions against those filings. Anyone can seek to cancel a mark for non-use at any point after it has been registered for three years.

In the past, proving use of a single item in a given class was often sufficient to save the entire registration in respect of all subclasses, particularly in actions at the initial TMO stage. Recently, however, the TMO has changed its practice and now requires registrants to submit evidence of use for at least one item in each subclass, lest the registration be cancelled in respect of that subclass. This makes the stability of defensive filings less reliable than it was in the past.

A tactic to minimise defensive registrations’ vulnerability to non-use actions has been to simply file new applications for any unused registrations every three years, ensuring there was always a “fresh” right in the queue. The TMO’s recent changes, however, mean that registrants will need to rethink that strategy, where the CNIPA is clearly looking to discourage what it views as the “unnecessary occupation of trademark resources”. On balance, the CNIPA may well end up being more inclined to achieve a less-cluttered register than to permit registrants of unused trademarks to renew their defensive registrations in perpetuity, regardless of any inherent risks of piracy.

Finally, it must be kept in mind that defensive filings are not a panacea to trademark piracy in China. Indeed, given the scale of the problem, and the CNIPA’s only limited efforts to fully curb the issue, all brand owners should engage in careful and consistent monitoring of the PRC trademark registry. Through such monitoring, brand owners will be better able to identify, triage and act quickly against pirate applications, particularly where existing or potential defensive registrations may be in play.

 By Dan Plane, Irene Liu and Yixin Chai

[1] Article 3, Chapter 2 of the Guidelines.