Trademark

Defending Against Non-use Cancellation Attack in China

SIPSKnowledge, Trademark Registration

Starting from around 2014 or so, the China National IP Administration (“CNIPA”) and Chinese courts had begun grudgingly accepting letters of consent and co-existence agreements as a means of overcoming rejections due to the citation of “similar” trademarks. That shift towards international norms on these issues was short lived, however, with China completely backtracking on consents since mid-2021. Currently, CNIPA and the courts give little to no weight to such documents in similarity disputes. As a result, brand owners are once again regularly forced to consider other means of overcoming citations, including cancellations for non-use. This article will discuss recent caselaw and current practice on non-use actions, including the burden of proof, effective use evidence, justified reasons for non-use, and how to defend against non-use attacks more effectively.

Legal Background

Under Article 49 of the PRC Trademark Law, trademarks that have not been used for three consecutive years at any point after the date of registration are vulnerable to non-use cancellation by third parties. To prevail in a non-use cancellation action, the burden is entirely on the registrant to prove that there has been sufficient use made of the trademark during the relevant period. This is in stark contrast to other types of registry actions such as trademark oppositions and invalidations, where the applicant bears the burden of proof. As well, any party is permitted to file a non-use action, as opposed to oppositions and invalidations, where the petitioning party generally needs to demonstrate a connection to the case, referred to as “standing”, to justify the action.

This makes non-use cancellations (where viable) a straight-forward and cost-effective option for brand owners looking to clear a path for registrations.

Effective Evidence of Use

“Use” of a trademark in the PRC generally refers to the application of trade marks on goods, product packaging or containers, their use in conjunction with the provision of covered services, and/or their attendant application/use in conjunction with those goods and services, such as in transaction documents, in advertising, exhibitions, or via other commercial activities.

In relation to non-use cancellations, valid use evidence needs to demonstrate that the disputed trademark has been used on the designated goods/services in China three years from the filing date of the non-use cancellation action. The “user” of the mark can be the trademark registrant, its licensees, and/or individuals or entities whose use is not contrary to the trademark registrant’s will (e.g. affiliated/related individuals or entities).

Valid use evidence generally includes the following:

  1. photos evidencing use of the trademark on designated goods/services, e.g. product samples, product packaging, instruction manuals, price lists, service venue signs/decorations, etc.;
  2. transaction documents related to the sale of goods or provision of services in China, such as agreements, orders, invoices, delivery notes, receipts, import and export customs declaration certificates, maintenance certificates, etc.;
  3. materials related to advertising the goods/services in China. This could include print publications, radio, television, or online advertising, demonstrated via ads, agreements with marketing agencies, invoices from marketing agencies, etc.; and
  4. evidence showing use at trade fairs and exhibitions in China, including printed materials, display boards, agreements signed for participation in the exhibition, corresponding invoices, etc.

1. Use in Export and OEM Production

Victims of trademark piracy in China may well be familiar with China’s “OEM Exception.” This is a judicial construct that permits the export of OEM goods from China in spite of a pirate’s theft of the trademark appearing on those goods. This is ostensibly because a trade mark appearing on goods intended solely for export is not actually being “used” in the PRC if Chinese consumers do not actually see it. This is fully consonant with the PRC Trademark Law’s overarching consumer protection goals.

Fortunately, brand owners are not subject to this same reasoning in the context of a non-use case, where the application of trademarks only to OEM goods intended solely for export in China does constitute valid use for the purposes of defending against non-use attack.

2. Use Must be Public

Save for the OEM Exception discussed above, “use” to defend against a cancellation must be public in nature, that is, consumer-facing and targeted at the general public in China.

“Private” trademark use will not be sufficient. For example, in an case involving the trade mark “San Bao Huang Shi Fu” (Reg. No. 6626338)[i], the Beijing High People’s Court (“BHPC”) rejected the registrant’s screenshots of its private WeChat profile on which it used the disputed trade mark to promote the relevant goods. In that case, the WeChat profile was only available to a small, fixed group of WeChat users, insufficient to demonstrate public exposure in the absence of other evidence of use.

Similarly, internal use with a company or only with affiliated companies will not be considered public use. In an appeal concerning the trademark “LETTS” (Reg. No. 9351657),[ii] the BHPC rejected evidence of commercial transactions involving the mark where it was shown that the registrant was legal representative and shareholder of both the buyer and the seller.

3. Use Must be Commercial

Valid trade mark use must be for commercial purposes. Non-commercial use, such as use in trademark assignments or in enforcement actions for the mark, or trademark registration information or statements of exclusive rights published by the trademark registrant themselves does not constitute valid use in cancellation actions.

That does not mean that the relevant goods/services on which the disputed trade mark is used must be sold or provided solely for monetary consideration. Indeed, accessories, promotional or other items, even if distributed gratis, may also constitute valid commercial use under the right circumstances. For example, the BHPC held that use of the “Wan He” trade mark (Reg. No. 3342442)[iii] on electric toothbrushes and multi-functional electric lunch boxes provided solely as free gifts to the registrant’s customers was valid commercial use.

4. Use Must be Genuine

Valid trademark use must be genuine, usually defined as meaning continuously and consistently. One-off instances of use will be deemed merely symbolic and insufficient to demonstrate use in a non-use cancellation attack.

In that regard, the Beijing Intellectual Property Court (“BIPC”) held that use of the trademark “Tong Tou” (Reg. No. 5295157)[iv] for training services on only two occasions – where minimal fees were charged for those services – was only symbolic use. The mark was cancelled.

5. Use Must Be Active

Use must generally be active, not merely passive, i.e., in the form of third-party reports or news articles published in Chinese media.

Given that, and although passive use can sometimes help to further define and underline a connection in the public’s mind between the trademark and the registrant, such evidence will not on its own be deemed sufficient to maintain a registration.

For example, due to the State’s monopoly control over the Chinese tobacco system, a tobacco company was unable to directly sell and market its electronic tobacco products in China. Nevertheless, the company’s products received significant attention from the Chinese media, with dozens of articles mentioning the trademark, the registrant and its product. Despite the huge volume of such reports submitted, the BIPC and BHPC both decided that such passive reportage, on its own, was insufficient to demonstrate use sufficient to defeat the non-use action.

6. Use Must be Legal

Any use must also be “legal,” which for non-use cancellation purposes only means in compliance with the provisions of the PRC Trademark Law.

Accordingly, and even though evidence of use put forward by a registrant might actually have been in clear violation of other Chinese laws, such evidence is not tainted for the purposes of defending against a non-use action under the Trademark Law. This even goes so far as extending to violations of the PRC Anti-Unfair Competition Law, where the petitioner claimed that the evidence of use was clearly ripping the well-known packaging and trade dress of another company in making use of the trademark “Hai Zhi Xing (Star of the Sea)” (Reg. No. 5125963)[v]. The BHPC found no reason to ignore that evidence of the registrant’s use of the trademark.

7. Use Must be of the Trademark Actually Registered

Under Article 56 of the PRC Trademark Law, the exclusive right of a registered trademark is limited to the trademark approved for registration in respect of the goods/services for which they are approved. Any use that alters the appearance of the registered trademark is strictly prohibited under Article 49 of the PRC Trademark Law.

In practice, however, CNIPA and the Chinese courts have been rather lenient on this point so long as the trademark’s distinctive features have not been altered and its use largely corresponds to the mark as registered. There are exceptions, especially where the registrant is actually only using non-distinctive elements of the registered trademark, or holds a separate registration for the element of the trademark that is in actual use.

Notable on this point is an appeal concerning the composite trademark “Long Li De & WTW” (Reg. No. 4355453)[vi], where evidence provided by the registrant demonstrated separate use of “Long Li De” and “WTW”, for which the registrant held independent registrations. The BIPC found that this was only evidence of the separate uses of “Long Li De” and “WTW”, not use of the composite trademark itself.

Similarly, a case involving the trademark “NATURONE” (Reg. No. 4516426)[vii] in Class 30, examined evidence showing only use of a composite mark, “Wu Xian Neng” (Chinese characters meaning ‘infinity’) & “NATURONE” for which the registrant held a separate registration. The BHPC held that the Chinese characters “Wu Xian Neng” were much more distinctive in the mark appearing in the proffered use evidence. There were also “clear differences” between it and the trademark “NATURONE” which was under attack, both in terms of pronunciation and visual effect. As a result, the use evidence was rejected and the mark was cancelled.

8. Use on Similar Goods/Services

Within each trademark class, the PRC trademark system is subdivided into “similarity subclasses.” Basically, this means that valid use of the disputed trademark in respect of any single item in a subclass is considered sufficient to maintain registration of any other item registered in that subclass.

That does not mean, however, that use of the trademark on an item not specified and covered by its registration, i.e., an unregistered item in the relevant subclass, will be recognized as valid use of the trademark on other registered items within that subclass.  Instead, and generally speaking, the use evidence must show use on an item identical to or essentially identical to an item appearing in the subclass and actually specified in the registration.

Thus, it is not surprising that the BHPC found that use of the trademark “Hua Mei” (Reg. No. 3588191)[viii], in respect of “dental hospital services” in subclass 4401 was sufficient to defend the registration of the mark in respect of “massages (medical), health care, nursing (medical), hair transplants, aromatherapy, psychological services” in addition to “hospitals”, services also listed in subclass 4401. But in the case involving the mark “Pan Long Yun Hai” (Reg. No. 3191802)[ix], the BHPC found that use on “mineral water” was insufficient to save the registration, where that item did not actually appear in the specification for the registered mark. Instead, it only covered “juice, lemon juice, etc.” Thus, and although all of those items appeared in subclass 3202, the unregistered item mineral water was deemed insufficiently similar to the items actually registered. Thus, this use evidence was rejected.

Justified Reasons for Non-Use

To the extent that a registrant was unable to make use of the mark, they might be able to excuse their non-use. In that regard, justifiable reasons for non-use include force majeure; government policy restrictions; and bankruptcy and liquidation, or other legitimate reasons generally not attributable to the trademark registrant:

Trademark Court’s Ruling Reason Involved
“E-SAL and Device” No. 6483615[x]

 

A fire resulted in the death of the original registrant’s relatives and destruction of the company’s property, causing material and emotional harm to the registrant. These circumstances made it reasonable to excuse the registrant’s failure to put the disputed trademark into commercial use during the specified period. Force majeure
“Sha Cheng” No. 6597027[xi]

 

The registrant applied for bankruptcy reorganization after suffering losses due to national macro-policy adjustments, changes in consumption trends and other relevant reasons outside the registrant’s control. The court viewed this as sufficient justification for non-use. Bankruptcy and liquidation
“Rui Shu Lin” No. 10472109[xii]

 

 

The registrant claimed it was unable to use the disputed trademark during the specified period because it had not yet obtained necessary approval from the drugs regulation department of the State Council. This constituted a justified reason for non-use. Government policy restrictions
“Ke Luo Ge & KROGER” No. 7999195[xiii]

 

The registrant’s business premises were forcibly and illegally demolished, which constituted a justified reason for non-use that could not be attributed to the trademark registrant. Notably, and before its premises were destroyed, the registrant had licensed others to use the disputed trademark which showed its true intent to make use of the mark. Other legitimate reasons
“Hua Jie & MBA” No. 5456391[xiv]

 

The disputed trademark had been seized by authorities during the specified period and was only acquired by its then-current registrant on 23 October 2020 via judicial auction. Non-use of the mark during the period between 13 October 2017 and 12 October 2020 constituted a justified reason for non-use. Other legitimate reasons
“URUS” No. G977293[xv]

 

 

Registrant Lamborghini clearly intended to use the disputed trademark, making all necessary preparations to do so during the specified period. It only failed to do so during that period because of the overlong development period for its URUS model (which was actually on sale in China by the time of trial on the non-use action). Other legitimate reasons

Notwithstanding the above, in practice, CNIPA and the Chinese courts have been strict in judging the justifications put forward for non-use, requiring any incident to:

  1. be temporary and accidental in nature, and not able to have been prevented, predicted, or controlled by the registrant;
  2. have directly and inevitably led to the disputed trademark not being able to be used during the specified period, without any possibility of use through other channels or methods; and
  3. continue throughout the entire three-year duration of the specified period, rather than just taking up part of that period.

In the case of reasons other than force majeure, government policy restrictions or bankruptcy and liquidation, the registrant must also demonstrate it has a true intent to make use of the mark and has made necessary preparations for its use.

Not surprisingly, rejections of the defence are not uncommon given the strict nature of the above conditions:

Trademark Court’s Ruling
Non-Use Cancellations sample logo 1

No. 8141210[xvi]

 

As a practitioner in the financial field, the registrant should have been aware of the policy that any party engaging in this specialization needed to obtain approval from relevant departments in light of rules fully in force long before and throughout the specified period. The registrant also failed to submit any evidence indicating that it had made preparations for use of the disputed trademark during the specified period.
Non-Use Cancellations sample logo 2

No. 5720789[xvii]

 

 

The original registrant entered into liquidation during the period, but that process did not take up all of the period, and in the year leading up to the liquidation, there was no evidence of the registrant’s intent to use the mark or that it had made any preparations for its use.
“BOCO” No. 9710965[xviii]

 

 

Whilst entering liquidation could constitute a justified reason, mere restructuring due to bankruptcy did not. Even though the registrant was forced to cease normal production and business activities during the restructuring period, this period did not fully cover the specified three-year period from April 4, 2016 to April 3, 2019.
“Wei Mei Yuan Su & Bellefontaine” No. 3927729[xix]

 

The registrant attempted to rely on the pandemic as a justification, but the specified period began two years before the outbreak, meaning the registrant had sufficient time to make use of the trademark. Even then, the pandemic did not necessarily result in the registrant being unable to use trademark.
Defensive Measures

Trademark owners whose trademarks have been registered for more than three years should be cautious of the risk of non-use cancellation attacks by third parties. To minimize this risk, various defensive/precautionary measures may be considered.

First, it must be kept in mind that over the last few years, pirates have begun taking aggressive actions against brand owners attacking stolen marks via oppositions or invalidations. Given that, trademark owners must first assess the vulnerability of marks in their own portfolio to a pirate’s non-use attack in retaliation.

Second, trade markowners with direct business in China, be it sales and/or OEM production, should consider keeping a record of business transactions and related commercial documents in case their trademarks suddenly become subject to non-use cancellation attacks.

Even trademark owners that do not conduct business in China directly could consider the following options to demonstrate an intent to use the mark or having made actual use:

  1. records of visits from Chinese IP addresses to the trademark owner’s website to demonstrate that Chinese consumers are aware of their brand. In that regard, and if actively marketing in the PRC, a separate, Chinese version of the website targeted specifically at the Chinese consumers could be particularly useful;
  2. records of online and offline sales to Chinese consumers, including sales through the trademark owner’s website, Amazon, Tmall, and other platforms or retailers from those platforms, including customs declarations, and freight information etc. relating to the transactions;
  3. records of promotions and sales conducted in collaboration with Chinese influencers on Bilibili, Douyin (Chinese version of TikTok), and other social media platforms, including exchanges with the Chinese influencers and payment records for the collaborations;
  4. records of the trademark owner’s participation in exhibitions, expos, and other trade shows in China or targeting Chinese customers; and
  5. records of export and OEM production in China.

Finally, if there is no use of the relevant trademark (particularly in respect of purely defensive trade marks, often a necessity in China to defend against piracy) and no plans for such use, the trademark owner may also consider refiling the trademark every 24-36 months to obtain a fresh registration and thereby mitigate the risks of a non-use cancellation attack.

Dan Plane, Sherry Li and Jeremy Chiu


Endnotes

[i] (2023) Jing Xing Zhong No. 1744
[ii] (2020) Jing Xing Zhong No. 3010
[iii] (2016) Jing Xing Zhong No. 5665
[iv] (2021) Jing Xing Zhong No. 1822
[v] (2023) Jing Xing Zhong No. 196
[vi] (2021) Jing 73 Xing Chu No. 13988
[vii] (2018) Jing Xing Zhong No. 3983
[viii] (2021) Jing Xing Zhong No. 3100
[ix] (2016) Jing Xing Zhong No. 2844
[x] (2019) Jing Xing Zhong No. 55
[xi] (2021) Jing Xing Zhong No. 1453
[xii] (2021) Jing Xing Zhong No. 5883
[xiii] (2021) Jing 73 Xing Chu No. 11586
[xiv] (2022) Jing 73 Xing Chu No. 4279
[xv] (2020) Jing Xing Zhong No. 1531
[xvi] (2021) Jing 73 Xing Chu No. 10849
[xvii] (2020) Jing Xing Zhong No. 7083
[xviii] (2020) Jing 73 Xing Chu No. 17212
[xix] (2022) Jing 73 Xing Chu No. 3414