A new hope for brand owners on the unauthorised use of trademarks

Operating a business and registering intellectual property in China can be challenging. Brand owners have had a long-standing battle with the unauthorised use and registration of their trademarks as enterprise names or trade names in China. Andrew Sim and Shirley Zhao, from Baker McKenzie, explain how the new Anti-unfair Competition Law (AUCL) offers a potential solution to these intellectual property (IP) problems.

China’s revised Anti-unfair Competition Law (AUCL) went into effect on 1^st January 2018, bringing about important changes affecting intellectual property rights (IPR) owners. These changes have introduced new provisions that respond to recent instances of unfair competition in the marketplace, have removed provisions that overlapped or conflicted with other laws, and have imposed harsher penalties for unfair competition. In light of these changes, reviewing enforcement portfolios in China will be essential.

A problem commonly encountered by IPR owners is the unauthorised use and registration by another party of their trademarks as enterprise names or trade names in China. Free riding on the reputation of established or famous brands entails a business registering an enterprise name that is identical with, or similar to an already established product name or famous brand.

The AUCL prohibits a business entity from carrying out acts that are intended to confuse or mislead others into thinking that its products belong to another party, or there is an affiliation with another party. Some of these acts include:

1. using without permission, a trademark that is identical with or similar to another’s product name, packaging or decoration that already has a certain degree of influence;
2. using without permission the name of an enterprise, social organisation or individual with a certain degree of influence;
3. using without permission, the main element of a domain name, website name or webpage that has a certain degree of influence; and
4. intentionally trying to mislead and confuse others into thinking that a product belongs to another party, or there is an affiliation with another party.

Another change is the replacement of “famous” with “a certain degree of influence”. This is a welcomed change as it was onerous for brand owners to prove their trademark’s fame.

If confusion has arisen, the local Administrations for Industry and Commerce (AICs) are empowered to impose a range of penalties, including the power to halt the illegal act and confiscate the infringing goods. A newly added provision also empowers AICs to investigate the infringer’s bank accounts.

Additionally, AICs are now entitled to impose higher fines than before, with the severity of the fine still tied to the amount of illegal revenue a business can bring in. If there is no illegal revenue or their revenue is less than renminbi-yuan (CNY) 50,000 (approximately United States dollar (USD) 8,000), AICs can impose a fine up to CNY 250,000 (approximately USD 38,000). When illegal revenue is over CNY 50,000, AICs can impose fines up to five times the amount illegally earned by a business. In serious circumstances, the business licence of the offender may be revoked.

The revised AUCL also allows AICs to replace an infringing trade name with the social credit number of the enterprise before their trade name is changed formally. Before the revised law, getting a business to refrain from using an infringing enterprise name had been one of the main obstacles to owners preventing IPR infringement. Typically, the business did not comply with the AICs’ order to change its trade name, making favourable court judgments difficult to enforce in practice.

Current laws on the subject are unclear regarding the handling of trademark and trade name rights. The revised AUCL helps to clarify this issue since it forbids enterprises from using names that contain words that are identical or similar to the names of famous goods or services (this can arguably include trademarks).

To improve the use and registration of trade names and to reduce the number of conflicts between trademark and trade name rights, China has also promoted other legal reforms in order to supplement the AUCL. For example, the Rules on Prohibited and Restricted Enterprise Names came into effect on 31^st July 2017 and prohibits a business from using another party’s well-known trademark in the same industry as their enterprise name. This prohibition discourages a market player from selecting an infringing enterprise name. Additionally, proposed revisions to the Regulations for the Administration of the Registration of Enterprise Names were first released on 22^nd September 2017 and are likely to be finalised in the first half of 2018. These proposed revisions require market players to use their enterprise names in good faith. In particular, no enterprise may use a name that is identical or similar to another party’s famous business identifier or use its registered enterprise name to damage the national interests, public interests or lawful interests of another party.

IP owners should monitor this area for any future developments and reconsider their IP enforcement strategies in order to combat unauthorised use and registration of their trademarks as someone else’s enterprise name.

Andrew Sim is a partner of the Intellectual Property Group in the Beijing office of Baker McKenzie. His practice focuses primarily on intellectual property law in the People’s Republic of China.

Shirley Zhao is an associate of the Intellectual Property Group in the Beijing office of Baker McKenzie. Her practice focuses on brand protection in China.