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China’s Trademark Reforms Signals Stronger Protection and Enforcement

, AWA Asia, China

The past year saw two landmark trademark cases in China with one of the largest trademark damage awards for a foreign company. A combined IP office signals opportunities for rights holders and promising news for litigants as many general courts have been stripped of their IP jurisdiction as specialized IP Tribunals expand

The IP environment in China has seen significant developments over the past 12 months. IP reform has been at the front of the Chinese government's economic agenda, with several developments enacted and other impending changes coming up.

The announcement from the Chinese government on the merger of the patent and trademark offices into a single combined IP office has been applauded by the IP community. This will likely result in stronger protection and accordingly enforcement opportunities for rights holders. In another move, stripping many general courts of their IP jurisdiction and placing the same with specialized IP Tribunals could prove beneficial to IP owners who have legitimate rights they wish to enforce.

In two landmark trademark cases: Under Armour won a major victory for trademark infringement as did New Balance over their N letter design in one of the largest trademark damage awards awarded to a foreign company, echoing President Xi Jinping's words: "wrongdoing should be punished more severely so that IP infringers will pay a heavy price."

President Xi made these remarks during the National Financial Work Conference in July last year and are thought to be the most extensive remarks he has made in public on the subject of intellectual property enforcement.

The international business community has been watching these and many other developments unfold closely because the IP regime in China as we know it is changing. A clear signal has been sent over the past year that IP rights are to be respected in accordance with the law– not only to please or appease foreign investors, but also for the benefit of domestic companies as they grow in stature and relevance on the world stage.

The growth in IP filings in China has been exponential – last year alone more than 5.7 million trademark applications were filed with the CTMO, an increase of more than 55% from the previous year. Most of the filers are Chinese nationals or entities.

IP litigation numbers have risen drastically as well. The Courts accepted a total number of 237,242 new IP cases of first instance, second instance and retrial (up 33.50%) last year and concluded 225,678 cases (up 31.43%) compared with 2016.

SIPO Restructuring

During the first session of the National People's Congress on March 13, 2018, China's government approved a large-scale restructuring of the State Intellectual Property Office (SIPO). SIPO is the patent office of China, responsible for all patent- related matters and coordinating foreign-related affairs in the field of intellectual property rights.

The restructuring incorporates the Trademark Office of the State Administration for Industry and Commerce (SAIC) and the Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) as regards geographical indications.

The restructured SIPO will be responsible for accelerating the establishment of a protection system for IP rights, the granting and adjudication of trademarks, patents, and geographical indicators, and the supervision of related law enforcement.

Consolidating trademarks, geographical indications and patents shows the government's determination to further strengthen IP protection in China. The move is also encouraging for rights holders as their intellectual property can be protected and enforced under a single office in the future.

The reshuffle could also signal stronger enforcement opportunities for patent holders by utilizing the power and experience of local Administrations of Industry and Commerce. Historically, these local authorities, under the supervision of the SAIC, have been very strong and effective in tackling trademark infringement through administrative procedures.

SIPO will administratively come under the newly created State Administration of Market Supervision and Management (SAMSM). In addition to SIPO, the SAMSM will oversee the National Development and Reform Commission's (NDRC) price supervision and antitrust enforcement functions, the Ministry of Commerce's (MOFCOM) antitrust enforcement functions and the State Council's Antitrust Committee.

This consolidation creates a powerful overarching oversight over the intellectual property protection regime in China and the opportunity to improve the efficiency of law enforcement and ensure consistency when interpreting and practicing legal matters under different regimes.

Expanding IP Tribunals (in addition to the existing IP Courts and Tribunals)

China has continued to develop its adjudicatory framework for intellectual property disputes as the total number of IP Tribunals reached 15 in March of this year. The Tribunals are part of the IP Courts system: stemming from the three specialized IP Courts created in Beijing, Shanghai and Guangzhou in late 2014.

The IP Courts were created to try cases involving patents, trade secrets, computer software and cases regarding recognition of well-known trademarks and antitrust issues. The IP Tribunals have a similar function to IP courts, but operate within the local-intermediate court system and are comprised of 12 to 15 judges, all with extensive IP litigation experience.

The IP Tribunals have cross-regional and exclusive jurisdiction over IP matters in first-instance cases and their jurisdiction extends beyond the city's Intermediate Court where they are located. This power has stripped many Chinese courts of their jurisdiction over IP disputes, leading to a fundamental change in the forum selection strategies of both multinational and Chinese companies.

IP Tribunals may also help to alleviate concerns about regional protectionism, because many defendants will not be sued in their own cities. For example, Xi'an is the capital city of Shaanxi Province, and one of 11 cities in the province and although the Xi'an IP Tribunal is a part of the Xi'an Intermediate People's Court, its jurisdiction over significant IP matters covers all of Shaanxi Province.

For companies facing an IP dispute in China, understanding the IP Tribunal framework and jurisdiction is paramount in order to select the appropriate jurisdiction for a case as location can have a significant impact on the time to resolution, as well as the ultimate merits of the case.

This rapid expansion of IP Tribunals shows that China wants to strengthen their jurisdiction over IP cases and improve the quality, efficacy and consistency of IP adjudications. It also shows a determination to establish an IP judiciary system separate from the administrative divisions (provinces, province-level municipalities and cities within a province).

It has been widely speculated that China will eventually set up a unified IP appellate court, similar to the US Court of Appeals for the Federal Circuit. On a number of occasions, officials and judges of the Supreme People's Court have expressed support for the establishment of such a court. This would further enhance adjudicative consistency between IP administrative proceedings and infringement actions, and among different trial court decisions. It may also help to eliminate local protectionism.

Landmark Trademark Cases

In August 2017, the Suzhou International People's Court ruled that three domestic shoemakers must pay New Balance USD 1.5 million in damages and legal costs for infringing the American sportswear company's signature slanting "N" logo.

This is definitely one of the largest trademark infringement awards ever granted to a foreign business in China and it not only a victory for New Balance, but also for many other foreign companies that have long complained that China has not done enough to protect their brands.

Also in August, Under Armour, Inc won a major victory against the Chinese sportswear company Fujian Ting Fei Long Sports Products Co Ltd, which had used a similar logo to one used by Under Armour, Inc for its 'Uncle Martian' athletic footwear.

The Higher People's Court of Fujian Province ruled in favour of Under Armour, Inc, finding that Fujian Ting Fei Long Sports Products Co Ltd's use of the logo constituted trademark infringement and awarded the plaintiff approximately RMB 2 million (USD 300,000).

This case was important because the preliminary injunction was awarded before the matter was tried in full, which was relatively rare in the past. The Court approved Under Armour, Inc's application for a preliminary injunction and ordered the defendant to immediately stop the manufacturing, selling or advertising of shoes and clothing using the contested logo.

CTMO Reforms to Shorten Processing Time

The China Trademark Office is making way to facilitate the registration, recordals, renewal and assignments of trademarks. By the end of the 2018, the CTMO will shorten the window for trademark search (time lag between the trademark details available on the CTMO website and the filing of the trademark application) from 3 months to 2 months.

The Office will also shorten the examination period for national trademark registrations from 9 months to 6 months; for issuing filing receipts from 2 months to 1 months; for trademark assignments from 6 months to 4 months; and for recordals of changes and trademark renewals from 3 months to 2 months.

Moving forward

This is the "new China" that many have been looking forward to and have not expected to see so quickly, and so readily progressed by the central government. It is only in China that changes can take place as such breakneck speed, and from the perspective of IP practitioners on the ground here, we believe that the best is yet to come.