China’s new powerful market regulator tackles the use of deceptive trademarks

As part of the biggest government restructure since its “open door” policy began in the late 1970’s, China’s IP governance was also radically overhauled. In a move that surprised many, the patent and trademark offices were consolidated. The new State Intellectual Property Office (SIPO) now reports to the newly established State Administration for Market Regulation (SAMR). The SAMR is now the single most powerful authority in China with its mandate including the protection of IP rights, registering trademarks, patents and geographical indications, as well as advising on trademark and patent enforcement.

Following its establishment, the SAMR immediately began a series of campaigns tackling IP-related concerns aimed at strengthening IP protection in China by combating infringement at source. In this article, we will discuss the SAMR’s initiative to combat the illegal use of unregistered trademarks.

The “Purification” Action Plan

Article 10

This Action Plan tackles the use of unregistered trademarks that violate Article 10 of the Chinese Trademark Law, which prohibits the use as trademarks of, among others, signs similar or identical to State names, the national flag and other emblems or symbols of China and other countries, or to the names and symbols of international inter-governmental organizations, or to geographical names of county level or above in China, or well recognized foreign geographical names. Article 10 also prohibits the use of:-

• deceptive signs and those likely to mislead in terms of quality, place of production and other characteristics of products (Article 10(1)(7)); and
• signs detrimental to socialist ethics or customs, or having other unhealthy social influence (Article 10(1)(8)).

According to Article 52 of the Trademark Law, the use of unregistered trademarks violating Article 10 will be subject to administrative penalties such as cessation and rectification orders. Infringers’ illegal acts will also be publicly announced. In addition, a fine can be imposed at the rate of 20% of illegal business value which exceeds RMB 50,000 (around USD7,500); or up to RMB 10,000 (around USD1,500) if such value is less than RMB 50,000.

Lists for investigation

Pursuant to the Action Plan, the Trade Mark Office (“TMO”) has prepared lists of trademarks rejected for registration since 2017 for violating Article 10. These lists will form the basis of further investigation and enforcement action by the local Administration for Market Regulation (“AMRs”) from July to October 2018. Several local AMRs have also published adaptations of the Action Plan on their websites.

The Action Plan should be good news for consumers as products bearing deceptive or misleading indications, such as State or geographical names, or other signs appearing to give quality assurance, shall be reduced in the market. The prohibition of use of unregistered trademarks under Article 10 is not new; similar prohibitions were available under the previous Trademark Law. However, enforcement on this ground has not been as rigorous as with trademark infringement and unfair competition.

Local AMRs will prioritise tackling violations involving State and geographical names and misleading signs likely to cause significant adverse influence in the market. Among the very limited reports available, the Ningbo AMR previously prosecuted a local train components manufacturer for violation of Article 10(2) by marking “北仑” (BEI LUN), a county level geographical name in China, on their products. A moderate fine of around USD7,500 was imposed.

However, in one of its “model” enforcement cases in 2016, the Shanghai administrative authority imposed a steep fine of around USD60,000 for the unauthorized use of the words “UNITED NATIONS” in Chinese and English together with the emblem of the United Nations. The defendants were found to have organized an unofficial United Nations Youth Summit and promoted the event on various online platforms in violation of Article 10. The illegal turnover in the case exceeded USD890,000.

Possible impact

Although administrative prosecution based on Article 10 has not been common in the past, trademark owners should be aware of the possible impact of the Action Plan in future, especially in relation to marks that may be regarded as “deceptive or misleading” as to the quality or other aspects of the products. In our experience, the TMO is increasingly objecting to applications on this basis. Rejection increases the risk of being caught by the Action Plan if a trademark owner decides to use the mark anyway. In practice, some trademark owners may take the risk because of the seemingly low prosecution rate based on Article 10, especially if the same trademark has been granted by overseas trademark authorities. However, trademark owners should note that foreign trademarks (except for International Registrations extended to China) are not enforceable in China and will be of limited support.

Also, in view of the AMRs’ well-publicized attitude to “purifying” the market, prosecution for using prohibited unregistered trademarks may not be remote as perceived. In fact, the use of an unregistered trademark which was regarded as “misleading” as to ingredients of the product, was the subject of prosecution even before the Action Plan was announced. In 2016, the Weihai AMR prosecuted a local company for using “高纯盐藻” (meaning “highly pure dunaliella salina”, a type of micro algae) on the packaging of beta carotene supplements. The trademark application for the characters was rejected as the TMO considered them to be descriptive of the raw materials of the product. After considering the circumstances, including the absence of the micro algae in the product ingredients, the Weihai AMR ruled that the use of the unregistered trademark was deceptive and in violation of Article 10(1)(7). The fine was not significant (around USD600) but, if a similar prosecution were to be made under the Action Plan, the media attention that it is likely to attract would have a negative impact on the reputation of the trademark owner.

The exact scope of trademarks targeted by the Action Plan is unclear, as the relevant trademark lists have not made public by the SAMR. However, the Administration for Industry and Commerce of Jiang Su Province has already published a list of trademarks rejected for violating Article 10 of the Trademark Law on its website.

Although the list seems to cover only applications filed by domestic applicants at the moment, in theory, the Trademark Law and the Action Plan should also apply to foreign trademark users. It is uncertain whether the Action Plan will become a regular policy but foreign companies should be cautious when using their unregistered trademarks in China. As objections based on Article 10(1)(7) and 10(1)(8) appear to be more frequently used by the TMO, foreign companies should seek advice on the likelihood of their marks being deemed misleading, deceptive or possibly having a socially unhealthy influence in China, in assessing the potential impact of Article 10 on their business.

Key Contacts

Dora Si

Partner | Intellectual Property

Email or call +852 2826 5394