Recent cases of trademark theft involving Chinese employees of US companies and China’s ever rampant phenomenon of trademark squatting have emerged as very critical areas of dispute between China and several Western countries. On April 23, 2019, two new sets of regulations were adopted by China’s State Council addressing these concerns. Both introduce more effective legal tools to protect foreign IP assets in China. One set enables the Chinese trademark office to do more preventive clean-up work of fraudulent trademark applications, while extending the liabilities of squatters and their filing agents. The other set provides for a more severe punishment of the infringers while lightening the right holder’s burden of proof, thus making it easier to bring cases of trade secret violation to justice.
Below is a breakdown of the new provisions and the time of their entry into force.
1. The Major Changes to Trademark Law (effective from Nov. 1, 2019)
My blog of March 15, 2019 discussed the draft of this new trademark amendment. The draft has now been fully adopted into law and will allow the trademark office to preventively reject malicious trademark hoarding and frivolous applications while making it a stand-alone ground for oppositions and invalidations. Also, trademark agencies that facilitated malicious trademark hoarding or frivolous applications may be punished. See my previous blog, here, for more details on these new provisions.
In addition, the new amendment introduces significant changes concerning the section of the law on damage compensation. In particular, punitive damages for recidivists have been raised from 1-3 times to 1-5 times the illicit profit, while the upper limit for statutory damages has been raised from RMB3 Million to RMB5 million. This confirms a new trend in trademark litigation in China, whereby courts are no longer so tight when determining damage compensation. It will be more and more common to see higher damages than in the past.
All the above changes are beneficial to foreign rights holders. It will lighten their burden when recovering stolen marks and will allow them to look at civil litigation as a viable and effective tool to stop infringement – thanks to the higher chances to obtain a fair liquidation of their damages.
2. The Major Changes for Trade Secrets (effective from April 23, 2019)
The new amendment on trade secrets expressly includes “commercial information” other than “technical or operational” information in the trade secret definition, thus removing any lingering doubt as to the scope of what constitutes trade secret. At the same time the law has expanded the definition of infringer. Whereby the previous norm only referred to business operators, the new law defines the infringer as “a business operator or any other natural person, legal person or unincorporated organization.” This will eliminate doubts about whether, for example, a single person hacking for resale of stolen secrets is a business operator. In this respect, the law has further listed “hacking” as a specific conduct in violation of trade secret.
In addition, the new amendment lightens the burden of proof of the victim of a trade secret violation by providing a relative presumption of infringement. The lack of such a presumption in the past was a serious obstacle that often restrained foreign right holders from taking legal action in China. Under the new rules, if the rights holder can make a prima facie showing that measures were taken to protect the confidentiality of its commercial secrets, and can reasonably indicate that such commercial secrets were misappropriated, the accused will have the burden to prove that the claimed commercial secrets claimed do not fall with the scope of commercial secrets. In other words, the accused must prove that the secrets were legitimately acquired.
The new amendment also introduces changes to the law on damage compensation. In particular, punitive damages for repeating infringers have been lifted from 1 to 3 times the illicit profit to 1 to 5 times the same, while the upper limit of statutory damages has been raised to RMB5 million.
All these changes are favorable to foreign IP holders in China, no matter whether they have been forced upon China by foreign political pressure or the natural outcome of a willing process of change started a few years back.