In a recent judgment, China’s highest court, the Supreme People’s Court (“SPC”), dealt a significant blow to trademark squatters. The case is noteworthy for several reasons:

• First of all, the case was likely selected as a landmark case by the SPC, since the Court accepted to hear the retrial procedure, even though it fully maintained all the previous decisions. This suggests that the SPC earmarked this case to set the record straight on invalidations on the catch-all basis of obtaining a mark through “illegitimate means” provided in Article 44 of China’s Trademark Law.
• Secondly, the case now confirms, at the highest level, that hoarding and registering trademarks without the intention to put them to genuine commercial use may lead to the invalidation of such hoarded marks.
• Finally, the SPC further clarified the application of the catch-all article 44 by stating that it is generally applicable to acts that pursue illegal interests by jeopardizing the public interest, unreasonably occupying public resources etc.

It is expected that this case will become a useful precedent in the fight against trademark squatters in China.

Background

Beijing Shanyin Qiyi Technology Co. Ltd. (“Shanyin”) started using the sign “闪银” (“lightning-fast cash”) for its payment services in November 2013. However, it took no more than a month for a notorious trademark squatter, Wuhan Zhongjun Co. Ltd. (“Zhongjun”), to file a trademark application in an attempt to appropriate the “闪银” mark. Shanyin’s own trademark application, filed some months later, was blocked by Zhongjun’s earlier application. In 2015, after the squatted mark was formally granted registration, Shanyin filed an invalidation procedure against it.

Shanyin invoked the “bad faith” or “catch-all” provision in China’s Trademark Law (art. 44.1) for invalidation of trademarks “obtained by fraudulent or other illegitimate means“. Shanyin argued that Zhongjun registered the disputed mark to squat and sell the mark, thereby obtaining a mark by “other illegitimate means“. To support its argument, Shanyin highlighted that Zhongjun filed 882 trademarks in 44 Classes and had explicitly stated that the subject mark was for the purpose of selling, not for its own commercial use. Furthermore, it stated that Zhonjun’s shareholders had previously committed dishonest business activities with their trademark agency per the findings in another SPC court case. Shanyin also asserted its prior use rights (under article 32), as well as other pertinent articles (art. 4, 7, 10, 19 etc.).

The Trademark Review and Adjudication Board (“TRAB”) invalidated the mark under article 44. Zhongjun appealed the case up to the Beijing IP Court and the Beijing Higher People’s Court, which also sided with Shanyin and maintained the invalidation decision. Zhongjun then applied for a retrial before the SPC. Surprisingly, Zhongjun’s retrial application was granted, but the final judgement confirmed and reinforced the judgments from the lower courts. The SPC mostly grants a retrial procedure only if it sees reasons to reverse the judgements of lower courts.

The SPC’s reasoning

The SPC’s judgment (Chinese language) connects the “illegitimate means” in article 44 par. 1 to the general use requirement set out in article 4 of China’s Trademark Law, explicitly stating:

“a trademark application should be filed for the purpose of commercial use according to article 4 of the Trademark Law. If an applicant violates article 4 and hoards trademarks without the genuine intention to use them, and holds them for obtaining illegal interests, then such acts can be deemed “illegitimate means” as provided under article 44.”

Applying this principle to the case at hand, the SPC referred to: Zhongjun’s prior trademark squatting; to the fact that it had registered over 1,000 trademarks (many being similar to well-known marks); to the fact that it had applied for a wide array of marks in industries beyond the scope of its business license; and to Zhongjun’s admission of trademark sales actives. In addition, the SPC referred to a Zhongjun associate’s website, offering a large amount of trademarks for sale, and to a previous judgement in which it was ruled that Zhongjun shareholders had conducted dishonest and illegitimate business activities with their trademark agencies.

Zhongjun argued that the law sets no limits to the number of trademark applications filed by an applicant, to which the SPC held that trademark applications and transactions should all be based on operational needs, and that the 3-year grace period to commence genuine use is not meant to shield applicants who do not intend to use their marks, but is instead meant to promote the use and true commercial function of trademarks. The SPC held that Zhongjun’s trademark applications were not intended for its actual business operations, and it therefore confirmed the judgments by the lower courts and allowed the invalidation.

Last but not least, while reviewing a procedural issue, the SPC further clarified that article 44 is generally applicable to acts that procure illegal interests by disrupting the trademark registration process, jeopardizing public interest and abusing public resources among other public interest issues. On the other hand, the SPC clarified that offending the legal interests of a civil party does not fall within the scope of article 44.

[View source.]