1. General

One of the most fundamental functions of a trade mark is to identify the source of goods and services, and to distinguish goods and services provided by the trade mark owner from those provided by others. Failure to use a registered trade mark for a relatively long period of time is considered contrary to the public interest: it prevents third parties, particularly competitors, using the mark. This is the underlying rationale for the introduction of non-use cancellation proceedings into the trade mark prosecution systems in most jurisdictions.

In China, the legal ground for filing non-use cancellation is straightforward. Article 44(4) of the Chinese Trademark Law provides that a trade mark which has not been put into use for three consecutive years is vulnerable for cancellation.

In compliance with Article 39 of the Implementation Rules for the Trademark Law, any party may file a trade mark cancellation action based on non-use before the China Trademark Office (CTMO): no special legal interest is required. The general interest in the freedom to use marks that are not being used in accordance with the law is sufficient.

In China, the CTMO accepts both applications to cancel a trade mark registration in relation to all designated goods and services, and applications to cancel a registration in relation to only part of the designated goods and services.

2. Brief introduction to non-use cancellation procedures

Generally speaking, a cancellation application on the ground of non-use can be based on a simple statement that the mark has not been used for at least three consecutive years prior to the filing date of the cancellation application. In support of the application, the applicant can submit the result of a brief Internet search, for instance, a print-out from a popular search engine (BAIDU, GOOGLE, etc) showing no ‘hits’ resulting from a search of the owner and goods/services covered by the disputed mark.

In practice, the relevant period of non-use is any three consecutive years preceding the filing date of the non-use cancellation request.

Where the registration in question is made following unsuccessful opposition proceedings, the earliest date on which a non-use cancellation action can be filed is three years from the date of the decision in the opposition proceedings, or any appeal therefrom. For example, if the CTMO issued its decision on 20 March 2009, and there has been no appeal, the subsequent registration will become vulnerable for cancellation on the ground of non-use on 21 March 2012, even though the opposition decision may have been delivered to the parties, and have become final and binding, at some time after 20 March 2009. The burden of providing valid evidence of use of the mark in relation to the designated goods and services rests with the trade mark owner.

Upon acceptance of the cancellation application, the CTMO notifies the registered proprietor, requiring it to provide, within two months of receipt of the notification, evidence of use of the mark. If the registrant cannot provide either appropriate evidence of use within the prescribed period, or legal justification for non-use, such as force majeure, or legal or governmental policy, the CTMO will proceed to remove the disputed mark from the Register. If appropriate evidence of use, or justification of non-use, is provided, the registration will be maintained.

Currently, it takes around 12-18 months for the CTMO to issue a decision. The decision can be appealed to the China Trademark Review and Adjudication Board (TRAB). Generally, a TRAB decision can be expected in about two to three years. The TRAB decision is subject to judicial review by the Beijing No. 1 Intermediate Court and Beijing Higher People’s Court.

3. Evidence of use

The provision of appropriate evidence of use is crucial.

Article 3 of the Implementation Rules for the Trademark Law defines ’use of a mark’ as:

The use of trademarks … refers to affixing trademarks to commodities, commodity packages or containers as  well as commodity exchange documents or using trademarks to advertisements, exhibitions and other commercial activities.

Therefore, ‘use’ of a mark includes both use on the goods, packages or containers of the goods or in trading documents, and use in advertisements, exhibitions or any other commercial activities.

In China, the use of a mark by a licensee inures to the benefit of the trade mark registrant i.e. if a mark is used by a licensee, rather than by the trade mark owner, so long as the proper chain of evidence is proved, the licensee’s use can be relied on to defend a non-use cancellation action. Use of the mark by a third party who is not a formal licensee can also be relied on, provided the use is not contrary to the will of the trade mark owner. Use of the trade mark in a form slightly different from the form registered can also be relied on, provided the mark or its distinctive part has not been substantially altered.

If a registered mark has been assigned or licensed, and none of the parties involved actually puts the mark to use, the mere occurrence of the assignment or licence transaction will not constitute trade mark use. Similarly, neither the publication of registered trade mark information nor the claim to exclusive rights in a trade mark is regarded as trade mark use.

Over the years, notions of what constitutes ‘acceptable evidence of use’ in non-use cancellation actions have gradually changed.

In the past, a ‘formality-based approach’ was adopted. Pursuant to this approach, the trade mark owner simply needed to provide proof of having used the mark: the concept of ‘use of a trade mark within the meaning of the Trademark Law’ was not emphasized. This imposed a much lighter burden of proof on the trade mark owner, and, in practice, it was not a rare occurrence for trade mark owners to try to forge evidence in order to keep their marks from being cancelled.

Gradually, a more stringent ‘substance-based’ standard has been applied and is now commonly adopted by the CTMO, the TRAB, and the Courts. ‘Use of a trade mark within the meaning of the Trademark Law’ is the guiding principle. Evidence filed in defence to a non-use cancellation action should be evidence of use that is relevant to the general public’s perception of the mark as an indicator of source.

Under this ‘substance-based’ approach, the burden of proof imposed on the trade mark owner is more stringent; the simple submission of a one-page advertising flyer on which the disputed mark is listed is unlikely to be deemed sufficient. To launch a successful defence, the registrant is required to provide more substantial evidence to prove that the challenged mark has actually been ‘used’ within the meaning of the Trademark Law. Another often raised controversial issue relates to use of a mark in the context of original equipment manufacturer (OEM) production. There is now a trend, supported by a Beijing Higher People’s Court decision in 2010 with respect to the SCALEXTRIC mark owned by Hornby Hobbies Limited, that evidence of OEM production can constitute appropriate evidence of use in a non-use cancellation action.

In summary, protection is granted to trade marks that are used in commerce as source indicators, to distinguish the trade mark owner’s goods or services from those of other traders. The use that must be established to successfully defend a non-use cancellation action is the use that is relevant to this protection.

The availability of non-use cancellation action should be taken into account in the development of any trade mark protection strategy in China. It will be particularly relevant for brand owners wishing to develop their brands within China, but finding that their marks are already the subject of bad-faith registrations.

The change of standards that has taken place in relation to the evidence of use required to defend a non-use cancellation action, suggests that a more balanced approach is now being adopted. Where a mark is genuinely not being used, it should be available to third parties. On the other hand, if a mark it has been put to use by the trade mark owner or related parties, or non-use can be justified, the disputed mark should be kept on the Register.

While the ‘substance-based’ standard now being applied may create some difficulty for legitimate trade mark wishing to build up their trade mark portfolios for defensive purposes, it will be welcomed by those seeking to deal with bad faith ‘squatters’.