Laura Zhao exploring the increasing risk of non-use cancellation in China
Rouse senior trademark attorney Laura Zhao explores the changes in practice that have prompted such a rise, analyses the typical failures in defending against non-use cancellation actions, and highlights the main requirements for collecting evidence – thereby offering an evidence-gathering process for registrants.
The China trademark register has seen a significant rise in the number of non-use cancellations in recent years, while the rates of total and partial cancellations have remained high.
China allows for a three-year grace period for trademark use from the registration date. Afterwards, any entity or individual can file a non-use cancellation action with the China Trademark Office (CTMO) directed at the entirety or part of the specification of the goods/services covered by a trademark registration, based on initial investigation results indicating that no use of the mark has been made. The CTMO then asks the registrant to submit evidence of use, or a justifiable reason for non-use, of the disputed mark in Mainland China for three consecutive years as of the filing date of the cancellation action. The CTMO’s decisions in non-use cancellation actions can be appealed to the CTMO Trademark Review and Adjudication Department (TRAD), and can be further appealed to the courts of first and second instance.
Due to a lack of authoritative data on the number of non-use cancellation actions at the first CTMO stage, this article seeks to provide an overview of non-use cancellation actions in China by employing public statistics at the appeal stage before the TRAD.
Number of cancellation appeals at the TRAD (based on official or authoritative sources)
Source: CNIPA monthly reports on examination and registration
According to the monthly and annual reports published by the China National Intellectual Property Administration (CNIPA), the number of non-use cancellation appeals filed with the TRAD surged from 13,413 in 2019 to 21,393 in 2023, and the number of appeal decisions by the TRAD nearly doubled from 8,580 in 2019 to 16,438 in 2023.
As not all cancellation decisions will be appealed to the TRAD, the numbers of non-use cancellations filed with the CTMO (and notified to the trademark owners to prepare a defence) are naturally higher than the statistics.
Rates of trademark cancellation and partial cancellation at the TRAD stage (based on official or authoritative sources)
Source: CNIPA annual reports
The CNIPA annual report for 2023 will be published in June 2024.
The CNIPA annual report for 2021 provided no cancellation rates; the source of the data for 2021 is commercial database Biaoju.
From 2019 to 2022, the rates of total and partial cancellation of trademark registrations remained at a high level – 50.8% and 31.7%, respectively, in 2019, and 49% and 33.8%, respectively, in 2022.
Successful defence rates remained under 18% – except in 2021, when the data originates from a different source.
Rates of total and partial cancellations compared to maintenance at the TRAD
| Year | Rates of total and partial cancellations (TRAD) | Rates of maintenance (TRAD) |
| 2019 | 82.5% | 17.5% |
| 2020 | 82.2% | 17.8% |
| 2021 | 53.1% | 46.9% |
| 2022 | 82.8% | 17.2% |
Source: CNIPA
Due to the increasing number of non-use cancellations and constant low rates of successful defence, there are rising concerns regarding the causes driving the situation, and pertinent coping strategies must be found.
Changes in practice driving up the number of non-use cancellations
China is known to suffer from a crowded trademark register, with 46.1 million live trademark registrations at the end of 2023. The number of new applications for registration hit a historic high in 2021 with 9.4 million, and the number for 2023 was 7.2 million.
Of all new applications for registration filed in 2023, 48% were refused by the CTMO, including 33.6% of total refusals and 14.4% of partial refusals.
These huge numbers leave relatively limited choices in brand names for trademark registration, and alert registrants to the high risk of non-use cancellation actions.
Live trademark registrations and new applications in China
Source: CNIPA annual reports
Moreover, since 2018-2019, the TRAD and the courts have been unwilling to accept co-existence agreements and letters of consent in general, mainly because of the authorities’ growing concerns about the risk of public confusion caused by extensive trademark co-existence. This change in practice leaves applicants with no other option but to remove or acquire prior conflicting registrations, if any. Filing a non-use cancellation action, as one option to eliminate earlier conflicting marks, is straightforward (as it does not require earlier trademark rights or use) and economical compared to opposition and invalidation actions. This is believed to have triggered a rise in attacks on the register.
China’s trademark authorities have announced no plans to adjust to the new practice, and the official examination criteria regarding the evidence of use in non-use cancellation actions remain as strict as before – if not stricter. Non-use cancellation actions are expected to continue to cause difficulties for rights holders with regard to registration maintenance.
Typical failures in defence
Acceptable reasons for non-use of a registered mark include bankruptcy, liquidation, government policy restrictions and force majeure, which may all be proven by relevant official documents or public information. This does not constitute a safe harbour for most registrants.
According to the China Trademark Law, as well as its Implementation Regulations and relevant judicial interpretations, trademark use refers to the application of a trademark to products, product packaging or containers, transaction documents, advertisements, exhibitions and other commercial activities to distinguish the origin of the goods. Five key elements will be examined by the authorities when assessing the evidence of use, namely:
- whether the timeframe of use corresponds to the relevant three-year period;
- whether the territory of use is Mainland China;
- whether the trademark as used shows any significant alterations compared to the registered form;
- whether the goods/services for which the mark is used are consistent with the goods/services as registered; and
- whether the use is made or authorised (or at least not objected to) by the registrants.
Despite the specific requirements for trademark use, the low success rates in defending against non-use cancellation actions reveal the complexity of trademark use scenarios and the difficulty of evidence collection in the real world. Some exemplary failures in defence are provided below.
Self-prepared materials with no collaborative evidence or fragmentary evidence devoid of interconnections
This represents a large proportion of failed defences. Unlike in other jurisdictions, in China, pictures of real products/product packaging/labels, brochures and leaflets, as well as webpages displaying the goods for sale, rarely suffice to maintain trademark registrations in the context of non-use cancellation actions, as such documents are easily editable and are, therefore, questionable as to their authenticity. Contracts and invoices for sale and advertising purposes that involve third parties are required to prove the genuineness of the claimed use. Nevertheless, where advertising and sales documents are provided, a valid use may still not be established if the documents lack the necessary interconnections and cannot prove the existence of a complete transaction or advertisement flow.
Symbolic or unmeaningful use
In the cancellation action against the trademark BIG BRIDGE in Chinese (Judgment No (2010) Supreme Court Administrative Final 294), the two instances concluded that a one-off advertisement or a single sale, which does not reach a certain scale and is not corroborated by other evidence, should not be considered as trademark use with authenticity or goodwill.
In the cancellation action against the trademark TRANSPARENCE in Chinese (Judgment No (2021) Beijing Administrative Final 1822), the second-instance Beijing High People’s Court found that two small-amount transactions did not suffice to prove the genuine use of the disputed mark. In addition, mere information on the assignment, authorisation, licence or enforcement of a registered trademark, if not supported by other evidence, cannot prove the commercial use of the mark.
Internal use or transactions with related companies
Affixing a trademark to the internal stationery and office occasions of the registrant/authorised user only does not constitute public use, as affirmed by the Beijing High People’s Court in the cancellation action against the trademark CULTURAL TRAVEL in Chinese (Judgment No (2018) Beijing Administrative Final 1062).
Further, a transaction that occurred only between a registrant and a related company cannot prove that the products bearing the disputed mark entered the market, as decided by the Beijing IP Court when cancelling the trademark LETTS (Judgment No (2019) Beijing 73 Administrative First Instance 4685).
Improper use of trademark or goods/services
Insignificant changes to registered trademarks or the approved goods/services are generally tolerable. However, where the main distinctive features of a registered mark are altered in use, or the products sold are essentially not of the same type as those covered by the registration, the authorities tend to cancel the registrations – as reflected in the cancellation of the trademarks NATURONE (Judgment No (2018) Beijing Administrative Final 3983) and LAMY (Judgment No (2016) Beijing Administrative Final 4458).
Preparational activities for use
Activities aimed purely at the preparation of product sales (eg, the manufacture of packaging and product labels) cannot prove the actual circulation of the commodity during the relevant three years, as the Beijing High People’s Court pointed out in the cancellation action against the trademark TONG YI in Chinese (Judgment No (2016) Beijing Administrative Final 5667).
There are exceptions, though. Where use during the relevant period is very limited, but expands to a certain scale immediately afterwards, the registration may be maintained on a case-by-case basis.
Special circumstances
In addition to the above, original equipment manufacturing in China for export only is a generally accepted scenario of trademark use in non-use cancellation actions if sufficient evidence can be provided.
Further, e-commerce sales, together with other collaborative documents, can prove trademark use, but are vulnerable to challenges if fake sales and reviews are detected. For example, a “product display in WeChat Moments only” was not considered valid trademark use by the Beijing High People’s Court in the cancellation action against the trademark GLOBE TREKKER in Chinese (Judgment No (2021) Beijing Administrative Final 1160), as it was a closed system involving limited visitors.
Strategies for rights-preserving use
As embodied in the above examples and official decisions on non-use cancellations, Chinese practice places great weight on sales and advertising documents, as well as on the completeness of the evidence chain. Unfocused trademark use and aimless searches for evidence may lead to a failure in defending against a non-use cancellation action.
Advance planning for trademark registration and use
In principle, new applications for registration should be filed as early as possible, as China is a first-to-file jurisdiction. At this stage, the following framework for registration and use should be in place:
- The trademark representation adopted in the application should be the one fixed for commercial use, or the most frequently used form in multiple-use scenarios.
- The goods/services designated in the application should be tailored based on the applicant’s actual business needs and the Chinese examination practice.
- Advertising and transactions should be completed and relevant materials properly archived every three years following registration; the trademarks should be properly used according to the relevant laws and regulations.
- Authorisations or licences should be arranged and filed, if products are marketed and sold by local distribution networks.
- A portfolio management system is necessary to monitor the progress of trademark use, as well as the expiry dates of the three-year grace periods, especially for important trademarks in key classes.
In-house system of evidence gathering
The evidence-gathering process should be built within the internal system of the registrant (or its authorised users), involving the collaboration of the different business units within the company. The system can be based on an existing work platform within the company, or on the following set workflow between the legal, marketing, sales and accounting departments:
- Legal counsel send orders to archive evidence of use for a specific trademark in the system.
- The marketing department tags several sets of advertising contracts connected with the corresponding invoices, advertisement samples and product brochures for that trademark each year.
- The sales, accounting and logistics departments track several sets of sales contracts linked to the corresponding invoices, payment slips and delivery notes.
- The system enables an immediate response to an evidence-collecting request and supports evidence reviews when necessary.
- Detailed settings on evidence archiving can be adjusted for different trademarks, and updated in accordance with changes in official practice.
The above strategies picture an ideal situation of trademark use management by trademark registrants. Complex business operations may compromise the functioning of the system.
Different use requirements within a large trademark portfolio may add further complexity to the process and weaken its practicability.
Nevertheless, implementing a streamlined process for evidence collection will prove viable for multi-brand owners if it focuses on the key marks and is properly designed following a comprehensive review.
Draft amendments to Trademark Law
The introduction of an evidence-gathering process is not only necessary for responding to incoming non-use cancellation actions, but is also a realistic need for maintaining all trademark registrations in the long term.
In January 2023 the CNIPA released the draft amendments to the China Trademark Law for comment from various sectors of society. The draft amendments proposed significant adjustments on trademark use, emphasising the obligation of rights holders to use (or intend to use) their trademarks in commerce at both the application and the registration stages:
- Applicants can register only the trademarks that they are currently using or intend to use on their goods or services.
- Every five years after registration, rights holders are required to prove the actual use of their trademarks or provide valid reasons for non-use to maintain their registrations.
The requirement of voluntary explanation of trademark use can enhance the current non-use cancellation procedures, which are primarily initiated through passive applications by others. The proposal is expected to:
- refocus the trademark system on its fundamental purpose of registration for actual use;
- clear the ‘zombie’ trademarks from the register;
- remove idle resources; and
- address non-standard use of trademarks in society.
These ongoing or foreseeable changes in practice indicate clear trends in China’s trademark landscape and highlight the importance of proper use and basic evidence archiving, as no use or improper use will largely result in a loss of rights.
The draft amendments sparked heated discussions and generated differing opinions from the public. They are currently under review and are expected to be passed into law in the next few years.
For further information, please contact:
Laura Zhao, Rouse
lzhao@rouse.com
