A Look at the China-U.S. Trade Deal

Published: July 29, 2020

How will the highly publicized China-U.S. Phase One Free Trade Agreement signed earlier this year impact China and U.S. law and practice on trademark protection? The Harmonization of Trademark Law and Practice Committee looks at its ramifications, especially pertaining to online enforcement and bad-faith trademark registrations.

The signing of the agreement ameliorated trade tensions and sparked hope of increased business opportunities between the two countries. Below, Committee members and trademark practitioners Xiangrong Wu and Rebecca McCurry weigh in.

Mr. Wu, a partner at Wanhuida Intellectual Property in Beijing, China, is on the International Cooperation Subcommittee. Ms. McCurry, an associate at Pirkey Barber PLLC in Austin, Texas, USA, is on the Free Trade Agreement Subcommittee.

Online enforcement is particularly important right now for brand owners. Does the Trade Agreement impact online enforcement in the United States or China?
Some commitments undertaken by China have obvious conflicts with the related provisions under the E-commerce Law of the Peoples Republic of China (PRC). For example, to eliminate liability for erroneous takedown notices submitted in good faith (born liability under E-commerce Law), the given period for a trademark owner to take judicial or administrative actions after receipt of counter notification (given period) extends from 15 days (E-commerce Law) to 20 days (Trade Agreement). In addition, the Trade Agreement further expands the e-commerce platform’s liability on possibly revoking the operating license, while the E-commerce Law does not contain such provision.

[Article 1.13 of the Trade Agreement: Combating Online Infringement

2. China shall:

(a) require expeditious takedowns;

(b) eliminate liability for erroneous takedown notices submitted in good faith; (Note: this is different from the China E-commerce Law which stipulates “Where erroneous notice causes damage to an online-platform business operator, civil liability is borne in accordance with the law. Where an erroneous notice is sent out of malice, thus causing damage to an online-platform business operator, indemnification shall be doubled.”)

(c) extend to 20 working days the deadline for right holders to file a judicial or administrative complaint after receipt of a counter-notification; (Note: that is 15 days in China E-commerce Law) and

(d) ensure validity of takedown notices and counter-notifications, by requiring relevant information for notices and counter-notifications and penalizing notices and counter-notifications submitted in bad faith.]

China has already taken measures to resolve the conflicts. For instance, Article 1195 of the Civil Code of the PRC (Civil Code), which will come into effect on January 1, 2021, has added an exception clause on erroneous notice. Also, the draft judicial interpretation on application of law of e-commerce infringement technically extends the given period to 25 days though it changes some requirements. It might take some time for China to completely implement all these commitments.

RM: The trade agreement does not impose any new requirements on U.S.-based Internet service providers (ISPs) and assumes that existing U.S. enforcement procedures sufficiently address online infringements.

Under current U.S. law, there is no legal requirement that ISPs have a formal takedown procedure for trademark violations. However, in practice, a majority of ISPs have some type of takedown system to help avoid liability based on a theory of contributory trademark infringement and to help administratively manage the volume of such complaints.

There is also no formal timeframe for when a rights holder needs to file a lawsuit after a takedown request is denied or contested by the other party. However, delay in taking action could impact the ability to obtain a preliminary injunction and extremely significant delays (e.g., several years) could give rise to a laches defense. Generally, laches can be used to avoid a monetary award, but not an injunction.

Unlike takedown requests based on copyright, there are currently no federal statutes addressing bad-faith takedowns for trademark violations. However, bad-faith takedown requests based on a trademark may be sanctionable under unfair competition and tort law of U.S. states. Also, many ISPs require that you submit takedown requests under a penalty of perjury.

The agreement addresses bad-faith trademark registrations. Will it help improve enforcement actions in this area?
XW: China had already taken measures regarding the bad-faith registration issue before signing the Trade Agreement by completing the fourth amendment of the Trademark Law, which took effect in November 2019. The new law (Article 4) grants the administrative authority the power to reject ex officio trademark applications filed in bad faith without intention to use, e.g., filing large amounts of trademarks in excess of business need and with no use intent. The punitive damages (Article 63) for bad-faith condition were increased from three to five times, calculating the amount of damages (based on the illegal profit, the losses of the plaintiff, or a royalty fee); and, the amount of the statutory damages has been increased from RMB 3 million to 5 million (US $428,000‒715,000).

The Civil Code further introduces in Article 1185 the concept of punitive damages when the prejudice is caused intentionally, and the related judicial interpretation will follow around the first half of 2021.

It can reasonably be foreseen that the rights owner will continue to perceive the positive results of China’s determination to deal with bad-faith registrations.

RM: The trade deal does not impose any new requirements on the United States related to bad-faith trademark registrations. Bad-faith trademark applications and registrations are generally addressed through claims of (1) likelihood of confusion; (2) lack of bona fide intention to use; (3) fraud; and/or (4) dilution (where appropriate). In initial examination, the United States Patent and Trademark Office (USPTO) may refuse a bad-faith trademark application based on likelihood of confusion with a prior record (assuming the goods and services sufficiently overlap). In addition to likelihood of confusion, claims of (1) lack of bona fide intention to use; (2) fraud; and (3) dilution can be asserted in an inter partes opposition or cancellation before the USPTO.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest.

© 2020 International Trademark Association