A challenge faced by many international entities when entering the Chinese market is that their brands have already been registered as trademarks in China by speedy local filers. Some such local filers are professional squatters that have no real intent to use the trademark but instead, they aim to make money by holding the trademark registrations for ransom. Earlier this year, the Standing Committee of the National People’s Congress amended the Trademark Law to introduce an intent-to-use requirement to combat trademark squatting. The amendments will come into force next month, on 1 November 2019.

Current Bad Faith Squatting Environment

China has a first-to-file trademark system dating back to 1982. To obtain a trademark registration, an applicant is not required to have any intent to use the applied-for mark in a legitimate business. This often results in trademark registrations being awarded to first filers, regardless of whether genuine intent to use exists.

The first-to-file system and the lack of any intent-to-use requirement, along with other factors, have led to a flood of applications to the trademark register and allowed for the proliferation of trademark squatting. Between 16 December 2018 and 15 June 2019, the Trademark Office of the China National Intellectual Property Administration (“CNIPA”) received about 3.3 million new trademark applications. Contributing to the millions of applications are defensive filings by brand owners and trademark squatting filings. Trademark squatting filings account for a non-negligible percentage of all filings. For example, some squatters claim to be filing about 5,000 trademark applications a day.

Squatters can be a serious problem for brand owners. For example, squatters may initiate trademark infringement lawsuits requesting large damages. Squatters may file complaints with the Customs Office for seizure, confiscation and/or destruction of infringing import or export products of the true brand owner. Further still, under Article 62 of the Trademark Law, squatters may file complaints with the Administrative Department for Industry and Commerce to stop production and/or the sale of infringing products by the true brand owner.

Current Tools to Combat Bad Faith Squatting

Squatted trademark registrations may be challenged through opposition or invalidation proceedings. For example, Article 32 of the Trademark Law prohibits the registration of a trademark that is already in use by another person and enjoys a certain level of reputation.

Article 13 of the Trademark Law prohibits the registration of a prior well-known trademark of a third party.

However, opposition and invalidation proceedings can be costly, lengthy and complex.

New Intent-to-Use Requirement against Bad Faith Squatters

The Trademark Law has been amended to introduce an intent-to-use requirement so that bad faith applications without intent to use will be dismissed at the prosecution stage. This is significant as the Trademark Office of CNIPA is empowered to proactively dismiss bad faith applications during examination. Bad faith applications without intent to use may never proceed to registration so that brand owners do not need to resort to costly and lengthy opposition or invalidation proceedings to challenge such registrations.

Further, Articles 33 and 44 have been amended to add the intent-to-use requirement as a new ground for opposition and invalidation against trademark squatting.

Concluding Remarks

In addition to the intent-to-use requirement, the Trademark Law has also been amended to (i) instruct trademark agents not to represent applicants if the agents know or should know that the applicants are acting in bad faith and have no intent to use the marks; (ii) increase statutory damages awarded for trademark infringement from RMB 3 million (about CAD 0.6 million) to RMB 5 million (about CAD 1 million); and (iii) add a remedy in court proceedings to destroy counterfeit goods and molds. Although there are some uncertainties as to how the amendments will be implemented, the amendments are a positive change for brand owners looking to combat trademark squatting and strengthen their trademark protection in China.

If your company is potentially interested in the Chinese marketplace, our firm can work with Chinese counsel to help secure trademark protection for your brand in China. We can also initiate watches to notify you of the filing or publication of potentially conflicting trademark applications, so that appropriate remedial action can be taken to prevent registration of such trademarks.

In Aux Sable Liquid Products LP et al. v. JL Energy Transportation Inc., 2019 FC 581 [Aux Sable], the Federal Court eliminated the “reasonably diligent search” test as the applicable test for establishing the scope of citable prior art in an obviousness attack. This decision impacts what constitutes “the state of the art” for an obviousness attack in a Canadian patent impeachment proceeding and may increase the vulnerability of patents to impeachment proceedings.  However, we caution that this may not be the last word on the subject, as recently the Federal Court of Appeal in Tearlab Corporation v. I-MED Pharma Inc., 2019 FCA 179, appeared to accept that the reasonably diligent search test was applicable.

The “Reasonably Diligent Search” Test

The impeachment proceedings against the defendant’s patent raised the issue of whether the enactment of section 28.3, the obviousness provision of the Canadian Patent Act, displaced the common law “reasonably diligent search” test. Prior to the enactment of this provision, and until the decision in Aux Sable, a party alleging obviousness had to establish that a prior art reference had not only been publicly disclosed but was locatable by  a person of ordinary skill in the art through a reasonably diligent search, in order for the reference to form part of the state of the art. References the court did not consider locatable through a reasonably diligent search did not form part of the state of the art in an obviousness attack, though such references were citable in an anticipation attack.

The Aux Sable Decision

In Aux Sable, the plaintiffs successfully argued that section 28.3 eliminated the “reasonably diligent search” test and that previous jurisprudence had not caught up to the statutory change. This decision thus establishes that all references disclosed to the public prior to the applicable date prescribed by section 28.3, not only those locatable through a reasonably diligent search, form the state of the art in an obviousness attack. This effectively removes the distinction between the totality of available prior art and the state of the art in an obviousness attack.

This decision likely lowers the burden on a party alleging obviousness as the limitations imposed by the “reasonably diligent search” test no longer apply. All publicly disclosed prior art located by the challeging party will now form part of the state of the art in an obviousness attack. It may additionally result in a more streamlined obviousness analysis in patent impeachment proceedings because courts will not need to determine which references were reasonably locatable.

For patentees, the elimination of the “reasonably diligent search” test may make patents more vulnerable to obviousness allegations and impeachment proceedings. Patents in scientific or technical fields where information is presented and published regularly may be especially vulnerable. The elimination of the test means that even a presentation at a small conference or an article published in an obscure journal, for instance, would qualify as part of the state of the art for the purposes of an obviousness attack. In view of the broadened scope of citable prior art in an obviousness attack established by Aux Sable, patentees and legal practitioners will therefore likely need to search beyond diligently for prior art and be increasingly wary of obviousness allegations.

By: Leslie Chan and Dana Turner-Ryan

Parody has been a fair dealing exception to copyright infringement in Canada since 2012. However, the scope that this defence would be afforded in Canadian law has been uncertain. This issue came under the spotlight in the 2017 case of  United Airlines, Inc. v. Cooperstock.

It all began with a series of unpleasant flights in the spring of 1996. A frustrated Dr. Cooperstock shared his unpleasant experiences on his website, which soon garnered the attention of other disgruntled United passengers. As the website’s popularity grew, it evolved into UNTIED.com, a parody website dedicated to lodging complaints against and listing the failings of United Airlines.

In 2011, Dr. Cooperstock redesigned UNTIED.com to intensify his spoof of the United website, mimicking both United’s logos and its webpage layout. From there on, Dr. Cooperstock updated UNTIED.com regularly to mirror the latest design of United’s website. In 2012, responding to demands made by United, Dr. Cooperstock made minor alterations to the spoof logos and added disclaimers. However, unimpressed with Dr. Cooperstock’s effort, United launched a lawsuit for both trademark and copyright infringement.

Justice Phelan decided the case and found in favour of United on both trademark and copyright infringement. Regarding trademark infringement, Justice Phelan concluded that the spoof marks were confusingly similar to United’s original marks, as there was evidence consumers believed the had properly submitted complaints to United for resolution via the UNTIED.com website. Moreover, the marks on Dr. Cooperstock’s website were used in connection with the service of lodging and resolving complaints, which was a service notwithstanding that no money changed hands. Furthermore, Justice Phelan reiterated the principle that parody and satire are not defences to trademark infringement.

Regarding copyright infringement, Justice Phelan had no difficulty in finding that the elements of the offence were met. There had clearly been substantial copying, and the only issue was whether Dr. Cooperstock could rely on the fair dealing exception of parody. To do so, Dr. Cooperstock had to establish that his UNTIED.com is a parody and that his dealing was fair. He succeeded on the first element but failed on the second.

In particular, Justice Phelan questioned whether the parody exception may successfully be invoked when there is confusion, since parody depends on the recipient recognizing that the work in question is a spoof. As Justice Phelan observed, this has direct implications for the effect of parody. Although harmful commercial consequences due to negative commentary inherent in a parody is fair, harmful consequences arising from the public being confused between the copyright owner and the parody is not. Justice Phelan made clear that a parody should use alternatives that do not cause confusion to be able to rely on the fair dealing exception, and indeed Dr. Cooperstock had made use of such alternatives prior to the 2012 redesign of his website.

Other factors that weighed against Dr. Cooperstock were the purpose of the dealing and the amount of the dealing. With regard to the purpose of the dealing, a parody is less likely to be fair if its real purpose is to defame and punish rather than to mock with humour. Likewise, the dealing is less likely to be fair if the amount is excessive.

In summary, if you are making parodies, it is prudent to clearly distinguish the spoof from the original to avoid a likelihood of confusion. On the other hand, if you are a rights holder wishing to stop a parody, it may help to highlight unwarranted harms due to the parody or malevolent intent on the part of the parodist.

By Kevin Wang and Jennifer A. Marles