How to curb the risk of non-use and invalidation challenges when it comes to trademark assignment in China

Following last week’s deep dive into the China National Intellectual Property Administration (CNIPA)’s Guidelines on Trademark Assignment Procedures, there are some additional risks – particularly for trademarks that are likely to cause confusion –  that rights holders should be aware of to ensure a smooth and cost-effective assignment process (see “CNIPA highlights critical aspects of trademark assignment in published guidelines”).

Geographical locations

Assignment of a trademark that designates a location that differs to its actual origin may lead to public confusion about the origin of the goods.

For example, the trademark below contains the city name Paris, so it cannot be assigned to any party that is not physically located in Paris.

Further, the trademark below contains the country name Italy, therefore it cannot be assigned to any party that does not originate from Italy. Otherwise, the use of the mark could mislead consumers about the origin of the goods.

Company names

An assignee’s use of a company name in a trademark – including the full or partial company name or an abbreviation – may cause confusion among the relevant public or general consumers.

For example, the trademark below contains the company name Yangcheng Slewing Bearing, so this mark cannot be assigned to any other party besides the business itself. 

If the above situations relate to the requirement in the CNIPA’s guidelines that "similar trademarks over similar goods need to be transferred together", then the parties should negotiate to voluntarily cancel the registration to ensure approval of the assignment recordal.

Trademark squatters

If the assignor is a trademark squatter that has registered a large number of trademarks and assigned them to different entities, the assignment will not be approved. The CNIPA indicates that if this happens and the assignor fails to provide any legitimate reason for assignment, evidence of use or intent to use – or if it cannot prove that the evidence is valid – the assignment will not be approved.

For example, if a business applies for 700 marks and assigns some of them to different, unrelated entities, the CNIPA would reject the assignment on suspicion of "malicious trademark stockpiling and illicit gain through assignment". Therefore, in order to avoid unnecessary losses caused by assignment rejection, rights holders should proceed with caution before entering negotiations to purchase a trademark from a squatter.

Other risks and considerations

The details and status of a mark will impact the assignee’s interests, so it is crucial for the assignee to conduct a background check on the mark before purchase and fully evaluate the risks before filing the application for assignment recordal. There are five key considerations for rights holders to take into account for such a background check.

Invalidation risk

First, it should be determined whether a registered trademark was maliciously obtained through deception or other unfair means, or if it infringes on the prior rights of others. Such marks are at risk of being declared invalid in an invalidation action, as judgments in these cases are generally based on the real-time status of the trademark application and registration. Therefore, an assignee that purchases a trademark from a malicious hoarder risks losing it if a challenger claims that the former registrant (the assignor) acted in bad faith.

There is a real-life example of this risk that rights holders should note. A trademark squatter registered the DIOR trademark under registration 9138175 and then assigned it to another party. 

In the invalidation action against this mark, the CNIPA considered the previous right holder's bad faith in copying and imitating third parties' marks and benefitting from their brand image. It declared the mark invalid, even though it was owned by another party through assignment when the invalidation action was examined. 

Generic name and non-use cancellation challenges

Rights holders should also consider whether the registered trademark has become a generic name for the goods/services for which it is designated for use. Further, if the mark has not been used for three consecutive years without a justifiable reason for this from the assignor, the registered trademark could be cancelled. Assignment does not exempt an assignee from cancellation challenges on such grounds.

It is vital to verify the assignor’s use of the mark. If a registered trademark faces a non-use cancellation action during the assignment recordal process or soon after the recordal has been finalised, valid evidence of use would be required from the assignor to maintain registration. 

However, should such an attack occur during the recordal process, if the assignment agreement stipulates that the assignor cannot use the mark from the date of signing – and if the assignment is not recorded until more than one or two years after signing – then the assignee’s genuine and effective commercial use alone can maintain the trademark registration.

Trademark stability

Further, a potential assignee should ensure that the trademark is stable. For example, if the mark is pending examination for a new application, review of refusal or an opposition, it could face rejection for registration. 

Risk of purchasing licensed marks

Finally, purchasing a registered trademark that has been licensed to others carries the risk of affecting the ability to exercise the rights after the assignment. The assignment of a registered trademark does not automatically impact the mark’s licence contract that is already in effect and recorded before the CNIPA unless otherwise specified in the contract. Therefore, assignees should carefully consider the type of trademark licence and its recordal status. It is best practice to negotiate with the assignor and request that it terminates the prior licence contract.