Why three-year non-use cancellations have been hit so hard by evidence forgery

In a recent cancellation review decision issued by the China National IP Administration, in which it cancelled a registered trademark in accordance with the law, the trademark registrant took advantage of the fact that CNIPA does not require the submission of original evidence and forged copies of invoices. The registrant tampered with goods and services mentioned in the invoice, changing them from genuinely traded goods in the real invoices to goods and services in the review, and changed the entities mentioned in the invoices. As a result, it formed a chain of false evidence with other self-made product images and contracts whose performance could not be verified, in an attempt to slip through and continue owning the trademark.

Another interesting episode in the matter was that the trademark registrant contacted the applicant for the cancellation voluntarily, hoping to sell his trademark for a high  price. The applicant did not agree to the request  and the above cancellation decision was made.

Three-year non-use cancellations

Three-year non-use cancellations of trademarks have been deeply affected by evidence forgery. The reason is that Article 49 of the Trademark Law stipulates  “Where a registered trademark has become the generic name of the designated goods or stays unused for three consecutive years, any unit or individual may apply to the Trademark Office for revoking the same.”

When a trademark registrant receives a notice of providing evidence of use, they must quickly collect evidence that meets the statutory requirements and submit this to the Trademark Office within the prescribed time limit or risk having the registered trademark cancelled. Although there are remedial methods such as re-examination and litigation, even if the remedial procedure is initiated, the strict requirement for evidence of the use of the trademark cannot be escaped. Moreover, review and litigation phases are often more stringent.

At first glance, the provisions of Article 49 are confusing. The registrant has clearly registered a trademark successfully yet after three years, perhaps due to other   individuals’ underhand actions, a registrant must provide evidence of use. This obligation cannot be treated negatively or ignored, otherwise the successfully registered trademark may be cancelled.

However, the original intention of the legislation was not to make the process difficult for trademark registrants. It is only due to the large number of applications in China and the high idle rate among trademarks that a choice was made between public interests and personal interests and Article 49 of the Trademark Law came into being.

In this context, some registrants neglect to use their registered trademark, or use it infrequently, or use it but do not effectively manage the evidence of use. At the same time, they do not want their mark to be cancelled. As a result, some registrants choose to take the risk and falsify their evidence of use.

Since registrants are not required to provide the original or notarised form of evidence in the administrative stage of the three-year non-use cancellation, and electronic transaction vouchers are often used in common transactions. CNIPA also lacks corresponding administrative punitive measures, which has resulted in serious evidence forgery.

In mainland China, invoices for market transactions are common and are issued by the State Administration of Taxation. They have strong credibility and the Trademark Office readily recognises them as proof of use for three-year non-use cancellation cases in the administrative stage. However, officials do not necessarily require registrants to submit original invoices or notarised copies. Therefore, fraudulent invoices are the worst-hit areas in the use of evidence fraud.

VAT platform compounds the issue

Announcement 87 issued by the State Administration of Taxation in 2016 clearly states that the national value-added tax (VAT) invoice inspection platform is the official channel for VAT invoices and other forms of invoice information. Businesses and individuals can use this platform to verify the authenticity of special VAT invoices, general VAT invoices, unified motor vehicle sales invoices and electronic general VAT invoices issued by the new system. Though it seems simple, checking and proving the authenticity of invoices has always been challenging, since there is no established linkage mechanism for invoice verification. Even if the search results of the national VAT invoice verification platform return "information inconsistency" or "no invoice found", it might not always mean the invoice is forged – it could be an entry error, or an incorrect taxpayer’s address information or an expired invoice.

This poses a problem for counterparties. If they cannot provide strong counter-evidence, it will not be enough to determine that the invoice in question is false, and they will have to bear the consequences.

However, this can be good news for trademark registrants who have not used their trademarks, as it means that forged evidence of use is relatively easy to obtain.  

This obviously violates the principle of good faith and is not conducive to the sound development of China’s trademark registration and use system. It is far from sufficient to merely passively check each case to prevent the use of false evidence in cases of three-year non-use cancellation.

Comment

This latest case highlights that trademark administration and judicial organs should establish a linkage mechanism with tax authorities.  They should also actively perform their functions to effectively ensure that forged invoice evidence can be discovered and eliminated immediately, bearing in mind the foundation of evidence governance still lies in trademarks. It is also important to educate the registrants themselves, to improve respect for laws and to eradicate evidence falsification.