2015 was a year of significant change in the intellectual property (IP) field, with China
redoubling its efforts to tackle counterfeit goods, long-awaited and controversial legislative
amendments being debated in Hong Kong and headline making judgments that have set
clear precedents. Summarised below are some of the key highlights of 2015, as well as
predictions for the year ahead.
Controversial changes to the Copyright Law in Hong Kong
The most prominent and controversial development in Hong Kong was the Copyright
(Amendment) Bill 2014 (Bill) which finally received legislative consideration after eight
years of preparation.
The Bill aims to bring the Copyright Ordinance in line with international standards and to
keep pace with rapid technological advancements. Key aspects of the Bill include
introducing a technology-neutral exclusive right for copyright owners to communicate their
work through any mode of electronic transmission, including works done for the purposes of
commenting on current events as an exception to copyright infringement; establishing a
statutory 'safe harbor' for online service providers to limit their liability for copyright
infringements occurring on their service platforms and creating new exception under the
categories of parody, satire, caricature and pastiche.
Supporters of the Bill claim that this is a long overdue response to the rapid technological
and digital advancements that have already driven other jurisdictions to update their
copyright regimes. However, the Bill continues to be stalled by strong protests from parties
concerned with the protection of free speech. The on-going controversy principally relates to
the lack of a statutory definition of the terms 'parody', 'satire', 'caricature' and 'pastiche' and the lack of a broad exception of 'fair use' in the Bill, causing uncertainty as to what
extent copying for these purposes can be exempted from copyright infringement. Critics also
say that insufficient protection is accorded to popular internet activities such as rewriting of
lyrics, covering a song without parodic elements, music mash-ups and fan comics.
The Legislative Council is currently reviewing the Bill. Whether the legislature can agree on
the right balance between protecting free speech and protecting copyright owners remains to
be seen. At the time of writing, both sides of the debate appear to be in a stand-off with Greg
So, the Hong Kong Commerce Minister, described the situation in the LegCo as 'like a
nuclear bomb explosion'.
How to defend a registered trade mark from non-use cancellation in Hong Kong
Under the Hong Kong Trade Marks Ordinance (Cap. 559), a registered trade mark may be
revoked if it has not been genuinely used in relation to its registered goods or services for a
continuous period of at least 3 years. The recent Burberry v Polo Santa case clarified the
standard of use that a trademark is required to meet in order to resist revocation on the
grounds of non-use.
Burberry and Polo Santa both registered a similar checkered pattern in Hong Kong. Burberry
sought a court order to revoke Polo Santa's registered trademark on the grounds of non-use.
Polo Santa had the burden to prove that its checkered mark had been genuinely used by it
or other parties with its consent. Polo Santa produced two pieces of evidence to prove use of
- Polo Santa had licensed two entities to use the its trademark, one of which operates
its business in the Mainland, and
- A four page catalogue containing photographs of handbags bearing the Polo Santa
The court dismissed both pieces of evidence. In relation to the licensing of the Polo Santa
mark to other entities, the court considered that any use of the mark in the Mainland was
irrelevant. In relation to the catalogue, Polo Santa could not prove that the goods in the
catalogue were actually offered for sale to end customers because information that would
enable customers to make purchases, such as the number of shops offering such products,
their contact details and webpages, were missing. Polo Santa also failed to prove that the
catalogue itself had been made available to potential customers because the catalogue was
The court clarified that to prove use of a trademark, sales vouchers of the trademarked
products, documents showing the actual manufacturing, marketing and sale of such
products; or employee witness statements confirming the sale or offer to sale of such
products, are required as evidence.
This case provides clear guidance of the type of evidence needed if a business is to
successfully defend its registered trademark from a non-use cancellation attack. Brand
owners should preserve manufacturing, marketing and sales records of its products,
especially for trademarks the use of which cannot be easily found through a Google search.
Chinese Supreme Court rules that Original Equipment Manufacturing (OEM) is not
trade mark use
Foreign businesses who own a trademark in a market outside China will often contract with
an OEM in China to manufacture goods bearing its trade mark solely for exporting such
goods to overseas markets. This has led to the long-running question of whether such OEM
use infringes any Chinese trade mark rights for the goods where the Chinese trade marks
are not held by the foreign business or the OEM. As trade mark rights are territorial, there is
the risk that OEM use infringes the Chinese trade mark owner's rights. This issue has gained
particular piquancy because very often the Chinese trade mark owner is a "pirate" registrant
which has copied the trade mark from the foreign business. Typically, the pirate registrant
will register the trademark at Chinese customs and then ransom the foreign trade mark
owner to allow it to continue to use the trade mark in China.
In a recent decision, the Chinese Supreme Court decided that manufacture by an OEM for
export outside China does not constitute 'use' of a trade mark and therefore cannot be
considered as infringement of a mark registered in China, rather the "use" of a trademark in
China can only be fulfilled through circulating the product in commerce in China. This
decision was made in the context of the PRETUL trademark which was used on OEM
padlocks exported to Mexico without any sale in China. The Supreme Court reasoned that
although the plaintiff had engaged Chinese OEM factories to manufacture the padlocks, it
neither distributed nor advertised the padlocks in China. Although not binding, this decision
strongly indicates the trend of future decisions.
This case is undoubtedly welcome news for trade mark owners. Foreign businesses which
are simply using China as a manufacturing base are well-advised to clearly state in their
OEM agreement that the goods are solely for export and provide clear proof to the OEM that
the contracting party has the requisite trademark rights in the destination country.
Record statutory damages for trademark infringement in China
2015 was the year in which the Chinese Trademark Law, introduced in May 2014, was
earnestly put into effect by the Chinese courts and administrative bodies. In November, the
Swiss apparel company Moncler, which had sued a Chinese company, Nouyakate, for
trademark infringement, was granted statutory damages of RMB 3 million (US$480,000) by
the Beijing IP Court. Statutory damages were awarded because Moncler had insufficient
evidence to prove its loss of profit as a result of the trademark infringement. Notwithstanding
this, the court awarded the maximum statutory damages available on the grounds that:
- Moncler has been a well-known brand in China since at least 2008
- Nouyakate acted in bad faith because it sold goods on its website that bore marks
that infringed Moncler's trademark rights
- Nouyakate sold the infringing goods at high prices
- Nouyakate deliberately did not print its company name on its products, which is
evidence of malicious infringement, and
- Nouyakate was a large scale infringer in the process of setting up a commercial
network including franchising stores and distributors.
The case is significant because foreign plaintiffs have for many years complained about low
damages awards made against Chinese companies for trade mark infringement, on the
grounds that they provide an insufficient deterrent against trade mark infringement. The fact
that a Chinese company was sanctioned in this way suggests that the climate for brand
owners in China is slowly but surely changing for the better, notwithstanding the widely
publicized challenges facing brand owners in China.
New Balance tripped up by heavy damages award in China
Despite the Moncler case, foreign businesses continue to face a torrid time in China. The
difficulties faced by New Balance at the hands of a Guangzhou businessman, Mr. Zhou
Lelun, are the latest example.
In this case, New Balance was successfully sued for trademark infringement for using the
Chinese mark "新百伦" (Xin Bai Lun, being the Chinese character mark which New Balance
used as an equivalent for New Balance) and was ordered to pay a record breaking 98 million
yuan (nearly US$ 15,000,000) in damages. This amounted to half the total profits New
Balance had generated during the period of infringement (November 2011 to November
How did New Balance come to be sued for (and to have to pay record breaking damages)
the use of its "own" mark in China. Some background is required. Zhou Lelun obtained a
registration for "百伦" (Bai Lun) in 1996, well before New Balance entered the Chinese
market in 2006. When New Balance launched in China, it applied to register the mark "NEW
BALANCE" but failed to apply for a Chinese equivalent. Over time, both Chinese consumers
and New Balance began referring to New Balance using the Chinese mark "新百伦", which
was the same as Zhou Lelun's earlier registration but with the addition of the Chinese
In 2008, Zhou Lelun applied to register "新百伦". New Balance filed opposition proceedings
against this application. The Guangzhou Intermediate Court in rejecting New Balance's
opposition, ruled that "新百伦" was not the literal translation nor the only translation available
for New Balance, especially because New Balance had used different versions like "纽巴伦"
and "新平衡" in relation to its products. It was also held that the well-established status of the
trademark "New Balance" was irrelevant towards whether the use of the trademark "新百伦"
had been infringed. New Balance did not further appeal the Guangzhou Intermediate Court's
decision. As a result, Zhou Lelun successfully registered the mark "新百伦".
In 2013, Zhou Lelun promptly sued New Balance for infringing his registered mark "新百伦".
A key factor in the record breaking damages award was that the Court considered that New
Balance was using the trademark "新百伦" in bad faith because it continued to use the mark
despite failing in its opposition.
The key lessons all brand owners should learn from this case are as follows. Firstly, the 'first
to file' principle (ie the principle that whoever files for a trademark first in China secures it)
continues to be a key plank of Chinese trademark law with only limited exceptions. Secondly,
given the first to file principle, when entering the Chinese market, brand owners should
devise a Chinese language mark for their brand and promptly register this mark. Thirdly,
consistency is key: one of the big problems which New Balance faced in the opposition to "
新百伦" was that it had used three different Chinese marks, "新平衡", "纽巴伦" and "新百伦"
for its products and had switched between them. New Balance was therefore unable to show
that its products are associated with a single Chinese name. Fourthly, brand owners should
be aware that every failed opposition is a potential infringement case in the making.
Furthermore, the failed opposition can be used as evidence of bad faith if the failed
opponent continues to use the mark. Brand owners with similar problems should mitigate the
risk of infringement or face the risk of significant damages.
China's campaign against online counterfeit goods
As further evidence of China's intent to shed its reputation as a hotbed of IP infringement,
China’s State Administration of Industry and Commerce (SAIC) launched its 'Red Shield
Net Sword' campaign, aimed at tackling counterfeit goods sold over e-commerce platforms.
The campaign was launched after the SAIC publicly criticized Alibaba's failure to scrutinize
counterfeits sold through its website.
This campaign enabled easier identification of infringers (since online store operators are
required to show their business licence information online); more effective enforcement of IP
rights through administrative complaints; an increase in inspection and regulation of online
store operators and greater deterrence (administrative authorities will publish the identity of
infringers and details of punishment decisions within 20 working days of the decision).
According to the State IP Office's press release in December 2015, China handled nearly
4,000 patent infringement cases involving e-commerce in the first 11 months of 2015.
China's 4th draft amendment to the Patent Law
A new draft on the PRC Patent Law, released on 1 April 2015, proposes to introduce
significant changes. These include:
- Restricting situations under which employers can claim ownership over an
employee's work: Under the amendments, employers will only have the right to
claim ownership over an employee's work if such work was made for the execution of
work assignments. Despite this limitation, an employer can still contractually agree
with an employee to claim ownership over any work or inventions created by an
employee during the course of that person's employment. However, if the employer
has entered into such a contractual agreement with the employee who invented the
work in question, the amendments require the employer to reward the employee after
the right to file for patent has been granted to the employer and pay a remuneration
to the employee upon exploitation of the work in question. What is considered as an
appropriate type of reward and remuneration remains to be specified by government
agencies. However, once clarified, businesses will need to establish a suitable
reward and remuneration program to ensure compliance.
- Individual components can be patented: Currently, an individual component or
part of a product cannot be patented. This inconveniences companies that specialize
in making innovative elements that form components of a design, such as smart
phones. This also condones the copying of certain portions of a design without legal
consequences. The amendments will allow an industrial design made for either the
overall or the partial appearance of a product to be patented. Businesses should
review their design portfolio and register the ones that could benefit from being
patented as an individual component to a design.
- Extension of term: the term of design patents are proposed to be extended from 10
years to 15 years.
- Lower burden for proving damage: the lack of automatic discovery in civil
proceedings in China means that patent holders are unable to access the infringing
party's financial information and therefore have difficulty in proving the actual losses
suffered as a result of the infringement. The amendments will give courts the
discretion to order the infringing party to disclose its financial accounts relevant to the
infringement if the patent holder cannot prove its loss.
- Internet Service Providers will not be liable: Internet service providers will be
exempted from liability for patent infringement if, upon notice that users are
conducting infringing activities on their sites, they immediately terminate or screen
access to the infringing products.
- Increased enforcement powers and streamlining of decision making process:
The amendments propose to increase the enforcement powers of the State
Intellectual Property Office and require the patent administrative authority to register
and publish its decision declaring whether a patent right is affirmed or invalidated
immediately upon making such a decision.
Introduction of the Provisions on Prohibition of Abuse of IP Rights to Eliminate or
Restrict Competition (IPR) Regulation
On 1 August 2015, the IPR regulation came into force as the first IP specific antitrust
regulation in China. The IPR regulation are aimed at prohibiting businesses in a dominant
market position from abusing such dominance and hindering competition. To achieve this,
the IPR regulation introduces the following restrictions:
- Horizontal and vertical agreements between businesses that restrict competition are
prohibited unless conditions regarding the combined market share of the contractual
parties and the availability of substitutes are met
- IP owners are required to license their IP rights under reasonable conditions if the IP
in question is 'essential' based on three factors: (i) lack of reasonable substitutes
and the IP is indispensable for the licencee to compete in the relevant market; (ii) the
refusal to license has a negative impact on competition or innovation in the relevant
market; and (iii) the licence will not cause unreasonable harm to the licensor, and
- Businesses in a dominant position are not allowed to include certain contractual
clauses such as exclusive grant backs to improved technology, no challenge clauses
and non-compete clauses without valid justification. What constitutes a valid
justification remains to be clarified.
The IPR regulation complement China’s maturing IP regime and reflect similar legislation in
other countries, all of which aim to place limits on the use and exploitation of IP where
businesses are in a dominant position and the effect is to hinder competition.
What to expect in 2016
As in previous years, China will be a significant source of new IP developments in 2016. It
would be sensible to bet on the Chinese authorities extending the 'Red Shield Net Sword' campaign throughout 2016 and beyond. The online marketplaces will continue to face
scrutiny from brand owners over combatting fakes on their websites. Whilst problems of
brand 'piracy' will continue, it is expected that 2016 will show an increasing number of
successful cases in which brand owners defeat brand pirates in China, although much will
depend on the facts of each case and what steps brand owners would have taken to protect
their position. In Hong Kong, with the Legco still deadlocked over the Bill, there is a good
chance that the Bill will eventually be passed but only once safeguards to protect free
speech are written into the Bill.