Insights from the Hualing HUALING Saga on Trademark Transfers
In today’s environment of increasingly strict intellectual property protection in China, trademarks have become more important than ever as key corporate assets. Nevertheless, malicious activities related to trademark registration, such as hoarding and squatting, continue to pose challenges that disrupt market order. Article 44, Paragraph 1 of the Trademark Law, which deals with registrations obtained through other improper means, serves as the fundamental legal basis for addressing such conduct and preserving the integrity of the registration system. Traditionally, judicial practice has adhered to a strict principle: bad faith cannot be excused. However, a recent decision in the Hualing HUALING trademark invalidation case has shown a flexible approach under certain conditions, attracting significant attention and prompting deep reflection within the industry.
I. The Fundamental Debate: Can a Transfer Remove the Original Sin of a Bad-Faith Registration?
Article 44, Paragraph 1 of the Trademark Law states that a registered trademark obtained through fraud or other improper methods shall be declared invalid. In judicial practice, other improper methods are generally understood as actions that disrupt the trademark registration system, harm public interests, improperly occupy public resources, or seek illegitimate gains, with the most common example being the mass hoarding of trademarks without the intention to use them.
This raises a key issue: if a trademark originally registered in bad faith is legally transferred to a good-faith recipient who then uses it over a long period, establishing a stable market presence, can these subsequent transfers and uses erase the original sin of the initial bad-faith registration? This question goes beyond a mere legal technicality; it involves balancing values such as public interest versus individual rights, and maintaining order versus promoting market efficiency.
II. Judicial Tradition: Returning to the Original Concept of Bad Faith, Where Transfer and Use Do Not Provide Immunity
Before the Hualing case, judicial practice consistently answered this question with a clear “No.” Courts generally held that the assessment of other improper means should focus on the behavior at the time the trademark was acquired through registration.
The Neuws trademark invalidation case clearly illustrates the traditional judicial reasoning:
- Assessing the Legitimacy of the Origin: Courts first determine whether the original registrant engaged in actions such as filing numerous trademark applications similar to well-known brands without the intention to use them. Once such conduct is identified as disrupting the public registration system, the requirement for acquired by other improper means is fulfilled.
- Limits of Transfer: A trademark transfer only changes the rights holder; it does not affect the legality of the original registration. Courts have explicitly stated that allowing a transfer to cleanse malicious intent at registration would undermine the purpose of Article 44, Paragraph 1, creating a loophole for bad-faith registrants to avoid responsibility through a register-transfer-cash-out scheme.
- Subsequent Use Is Not Decisive: Even if the transferee uses the trademark, unless they can prove a genuine intent to use it at the time of transfer and have established a stable market presence sufficient to outweigh the original registration’s impropriety, such use cannot justify maintaining the trademark validity.
From the Qiao Ruiqi JOYRICH case to the GLASHUTTE case, the Supreme Court has repeatedly stressed that determining whether a trademark was acquired by other improper means must be based on conduct during registration, and that later transfers do not change this determination. Together, these cases have built a strong safeguard aimed at curbing trademark speculation at its source and preserving a fair and competitive registration system.
III. Emerging Judicial Approach: Progress and Interest Balancing in the Hualing HUALING Case
The strength of the law lies in its capacity to respond to complex social realities. The appellate decision in the Hualing HUALING trademark invalidation case marks a cautious advancement beyond traditional principles.
Case Overview: The original applicant registered the Hualing HUALING trademark in bad faith, which was later transferred to Midea Group, the rightful owner of the “Hualing” brand. In the subsequent invalidation proceedings, the Beijing High Court ultimately decided not to invalidate the trademark.
Change in Judicial Reasoning: The case breakthrough stems from the court broadening its focus—from solely considering the “initial registration act to evaluating the overall situation after the transfer—and conducting a comprehensive balancing of interests:
- Legitimacy of the Transferee Intent: The court examined the subjective purpose of Midea Group, the transferee. As the legitimate brand owner, Midea acquisition aimed to protect its brand integrity rather than to speculate. This intent to defend one’s own rights was recognized as legitimate.
- No Damage to Public Interest or Others Rights: The ruling highlighted that Midea acquisition and use did not harm public interests or the legitimate rights of other competitors; instead, it restored the trademark proper commercial value.
- Establishment of a Stable Market Order: Following the transfer, Midea extensively and continuously used the trademark, creating an inseparable link with its products and a market order acknowledged by consumers. Invalidating the trademark at this stage would unnecessarily disrupt a well-functioning market entity.
The core of the Hualing decision is not to reject the legislative intent of Article 44, Paragraph 1, but to apply the principle of proportionality in specific cases. When invalidation would cause greater harm to a good-faith transferee than maintaining the registration would cause to public order, the court opts to protect the transferee. This indicates that while courts remain committed to combating malicious registrations, they are beginning to allow limited judicial discretion in exceptional cases involving bona fide transfer and genuine use.
IV. Corporate Response Strategies: Moving from Passive Compliance to Proactive Risk Management
In the face of a new legal environment characterized by principles and exceptions, companies need to develop more advanced and forward-thinking trademark management strategies.
- Trademark Application Phase: Establishing the First Line of Defense for Compliance
- Apply Only When Necessary, Avoid Hoarding: Trademark portfolios should closely align with the company development plans and core business. Avoid registering numerous unrelated trademarks to prevent being accused of malicious hoarding from the outset.
- Strengthen Evidence of Use Management: From the application date, systematically gather and preserve all proof of trademark use, such as contracts, invoices, advertisements, and exhibition materials, to create a comprehensive chain of evidence.
- Conduct Preemptive Risk Assessments: Before applying for trademarks that may resemble famous brands or involve public elements, conduct professional legal searches and risk evaluations to avoid infringing on the goodwill of others.
- Trademark Acquisition Phase: Performing Thorough Due Diligence
- Investigate the Original Registration Background: Before acquiring a trademark, conduct a background check on the original rights holder, focusing on the size of their trademark portfolio, class distribution, and any history of infringement, squatting, or misconduct.
- Assess Your Own Purpose and Capacity for Use: Companies should clarify the commercial intent behind acquiring a trademark. If the aim is to strengthen a brand portfolio, ensure the ability to use the trademark genuinely and be ready to prove this legitimacy.
- Consider “Risk Isolation” Strategies: For trademarks with complicated backgrounds and high risks, consider simultaneously filing a new application in your own name for the same class. Although this process takes longer, it secures a trademark with a clean origin, effectively isolating risk.
- Trademark Holding Phase: Ongoing Standardized Use and Active Monitoring
- Reinforce the Link Between Trademark and Entity: Maintain continuous and standardized use of the trademark on designated goods or services. Consistently build the brand image in consumers’ minds and strengthen the unique association between the trademark and the company.
- Establish a Legal Risk Early Warning System: Regularly monitor the legal status of your trademarks and the market environment. If legal challenges such as invalidation or opposition arise, promptly activate an emergency response plan and focus on demonstrating bona fide transfer and genuine use.
Conclusion
The enforcement of Article 44, Paragraph 1 of the Trademark Law represents a dynamic balance between the strictness needed to uphold public order and the flexibility required for case-by-case justice. The breakthrough in the Hualing case does not overturn traditional principles but reflects a higher level of judicial insight and caution in addressing complex commercial realities. For businesses, this presents both an opportunity and a cautionary message. It underscores that the foundation of any trademark strategy must ultimately rest on good faith and genuine use. Only by adhering to these principles can companies build a truly resilient brand defense in an ever-evolving legal landscape.
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