Civil Liability Associated with Malicious Trademark Applications in China: A Comprehensive Legal Analysis & Strategic Guide

China’s continuous struggle against fraudulent trademark registrations signifies an important advancement in the realm of intellectual property protection. The amendments made to China’s Trademark Law in 2019, along with the Several Provisions on Regulating Trademark Application and Registration, represented a significant turning point by introducing strong measures to address exploitative registration practices in administrative processes. However, a significant shortcoming persists there is no clear civil liability for malicious applications within trademark law itself.

This article examines how Chinese courts are addressing this issue through the Anti-Unfair Competition Law (AUCL), thereby providing vital avenues for rights holders to seek legal action against dishonest individuals.

I. The Legal Landscape: Malicious Applications as Distinct from Trademark Infringement

A foundational principle established in landmark judgments like Castrol v. Jiang Xuanli (2021) and affirmed in Afton Chemical Corporation v. Hengan Group (2022) is that the mere act of applying to register a trademark does not constitute trademark infringement under Article 57 of China’s Trademark Law. Courts consistently emphasize that administrative channels – opposition, invalidation, and judicial review – are the appropriate fora for challenging such applications directly.

This stems from the legal nature of the act:

1. No Commercial Use：Infringement requires unauthorized use in commerce. Filing an application is an administrative act, not a market-facing use.
2. First-to-File Principle: China’s system grants rights based on registration, making filing a prerequisite for securing rights. Filing alone, while potentially vexatious, exploits a core feature of the system.
3. Administrative Primacy: Determining rights validity falls squarely within the expertise of the China National Intellectual Property Administration (CNIPA) and specialized IP courts reviewing CNIPA decisions.

Consequence: A rights holder cannot directly sue an applicant under trademark law solely for filing a malicious application. A favorable infringement judgment requires proof of the defendant’s subsequent use of the registered (or applied for) mark in connection with goods/services.

II. Malicious Applications as Evidence of Subjective Fault in Infringement Actions

When an infringement claim is possible because the defendant is commercially using a similar mark, proof of intentional actions aimed at harming the plaintiff’s brand serves as a strong asset. Courts view this as significant evidence of the defendant’s bad faith, which is an important element in determining damages.

Evidence of Malicious Intent: Repeated applications for trademarks that are identical or confusingly similar to an existing mark can indicate an intention to exploit the established reputation and hinder the rights of the legitimate owner. The case of Hershey Chocolate & Confectionery Corporation v. Zhu Jiang Jiu Long Jiang Beverage & Food Co. serves as an example. The defendant consistently submitted applications for marks such as Hershey’s and Kisses in unrelated categories. Although the issue of infringement depended on actual use, the courts specifically pointed out that these applications showed clear subjective malice, which affected the assessment of liability and damages. The ongoing trademark squatting significantly weakened any argument for innocent or coincidental similarity.

Effects on Damages: Showing malicious intent through numerous wrongful filings enables plaintiffs to claim:

• Increased statutory damages (up to RMB 5 million under Article 63(3) of the Trademark Law).
• Reimbursement for costs associated with defending against the bad-faith registrations, which are later considered important in assessing infringement (as noted in Beiersdorf AG v. Zhan Shuxia, Tianjin High Court).

A determination of aggravated infringement, which could influence other forms of relief. Rights holders must carefully keep a detailed record of all identified malicious claims against their trademarks made by a possible defendant. This documentation serves as crucial evidence in any future infringement lawsuits stemming from genuine unauthorized usage.

III. Malicious Applications Constituting Unfair Competition under AUCL Article 2

The most significant legal development for combating malicious filings, absent direct infringement, is their increasing characterization as acts of unfair competition under the general clause of Article 2 of China’s Anti-Unfair Competition Law. Article 2 prohibits business operators from engaging in market transactions violating the principle of good faith or generally recognized business ethics, thereby harming the legitimate rights and interests of other operators or consumers. Courts apply this flexible principle cautiously but decisively to address gaps left by specific IP laws.

Landmark Precedents Establishing Liability:

• Brita GmbH v. Ningbo Fantai Co., Ltd. et al. (2021):This landmark case set a precedent for direct liability. The defendant not only submitted fraudulent trademark applications for names such as Brita, but also consistently misused trademark opposition processes to intimidate the plaintiff and extract settlements. The court firmly determined that submitting trademark registration applications in bad faith, particularly when combined with the misuse of the opposition system, amounted to unfair competition. The defendant was instructed to stop this behavior, compensate for damages (which included Brita’s considerable enforcement expenses), and rectify any negative impacts.
• InSinkErator Corp. v. Chen Zhixing et al. (2022): The defendant had submitted preemptive trademark applications for InSinkErator and associated marks across various classes over several years, with court evidence indicating 48 such submissions. Importantly, an administrative ruling had previously established the bad faith of one significant registration. The court, placing significant emphasis on AUCL Article 2, instructed the defendant to stop its preemptive registration of trademarks that are identical or similar to the plaintiff’s marks, as well as related unfair practices.
• Beiersdorf AG v. Zhan Shuxia (Tianjin High Court – Retrial, 2023): This significant decision reversed a previous court’s conclusion that malicious registration was not subject to regulation under AUCL Art. 2. The Tianjin High Court clearly stated that malicious registration breaches the principle of good faith, undermines fair competition, and constitutes unfair competition.

IV. Civil Liability Outcomes for Malicious Applications (AUCL Basis)

When bad-faith applications are successfully challenged under AUCL Art. 2, courts generally impose three core remedies:

1. Cessation of Infringement: Ordering the defendant to cease the specific unfair acts. Crucially, this extends to ceasing future preemptive registrations. As the InSinkErator court reasoned, such an injunction is essential to protect the plaintiff’s legitimate interests and prevent the ongoing waste of public and private resources stemming from constant monitoring and opposition by the rights holder. This proactive approach contrasts with Castrol, where the isolated act of application was deemed not part of production and operation and thus outside the then-current AUCL scope.
2. Compensation for Damages: Courts award damages based on plaintiff’s provable losses, defendant’s gains, or, increasingly, statutory damages.
3. Elimination of Adverse Effects: Requiring public apologies, corrective statements on websites/publications to correct market confusion generated by the filings or related harassment (e.g., publishing baseless oppositions).

V. Aspects of the Cessation Remedy

A significant difference in legal rulings pertains to the extent of cessation of infringement orders related to malicious filing actions:

1. Proactive Injunction (Current Majority Perspective – InSinkErator, Brita): Courts assert that it is both appropriate and necessary to require the defendant to stop the preemptive registration of relevant trademarks. This injunction addresses the defendant’s ongoing actions and tactics, aiming to prevent future instances of bad-faith filings and the associated harm.
2. Factual Completion Limitation (Beiersdorf Lower Court Initially): Some courts initially argued that the act of filing is considered complete once the application is submitted to CNIPA. Thus, they contended that it is unreasonable to order cessation of that specific past action, focusing instead on existing registrations.
3. Resolution: The InSinkErator proactive perspective is more consistent with the preventative intent of tort law and AUCL, which seeks to halt ongoing or potentially recurring harmful behavior. Viewing an application as a singular past event overlooks the systematic issue of trademark hoarding and the genuine risk of future identical filings. Courts that support the InSinkErator approach recognize that ordering cessation addresses the bad-faith strategy and tendency to file, compelling defendants to immediately and permanently stop all such actions.

VI. Strategic Considerations for Rights Holders

1. Exhaust Administrative Remedies: Vigilantly monitor trademark bulletins and aggressively oppose/invalidate malicious applications via CNIPA procedures. Success here provides strong evidence for any subsequent civil AUCL claim and prevents registrations that enable actual infringement.
2. Document Meticulously: Build comprehensive evidence dossiers proving bad faith:

• Chronology of defendant’s filings targeting your brand.
• Evidence of your mark’s distinctiveness and fame in China (sales, advertising, awards).
• CNIPA decisions finding bad faith.
• Evidence of associated misconduct (demand letters offering marks for sale, baseless oppositions filed against you, counterfeiting, domain name squatting, etc.).

1. Assess Viability of AUCL Art. 2 Claim: Analyze if the defendant’s conduct crosses the threshold – volume, targeting, fame of your mark, associated unfair acts. Evidence of subjective malice is paramount.
2. Include All Potential Claims: If the defendant has used the mark commercially beyond just filing, include a strong trademark infringement claim alongside the AUCL Art. 2 claim based on filing bad faith. The infringement claim often carries higher damage potential.
3. Seek Appropriate Remedies:

• Declaration that the bad-faith filings constitute unfair competition.
• Order to cease all future bad-faith filings/applications targeting your marks/brands.
• Damages including ALL enforcement costs against malicious filings.
• Publication of a court-approved corrective statement.

VII. Conclusion

China’s improved administrative processes under the updated Trademark Law serve as a crucial defense against fraudulent trademark applications. Additionally, the recognition by Chinese courts that systematic and large-scale bad-faith trademark hoarding is considered unfair competition under the Anti-Unfair Competition Law’s general principle (Article 2) represents a significant advancement in safeguarding legitimate brand owners.

Cases such as Brita, InSinkErator, and the Beiersdorf retrial enable rights holders to pursue substantial civil remedies, including cease-and-desist orders to prevent future predatory applications, significant damages that cover extensive enforcement costs, and corrective measures. This judicial approach works alongside administrative opposition and invalidation, forming a more comprehensive deterrent against those who take advantage of weaknesses in China’s first-to-file system.

Although there are ongoing adjustments in the doctrine regarding the extent of injunctive relief, the direction is evident: China’s intellectual property landscape is increasingly addressing the accountability gap for bad-faith applicants, reinforcing the principles of good faith and fair competition that are vital for a healthy market. Rights holders need to be proactive in monitoring, opposing, and strategically litigating to effectively utilize these powerful legal resources.