Enterprise names, like trademarks, function as an identifier of a business and its products or services. For many years, owners of intellectual property (IP) rights doing business in China have had to deal with malicious registration of their brand names or trademarks as enterprise names by local Chinese companies. These local companies then conduct business by free-riding on the reputation of usually famous or established brands to bolster their own profits.
The laws and regulations in China have been unclear in governing the use and registration of enterprise names. To make up for this deficiency, China has promoted legal reforms to strengthen the governance of enterprise names, leading to legislative developments since 2017:
These revisions and proposed revisions have introduced and will introduce new rules governing the registration, use and dispute resolution of enterprise names. By understanding these rules, a rights owner can develop a more effective strategy in protecting IP rights in China.
Registration of Well-known Marks as Enterprise Names Prohibited
The Prohibition Rules and the Comparison Rules intend to unify the examination standards of company registries (usually the local AICs) on new enterprise name applications. Through the publication of these rules, the State Administration of Industry and Commerce (the SAIC) is discouraging market players from selecting enterprise names that would likely infringe upon the rights of others or lead to disputes.
The Prohibition Rules classify enterprise names as either prohibited or restricted. Prohibited names may not be registered as enterprise names. Restricted names can be registered only under certain conditions.
Restricted names include another party's well-known mark in the same industry. This restriction extends the protection of well-known marks to enterprise names. A well-known mark owner may rely on the Prohibition Rules to file a complaint against a party who registers an enterprise name that infringes its well-known mark.
Prohibited names include, among others, (1) words that will mislead the public or cause damage to public interests; and (2) names of foreign countries, foreign districts and international organizations, political parties, organizations of political parties, government organizations, military organizations, social organizations, or designations of military units. Most of these words and names are also not permitted to be used in trademark applications.
Existing Chinese laws generally do not allow identical or similar enterprise names to co-exist on the same company register (enterprises established within the same administrative area are usually managed by the same company registry).
The Comparison Rules define what constitutes identical or similar enterprise names, which is necessary for enterprises within the same industry, or for enterprises without a specific industry designation. In other words, identical or similar enterprise names will be allowed to co-exist as long as they designate different industries.
Provisions in the Comparison Rules and the Prohibition Rules were reinforced in the Draft Regulations. In addition, the Draft Regulations also include rules that allow enterprises to assign and license their enterprise names to other parties.
Unauthorized Use of Enterprise Names an Act of Unfair Competition
Under the current legal regime, the use of another's enterprise name to mislead consumers is an act of unfair competition. The revised AUCL maintains this definition but expands the scope of protection by:
(1) limiting the protected enterprise names to those that have achieved a certain degree of fame in China; and
(2) extending the protection to cover the short names and distinctive parts of enterprise names.
Using a registered enterprise name may constitute unfair competition if the enterprise name:
(1) contains words that are identical or similar with the name of another party's famous goods or services;
(2) is identical to the name of a social organization (including the short form) or an individual (including pen name, stage name, and the translations of the name);
(3) contains another party's website name, or the main part of the domain name; and
(4) misleads consumers in any other way.
An infringer committing any of the above acts will be liable for civil damages, calculated by the actual loss incurred by the rights owner, or the illegal turnover of the infringer. The revised AUCL clarifies that the rights owner's loss include reasonable expenditures to stop the infringement. If the actual loss or the illegal turnover cannot be determined, the revised AUCL allows the courts to grant a discretionary damages award of no more than RMB 3,000,000 (about USD 460,000).
In the Draft Regulations, the SAIC also requires market players to use their enterprise names in good faith. In particular, no enterprise may use a name that is identical or similar with another party's famous business identifier, or use its registered enterprise name to damage national interests, public interests or lawful interests of another party. As the Draft Regulations were released before the revised AUCL, the SAIC is likely to further revise the draft to maintain consistency with the AUCL, and to promulgate rules to supplement the AUCL.
Less challenging for rights owners to remove an improper enterprise name
Removing an infringing enterprise name from the enterprise name register is an important step for a rights owner to stop the infringement of its IP rights. As long as the enterprise name remains registered, infringers can always attempt to justify their infringing activities based on the enterprise name registration. The revised AUCL clearly provides a stronger legal basis for rights owners to halt improperly registered enterprise names.
One of the main obstacles to removing an infringing enterprise name has been that local company registries could not themselves change a registered enterprise name. Instead, a local company registry had to order the enterprise to change the name, but the enterprise does not always comply with that order. In practice, even obtaining a favorable court judgment has proven difficult to enforce because the infringer simply refuses to change its enterprise name.
The revised AUCL fixes this enforcement problem by allowing company registries to replace a problematic enterprise name with the enterprise's unified social credit code until a new enterprise name is created. If company registries diligently exercise this authority, infringers should no longer be able to flout official orders and use their enterprise name registrations to shield themselves from infringement claims.
Another major obstacle to removing an infringing enterprise name has been the lack of a proper legal basis for challenging the registration of the enterprise name. In particular, existing PRC laws have been unclear on handling conflicts between enterprise name rights and trademark rights. The revised AUCL may help to clarify this issue because it forbids enterprises from using names containing words that are identical or similar with the names of other parties' famous goods or services.
An argument can be made that the name of a famous good or service should also include the trademark that covers that famous good or service. If the Chinese courts and trademark authorities agree with this interpretation of the revised AUCL, rights owners will have a powerful legal basis to dispute the registration of an infringing enterprise name.
Rights owners should monitor developments and review protection strategies
These reforms on the registration and use of enterprise names are still ongoing. It remains to be seen how the new regulations that are part of this reform will be interpreted and enforced in practice. As such, rights owners should continue to monitor developments so that they can adapt their brand protection strategies to best accommodate the legal framework in China.
In any event, with the reforms significantly favoring rights owners, rights owners should feel encouraged to be more proactive in enforcing their IP rights in China. However, in terms of protecting IP rights, rights owners should still rely on trademark filings as the preferred approach as the scope of protection for enterprise names is narrower than for trademarks.