27 February 2023
February 1/2023 – 2 of 3 Insights
In spite of many challenges on a geopolitical level, companies from West and East continue to stay invested at a significant level in the Chinese market, including in relation to the protection of trade marks and brands: In 2021, the number of trade mark registrations reached 7.739 million, a year-on-year increase of 34.33%, which somewhat dropped to slightly more than 6.177 million per year at the end of 2022, among which 175,472 were foreign trade mark registrations in China (data was published by the China National Intellectual Property Administration (CNIPA) taking into account all applications until 16 December 2022, see here), which is equivalent to the total number of EUTM applications at the EUIPO in 2022 (see EUIPO Statistics for European Union Trade Marks here - however to note that EUTM application numbers represent multi-class applications). The total number of registered trade marks in the Chinese trade mark register meanwhile has surpassed 42 million, 4.8% of which are foreign-owned.
These numbers show a high level of activity which is expected to continue and to extend into new areas of growing interest for brand building in China, in particular in the metaverse or “元宇宙”. With an acceleration of a technological decoupling between East and West one can observe intense activities by key Chinese tech players to build up and create their own “metaverse” and related products:
While these activities are posed to have an increasingly strong leverage effect in particular for collaborating brands and their recognition in the Chinese market in the mid- and long-term, brand owners must take note of the impact of increasing decoupling of the spheres in East and West, in particular in the area of technology. For example, one of the most popular and active NFT marketplace OPENSEA is not accessible in China, and virtual currencies such as Bitcoins and Ethereum are under strict control (if not fully forbidden) in transactions in China. Different from those major NFT marketplaces which are built on a public blockchain, the major NFT marketplaces in China are built on consortium block chains with the result that e.g. NFTs minted there cannot be exchanged in popular marketplaces outside of China and are not easily transferable.
Against this backdrop, the increasing trend for companies active in both spheres is to “localize” their Chinese activities and employ a silo-based parallel strategy for the two markets: Chinese brands and technology for serving the Chinese market vs. foreign products and brands serving the rest of the world. Chinese authorities currently heavily support “home-grown” or indigenous innovation, which includes building homegrown brands and technical products. On the trade mark side, this means having to adjust to a growing importance of managing the life and perception of a brand in the Chinese cyberspace. As free-riding trade mark applications such as “HUGOVERSE” in class 25 in China show, international brands such as HUGO BOSS and others are facing new and unexpected threats of bad-faith applications in the area of cyberspace which – if left unaddressed – can lead to serious consequences in the fight against free-riding businesses in the Chinese growing metaverse space and dilution of the brand.
As a first case on NFTs ((2022) Zhe 01 Min Zhong No. 5272, Shenzhen Qicediechu Cultural Creativity Co. Ltd. vs. Hangzhou Metaverse Technology Co. Ltd. – see our insight here) decided by a Chinese court shows, the potential and value of NFTs and their use in the metaverse is not missed in China. Article 127 of the new Chinese Civil Code, in force since 1 January 2021, further has explicitly recognized “virtual property”. However, neither the Chinese trade mark office in the CNIPA nor the legislator have yet taken specific measures or issued interpretations how to deal with this new type of trade mark use and related legal questions.
Currently, even basic questions in relation to the scope of trade mark protection in the metaverse remain undecided. The Chinese trade mark office has not yet issued clarifications or a new set of classification to classify e.g. “virtual restaurants”, “virtual currencies” and other goods or services which may quickly become a daily necessity in the growing metaverse marketplace. The current practice in comparison will e.g. classify most NFTs simply as “software” in class 9. By contrast and as another piece of evidence on the decoupling of East and West, in the latest 12-2023 version NICE Classification which entered into force on 1 January 2023 there is already some very clear guidance about the classification of NFT-related goods and services. For instance, under class 9, the item “downloadable digital files authenticated by non-fungible tokens [NFTs]” made its debut, and the item “downloadable computer software for managing crypto asset transactions using blockchain technology” was also incorporated into the class-9 list as a replacement of “downloadable computer software for managing cryptocurrency transactions using blockchain technology”. The foresaid amendments were not (yet) incorporated into the localized Chinese Official Classification when the Chinese trademark office announced the commencement of use of the 12-2023 version NICE Classification in China. So far, Chinese authorities and commentators remain silent on the many questions different use-scenarios of NFTs in the metaverse may raise; Chinese trade mark experts and professionals appear to closely watch international case law such as the Hermès vs. Mason Rothschild (see our insight on the case here which is currently heard by the court in the New York to potentially borrow some ideas how to deal with new problems related to the metaverse and NFTs.
Trade mark owners are still well advised not to remain passive and to early on defend their turf, especially where this can be achieved at reasonable cost by simply filing their rights in the appropriate classes and subclasses. In the Chinese trade mark system, each class of goods is divided into sub-classes. Having one mark registered only in one subclass may not protect even against an identical mark registered in a different subclass in the same main class, depending on the definition in the applicable guidelines of the CNIPA and court practice in relation to non-similar subclasses. As a further complication, “non-standard” terms and descriptions of goods are often rejected and lead to an office action, making it necessary to agree with the CNIPA on an acceptable designation in a given subclass, which in relation to “virtual goods” may raise questions which the examiner in the CNIPA currently is reluctant to decide without further review.
An approach verifying necessary classes, their sub-classes and mixing both standard and specific own designation terms (while the latter however often will include an office action by the Chinese trade mark office, thus increasing costs and time needed) appears as one possible approach to achieve a scope of protection as broad as possible. As a supplemental strategy, trade mark owners can also register its stylized logos, decorations and designs as copyright works with the Copyright Protection Center of China, as it was mentioned by the court in the foresaid judgment (2022) Zhe 01 Min Zhong No. 5272 which held that to mint a copyright work as NFT without the copyright holder’s consent will deprive such NFT of legal protection under Chinese legislation and consequently the NFT can be claimed to be destroyed upon the copyright holder’s request.
In relation to the necessary main classes for designation, in theory, registration in the same class as the virtual goods could allow a brand owner to protect his trade mark against abuse by a confusingly similar brand on such virtual goods, however there is no clear case law yet established to support this view. The mere fact of a third party that may have achieved a confusingly similar registration in the same class (in a different sub-class) in practice will cause big problems in enforcement and reluctance by administrative authorities to get involved in “complex case”, resulting into the need of much slower and more costly litigation. This problem is exacerbated where infringing third parties claim protection based on their own registration in a different class not covering the product as in the physical world, but matching with a service featuring the same virtual product in a Chinese metaverse system.
For example, even though Art. 127 of the new Civil Code recognizes “virtual property” in principle, questions will inevitably arise whether e.g. a registration in class 25 for “apparel” will be sufficient to fight use of e.g. a use of a suit on an avatar in a metaverse with such trade mark, starting with the question whether this is “use as trade mark” to designate origin of goods (what if the brand does not offer “online suits” itself?), but also including the question whether there could be any liability of the provider of the metaverse or only against the party using such avatar. Making such branded suit available (potentially through NFTs in a closed Chinese metaverse) could rather be regarded as a service covered e.g. by class 35 subclass 3503 (“providing an online marketplace for buyers and sellers of goods and services”) or even 45 with the service in sub-class 4503 (“Individual clothing matching consultation”). It is also still unclear whether and to what extent a registration in class 9 for “software” would grant protection against the use of a trade mark e.g. in an online marketplace or conference system by the owner of the specific metaverse. As case law is still missing, discussions and legal uncertainty are here to stay for the time being.
In summary, given a general tendency at Chinese courts to narrowly define a scope of protection in particular for trade marks which have not yet achieved a status of being well-known in China, a broader approach for trade mark registration under the Chinese trade mark system may be advisable in the current environment to increase chances of being able to rely on a registered trade mark rather only Chinese unfair competition law for infringement cases in the Chinese metaverse.
24 February 2023
by Multiple authors
27 February 2023
Issue #20 | We keep you up to date with everything you need to know about the Metaverse.
27 February 2023
by Multiple authors