Drug commodity name protection, a pitfall in the newly revised Trademark Law?

One of the new provisions of the revised PRC Trademark Law, effective as of 1 May 2014, is the protection of the priority right of a trademark which is not registered in China but has been used in China for a certain period of time. According to article 59 of the newly revised PRC Trademark Law, if a third party has already used a trademark which is identical or similar to the trademark to be registered by the trademark right holder on the same or similar goods, and such trademark has already had a certain impact on the market, the trademark right holder who registers such trademark afterwards cannot prohibit that third party from using the trademark in its original scope, but may request it to make an appropriate sign of distinction. However, if the prior use concerns a commodity name, will it be protected in the same way by the revised Trademark Law? The answer is not entirely clear.

Disputes regarding drug commodity names and drug trademarks can often be a real headache for drug manufacturers, and there has been a constant stream of such disputes over the past decade. If a drug commodity name violates a registered trademark, drug manufacturers may face not only liability for trademark infringement, but also regulatory liabilities in changing its commodity name with CFDA1. Considerable damages and losses may be incurred.

Drug manufacturers must take great care when registering their drugs in China. It is highly recommended that before determining a drug commodity name, a trademark identical or similar to that name be registered in China.

This article will first describe the definition of drug generic name, drug commodity name and drug trademark (1), then discuss the practical dispute between drug commodity name and drug trademark (2), before analyzing the appropriate way in which a commodity name can be protected under the newly revised Trademark Law (3).

1. Drug generic name, drug commodity name and drug trademark

A drug generic name, drug commodity name and drug trademark are three different notions under PRC Law.

Under Article 50 of the Drug Administration Law, a drug name stipulated in the national drug standards2 is the drug generic name.

Not all drugs are entitled to have a commodity name. According to the CFDA circular in 20063 , only a new drug which has a new chemical structure or new API4 or a Chinese patented drug is entitled to have a drug commodity name. Another CFDA circular5 in 2007 further narrows the scope of use of a commodity name, stating that only a new drug6 (including new chemical structures and APIs) in the applicable monitoring period7 or a Chinese patented drug in the patent protection period can have a commodity name, unless the commodity name was approved prior to 1 June 2006 (effective date of the Drug package insert and labeling administration regulation). A drug commodity name, if any, must be registered with CFDA at the time of drug registration. Pharmaceutical law provides such privilege to a new drug or patented drug in order to encourage the development and commercialization of these drugs in China.

A drug may also have a trademark. According to PRC pharmaceutical law, a trademark to be used on a package insert or label must be registered in China.

2. Dispute between a drug commodity name and drug trademark

When a drug has a commodity name, disputes may arise as a result of:

1. Prior use of a drug trademark
   
   A drug trademark is registered by the trademark right holder in China. Afterwards, another drug manufacturer registers a drug with a commodity name identical or similar to that prior-registered trademark.
   
   A similar case occurred in 2010 where a local manufacturer in the city of Nanning registered and sold in pharmacies a healthy food with commodity name similar to a trademark which had already been registered by another pharmaceutical manufacturer for pills. Beijing No.1 Intermediate Court held that using a commodity name identical or similar to a trademark which is already registered by a third party is regarded as trademark infringement under Article 50 (1) of the current Trademark Law Implementing Rules dated 15 September 2002, especially when such use gives rise to confusion to the public.
   
   
2. Prior use of a commodity name
   
   A drug manufacturer registers a drug in China. Afterwards, a third party registers a trademark identical or similar to the commodity name of that registered drug.
   
   A similar case occurred in 2001 where a drug manufacturer in Beijing registered a drug with a commodity name which was registered afterwards by another drug manufacturer in Shanxi province as a trademark. Both administrative proceedings and civil proceedings were initiated by the drug manufacturer in Beijing to revoke the registered trademark. The related disputes lasted for more than 9 years before the drug manufacturer in Beijing finally won the case.
   
   
3. Dispute resulting from internal restructuring
   
   A drug manufacturer registers a drug trademark and also registers a drug with a commodity name identical to the trademark. Afterwards, due to an internal restructuring, the trademark is transferred to a third party, but the drug manufacturer continues to manufacture the drug bearing the commodity name identical to the trademark.
   
   A similar case also occurred in Shanghai FDA. In that instance, the drug manufacturer agreed to cancel the commodity name through a special procedure recognized by CFDA for that purpose8.

3. Appropriate protection of commodity name under the newly revised Trademark Law

“PRC Trademark Law is specifically aimed at protecting registered trademarks; renowned commodity names are protected by anti-unfair competition law”, said Mrs Wang Lianfeng, a well-known trademark professor of East China University of Politics and Law. Thus, how to protect a commodity name is not an issue to be resolved by legislation in the Trademark Law.

No one wants to have to be a party to long lasting legal proceedings in order to secure their rights to a commodity name. Drug manufacturers should therefore consider what will be the most appropriate ways to defend itself in case a dispute of this nature arises.

Currently, the following three defences could be considered, although not cumulatively:

1. Priority right defence
   
   A drug manufacturer may apply for the cancellation of the trademark registered by a third party based on the fact that the manufacturer has a priority right to a commodity name identical to the trademark, like the case in point 2 (2).
   
   However, this approach is not solidly established from a legal perspective. Currently, neither the Trademark Law nor its Implementing Rules explicitly regard a commodity name as a priority right, although such right was somewhat recognized by the Supreme Court during the above case in point 2 (2). The Trademark Examination Standards only explicitly recognize the following priority rights: trade name, copyright, industrial design, personal name, personal image.
   
   The revised Trademark Law cancels the trademark opposition review procedure if the opposing party loses the case and shortens the examination period of trademark cancellation cases. These new changes, once implemented, can shorten the length of legal proceedings by around 2-3 years.
   
   However, if an interim injunction is obtained by the trademark right holder, a drug manufacturer will not be able to start its manufacturing using the commodity name until such trademark is cancelled, which would be for 2.5-4 years9 according to the revised Trademark Law.
   
   
2. Unfair competition defence
   
   A drug manufacturer might also initiate an unfair competition defence against the trademark right holder under the Anti-Unfair Competition Law. However, such solution is possible only if the drug is considered to be a renowned drug. The fact that a drug is approved as a new drug or patented drug does not necessarily lead to the conclusion that it becomes renowned. If the drug has just started to be manufactured in China, it is likely that this defence would not be available.
   
   
3. Prior use defence
   
   Article 59 of the revised Trademark Law provides for a prior use defence (see the first paragraph of this article).
   
   However, such prior use defence is only applicable to the use of a trademark. It is uncertain whether a commodity name can be regarded as a trademark under the revised Trademark Law. Although no explicit provisions are provided, we consider it is still possible:
   
   a. In reality, as mentioned above, except for commodity names granted before 1 June 2006, the granting of a commodity name for a drug is to encourage drug development and distinguish new drugs and patented drugs from generics. In this regard, the granting of a commodity name makes it different from other drugs.
   
   b. Further, according to PRC pharmaceutical law, the size of a drug commodity name shall not be bigger than half of that of the generic name. The size of a drug trademark shall not be bigger than one fourth of that of the generic name. Therefore, on drug labeling, a drug commodity name seems to draw more attention to consumers than a trademark, provided that such name is distinctive in itself.
   
   A drug manufacturer may use the prior use defence directly in civil proceedings without the need to first initiate a trademark cancellation procedure and request the suspension of civil proceedings. This means the length of proceedings would be reduced. However, the shortcoming is that the drug manufacturer may only use this commodity name within the original scope of use. Thus, if a drug manufacturer would like to expand its manufacturing capacity or distribution network, the trademark right holder may claim its rights and prevent the manufacturer from doing so. Further, to claim such prior use by assimilating the commodity name to a trademark might be somewhat contradictory if the drug manufacturer would also like to cancel the trademark in China based on a priority right of the commodity name.

None of the above approaches could be deemed to be the “most effective” approach in practice, due to their respective limited scope and uncertainty of interpretation under the revised Trademark Law.

As the Trademark Law is aimed at protecting registered trademarks, it is without doubt that such law will not also seek to increase the protection of a commodity name.

Although the revised Trademark Law considerably shortens the time for trademark cancellation, to initiate such a procedure nonetheless does not appear to be an ideal solution at first hand.

Given the above, it is highly recommended that drug manufacturers should register the commodity name as a trademark in China before the registration of the drug. As pharmaceutical law requires that new drug registrations must be submitted at one time without the possibility of providing supplementary documents, a proper anteriority search should be conducted in advance to ensure that no trademark identical or similar to the contemplated commodity name exists in China. This may help to avoid the risk that the application documents for new drugs are rejected for re-application.
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1 China Food and Drug Administration
2 The national drug standards are usually stipulated in PRC Pharmacopeia.
3 CFDA Circular related to the standardization of drug name administration (Guo Shi Yao Jian Zhu (2006) No.99)
4 Active pharmaceutical ingredient
5 CFDA Circular related to the interpretation of several questions of the drug package insert and labeling administration regulation (Guo Shi Yao Jian Zhu (2007)No.49)
6 According to Article 83 of the Implementing Rules of Drug Administration Law, the “new drug” is the drug which has not yet been marketed in China. The new drug registration is subject to the Drug Registration Administrative Measures, under which a New Drug Certificate will be issued after the new drug registration. The new drug must be manufactured in China.
7 The “monitoring period” is defined by the Drug Registration Administration Measures. A new drug is entitled to a 3-5 years monitoring period after the New Drug Certificate is issued. During the monitoring period, CFDA will not approve the manufacture, change of dosage or import of the same drug by other companies, nor will it accept new application for the same drug submitted by other applicants.
8 CFDA circular relating to the relevant matters of cancellation of commodity name
9Calculated from trademark opposition