By Albert Chen
Trademark assignees may sometimes encounter an awkward situation: the target trademark is in the hands of a company that has had its business license revoked or that has been cancelled. Although the trademark is still valid, others seem to have no legitimate means to acquire it. So, under these circumstances, does the assignee really have no means to acquire the trademark? In today’s post, you will find the answer.
I. Why would trademarks be left unused?
According to relevant statistics, the average life of Chinese companies is seven years, and the average of life of privately owned companies is only 2.9 years. On the other hand, however, the validity period of a trademark is ten years, and there is nothing in Chinese law that states that the trademark shall automatically become invalid when the business license of its holder is revoked or the company is cancelled. Especially when the business license has been revoked, the company still has legal capacity. It is merely incapable of conducting civil acts, including the use and transfer of trademarks, because its business license or chop has been announced invalid or has been confiscated under the punishment of business license revocation.
Therefore, when the company’s business license is revoked or the company is cancelled, the company’s trademarks do not necessarily become invalid or enter the public domain. Furthermore, because the holders of the trademarks no longer have the ability to conduct civil acts, the trademarks are left unused.
II. Current solutions
1. How to acquire the trademarks held by companies that have had their business licenses revoked or that have been dissolved?
By Article 184 of the Comopany Law, a liquidation team shall be established within 15 days after the occurrence of the following situations:
(1) Where the term of business operation as stipulated in the company’s articles of association expires or other causes for dissolution as stipulated in the articles of association occur;
(2) Where a resolution on dissolution is adopted by the shareholders assembly or the shareholders general assembly;
(3) Where, according to law, the business license of the company is revoked, or the company is ordered to close down, or its registration is cancelled; or
(4) Where the people’s court has the company dissolved when a company is confronted with serious difficulties in operation and management, its continued existence may cause grievous losses to the interests of its shareholders and the difficulties cannot be surmounted through other channels, and the shareholders holding more than ten percent of the total number of the voting rights held by all the shareholders of the company request a people’s court to do so.
According to Article 185 of the Company Law, the liquidation team is responsible for checking up on the property of the company, clearing up claims and debts of the company, and disposing of the property remaining after the company pays off its debts. That means the team has the right to dispose of all the company’s properties during the liquidation period. And, in such a situation, the party wishing to acquire the trademark could negotiate with the team and legitimately receive transfer of the trademark.
2. How to acquire trademarks held by companies that have had their business licenses revoked but have not been liquidated?
In real life, there are many companies that have their business license revoked but do not apply for liquidation. Some companies even prefer to be punished through license revocation by the Department of Industry and Commerce because they can thereby be exempted from the complicated process of company cancellation when they decide to discontinue their operation. On the other hand, some companies that have had their licenses revoked might, for various reasons, not undergo liquidation by a liquidation team. At that time, it is impossible for the trademark to be transferred or assigned through the normal means.
Under these circumstances, the only current method is to apply for cancelation of the trademark based on three years without use and then reapply for registration of the trademark as provided in Article 44 of the Trademark Law. But, it must be noted that, as regulated by Article 46 of the Trademark Law, “Where a registered trademark has been cancelled or has not been renewed at its expiration, the Trademark Office shall, during one year from the date of the cancellation or removal thereof, approve no application for the registration of a trademark that is identical with or similar to the said trademark.” Considering that examination and approval of trademark registration requires at least one year, this solution could cost at least five years before finally acquiring the trademark.
3. How to acquire the trademarks omitted in the liquidation?
In practice, establishment of a liquidation team is more often seen in the cancelation of the company after dissolution. And, as an intangible asset, it is possible the trademark will be omitted in the liquidation. When such an omission is discovered after dissolution by the liquidation team, how can such trademarks be transferred and acquired?
From current judicial practice, non-disposed assets will normally become personal property of the shareholder who demands it. As specified in the Interpretations on Several Issues Concerning Disposal of the Property Rights and Interests of Companies that Have Undergone Cancellation (Shanghai Second Intermediate Court (2006) No.6):
“When the shareholders find any other creditor’s rights or property rights after the cancellation of the company by the shareholders, they can file a lawsuit in their own name to claim the rights.”
After the shareholder receives the trademark through legal channels, the party intending to acquire the trademark can negotiate with the shareholder for its transfer.
From the above regulations, however, it is still not certain that the omitted property will naturally become the property of a shareholder, as the property can only be divided according to the shareholder’s demand when the shareholder first files suit. When the shareholder does not demand the trademark after the dissolution of the company, the party who would like to get the trademark can only be determined according to Article 47 of the Implementing Regulations of the Trademark Law. This article stipulates that the person wishing to acquire the trademark file an application for cancellation of the trademark one year after the company ceases operation, and then re-register the trademark. But, this solution still requires at least two years to be successful.
Before closing, it is worth noting that this issue involves several different laws and many legal issues. Therefore, it is suggested that such situations be handled through professionals in such fields.