Whether Sales Agents Are Included in the Trademark Agent Squatting Articles of China Trademark Law?

360截图-12690338(By Luo Yanjie) Due to the late establishment of the relevant law and system, the trademark squatting situation in China is quite serious, and much squatting is conducted by trademark agents or partners. Article 15 of the Trademark Law provides that:

“Where any agent or representative registers, in its or his own name, the trademark of a person for whom it or he acts as the agent or representative without authorization therefrom, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use.”

This regulation, however, contains no specific definition or limit on agents or representatives. The case analyzed in today’s post show different understandings among Chinese courts on this issue:

Summary of the judgment:

On September 12, 2002, Hua Shu Company applied to the Trademark Office of State Administration of Industry and Commerce (the “Trademark Office”) for the disputed trademark, “头包西灵 Toubaoxilin.” The application was approved on February 7, 2004, and Hua Shu Company became the exclusive rights holder until February 6, 2014. The trademark number was 3304260, and it was registered in Class 5 for veterinary preparation, veterinary medicines, and veterinary bio-preparation. On the other hand, Chongqing Zheng Tong Veterinary Pharmaceutical Company (the “Zheng Tong Company”) is the manufacturer of the product “头孢西林” or Cephalosporin Schering, the transliteration of whose Chinese name is very similar to the above trademark registered by Hua Shu Company. Hua Shu Company and Zheng Tong Company signed an Exclusive Sales Agreement by which Hua Shu Company would sell the product 头孢西林.

On March 31, 2004, Zheng Tong Company filed an application to the Trademark Review and Adjudication Board (the “TRAB”) to cancel the disputed trademark. Zhen Tong Company claimed that the disputed trademark violated Article 10; Article 11, Paragraph 10, Item 1; Article 15; and Article 31 of the Trademark Law.

The following is a summary of each of these articles and their significance in the case. Article 10 places restrictions on using place names in trademark applications. Even though“西林Xilin” is identical to “西林县County Xilin,” the trademark as a whole is unlikely to cause confusion. Article 11, Paragraph 10, Item 1 provides that generic names, shapes, or types of the product may not be registered as trademarks. Although “cephalosporin头孢” has generic meaning, its meaning is not exclusive. Article 15 mainly limits trademark squatting by trademark agents and representatives and was the focus of the case. Article 31 mandates that no trademarks violating prior rights may be applied as trademarks, but this article is difficult to apply in this case. The TRAB found that “agent” in Article 15 includes sales agents who get access to the principal’s trademark through commercial cooperation. Based on this, the TRAB decided to cancel the trademark registered in Class 5 for veterinary medicines. Hua Shu Company was dissatisfied with the decision and filed an administrative lawsuit.

The Beijing No.1 Intermediate People’s Court held that the legal meaning of “agent” in Article 15 of the Trademark Law is not limited to the regulation in Article 63 of the General Principle of Civil Law, and later promulgated laws, like the Contract Law further interpret it. Additionally, sales agency is a legal activity in which the agent occupies the manufactured product and then sells it in its own name or the manufacturer’s name, which is a necessary result of the development of the market economy. For this reason, a broad definition of the term that includes sales agency complies with the traditions of commercial activity, as well as the legislative purpose advocated by the Trademark Law of maintaining good faith. Therefore, the court sustained the decision made by the TRAB. Hua Shu Company then appealed to the Beijing Higher People’s Court.

The Beijing Higher People’s Court held that “agent” in Article 15 of the Trademark Law refers to trademark agent, acting on behalf of the trademark applicant or owner in trademark matters, such as trademark application, infringement investigation, or inspection. “Representative” refers to trademark representative, namely those acting on behalf of companies in trademark registration or other trademark issues. Hua Shu Company and Zheng Tong Company established cooperative relationship in manufacturing and sales; therefore, the determination on their relationship by the first instance court was incorrect. For this reason, the Higher Court revoked the decision made by the No.1 Intermediate Court and the TRAB. Afterwards, Zheng Tong Company filed an application for review with the Supreme People’s Court.

The Supreme People’s Court made the final decision on August 31, 2007. The “agent” in Article 15 of the Trademark Law shall be defined broadly. Not only does it refer to the trademark agent or representative who is authorized by the trademark applicant or owner to act in trademark issues, but it also includes the general sales (the exclusive sales), general agent (the exclusive agent) and other agents or representatives. The second instance court’s interpretation that agent is limited to the trademark agent was incorrect and must be overturned. For this reason, the Supreme People’s Court sustained the decision made by thefirst instance court.

Lawyer’s Comments:

Three separate courts reviewed this case, and the most important aspect of the case is the different understandings these courts had of Article 15 of the Trademark Law. Both thefirst instance and highest court held a broad understanding of the definition of “agent,” while thesecond instance court defined the term narrowly. To judge from the legislative purpose and practical judicial effect, the understanding of the first instance and final courts is clearly more appropriate.

1. The narrow understanding is not helpful to prevent trademark squatting

As provided in Article 15 of the Trademark Law:

“Where any agent or representative registers, in its or his own name, the trademark of a person for whom it or he acts as the agent or representative without authorization therefrom, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use.”

When the above case began, there was no clear definition of “agent.” The understanding of the second instance court limiting the terms to trademark agents and representatives acting in trademark issues was unquestionably too narrow. The second instance court narrowed the definition in law without legal ground because there can be various third parities involved in business activities, and such third parties are not limited only to those trademark agents or those acting in trademark issues. Moreover, the original clause does not limit “agent” only to those involved in the trademark issues.

2. The broad interpretation better meets the legislative purpose

In the above case, the first instance and final courts did not limit their understanding of the law to only the text, but interpreted the law considering legislative purpose and social reality. Article 14 of China’s Trademark Law originates from Article 6, Item 7 of the Paris Convention, which also bans trademark squatting by agents or representatives. Although this regulation of the Paris Convention also uses the words “agent” and “representative,” the Guidelines of the Paris Convention have otherwise pointed out that the definition of such “agent” or “representative” cannot have narrow meaning, and this article could also apply to those salesmen selling the marked product applying the trademark in their own names.

3. There is already relevant judicial interpretation stipulating the use of a broad definition

In fact, there are currently relevant judicial interpretations specifying that “agent” and “representative” in Article 15 of the Trademark Law must be broadly defined. According to Article 10 of the Opinions on Several Issues Concerning the Hearing of Trademark Authorization Administrative Cases by Supreme People’s Court:

“When trademark agents, trademark representatives, or other agents or representatives entrusted as sales agencies apply for the principal’s trademarks in their own names, this shall be deemed as trademark squatting by the agents or the representatives”

In practice, some squatting is conducted during the negotiation phase of the agency or representation, which means that squatting comes before agency or representation. By then, it shall be deemed squatting by the agent or the representative. Additionally, trademark applicants who conspire with the agent or the representative shall also be taken as the agent or the representative.

The above regulation not only brings the salesman into the scope of the statutory agent or representative but also includes third parties aiding the conduct. Furthermore, the timing of squatting comes in earlier during the negotiation phrase. Therefore, with the above interpretation, thesecond instance court’s judgment would no longer be seen in the hearing practices, and similar cases in the future would be decided on a fixed standard.

Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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