(By You Yunting) The Luzhou Qian Nian Liquor Co., Ltd. (“Company L”) found that its competitor, the Shandong-based Zhu Ge Jia Liquor Co., Ltd. (“Company S”) acquired three trademarks from a company that had its registration for the marks cancelled five years prior to the trademark transfer. Following this, Company L filed a request to have the trademark revoked, because it had not been used for a continuous three-year period. However, the Trademark Office denied the application, and Company L requested a review of the decision, which was also rejected, leading Company L to ultimately file an administrative lawsuit. In the lawsuit, Company L was equally unsuccessful, and the court refused its demands in both the first and second instance. Following a series of rejections, Company L then appealed the case to the Supreme People’s Court (“Supreme Court”) for a rehearing.
Case Summary:
On August 12, 1998, an Yi Nan County-based (Shandong Province, Lin Yi City) Distillery (“Company X”) had its registration revoked due to a merger, but three of its trademarks containing the characters “诸葛亮” (read as Zhu Ge Liang in Chinese) were approved by the State Trademark Office for renewal on May 22, 2003. In the same year on July 7, the aforesaid trademarks were approved for a transfer to a company registered in Lan Ling, Shandong. The trademarks were subsequently transferred again on May 11, 2006, with the registered owner of the marks being Company S.
According to a statement made by the Trademark Office, when Company L applied for the trademark cancellation, the registrant of the involved trademarks was Company S; and as proven by submitted materials, it could only verify that Company X had been dissolved, and yet no evidence was submitted that spoke to the registrant’s termination. The trademark transfers and renewals related to the trademarks involved in this case are in fact different administrative acts from that non-approval of the cancellation application by the trademark office. At the same time, despite several transfers, commercial adoption of the trademark had never ceased. The trademarks involved in the case actively distinguish the origin of the trademark and its associated products, and hence the Supreme Court found that the trademarks should be approved for use.
To the court’s understanding, the specific administrative act in this case focused on the Notice to Non Approval on Trademark Cancellation, instead of a transfer or renewal concerning the trademarks or a previous approval of them by the relevant authorities. For this reason, the legitimacy of the previous acts of the Trademark Office shall were not determined in this case, and the Supreme Court found that the courts hearing the case in the first and second instances came to the proper conclusion, by denying Company L’s claims. Based on these findings, the Supreme Court denied Company L’s rehearing application again.
Lawyer Comments:
I. The conflict between procedural justice and substantial justice
According to Article 39 of the Implementing Rules for Trademark law, when a trademark has not been used continuously for a three-year period, any party can then apply for a cancellation of the mark’s registration with the trademark office. For that application, the trademark holder shall present materials relevant to the previous use of the mark prior to filing the cancellation application, including specific details regarding any usage or licensing of said marks. Despite that, the facts in this case showed that the trademark holder’s rights had been cancelled subsequent to the M&A, but according to the facts investigated during the court’s hearing, use of the mark after the M&A had not ceased. The problem here, however, is that such “use” is not the same “use” in terms of how a trademark is generally used.
If considered in terms of procedural justice, the trademarks involved in the case should have had all of their registrations cancelled; after all, five yeas had passed after cancellation by the original holder of the trademark rights. On the other hand, what should be considered is the delayed transfer of the trademarks due to negligence on behalf of the transferor company. Once we frame the issue in this way, a conflict arises between procedural justice and substantial justice. In more developed countries, the general idea regarding the issue is that the negligent party should be punished, and with the development of procedural justice, all parties involved would be expected to have greater respect for the rules, or at the very least a better understanding of the relevant laws. The issue here is that there is no real tradition for respecting procedural justice in China, and as provided in the current laws, the authorities tend to protect the parties benefiting most from substantial justice.
II. Problems maintaining transaction security and observation of the law
The trademarks involved in this case had been transferred twice prior to the lawsuit, and if the trademarks were deemed to be invalid, then any previous transfers would also be found to be invalid. For this reason, the court and administrative authorities have to consider the possible effects this will have on transactional security. The last two assignees of the trademarks did not violate the law per se, and in fact acquired the trademark in good faith. It would seem patently unfair if the previous applicants’ negligence would lead to their punishment. Therefore, when hearing the case, the court should also consider the possible effects on the social order.
III. Defects of trademark examination in China evidenced by this case
As seen in the case, the original holder of the trademark failed to handle the trademark transfer due to a merger and the loss of cancellation qualifications, which were ultimately finished five years after the cancellation. This issue relates directly to the non-examination of administrative examinations undertaken as part of the process used when approving a trademark transfer or application. The first transfer of the trademark occurred in 2003, and by then no system of industry and commerce administration had been established. Now, however, the industry and commerce administration systems have been interlinked. For this reason, the State Office should consider adding a subject qualification process to the trademark administrative process, and for those companies involved who do not meet certain conditions or who lack certain qualifications, the authorities shall not take their applications.
Before closing, this case also reflects common problems seen in China’s development, namely an incomplete system under which the trademark office inspection has not linked with those offices handling company registrations in the industry and commerce administration; also, companies in general seem to have a weak awareness of the legal realities, which has resulted in delayed procedures in handling IPR transfers like the ones seen in this case. As for the courts, their decisions concentrating more on the maintenance of social order, rather than the protection of procedural justice.
Lawyer Contacts
You Yunting：86-21-52134918 youyunting@debund.com/yytbest@gmail.com
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