Is It Illegal For Directors in Company to Squat Trademarks in China?

(By Luo Yanjie) As regulated 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 there from, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use.”

But in judicial practice, the agent or representative has a very vague definition of “authorized” . Our website once analysed the issues concerned in the post “Whether Sales Agents Are Included in the Trademark Agent Squatting Articles of China Trademark Law”. In today’s post, we would like to introduce the opinions of the court from a different aspect. The details are as follows:

Case summary:

In February 1994, the director of the HSIN TUNG YANG Company (the “HTY”) and its shareholder Mai Shi Lai filed application No. 809049 for the trademark “新东阳”or “Xin Dong Yang” (the “Disputed Trademark”). The application was approved in 1996. In March 2001, HTY applied for revocation of the trademark with the Trademark Adjudication and Review Board (the “Board”). In October 2010, the Board adjudicated the issue of “Shang Ping Zi (2010) NO. 26534” in regard to the dispute concerning the No.809049 trademark “新东阳,” or “Xin Dong Yang.”

According to the evidence submitted by both parties, HTY was originally established by Mai Xingfu, Mai Kuancheng, Mai Shilai and Mai Lishu, as a family enterprise. The trademark “新东阳” had been registered in Taiwan and used as a registered trademark afterward, but in the US the trademark was solely owned by Mai Lishu. For this reason, Mai Shilai’s statement that the trademark was not the exclusive property of HTY Company and that any members of Mai family could apply for the trademark in his/her own name has at least some grounding in fact. Therefore HTY shall be on full notice regarding the trademark application in Mai Shilai’s name as well as actions done thereafter; but in fact the company did not respond to these facts for seven years after that, and could indirectly demonstrate Mai Shilai’s claims.

Based on the above, HTY Company’s application for trademark revocation wasn’t adopted. The Board decided that the trademark application by Mai Shia has not violated the Article 15 of Trademark Law andsustained the disputed trademark under Article 43. As expected, HTY filed an administrative lawsuit in court.

HTY’s Claims:

First, the trademark “新东阳” is the plaintiff company’s property, and no one shall treat it as exclusive property, because no such license has been granted.

Second, the trademark “新东阳” is the intangible property of the company, , no shareholder or senior management official shall claim any ownership over them.

Third, whether the company was aware the trademark was being used has no impact on nor connection with the legality of the trademark application. The plaintiff is the genuine creator and owner of the trademark “新东阳,” and the third party attempting to gain ownership of the mark had been long working in senior management at the company. For this reason, the plaintiff demands a remand on the court’s decision, and a new hearing by the court. Despite the disputed trademark being applied for in 1995, shortly after Mai Shilai got the trademark “新东阳”in 1994, he licensed the trademark to Shanghai HSING TUNG YANG Food Co., Ltd., which was invested in by HTY, and HTY should have been on notice in regard to Mai Shilai’s trademark application. Although Mai Shilai occupies an official post in HTY, and that trademark “新东阳” was registered in HTY’s name, in China; in the United States and elsewhere the trademark is owned solely by Mai Shilai. Furthermore, Mai Shilai’s application did not violate Article 15 of the Trademark Law. Therefore, the first instance court determined that Mai Shilai’s trademark application could not be considered in line with the situations as stipulated in Paragraph 1 of Article 41 in the Trademark Law. Despite this, HTY was dissatisfied with this judgment, and subsequently appealed to a higher court.

After the hearing in the Beijing High People’s Court, the judge determined that despite HTY being originally established by Mai’s family members , their relations with the company could only be considered as shareholders in the law. Due to the fact that Mai Shilai is shareholder and has been occupying several strategic positions in HTY and its affiliate it could be reasonably determined that a representative relationship could be established between Mai Shilai and HTY; . Because there is no adverse proof that could be taken to overthrow it, the trademark “新东阳” should be considered the lawful property of HTY. Finally, the Beijing High Court reversed the judgment made in the first instance and the findings made by the review Board.

Lawyer Comment:

In this case, the reason why the second instance court made different decisions t, in the author’s opinion, is mainly the result of several parties approaching the issues from different standpoints. The second instance court seemed more interested in protecting the IPR, and a detailed analysis is as follows:

1. The squatting by the director is the typical “squatting by the agent”

As stipulated 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 there from, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use.”

As for the “agent” in this clause, its specific definition has long been the subject of rather heated debate; it used to be defined by the court as a “trademark agent” or a “representative handling the trademark issues” only.

For this case, according to the Trademark Review and Examination Standard issued by the Board in 2009, in Article 15 of the Trademark Law, “the described agent shall not only include the agent as provided in General Rules for Civil law and Contract law, but also the salesmen who may get to know the trademark of the principal through business cooperation.

Therefore, the above regulation has specifically placed the “director” within the scope of a “representative”. In other words, Mai Shilai, the third party in this case, is without a doubt a qualified subject in Article 15 of Trademark Law.

2. The judgement standard regarding “unlicensed”

As described above, Mai Shilai is a qualified to squat the trademark as provided in Article 15 of the Trademark Law, and he has in fact squatted the trademark. Why then did the Board in both the first and second instance courts hand down opposing decisions? This lies primarily within how the term “unlicensed” is defined.

In this case, Mai Shilai provided plenty of evidence to demonstrate that the plaintiff “knew” of the registration of the disputed trademark, and had cooperated with such registration and use of the mark. The evidence submitted was intended to show the court that any use or squatting of the trademark was not done maliciously or with ill intent, and was done either through consent, express or otherwise. Obviously, the Board and the first instance court accepted Mai Shilai’s claims, but the second instance court denied them. The second instance court apparently employed a higher standard by which to demonstrate freedom from liability, and hence it found that Mai Shilai could not demonstrate he had the license himself. Therefore, from the author’s point of view, the second instance court’s opinions are more accurate and strictly implement the law, and that enhance the protection of IPR more and protect the economic order.

 

We posted this article several months ago which might be too long to read it on. Our intern Mr. Le Duc helped us to abstract it again. You may click here for the detailed post, if you prefer to know more on the case.

Lawyer Contacts

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

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