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

A0132 (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 therefrom, 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 and limit, and interpretation regarding the meaning of “authorized” is currently in dispute. Our website once introduced and analyzed the issues concerned in the post “Whether Sales Agents Are Included in the Trademark Agent Squatting Articles of China Trademark Law”, and in today’s post we would like to introduce the opinions of the court having analyzed the case 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”), for products in Class 32 (soda water and fruit juice), with the Trademark Office. 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. The evidence submitted by Mai Shilai demonstrated that after the granting of the “新东阳” trademark in Mainland China, he licensed the trademark as well as other elements concerned in the business to  the Shanghai-based HSIN TUNG YANG Food Co., Ltd., and 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. Considering this, the trademark application by Mai Shia has not violated the regulation in Article 15 of Trademark Law of China.

Based on the above, HTY Company’s application for trademark revocation wasn’t  adopted. The Board decided to sustain the disputed trademark under Article 43 of the Trademark Law. As expected, HTY was completely dissatisfied with that decision, and 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 plaintiff’s statement that HTY is a family enterprise and therefore all members of the family shall have the right to apply for the trademark “新东阳” is both illogical and a misunderstanding of the relevant facts. The trademark “新东阳” is the intangible property of the company, and without a license granting any form of use by 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.

Moreover, Mai Kuancheng and Mai Lishu’s ownership over the trademark “新东阳” could not be assumed to be the reason for a third party to squat the trademark. Based on these statements, 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; despite this, what he had done infringed badly on the interest of the plaintiff. For this reason, the plaintiff demands a remand on the court’s decision, and a new hearing by the court.

According to the decision of the first instance court: 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 therefrom, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use.”Even if we think of the company in terms of share holding proportion, HTY is still a family enterprise. Furthermore, 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 therefore HTY was definitely 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, this only remains the case in China; in the United States and elsewhere the trademark is owned solely by Mai Shilai. Taking into consideration  the shareholding proportion as well as the trademark licensing and the registration of trademark “新东阳,” in other places, Mai Shilai’s claims that the trademark should not be the exclusive property of the company, and that any members of the family should have the right to apply for use of the trademark with the authorities may be grounded in some fact. 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 Xingfu, Mai Kuancheng, Mai Shilai and Mai Lishu, their relations with the company could only be considered as shareholders in the law. Due to the fact that Mai Shilai once took the post of vice chairman of the board in HTY, and now still is the director and shareholder of the company, and once was a chief manager in the Shanghai Hsing Tung Yang Food Co., Ltd., it could be reasonably determined that a representative relationship could be established between Mai Shilai and HTY; sinceHTY first used the product or service indicated by the trademark in Chinese Taiwan, and since the unlicensed application by Mai Shilai of the trademark in Mainland China violated the rules set in the Trademark Law. Considering the fact that HTY is a legal entity established in Taiwan, and has independent legal capability and disposing capability, and the trademark “新东阳” is registered under its name, and 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 a different decision contrary to that made by the Board and the first instance court, in the author’s opinion, this is mainly the result of different parties approaching the issues from a different standpoint. 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 therefrom, 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. That understanding is apparently too narrow. In the daily operation of a company, the people accessing the trademark or the third party getting to it are numerous, such use shall not be limited solely to the trademark agent or those handling the trademark issues. In addition, in the Trademark Laws and relevant regulations, the agent is not limited to the scope of the trademark.

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 include the salesmen who may get to know the trademark of the principal through business cooperation. The representative shall mean the individual who is with specific status subject to the principal, and through the duty behavior may get to know the trademark of the principal, and that could include the representative, director, supervisor, manager, partner, etc.

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 judgment standard regarding “unlicensed”

As described above, Mai Shilai is a qualified subject able 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 bot 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. Evidence demonstrating other trademarks owned by the individual had also been submitted to the court. All of this evidence submitted was done so in order to show the court that any use or squatting of the trademark was not done maliciously or with ill intent, and that its use was done either through licensing or 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.

Lawyer Contacts

You Yunting:86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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