Abstract: An unregistered trademark may lawfully be licensed to another person. If any third party had registered the trademark, the licensor’s actions will constitute a breach of license contract. Except where the licensor has committed obvious fraud, the validity and effectiveness of such a license contract upon unregistered trademarks cannot be denied.
(By Luo Yanjie) Generally, a trademark in a trademark license should be registered before it is licensed to any other party. However, in today’s post, we will discuss a particular case there the trademark licensed was unregistered at the time the license was concluded. After being heard by two courts and the Supreme Court, such a trademark license contract was ruled to be valid. The following is our analysis.
Introduction to the case: In March 2007, the Wolsey Company signed a General Agreement on Wolsey Trademark License with the YeHongDa Company, agreeing that YeHongDa Company would be authorized by Wolsey Company to have exclusive right to use the characters and figures comprising the Wolsey trademark in Mainland China, Hong Kong, and Macao, and furthermore would be entitled to license the subject marks in the agreement to third parties to use the Wolsey trademark in any of the aforementioned areas.
On April 12, 2007, the YeHongDa Company entered a Post-Licensing Agreement with the TaiSheng Co., Ltd., agreeing that the YeHongDa Company would authorize the TaiSheng Co., Ltd. the exclusive use of the Wolsey trademark, the “无赛 Wusai” trademark (Wolsey pronounced the same as “无赛”in Chinese) and “狐狸图形 Huli Tuxing” trademark (Wolsey refers to “狐狸” in Chinese) under the classification of 1802 in Mainland China. Both parties stipulated that the Post-Licensing Agreement would be valid for a period of six years.
However, in the end, it was the HaiTu Company, a third party, not the YeHongDa Company, that successfully registered the Wolsey trademark in the 1802 classification of goods; The TaiSheng Co., Ltd held that the YeHongDa Company deliberately concealed the previous facts and subsequently no longer paid licensing fees. With regard to the alleged nonpayment by TaiSheng Co., Ltd., the YeHongDa Company filed a lawsuit in court.
The Beijing No. 2 Intermediate People’s Court (the “first instance court”) upon trial held that, the approved scope of the current registered Wolsey trademark did not include leather products under the classification of 1802; therefore, the purpose of the agreement entered into by and between YeHongDa Company and TaiSheng Co., Ltd. could not possible be realized. The court decided not to support YeHongDa Company’s claims, and ordered YeHongDa Company to return all license fees to TaiSheng Co., Ltd. The court upheld this ruling based on its findings that YeHongDa Company’s aforementioned behavior was deemed to be a fundamental breach of its agreement with TaiSheng Co., Ltd. Dissatisfied with the first instance court’s decision, YeHongDa Company appealed.
The Beijing Higher People’s Court (the “second instance court”) ruled that, the first instance court’s decision directly supporting the defendant’s claim was beyond the litigant’s claims because TaiSheng Co., Ltd never filed a counterclaim asking YeHongDa Company to return the licensing fees at the trial of the first instance court. Considering the fact that TaiSheng Co., Ltd. should bear the obligation of discerning the legal status of the involved trademark upon signing the licensing agreement, the second instance court held the Post-Licensing Agreement and the Supplementary Agreement entered into by and between YeHongDa Company and TaiSheng Co., Ltd. to be lawful and valid. Therefore, the second instance court repealed the decision handled down by the first instance court, and commuted TaiSheng Co., Ltd. to pay the license fees after considering the facts of the case.
Subsequently, the Supreme Court overruled TaiSheng Co., Ltd.’s application for a retrial.
Lawyers’ Comment: This case, resting upon two instances and a retrial, essentially established a judicial practice that affirmed the effectiveness of a license agreement for an unregistered trademark. We have attempted to analyze this decision as follows:
I. An unregistered trademark may be lawfully licensed to another person. If any third party had registered such trademark, the licensors shall be deemed to be in violation of the agreement.
Firstly, as for the question whether an unregistered trademark can be licensed to another person to use, there are no prohibitive regulations in current laws in China. Pursuant to the principle of legality in civil law, “one can do whatever the law does not prescribe as illegal”, the owner of an unregistered trademark can lawfully license the mark to another person or party. Based on this, according to relevant provisions of the Copyright Law, an unregistered trademark receives some degree of protection.
For example, Article 13 of the Trademark Law sets the principle of protection of an unregistered trademark of the same type. Furthermore, Article 15 of the Trademark Law directly stipulates, “an agent of an unregistered trademark shall not register such trademark (an agent can be interpreted as a distributor and a user of a trademark in a broad sense.).” Therefore, a conclusion can be inferred from the legal principles and regulations that an unregistered trademark can be licensed to another person to use and the license contract entered into by and between those parties is legitimate and valid.
With regard to other questions, such as whether the license contract is valid after such unregistered trademark is registered by another person, the Supreme Court upheld upon the retrial that such behavior constitutes breaking the contract (YeHongDa Company failing to obtain the exclusive right to the Wolsey trademark under the specified category, indeed, caused actual damages to TaiSheng Co., Ltd and could not achieve the purposes of the involved contract, thus thereby violating it). Indeed, we can also conclude that, even though another person registered such trademark, the license contract cannot be simply deemed to violate the contract. But for the moment, the licensee can claim its rights, terminate the license contract and ask for a default liability result arising from the licensor fundamentally breaking the contract through the unauthorized licensing of such a trademark.
II. Whether the licensor shall inform the licensee in advance of the registration information of the involved trademark.
With regard to the question as to whether the licensor of a trademark clearly failing to disclose involved trademark information affects the effectiveness and validity of the license contract, the court did not set out a clear explanation about this. But the second instance court ruled that the licensee should bear the obligation to conduct its own investigation upon signing the contract.
From this rule, as for whether the trademark was registered or not, the court preferred the licensee’s obligation to conduct due diligence in regard to the licensor’s disclosure obligation. The licensor’s disclosure obligation does not affect the effectiveness and validity of the license contract. Indeed, based on current trademark registration practices, it seemed almost too easy to discover the trademark registration information, because anyone can search for and discover trademark registration information on the official website of the Trademark Office.
The licensee failed to examine the trademark rights before signing the contract, and afterward questioned the validity of the license contract upon the unregistered trademark. Indeed, it runs against principles of fairness. Therefore, whether the licensor clearly informed the licensee of the actual facts surrounding the trademark does not affect the validity and effectiveness of the license contract. Certainly, if the licensor deceived the licensee with the intention to hide such information, such as producing an invalid or counterfeit registration certificate, the licensee can then terminate the contract according to the Contract Law, and have the right to pursue damages based upon the licensor’s responsibility to provide lawful and accurate information.
Lawyer Contacts
You Yunting：86-21-52134918 youyunting@debund.com/yytbest@gmail.com
Disclaimer of Bridge IP Law Commentary
Short Link: