China: Trademark Coexistence Practice

09 December 2009 Publication

Article

By Jo Xu, Foley & Lardner LLP

This article is part of our Winter 2009 edition of Legal News: China Quarterly Newsletter, Eye on China.

The number of trademarks in use in China has grown rapidly as China’s market economy develops. It is not uncommon for two different companies, each acting in good faith, to find that their identical or similar marks can be used on relevant commodities or services without interfering with the other’s business. This practice can be accomplished by signing a trademark coexistence agreement between the companies. Although such practice is not recognized in the new China trademark law and regulations, it is still possible for examiners or courts to accept a trademark coexistence agreement and confirm the legality of the agreement in practice.

A Recent Case Confirming the Effectiveness of a Trademark Coexistence Agreement

In a recent case in China, two identical trademarks for “Liang Zi” were registered on relevant commodities by two companies (Beijing Company and Shandong Company) with a trademark coexistence agreement signed under the supervision of China’s Trademark Office. The coexistence agreement resulted from the settlement of a bad-faith cancellation action raised by Shandong Company against Beijing Company in 2001. Based on the agreement, both parties gave up the right to raise any trademark action against the other, including invalidation, cancellation, and objection for the “Liang Zi” series of trademarks. However, in 2006, Beijing Company filed an invalidation action at the Trademark Office against Shandong Company and finally invalidated Shandong Company’s “Liang Zi” trademark. Shandong Company subsequently brought the case to court, challenging the Trademark Office’s invalidation result and claiming that Beijing Company breached their coexistence agreement. The first judgment affirmed the Trademark Office’s invalidation and held that the Trademark Office’s statutory right to review the validity of a registered trademark cannot be excluded by the coexistence agreement between the two parties. Shandong company appealed to the Higher People’s Court in Beijing. A final court decision was issued on May 5, 2009, which held that the clause regarding trademark coexistence in the agreement was valid. As a result, although the Trademark Office has the statutory right to review the validity of the registered trademarks, the invalidation result was unfair to Shandong Company. The final judgment also held that Shandong Company’s “Liang Zi” trademark was valid.

Absolute Effectiveness or Relative Effectiveness?

Similar to U.S. practice, although the related parties can enter a trademark coexistence agreement freely, such an agreement will not automatically guarantee a coexistence in China. The agreement will be reviewed for: 1) the degree of identity or similarity of the two related marks; 2) the popularity of the marks; 3) whether the coexistence will confuse the related consumers in the market; and 4) whether the coexistence will oppose public interests such as in cases of limiting or eliminating competition. Based on China’s trademark theory, marks that may cause confusion, e.g., marks used on relevant commodities (within the same sub-classes), will be deemed as similar or same marks. The use of such a similar or same trademark will cause trademark infringement (See China Trademark Law (2001) Article 52-1).

Trademark Coexistence Agreement or Letter of Consent?

U.S. companies usually sign a comprehensive trademark coexistence agreement with as much detail as possible in order to clarify the use or ownership of the trademarks. In China, however, such a complicated agreement may cause confusion for the examiners during the trademark actions. When a trademark application is blocked by a senior existing trademark covered by a trademark coexistence agreement, or during the trademark re-examination period, a simple standard letter of consent issued by a senior trademark owner consenting to registration of the other party’s trademark is necessary and more helpful than the trademark coexistence agreement itself. In contrast, in trademark litigations, judges prefer to look into the detailed trademark coexistence agreement to understand each party’s rights and obligations.

Although a trademark coexistence agreement may help an applicant obtain the trademark even when a senior trademark exists, getting the registration usually take approximately five years. During the trademark application period, examiners have the absolute right to reject an application based on senior existing similar or identical trademark (See China Trademark Law (2001) Article 28). The examiners will not consider any supplemental documents in making the decision. Only when the application is rejected by the Trademark Office and the applicant files a reexamination action may the trademark coexistence argument be accepted. Sometimes, a trademark coexistence agreement is concluded after the trademark rejection, in which case the agreement is still effective during the re-examination period.

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