The Application of Trademark Coexistence Agreements in China

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(Author: Paula Pei; Source: Panawell & Partners)

The Trademark Law and relevant regulations do not expressly provide for the force and application of trademark coexistence agreements but they allow similar trademarks coexist under certain circumstances. Additionally, the provision (Article 30) in the Trademark Law for preliminary examination of similar trademarks before the China Trademark Office (CTMO) and the provision (Article 57.1 and 57.2) for infringement examination of similar trademarks are not identical.

The trademark coexistence allowed by the Trademark Law and relevant regulations, and the difference between the preliminary examination of similar trademarks before the CTMO and infringement examination of similar trademarks before the court leave certain space for the application of trademark coexistence agreements.

I. Trademark Coexistence in the Trademark Law and relevant regulations

We could find two provisions in the Trademark Law which imply or set forth trademark coexistence.

One of them is Article 45 which stipulates that where a trademark registration violates the provisions of Articles 10 Paragraph 2 and Paragraph 3, Article 15, Article 16 Paragraph 1, Article 30 (similar marks), Article 31, Article 32 of this Law, any holder of prior rights or any interested party may, within five years from the date of registration, request that the Trademark Review and Adjudication Board make a ruling to invalidate the trademark’s registration. Where the registration was obtained with ill will, the owner of a famous trademark shall not be bound by the five-year limitation.

Therefore there might be one situation that a mark which is similar to a prior registered mark is allowed for registration. In this case these two similar marks in respect of similar or identical goods are coexisting in the Trademark Register and the governing authority has no provisions to resort to in order to remove it from the Register if the holder of the prior registered mark does not initiate the proceeding of invalidation within the prescribed period of time.

The other is Article 59 which stipulates that where an identical or similar trademark has been used in connection with the same goods or similar goods by others before the registrant’s application, the exclusive right holder of said registered trademark shall have no right to prohibit other people from using the aforesaid trademark from continuous use of such trademark within the original scope, but may request its users to add proper marks for distinction.

This coexistence above is allowed for the purpose of protecting the earlier user of the unregistered trademark.

Apart from the above two types of trademark coexistence, another legally allowed coexistence is arising from the historical coexistence of the marks in question. As provided for in the trademark dispute case of Ya Wang (Duck King) and Article 1 of Opinion of the Supreme People’s Court on the Trial of Administrative Cases Related to the Granting and Determination of Trademark Rights, where a disputed mark has been used for quite a long period of time and acquired certain reputation in the market and among the public concerned, the governing authority shall correctly deal with the relation between protection of the earlier commercial signs in the Trademark Law and maintenance of the market order, and respect the reality that the public concerned is able to distinguish the disputed trademarks, in order to maintain the existing and stable market order. Therefore, the disputed trademarks are allowed to coexist in view of the historical, current status of the trademarks and the equitable principle.

In conclusion, the above three types of coexistence are accepted by the law for the purpose of balancing the interests of the party concerned, maintaining the market order and respecting the choice of consumers. The purposes of the legal coexistence of trademark are also implied in the difference between the preliminary examination of similar trademarks before the CTMO and the court trial of infringement.

II. Difference between the preliminary examination of similar trademarks before the CTMO and the court trial of infringement

As provided for in Article 30 of the Trademark Law, where a trademark application does not comply with the relevant provisions in this Law or is identical with or similar to a registered trademark used in connection with the same or similar goods, its registration shall be refused by the Trademark Office after examination and the mark shall not be published.

In this provision, identical/similar marks can be classified into the following four cases: (1) identical sign, identical goods; (2) identical sign, similar goods; (3) similar sign, identical goods; (4) similar sign, similar goods. If one application falls into one of the above cases, the CTMO is entitled to refuse it in compliance with Article 30.

Trademarks of the first case will definitely be deemed as infringement. However, trademarks belonging to any of the latter three cases will be deemed as infringement only on the precondition that they easily lead to confusion. If no confusion likely occurs, trademarks are allowed to coexist.

Examiners in the preliminary examination of an application in compliance with Article 30 are stricter in order to leave out enough exclusive space for the development of registered trademarks for they have no chance of reaching the actual use due to the limitation of this proceeding. However, judges and examiners in the proceedings of infringement trial and appeal against refusal before the TRAB are more practical and have chance to determine whether the likely confusion is possible based on the evidence submitted by the parties concerned.

Trademark coexistence agreements as evidence could help examiners or judges to see from the view of the parties whether likelihood of confusion is easily led to or not among the public concerned in the latter three cases of Article 30 from reality of the market. Generally in view of the nature of businessmen it is the parties concerned who are eager to avoid confusion in order to protect their interests. Therefore, their judgment on confusion is more reliable.

In summary, the preliminary examination before the CTMO aims to leave as great exclusive space for the development of the registered trademark as possible, while trademark infringement aims to examine whether trademarks are able to coexist without causing confusion or damages to the prior trademark holder or the public.

To balance the exclusive space of the registered trademark and the grant of exclusive right to the later trademark without causing actual confusion, trademark coexistence agreements between a prior trademark registrant and a later trademark applicant come out as non-confusion evidence to help the grant of exclusive right to the later trademark applicant.

III. Trademark Coexistence Agreements in China

Neither the TRAB nor the court put trademark coexistence agreements into consideration at the early stage, rulings arising out of which were not well accepted by the parties concerned.

Under these circumstances, the TRAB in 2007 published a guide for examiners to the effect  that it is not reasonable to wholly disregard trademark coexistence agreements. Whether the TRAB will approve the registration of a later trademark application depends on three factors, the extent of similarity between the prior and later trademarks, the extent of similarity between goods and the fame of the trademarks in question. Theoretically speaking, the more similar the trademarks and the goods designated, the more famous the trademarks, the less likely the later mark will be approved for registration even if a trademark coexistence agreement is submitted before the TRAB or court.

In 2010, the Supreme Court held that the coexistence of trademark UCG and UGG would not lead to confusion or the said confusion was tolerable, and then approved registration of trademark UGG in class 35 due to provision of the trademark coexistence agreement.

Before that, the provision of trademark coexistence agreements seldom affected the judgment of the TRAB or court in determination of similarity between trademarks.

Since the publication of the  TRAB Guide on trademark coexistence agreements and the ruling of the Supreme Court on trademark UCG, more and more refused trademarks have been allowed to be registered due to the provision of trademark coexistence agreements. The TRAB and the court now hold that trademark coexistence agreements as evidence could to some extent establish that the use and registration of the later filed trademarks will not lead to confusion among the public concerned.

IV. The Legal Status of Trademark Coexistence Agreements

As stated by the WIPO, trademark coexistence describes a situation in which two different enterprises use a similar or identical trademark to market a product or service without necessarily interfering with each other’s businesses. Further the INTA states that coexistence agreements are indispensable tools for resolving present or possible future disputes between two parties about the use and/or registration of arguably similar marks for related goods or services. In view of the private nature of trademark rights, the WIPO and the INTA believe that trademark owners are allowed to dispose their trademarks by coexistence agreements, which is in compliance with the reality of the market.

However, in China neither the Trademark Law, the Implementing Regulations of the Trademark Law, nor the interpretations by the Supreme Court, nor the TRAB has made clear the status or effect of trademark coexistence agreements in determination of similarities between trademarks so far. All we could find is the fact that more refused trademarks have “revived” due to the provision of trademark coexistence agreements in appeal before the TRAB or the court.

In practice, trademark coexistence agreements are usually submitted in the proceeding of appeal before the TRAB when the application is refused, or in litigation before the court. The TRAB or the court is at its own discretion to accept trademark coexistence agreements and approve the registration or not accept coexistence agreements and affirm the refusal.

As for the status or function of trademark coexistence agreements, the court pointed out in relevant cases that the prior trademark owner’s consent to use and registration of the later applied-for  trademark establishes that it believes that confusion will less likely be caused due to the use or registration of the applied-for trademarks or such confusion is tolerable. Trademark coexistence agreements are the disposal of trademark rights by the prior trademark owners and such disposal should be respected subject to no prejudices to social order or interests of the public concerned.

Where trademark coexistence agreements are provided in the case of similar marks, the applied-for trademark should be approved for registration for the prior trademark owner is more reliable in judging whether confusion is likely to be caused as an interest party on the one hand. On the other hand, in view of the private nature of trademark rights, the disposal of the prior trademark right by its owner should be respected subject to no contrary to the interests of the public.

Trademark coexistence agreements are contracts which set forth the rights and obligations of prior and later trademark owners for the purpose of trademark coexistence. As a result, they are only legally binding on the contracting parties exclusive of the TRAB or the court due to the principle of contract privity.

Trademark coexistence agreements are required to be notarized and legalized (if they are formed abroad, notarization is sufficient for those formed domestic) when submitted as evidence to the TRAB or the court, in order to avoid voluntary termination by prior trademark owners and maintain stability of the applied-for trademark once registered. The examiners or judges in determining the similarities of the trademarks in question are willing to accept trademark coexistence agreements when they believe that social order or public interest would not be affected by the use and registration of the applied-for trademark.

V. Risk of Trademark Coexistence Agreements and their alternatives

Not all prior trademark owners would consent to the use and registration of later trademarks since trademark coexistence agreements are irrevocable. Moreover, trademark coexistence agreements are regarded as limitation to the exclusive trademark rights of prior trademark owners.

According to the Trademark Law, registered trademark owners have exclusive right to use of their registered trademarks on approved goods or services and restraining the use of identical or similar trademarks on goods or services which are identical with or similar to that of their registered trademarks by others. Within the scope of their exclusive right, registered trademark owners are entitled to either use the marks by themselves and license or restrain others from use. Out of the scope of the exclusive right, registered trademark owners are only entitled to restrain others from use or registration of the similar trademark in respect of identical or similar goods or services.

According to the analysis above, trademark coexistence agreements are voluntary disposal of the restraining right of prior trademark owners. Due to voluntary limitation of the restraining right, posterior trademarks which fall into the restraining scope are very likely to be approved for registration, which may make the prior trademarks at risk in future.

First, prior trademark owners limit their restraining right and permit the legal existence of posterior trademarks. Further, trademark coexistence agreements are irrevocable. Even if actual confusion occurs to some extent in future and the fame and function of distinguishing origin of the preceding trademark are affected, trademark coexistence agreements are still binding upon the contracting parties providing they are not cancelled or invalidated by the governing authorities. What’s more, preceding trademark owners are not entitled to initiate litigation on grounds of trademark infringements claiming for injunction or damages as long as the use of the posterior trademarks is reasonable and in compliance with trademark coexistence agreements even if certain confusion occurs in the course of business.

To put the risk under control, the preceding trademark owners might add the following, for example, into trademark coexistence agreements:
 Limit the goods or services actually used by the posterior trademark owner, goods distribution regions;
 Demand the posterior trademark to be used with reasonable signs in order to distinguish their preceding trademarks;
 Conclude  a compulsory withdrawal of the posterior trademark from the market and the register when certain situations are met.

VI. Essential Provisions in Trademark Coexistence Agreements

As contract, trademark coexistence agreements are essentially required to contain the name of the contracting parties, trademarks in question and the expressed intention of the prior trademark owner to the use and registration of the posterior trademark.

As for formality of trademark coexistence agreements, they are required at default by the TRAB and the court to get notarized and if formed abroad legalized as well. Trademark coexistence agreements, notarized and legalized, shall be submitted in original. The requirements on formality are for the purpose of avoiding voluntary revocation of the agreement by the prior trademark owner and maintain the stability of the later trademark once registered.

The above two paragraphs are essential for trademark coexistence agreements. However, in reality the agreements may be much more complicated. Whatever the agreement contains, it is forbidden to set forth the terms of the agreement, or any arrangement between the contracting parties which might damage the interests of customers or lead to industry monopoly. In a word, the agreement shall not violate any prohibitive provisions of laws and regulations in China.

VII. Common Mistakes in Trademark Coexistence Agreements

Generally there are two common mistakes in trademark coexistence agreements, one of which is that the essential elements are not sufficient or the formality requirements are not satisfied, the other of which is that there is no other arrangement to limit the use of the posterior trademark.

The former mistake might lead to non-acceptance of the agreement by the TRAB or the court, which results in the refusal of the applied-for trademark. The latter may restrain the development of the prior trademark in future and cause confusion if possible. In summary in the latter case, the later trademark owner is granted to the coexistence without limitations or obligations.

VII. Disputes settled by the court arising out of trademark coexistence agreements

Trademark coexistence agreements are binding upon the contracting parties. Since the agreements are notarized and legalized (if necessary), neither party is able to revoke them voluntarily. Therefore, the court respects the agreements subject to not contrary to compulsory provisions of the relevant law and regulations.

Let’s take the case Shandong Liangzi Natural Health Research Institute Co., Ltd (hereinafter referred to as Shandong Liangzi) vs. Trademark Review and Adjudication Board (TRAB) involving trademark administrative disputes for example. In 2001, Shandong Liangzi applied for registration of “Liangzi (良子)” on health care and physiotherapy in Class 42, which was moved to Class 44 afterwards. In 1998, Beijing Liangzi was approved for registration of “Liangzi (良子) & device” on massage and traditional Chinese medical message in Class 42, which was moved to Class 44 as well afterwards. Historically, Shandong Liangzi and Beijing Liangzi had signed a trademark coexistence agreement setting forth that neither party is allowed to take action against the other with regards to trademark “Liangzi(良子)”. In 2002, Beijing Liangzi filed cancellation against “Liangzi (良子)” of Shandong Liangzi on grounds that “Liangzi (良子)” of Shandong Liangzi is similar to its prior registered trademark in respect of similar services. The TRAB and the court of first instance all decided to cancel the registration of “Liangzi (良子)” of Shandong Liangzi regardless of the coexistence agreement. Shandong Liangzi appealed and the appeal court overturned the decision of first instance and held that the act Beijing Liangzi violated the coexistence agreement and the principle of honesty and good faith.

As expressly stated in the ruling of the appeal court, trademark right is private and allowed to dispose by its owner legally, providing such disposal is not contrary to compulsory provisions of relevant laws and regulations. Therefore, trademark coexistence agreements, as the true expression of the contracting parties, are binding and enforceable.

Summary

Trademarks are selected from the public database and used extensively in order to establish the association between trademarks and providers of goods or services. Due to the limitation of those words with nice meaning in the public database and the fact that great minds think alike, different commercial entities might select identical or similar words using on identical or similar goods or services and disputes then arise. Trademark coexistence agreements sometimes are indeed the best alternative for the parties in dispute.