Anheuser-Busch succeeds in changing nine shadow company names

Hong Kong

The Hong Kong High Court has ordered nine companies to remove any reference to US brewer Anheuser-Busch Inc and its brands in their names (Unreported, January 18 2007).

Under Hong Kong law, there is no requirement for company names to be screened for potential trademark infringement prior to the incorporation of a company. This has led to the registration of numerous shadow companies - that is, companies that adopt a well-known brand name as part of their name (see Famous marks and abusive company name registrations - a growing concern). Typically, the directors and shareholders of such shadow companies are nationals of the People's Republic of China who give false addresses for themselves and for the company, and use the shadow company vehicle to imply an association with a well-known brand and give legitimacy to infringing activities in mainland China. The problem has escalated in recent years with some brand owners facing scores of such shadow companies in Hong Kong.

The companies registrar has the power under Section 22 of the Companies Ordinance to direct a company to change its name within 12 months of registration if in his or her opinion the proposed company name is "too like" a name that is already registered. It is up to an aggrieved brand owner to raise this within the 12-month period. In practice, not many complaints lodged under Section 22 of the Companies Ordinance are successful as the mere addition of one or two words around the hijacked brand is enough to persuade the registrar that the two names are not that similar. Objections raised on the basis that the name infringes a well-known trademark are not entertained.

It is in theory possible to de-register companies on the basis that they are defunct (since they do not have any activity), but in practice, this is difficult to achieve. An application that a shadow company be removed from the register on the basis that it is defunct takes at least a year and the mere filing of an annual return can be sufficient evidence to defeat an application under Section 291. Evidence of business being carried on outside Hong Kong (say in mainland China), including business which may consist of infringing acts under Hong Kong IP laws, may also be sufficient to persuade the registrar that the shadow company is not defunct.

In such circumstances, brand owners are left with no option but to take trademark infringement and/or passing off actions against shadow companies. Many brand owners have done just that. Such actions are invariably uncontested and default judgments are obtained quite easily and at relatively little cost. Up until now, these have remained Pyrrhic victories, as orders to change a company name obtained against a shadow companies itself are in practice useless. A change of the name of a company requires a special resolution by the shareholders of the company. Without such a resolution the Companies Registry cannot effect the change of name ordered by the courts of Hong Kong.

This so far has been the impasse faced by many companies which have obtained court orders requiring the change of name of shadow companies, only to find that such orders could not be enforced.

There is consensus in the IP community in Hong Kong that changes to the Companies Ordinance should be made to deal with this problem. One possible solution could be that adopted in the UK Companies Act 2006, which allows brand owners to object to a registered name on the grounds that it is the same as a name in which the applicant has goodwill. The complaints are heard by a company name adjudicator appointed by the secretary of state. In the event that the company name adjudicator decides that the shadow company should change its name and it does not comply, the company name adjudicator can determine a new name for the shadow company and effect the change of name on its behalf. An amendment to the Companies Ordinance in Hong Kong is likely, but unfortunately such amendment is not to be expected in the next three years.

In the meantime, recent orders granted in the High Court of Hong Kong may offer an interim solution to the problem. Anheuser-Busch brought separate actions in the High Court of Hong Kong against nine shadow companies and their directors who had had used the mark BUDWEISER or the equivalent Chinese character mark '百威' in their companies' names. The court (i) ordered the defendants to change the name of each of the shadow companies incorporated by them, and (ii) rendered void any letters of authorization issued by such shadow companies. Upon the authority of the case of Halifax plc v Halifax Repossessions Ltd from the Court of Appeal of England and Wales, Anheuser-Busch also obtained orders which granted powers to its solicitors to sign special resolutions on behalf of the respective shareholders and directors of the nine shadow companies in the event that the defendants failed to comply with the orders to change the names of the shadow companies within a prescribed period of time. The Companies Registry accepted the special resolutions because they have the same legal effect as the passing of a special resolution by the shareholders of the defendant company in a general meeting. Accordingly, the registry issued in April 2007 the new Certificates of Change of Name.

It is hoped that as more and more brand owners explore this newly found solution and actually manage to change the name of shadow companies, company name hijackers may be deterred from spending money incorporating such companies in Hong Kong.

Gabriela Kennedy and Christine Yiu, Lovells, Hong Kong

Lovells acted for Anheuser-Busch in this case

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