Shadow companies amendments to become law
Legal updates: case law analysis and intelligence
On July 7 2010 Hong Kong’s Legislative Council passed the Companies (Amendment) Bill 2010. The most eagerly awaited changes for IP practitioners and brand owners relate to the issue of shadow companies.
The amendments were published in January 2010 to address the problems posed by company name pirates (for further details please see "Measures to combat shadow companies proposed"). The pirates do not threaten to exclude brand owners from the Hong Kong market, but use their registered company names to lend an illusion of legitimacy to their infringing activities. This tends to muddy the waters of enforcement - particularly in China, where administrative action is regularly derailed by the simple production of a fake authorization letter from the shadow company in favour of the infringing enterprise.
The Companies Registry does not currently put proposed company names under extended scrutiny. It allows companies to be incorporated so long as their names are not identical to existing company names. After incorporation, third parties have 12 months to complain to the registrar and, if the registrar finds that the new company’s name is ‘too like’ an existing company, it will direct a change of name. This practice will remain the same, save for one crucial change: the registrar has now grown teeth.
Previously, if the shadow company ignored the registrar’s direction, nothing happened. It was impossible for anyone but the court to compel a change of name in the absence of a shareholders’ resolution - and court actions were expensive, albeit relatively straightforward, since shadow companies rarely represent themselves.
From the bill’s implementation (expected before the end of 2010, although the precise effective date should be announced in the next few months), the registrar will be able to substitute the company’s name with its registration number. Such a change will not affect the company’s existence or identity (so that, implausibly, if the company owned trademarks or was a genuine operating company with its own contracts, these would not be affected).
The amendments are to be welcomed. However, they are not sufficiently far-reaching. The registrar is still unable to act against companies which have abused famous brands - it can act only against companies that have copied other companies’ names. In the former case, court procedures for passing off or trademark infringement will still be required, while in the latter case, the registrar is often quite strict in the application of the ‘too like’ test, and complainants can be disadvantaged. It is hoped that these new powers will be accompanied by a willingness to use them, but it may be a good time for brand owners to audit their use of company names in Hong Kong and how they relate to their brands.
Additionally, the 12-month time limit on making complaints to the registrar still remains, so at-risk companies must remain vigilant. However, when an offender is found, it should now be quicker and cheaper to eradicate them.
Tom Grek, Rouse, Hong Kong
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