Use of 'smiley' device mark not proper use by non-exclusive licensee

Japan

The IP High Court has reversed a Patent Office trial decision in which the latter had rejected an action for the cancellation of a 'smiley face' device mark (November 30 2009).

Article 50(1) of the Trademark Law (127/1959, as amended) provides as follows:

"Where neither the owner of the trademark right, nor the owner of a right of exclusive use, nor the owner of a right of non-exclusive use has been continuously using in Japan for three years or more the registered trademark.. in respect of each item of the designated goods or services, any person may demand a trial for the cancellation of registration of such [a] trademark with respect to such designated goods or designated services."

Article 50(2) of the Trademark Law provides that:

"where a trial under the preceding paragraph has been demanded, unless the defendant can prove that either the owner of the trademark right, or the owner of a right of exclusive use, or the owner of a right of non-exclusive use has used the registered trademark in Japan within three years prior to the registration of the demand for the trial in respect of any item of the designated goods or services..., the owner of the trademark shall not avert the cancellation of the registered trademark for the designated goods or designated services. However, this provision shall not apply where the defendant proves that there are legitimate reasons for the failure to use the registered trademark in respect of the designated goods or designated services."

The defendant, Franklin Loufrani, created Smiley World to sell, advertise and license the 'smiley face' image in the United Kingdom and Europe. On May 16 1996 he filed an application with the Japan Patent Office to register a smiling face device, with the words 'smile & smiley', for confectionery and bread in Class 30 of the Nice Classification, which matured on November 22 2002 as Registration 4622477. The plaintiff, Yugen Kaisha Harvey Ball Smile Limited, sought the cancellation of the mark under Article 50(1) on November 28 2007. A registration in advance was granted on December 14 2007.

On April 22 2009 the office dismissed the plaintiff's demand for a trial hearing, reasoning as follows:

  • Smiley Licensing Corporation, which later changed its trade name to Smiley World Limited, managed the mark and was represented by the defendant. On October 30 2000 it concluded an exclusive licensing agreement with JAS International K K for the Japanese territory. It granted an exclusive licence to use the mark (and thereby the right to sub-license) for four years from the date of the agreement.
  • However, in the record of the exclusive licence (as registered on April 28 2003 at the office), the licence was stated to run "until the expiry of the effective period (until November 22 2012)" and the registration of the exclusive licence right was cancelled on May 9 2007. Therefore, the exclusive licence in favour of JAS effectively existed from April 28 2003 to May 9 2007.
  • K K Best Company published and distributed a product catalogue showing the trademarks as used by it in 2006, which was less than three years before the date of the registration in advance. In 2003 Best paid JAS royalties for the mark and JAS reported this to Smiley Licensing Corporation.
  • Best continued to manufacture and sell confectionery using the SMILEY marks under the non-exclusive licence agreement with JAS from 2003 to May 2007. The marks used by Best were regarded as being identical to the disputed trademark.
  • In view of the above, the defendant was considered to have shown use by Best, which was granted the sub-licence (ie, a non-exclusive licence) from JAS, in respect of confectionery in Class 30.
  • Therefore, the registration of the mark could not be cancelled under Article 50 of the law.

The defendant appealed to the IP High Court, which ruled that:

"... the exclusive licence agreement between [Smiley Licensing Corporation], represented by the defendant, and JAS was terminated by expiry of the contract term on October 30 2004. Accordingly, Best's non-exclusive licence was extinguished, the use by Best of the subject trademark... is not recognized as a proper use by the non-exclusive licensee, and thus the defendant failed to prove the use of the subject trademark by the non-exclusive licensee... under Article 50(2) of the Trademark Law."

In particular, the court interpreted the facts as follows:

  • Smiley Licensing Corporation, representing the defendant, concluded the exclusive licensing agreement, establishing the exclusive right (with the right to sub-license) in favour of JAS - for all of the designated goods in the Japanese territory - for four years from the date of the agreement. The agreement was concluded in connection with the 'smiley' marks owned by the defendant and shown in the list attached to the agreement on October 30 2000.
  • After the conclusion of this agreement, the mark was registered at the office on November 22 2002. The exclusive licensing right was registered on April 28 2003 in favour of JAS by virtue of the exclusive licensing agreement.
  • On May 28 2003 JAS concluded the non-exclusive licensing agreement that granted a non-exclusive right in Japan in favour of Best in connection with the 'smiley face' name and designs, including the disputed trademark, for confectionery products in general for a period of one year.
  • The agreement between the defendant and JAS was terminated when its term expired on October 30 2004.
  • However, in view of the fact that Harvey Ball is recognized as the creator of the 'smiley face' logo in the United States, JAS concluded a licensing agreement with the Harvey Ball World Smile Foundation as the licensor after 2001.
  • JAS subsequently concluded one-year sub-licensing agreements with Best on September 10 2004, June 24 2005, June 1 2006 and June 1 2007. The non-exclusive agreement between JAS and Best covered not only the copyright held by the foundation, but also the mark at issue.
  • Best had published and distributed its product catalogue (showing the trademark) in Japan every year since 1999. As of 2009, it manufactured and sold around 60 products in Japan in connection with the mark.
  • Although the registration records showed that the exclusive licensing right was effective until November 22 2012, the exclusive agreement was terminated on October 30 2004 by the expiry of the contract term. The registration of the exclusive licence was then cancelled on May 9 2007 - approximately two-and-a-half years later.
  • On June 1 2008, after the registration of the exclusive licence had been cancelled, Smiley Licensing Corporation (ie, Smiley World Limited at the time of the agreement) concluded the non-exclusive licensing agreement directly with Best, which continued to use the trademark under the non-exclusive licensing agreement thereafter.

The court concluded as follows:

  • The exclusive licensing agreement between Smiley Licensing Corporation, representing the defendant, and JAS was terminated by the expiry of the contract term on October 30 2004. Therefore, the non-exclusive licensing right in respect of the trademark owned by Best was consequently extinguished.
  • Although JAS granted the non-exclusive licensing right to Best on September 10 2004 before the expiration of the exclusive licensing agreement, the agreement with JAS was terminated by the expiry of the contract term on October 30 2004. Therefore, Best's position as the non-exclusive licensee was extinguished, although it continued to use the trademark.
  • As Best's non-exclusive licensing right had been extinguished, the defendant had to prove that Best had acquired the non-exclusive right by some other means if it wished to assert use by a non-exclusive licensee under Article 50(2).
  • On the evidence, it could not be found that Best had re-acquired the non-exclusive licensing right after losing it.
  • As a result, the office had erred in finding that Best's continued use of the trademark constituted proper use by the non-exclusive licensee.

On the question of legitimate grounds of non-use, the court held as follows:

  • Although the defendant claimed that JAS had interfered with the direct conclusion of the licensing agreement between the defendant and Best, there was insufficient evidence of this.
  • The defendant - or its representative Smiley World Limited - had attended the Licensing Asia marketing events in 2006 and 2007, where companies in various industries, from Japan and overseas, exhibited their copyrights and trademarks for licensing. The defendant or its representative had invited the interest of Japanese companies interested in using the disputed trademark. Therefore, there was no legitimate reason to conclude that the defendant had not used the trademark for the three years before the registration in advance in December 2007.
  • The defendant's assertion on this basis was thus unfounded.

In summary, the court held as follows:

  • Article 50(2) states that a defendant seeking to avoid the cancellation of its trademark registration can do so by showing use of the registered trademark by a non-exclusive licensee.
  • The main issue in this case was whether Best, which had used the trademark within three years of the registration in advance, was a non-exclusive licensee.
  • As Best's status as the non-exclusive licensee had been extinguished by the termination of the exclusive licensing agreement with JAS upon the expiration of the contract term on October 30 2004, it was necessary to prove that Best was a non-exclusive licensee.
  • The office had erred in concluding that Best was the non-exclusive licensee without conducting a trial to establish the facts that might substantiate Best's position and testing the evidence that supported this assertion.

The court thus reversed the decision and upheld the plaintiff's grounds for seeking cancellation.

This case is part of a long-standing dispute over the proprietary rights in the 'smiley face' device between Ball and his successor foundation on one side, and Loufrani on the other. A further appeal was filed and is now pending before the Supreme Court.

Cancellation actions on the grounds of non-use must be filed first with the office. Its practice has been generally criticized by industry interests for its liberal admission of trademark use. However, IP High Court judges will now take a stricter line in determining valid use of a trademark in cancellation proceedings. In consequence, the office is also likely to become stricter in its determinations on the use of registered trademarks in future cases.

Eiichi Fukushima, Nishimura & Asahi, Tokyo

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