Cutting through coexistence agreements in China

Coexistence agreements can be a more palatable solution to disputes than litigation. However, while China’s Trademark Law allows coexistence under certain circumstances, there are risks of which all parties should bear in mind

The Trademark Law and its regulations do not expressly provide for trademark coexistence agreements, although they do allow similar trademarks to coexist under certain circumstances. Additionally, Article 30 of the Trademark Law – which deals with the preliminary examination of similar trademarks before the China Trademark Office (CTMO) – and Articles 57.1 and 57.2 on infringement examination of similar trademarks differ significantly.

This divergence – between legal trademark coexistence as permitted by the Trademark Law and its regulations, and the difference between the preliminary examination of similar trademarks before the CTMO and infringement examination of similar trademarks before the court – leaves a space in which trademark coexistence agreements can apply.

Coexistence under Trademark Law and its regulations

Two provisions in the Trademark Law imply that trademark coexistence is permitted.

Article 45 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, in certain situations a mark which is similar to a prior registered mark may be allowed to proceed to registration. In this case the two similar marks in respect of similar or identical goods will coexist in the Trademark Register and the governing authority will have no grounds to order the removal of either one, provided that the holder of the prior registered mark does not initiate an invalidation proceeding within the prescribed timeframe.

Article 59 stipulates that:

where an identical or similar trademark has been used in connection with the same goods or similar goods by others and acquired certain influence 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.

Under this article, coexistence is allowed for the purpose of protecting the earlier user of an unregistered trademark.

Another legally permitted type of coexistence arises from the historical coexistence of the marks in question. As provided for in Ya Wang (Duck King) and Article 1 of the 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 a 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, disputed trademarks may coexist in view of their historical and current status, as well as the principle of equitable use.

These three types of coexistence are accepted by the law for the purpose of balancing the interests of the parties concerned, maintaining market order and respecting consumer choice. The purposes of legal trademark coexistence are also implied in the difference between the preliminary examination of similar trademarks before the CTMO and examination in infringement trials.

Preliminary examination versus infringement examinations

Article 30 of the Trademark Law states: “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.”

Under this provision, identical or similar marks can be classified as follows:

  • identical signs for identical goods;
  • identical signs for similar goods;
  • similar signs for identical goods; and
  • similar signs for similar goods.

If an application falls into one of these classifications, the CTMO is entitled to refuse it in compliance under Article 30.

Trademarks which are deemed to be identical marks for identical categories will definitely be deemed to be infringing. However, trademarks in any of the other three classifications will be deemed to be infringing only where there is a risk of confusion. If no confusion is likely to occur, the trademarks may coexist.

However, CTMO examiners conducting preliminary examinations of trademark applications under Article 30 are relatively strict. In addition, they have no opportunity to take account of actual use, due to the limitations of this proceeding. However, judges and examiners in infringement trials and appeals against refusal before the Trademark Review and Adjudication Board (TRAB) are more practical and have the chance to determine whether confusion is likely, based on evidence submitted by the parties.

In particular, trademark coexistence agreements can help examiners and judges to see whether there is a likelihood of confusion among the public, given the reality of the market. Generally, the parties concerned are extremely eager to avoid confusion in order to protect their interests. Therefore, their judgment as to likelihood of confusion can be deemed to be reliable.

In summary, preliminary examination before the CTMO is designed to allow the registration of a trademark which is not similar to any extent to a prior trademark in order to protect the restraining power of registered prior marks, while trademark infringement proceedings are designed to determine whether trademarks can coexist without causing confusion to the public and actually damaging a prior trademark owner.

Trademark coexistence agreements between a prior trademark registrant and a later trademark applicant can be invaluable when it comes to balancing these needs, demonstrating that no confusion is likely and making it easier for later trademark applicants to secure rights.

Trademark coexistence agreements in China

Neither the TRAB nor the courts consider trademark coexistence during preliminary stages. As a result, rulings have been issued which have not been happily accepted by the parties concerned.

In 2007 the TRAB 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 similarity between the prior and later trademarks;
  • the similarity between the goods or services; and
  • the fame of the prior trademark in question.

Theoretically, the more similar the trademarks and the goods and services they represent, and the more famous the prior mark, the less likely it is that a later mark will be approved for registration – even if a coexistence agreement is submitted before the TRAB or court.

In 2010 the Supreme People’s Court held that coexistence of the marks UCG and UGG would not lead to confusion or that any confusion was tolerable, and then approved the registration of UGG in Class 35 due to the provision of a trademark coexistence agreement.

Before this, the provision of trademark coexistence agreements seldom affected the judgment of the TRAB or the court when it came to determining similarity between trademarks.

Since publication of the TRAB’s guide on trademark coexistence agreements and the Supreme People’s Court ruling on the registration of UCG, more and more refused trademarks have been allowed to proceed to registration as a result of trademark coexistence agreements. The TRAB and the courts now hold that trademark coexistence agreements can help to establish that the use and registration of later filed trademarks will not lead to confusion among the public.

Legal status of trademark coexistence agreements

As stated by the World Intellectual Property Organisation (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 International Trademark Association (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, WIPO and INTA believe that trademark owners should be allowed to dispose of their marks through coexistence agreements, which reflects the reality of the market.

However, in China, the Trademark Law, its implementing regulations and interpretations issued by either the Supreme People’s Court or the TRAB have not made clear the status or effect of trademark coexistence agreements when it comes to determining similarities between two marks. The only positive trend is that more refused trademarks have been revived as a result of coexistence agreements being submitted as evidence in appeals before the TRAB or the courts.

In practice, coexistence agreements are usually submitted in appeals before the TRAB where an application has been refused or in litigation before the courts. The TRAB or the court may accept the agreement at its own discretion and then either approve the registration or affirm the refusal.

Through a trademark coexistence agreement, the prior trademark owner consents to the use and registration of the later trademark, believing that confusion is either unlikely or tolerable. Trademark coexistence agreements constitute a disposal of trademark rights by prior trademark owners which should be respected, as long as this does not prejudice social order or the interests of the public concerned.

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

Trademark coexistence agreements must be notarised and legalised (if they are concluded abroad; notarisation is sufficient for those concluded in China) when submitted as evidence to the TRAB or the court, in order to avoid voluntary termination by prior trademark owners and to maintain the stability of the applied-for trademark once registered. When assessing the similarities of the trademarks in question, the TRAB and the courts are usually willing to accept trademark coexistence agreements where they believe that the social order or public interest would not be affected by use and registration of the applied-for trademark.

Risks of trademark coexistence agreements and their alternatives

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

According to the Trademark Law, registered trademark owners have the exclusive right to use their registered trademarks on approved goods or services, and to restrain the use of identical or similar trademarks on goods or services which are identical or similar to those designated by their registered marks. Registered trademark owners can use the marks themselves, license them to third parties or restrain others from use. Registered trademark owners are also entitled to restrain others from the use or registration of similar marks in respect of identical or similar goods or services only.

According to this analysis, trademark coexistence agreements constitute a voluntary disposal of the restraining right of prior trademark owners. Due to the voluntary limitation of this restraining right, later trademarks which fall within this restraining scope are likely to be approved for registration, which may put prior trademarks at risk in future.

Even if actual confusion does occur in the future and affects the fame or distinguishing function of the prior mark, coexistence agreements are still binding on the contracting parties, provided that they are not cancelled or invalidated by the governing authorities. Moreover, prior trademark owners are not entitled to initiate litigation on the grounds of trademark infringement seeking an injunction or damages where use of the later marks is reasonable and in compliance with the coexistence agreement – even if confusion subsequently occurs.

To limit this risk, prior trademark owners should consider adding the following provisions to coexistence agreements:

  • limiting the goods, services or distribution region used by the later trademark owner;
  • requiring that the later trademark be used with reasonable signs in order to distinguish it from the earlier trademark; and
  • requiring compulsory withdrawal of the later trademark from the market and the register under certain circumstances.

Essential provisions

As contracts, trademark coexistence agreements must specify the names of the contracting parties, the trademarks in question and the expressed consent of the prior trademark owner to use and registration of the later mark.

With regard to necessary formalities, trademark agreements must be notarised and must also be legalised if concluded abroad. If submitted to the TRAB or the courts, the original version must be provided. These formal requirements are designed to avoid voluntary revocation of the agreement by the prior trademark owner and to maintain the stability of the later trademark once registered.

While these requirements are essential for trademark coexistence agreements, requirements can be far more complicated. No terms or arrangements can be agreed between the contracting parties which might damage the interests of customers or lead to a monopoly, and agreements must not violate any Chinese laws or regulations.

Disputes over coexistence agreements

Trademark coexistence agreements are binding on the parties and cannot be revoked. Therefore, the courts will respect these agreements, provided that they do not contravene the relevant law and regulations.

In Shandong Liangzi Natural Health Research Institute Co, Ltd v TRAB, a trademark administrative dispute, Shandong Liangzi applied to register the mark LIANGZI (‘良子’) for healthcare and physiotherapy in Class 42 – later changed to Class 44. In 1998 Beijing Liangzi was granted a registration for the mark LIANGZI (‘良子’) for massage and traditional Chinese medical message in Class 42, which was also later changed to Class 44. Shandong Liangzi and Beijing Liangzi had signed a trademark coexistence agreement setting out that neither party was allowed to take action against the other with regard to the mark LIANGZI (‘良子’). In 2002 Beijing Liangzi filed an action against Shandong Liangzi’s registration of the LIANGZI mark on the grounds that it was too similar to its prior registered trademark in respect of similar services. The TRAB and the court of first instance both decided to cancel Shandong Liangzi’s registration for LIANGZI, ignoring the coexistence agreement. Shandong Liangzi appealed and the appeal court overturned the first-instance decision, holding that Beijing Liangzi had violated the coexistence agreement and thus the principles of honesty and good faith.

As expressly stated in the appeal court’s ruling, trademark rights are private and may be disposed of by their owner, provided that this is not contrary to relevant laws and regulations. Therefore, trademark coexistence agreements, as the true expression of the contracting parties, are binding and enforceable.

Summary

Trademarks are chosen and used in order to establish an association between the marks and the providers of the relevant goods or services. It is not unusual for different commercial entities to select identical or similar words to represent identical or similar goods or services, which can lead to disputes. Trademark coexistence agreements are sometimes the best alternative for parties to such disputes.

Common mistakes in trademark coexistence agreements

Generally, two common mistakes are made in trademark coexistence agreements:

• The essential elements are insufficient or the formality requirements are not satisfied; or

• There is no other arrangement to limit the use of the later mark.

The first mistake might lead to non-acceptance of the agreement by the TRAB or the court, which results in refusal of the applied-for trademark. The second may restrain development of the prior trademark in future and result in confusion. In the latter case, the later trademark owner would be granted coexistence without limitations or obligations.

 

Paula Pei is a trademark attorney at Panawell & Partners, LLC
[email protected]

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