Understanding and applicability of Article 59 (3) of the Trademark Revision

By Huang Hui, Senior Partner at Wan Hui Da Intellectual Property Agency,[Trademark]

The Trademark Law, as revised by the People’s Congress on August 30th 2013, provides in Article 59 (3) relating to continued use of prior existing trademarks, “A trademark registrant may not enforce its exclusive right against a senior mark, identical with or similar to the registrant’s own, and used by another before the registrant, on or in connection with the same or similar goods with relative repute, provided that such use is limited to the original scope; a registrant, notwithstanding the preceding, may require that such use be so marked as to distinguish itself.” The original proposed revision did not include that language of “used before the registrant,” and “with relative repute,” which was added during the second reading this June, as to which we are not clear about the specific legislative background or any explanation as of yet. Moreover, though the statutory language does not spell out “within China,” it has to be understood, from legislative purposes, to mean that the protection under this Article relates to first use within China only.

How was prior use treated before the Revision?

How prior use was treated when the trademark registration system was first installed, a matter of fairness under the trademark system, has attracted wide public concern. Ever since the inauguration of the Trademark Law in 1982, it has been a never ending dispute over whether a trademark registered later in time may oust another mark used first in time, to which two theories developed.

One adheres to the doctrine of absolute priority of registration, whereby any conflict must be resolved in favor of the registered trademark under protection of the Trademark Law against continued use of the senior mark. General opinions, prior to the current revision of the Trademark Law, consent on this absolutism. This is because the 2001 Trademark Law revision merely allowed a senior mark having relative repute to suppress another’s attempt to register or use the mark by fraudulent means, or a senior mark attaining well-known status to suppress a junior mark from registration or use; and the Implementing Regulations under the Trademark Law left a grandfather exception for service marks used prior to 1993. There were no other provisions, except these, that put any dent on the trademark exclusive rights under registration, or that favored prior user right or continued use.

The other holds the absolute opinion of prior-in-use-is-prior-in-right, under which a senior mark can not only continue, but may also suppress use of a junior registered mark within the scope of its use, in other words, to outweigh trademark registration. According to the trademark laws of the European Union and its member countries, the prior use doctrine may be applicable in two scenarios: one is as described in Article 8(4) of Community Trademark Regulations: trademarks that are in use in more than one place may prevent registration application by later trademarks. The other is as the description of the subsequent Article 111: trademarks prior in use in one place may prevent the use of registered marks in the same place, and the continual use right of the earlier trademarks is not subject to any interference of later registered ones. Similar prescriptions can also be found in Article 6 (2) of the First Council Directive to Approximate the Laws of the Member States Relating to Trade Marks (the First Directive) and Article 11(3) of Trademark Law of United Kingdom of Great Britain and Northern Ireland, and there are corresponding judicial precedents. The “priority-of-use” principle is also adopted in the United States, giving good protection to earlier trademarks.

The Anti-Unfair Competition Law of China of 1993 can fairly be said to support the prior use doctrine as well. Prior user right in well-known commodities whose unique name, packaging or decoration recognized as defense to design patent rights under Article 16 of the Several Provisions of the Supreme People’s Court on Issues Concerning Applicable Laws to the Trial of Patent Controversies, may be analogized as part of the prior user rights referred to in Article 31 of the Trademark Law. Although there are controversies about whether the unique name, packaging or decoration of well-known commodities can contend with later registered marks within the area where the commodity is well-known, this possibility is not completely ruled out according to the Provisions of the Supreme People’s Court on Issues Concerned in the Trial of Cases of Civil Disputes over the Conflict between Registered Trademark or Enterprise Name with Prior Right.

Why does the third Revision explicitly permit the continued use of a senior mark?

With all the respect to history, no new law shall ever completely ignore existing facts. Article 69(2) of the Patent Law of China prescribes that it shall not be deemed to be patent infringement where, before the date of patent application, any other person has already manufactured identical products, used the identical method or has made necessary preparations for the manufacture or use and continues to manufacture the products or use the method within the original scope;

To analogize, if we may, the trademark registration system to a restaurant’s ordering system, common sense dictates that a guest at his meal in the restaurant, like a trademark already in use, may not be expelled. In fact, Article 6 (5) of Paris Convention shows disfavor of trademarks that “infringe rights acquired by third parties.” The last sentence of Article 16 (1) of TRIPs specially prescribes that the rights granted by trademark registration shall not prejudice any existing prior rights.

Service trademark registration system was introduced at the 1993 revision of the Trademark Law of China in 1993. Since concurrent registration is not allowed, the “priority-of-use” applies, that is, service trademarks that are already in use may continue to be used. Article 48 of the Implementing Rules of the Trademark Law prescribes that service trademarks which had been used uninterruptedly till July 1st 1993, and which are identical with or similar to the service trademarks already registered by other persons for the same kind of services or similar services (except those well- known to the public) may continue to be used in accordance with the relevant provisions of the State Administration for Industry and Commerce. Article 54 of the Implementing Regulations of the Trademark Law promulgated about 10 years later has some small adjustments of this stipulation: service trademarks which had been used uninterruptedly till July 1st 1993, and which are identical with or similar to the service trademarks already registered by other persons for the same kind of services or similar services may continue to be used; however, service trademarks whose use has been interrupted for more than three years after July 1st 1993 may not be used.

Actually, the continuing use problem of trademarks prior in use is not limited to a few pre-1993 cases. Although the “registration creating rights” system has already been established in China, “use and register” or “use without registering” are commonly seen, because on one hand, except for human drugs, registration is not a mandatory requirement under the Trademark Law, and on the other hand, business operators have little awareness of this area of law. Strict deference to the “priority-of-registration” principle will cause injustice in real practice, and is not conducive to maintaining the legitimate rights of business operators or consumers.

For these reasons, prior use has been allowed as an effective defense in the U.S., Japan, and Taiwan. Under Section 33(b)(5) of the Lanham Act in the U.S., the party who had been using the trademark continuously before the registration application of the intended trademark may claim the right of defense. Article 32(1) of the Japanese Trademark Law prescribes that where before another party applies for registration of a trademark, the trademark identical with or similar to the registered trademark in respect of the designated goods by the registration application or similar goods is already in use in Japan other than for the purpose of unfair competition, and when the other party applies for registration of the trademark, the trademark identical with or similar to the registered trademark, as the sign of goods related to the business of the prior user, has become well-known among the consumers, the prior user may continue to use the trademark if he has been continuously using it on his goods. Article 23(2) of Taiwan Trademark Law prescribes that before another party applies for registration of a trademark, bona fide use of trademark devices identical with or similar to the registered trademark on the same or similar goods shall not be restricted by the trademark rights of others. But the same or similar goods shall be limited to originally used ones.

Based on the considerations above, the third revision specially considers the continued trademark prior user right. Even if there is no specific rule prescribing that trademark prior use may prohibit the use of later registered marks, their continued use remains. That is, if there are legal actions against a senior trademark brought by a junior registered mark owner, prior use may be an affirmative defense.

How to deal with the relationship with other Articles?

It shall be pointed out that although motivated by the desire to crack down on malicious registration of trademarks already used by others, this revision supplements Article 15(2) by indicating “where a trademark for which an application for registration is filed is identical with or similar to another party’s prior use of unregistered trademark on the same kind of commodities or similar commodities, and the applicant knows well about the existence of this other party’s trademark due to his contractual or business relationship or other relationships other than as prescribed above with the party, the trademark shall not be registered upon the opposition raised by the other party,” it does not include “certain influence” as the prerequisite. Therefore, even earlier trademark does receive protection according to Article 15(2), it enjoys no right of defense as granted by Article 59(3).

Article 15 (1), and Article 13(2) and (3) show the same problems. Although in theory, interested parties have the right to prohibit the use of later trademarks under those conditions, the trademarks of the agent or representative, even if well-known, can not seek for protection of Article 59(3) if they are not in use for more than five years and no malice can be proved.

As for malicious registration of trademarks prohibited by Article 32, it is no longer a bona fide intent for registration, and therefore the registration of the trademark is a documentation in form, but a nullity in essence. However, if the statute of limitation for opposition starts to run against the senior user, there will be a problem on whether the junior maliciously registered trademark can restrict the continued use of the senior well-known mark. Although in principle, malicious junior registration should not restrict the bona fide prior use, if the later registration cannot be invalidated, the senior trademark must be limited to a certain scope of use or added a distinguishing mark if it wishes continual use in accordance with Article 59(3). And pursuant to the Anti-Unfair Competition Law, senior trademarks also enjoy the right of preventing the use of registered trademarks within the range where they are in use and have certain influence.

In addition, although pursuant to Article 1(2) of the Interpretation of the Supreme People’s Court on Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition (the Anti-Unfair Competion Law Judicial Interpretation), the later bona fide user may continue to use the special name, packaging or decoration of a well-known commodity obtained independently by him by adding some suitable distinguishing marks, the literal meaning of Article 59(3) shows that he may not be entitled to the continued use right for not simultaneously satisfying the condition of using before the date of application and registrant’s use and the condition of certain influence.

How to understand the “original scope of use?”

Continued use does not mean unrestricted use. Take the continued use right of service trademarks for example. In order to implement the requirements of the Implementing Rules of the Trademark Law, the Notice of the SAIC on Continuous Use of Service Marks was promulgated in 1994, which requires users to observe the following stipulations to continue to use a service mark: not to expand the use region of this service mark; not to increase service items using this service mark; not to change the graphic, text, color, structure or the writing format of the service mark, unless the change is for distinguishing from other party’s registered service mark; and not to transfer or license the service mark to others.

This Notice was repealed in 2004. The cause, on the face of it, was to implement the Administrative Permission Law, but the real reason was more like the fact that the Ordinance Concerning the Procedures for the Formulation of Administrative Regulations has taken the power of interpretation of administrative regulations back to the State Department. Therefore, the abolishment itself does not signify violation of restriction conditions in the Notice of the purpose or principle of the Trademark Law. In fact, when the Trademark Office was processing the “Optical 88” case, it restated the scope of continual use, that is, within the original scope. Therefore, when Article 59(3) is granting, in a more common sense, the continual use right of senior trademarks, it should make explicit provisions of the conditions and scope of the continual use.

From a different perspective, we may consider the continued use of a priorly used trademark as a limitation of the exclusive use right of trademarks. But just as what Article 17 of TRIPs says, such limitation must “take account of the legitimate interests of the owner of the trademark,” and any limitation shall be accompanied by a narrow interpretation. It shall not conflict with the exclusive use right of a registered trademark or diminish its basic distinguishing function. For example, Article L.713-6 of French Intellectual Property Code prescribes that “Registration of a mark shall not prevent use of the same sign or a similar sign as a company name, trade name or signboard, where such use is earlier than the registration. However, where such use infringes his rights, the owner of the registration may request limitation or prohibition of the use.”

And now, the focus of controversy lies in the necessity of geographical limitation. In EU, as stated above, the Community Trademark Regulations and the First Directive both limit the continual use to the original scope of prior use. In the U.S., only in the specific range can prior use be taken as a defense. The United States Court of Appeals for the First Circuit, when hearing a car leasing case on October 28th 1987, said that the continual use of a senior trademark should be limited to the region where the mark was used without interruption. Article 33(b)(5) requires that the defense of prior use only applies in the region where the mark is in use.

Similarly, in the “Sophia” case, Shanghai Pudong New Area People’s Court ruled that although Qingpu Sophia Shop enjoyed the prior right of the trade name “Sophia,” such right shall be subject to the restriction of the plaintiff’s registered trademark “Sophia” obtained in October 2002. That is, after October 2002, Qingpu Sophia Shop could only use this trade name within the original range, and was not allowed to expand such prior right to Nanhui Sophia Shop.

In hearing the “King Roast Duck” case, the Supreme People’s Court believed that “The prior rights owned by Beijing King Roast Duck for prior use of the company logo deserved protection. Beijing King Roast Duck had the right to continue to use this logo within the scope of Beijing.”

The truth is that once a prior use encounters a later trademark application, it is frozen to the limit of its original area, and any expansion will lead to serious consequences. Uncontrolled expansion will endanger the security of later registered trademarks and confuse consumers, and will finally endanger the exclusive use right of trademarks.

How to mark so as to distinguish?

Sometimes, a senior mark may be so close to a junior one that allowing its continued use, without more, would inevitably cause confusion. Therefore, just as indicated in Article 1(2) of the Anti-Unfair Competition Law Judicial Interpretation, “Where the later business activities are conducted within the same region and it is sufficient to cause confusion, and if the first user pleads the court to order the later to add other marks to distinguish the sources of its commodities, the people’s court shall support it.”

Actually, in the notice of the Trademark Office in 1994, if any continual use of senior marks causes confusion with the practical use of a registered mark, the continual user shall add an appropriate geographical name mark on its commodities to distinguish with the registered mark. This is how “Daoxiangcun” case worked. When this mark was registered by a company in Baoding, the prior user Beijing Daoxiangcun Foodstuff Co., Ltd. added a sign of Chinese characters “三禾” and the Chinese words of “北京” in front of the mark.

How to deal with the junior use of Ttrademark by others after application date?

If it is some kind of a compromise for the registered trademark to be unable to stop the further use of senior mark with certain repute,” it should equally negate legitimacy of use of any junior mark after filing of registration application. The point in time is not the actual date of registration, but the date of application of trademark claiming rights. Then we can make such a deduction: since senior users are not permitted to continue use of their unregistered trademark outside the original range, how can junior trademark owners develop and make the trademark famous that was not in use before filing of registration application? In fact, use after the date of application could no way be legitimate. Recently, the IPRs Division of the Supreme People’s Court, in its reply to the Trademark Office concerning whether “Wingwah Mooncake” is the unique name of the well-known goods and other questions, expressly declared that “After approval of registration of a trademark, any same or similar sign within the approved scope of commodities, is no more granted the unregistered trademark right or the unique name right of well-known goods based on their actual use, otherwise it will damage the fundamental value of the trademark registration system. Therefore, claiming “notwithstanding the prior rights, the scale of use of later marks can or even should be considered” may conflict with the original meaning of Article 59(3).

If a prior registered trademark is not in use in a certain place, the Dawn Donut case from the U.S. may serve as a reference, i.e., later use may continue till the prior registrant comes to this place to use his trademark. However, “allow no use” seems to be a better solution than the “allow then prohibit” mode, unless the prior registrant is negligent in exercising his rights and willingly tolerates the use of his prior trademark by later users.

(Translated by Hu Xiaoying)

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