The successor of prior trademark user enjoys the priority right defense of the trademark– the case of Nantong Yuancheng Shipping Co., Ltd. v. Shanghai Bogea Seni Enterprise Development Co., Ltd. et al in respect of the exclusive right to use trademark Published on China Trademark (Issue 7, 2017) (Author: Fan Jingbo) [Case No.] First instance: (2016) H 0115 MC No. 45436 Second instance: (2017) H 73 MZ No. 65 [Rule of Law] As for whether or not the subject other than the prior trademark user is entitled to claim priority right defense of the trademark, the interests between prior trademark user and owner of the exclusive right to use the registered trademark shall be balanced under the condition of maintaining stability of the trademark registration system. After the trademark registrant applies for trademark registration, if the prior trademark user licenses or transfers the trademark, in principle, the licensee and transferee shall have no right to claim priority right defense of the trademark, but the business successor of the prior trademark user may claim priority right defense of the trademark. [Case Introduction] The Plaintiff Nantong Yuancheng Shipping Co., Ltd. (hereinafter referred to as “Yuancheng”) filed an application on January 10, 2012, which was approved by the State Trademark Bureau on March 21, 2013, registering the trademark in Class 18, covering commodities such as travelling bag (case), wallet (billfold), backpack, briefcase and travelling appliances (leather products). On October 10, 2013, Yuancheng used the registered trademark in briefcase and ticket folder, etc. On November 30, 2001, Bogea Seni Clothing Company obtained the two trademarks of “博格西尼” and “BOGEASENI” through transfer by the persons not involved in the Case. The two trademarks afore-said were used in clothing, shirt, etc. of Class 25. Bogea Seni Clothing Company used the trademarks above-said in men's clothing, case and bag, leather products, etc. for a long time. In 2009, Bogea Seni Clothing Company and part of its shareholders and the persons not involved in the Case made contributions to establish the Defendant of this Case, Shanghai Bogea Seni Enterprise Development Co., Ltd. (hereinafter referred to as “Bogea Seni Development Company”), and transferred the two trademarks of “博格西尼” and “BOGEASENI” to Bogea Seni Development Company in 2010. After receiving the trademarks above-said, Bogea Seni Development Company did not actually use them. Bogea Seni Clothing Company signed the Interlock Renewal Contract with No.1 Yaohan respectively on August 2011 and August 2012, and opened shop to sell men’s wear, leather bag and other products of Bogea Seni brand. In June 2014, Bogea Seni Clothing Company was deregistered. In March 2015, the Interlock Renewal Contract was signed by Bogea Seni Development Company with No.1 Yaohan, under which the operating activities were conducted through the original shop. The place of operation and brand name as agreed in that contract were same as those in the contract afore-said. Yuancheng appeal to the court to order the Defendant to stop infringement acts and compensate its losses on the ground that the use by Bogea Seni Development Company of “BOGEA SENI” on leather products sold in Yaohan infringed its exclusive right to use the registered trademark. Bogea Seni Development Company claimed priority right defense of the trademark, holding that it was entitled to continue to use the trademark charged with infringement within the original scope. Shanghai Pudong New Area People’s Court held that, Bogeaseni Development Company, as the successor of Bogea Seni Clothing Company, has the right to claim priority right defense of the trademark. The long-term prior use of the trademark in clothing, leather bag and other product has made such trademark generate certain influence. The use by Bogeaseni Development Company of the trademark charged with infringement does not go beyond the original scope, so the priority right defense of its trademark is established and the appeal of Yuancheng is hereby rejected. Yuancheng refuses to accept the judgment of the first trial, and files an appeal, but Shanghai Intellectual Property Court upholds the original judgment in the second instance. Shanghai Pudong New Area People’s Court held that, Bogeaseni Development Company, as the successor of Bogea Seni Clothing Company, has the right to claim priority right defense of the trademark. The long-term prior use of the trademark in clothing, leather bag and other product has made such trademark generate certain influence. The use by Bogeaseni Development Company of the trademark charged with infringement does not go beyond the original scope, so the priority right defense of its trademark is established and the appeal of Yuancheng is hereby rejected. Yuancheng refuses to accept the judgment of the first trial, and files an appeal, but Shanghai Intellectual Property Court upholds the original judgment in the second instance. [Comment and Analysis] Before Yuancheng applied for the involved registered trademark, the Defendant of the Case, Bogeaseni Development Company, did not use the trademark charged with infringement in leather products, and it was Bogea Seni Clothing Company that used the prior trademark in leather bag products. Bogeaseni Development Company is the successor of Bogea Seni Clothing Company, therefore, whether or not it has the right to claim priority right defense of the trademark involves in the definition of the subject scope of prior trademark use. I. The legislative purposes and value of prior trademark use system As per Article 59 of the Trademark Law of PRC, where any person other than the trademark registrant has use the same or similar trademark with that registered and having certain influence in the same or similar commodity prior to the trademark registrant before the trademark registrant applies for trademark registration, the owner of the exclusive right to the registered trademark shall have no right to prohibit such user to continue the use of the trademark within the original scope. The lawmaker does not make any further definition of the scope of the prior trademark user in that Article. It is certain that the prior trademark user has not objection that it can continue to use the trademark within the original scope, but whether or not the trademark transferee, licensee and the business successor of trademark owner has the right to claim priority right defense of the trademark shall be judged based on the purposes of the prior trademark use system as specified in our Trademark Law. According to interpretation of the lawmaker, the prior trademark use system is aimed at balancing the interests between the prior trademark user and owner of the exclusive right to the registered trademark, and protecting rights and interests of the owner of trademarks with certain influence but not registered. However, in our country, the trademark registration system prevails over the prior trademark use system. Even though it is necessary that certain protection shall be given to unregistered trademarks previously used in terms of law, the level of protection shall not be too high, avoiding the impact on the basic system of the registration system for trademark management. [1]It can be seen that, the purpose of prior trademark use system is not to confer the same rights with registered trademark owner on prior trademark user, but to make the defects of trademark registration system and properly protect the interests of prior trademark user. For the subject other than the prior trademark user, whether or not it is entitled to claim priority right defense of the trademark shall be determined by balancing the interests between prior trademark user and owner of the exclusive right to use the registered trademark under the condition of maintaining stability of the trademark registration system. II. Definition of the subject scope of the priority right defense of the trademark In case of claim by the subject other than the prior trademark user of the priority right defense, such subject shall include the trademark licensee, transferee and the successor of prior trademark user. It is analyzed and commented as follows: 1. On whether or not the licensee of the trademark under prior use has priority right defense In general conditions, prior trademark user shall grant the license after the trademark registrant applies for trademark registration, and principally, the licensee shall have no right to claim priority right defense again. Reasons are as follows: in case the licensee of prior trademark is permitted to claim priority right defense, the subject scope of prior trademark use will be expanded without limit, and there may be multiple subjects in the market which use the trademark, thus, enlarging the countervailing forces of the registered trademark owner and making it useless for the registered trademark owner to license the trademark to others in some degree. On the other hand, unconditional permission to prior trademark user to grant license may contribute to rapid expansion of its operation scale. Such act actually circumvents the provisions in the Trademark Law that prior trademark user shall only continue to use its trademark within the “original scope”, thus having serious impact on the interests of owner of the exclusive right to use the registered trademark, and is not compliance with the legislative purpose of the Trademark Law limiting the rights of prior trademark user. 2. On whether or not the transferee of prior trademark and the successor of prior trademark user have priority right defense The trademark is permitted to be transferred separately under the Trademark Law of our country, i.e. it is not a mandatory provision that the trademark must be transferred together with operation. With respect to separate transfer of trademark, the business scope or scale of prior trademark may rapidly go beyond the original scope, for example, the original operation scale of prior trademark owner is limited, but the transferee of such trademark has a large operation scale, the anticipated interests of registered trademark owner will be impaired to some degree if the transferee of trademark transferred separately is permitted to claim priority right defense of such trademark, thus, influencing stability of the trademark registration system. Therefore, principally, transferee of the prior trademark shall have no right to claim priority right defense of the trademark after the trademark registrant applies for trademark registration. However, the successor of prior trademark user shall be permitted to claim priority right defense of the trademark. Reasons are as follows: on one hand, prior trademark use system is a kind of proper protection of the interests of good-faith prior trademark user, as well as protection to existing trademark market order. Where prior trademark user is unwilling or unable to continue the operation due to various causes, if successor of the prior trademark user is not permitted to claim priority right defense of the trademark, there may be no subject in the market which is willing to inherit businesses of the prior trademark user and the operating results and business reputation based on prior trademark will be lost, which is unfair to prior trademark user. On the other hand, the successor of prior trademark user does not accept prior use right of the trademark, but inherit the physical business of prior trademark user, under which circumstance allowing the successor to claim priority use of the trademark will not damage interests of the registered trademark owner. By taking comprehensive consideration of the interests of both registered trademark owner and prior trademark user, the successor of prior trademark user shall be allowed to claim priority right defense. In comparison, it is clearly stated in the trademark law of some countries that successor of businesses of prior trademark user shall have priority right defense. For example, as per Article 32 of the Trademark Law of Japan, business successor shall have priority use right. However, in some countries, the trademark specified conditional transfer of priority use right of trademark, for instance, it is stated in the Trademark Law of Switzerland that, the right to continue to use the trademark shall only be transferred with the business; in Taiwan, it is stated in the Fair Trade Act that, good-faith users of business marks including the trade name and trademark known to relevant consumers shall inherit and use such marks with the business. The requirement above that prior user shall transfer both the trademark and business in case of transferring priority use right of trademark actually means the transfer of priority use right of trademark due to inheritance based on business, not separate transfer of such priority use right. In the Case, after Bogea Seni Clothing Company was deregistered in 2014, Bogeaseni Development Company signed the Interlock Renewal Contract with No.1 Yaohan in 2015, to continue the operation in the original shop. Apparently, after deregistration of Bogea Seni Clothing Company, Bogeaseni Development Company inherited the businesses of Bogea Seni Clothing Company. As afore-said, the successor of prior trademark user shall have the priority right defense, therefore, in the Case, Bogeaseni Development Company, as the successor of Bogea Seni Clothing Company, shall have the right to claim priority right defense. ________________________________________ [1]Edited by Lang Sheng; Interpretation of the Trademark Law of the People’s Republic of China; Law Press; October 2013, Issue 1, Pages 113-114
