Impact of letters of consent on trademarks’ registrability

By Michael Fu, Chang Tsi & Partners

The major trait of a trademark is that it distinguishes the origin of goods or services. The most basic function of a registered trademark is to protect the lawful rights and interests of market entities, such as prior rights holders and consumers. The validity of a letter of consent issued by the cited mark holder in a review of the rejection of a trademark has consistently been an important issue.

Michael Fu Attorney-at-law Chang Tsi & Partners
Michael Fu
Chang Tsi & Partners

A letter of consent generally refers to a written document issued by a prior registered rights holder consenting to the registration of a subsequent trademark. From a legal perspective a letter of consent is a legal act of a unilateral authorization. A letter of consent would be issued when two trademarks presents similarities.

If there is a solid difference in the class of goods and the representation of the two trademarks, a conflict of interest would not arise, thus there is no need for a letter of consent. However, if the two trademarks are identical and the designated goods are also identical, registration of the later trademark is difficult even if a letter of consent exists.

Previously courts had been largely unwilling to recognize the legal validity of letters of consent. However, recognizing intellectual property as a private right whose holders are entitled to dispose of their own rights has become accepted by the public due to continuous exchange between Chinese and overseas entities. Courts also have gradually come to accept that a letter of consent is an important factor in weighing a trademark’s registrability.

Supreme court ruling

In its (2010) No. 50 ruling dismissing an application for a retrial, the Supreme People’s Court (SPC) expressly upheld the Beijing Municipal Higher People’s Court administrative judgment and found that the agreement between the parties on the coexistence of their similar trademarks affected the registrability.

The SPC offered the following justification of its ruling. After examining the case, the SPC held that the occurrence of the dispute in question had a distinct history requiring full consideration so as to render a fair and reasonable ruling. Per the ascertained facts, the registered trademark “良子” (liangzi) had been jointly created by Zhu Guofan, Shi Yingjian and five other individuals, and the trademark was owned by all of them pursuant to the collective development agreement executed on 23 September 1997. The Chinese characters “良子” form the trademark of Beijing Zhuguofan Fitness Technology Development Co. However, Zhu breached the agreement, registering the “良子” trademark under the name Xinjiang Liangzi Co, which he himself had established, leading to a subsequent series of disputes.

To resolve the dispute and define the trademark rights of both parties, Xinjiang Liangzi Co and Jinan Lixia Liangzi Fitness Registered Office, the parent company, signed a coexistence agreement in which article 4 specifies that each party waives the right to file an opposition or improper registration application against trademarks of the other party containing the characters “良子”. At the time the agreement was executed, the disputed trademark had been registered after initial examination and gazetting, such that Xinjiang Liangzi Co should have been aware that the disputed trademark had been registered by Shandong Liangzi Co. Shi Yingjian was the legal representative of this company and the parent company, Jinan Lixia Liangzi Fitness.

Pursuant to the coexistence agreement, Xinjiang Liangzi Co should be deemed to have consented to the registration of the disputed trademark by Shandong Liangzi Co. Accordingly, the disputed trademark was subject to article 4 of the agreement. Jinan Lixia Liangzi Fitness also had waived the right to file an opposition against the cited trademark registered by Xinjiang Liangzi Co, so registration had been granted.

However, Beijing Liangzi Co, also established by Zhu of Xinjiang Liangzi Co, nevertheless breached the agreement by submitting an application to the Trademark Review and Adjudication Board for cancellation of the disputed trademark, and the Board did so. The foregoing act by Beijing Liangzi Co breached the coexistence agreement and violated the principle of good faith, and the cancellation of the disputed trademark manifestly shattered the balance of interests specified in the agreement, which the court found to be clearly unfair to Shandong Liangzi Co.

In comprehensively considering these foregoing factors, the SPC found the Beijing Municipal Higher People’s Court’s judgment revoking Ruling No. 6099 rendered by the board appropriate. The SPC also found the arguments by Beijing Liangzi Co, namely that the “other trademarks containing the characters ‘良子’” did not include the disputed trademark and that the judgment at appeal had quoted things out of context, to lack factual and legal basis and therefore were untenable. Accordingly, the SPC ruled on 17 November 2011 to dismiss Beijing Liangzi Co’s application for a retrial.

The author’s view is that the recognition of trademark rights as private rights is the fundamental reason that the courts recognize the legal validity of letters of consent. Although the granting and confirmation of trademark rights are administrative acts, what is granted are civil rights, therefore the parties’ autonomy should be accorded respect. The consent of a prior trademark rights holder to the registration of a subsequent trademark is, in essence, the exercise of the holder’s right to dispose of its own private rights and this right to dispose of one’s rights ought to be granted a significant degree of respect.

So long as a letter of consent does not violate any mandatory provisions of laws and regulations, is a true expression of the intent of the parties and does not harm consumers’ interests, it should be deemed lawful and valid and treated as a factor when weighing the registrability
of a trademark.

In practice, the courts will render a specific finding based on whether a trademark “is identical or similar to a trademark which has been registered by another or preliminarily approved for use on the same or similar goods” as per article 30 of the Trademark Law. The issue of letter of consent should be considered carefully and in detail when handling trademark cases.

When encountering a situation where an application for trademark is rejected as a result of a cited mark, legal professionals should comprehensively analyse such factors as the degree of similarity of the goods for which the parties’ trademarks are designated, the degree of similarity of the parties’ trademarks, the notoriety of the parties’ trademarks in the market and other such issues. They should provide the client their legal opinion on letters of consent to assist the client’s trademark in securing registration to the greatest extent possible.

Michael Fu is an attorney-at-law at Chang Tsi & Partners

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