Controlling legal risks in trademark transfers

By Shan Xunping, Dentons

A brand without trademark registration as a legal basis is like a castle built from sand. An enterprise may obtain a registered trademark through the following two methods: (1) Trademark registration application, namely submitting a trademark registration application and registering the trademark upon approval; and (2) Trademark transfer, i.e., applying for the transfer of a registered trademark and making an announcement upon approval.

Trademark registration generally takes a long time, and may be rejected or challenged. Obtaining the approval of the registration is also uncertain. Moreover, the desired trademark may already have been registered or filed for registration by other persons. Therefore, obtaining registered trademarks through transfer has become the choice of many enterprises. So, how can a transferee identify and control risks and successfully obtain a registered trademark in trademark transfer?

Shan Xunping

Risk identification: Due diligence. Risks may be effectively controlled in negotiation and signing of a trademark transfer contract only when issues and risks are identified through due diligence.

Due diligence should focus on:(1) the trademark registrant; (2) the specific commodity or service under registration application for approval; (3) the validity period of the registered trademark (whether within 12 months prior to the expiry of the validity period, and whether within the trademark renewal extension period); (4) whether the trademark is a co-owned trademark; (5) similar trademarks registered by the same trademark registrant for the same type of commodities, and the same or similar trademarks registered by the trademark registrant for similar commodities; (6) whether a trademark licence of the concerned trademark has been filed with the trademark office; and if so, whether the filed trademark licence is an exclusive licence, sole licence or non-exclusive licence; (7) whether there is any registration of pledge of the exclusive rights to use the registered trademark; (8) whether the trademark is seized or frozen; and (9) any credit and external debt information of the transferor, as well as any risks that any creditors of the transferor may apply for seizing and freezing registered trademarks of the transferor.

Risk control: Signing a specific trademark transfer contract. A specific and targeted trademark transfer contract plays a vital role in risk control. In signing a trademark transfer contract, the following matters should be addressed and specified:

(1) The overall transfer obligations of the transferor with a list of registered trademarks included in the overall transfer;

(2) The undertakings and warranties of the transferor in relation to the trademark rights, and liability for warranty for defects of rights. In extreme cases, if the transferor has granted a third party an exclusive licence to use the trademark for a long period prior to the trademark transfer, the transferee will not have the right to use the trademark even after obtaining the trademark, and may only charge a licence fee in accordance with a trademark licence agreement, which obviously does not meet the intention of the transferee to obtain the trademark. In addition, in such cases, the licence fee is expected to be modest.

(3) The obligations of the transferor to co-operate in the renewal of the trademark that needs to be renewed.

(4) The obligations of the transferor to co-operate in the trademark transfer.

(5) The obligations of the transferor to file an opposition. If during the process of transfer the trademark is required to be used as a cited trademark for filing an opposition against the trademark applications indicated in preliminary examination and approval announcements made for other persons, the transferor shall file an opposition as notified in writing by the transferee.

(6) Payment of the transfer fee in instalments.

(7) Specific default clauses with deterrent effect. With regard to the obligations of the transferor, the liabilities for default and specific amount of liquidated damages for default shall be specified in a targeted manner. Liquidated damages for default with deterrent effect may help urge the transferor to fulfill the agreement and provide support for completing the trademark transfer. If the purpose of a contract to transfer a trademark cannot be achieved due to the trademark being licensed to other persons, transferred, seized, frozen or transferred to a third party under judicial assistance, in addition to returning the trademark transfer fee paid by the transferee, the transferor shall pay liquidated damages for default to the transferee. The specific amount of the liquidated damages for default may be a multiple of the transfer fee specified in the contract and should have deterrent effect as far as possible.

(8) Signing of the trademark transfer contract by the trademark registrant. The transferor shall be the trademark registrant. If a trademark is owned by two or more persons, the trademark transfer contract shall be signed by all co-owners.

Timely application to the trademark office for trademark transfer. The entry into force of a trademark transfer contract is not equivalent to the coming into force of trademark transfer. According to article 42 of the Trademark Law, in a registered trademark transfer, the transferor and the transferee shall jointly apply to the trademark office to complete the transfer. An announcement shall be made after the transfer is approved. From the date of the announcement, the transferee shall have the exclusive rights to use the trademark.

The trademark shall be transferred in entirety where necessary. If no application is submitted for the transfer of similar trademarks registered by the transferor (the trademark registrant) for the same type of commodities and the same or similar trademarks registered by the transferor for similar commodities in entirety, the trademark office will notify the parties concerned to make corrections within a specified period. Any failure of the parties concerned to make such corrections within the specified period shall be considered as a waiver of the application for the transfer.

Signing a trademark exclusive licence agreement at the same time. Since the transferee shall not have the exclusive rights to use the trademark until the date of the announcement, in order to ensure that the transferee has the right to use the trademark prior to the transfer approval, it is suggested that a trademark transfer contract should be signed in conjunction with a trademark licence agreement, so that the transferee may have the right to use the trademark from the date of signing of the licence agreement. It is also suggested that the trademark licence should be filed and registered.

Shan Xunping is an associate at Dentons


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