Trademarks: Supreme Administrative Court opinion on infringement by a licensee.

[2016/08/08]

Article 63 Paragraph 2 of the Trademark Act requires the trademark authority to cancel the registration of a trademark that is licensed for use by another party, if the licensee has acted as described in Article 63 Paragraph 1 Subparagraph 1 of the Act, by “altering the trademark or adding elements thereto, such that the trademark becomes identical with or similar to the registered trademark of another person that is used on identical or similar goods or services, thereby creating a likelihood of confusion among relevant consumers,” and if the trademark owner was aware of or could reasonably have been aware of the situation, and raised no objection.

With regard to the provisions of Article 63 Paragraph 2, in a recent judgment (Judgment 105-Judgement-Zi No. 283) the Supreme Administrative Court stated that based on the legal doctrine that persons are responsible for their own actions, it would normally not be appropriate that the disbenefit resulting from unlawful use of a trademark by a licensee should be suffered by the trademark owner. But in practice a trademark owner should bear a responsibility to monitor the actual circumstances of use of the trademark by a licensee, in order to exercise quality control. Therefore, to balance between the two, for Article 63 Paragraph 2 to be invoked, the matters of which a trademark owner was aware, or could reasonably have been aware (the degree of awareness has to approach clear knowledge or an inability to plausibly assert lack of knowledge), should include not only the fact of the licensee’s “altering the trademark or adding elements thereto,” but also the fact that the mark used has become “identical with or similar to the registered trademark of another person that is used on identical or similar goods or services, thereby creating a likelihood of confusion among relevant consumers.” Moreover, seen from the perspective of trademark use in practice, trademark legislation differs between different jurisdictions in which a trademark may be licensed, with varying degrees of strictness as to whether alteration of a mark or the addition of elements is unlawful, and a trademark owner cannot easily be aware of possibly conflicting marks that may exist in another jurisdiction. If, when considering such cases, the trademark authority or the court focuses on the issue of whether a trademark owner was aware of a licensee’s “altering the trademark or adding elements thereto,” but neglects the issue of whether the owner was aware that such alteration had led to a “likelihood of confusion,” and on this basis determines that the actions of the licensee should have the same legal consequences as actions of the licensor, this will make it difficult for extending the use of trademark. Therefore, only when a trademark owner is aware of, or could reasonably have been aware of, both of the circumstances referred to in Article 63 Paragraph 1 Subparagraph 1, and raises no objection, does the situation amount to grounds for cancellation of the trademark registration.

The above judgment tends toward a strict interpretation of grounds for cancellation. Although the direct cause of a trademark infringement may be the act of the licensee of another trademark in altering the registered mark or adding elements to it, it would appear that when the victim of such a trademark infringement issues a cease and desist letter to the infringer (the licensee), they would be well advised to also send a copy to the owner of the licensed mark. This should not only encourage the trademark owner to exercise control over the actions of the licensee, but should also increase the chances of success in a cancellation action against the offending mark.