Recently, the author received inquiries from clients regarding the recordal of trademark licenses. After carefully reviewing the matter, we have compiled some insights to share with everyone.

Overview: A foreign company (licensor) intends to sign a trademark license agreement with a Chinese company (licensee), allowing the Chinese company to use its registered trademark. The licensee will produce goods under the trademark and introduce them to the market.

Q: What are the effects of recording the license contract?
A:

1. Article 43 of the Trademark Law stipulates that a trademark license that has not been recorded cannot be enforced against a bona fide third party. The license contract information will be publicly recorded in the Trademark Office's system, which is considered as public knowledge of the license. If the license is not recorded with the Trademark Office, it is not considered public knowledge.

2. Recording the license contract gives third parties the impression that the trademark is in use, thereby reducing the risk of the trademark being challenged for non-use for three consecutive years.

3. If the foreign company's registered trademark is challenged for non-use for three consecutive years or involved in other trademark opposition or invalidation cases, the evidence provided by the licensee (the Chinese company) can be considered as valid use of the trademark. Such evidence will be accepted by the Trademark Office and the Courts. If the license is not recorded, the licensee must provide both the evidence of use and the license contract. If the license contract contains confidential information, it may be accessed by third parties, which could be detrimental to the client.

Q: How should the licensor respond if the licensee uses the trademark without authorization? (For example, if the licensee continues to use the trademark after the license contract has been terminated.)

A: It is recommended to clearly specify the responsibilities and obligations of the licensee after the termination of the license contract in the license agreement, including provisions for unauthorized use of the trademark. The trademark license application will specify the license period and the goods/services covered by the license, and this period will also be recorded in the Trademark Office's system. If the licensee continues to use the registered trademark after the license relationship is terminated (if terminated mid-term, a request for early termination of the license must be submitted to the Trademark Office) or after the license contract expires, the licensor can take legal action against the licensee in accordance with the contract.

Q: If the licensor terminates the license contract early, they cannot unilaterally file for early termination of the license recordal with the Trademark Office. The cooperation of the licensee is required because the "Trademark License Early Termination Recordal Form" requires the signatures of both the licensor and the licensee. In practice, what are the main measures if the licensor cannot unilaterally terminate the license recordal?

A: Neither the licensor nor the licensee can unilaterally submit a request for early termination of the license recordal to the Trademark Office.  Both parties must sign the relevant application documents. If one party refuses to sign, the recordal cannot be terminated, meaning the recorded license will remain valid until the license period expires.  During this period, if the cooperative relationship between the parties breaks down, the licensor may bear the negative consequences of the licensee's malicious use of the registered trademark (e.g., product quality issues).
In such cases, the licensor can resort to legal proceedings, filing a civil lawsuit to terminate the contract. Once a Court ruling is obtained, it can be submitted to the Chinese Trademark Office, requesting assistance in terminating the contract.
We generally recommend not signing license agreements for too long a period to prevent such situations. A license period of one to three years is advisable. If the license is to be extended, the contract can be renewed, and a new license recordal application can be filed. Additionally, it is best to include provisions in the contract regarding the licensee's responsibilities and obligations for contract termination and recordal termination.

Q: According to Article 66 of the "Trademark Law Implementation Regulations," to avoid the risk of a trademark being cancelled for non-use for three consecutive years, the trademark owner can provide "evidence materials of the trademark owner licensing others to use the registered trademark."
Must the trademark owner provide evidence that the license contract has been recorded (i.e., the "Recordal Receipt"), or is providing the license contract sufficient? Or are both acceptable, but the "Recordal Receipt" is more easily accepted? In other words, can the licensor rely on the licensee's use of the trademark to defend against a "non-use for three years" cancellation, and is this the effect of the license contract itself or the recordal of the contract?

A: The license contract does not need to be recorded to be effective (unless otherwise stipulated in the contract). Therefore, in cases of cancellation for non-use for three years, submitting the license contract or the recorded trademark license (including a printout from the Trademark Office's public system website, the trademark license recordal approval notice, etc.) is acceptable. If the trademark license has been recorded, there is no need to submit the license contract. If the trademark license has not been recorded with the Trademark Office, it is best to submit the license contract to prove the license relationship.
Moreover, the license contract or the recordal information alone is not sufficient to maintain the trademark registration in a non-use cancellation case. The licensee must provide additional evidence of the use of the trademark to prove that the license contract has been actually implemented.

Q: According to Article 15 of the "Trademark License Contract Recordal Measures," "Under the following circumstances, the licensor and licensee shall notify the Trademark Office and their respective local county-level industrial and commercial administration authorities in writing: ... (3) The trademark license contract is terminated early." Is this provision still valid? If so, does a foreign company also have the obligation to notify the industrial and commercial authorities? Which authorities?

A: According to the current Trademark Law, it is only necessary to submit the recordal of the contract termination to the Trademark Office.

Q: According to Article 122 of the "General Principles of Civil Law," "If a product causes property damage or personal injury due to its substandard quality, the manufacturer and seller shall bear civil liability according to law."
According to Article 41 of the "Product Quality Law," "If a product causes personal injury or damage to property other than the defective product itself due to a defect, the producer shall bear liability for compensation."
The Supreme People's Court's Reply on Whether Victims of Product Infringement Cases Can File Civil Lawsuits Against the Trademark Owner of the Product (Judicial Interpretation [2002] No. 22) states: "Any enterprise or individual that uses its name, trademark, or other identifiable mark on a product to indicate that it is the manufacturer of the product shall be considered as the 'manufacturer' under Article 122 of the General Principles of Civil Law and the 'producer' under the Product Quality Law."
Which of the following two interpretations is accurate:
(1) If the licensor's trademark appears on the product, the licensor is automatically considered the "manufacturer" or "producer" and should bear the corresponding liability.
(2) If the licensor's trademark appears on the product, the licensor is only considered the "manufacturer" or "producer" if the product packaging indicates that they are the producer, and should bear the corresponding liability.

A: In my opinion, the first interpretation is more accurate, i.e., if the licensor's trademark appears on the product, the licensor is automatically considered the "manufacturer" or "producer" and should bear the corresponding liability. The specific analysis is as follows:

1. The licensor is the actual trademark owner, and the licensee is authorized by the licensor to use the licensed trademark on the relevant goods. Consumers typically choose products based on the brand's (i.e., the licensor's trademark) reputation and market influence. Therefore, the brand's influence directly affects consumer purchasing behavior.

2. According to the Trademark Law, the licensor should supervise the quality of the goods on which the licensee uses the registered trademark. Whether to protect their own rights or for other reasons, the licensor should specify in the license contract that they have the right to supervise the quality of the goods and the form of trademark use by the licensee. If the licensee's products have quality issues, it reflects the licensor's inadequate supervision during the execution of the license contract, and thus, the licensor should share the corresponding liability.

3.Given the various risks in the execution of the license contract (especially product quality issues), we recommend that the licensor regularly and timely inspect the licensee's use of the trademark and the product quality to reduce the adverse effects and financial losses caused by product quality issues.

Q: According to Article 43 of the Trademark Law, the licensor should supervise the quality of the goods on which the licensee uses the registered trademark.

1. What are the legal consequences if the licensor does not conduct "supervision"?

2. Does this provision mean that if the product has quality issues or defects, the licensor must provide evidence that they conducted supervision, otherwise the licensor will bear legal liability for the quality issues or defects? If so, to whom should the licensor bear liability?

3. How can the licensor prove that they have supervised the quality of the licensee's goods?

A:

1) As mentioned above, if the licensee's products have quality issues and the licensor has not fulfilled its supervisory responsibilities, the licensor will bear greater legal liability than the supervisory responsibilities it has fulfilled. However, during the supervision process, the licensee may intentionally conceal or misreport information, which could affect the proportion of liability borne by the licensor.

2) The licensor can submit evidence to prove that they have fulfilled their supervisory responsibilities during the production process, but whether the court will fully accept such evidence depends on the specific circumstances. The licensor should bear legal liability to the plaintiff.

3) The licensor can hire professional institutions to regularly issue professional product quality inspection reports. Reports issued by professional institutions are more credible and admissible in legal terms than reports issued by the licensor themselves.

Regardless of the level of legal liability risk, we recommend that the licensor strictly control product quality and other issues during the execution of the license contract to minimize risks. Additionally, as the brand owner, the licensor should avoid any commercial behavior that could severely damage the brand, striving to build a good market reputation and corporate image.

Finally, we remind trademark owners not to overlook any details when signing license contracts/agreements, as even small details can eventually become critical issues affecting the survival of the enterprise!