Legislation & Policy

Update on Trademark Consent Letters in the PRC

SIPSKnowledge, Legislation / Policy

Consent letters and coexistence agreements (referred to herein generally as “consent letters”) are written instruments issued by a prior trademark owner or between two parties, allowing for coexistence and usually, simultaneous registration of identical or similar trademarks for use on identical or similar products or services. This is a practical solution to address inevitable trademark conflicts, a solution deemed acceptable in most countries, subject of course to prevailing local requirements.

For much of the last 20 years or so, though, consent letters were a non-starter in China, given little to no weight by People’s Republic of China (“PRC”) trademark authorities. However, this practice had begun to shift significantly over the last 5-10 years. Indeed, and until recently, the acceptance of consent letters by PRC trademark authorities to resolve similarity disputes was becoming ever more common.

All that changed recently, with the PRC Trademark Review and Adjudication (“TRAD”) – the entity with initial responsibility for reviewing consent letters provided in respect of refused trademark applications – unilaterally deciding that it would no longer consider consent letters to resolve similarity conflicts. Instead, brand owners will now most likely be forced to file court appeals of TRAD decisions involving consent letters.

This update discusses the practical aspects of consent letters in PRC trademark practice, examines their history in Chinese trademark matters and considers the implications of the TRAD’s recent decision to reject such letters in most circumstances.

The PRC Trademark Law’s Overarching Purpose: Protection of the Public Interest

Under the PRC Trademark Law, and while the rights and interests of brand owners are important, the overriding interest is inevitably the protection of the socialist market order and of the rights and interests of consumers.[1] Given that, and when analysing the propriety of consent letters under the PRC Trademark Law, strong consideration must always be given to ensuring that if consent letters are permitted, consumers are protected and confusion is avoided.

Generally speaking, where a conflict involves an application for a mark similar to a prior mark for use on similar goods or services, the PRC Trademark Law assumes a tangible risk of consumer confusion. To overcome that assumption, consent letters invariably contain an acknowledgement by the prior rights’ owner that coexistence of the marks in question will not create a risk of confusion amongst PRC consumers. Logically, that acknowledgement would appear worthy of significant deference, where the owner of the earlier right has a direct stake in the issue, and presumably, a keen understanding of its own customers. Whilst this is likely most often a reliable premise, from the perspective of PRC trademark authorities and the courts, that acknowledgement has seldom been the end of the story. This is particularly the case in regard to extremely similar or virtually identical marks.

As well, public interest issues have generally overridden brand owner consents in respect of marks used in the area of the pharmaceutical industry (Class 5) and other areas impacting public health. Chinese authorities have been extremely reluctant to allow coexistence of similar marks in respect of such goods. For example, based on a prior trademark registration for “VECTAVIR” that was designated to be used on antiviral medicine, the TRAD refused an application for “VENTAVIS”, applied for to be used medicines to treat pulmonary hypertension.[2] In another case involving bandages in Class 10, courts refused coexistence of marks bearing different designs on the ground of public health concern.[3] Both decisions were supported by courts in administrative lawsuits against the TRAD. Below is a comparison of the two marks at issue.

Applied-for mark
Cited mark
Image of applied-for mark Image of Cited mark
Practical Considerations for PRC Trademark Consent Letters

In China, consent letters have never been of any utility in the PRC Trademark Office (“TMO”)’s initial trademark examination. The examination process is mostly a black box, with little to no contact with examiners available prior to the TMO approving or rejecting a given application, including due to the citation of prior similar marks. As a result, consent letters could only ever really be considered after a TMO rejection has been issued.

During appeals of those rejections, heard by the TRAD in the first instance, consent letters had become a very reliable means of overcoming similar-mark rejections. Indeed, and unless the two marks at issue were nearly identical, acceptance of consent letters by the TRAD (and courts hearing appeals of TRAD cases involving consents) had become de rigueur. Interestingly, and perhaps due to their relatively recent introduction in PRC trademark practice, Chinese rights owners have usually been incredibly sceptical of consent requests, either rejecting them outright or demanding exorbitant fees if any consent was given.

Although not a requirement for matters reviewed by the TRAD, which is an administrative-level body, the “best practice” for consent letters issued by foreign brand owners (and really, any evidence that may end up being reviewed by a PRC court) is to have them legalised and notarised. This ensures their admissibility in the event the TRAD’s decision needs to be appealed to the PRC courts, such as the Beijing IP Court (“BIPC”, the current first-instance court for trademark reviews), where evidentiary standards on foreign-sourced evidence require a higher degree of formality.

The first step in this process is the execution of the consent letter in the presence of a competent notary in the home country of the party granting consent by a competent representative of the brand owner. The notarised document is then authenticated by a competent authority in that country (such as the Department of Foreign Affairs and Trade in Australia or the State Department in the US), then by the Chinese embassy or a Chinese consulate in that same country. Recent experience suggests that foreign brand owners will typically need as long as six months to obtain notarised and legalised documents, with COVID issues causing significant delays in the processing of requests at Chinese embassies and consulates. These delays must be carefully considered in any appeals of TMO rejections, where the TRAD and courts almost invariably reject requests to suspend proceedings to await receipt of legalised/notarised versions of consent letters in given appeals.

A Brief History of Consent Letter Jurisprudence in PRC Trademark Law

The PRC Trademark Law and its accompanying regulations have never had any specific provisions recognising consent letters. Not surprisingly, then, and prior to 2005, consent letters were simply not a viable option to address conflicting marks in China. Instead, they were invariably entirely ignored by the Trademark Review and Adjudication Board (“TRAB”, the TRAD’s predecessor) and Chinese courts, regardless of how dissimilar the marks in question might be.

That changed slightly in 2005, with amendments to the Rules for Trademark Review issued by the TRAB cracking open the door on consent letters by hinting at the possibility of “interested parties” resolving trademark disputes between themselves. As a result, both the TRAB and the courts began to develop jurisprudence fleshing out this possibility.

Early judicial cases examining the viability of such consents were not favourable, however. For example, in 2010, the Beijing First Intermediate Court (the first-instance court for trademark reviews at the time) opined that the registrability of a trademark was to be solely determined by the TMO and that the issues involved were simply not subject to resolution by the parties’ “self-discretion”.[4]

In 2011, in a case later specifically referred to by the Supreme People’s Court (“SPC”) in its annual intellectual property report involving two “Liang Zi” marks (see below for comparison), however, the SPC took the position that a coexistence agreement between interested parties could potentially impact the judicial review of a given trademark’s registrability.[5] Following this SPC opinion, it became increasingly common for lower courts to consider consent letters as evidence in support of registrability.

Applied-for mark Cited mark
Image of Liang Zi applied-for mark“Liang Zi (in stylized Chinese characters)” Image of Liang Zi Cited mark“Liang Zi (in stylized Chinese characters) with design”

Then, in the landmark “NEXUS” case in 2016,[6] the SPC significantly relaxed the standard for assessing consent letters and their impact on determination of issues of trademark similarity and confusion. At issue was Google’s plain-letter “NEXUS” mark, filed for by it in 2012, for use on “portable computers; handheld computers”. It had been rejected on the basis of Shimano Inc.’s own plain-letter NEXUS mark, registered in 1999 in respect of “computers for use with bicycles”. In the two initial appeals, Google had submitted a consent letter issued by Shimano. It had been rejected by both lower courts on the ground that the two marks were essentially identical, and that products designated by the two trademarks were also basically the same in terms of function, purpose, manufacturing departments, sales channel, and consumer group. In reviewing the issue of the consent letter, the SPC identified two conflicting issues:

  • as the owner of a trademark Shimano enjoyed the free right to dispose of its mark, a right that “should be given due respect”;

versus

  • consumer confusion can never be completely ruled out, even where brand owners agree that there is no such risk.

The SPC concluded that both Google and Shimano were widely known in their respective industries, and that Google’s trade name and trade dress would serve to distinguish the source of products. This made it unlikely, in the SPC’s view, for the public to confuse the products. Given that, and in the absence of any evidence showing Google’s bad faith, the SPC concluded that Shimano’s right to use its mark as it saw fit should be given more weight than consumer interest.

In spite of the clear message of the NEXUS case, and its focus on the intent of the parties and their expertise regarding their own markets, however, in late 2018, the SPC nevertheless signalled that perhaps the NEXUS case was an outlier when it published the “LACOSTE” case,[7] which held that the registrability of a mark depends on the Trademark Law and related judicial interpretations, and should “not be affected by a foreign coexistence agreement”. While in the end the SPC allowed co-existence of the marks on the ground that the crocodile image in the cited mark occupied only a small portion of the overall design, the court clearly refused to consider the coexistence agreement or its acceptance in other jurisdictions when determining registrability. This was partly because Mainland China was not actually listed among the countries and regions specifically provided for in the agreement. The SPC also noted that registrability should be determined “in accordance with the PRC Trademark Law and its judicial interpretations”, and specifically admonished the owner of the cited mark to make proper use of the same to avoid causing consumer confusion.

Applied-for mark
Cited mark
Image of Applied-for mark Image of Cited mark

Positively, however, in 2019, the Beijing Higher People’s Court, (“BHPC”, the court handling second-instance appeals from the BIPC decisions on trademark refusals) took a more definitive step in favour of consent letters, issuing its “Trial Guidelines for Administrative Cases Involving the Granting and Verification of Trademark Rights”.[8] Those guidelines expressly allowed consent letters to be submitted as prima facie evidence of lack of risk of possible confusion. It noted, however, that if the applied-for mark and the cited mark were identical and are used on the same or similar goods, then the application should not be approved simply because there is a coexistence agreement between the parties. In addition, consent letters were required to clearly record detailed information as to the applied-for mark in writing, and prohibited the imposition of any conditions or time limits being placed on the use of the rejected mark, lest the “consent” be deemed a “licence”.

That same year, however, the SPC effectively overruled its own NEXUS decision in a case involving Nestlé’s application for the mark ECLIPSE in plain letters.[9] The facts of the “Nestlé” case were very similar to the “Google” case in that both the applied-for mark and the cited mark in the “Nestlé” case were “ECLIPSE” in plain letters. The cited mark was registered by ECLIPSE Inc. – a US company – in subclasses[10] 1104 and 1107 for “gas stove; oil-fired boiler and its parts”. Nestlé sought to register “ECLIPSE” in subclass 1104 for “electric equipment for making coffee and tea”. This time, the SPC held that “gas stoves” and the Nestlé coffee-making machine were identical or similar products in terms of function, purpose, manufacturing department, sales channel, and consumer group, concluding that their coexistence would lead to impermissible confusion.

The TRAD’s Recent Shift in Consent Policy

As noted above, and subject to certain limitations, consent letters had of late become an incredibly reliable and generally accepted means of overcoming the citation of marks the TMO deemed “similar”. This is particularly the case where there were significant differences between the marks at issue (important, where the quality and consistency of the TMO’s conclusions on trademark similarity quite often leave much to be desired). Although such letters could still at times be rejected where the marks in question were essentially identical, the TRAD nevertheless has been regularly accepting consent letters to overturn TMO rejections due to prior similar marks, even in cases where the marks differed by only a letter or two. That no longer appears to be the case, however.

Without any announcement or guidance as to what is behind the shift in practice, it appears that the TRAD will no longer accept consent letters in nearly all cases. Instead, the TRAD has informally signalled that, starting from September 2021, it will conduct a more stringent review of consent letters. Practically speaking, this appears to mean that consents will only be accepted by the TRAD where there are significant differences between the marks in question and where the case has been the subject of a formal review by a designated TRAD adjudication panel. This shift will invariably force brand owners to more regularly seek costly and time-consuming judicial review of TRAD decisions upholding TMO rejections by ignoring consents letters.

Unfortunately, too, it remains unclear whether this sudden shift on consents represents only the TRAD’s unique practice or, more worryingly, a broader shift in China’s approach on consents overall.

Brand owners should keep in mind, though, that even if this shift is emblematic of a broader shift against consent letters amongst PRC trademark authorities, it does not mean that there is no longer any value in obtaining consent letters. For one, the respective brand owners can still reach agreement to forego civil or administrative actions against each other with regard to use of their respective mark (in the past, Chinese courts have generally supported a party’s demand that the counterparty honour the terms of their coexistence agreement[11]). For another, Chinese trademark policy could always just as quickly shift back in favour of consent letters, perhaps permitting obtained consents in support of later-filed applications for the once-rejected mark.

Conclusion

With the TRAD’s unilateral shift in practice, the utility and acceptability of consent letters in PRC trademark disputes, something that had almost come to be taken for granted, is now seriously in question. The safest assumption now seems to be that the TRAD will refuse to accept such consents, and a court appeal will be required in any case where such a consent is at issue. Notarisation and legalisation of any such letters will now be vital to ensure that courts reviewing those appeals will view the letters as minimally sufficient to prove consent.

In the absence of formal pronouncements and guidance on this important issue, close attention will also need to be paid to upcoming BIPC, BHPC and SPC decisions involving consent letters to fully understand the scope of any changes and nuances of those cases and ensure any consent letters obtained in future are more likely to meet potentially stricter standards as consent jurisprudence continues to evolve.

By Dan Plane, Irene Liu and Yixin Chai


Endnotes

[1] See PRC Trademark Law (2019 Revision), Article 1.
[2] (2011) Yi Zhong Zhi Xing Chu Zi No. 1141 [(2011)一中知行初字第1141号].
[3] See (2016) Jing 73 Xing Chu No. 2512 [(2016)京73行初2512号].
[4] See (2010) Yi Zhong Zhi Xing Chu [(2010)一中知行初字第1193号].
[5] See (2011) Zhi Xing Zi No. 50 [(2011)知行字第50号].
[6] (2016) Zui Gao Fa Xing Zai No. 103 [(2016)最高法行再103号行政判决书].
[7] (2018) Zui Gao Fa Xing Zai No. 134 [(2018)最高法行再134号].
[8] See Articles 15.10 to 15.12. Original Chinese text available at <https://file.chinacourt.org/f.php?id=37014&class=file>.
[9] (2019) Zui Gao Fa Xing Shen No. 3230 [(2019)最高法行申3230号].
[10] Nice classes in China are broken down into “similarity subclasses”. Under this system, any item in a given subclass is generally considered per se similar to any other item in that subclass – and per se dissimilar to items in other subclasses within that class. Due to the similarity subclass system, identical marks can freely co-exist in the same class so long as they do not specify goods in overlapping subclasses.
[11] See, e.g., (2011) Zhi Xing Zi No. 50 [(2011)知行字第50号].