Under Article 36.1.3 of Taiwan’s Trademark Act, a prior use defense is vested in one who has been using continuously an identical or similar mark on the same or related goods in good faith since prior to the filing date of a conflicting registered mark. As long as the use does not exceed the “initial scope,” a prior user continues to be immune from trademark infringement claims.
However, the terse language of this article leads to many questions. Putting aside the meaning of “initial scope,” when prior users assign or license their trademarks out after the filing date of a conflicting registered mark, do the assignees and licensees also have the prior use defense?
This question was partly discussed by Taiwan’s highest judicial organ called “Judicial Yuan” in an internal seminar in 2015. The Yuan’s conclusion was: in the case of a business ownership transfer like an acquisition, the prior use status passes to the succeeding party together with the entire assets and debts related to the business; therefore, the succeeding party is also entitled to the prior use defense.
This opinion seems to suggest that prior use defense shall not be vested in someone who acquires merely the rights in a priorly used trademark. In other words, it suggests that an assignee or licensee of a priorly used mark is not a prior user if the assignment or license occurs after the filing date of the conflicting registered mark.
In this May, the IP Court (renamed as the IP and Commercial Court since July 1, 2021) rendered its latest answer to this assignment/license question in a second-instance decision. LEI LONG Auto parts international co., Ltd. v. Hsueh-Pen LU, 109 Min Shang 21, Taiwan’s IPC Court (2021). The judges’ answer verifies the above understanding of the Yuan’s opinion.
In this trademark dispute, the defendant obtained in 2019 a license from a Mainland Chinese company to sell the latter’s “auto diagnostic instrument” in Taiwan with the mark “AUTEL”, which the Mainland licensor has been using since 2004. Shortly after the defendant pushed the goods onto the Taiwan market, it was sued by the plaintiff who had applied for Taiwanese registration of the same mark with respect to basically the same goods in 2013 and was granted the registration in 2014.
In the second instance, the defendant argued that, being a licensee of the initial prior user which is the Mainland company, they too are entitled to the prior use defense. However, the Court did not accept this argument. The three-judge panel’s holdings are:
- First, under the territorial principle, the prior use defense cannot rely upon use of the mark in another jurisdiction, including Mainland China.
- More, whether or not the territorial principle is an issue in this case, prior use is a fact inseparable from the prior user’s business operation. Therefore, the prior use status cannot be deemed as a separable interest able to be shared out or transferred through a license or assignment of the mark itself.
- In other words, this case should be distinguished from a business ownership transfer. In the latter scenario, the prior use status can pass to the succeeding party as it is part of the entire business being transferred.
Incidentally, the plaintiff’s registration of the same mark is not a coincidence. Accordingly to the Court’s findings, the plaintiff used to work in the Mainland company’s previous Taiwanese distributor for the same goods back in 2012. Under normal circumstances in like cases, after proving the above facts, defendants will win without much difficulty by raising an invalidity defense based on Article 30.1.12 of Taiwan’s Trademark Act which protects unregistered marks against bad-faith squatting. However, this powerful clause does not apply in this case because, in this case, when the defendant made this challenge, the plaintiff’s mark had been registered for more than five years and obtained an incontestable status.
To invalidate the plaintiff’s registration, the defendant and its Mainland licensor was left with the choice of Article 30.1.11, the clause that protects unregistered marks that are famous in Taiwan. While the defendant did raise this defense, the mark failed to pass the well-knownness test. The Court held that no evidence shows the Mainland company’s unregistered mark “AUTEL” had been widely used in Taiwan’s market, much less a famous mark in Taiwan, before the plaintiff filed the application for registration of the mark in March 2013. It was under this situation that the defendant turned to the prior use defense in the second instance.
However, this decision shall not be understood as denying the prior user’s immunity to all assignees or licensees. In another recent IPC Court judgment, it was held that a prior user does not need to be the first user. Subsequent users still have the prior user defense if their trademark use “is not for the purpose of unfair competition,” does precede a conflicting mark’s filing date, and continues after the conflicting mark gets registered. Chun-Sheng Horng v. Ruei-Chen Horng Heritage Co., 108 Min Shang Su 65, Taiwan’s IPC Court (March 2021). It seems reasonable to assume that, when these criteria are met, assignees or licensees can still be deemed as prior users in their own right. Still, we need court decisions to check this reading of the law.