In a news report published in July 2021, we outlined a decision of the IP & Commercial Court (the IPC Court) which shed fresh light on the issue of prior use defense in trademark lawsuits. According to the IPC Court, 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, unless an entire business transfer is involved.
However, this case is more complicated than it appears. What lies behind the defendant’s prior use defense is a hard question: how to defend against a trademark squatter in an infringement suit where the bad-faith registration has become incontestable and the mark being squatted is not famous. The Supreme Court addressed this question this June, hinting that the answer may be found in the Fair Trade Act and the theory of trademark abuse. LEI LONG Auto parts international co., Ltd. v. Hsueh-Pen LU, 111 Tai Shang 16, Taiwan’s Supreme Court (2022).
In this trademark dispute, the defendant obtained a license in 2019 from a Mainland Chinese company to sell the latter’s “auto diagnostic instrument” in Taiwan under the mark “AUTEL”, which the Mainland licensor had been using since 2004. Shortly after the defendant pushed the goods onto the Taiwanese market, it was sued by the plaintiff who had applied to register the same mark in Taiwan with respect to basically the same goods in 2013 and was granted the registration in 2014. Accordingly to the IPC Court’s findings, the plaintiff was a bad faith applicant because he used to work in the Mainland company’s previous Taiwanese distributor for the same goods back in 2012 and thus must have known the mark “AUTEL” at issue.
As pointed in our previous news report, under normal circumstances, after proving the above facts, defendants will win without much difficulty in such cases 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 cannot apply in this case because, when the defendant made this challenge, the plaintiff’s mark had been registered for more than five years and obtained an incontestable status.
Moreover, according to the IPC Court’s findings, there was no evidence able to prove that the Mainland company’s unregistered mark “AUTEL” had been widely used in Taiwan’s market, much less that it had become a famous mark in Taiwan, before the plaintiff filed the application to register it in March 2013. So, Article 30.1.11 of the Trademark Act that protects unregistered well-known marks does not apply here, either. It was under these circumstances that the defendant turned to the prior use defense.
However, prior use was not the defendant’s only defense in this case. The Supreme Court’ decision indicated:
| In the lower court, the Appellant (i.e. the defendant) argued several times that the Appellee’s (i.e. the plaintiff’s) filing of this infringement lawsuit was an act of abuse of rights and a violation of the principle of good faith, since the trademark registration based on which the Appellee claimed for injunction in this suit was obtained through unjust means and for the purpose of unfair competition; the Appellee did not apply to register the mark because he would use it on his own goods but because he intended to use the registration to push the Mainland Chinese company to make him a sales agent in Taiwan. We believe this is an important defense of the Appellant not well discussed by the lower court. |
The case was thus remanded back to the IPC Court.
Article 45 of the Fair Trade Act provides: “No provision of this Act shall apply to any proper conduct in connection with the exercise of rights pursuant to the provisions of the Copyright Act, Trademark Act, Patent Act or other Intellectual property laws.” As such, abuse of trademark rights may constitute a violation of the rules of the Fair Trade Act, for example Article 25, which provides, “no enterprise shall … have any deceptive or obviously unfair conduct that is able to affect trading order.”
Suppose the plaintiff’s filing and enforcement of the squatting trademark registration indeed violates the Fair Trade Act and infringes upon the defendant’s interests, it is likely that the IPC Court, in the new trial, will hold that the plaintiff is not allowed to enforce his trademark rights against the defendant, but it is doubtful whether the plaintiff’s registration will be deemed as an act of infringement and should be removed altogether.