Supreme Court rules against trademark squatting and abuse

In LEI LONG Auto parts international co Ltd v Hsueh-Pen LU (111 Tai Shang 16, Taiwan’s Supreme Court (2022)), the Supreme Court provides fresh guidance on the prior-use defence in trademark lawsuits.

In a news report published in August 2021, we outlined a decision of the Intellectual Property and Commercial Court (IPC Court) that shed light on the issue of the prior-use defence in trademark lawsuits. The IPC Court ruled that prior-use status cannot be deemed as a separable asset that can be shared or transferred through a licence or assignment of the mark unless an entire business transfer is involved. However, behind the defendant’s prior-use defence is a hard question: how does one 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 issue in June, hinting that the answer may be found in the Fair Trade Act and the theory of trademark abuse.

In this dispute, the defendant obtained a licence in 2019 from a Mainland Chinese company to sell auto-diagnostic instruments in Taiwan under the mark AUTEL, which the Mainland licensor had been using since 2004. Shortly after the defendant put the goods onto the Taiwanese market, it was sued by the plaintiff who had applied to register the same mark in Taiwan in 2013 with respect to what were basically the same goods (the registration was granted in 2014). The IPC Court found the plaintiff to be acting in bad faith as he had previously worked in the Mainland company’s Taiwanese distributor for the same goods back in 2012 and thus must have known about the AUTEL mark at issue.

As stated in our previous article, under normal circumstances, and after proving the above facts, defendants will win without much difficulty by raising an invalidity defence based on Article 30.1.12 of Taiwan’s Trademark Act, which protects unregistered marks against bad-faith squatting. However, this powerful clause could not apply in this case because when the defendant made this challenge, the plaintiff’s mark had been registered for more than five years and had obtained incontestable status.

Moreover, according to the IPC Court’s findings, there was no evidence to prove that the Mainland company’s unregistered mark had been widely used on the Taiwanese market, much less that it had become famous in Taiwan before the plaintiff filed the application to register it in March 2013. So, Article 30.1.11 of the Trademark Act, which protects unregistered well-known marks, does not apply here either. It was under these circumstances that the defendant turned to the prior-use defence.

However, prior use was not the defendant’s only means of recourse. The Supreme Court’s decision pointed out that in the lower court, the appellant (the defendant) argued several times that the plaintiff was abusing its rights by filing this lawsuit and that it was in violation of the good-faith principle. This was claimed on the grounds that:

• the trademark registration on which the plaintiff claimed an injunction was obtained through unjust means and for the purpose of unfair competition;
• the plaintiff did not apply to register the mark to use it on his own goods; and
• the plaintiff intended to use the registration as a means of pushing the Mainland Chinese company to make him a sales agent in Taiwan (the Supreme Court believes that this is an important defence, which was not properly 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.”

If the plaintiff’s filing and enforcement of the squatting trademark registration is found to violate the Fair Trade Act and infringes on 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. However, it is doubtful that the plaintiff’s registration will be deemed as an act of infringement and be removed altogether.