Analysis of the Procedure of Substitution of Parties in Trademark Disputes

By Ma Yanyan,[Trademark]

Under Article 41(3) of the Trademark Law and Rule 29 of the Implementing Regulations for the Trademark Law, a senior trademark registrant may request trademark adjudication with the Trademark Review & Adjudication Board (TRAB) to cancel the registration of a junior trademark if he has reason to believe that the junior mark, when used on or in connection with the goods that are identical with or similar to those bearing his mark, is identical with or similar to his mark. Disputes over trademark registrations herein discussed refer to those instigated in accordance with the above provisions. In practical terms of trademark disputes, the senior mark is called a cited mark, which is the basis of on which the requester submits his claim; while the junior mark is termed the disputed mark; and the key issue is whether the coexistence of the marks would cause confusion or mistakes among the relevant consuming public. In the adjudication of an Art. 41(3) trademark disputes, it is not uncommon that the trademark rights are transferred, along with a questions as whether the original trademark owner has proper standing any longer, and whether a transferee of the trademark interest should substitute the original owner in the adjudication proceedings, and if so, under what theories and with what legal consequences. These questions deserve our careful attention. What is clear is that similar problems may also arise in the context of reexamination and opposition beside Art. 41(3) disputes, but the latter, being more typical, is used as an object for this paper.

Ⅰ.Current practices

Given the absence of regulations on substitution of parties in trademark adjudication cases in the Trademark Law and the Implementing Regulations for the Trademark Law, Article 31 of the Rules for Trademark Examination is taken in practice as the legal foundation. As provided in this Article, “Where the interest under a trademark hereby adjudicated is assigned or otherwise transferred, the assignee or transferee hereof shall, by timely claiming as such in writing, join the remaining process, and assume responsibilities of the adjudication.” From this provision, it can be seen that substitution of parties is permissible in trademark adjudication cases, which may occur for both the cited mark and the disputed mark. However, the procedure for different parties may be markedly different, as follows:

1. Upon approval of assignment of trademark interest, the original owner of the cited mark no longer has standing for the adjudication process, but whether the assignee should assume the responsibilities of the requester of the adjudication depends on his express indication. In the absence of such indication to join, the Board may not make an ex officio decision to substitute the requester for the assignee.

2. Upon approval of assignment of trademark interest, the original owner of the disputed mark is no longer an interested party for the adjudication process. The Board may, in order to carry on the adjudication, join the assignee ex officio as a respondent for the process, without having to obtain express indication from the assignee.

From the above, we can find that substitution of parties in trademark dispute cases has two distinct features: one, when request for adjudication was filed, both parties of trademark interest have proper standing, which is changed due to the change of proprietorship resulting from the transfer of the interest, and a party may no long have standing. This must be clearly distinguished from the lack of standing for the parties at the time when the request was made. Two, because of the different standing for a requester and respondent, the treatment of the substitution of parties varies, not on a constant rule following a party’s wish or ex officio.

Ⅱ.Theoretical analysis of substitution of parties in trademark dispute cases

Some countries, by legislation, have stipulations on the civil procedure for substitution of parties, which requires that a transferee of interest assume the litigation process when the original party transfers, by law, its interest thereto. 1 Substitution of parties must satisfy three conditions: one, the original party has proper standing in traditional sense; two the litigation is on-going; three, a predefined cause arises. The essence of substitution of parties is that the rights and obligations of the original party is transferred to a non-party who will assume the interest of the original party, taking his place thereof in the remaining part of the proceeding. 2 In the civil procedure theories of some countries, three reasons are provided for the substitution of parties: (1) death of person, who will be substituted by his heir or administrator; (2) dissolution of a legal relationship, whereas the litigation will assumed by whoever assumes its rights and obligations; and (3) transfer of substantive rights and obligations during litigation. For the above first two reasons, China’s Civil Procedure Law has well defined stipulations on the succeeding participation in the lawsuit by the transferee of rights or heritage manager when litigation transfer arises. But for the third reason no law has any provisions, and relevant theory researchers have dissenting opinions. With regards to whether change of party may occur when a party’s substantive rights and liabilities are transferred to another, some countries, such as Germany, adheres to the principle of fixed parties to any dispute by forbidding the transferee of rights to be a party to a lawsuit, and maintaining the original party in the proceeding even after the substantive rights have been transferred, while imposing binding force over the transferee. Some countries such as Japan allow under such a circumstance, the transferee to replace the original party, with no difference in status, in seeking solutions for the dispute, and force the original party to quit the lawsuit so that the transferee, upon permission, may continue the lawsuit, while making the original party bound by the decision.

In this article, substitution of parties in a trademark dispute means one resulted from the transfer of trademark rights in the process of adjudication. This is identical to the third reason for litigation transfer. Chinese and foreign civil procedure theorists, through their research and arguments, may help us substantially with useful material on this topic. As provided in Article 31 of the Rules for Trademark Adjudication, substitution of parties is evidently permitted, i.e., the recognition of a new party replacing the original is green lighted while the principle of fixed parties is discarded. Under Article 41(3) of the Trademark Law and Rule 29 of the Implementing Regulations for the Trademark Law, the prior applicant for trademark registration alone can raise a dispute application. Therefore, an examination applicant, upon transferring his reference mark, is no longer a competent party because he gave up the status as a senior trademark registrant. For the same reason, the former respondent, upon transfer of the disputed trademark, is no longer a competent party for his lack of interest in law in this case. If substitution of parties is not permitted in the above circumstances, the adjudication procedure should be terminated without any substantive rulings for the original party’s lack of standing in the case. The trademark dispute system, as a dispute solution mechanism in the trademark field, has the resolution of conflicts, and disputes in trademark registration as its top objective. Should the substitution of parties be not permitted in transfer of rights, the original adjudication procedure, being terminated for a party’s lack of standing, will be doomed to fail in solving the problems after the final ruling is made. The transferee may instigate another proceeding, but the high cost and low efficiency will surely run against the pursuit of minimum cost and maximum administration efficiency. Therefore, it is advisable to stick to our current system in allowing change of party in trademark examination practices.

III. Reasons for varying modes of substitution of parties

In the practice of trademark adjudication, China permits substitution of parties by permitting the transferee to take the place of the original party. However different modes are adopted specifically when the transfer of trademark rights happens to the examination applicant or to the respondent. The reasons are as follows,

1. When a trademark examination applicant transfers his ownership of the reference mark, he has to await the transferee’s overt written expression on whether the latter will participate in the adjudication procedure, and the transferee will not be determined as requester by the competent authority out of duty. To explain this, the objective of Article 41(3) of the Trademark Law has to be kept in mind, i.e., to solve the trademark rights dispute between the prior and later trademark proprietors. Such a dispute is civil in nature and any solution should pay respect to the proprietors’ disposal rights, and the procedural rights in particular. In other words, proprietors have the right to apply for, launch, and terminate the procedure, and to select the object of examination. The examination agency is not authorized to take the rights transferee’s place in determining whether to be a party to the would-be continued examination procedure.

2. When a trademark adjudication requester transfers his ownership of a disputed trademark, he does not have to wait for the transferee’s expression on whether to be a party to the adjudication procedure before the adjudicatory authority turns the transferee into a respondent. The reason behind this is to help the examination procedure run normally. Before a disputed trademark is transferred, the transferee’s expression has to whether to participate in the examination procedure. Otherwise, if the examination procedure is terminated, a malicious respondent, if there is any, will likely consecutively transfer his disputed trademark to indefinitely continue the examination procedure, which will lead to the loss of a fair competition order. Besides, to the transferee, turning him by the authority out of duty into a party does not mean damage to his procedural interests. This is because the withdrawal of disputed trademark will constitute major damage to the proprietor’s economic interests. The transferee hence has more interest in, and is accordingly more concerned about the disputed mark than the original proprietor. Even when a transferee’s consent is not obtained before he is turned into the respondent an examination procedure, he still has the right of defense in procedure and subsequent judicial remedy, which is beneficial rather than harmful to him.

IV. Legal effect of substitution of parties

1. Substitution of parties occurs on the premise that the original party completely quits the adjudication procedure because he no longer has standing after the pertinent rights are transferred, and the transferee replaces him in the procedure. The transferor and transferee should not be regarded as joiners.

2. When the transferee succeeds the original proprietor in adjudication procedure, the latter’s procedural behaviors, such as statement, defense, admission and waver of rights, are still effective and binding to the transferee. This is because what the transferee secures from the original proprietor is the latter’s status in the examination procedure. In other words, the object of examination remains the same and the nature of the existing case is kept intact. The procedural behaviors of the original proprietor, for his competency when he did the actions, are naturally valid. This author believes, upon the foregoing explanation, that the examination agency does not have to give, in de facto repetition, the succeeding transferee opportunities for statement or defense after he replaces the original proprietor.

V. The Board’s decision when no substitution of parties occurs

When a trademark adjudication requester transfers his ownership of the cited mark, the adjudication process has to be put on hold pending express written indication from the transferee to resume the adjudication process, and the Board may not order substitution ex officio. Therefore, it is possible that a transferee may not be willing to carry on the adjudication. In this case, no substitution will take place, and the Board must make a decision to terminate the case for lack of standing on the part of the original requester. The question is what kind of decision the Board should render. For trademark adjudication, rejection and termination of the adjudication are two typical results. Rule 18 of the Rules for Trademark Adjudication prescribes that “The Adjudication Board shall reject an adjudication request, per Article 30 of the Implementing Regulations of the Trademark Law, should one of the following circumstances appear wherein statutory conditions for acceptance are not met.” This article governs mistakenly accepted examination applications when certain conditions are not fulfilled. Change of party resulting from rights transfer is in conformance with acceptance conditions for examination application and the examination agency may lawfully accept such application. Therefore, Article 18 of the Rules for Trademark Examination is not applicable herein. In comparison, this author holds that Article 32 of the Rules applies to termination of examination in such a case. Termination of examination is a system for the examination agency to end an examination procedure when the appearance of statutory reasons renders the continuance of examination procedure unnecessary or impossible. Where a trademark rights transfer occurs, it is unnecessary to continue with the examination procedure given the original party’s loss of competency combined with the transferee’s refusal to be a party in the examination procedure. Meanwhile, the examination agency’s ruling on substantive issues will be meaningless as the above situation falls into the “other reasons” prescribed in Article 32 of the Rules for Trademark Examination for terminating examination.

Endnotes:

1. Xiao Jianhua, Expansion of the Subjective Effect of Judgment, Journal of Comparative Law, Issue 1, 2002, P. 46

2. Tan Bing, Civil Procedure Law, Law Press China, 1997, P. 175

About the author:

Ma Yanyan, an examiner of the Board of Trademark Examination, State Administration for Industry and Commerce.

(Translated by Wang Zengsen)

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