Newsletter
Trademark squatting-related disputes arising from the failure to make strategic trademark planning
I. Introduction
As a business brand thrives and seeks to franchise its business, it should devise a trademark strategy as early as possible before actively engaging in discussions with interested parties regarding the details of franchise terms and cooperation. This is to prevent the franchisor's trademark from trademark squatting by third parties, in particular franchisees. If the franchisor discovers any trademark squatting activity, it should immediately seek remedies such as initiating opposition or invalidation actions so as to avoid any impact on the entire franchise's business development.
The Taiwan Intellectual Property Office (TIPO) in the end of November 2023 rendered Trademark Invalidation Decision H01110058, which determined that the responsible person of the franchisor (the invalidation applicant) and the franchisee (the proprietor of the trademark at issue) have a franchising, licensing, or contractual relationship. Accordingly, the trademark filing by the franchisee was considered trademark squatting, resulting in the cancellation of the registration of the trademark at issue. The invalidation decision details the relevant legal disputes regarding trademark squatting activities in relation to a franchise trademark. The following is a brief case analysis:
II. Case analysis
(i) The invalidation applicant (the responsible person of the franchisor) used the trademark on which the invalidation is based before the filing date of the trademark at issue.
Article 30-1(12) of the Trademark Act stipulates that a trademark may not be registered if it is identical or similar to another person's trademark used earlier with the same or similar goods or services, the mark's applicant knows of that other person's trademark because of a contractual, geographic, business, or other relationship with that other person, and the application for registration is made with the intent of counterfeiting or imitating that trademark. With the following facts and evidence as grounds, the TIPO determined that the invalidation applicant (the responsible person of the franchisor; the store run by the franchisor is hereinafter referred to as the "main franchise store") had used the trademark on which the invalidation is based before the date on which the trademark at issue "亞葆" was filed (10 March 2020) for "soup bun shops":
1. A screenshot of a Facebook fan page post of 10 June 2012 contains a picture with red vertical writing "亞葆" placed in an oval-shaped frame, with the text "湯包館" (soup bun shop) below it. It also includes the main franchise store and three other franchise stores.
2. Google Street View photos of September 2009 show the main franchise store with a sign that said "亞葆湯包館."
3. A blog post of 24 July 2008 titled "亞葆鮮肉湯包館" containing street views shows consumers going to other franchise stores operated by franchisees other than the one in this case.
4. The food review post of 30 September 2017 titled "『食記美食。高雄三民』亞葆湯包館|新鮮現包平價好味道" shows consumers going to the main franchise store to dine. The article also shows the storefront sign with the text "亞葆."
5. The license agreement dated 18 October 2004 and the franchise agreement dated 16 March 2020 both include the name of Party A "亞堡鮮肉湯包店" and "亞葆鮮肉湯包," as well as the names of the franchisor's responsible person and of the responsible person's mother. The address in the agreements is the same as the one stated in the aforementioned Facebook fan page. Although the 2004 agreement writes "亞堡," the TIPO determined that the sign used by the main franchise store in 2008 had been updated to "亞葆."
The TIPO is of the opinion that "亞葆" is not in the vocabulary and does not have a specific meaning. As it is not directly related to soup bun shops, it is distinctive to a certain extent. Hence, consumers will see it as a source-indicating sign.
(ii) The extent to which the parties' trademarks are similar is extremely high, and the parties' trademarks are for use on identical or similar goods or services.
The trademark at issue consists of the horizontally-written "亞葆" in Chinese. The franchisor's trademark on which the invalidation is based consists of the text "亞葆" against a yellow background, or the vertically-written text "亞葆" in red combined with an oval frame against a yellow background. The parties' trademarks contain the same noticeable text "亞葆" and are extremely similar in overall appearance, pronunciation and concept. Hence, they constitute extremely similar trademarks.
The trademark at issue is designated for use on "sauces; sauces for seasoning; steamed buns; soup buns; pan-fried buns; steamed dumplings; dumplings; wontons; pasties; green onion pancakes; pan-fried dumplings; egg pancakes; congee; rice; fried rice; tube rice pudding; stuffing; wonton wrappers; dumpling wrappers; dough" in Class 30 and "snack vendors; snack bars; mobile food carts; dining cars; providing food and drink" in Class 43. A comparison of the above with the "soup bun shop" services used by the trademark on which the invalidation is based shows that they offer on-site food and drink preparation and for here or to go services; that the goods designated for use by the trademark at issue—once prepared and cooked—are goods offered for sale by soup bun shop services; and that soup bun shops or snack vendors on the market sell not only soup buns but dumplings, rice or noodles, cooked food, or sauces or seasonings therefor, or dumpling wrappers or stuffing. Given the above, the TIPO determines that the nature, content or purpose of the goods and services for which the trademark at issue is designated satisfy the dining needs of consumers, thus indicating connections between the two consumers bases. As they share commonalities or connections in the provider of goods or services, marketing channels or locations and other factors, the aforesaid goods or services be deemed identical or similar.
(iii) The proprietor of the trademark at issue (the franchisee in this case) has knowledge of the trademark on which the invalidation is based due to a contractual or business relationship.
The proprietor of the trademark at issue (the franchisee in this case) on 11 March 2020 used the LINE communication software to discuss "亞葆湯包" franchising matters with the responsible person of the franchisor, on 16 March of the same year signed a franchising agreement, and on 10 June of the same year opened the franchise store in this case. The TIPO is of the opinion that though the aforesaid communication record comes after the filing date of the trademark at issue (10 March 2020), it is only one day after the filing date. Given the general trading practices on the market, before a business contacts the franchisor to discuss franchising matters, it would first survey and collect the franchise's brand information and consult the brand and its business. Before the execution of a franchising agreement, the process of repeated negotiations and making adjustments to the agreement's terms and provisions is often time-consuming and could take days to conclude. Therefore, it is clear that the franchisee in this case filed for registration of the highly similar trademark "亞葆" for use on identical or similar goods and services on the basis of its prior knowledge of the trademark on which the invalidation is based due to their having a contractual or business relationship.
(iv) The "earlier-used trademark" does not have to be one that is earlier-registered domestically or internationally and the earlier use of such trademark does not have to be absolute
In defense, the franchisee claims that the franchisor did not register the trademark "亞葆," and that third parties had already registered tax information containing the name "亞葆" so the franchisor was not the first to use the name "亞葆." However, the TIPO points out that the requirement for Article 30-1(12) of the Trademark Act to be applicable is "whether the trademark on which the invalidation is based is the trademark first used on identical or similar goods and services" and not related to "whether the trademark on which the invalidation is based is granted registration." Taiwan's Trademark Act adopts a first-to-file rather than a use-based system. In principle, the Trademark Act does not protect earlier-used trademarks that are not registered. However, as trademark use is how a trademark demonstrates its meaning and value, the Trademark Act incorporates certain used-based doctrines into the law as a rule of exception to offer protection to domestically unregistered trademarks that are used earlier abroad so as to prevent abuses from occurring due to the law's overly rigid interpretation. The "earlier-used trademark" as provided in Article 30-1(12) of the Trademark Act serves to establish that the trademark on which the invalidation is based had been continuously used before the date on which the trademark at issue was filed. The idea of "earlier-used" is relative—the use of the trademark on which the invalidation is based only has to come before that of the trademark at issue. Whether the trademark is earlier-registered domestically or internationally and whether the earlier use of such trademark is of an absolute nature do not matter. It also does not matter if there are other trademarks existing as coexisting registrations or are used earlier before the trademark on which the invalidation is based, or if the trademark on which the invalidation is based is not coined or first-used by the invalidation applicant. Therefore, even though third parties had used "亞葆" as a part of the business name for tax registration, it does not affect the judgment that the franchisor had used the trademark on which the invalidation is based before the trademark at issue was filed for registration.
(v) The TIPO's determination: the registration of the trademark at issue shall be canceled.
In sum, the invalidation applicant (the responsible person of the franchisor) used the trademark on which the invalidation is based for soup bun shop services before the filing date of the trademark at issue. The invalidation applicant and the proprietor of the trademark at issue (the franchisee in this case) have a franchising, licensing, or contractual relationship. That the proprietor of the trademark at issue filed for registration of the trademark containing the extremely similar text "亞葆" for use on identical or similar goods and services is hardly coincidental, considering the general principles of experience. Clearly, the proprietor of the trademark at issue had prior knowledge of the trademark on which the invalidation is based due to having a contractual or business relationship and filed the trademark application with the intent to imitate or counterfeit the same. Finding Article 30-1(12) of the Trademark Act to be applicable, the TIPO canceled the registration of the trademark at issue.
III. Conclusion
If a franchisor discovers that its franchisee engages in trademark squatting, and seeks to take legal action by citing Article 30-1(12) of the Trademark Act, it shall first establish its senior use of its trademark, such as showing the brand's Facebook fan page, food reviews by consumers, franchising agreements, and Google Street View photos showing the store's signboard. The franchisor also has to show that the franchisee's knowledge of the franchisor's branded trademark is due to having a contractual or business relationship, which may be established by showing such proof as screenshots of LINE communication expressing the intent to become a franchisee and franchising agreements.
It is important to note that the aforesaid provision is a rule of exception in Taiwan's first-to-file trademark system. For a business or brand that has developed to such an extent that there are parties making franchising inquiries, it is strongly advised that such business or brand prioritize strategic trademark planning with brand protection and quickly file for registration of trademarks considered core to the enterprise to prevent future troubles.