China’s Trademark Office is generally very eager to reject coexistence agreements on grounds of potential likelihood of confusion. However, more recent guidance states that coexistence agreements can serve as prima facie evidence that two similar marks will not cause confusion. The court’s central goal is to protect consumers from potential deception, and, in doing so, will closely examine the terms of any coexistence agreements presented and establish whether the parties are affiliates. China’s trademark jurisprudence rules are more conservative compared to other jurisdictions: judges see a commonality of business interests as the foundation for ensuring consumers are not misled.

Contents

Strict requirements on coexistence agreements

Appropriate business structures for trademarks

How to get your China coexistence agreement accepted

Chinese courts impose strict requirements on coexistence agreements and may reject them

China’s trademark landscape is relatively unique in that registration is cheap and easy, leading to rampant trademark trolling counterfeiting, and copycats. Consequently, affiliated businesses will often register a large number of defensive trademarks to protect against infringement by malicious actors. The Trademark Office has frustrated this strategy through its overly strict application of China Trademark Act §30, which requires rejecting applications for similar trademarks for similar goods or services.

The process itself is nonetheless highly subjective, resulting in counterfeiters sometimes succeeding in registering misleading trademarks. In an effort to empower the legitimate use of trademarks, Trademarks Adjudication Guidelines §15.10 (Beijing Upper Appeals Court) provides for upholding trademark coexistence agreements on administrative appeal from the Trademark Office as long as certain technical requirements are met.

In Beijing Appeal 6238 (2020), the court restated the trademark coexistence doctrine, emphasizing the general principle that “the interested party is more motivated to act than the consuming public with regards to a proposed trademark that could be confusing due to its similarity to another mark.” The court urged that coexistence agreements should be closely reviewed to determine whether the similar marks would cause confusion among the consuming public. “Courts should follow a two-step process in ruling on coexistence agreements. First, they should assess whether the coexistence agreement is legally compliant and look for any evidence that it would harm the consuming public. Second, courts should look for evidence of efforts to avoid confusion. If both factors are present, the courts should hold that such products are not likely to cause confusion among the consuming public.”

Following the Beijing court’s judgment, the China Trademark Office issued several decisions that emphasized the importance of the parties’ own evidence that no detriment would occur to the consuming public. (See: Beijing Administrative Cases 4525 (2020), 2873 (2020), and 2769 (2021))

However, in Administrative Appeal 8299 (2019), the same Beijing court took a different stance despite an effective coexistence agreement. Here, the court found that an average consumer paying a typical amount of attention would likely not distinguish between the two marks and would thus be confused by their similarity, thereby defeating the main purpose of a trademark in identifying the origin of the goods.

Thus, this ruling demonstrates that courts may still refuse a trademark if there is a concern it will confuse the consuming public, regardless of a valid coexistence agreement between the trademark owners.

Trademark coexistence is permitted if an appropriate business structure is used

Chinese legislative principles require balancing the interests of consumers with trademark owners. In the context of coexistence agreements, this means weighing three things: the civil right to property, the consuming public’s interest, and the public good.

Given the havoc caused by China’s trademark trolls, brands have a legitimate interest in registering defensive trademarks to prevent others being granted trademarks confusingly similar to their own and protect against infringement.

As can be seen, denying coexistence agreements could amount to a deprivation of a trademark owner’s civil property rights (in IP) and impede their business. Thus, Chinese courts are increasingly willing to scrutinize coexistence agreements for legitimacy in the manner outlined in the Beijing court’s doctrine.

Beijing Court Adjudicatory Guidelines §15.12 provides detailed rules for such cases, stating that coexistence agreements for similar marks can be allowed in the absence of any contrary evidence against allowing the trademark.

The Chinese courts’ jurisprudence emphasizes protecting the right to dispose of one’s property and supporting legitimate commercial interests. The consuming public is assumed to not be at risk of confusion if the parties have common business interests, which should motivate them to proactively monitor use of the trademark and guarantee product quality. The above facts should therefore be memorialized in the coexistence agreement.

As can be seen, securing acceptance of coexistence agreements accepted in China requires both legal analysis and a coordinated business plan. Mistakes in the business execution can be fatal, so ensure local counsel draft a detailed Mandarin Chinese legal memorandum. Additionally, ensure you fully understand it by choosing professional translators over unprofessional freelancers or in-house staff. Be sure to continuously monitor local staff compliance with coexistence requirements, as non-compliance risks in this jurisdiction are relatively high. Below, we’ll discuss specific strategies for successful execution.

How to get your China coexistence agreement accepted

Unlike other jurisdictions like the United States, where administrative agencies have made rules on coexistence agreements, China relies on judge-made rules and precedents and they take a more jurisprudential approach than elsewhere. In its decisions, the Beijing court have indicated a strong focus on the likelihood that the coexistence agreement will be effectively performed. In particular, they look for unconditional obligations to coexist, and an alignment of business interests.

To demonstrate unconditional coexistence, coexistence agreements in China should ideally be adopted without conditions or end dates that could prevent coexistence obligations from being performed.

In China, a trademark coexistence agreement is a contract for the disposition of property, specifically, exclusive rights to a trademark. While the right to contract allows parties to agree on the terms and conditions for coexistence, particularly the end date, these rights are circumscribed by the public interest and the consuming public’s rights.

Judges are concerned that conditions or deadlines in coexistence agreements could result in interruptions to agreement performance, leading to actions that confuse the consuming public. Courts consider a coexistence agreement to be good evidence of preventing consumer confusion, provided the parties have the same business interests and agreements are free of conditions or end dates that may stop performance. This ensures that the consuming public will always be apprised of the origin and quality of their purchases.

This principle is reflected in the Beijing Intellectual Property Court’s Administrative Case 1271 (2015), which rejected a coexistence agreement between two ophthalmology clinic companies using similar trademarks. The court found that the agreement lacked any evidence of a genuine coexistence relationship, as the conditions contained therein created a possibility of terminating a party’s obligations.

Concerningly, the companies offered very similar medical services to the consuming public, who could be confused into purchasing a potentially different service under a similar mark. The court emphasized that judgments about coexistence agreements should only be upheld conservatively, to protect the consuming public from possible confusion, and rejected the trademark owner’s coexistence agreement claims.

To show an alignment of business interests, the two trademark parties should ideally demonstrate substantial affiliation. Specifically, trademark coexistence relationships should be backed by evidence that both parties will ensure that the source and quality of the goods or services under the trademarks will be maintained.

Trademark coexistence can be strongly supported by evidence of a connection between the organizations, such as operational or organizational integration, or a legal affiliate status known to some extent by the consuming public. Courts consider this to be the market status quo, which should be respected by the law.

The Beijing court described this doctrine in Administrative Appeal 707 (2018), following a Trademark Office refusal involving Evergrande Real Estate LLC and its affiliate, the Evergrande Holding Corporation. Both entities held Evergrande trademarks that included the name Evergrande, but nonetheless were somewhat different from each other. Each affiliate entered into a Trademark Coexistence Agreement covering use of the similar trademarks for carrying on each part of the business. After weighing evidence about the consuming public’s perception, the court found that the Trademark Office lacked sufficient grounds to claim that the consuming public would be confused and allowed the coexistence agreement to go forward.

The Beijing IP Court followed the Evergrande decision in Case 73-adm-12565, finding that the two parties to the coexistence agreement were affiliates and, moreover, are under the common control of the same person. The court overturned the Trademark Office’s refusal to grant the trademark as there was no inherent conflict between the two trademark rights.

Furthermore, the court emphasized that the typical commercial marketplace order should be respected, and arrangements made within coexistence agreements to achieve that result must be respected.

FURTHER READING

Get authoritative insights about Chinese foreign investment law from official government guidance in translation:

• Steps to license a trademark at the China IP Administration
• Know Your Rights Against China Trademark Agent Negligence

For a general overview of this topic, see also CBL’s China Trademark Law FAQ.