Trademark owners are able to license others to use their registered trademark, either on an exclusive or non-exclusive basis. Once a license has been concluded, is the collection of royalties all that’s left to worry about? Absolutely not! Trademark owners have an obligation to monitor licensees using their trademarks. This is not simply to preserve the integrity of the trademark or to maintain some kind of moral responsibility — the trademark rights themselves are at risk if this obligation is neglected. A recent Supreme Court case illustrates this point clearly.
The Korean Trademark Act allows for registered trademarks to be revoked for a handful of reasons, including the following (emphasis added):
Where a trademark right holder causes the misunderstanding of the quality of goods or confusion with goods related to another person’s business among consumers by wilfully using a trademark similar to the registered trademark on the designated goods, or using the registered trademark or a similar trademark on goods similar to the designated goods
— Article 119(1)1
Where an exclusive or non-exclusive licensee causes the misunderstanding of the quality of goods or confusion with goods related to another person‘s business by using a registered trademark or a trademark similar to the registered trademark on the designated goods, or goods similar to the designated goods: Provided, That the foregoing shall not apply where the trademark right holder pays considerable attention
— Article 119(1)2
For this article we are mainly concerned with the latter provision relating to use by licensees, but it is important to remember that the same applies to trademark owners, too.
The recent decision we will be looking at (2017hu2178; Supreme Court, Feb 13 2020) is a case where the trademark owner lost their registered mark due to improper use by a licensee.
In summary, the original trademark owner had registrations for trademark “A” (covering class 29 goods), as well as the same trademark with an added part “α” in the form “A+α” (covering class 35 services). The designated goods/services of each mark relate to seaweed.
The “A” trademark was transferred to the defendant in this matter, and the original trademark owner used the “A+α” mark in the course of their own business. The defendant subsequently licensed the “A” mark to a third party, but the licensee changed the form of the mark and actually used it in a manner similar to “A+α”, thereby causing confusion with respect to the original trademark owner as to the source of goods.
According to the Supreme Court’s decision, the registration of trademark “A” is to be cancelled.
The case raises some interesting questions:
(1) Who is the “another person” indicated in the provision of the Trademark Act shown above?
In an earlier-instance trial decision, use of the trademark “A+α” by the licensee of trademark “A” was not deemed to justify cancellation of trademark “A”. The reasoning for this was that when a trademark right is transferred, a certain amount of source confusion between the former and current owners of the mark is to be expected, and so even if such source confusion does occur it cannot be deemed improper use of the mark.
However, the Supreme Court took a different stance. Noting that there is a great potential for source confusion with respect to the original owner when a trademark is used by a licensee following the transfer of a trademark right, the Supreme Court stated that in such a situation there is an obligation for trademark owner to monitor the licensee’s use in order to prevent them from illegally using the registered trademark beyond the scope of the license. Accordingly, if a trademark right has been transferred then “another person” includes both the original trademark owner and the licensee who has been permitted by the trademark owner to use the mark.
(2) Does the trademark used by the “another person” have to be the registered trademark?
In short, no. However, it is required that the mark actually used at least be considered by domestic consumers/traders as being the mark of a particular person. In this case, the “A+α” trademark has been used by the original owner since 2006 and so was known to some extent.
(3) If the “A+α” trademark used by the original owner fell within the scope of trademark “A”, would the outcome be different?
Again, no. The purpose of trademark law is to protect consumers, and so the law does not differentiate between these cases.
(4) What exactly does the “considerable attention” exception entail?
It is not sufficient for a trademark owner to simply warn a licensee not to cause confusion, and the trademark owner must instead be able to show that they can assess that the licensee’s use of the trademark is under their control — for example by regularly monitoring the actual use by the licensee. This may include distribution of operation manuals, requesting sample products and approving the use of the mark, etc. The trademark owner has a responsibility to prove this fact, and in the case being discussed no such evidence was submitted.
(5) How is confusion with another person’s goods assessed?
According to the Supreme Court, when assessing whether or not there is confusion, the focus should be on the degree to which the trademark in actual use differs from the registered trademark, much like in a normal assessment of similar trademarks.
This case once again emphasizes the need for trademark owners to monitor their licensee’s usage of a registered trademark. For trademark owners, the necessary measures are to either: (1) put practical arrangements in place to ensure the licensee does not cause confusion; or (2) at the very least make sure that the use of the mark is under the trademark owner’s control so that such problems can be avoided. In either case it would be wise for trademark owners to keep records or evidence which can prove their monitoring efforts.
Written by Ben YUU