Case Type: Dispute over trademark license agreement
Decision No.: Shanghai High People’s Court  Third-Tribunal No. 117 Final Judgment
Lung Tin Representation: Shanghai Pafuluo Stationery Co., Ltd.
Procedural History: Plaintiff Shanghai Pafuluo Stationery Co., Ltd. ("Pafuluo") was the exclusive licensee of Picasso's trademark. Knowing the existence of the exclusive license, defendant Shanghai Art Image Stationery Co., Ltd. ("Art Imagine company") executed a second exclusive license agreement with defendant Picasso International Enterprise Co., Ltd ("Picasso company"), resulting in a dispute among the parties.
Pafuluo filed a lawsuit against Picasso company and Art Image company for maliciously depriving the Pafuluo's exclusive right to use the trademark and for damaging the Pafuluo's interests, and demanded the court declare the second exclusive license agreement invalid, and order defendants liable for Pafuluo economic loss of RMB 1 million.
Issues: Whether plaintiff Pafuluo's prior exclusive trademark license agreement has been terminated; whether the two defendants are jointly liable for the plaintiff's loss; and whether the Art Image company has obtained an exclusive license right to use the trademark.
Rulings: As Art Image company is not a bona fide third party, Pafuluo's exclusive right to use the trademark can against the contractual agreement between defendants. Although the second license became effective, the existence of a non-terminated exclusive license truncated the Picasso company's rights to license the trademark again. As a result, Art Image company would not be able to obtain a right to use the trademark under the second license agreement.
Significance: It has been observed that a trademark owner, in its interest, licensed the mark exclusively to multiple parties, which resulted in conflicts among licensees. In this case, the court sorted out the contractual relationships among parties, and ruled that Art Image company cannot enjoy a license right in view that he executed the second exclusive agreement in the knowledge of existence of a non-terminated another, and therefore is not a bona fide third party. The court ruling clarified that Pafuluo's prior non-terminated exclusive license truncated Picasso company’s rights for further licensing. Moreover, the court judgment has a positive significance of reemphasizing the market rules of trademark licensing transactions and directing to an honest and transparent market environment.
This case has been selected as one of the Top Ten Intellectual Property Court’s cases of 2015, selected as one of the Top Ten Shanghai Intellectual Property Judicial Protection Typical Cases of 2015, and selected as one of Shanghai Intellectual Property Typical Cases of 2015.
1. Both Picasso and Art Image knew existence of exclusive license of Pafuluo when a trademark license agreement between Picasso and Art Image was signed, so the Art Image is not a bona fide third party due to repeated authorization. But, there is no sufficient Evidence to prove that Art Image intends to maliciously harm Pafuluo, and no malicious collusion existed between Picasso and Art Image, so it is difficult to declare such contractual behavior to be malicious collusion to damage interests of the third party.
2. Although the trademark license agreement has been established, it does not mean that the contractual agreement has been carried out. As Art Image company is not a bona fide third party, Pafuluo's non-terminated exclusive right to use the trademark can against the contractual agreement between defendants. Thereby, Picasso has no right to dispose the trademark, accordingly, Art Image company could not obtain a right to use the trademark only based on the contractual agreement.
3. As a result, the exclusive license to use the trademark of Pafuluo was upheld by the courts, otherwise, it will violate fairness and honest principle and disturb trademark license market, and finally damage the interests of consumers. Art Image could pursue liability for breach contract due to dispute over the trademark license contract between the Picasso and Art Image.
Lawyer reviews from Mr. Xiaobing WANG:
This case involves issue of repeated licenses, confirmation of malicious collusion, validity of trademark license agreement, and protection of prior right. The Court of Second Instance affirmed effect of the trademark license agreement between the two defendants, but refused to acknowledge that Art Image company has obtained a right to use the trademark at issue based on the effective contractual agreement. The Court discussed several times about the difficult issues involved, and made a judgment applicable to other facts with many repeated authorization of the trademarks in China. Shanghai Judicial Protection Network of Intellectual Property Rights specially reported this case.