A company signed a five-year exclusive trademark license contract with a trademark registrant, paid substantial license fees, and invested in production, but the parties never recorded the license with the CNIPA. Two years later, due to debt problems, the registrant assigned the trademark to a company unaware of the license relationship, and the assignment was approved. The new rights holder demanded that the company stop using the trademark. The company raised the prior exclusive license as a defense, but ultimately, because the license had not been recorded, it could not be enforced against the good-faith third party.
Key Issues
Issue 1: If the license contract is valid, why must use still stop?
The license contract is valid between the signing parties, and the company may pursue the registrant (the original licensor) for breach of contract, claiming a refund of the license fees and damages. However, contractual effect binds only the parties and cannot constrain a good-faith assignee outside the contract.
Issue 2: What does "may not be enforced against a good-faith third party" specifically mean?
Article 43(3) of the Trademark Law provides that a trademark license that has not been recorded may not be enforced against a good-faith third party. At the time of the assignment, the assignee had no way to know the license existed (no recordal announcement, nothing found in due diligence) and thus qualified as a good-faith third party; the trademark right it acquired is not bound by the prior unrecorded license. Had the license been recorded at the outset, the license relationship would have been publicly announced, the assignee would not be in good faith, and the company could have continued using the trademark until the license term expired under the publicity logic that "an assignment does not break a recorded license."
Issue 3: Is even an exclusive license no exception?
No. Enforceability depends on recordal as an act of publicity, regardless of the license type. An exclusive license only affects standing arrangements in infringement litigation; it does not affect the enforcement rule.
Applicable Law
Article 43 of the Trademark Law: where a licensor licenses another party to use its registered trademark, the licensor shall record the trademark license with the CNIPA, which shall publish it; an unrecorded license may not be enforced against a good-faith third party. The article also requires the licensee to indicate its name and the origin of the goods on the goods.
Takeaways
- Recordal is the licensee's talisman: initiate recordal the day the contract is signed; the licensee should proactively urge and verify the recordal announcement;
- Tie license fee payment to recordal: the contract may provide that "the first license fee installment is paid upon completion of recordal," using commercial terms to force recordal to happen;
- Check recordals before acquiring a trademark: when acquiring a trademark, search the CNIPA license recordal announcements to avoid buying a trademark encumbered by a license;
- Keep contract evidence when unrecorded: even if enforceability is lost, a complete contract remains the basis for claiming against the original licensor.
If you need to handle the above matters, you can submit an archive management request at MyTMBee, and a registered agency will follow up on it.