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Various different ways of understanding/interpretation of a requirement that trademark license must be recorded to be effective with third parties and their troubles

Article 148(2) of the 2005 Intellectual Property Law (IP Law) provides that a trademark license agreement (in legal language called as "a contract to transfer the right to use a registered mark or an agreement on transfer of the right to use of industrial property objects”) is valid under the agreement between the parties, but is only legally valid for a third party when it has been registered with the state authority on industrial property rights (the NOIP). In other words, this provision means: (a) the licensor and licensee may enter into a license agreement similar to other civil or commercial contracts whose effect may start from the time of signing or from the time fixed by the parties without recordal with the NOIP, and (b) the license contract valid to both licensor and licensee shall not give effect to third parties.

The IP Law does not contain any provisions explaining what “third party” is subject. Although the third party legal term is not used correctly[1] as the IP Law, the 2015 Civil Code uses the legal term with equivalent meaning - the “third person". The term third person is also not defined in the 2015 Civil Code, although according to the authors Nguyen Thi Quynh Yen and Ngo Quoc Chien, the third person is understood to be the person who does not express his/her will to join the establishment of transaction[2].

It seems that the vast majority of intellectual property practitioners or agencies exercising state management functions (the NOIP, Ministry of Science and Technology) or the IPR enforcement authorities (the Police Economic, Market Management, Customs, Specialized Inspectors all understand that a third party is understood to be another party other than the licensor, licensee (but not the very state agencies such as the NOIP) carries out a cancellation action or a request for termination/revocation against a licensed trademark. This means that the third party is implied to be any third party that challenges the validity of the registered trademark which is the subject of a license agreement.

However, the reality is not so simple when other entities such as tax authorities, customs authorities or even commercial banks that are ordered to make a mandate to pay royalty fees (from the licensee payable for the licensor) are regarded themselves as the third party. This may make it difficult for the licensor and licensee to perform the contract when they are asked to explain the reason, or more badly, refused to transfer money or denied to incorporate the royalty fee into reasonable business expenses related to tax deduction, unless there is an evidence showing that a license contract has been registered, or in some other circumstances the license contract and royalty fee payment thereof may be suspected of being a transaction of transfer pricing[3].

Origin of the statutory provision a trademark license contract must be recorded to become effective with the 3rd party?

The statutory provision that a trademark license contract must be recorded to become effective with the third party originates from the 2^nd model Law for developing countries on Marks, Trade Names and Acts of unfair competition of 1967 administered by the BIRPI - predecessor of the WIPO, specifically its Section 22(3) stipulates that a license contract or excerpt of a license contract must be registered with the Trademark Office after prescribed fee has been paid; the license contract is not valid for a third party until it has been registered [4].

In explaining why the license contract is not valid for a third party until it has been registered, the BIRPI in its Model law explanatory section states that the license contract is registered at the Trademark Offices are necessary to allow the Government and public to control the quality of goods/services bearing the licensed trademark, ie. the quality of a kind of goods/services manufactured/supplied by the licensee must not be lower than that of goods/services manufactured/supplied by the licensor, by which to protect the legitimate rights and interests of the trademark owner (the licensor) and to protect and prevent consumers from being deceived or mistaken. In case that quality is no longer under the control of the licensor or the rights and obligations bound by the contractual relationship are no longer complied with, the contract must be considered invalid or terminated[5]. In addition, the registration of a license contract also helps the Government to control the transfer of money abroad to contribute to the country’s balance of payment[6].

BIRPI (WIPO) is not the only organization with a view to supporting the requirement of recorrdal of a trademark license agreement. the Andean Agreement (also known as the Cartagena Agreement or " The Cartagena Agreement ” was signed by five South American countries including Bolivia, Colombia, Ecuador, Peru and Venezuela for regional integration[7] has the same rule.

Practices show that BIRPI's recommendations (WIPO) relate to the use or adoption of the model law on trademark, trade names and unfair competition have been adopting or supported by many countries through their national legislations. It is duly the International Trademark Association (INTA) that has adopted a number of reports conducted by its task force (task force) such as "Trademark Licensing Requirements in the EC and EFTA Countries", "Licensing Recordal Requirements in Asia and the Pacific" and "Licensing Requirements in Latin America- Caribbean"  acknowledged that many countries like Netherland, Luxembourg, Belgium (these 3 countries use the same intellectual property agency named Benelux), Greece, Turkey, China, Korea, Thailand, Indonesia, Brazil, Ecuador, Paraguay and Columbia are all required that a trademark license contract must be recorded[8].

However, with its resolution issued on March 28, 1995, INTA disseminated and lobbied countries to call for the elimination of the compulsory licensing contract based on the many disadvantages for trademark owners, such as not registering a license contract would be result that the Government or a third party may cancel or suspend the license trademark (such as in China, Taiwan, Korea) or the use of a registered trademark by a non-registered user (licensee) would not be recognized as the use made by the trademark owner (licensor) whose consequence is that a third party may cancel/terminate the validity of the license trademark due to non-use. INTA also believes that compliance with the requirement to register a license contract (a particular user of a registered mark shall be recorded with the Trademark Office) is expensive and unnecessary.

It is now unclear whether the countries’ national laws where state that a trademark license contract must be registered, or a license of a registered trademark is valid for a third party only when it has been registered have changed their position or have followed the INTA’s suggestion. Nevertheless, at least the INTA succeeded with big wins when it impacted the Trans-Pacific Partnership Agreement (TPP) which had 12 countries (the US, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) but the United States soon unilaterally withdrew from the TPP immediately after President Trump took office.

At present, the Comprehensive Partnership Agreement and Trans-Pacific Progress (CPTPP or TPP-11), a free trade agreement, came into effect on December 30, 2018 and also officially came into effect for Vietnam from January 14, 2019. It should be particularly noted that after the Americans withdrew from the TPP, although many of the provisions of the CPTPP were suspended, its Section 18(27) is kept unchanged - imposing obligations forcing the members to abolish the provision on the required recordal of trademark license contract regulation.

From January 14, 2019 onwards - Vietnam's commitment to the CPTPP had been kicked off - the legal consequence of Section 18(27) had nullified Article 148(2) of the IP Law of Vietnam. In other words, Article 148(2) has been suspended even if the National Assembly of Vietnam has not yet discussed and approved the any second revision of the IP Law based on the new commitments of the CPTPP. (See more our article regarding the suspension of Article 148(2) at the link: http://bross.vn/newsletter/ip-news-update/MOT-SO-THAY-DOI-PHAP-LY-QUAN-TRONG-LIEN-QUAN-DEN-LINH-VUC-SO-HUU-TRI-TUE-SAU-KHI-HIEP-DINH-DOI-TAC-TOAN-DIEN-XUYEN-THAI-BINH-DUONG-CPTPP-CO-HIEU-LUC-DOI-VOI-VIET-NAM-TU-NGAY-14012019)

Should you have any query, please get in touch with us at vinh@bross.vn or 84-903 287 057

Bross & Partners, an intellectual property law firm founded in 2008, regularly listed as the Vietnam's leading intellectual property law firms ranked by the Managing Intellectual Property (MIP), World Trademark Review (WTR1000), Legal 500 Asia Pacific, AsiaLaw Profiles, Asia Leading Lawyers, Asia IP and Asian Legal Business (ALB). Bross & Partners has in-depth expertise to protect customers in complex intellectual property disputes in Vietnam and abroad regarding patent, design, trademark, copyright and domain name, and including issues related to license, franchise and technology transfer contracts.