Introduction:  Under Section 4-1-7 of the Japanese Trademark Law (the “Law”), a trademark likely to negatively affect Japanese public policy may not be registered and may be invalid under Section 46-1 of the Law, even though such a mark could have already been registered.   According to the examination standard issued by the Japanese Patent Office (“JPO”), if a trademark application process lacked social adequacy and as such would be contrary to public policy, such trademark application may not be acceptable under Section 4-1-7 of the Law.  The question here is: In what situations would the court construe a trademark application process as lacking social adequacy?

Background:   A Japanese company (“Plaintiff”) executed the exclusive distribution agreement
with Leader Bike, LLC (“LBC”) for certain bikes and it had distributed those bikes sold and manufactured by LBC. The Plaintiff bore a trademark “Leader” on those bikes.  LBC went bankrupt five years later; therefore, the exclusive distribution agreement was terminated.  Because LBC did not register the “Leader” trademark in Japan and the Plaintiff knew that a third party registered the “Leader” trademark for bikes and other products, the Plaintiff purchased it from the third party and filed an application for a divisional transfer registration for that trademark at JPO (“Registration”) after the exclusive distribution agreement was terminated.  At the same time, upon approval from the bankruptcy court, LBC’s bankruptcy administrator sold all of LBC’s business and assets to a third party (“Defendant”) and the Defendant appointed Leader Bike Japan (“LBJ”) as the exclusive distributor of Leader bikes in Japan. LBJ has sold bikes manufactured by the Defendant, and those bikes bore the “LEADERBIKES” mark.

The Plaintiff (i) falsefully stated themselves to be “exclusive distributor of Leader Bike,” even after the distribution agreement was terminated and (ii) misrepresented such bikes as “California origin” bikes; then sent cease and desist letters to LBJ and their reseller after obtaining the trademark registration. As such, the Defendant’s Japanese business was severely interfered. Based on those facts, the JPO decided that the Registration was not acceptable due to lack of social adequacy, because such Registration was made mainly for the illegitimate business takeover from the Defendant.Therefore, it was contrary to Japanese business ethics.

IP High Court decision:  However,  IP High Court cancelled the JPO’s decision.   IP High Court held that, because Japanese trademark law adopted the first to file principle in the trademark registration, Section 4-1-7 would be applied only if the registration process was greatly lacking in the requisite social adequacy; in other words, Section 4-1-7 would not be applied even though the trademark holder made illegal or inadequate business conducts as long as these were outside of the process of trademark application.   IP High Court found the following facts: (i) the Plaintiff legitimately purchased “Leader” trademark from a legitimate trademark holder; (ii) LBC did not own the Leader trademark in Japan, and (iii) there was no survival clause in the distribution agreement. Therefore, the Plaintiff did not owe any obligations to LBC and the Defendant.  Taking those facts into consideration, IP High Court decided that the Section 4-1-7 would not be applied to this case, because the trademark registration process was neither illegal nor inadequate in light of business ethics.   IP High Court stated that the Plaintiff’s misrepresentation should be examined in a separate litigation, not in this invalidity process.

Comments:   There was another IP High Court decision holding that a plagiaristic trademark application was not acceptable under Section 4-1-7.   In the “AsRock” case (August 19, 2010, IP High Court,  Heisei 21 (Gyo Ke) No. 10297), IP High Court held that the trademark application was plagiaristic and the purposes for filing the trademark was illegitimate, therefore, it was unacceptable under 4-1-7 of the Law. The trademark application was plagiaristic because (i) when the applicant filed a trademark application for the “AsRock” mark, he had known or should have known that a third party, ASUSTek, would soon use the “AsRock” mark for their newly released product, and (ii) because the “AsRock” name was unique.   The purpose of filing the trademark application was illegitimate because the applicant did not intend to use the “AsRock” mark but intended to acquire illegitimate benefit from or to cause damages to ASUSTek, who had created the “AsRock” mark.  The applicant has 13 trademark applications of brands that third parties have owned but he could not explain the reasons for those trademark applications.   However, it is be questionable whether the IP High Court decision in “AsRock” is still good law.

First, unlike Japanese copyright laws, Japanese trademark law does not protect the creativity of a mark. Therefore, whether a mark is “plagiaristic” should not be an issue under the Japanese trademark law.

Second, the Japanese trademark law adopted the first to file principle, and the use of the trademark is not an requirement or consideration for filing the trademark application in Japan, and whether or not the applicant intended to use the mark shall not be considered in applying Section 4 of the Law.   It seemed that the difference between those two cases was, while the applicant has intended to use the mark for their business in “Leader” case, the applicant did not intend to use the mark in “AsRock” case.

Therefore, in reference to “Leader” rules, it is possible for IP High Court to decide that Section 4-1-7 should not be applicable for “AsRock” case, because an applicant has a right to file a trademark application for a mark that a third party created, even though he did not intend to use the trademark.   In “Leader” case, it would be important to note that the applicant did not owe any obligations to refrain from filing the trademark application.  If the applicant owed such obligation but filed a trademark application by concealing it, the application process may be construed as fraudulent, and therefore lacking in social adequacy.