Tales from the shadows

Shadows may require
hands-on responses

While the IPKat, like any good feline, is inherently territorial in outlook, he is conscious of the need to keep an eye on things a little further afield than his own little patch.  For this reason he is pleased to thank Tom Carver (Wragge & Co) for casting some light on the mysteries of shadow companies in Hong Kong and their murky role in the world of intellectual property [don't be silly, says Merpel, if you cast light on a shadow it, er, disappears ...].  This is what Tom tells us:

"Readers may not be aware of Hong Kong shadow companies, nor how they are used. Permit me to enlighten you, at least partially. One of the uses of a shadow company is to provide a cover name for a Chinese manufacturing company (another use is to break the chain of notarised evidence, but that is for another time). If company X makes shoes that look a little like Addidas shoes, then X might incorporate a shadow company called “Addidas Hong Kong”, or “USA Addidas International Group LLC” (if the shadow company is based in the US, as was the subject of this case back in 2007).

The shadow company then issues a ‘licence’ and/or a ‘letter of authorisation’ to X’s mainland PRC-based manufacturer, which then claims to be licensed by, or authorised by, USA Addidas.

That ‘licence’ or ‘authorisation’ will protect the manufacturer from raids by the AIC (the China government body responsible for dealing with simple trade mark infringements) because the AIC is not sufficiently sophisticated to deal with anything but the simplest cases. This means that the rights holder must go to court to enforce its trade mark, which takes more time and costs more money than an AIC action. So the shadow company has benefitted the manufacturer by (a) permitting it to give the impression that it is licensed by a famous brand name (and thereby increase sales), and (b) buying it time in legal proceedings. A third benefit is that the Chinese court has no jurisdiction to dissolve the foreign shadow company, so the rights holder has to spend further resources bringing an action abroad to dissolve the shadow company.

A recent case demonstrated an added level of sophistication to the use of a shadow company. A little background: Beijing Shell incorporated “Beijing Emperor” in 1993; in 1995 “Beijing Emperor” registered the “Monarch” and “Tongyi” trade marks; in 2005 “Beijing Tongyi” purchased “Monarch” and “Tongyi” trade marks and in 2006 “Beijing Emperor” was dissolved. In 2008 “Shell Beijing” purchased the “Monarch” and “Tongyi” trade marks.

In 2009 a company called “Beijing Emperor” was incorporated in Hong Kong, and it then issued a letter of authorisation to Jiangsu Weilishi to use the name “Beijing Emperor” while operating a business in Mainland China. Jiangsu Weilishi also bought the “Emperor” (“帝王”) trade mark (registered on the mainland).

Weilishi’s website said: Jiangsu Weilishi operates for Beijing Emperor; it is well-known in the industry that Beijing Emperor was the predecessor of Tongyi… …Emperor is now listed in Hong Kong with the new brand “Emperor”; our company has two manufacture sites, one is in Daxing, Beijing… and Weilishi sold motor oil with a mark similar to “Monarch” (but not similar enough for the AIC to be able to deal with the matter), claiming it is the translation of “帝王” (the mark it owns). Weilishi also used marks similar (but not similar enough) to "Zhizun" and "Ning Nan Xin Sheng Dai” (both owned by Shell Beijing).

To summarise: Jiangsu Weilishi was selling motor oil in China, claiming to be authorised by Beijing Emperor and relying on consumer’s industry knowledge that Beijing Emperor was connected with Beijing Shell to create an impression that Weilishi was connected to Shell.

Shell couldn’t bring an action for trade mark infringement at the AIC because the trade marks Weilishi used were sufficiently different to Shell’s, and it couldn’t shut down Beijing Emperor in Hong Kong because there was no longer a Beijing Emperor in China which would have locus standi to request the HK authorities to dissolve HK Beijing Emperor.

So Shell brought court proceedings in mainland China for unfair competition (similar to passing off) and trade mark infringement. In the civil action in mainland China, Shell argued that the trade marks used by Jiangsu Weilishi were sufficiently similar to Shell’s trade marks to constitute infringement and that the use of the combination of the name and the trade marks created an impression that Shell and Jiangsu Weilishi were linked. On this occasion the law supported the foreign rights holder and Shell was awarded damages of 150,000 RMB and an injunction against both use of the trade marks and use of the statement on its website.

All ended well for Shell, but by using a shadow company Weilishi had managed to convey the impression that it was connected to Shell, increasing its profit, and it had forced Shell into using the longer and costlier civil proceedings rather than the AIC administrative action".

The Shadows here
Me and My Shadow here