| Under CEPA III, the
Hong Kong watch industry may enjoy zero import tariff
on products of Hong Kong origin entering into the Mainland
market either by registering a self-developed brand
or acquiring a foreign brand through a Hong Kong company.
"Hong Kong brand" under CEPA III includes both Hong
Kong self-developed brands registered under the Trade
Mark Ordinance and foreign watch brands acquired by
Hong Kong companies. In such circumstances, the acquirer
of the foreign watch brand shall first complete the
trade mark registration of the brand before the application
for certificate of place of origin from the Trade and
Industry Department (TID). After completion of the trade
mark registration, the applicant should submit the following
to TID: (i) Certification of Registration; (ii) Publication
of the Acceptance for Registration; and (iii) documents
in relation to the acquisition of the foreign brand,
such as acquisition contract.
Assuming that the trade mark of the
foreign brand has been duly registered outside Hong
Kong, there will then be 4 different scenerios, which
give rise to different legal implications, in respect
of the acquisition of the foreign brand:
-
The trade mark of the brand is
not registered in Hong Kong and the owner of the
brand has yet carried on business here in Hong Kong
using the brand;
-
The trade mark of the brand is
registered in Hong Kong but the owner of the brand
has yet carried on business in Hong Kong using the
brand;
-
The trade mark of the brand is
not registered in Hong Kong but the owner of the
brand has carried on business in Hong Kong using
the brand; or
-
The trade mark of the brand is
registered in Hong Kong and the owner of the brand
has carried on business in Hong Kong using the brand.
Firstly, if the trade mark of the foreign
brand is not registered in Hong Kong, the acquirer of
the brand has to register the trade mark of the foreign
brand in Hong Kong. Further, as all trade mark is regional,
the acquirer of the brand shall consider the application
of trade mark in Mainland China in order to protect
the brand from infringement in Mainland China.
Secondly, even if the trade mark of
the foreign brand is registered in Hong Kong, the acquirer
of the brand shall in accordance with section 29 of
the Trade Mark Ordinance register the transfer of the
trade mark in Hong Kong Trade Mark Registry within 6
months of the acquisition, failing which the owner of
the trade mark will have no right to claim for damages
and account for profit from the infringers for the infringement
committed before the registration of the transfer of
the trade mark.
Apart from the issue of registration
of trade mark in Hong Kong, the acquirer of the brand
shall also consider whether the original owner of the
foreign brand has carried on the business in Hong Kong
by the use of the brand. In general, apart from the
tangible asset such as "registered trade mark", the
transfer of brand also includes the intangible asset
such as "goodwill" and other non-registerable intellectual
property.
If the acquisition involves the transfer
of goodwill, it will be regarded as a transfer of business.
According to the Transfer of Businesses (Protection
of Creditors) Ordinance, if the transferor has carried
on the business in Hong Kong by the use of the brand
before the transfer, the transferee shall become liable
for the debts and liabilities of the transferor unless
the transferee gives a notice of transfer in the Gazette,
two Chinese language newspapers and one English language
newspaper 1 month before the completion of transfer
(but not exceed 4 months before the completion of transfer).
Apart from the above 2 issues, the
acquirer shall consider the following legal matters
before the negotiation and execution of the assignment
of brand:
-
Apart from trade marks, the transfer
and disposal of the following ancillary intellectual
property rights may also be dealt with in the acquisition
of the foreign brands:
Copyright - Copyright is non-registerable and there
is no legal mechanism for the registration of copyright
in the world. In the course of the transfer of trade
mark, the transferee shall also consider the transfer
of all ancillary copyright such as right of use
and original design work.
Registered - If the transferor has registered the
design of the product in association with the subject
trade mark, the assignee should consider requesting
the transferor to transfer the relevant registered
design.
Patent - If the transferor has registered the patent
of the product in association with the subject trade
mark, the assignee should consider requesting the
transferor to transfer the relevant patent.
-
The acquirer should conduct due
diligence against the trade mark, including the
registered status, class(es), specification(s) and
any ancillary condition for registration. Further,
the acquirer shall check whether the trade mark
is subject to any charge or encumbrance and whether
there is pending litigation against the trade mark.
As the acquisition of the foreign brand involves
the application of foreign law, the acquirer should
obtain legal opinion of the place of registration
of the trade mark.
-
The acquirer shall demand warranties
from the transferor as to the continuity, legality
of the trade mark and whether it is encumbrance-free.
-
The acquirer may consider adding
a non-competition clause in the purchase agreement
to ensure that the transferor shall not carry on
a similar business in Hong Kong or Mainland China
in competition with the acquirer's business over
a certain period of time.
The above-mentioned issues are by no
mean exhaustive. As the agreement for the acquisition
of trade marks is by no mean a simple sale and purchase
agreement, the transferee shall take legal advice on
the execution of such an agreement for the protection
of his legal interest and avoidance of potential litigation.
Conclusion
CEPA III lifts the import tariff on
the Hong Kong self-developed watch brands which fail
to fulfill the original prescribed requirement of 30%
extra value originated from Hong Kong. It certainly
helps boost up the development of value-added local-made
watches with its own intellectual property rights. In
fact, there is all along huge demand from Mainland consumers
for Hong Kong-made watches. It is important for the
Hong Kong watch manufacturers to establish its product
image and protect the trade mark of the products apart
from quality control.
We hope that this article may serve to remind the watch
merchants in Hong Kong to have a better understanding
on the legal issues involved in the registration of
trade marks and the acquisition of foreign brand, so
as to get hold of the new business opportunities brought
by CEPA III.
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