Recently, the unauthorized registration of company names in Hong Kong comprising others’ trademarks has become an increasing concern of trademark owners with operations in Mainland China. Such Hong Kong companies are known as "shadow companies". Shadow companies often carry on no active business in Hong Kong and engage in counterfeiting activities in Mainland China. The main purpose of incorporating such shadow companies can often be purely to legitimize infringing activities in Mainland China and elsewhere.
Prior to 1990, the Hong Kong Companies Registry ("Registry") was responsible for reviewing applications whenever a potential naming conflict occurred, but the time required for the Registry to examine and register a company was at that time much longer and the whole process could take up to 3 months to complete. Therefore, the Companies Ordinance ("Ordinance") was amended to speed up the process of incorporation.
Since then, the Registry is no longer required to check whether there is any potential conflict or confusion between a proposed company and an existing company name, and such responsibility has been shifted onto the private sector. Any company name can now be registered so long as it is not identical with that of any existing company.
However, the Ordinance did retain 2 provisions to address the problem of shadow companies :-
According to Section 22(2), where a company has been registered by a name which is "the same as" or "too like" a name appearing in the Registry’s index of company names, the Companies Registrar may direct the company to change its name within 12 months from the date of its registration.
According to Section 22A(1), if in the opinion of the Companies Registrar the name by which a company is registered gives so misleading an indication of the nature of its activities as to be likely to cause harm to the public, he may direct it to change its name.
The Registry Approach
The Registry does not conduct any trademark searches and interprets the term "too like" in a very narrow way which does not take into consideration any aspect of "implied association" between companies in considering whether 2 company names are too alike. Thus, the Registry does not allow any applications under Section 22(2) unless the company name in question is practically identical to an existing one.
Further, the Registry seems to have adopted a blanket policy of refusing to allow Section 22A applications, notwithstanding the degree of similarity between the company name and the well-known trademark in question. Even when faced with evidence of deliberately misleading conduct, such as the use of a company name to apply for bank loans in Mainland China or the unauthorized use of well-known trademarks on a company’s letterhead, the Registry has refused to take any action. In addition, in many trademark counterfeiting cases in Mainland China, when the Chinese authorities conduct any raids, the counterfeiters will sometimes be able to produce a letter of authorization issued by a shadow company to authorize use of the counterfeiting trademarks, which may mislead the authorities into believing that they have been properly authorized by the genuine owners of the relevant intellectual property rights. In some cases, the counterfeiter’s registered address in Hong Kong was printed on the counterfeiting products, which may also confuse the public into thinking that the goods was produced by the genuine trademark owner.
The Registry’s approach is inconsistent with its UK counterpart, as the overriding consideration of the UK Companies Registry is "whether the decision finally reached makes sense". The present "shadow companies" issue would be significantly improved if the Registry were to adopt a similar approach to its UK counterpart in its registration examination procedures and its interpretation of Sections 22(2) and 22A.
The Registry’s current practice has left trademark owners with only 1 alternative which is to take the expensive route of trademark infringement and/or passing-off litigation in Hong Kong.
Clients with trademarks are advised to conduct regular company name searches. If they discover a company using their trademarks as part of another company’s name, they should either send a warning letter requiring it to change its company name or commence immediate trademark infringement or passing-off litigation against the offending company. If the plaintiff succeeds in proving passing-off, the court can make orders requiring shadow companies to change their names and restrain them from using the trademarks in Hong Kong or elsewhere, including Mainland China.
Lawyers in our Intellectual Property Department regularly advise on the registration and enforcement of trademark rights in Hong Kong and the PRC. If you encounter any problems relating to trademark infringement by shadow companies in Hong Kong and PRC, please feel free to contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.