Curated Content Hong Kong: Madrid Is (Finally) Coming To Town: Implementation Of The Madrid Protocol In Hong Kong, Benefits, Risks And Peculiarities

After nearly a decade, the Hong Kong Government is preparing the last legislative steps to introduce the Madrid Protocol to Hong Kong¹.

Once implemented, it is likely to have a profound impact on the trade mark landscape locally, not least because Hong Kong is neither a sovereign state nor a qualified inter-governmental organization which raises particularly tricky issues.

This article looks at what this could mean for Hong Kong both in terms of advantages and potential risks.

Introduction

On 18 April 2023, the Administration briefed the Panel on Commerce, Industry, Innovation and Technology of the Legislative Council of the Hong Kong Special Administrative Region ("LegCo"), Hong Kong's unicameral legislature, on the legislative proposals to implement the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (the "Madrid Protocol") in Hong Kong.

It stated the Administration plans to table the relevant subsidiary legislation in the LegCo for negative vetting "in the first half of 2023" and will seek the Central People Government's formal agreement to apply the Madrid Protocol "upon completion of all the necessary preparatory work"².

What is the Madrid Protocol?

Trade mark rights are territorial in nature and are granted by individual governmental authorities based on their own laws and practices. Normally a trade mark owner will have to apply individually with each of the countries/jurisdictions in which it wishes its mark to be protected.

The Madrid system for international registration of trade marks (the "Madrid System") is a major international system that facilitates the registration and management of trademarks in multiple jurisdictions through a "one-stop" process.

The Madrid System is governed by two international treaties: the Madrid Agreement Concerning the International Registration of Marks (1891) and the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (1989) and is administered by the International Bureau (IB) of the World Intellectual Property Organization (WIPO), headquartered in Geneva, Switzerland.

As of the date of this article, the Madrid Protocol has 114 contracting parties, covering 130 countries, including most major economies.

How does the Madrid System work?

Under the Madrid System, any natural person or legal entity of a contracting party, which Hong Kong will become through China's membership, can file an international application (IA) through its home trade mark office (the "Office of Origin") so long as it has a valid trade mark application/registration with the Office of Origin (called the "Basic Mark")³.

On filing the IA, the applicant can designate one or more (or even all 113) of the other contracting parties in which it wishes to register its mark and pay one set of filing fees with the Office of Origin.

Once the Office of Origin and the IB have checked the formalities of the IA to confirm all requirements have been met and it has been properly filed, it will register and publish the mark, which now becomes an International Registration (IR).

The IB will then notify each trade mark office of the designated contracting parties chosen by the applicant, who in turn will carry out substantive examination of the mark in accordance with local laws and procedures and notify the IB of any refusal.

If no refusal is notified to the IB within a prescribed time limit, typically 12 or 18 months, trade mark protection will be deemed to have been granted in the designated country.

The Madrid System allows trade mark owners to file and register trademarks in multiple jurisdictions, potentially more than 100, by submitting one application with the Office of Origin, eliminating the cost and time involved in having to engage agents or attorneys in each individual country.

Also, any amendments like a change of name or address, as well as renewal of IRs, are centrally managed by the IB, further reducing costs in portfolio maintenance.

However, despite the designation as an "international registration", the Madrid System does not grant a "universal right" for trade mark owners, nor does it provide global protection.

Each designated country will still need to examine and grant trademarks in accordance with national laws.

It is rather a system for trade mark owners to file and manage trademarks in different countries more efficiently and at a lower cost.

Advantages of the Madrid System

Once the Madrid System is implemented in Hong Kong, Chinese nationals⁴, natural persons/legal entities domiciled in Hong Kong, or businesses with a real and effective industrial or commercial establishment in Hong Kong⁵ can all apply for IA/IR via the Hong Kong Trade Marks Registry.

One interesting point is that even mainland Chinese nationals with no business presence in or connection to Hong Kong will have the option to file IA/IR via Hong Kong.

The most obvious advantage is that Hong Kong businesses can benefit from a one-stop streamlined service and save on time and legal costs in obtaining trade mark registrations and managing international trade mark portfolios.

Trade mark owners will be able to file one application in Hong Kong and potentially have their marks protected in more than 100 countries worldwide instead of having to file in each individual country.

If the IA/IR application process goes smoothly and the designated offices raise no objection, the services of local trade mark agents or trade mark attorneys may not be necessary at all. This will give local businesses, particularly SMEs, an easier venue to expand overseas.

Implementing the Madrid System may also prompt international businesses to consider having their intellectual property assets, including international trade mark portfolios, in Hong Kong.

Doing so would allow them to take advantage of the comparatively low tax rates on intellectual property royalties, the well-developed legal, banking and finance infrastructures and the ease and low costs involved in setting up and maintaining Hong Kong companies.

Another potential advantage is that since PRC nationals can also file IA/IRs via Hong Kong, it will provide a safer way for mainland trade mark owners to file foreign trademarks, though for the time being, this appears only to apply to natural persons in mainland China.

Due to the sheer number of trade mark applications being filed in mainland China⁶, China's adoption of a first-to-file system, as well as widespread trade mark squatting, securing PRC trade mark registrations as Basic Marks for IAs/IRs can be difficult.

Filing IAs/IRs via Hong Kong could be a safer way to mitigate the risk posed by the five-year dependency period, discussed in more detail below.

The potential risk of using the Madrid System

Under the Madrid System, if, during the first five years after the date of registration of the IR, the Basic Mark in the home country ceases to have effect for whatever reason, for example, it has been refused registration by the Office of Origin, or been successfully opposed or revoked, the entire IR and all of its designations will automatically be cancelled.

This five-year period is known as the "Dependency Period", and attacking an IR by attacking its Basic Mark is known as the "Central Attack".

A potential option for launching a Central Attack against IRs filed in Hong Kong would be filing non-use revocation against the Basic Mark in Hong Kong.

Under Hong Kong laws, a Hong Kong trade mark registration may be removed from the Register if the mark has not been genuinely used in Hong Kong by its owner or with the owner's consent in relation to the registered goods and/or services for a continuous period of three years.

This means there is likely to be a period of around two-three years during the Dependency Period when the Basic Mark is vulnerable to a non-use challenge⁷.

If the Basic Mark is revoked during this period, the entire IR and all of its national designations, which may have cost tens of thousands of dollars to file, will all fail.

As Hong Kong is, comparatively speaking, a relatively small market and much of its business is outward-facing, trade mark owners may, therefore, not have devoted resources to using trademarks locally or developing the local market.

This could be a potential vulnerability, so trade mark owners are advised to pay special attention to local use in Hong Kong if they want to take advantage of the Madrid System.

A Chinese Peculiarity

As Hong Kong is neither a sovereign state nor a qualified inter-governmental organization like the European Union, it cannot be a signatory to the Madrid Protocol on its own.

Instead, Hong Kong is joining the Madrid System via special arrangements between the Chinese government and WIPO, whereby China and Hong Kong are treated as the same contracting party under the Madrid Protocol.

As the Madrid Protocol contains a provision prohibiting a contracting party from extending IR protection to its own Office of Origin⁸, this creates a rather unique situation where Hong Kong IA/IR applicants cannot seek trade mark protection in China via the Madrid System, and vice versa⁹.

In other words, a Hong Kong trade mark owner will still need to file a separate PRC national trade mark application with the Chinese Trademarks Office to be protected in mainland China.

This anomaly was recognized by the Administration, which acknowledged it couldn't be resolved via the Madrid Protocol framework, which is an international agreement between sovereign states.

The Administration has pledged to explore possible domestic arrangements with mainland China, but this could be tricky to implement given the drastic difference in trade mark laws and landscape between Hong Kong and mainland China.

So far, no such proposal has been announced.

Footnotes

1. Consultation on the introduction of Madrid Protocol in Hong Kong began in 2014, ultimately resulting in the passing of the Trade Marks (Amendment) Ordinance 2020, which came into effect on 19 June 2020. The Trade Marks (Amendment) Ordinance 2020 empowers the Registrar of Trade Marks to make subsidiary rules and legislations to implement the Madrid Protocol, with the Registrar projecting that the Madrid Protocol will be implemented by 2022-2023.

2. The Administration has not however provided a timeline on when the preparatory work will be completed.

3. In other words, once the Madrid System is implemented in Hong Kong, Hong Kong trade mark owners can file international applications after they have filed a Hong Kong trade mark application with the Hong Kong Trade Marks Registry.

4. This includes Chinese citizens domiciled in mainland China.

5. This includes companies incorporated offshore (e.g. in Cayman Islands, BVI) but carries out business in Hong Kong.

6. There were 42.67 million valid trade mark registrations in mainland China as of the end of 2022, with 6.18 million registered in 2022.

7. Simultaneous to passing the subsidiary legislations for implementing the Madrid Protocol, the Administration will also be amending the Trade Mark Rules, with one of the aims being simplifying procedures for filing non-use revocation challenges.

8. Article 3bis of the Madrid Protocol: "The protection resulting from the international registration shall extend to any Contracting Party only at the request of the person who files the international application or who is the holder of the international registration. However, no such request can be made with respect to the Contracting Party whose Office is the Office of origin.". This means, for example, a US IA applicant cannot designate US for its own IA filing.

9. For the avoidance of doubt, a foreign IA/IR applicant (one not based in China or Hong Kong) can designate both China and Hong Kong.

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.