An Authorization Letter or Letter of Authorization or Trademark / Brand Authorization Letter (for short “LoA”) is a commonly used document in China business practice.
Although a LoA seems to be a very simple legal document, yet its role, functions and effects are not always well understood by managers, companies, entrepreneurs doing business in China.
In this article we will try to explain what a LoA is, its most common use and the basic legal grounds on which it is based.
A LoA is a confirmation issued by the owner of a trademark. It is, therefore, a “unilateral” declaration, different from a contract that (which is a document expressing an agreement executed by two or more parties).
A LoA usually states that a certain trademark is authorized to be used by a certain company (or, sometimes, individual). To this extent a LoA usually includes the name of the trademark owner, the name of the authorized party, the trademark details, the duration, the authorized use and other particulars or limitations.
In our experience, LoAs are commonly required and issued in three main circumstances:
_[Export]: a LoA is issued in favor of a supplier that is going to export goods bearing a certain trademark;
_[Retail]: a LoA is issued to a distributor that is going to open a retail store in a shopping mall or department store;
_[Ecommerce]: a LoA is issued in favor a distributor that is going to open an online store.
Although possible from a legal point of view, it is unusual to issue a LoA without a term. The validity of LoAs is normally limited for a fixed time (which may be long or short) or up to a certain date. However, the validity of a LoA cannot be longer than the duration of the right granted on the trademark to which it relates.
Being a unilateral declaration a LoA can normally be revoked by the issuer, unless it was issued in an irrevocable form. The revocation of a LoA must be communicated to the recipient of the letter. It can, and actually should, also be communicated to the third parties mentioned in the letter (example: the management of the store or shopping mall for which the letter was issued).
Identification of the parties
It is important that both issuer and recipient are properly identified by using the correct name and address. We would suggest using the correct Chinese name and also attaching a business license of the relevant parties. A LoA should also bear the contact information of the issuer (which can be added in the header or footer of the LoA) for further identification of the parties involved.
Whilst the recipient of a LoA would tend to obtain a simple and potentially wide-open authorization stated in the letter, the issuer and owner of the relevant trademark is understandably more prone to specify the limitations to the use of the trademark in the letter. Normally, the document in which limitations to the use of a trademark are expressed in the licensing contract, whilst the main purpose of a LoA is to give external visibility to an underlying relationship.
However, if the licensing contract does not permit any “sub-licensing” of the trademark, it may be advisable to state such limitation in the LoA to avoid risks.
Licensing contracts and LoAs are, therefore, closely connected documents, the latter being somewhat the reflection of the former (in that they confirm the authorization to use the trademark).
Relevant substantial contract (trademark license)
Releasing a LoA not based on a preexisting contract is dangerous and not advisable, especially if no limitations are expressed in the letter. It is warmly recommended that a LoA be preceded by the negotiation and execution of a contract, which is usually a supply, distribution or, more often, a trademark licensing contract.
Trademarks registered abroad
Usually, LoAs are based on and issued in relation to trademarks that are registered in China. However, it may also happen that an LoAs are requested in relation to trademarks registered in other countries than China. For example, this may happen in commercial relationships involving of cross-border Ecommerce.
Trademark Licensing Recordation
Chinese Trademark Law also regulates the recordation on the trademark license stating that such recordation is “mandatory”. However, the Trademark Law only provides that “without (recordation) filing, the trademark licensing shall not be used against a bona fide third party”. In the practice, trademark license recordation is mostly considered as arbitrary. Yet we noticed in recent year that local MSA starting to enforce this regulation, by issuing “Notice of Minor Illegal Behaviors” to the licensee.
Joint Liability on Multiple Claims
Trademark Law imposes a supervising liability on the trademark owner for quality of commodity, and a civil claim on product quality issues might also extend to trademark owner. In such scenario, in the lack of trademark license contract and/or recordation, the Authorization Letter Trademark might constitute the evidence and/or the link between the two parties.
Management of LoAs
Given the importance of LoAs, issuers and trademark owners are recommended to establish a management system of their LoAs. Such management system may include adding serial numbers on the LoAs, compiling record forms of LoAs, publishing lists of authorized parties on their official website or official wechat account to allow third-party verification. Defining coherent contents of the LoAs, together with an orderly management of the same, contribute to a better protection of trademarks in China.