Unreported / Non-Citable
Background
Yi-Sheng Fang and Hechalou International, LLC (HINTL) sued Johanna Chen and Hechalou US, LLC (HUS) in the Central District of California for trademark infringement involving the “Hechalou” marks—a brand associated with a Taiwanese tea company. HUS had been using the Hechalou marks in commerce in the United States since March 2024.
The dispute turned on trademark priority. Under the Lanham Act, trademark ownership goes to the party that first uses the mark in commerce—not the first to conceive or register it. HUS argued that it had superior rights because it was the first to use the marks in the U.S. market. However, at the time HUS began using the marks, it was operating under a licensing agreement with HINTL’s parent corporation, HechalouTea Co., Ltd. That agreement explicitly recognized Fang as the mark owner and granted HUS only a limited license.
After the relationship soured, the licensing agreement was rescinded in April 2025. HUS then argued that because rescission renders a contract void from its inception under California law, the licensing agreement could not be used as a basis for HINTL’s priority claim. The district court rejected this argument and entered a preliminary injunction against HUS. HUS appealed.
The Court’s Holding
The Ninth Circuit affirmed. Writing for a unanimous panel, the court held that HUS’s use of the Hechalou marks while operating as HINTL’s licensee inured to the licensor’s benefit under 15 U.S.C. § 1055 of the Lanham Act. Under this well-established principle, a licensee acquires no independent ownership rights through use of the licensed marks.
The court rejected HUS’s rescission argument. While California law provides that rescission renders a contract “void ab initio, as if it never existed,” the court held that rescission does not change the historical fact that HUS’s first use of the marks between March 2024 and April 2025 occurred with the licensor’s permission. Because that initial use was as a licensee, it could not serve as the basis for an independent priority claim—regardless of whether the agreement was later unwound.
Key Takeaways
- Under the Lanham Act, a licensee’s use of a trademark in commerce inures to the benefit of the licensor, and the licensee acquires no ownership rights in the mark itself.
- Contract rescission under California law, even though it renders an agreement void from inception, does not retroactively alter trademark priority that was established during the period of licensed use.
- Parties who begin using a mark under a licensing agreement cannot later claim independent priority rights by arguing the agreement was rescinded.
- This case illustrates the critical importance of clear trademark ownership provisions in licensing agreements, particularly in cross-border business relationships.
Why It Matters
This decision provides useful guidance for businesses operating under trademark licenses in California. It makes clear that contract rescission—a common remedy when business relationships break down—has limits. A former licensee cannot use rescission as a backdoor to claim trademark priority that it never independently earned. The historical fact of licensed use remains, and that use still benefits the licensor for priority purposes.
For California practitioners advising on franchise, distribution, or licensing arrangements, this case underscores the importance of clearly documenting trademark ownership and ensuring that licensing agreements contain robust provisions addressing what happens to trademark rights if the relationship ends. It also reinforces that the first-use-in-commerce rule under the Lanham Act is evaluated based on the circumstances at the time of use, not retroactively altered by later contractual events.