STARBUCKS v. SHANGHAI COPYCAT

The latest news report out of China marks a sweet victory for STARBUCKS in its legal battle with a Shanghai Coffee house--Shanghai Starbuck Coffee Ltd.

After the Shanghai 2nd Intermiediate Court's affirming its own decision to hold Shanghai Starbuck Coffee liable for trademark infringement and unfair competition on January 4,2007, Shanghai Starbuck hesitated to change its business name as ordered. The court followed through on its order and forced it to change its corporate name. After almost four months of game play, Shanghai Starbuck finally did change its name to "Shanghai Fang Yun Coffee Ltd." (上海芳韵咖啡馆有限公司）

This is yet another unprecedented step in Chinese court's progress in enforcing IP rights in China. The court not only handed down a victory to STARBUCKS but also saw through the actual enforcement of its own orders.

To help readers understand the history of the entire case, the following is my brief of this fascinating IP case in China.


In re STARBUCKS

Parties:
Plaintiffs / Appellees: Starbucks Co. and Shanghai Unified Coffee, Ltd.

Defendants/ Appellants: Shanghai Xing Bake Coffee, Ltd. and Shanghai Xing Bake Coffee, Ltd. Nanjing Road Branch.

Facts:

A. Plaintiffs:
Starbucks Co. registered the name and pictures associated with its trademark “STARBUCKS” in 1996 in P.R. China; it then registered 30 types of products associated with “STARBUCKS” in 1997; and it registered more services and products associated with the trademark “STARBUCKS” in China.

On February 1, 1999, Starbucks Co. first registered the Chinese version of Starbucks—“Xing Bake” [星巴克] in Taiwan, however it did not begin the registration of “Xing Bake” in China until 1998. While waiting for an approval for the registration of “Xing Bake”, Starbucks began its massive advertising with the trademark “STARBUCKS” and “Xing Bake”. In addition, the first Starbucks chain store began operation in Beijing in January 1999.

Starbucks Co. registered the “Xing Bake” [星巴克] trademark on December 28, 1999.

On March 23, 2000, Starbucks entered into a contract with co-plaintiff Shanghai Unified Coffee, allowing it the legal right to use the trademarks “STARBUCKS”, “Xing Bake” [星巴克], and other unregistered trademark.


B. Defendants:
While Starbucks Co.’s application for the trademark “Xing Bake” [星巴克] was pending, the defendants pre-registered the corporate name “Xing Bake” [星巴克] and gained approval. On March 9, 2000, Shanghai Xing Bake Coffee, Ltd. was incorporated, whose principal business is the sale of beverages, western style meals, and retail alcoholic drinks. And it formed its branch office, the co-defendant, on July 1, 2003.

They printed “Starbuck Coffee” on its price list, and they used characters “Xing Bake Coffee” in their store front and advertising billboards.

C. Lawsuit:
The plaintiffs sued the defendants for trademark infringement and unfair competition in the trial court, Shanghai Intermediary Court.

D. Procedural History:
The trial court held that the defendants violated the plaintiffs’ trademark rights and engaged in unfair competition.

On appeal, the Supreme Court of Shanghai affirmed and required the appellants to issue a public apology, pay damages and attorneys fees to the appellees.

On motion to reconsider by the appellants, the Supreme Court again affirmed.

Issues:
1. Whether the appellant’s successful pre-registration of the corporate name “Xing Bake” defeats the appellees’ claim of trademark infringement?

[Holding: No.]

2. Whether the appellant’s usage of the corporate name “Xing Bake” and “Starbuck Coffee” constitute unfair competition?

[Holding: Yes.]

Analysis:

1. Pre-registration of the corporate name “Xing Bake” [星巴克]
a. This pre-registration of corporate name constitutes subjective bad faith because the president of the future company Shanghai Xing Bake Coffee, Ltd. acknowledged to a major Chinese newspaper in 2003 that the trademark and name “Xing Bake” [星巴克] is very famous and the Starbucks Co. has been very successful. So he decided to race the Starbucks Co. to the corporation name registration office.

b. The trademarks “STARBUCKS” and “Xing Bake” [星巴克] have been widely known in China prior to the appellants’ corporate name registration.

c. Starbucks Co.’s usage of and attainment of relevant rights to “Xing Bake” [星巴克] are earlier than Shanghai Xing Bake Coffee, Ltd. Further, the appellant’s registration of the corporate name “Xing Bake” [星巴克] with the express knowledge that such registration was inconsistent with rights of others violated Trademark Law of China. And the appellant’s behavior violated the basic commercial ethics—equality, honesty and good faith.

2. Unfair Competition
a. The appellants’ use of “ Starbuck”, although different from the appellees’ trademark “STARBUCKS” constituted a confusion considering prominence and reputation of the appellees’ trademark. In addition, “Starbuck” is the key element of the appelees’ trademark.

b. The appellants’ pictorial emblems—one small circle inside a bigger one, green background color, and two stars embedded inside the overlapped area of the two circles generated confusion with the appellees’ trademark “STARBUCKS” and other registered trademarks.


Brad Luo’s Comments:

1. Why didn’t Starbucks Co. register the Chinese version of “STARBUCKS”-- “Xing Bake” [星巴克] at the same time it did in Taiwan? Why didn’t it register as soon as such a trade name became known in Chinese? It could have avoided all these litigation had it done so.

Coupled with Pfizer’s recent loss in a Chinese court for failing to be the first one to register the Chinese version of “Viagra”—“Weige” [伟哥] (meaning “Great Man”), the Chinese courts are speaking clearly and loudly—REGISTER YOUR TRADEMARKS EARLY, BOTH IN ENGLISH AND CHINESE. Also, it is important to know that the trademark registration regimes in mainland China, Taiwan, Hong Kong and Macau are independent of each other, and that a trademark owner needs to register the mark throughout the Greater China area.

2. It is settled law that China is a “first register first served” jurisdiction with respect to trademarks. However, the Supreme Court of Shanghai mentioned in dicta that Starbucks Co. did use the Chinese version “Xing Bake” [星巴克] first. Does this mean that courts in China will start looking into who first used a trademark or trade name? It is too early to tell. But the safest thing is to REGISTER FIRST!