Seven Steps to Protect Your Trademark in China

Out-law.com ran an article written by Alison Ross, which discusses "How to Protect Your Brand in China."  I thought the author did a very good and thorough job in advising mark owners on how they should go about protecting their marks in a comprehensive and proative way in China.

Here are the seven steps that Alison suggests as listed below:

1. Register trade marks early

2. Territorial registration

3. Register trade marks in English and Chinese

4. Mitigate risks through vigilance

5. Educate employees

6. Consider the applicable jurisdiction in disputes

7. Utilise available enforcement procedures

Read the full article here.

G2000 v. 2000: Do Fear the Domino Effect

In my previous post, I indicated that G2000 has a much bigger problem ahead. Here is why.

Only one issue might be on appeal at the Zhejiang Higher People’s Court --the 20 million Yuan in damages for Plaintiff. No matter how the Court decides, Defendant G2000 will desperately want another bite at the apple regarding the validity of Plaintiff’s “2000 ” mark, but that is just a fanciful wish. In Chinese trademark litigations, as well as other civil trials, parties only get one appeal, which already occurred at the Beijing Higher People’s Court. Second, Beijing 1st Intermediate People’s Court and the Beijing Higher People’s Court have the exclusive jurisdiction on administrative trademark cases, which renders Defendant’s fanciful wish even more distant from reality. In short, Plaintiff’s “2000 ” mark is valid for the goods/services registered for, and that is written in the stone as of now, unless Plaintiff somehow forfeits it at a later date. But that is not the concern here.

So, what do all these mean to G2000, the big Hong Kong fashion company, the successful and expanding international franchisor?

IT IS ALL BAD NEWS for a number of reasons!

First, obviously, G2000 will be ordered to cease the use of the “G2000” mark on its ties, socks, belts, and scarves. Well, relatively speaking, this is no big deal since what franchisees can do to G2000 is a tremendous headache. Since trademark, in most cases, is the core of a franchise system, uncertainty in the trademark casts a very long shadow on the franchise system itself. If the G2000 mark violates the rights of another with respect to the types of goods complained of, G2000’s franchise system suffers a major loss in its family of trademarks, and that translates into a major loss in revenues.

Second, Chinese franchisees can sue G2000 for violating the Chinese franchise regulations. Pursuant to the Regulations on the Administration of Commercial Franchise, a franchisor must disclose to prospective franchisees the status of its intellectual property, and its disclosures must be complete, accurate, and truthful. See Arts. 22-23. If in the unfortunate event that G2000 did not disclaim or disclose the status of its litigations on the “G2000” mark, it could find itself in a heap of trouble with the Chinese franchise regulators (AICs, and the Ministry of Commerce). The administrative penalties for violation of these Regulations can be substantial. See id., Art. 24-29. What is worse, franchisees could sue G2000 for breach of contract, fraud, and repudiation of the contract because of the failure to disclose. See id.

Third, as part of the domino effect (if number 2, above, occurs), G2000’s entire franchise system in China will be in jeopardy. It will have to deal with possible lawsuits from its some 436 franchisees. In addition, the named co-defendants won’t want to share the blame for the joint and several liability in the original law suit. Furthermore, G2000’s image, no matter how bright and attractive, will have been tarnished not only among its consumers, but more importantly among prospective franchisees. Growth and expansion in China through franchising, the fastest growing method of product distribution in China, will suffer at the minimum a slow down.

As one can see, one big mistake, especially in a company’s overall IP strategies in China, could have far-reaching impact on its bottom line. In this age of globalization and commercialization, intellectual property, trademark in this case, is of utter importance. Without a comprehensive, proactive, and sound IP strategy, franchisors march into China at their own peril.

G2000 v. 2000: Is 20 Million Yuan Enough for Trademark Infringement?

I thought I have blogged about almost everything interesting on Chinese Trademark Law. But, I was wrong. In the case of G2000 v. 2000, the Hangzhou Intermediate People’s Court showed Chinese Trademark Law is still more interesting than the Leifeng Pagoda in Hangzhou, and the Hong Kong star sex scandal.

(Disclaimer: After a reasonable search, I have not been able to locate the actual opinion of the Court. The content of this post is based on multiple news sources, here and here. Surprisingly, the Hangzhou Intermediate Court does not have a website while other intermediate courts of lesser importance in Zhejiang Province have.)

First, this is a somewhat complicated trademark infringement case involving one plaintiff and multiple defendants. And the defendants have appealed the decision to the Zhejiang Higher People’s Court; therefore, the outcome of the case as laid down below could change, depending upon the Court’s prospective decision.

The Parties:
Plaintiff is an individual, Mr. Zhao Hua, in the business of manufacturing and selling socks, ties, and scarves. He acquired by assignment and still owns the trademark “2000” (Registration # 1094814), which was first registered by the original owner in 1997. And it was registered for Class 25 Goods (Clothing, footwear, headgear), including the following categories: socks, gloves, scarves, ties, belts, sashes, and veils.

Defendants:
Defendant is G2000 (纵横二千集团), a Hong Kong company, in the fashion/clothing business with corporate and franchised units scattered in many Asian countries/regions. It manufactures and sells its full lines of products including casual, formal and informal clothing and accessories for men and women. In addition, it also franchises its business concepts internationally.

In 1992, Defendant registered the “G2000” mark in China for use covering clothing, shoes and headwear. (carefully note the different types of goods registered for as compared to those registered for by the Plaintiff under its 2000 mark.)

In 1997, Defendant registered the same G2000 mark for handbags, shopping bags, and straps (手袋、购物袋、背带等).

In 2002, Defendant registered the G2 mark for clothing, neckties, socks, scarves, belts, etc. (服装、领带、袜、围巾、腰带等)

In May 2002, Defendant filed an action in the China Trademark Office to cancel plaintiff’s trademark (2000), then it unsuccessfully appealed to the China Trademark Review and Adjudication Board (the “TRAB”). Finally, it brought an administrative action pursuant to Article 33 of Chinese Trademark Law 2001 in the Beijing First Intermediate People’s Court, challenging the TRAB’s decision, but to no avail. On final appeal in 2005, the Beijing Higher People’s Court affirmed the administrative decision, holding that Plaintiff’s mark is valid for the types of goods so registered under Nice 25 Class.

Co-defendants are Shanghai Heyuan Clothing, Ltd. (上海和缘服装有限公司) and Guangzhou Qianying Clothing, Ltd. (广州千盈服装有限公司), and Zhejiang Yintai Department Store, Ltd. (浙江银泰百货有限公司), all of which are Defendant’s franchisees in China (or they might be area developers, or sub-franchisors. The exact legal relationship between co-defendants and the defendant is not clear to me.).

Brief Facts:

Facts of this legal saga lasting more than eight years are complicated. Back in 2000, Plaintiff sent a demand letter (cease & desist letter) to Defendant and co-defendant Shanghai Heyuan Clothing, Ltd., alleging trademark infringement with respect to the use of G2000 in connection with their sale of socks, gloves, ties and scarves. Between 2000 and 2006, Plaintiff also sought redress by filing multiple complaints with local Administration Industry and Commerce (“AIC”) in Beijing, Guangzhou, and other cities, but apparently achieved little (Doesn’t this make you think twice about the efficacy of AICs?). And to gather evidence, in the span of 10 months from May 2005 to March 2006, Plaintiff purchased allegedly infringing goods at various stores and locations sold by Defendant’s/co-defendants’ G2000 specialty units in Beijing, Shanghai, Hangzhou, Ningbo, and other places.

Plaintiff, I assume, filed this action soon after the Beijing Higher People’s Court handed down its decision against G2000 in 2005. The timing was pretty good on the part of the Plaintiff since the Beijing Court’s decision eliminated some uncertainty as to the validity of his trademark rights in 2000 for the goods registered for.

Additionally, it is important to note that Defendant operates a widespread network of company-owned and franchised units (reportedly 436 units in China), selling goods under the G2000 trademark. Of course, “goods” as referred to include those types that Plaintiff was seeking for relief.

Issue:

Whether Defendants’ use of the G2000 trademark for ties, socks, belts, and scarves (领带、袜子、腰带、围巾) caused confusion with Plaintiff’s goods bearing the 2000 mark among consumers?

Holding:
The Court held that Defendants infringed on Plaintiff’s rights, but for lack of access, no detailed analysis is available (Chinese courts, as do many courts in civil law jurisdictions, do not provide detailed analysis for their decisions, unlike their counterparts in common law jurisdictions. Exceptions, like the Starbucks v. Shanghai Copycat, do exist.).

My Thoughts & Reactions:

The court’s award of damages in this case is intriguing. Plaintiff pleaded for damages totaling 20,000,000 Yuan (that is right, 20 million). And the Court ordered the Defendants to turn over the figures for total sales, profits, etc. for the goods complained of in the relevant period of time, but the Defendant failed to do so. Generally, Chinese courts award damages to a plaintiff in an IP infringement case to the extent of a defendant’s illegal profits as proven, rather than losses sustained by the plaintiff. See Kate C. Hunter, Here There Be Pirates: How China is Meeting Its IP Enforcement Obligations Under TRIPS, 8 San Diego Int’l L. J. 523, 547. In addition, if the illegal profits or plaintiff’s losses cannot be accurately ascertained, the statutory maximum award of damages is 500,000 Yuan. See Chinese Trademark Law, Art. 56. Therefore, in an act rarely seen in Chinese courts, the Court awarded a whopping 20 million Yuan to the Plaintiff. Further, given the intertwined relationships among the Defendants, the Court held them jointly and severally liable. (for more discussion on awarding damages, please visit China Law Blog's post here.)

Obtaining sufficient damages in IP infringement cases is of paramount importance, if not the paramount one. After all, without proper compensation, a plaintiff’s glorious victory in the people’s courts can only be a “feel-good” occurrence, without much substance. (However, that is not to say that winning is not important.) Perspective and purpose affect one’s reactions to a major score in the courts. If a plaintiff’s main goal is to make a statement to actual and prospective infringers, and to enjoin current infringements, a win deserves much celebration. However, if a plaintiff’s main goal is to seek redress and obtain monetary and equitable relief, a win unsupported with lost profits waters down sweetness.

On appeal, the bone of contention, as I expect, would be that award of 20 million in damages to plaintiff. Of course, Defendants will try to set aside that amount, citing that it exceeds the statutory maximum; whereas, the plaintiff might argue that the 20 million award is appropriate given the scope and extent of violations, in addition to their failure to turn over documents within their control to ascertain the exact amount of damages.

Insofar as infringement is considered, it is a classic example of reverse confusion issue. According to Joel R. Feldman,

[i]n reverse confusion cases, a junior user (defendant) adopts a mark already in use by the senior user (plaintiff). However, the junior user dwarfs the senior user through advertising and other expenditures used to promote the mark. While the senior user has a “property” interest in protecting the mark, the public may benefit more from the junior user’s adoption of the mark because they only identify the mark with the junior user and are not confused by the dual uses of the mark.

Like any trademark infringement case, the key for Plaintiff is to establish confusion. Here, the fact is that the Defendant registered the G2000 before Plaintiff (his predecessor) registered the “2000” mark, but Defendant’s mistake was not to register its mark to cover more types of goods, specifically ties, socks, belts, and scarves. Instead, it only registered it for clothing, shoes and headwear. It is very easy to see what happened here. As Defendants’ business grew and expanded in China, it wanted to use the mark for ties, socks, belts and so forth, but found out, albeit regrettably, that it was too late to register. However, it was too lucrative not to go ahead with the expansion into more products with the coveted and profitable “G2000” mark. The fact it filed an objection/cancellation action with the Trademark Office speaks for itself. Although one might contend that plaintiff might have had ulterior motives when it registered the “2000” for the categories of goods under Class 25, plaintiff (or its predecessor) did so within the bounds of the Chinese Trademark Law at that time. And it did so because Defendant had failed to obtain trademark rights large and extensive enough to exclude others like the plaintiff from using the “2000 ” mark for any reason. And it did so, arguably, on account of Defendant’s failure to develop a comprehensive IP strategy before G2000 became highly profitable.

On the topic of a comprehensive IP strategy, G2000, I think, failed miserably. In addition to what I discussed above, it relied too heavily on the legal approach for its overall IP enforcement/strategy. Once its opposition/cancellation action failed through the entire legal process, it should not have pretended that “2000” problem does not exist. (This is simply for the sake of argument since I am assuming that Defendants did not attempt to buy out Plaintiff.) Should it have employed other means and strategies to make this headache go away? Should it have reached some kind of settlement agreement with respect to damages, or the use of the “2000” / “G2000” mark?

I think it should have done something more proactive to avoid a much, much bigger problem that is waiting for G2000. And if the appeal gets affirmed, or vacated on the issue of damages (assuming that is the only issue on appeal), the legal standing of Defendant’s “G2000” mark is still in doubt with respect to the categories of goods in question, thus jeopardizing its entire franchise system in China.

Next post will discuss the impact of this case on G2000’s franchise system.

The Supreme People's Court's 2-18-08 Judicial Explanation on Trademarks, Enterprise Names, and Other Prior Existing Rights

(The following is my attempt at translating the SPC's latest Judicial Explanation regarding the issues/conflicts between registered trademarks, enterprise names and other prior existing rights. If I have mis-interpreted any part of the Judicial Explanation, please kindly point out in your comments. Thanks! In addition, I will write a following post on the impact of this Judicial Interpretation.)


People's Republic of China The Supreme People's Court Notice
Law Explanation (Fashi)(2008)(3) Provisions on Several Issues in Hearing Cases Regarding the Conflict between Prior Existing Civil Rights and Registered Trademarks & Enterprise Names adopted on February 18, 2008 by the Supreme People's Court Judicial Committee meeting No. 1444. It is hereby announced that it will go into effect on March 1, 2008.

February 20, 2008中华人民共和国
最高人民法院公告
法释〔2008〕3号

《最高人民法院关于审理注册商标、企业名称与在先权利冲突的民事纠纷案件若干问题的规定》已于2008年2月18日由最高人民法院审判委员会第1444次会议通过。现予公布，自2008年3月1日起施行。

二○○八年二月十八日

To correctly resolve civil disputes involving the conflict between registered trademarks & business names and prior existing civil rights, these provisions are hereby instituted in accordance with the PRC Civil Procedure Law, General Principles of Civil Law, the PRC Trademark Law and the PRC Anti-Unfair Competition Law, as well as trial practices.

为正确审理注册商标、企业名称与在先权利冲突的民事纠纷案件，根据《中华人民共和国民事诉讼法》、《中华人民共和国民法通则》、《中华人民共和国商标法》和《中华人民共和国反不正当竞争法》等法律的规定,结合审判实践，制定本规定。

Article One Provided that requirements under Article 108 of the PRC Civil Procedure Law are met, People’s Court should accept cases filed by plaintiffs on the basis that defendants’ use of letters, graphics in defendants’ registered mark violated Plaintiffs’ existing copyright, patent right in packaging design, rights in business names, etc.

Where Plaintiff brings a lawsuit on the ground that another’s registered mark used in approved categories goods/services are similar or identical to her mark, People’s court should refer plaintiff to relevant administrative bodies for resolution, in accordance with Article 111 (3). However, where plaintiff bring a lawsuit on the grounds that another’s use of its registered mark is beyond the categories of goods/services registered for, or where another uses a registered mark by transforming its distinctive features, disassembling it or re-configuring it, the people’s court shall accept such cases.


第一条 原告以他人注册商标使用的文字、图形等侵犯其著作权、外观设计专利权、企业名称权等在先权利为由提起诉讼，符合民事诉讼法第一百零八条规定的，人民法院应当受理。

　　原告以他人使用在核定商品上的注册商标与其在先的注册商标相同或者近似为由提起诉讼的，人民法院应当根据民事诉讼法第一百一十一条第（三）项的规定，告知原告向有关行政主管机关申请解决。但原告以他人超出核定商品的范围或者以改变显著特征、拆分、组合等方式使用的注册商标，与其注册商标相同或者近似为由提起诉讼的，人民法院应当受理。

Article Two Where Plaintiff brings lawsuits, pursuant to PRC Anti Unfair Competition Law Article 5 (3), on the ground that another’s use of a business name is same or similar to her prior existing business name, which use is sufficient to cause consumer confusion as to the source of the goods/service, the people’s courts should accept such cases.

原告以他人企业名称与其在先的企业名称相同或者近似，足以使相关公众对其商品的来源产生混淆，违反反不正当竞争法第五条第（三）项的规定为由提起诉讼，符合民事诉讼法第一百零八条规定的，人民法院应当受理。

Article Three The people's court shall, in accordance with the plaintiff's claim and the nature of controversial legal relationship under civil law, and in accordance with the Civil Causes of Action (Provisional), ascertain the cause of the conflict in civil disputes between registered trademarks or enterprises and prior existing civil rights, and apply appropriate law accordingly.


第三条 人民法院应当根据原告的诉讼请求和争议民事法律关系的性质，按照《民事案件案由规定（试行）》，确定注册商标或者企业名称与在先权利冲突的民事纠纷案件的案由，并适用相应的法律。

Article Four Where the use enterprise name complained of infringe on the exclusive right of registered marks, or constitute unfair competition, the people's court, in accordance with the plaintiff's petition and specific circumstances of the case, may assign civil liabilities, such as enjoining defendant from using such name, correcting such use, etc.

第四条 被诉企业名称侵犯注册商标专用权或者构成不正当竞争的，人民法院可以根据原告的诉讼请求和案件具体情况，确定被告承担停止使用、规范使用等民事责任。



　　

“China Trademark Update: Has Your Distributor (Representative, Manufacturer) in China Registered your Mark?”

Mr. Paul Jones, an international lawyer based in Toronto, recently wrote a piece on Chinese Trademark Law. Basing his analysis on a trademark registration/opposition case that went all the way to the Supreme Court of China, he posits that foreign companies that “are doing, or planning on doing, business in China, the best solution is to register lots of your early on.” Because I am in my final exams, I have obtained permission from Paul to post his writing in its entirety, without my personal comments.

Unfortunately many foreign companies do not register their trademarks in China promptly. Sometimes they do not register them even after they have commenced selling goods in China through a sales representative. More than one sales representative or distributor has noticed this and registered the mark for themselves. China is a “first-to-file” jurisdiction.

Article 15 of China’s Trademark Law (中华人民共和国商标法) provides that:“第十五条 未经授权，代理人或者代表人以自己的名义将被代理人或者被代表 的商标进行注册，被代理人或者被代表人提出异议的，不予注册并禁止使用.”

“Article 15 Where any agent or representative registers, in its or his own name, the trademark of a person for whom it or he acts as the agent or representative without authorization therefrom, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use.”

The Chinese terms 代理人 (dai li ren - agent) or 代表人 (dai biao ren -representative) have been interpreted narrowly to mean someone who has an obligation to a principal. In the case of重庆正通药业有限公司 诉国家工商行政管理总局商标评审委员会 和四川华蜀动物药业有限公司 ( Chongqing Zhengtong Pharmaceuticals Ltd. v. State Administration for Industry & Commerce Trademark Review Board and Sichuan Animal Pharmaceutical Ltd) 最高人民法院, (2007）行提字第2号, 二○○七年八月三十一日, Sichuan Animal had entered into a sales agreement with Zhengtong Pharmaceutical with respect to certain veterinary medicines. Shortly afterward it applied to register the trademark under which the goods would be sold. Two years later the agreement was terminated but Sichuan Animal continued using the mark that it had registered, presumably by obtaining its products from another source.

Zhengtong Pharmaceuticals brought an administrative action under Article 15 to have the registration of Sichuan Animal expunged. They won in the Trademarks Review Board, and in the Beijing No. 1 Intermediate People’s Court based on what was considered to be a principal-agent relationship between Zhengtong Pharmaceutical as principal and Sichuan Animal as agent.

But in the Beijing Higher People’s Court Sichuan Animal argued that there was no principal-agent relationship, rather simply a co-operative sales agreement. Therefore the exemption to the “first-to-file” rule in Article 15 did not apply. Finally Sichuan Animal won at this level.

Normally there is no appeal from the decision of a Higher People’s Court, but in this case Zhengtong Pharmaceutical managed to obtain leave to appeal to the Supreme People’s Court (“SPC”). Unlike the supreme courts in common law systems, China’s Supreme Court rarely hears cases and primarily influences the development of the law and the legal system through written interpretations. However the SPC wanted to make a statement here.

In a decision dated August 31, 2007, and released in mid-September, the SPC looked at the record of the legislative intent and the provisions of the relevant international treaties to determine the meaning. It read the wording of Article 15 as representing China’s obligations under Article 6 septies of the Paris Convention. Although this Section uses the words “agent or representative” the international practice is to interpret these words broadly to include distributors and sales agents and similar people. The SPC took note of this international practice and also took into account the growing phenomenon in China of the practice of distributors and others registering the marks of foreign companies. Finally the manufacturer, Zhengtong Pharmaceutical, prevailed.

Link to the decision in Chinese: https://webmail.smu.edu/exchweb/bin/redir.asp?URL=http://ipr.chinacourt.org/public/detail_sfws.php?id=11423

It should be noted however that the SPC required the relationship to be one of “special sales agent” or exclusive distributor. And there is no mention of original equipment manufacturers, who have also been known to register the trademarks associated with the company for whom they are manufacturing the export goods.

If you are doing, or planning on doing, business in China, the best solution is to register lots of your early on. In November I was part of a panel in a seminar put on by the U.S. Department of Commerce on developing a brand protection strategy in China. The case study that the Department of Commerce prepared for our discussion involved just this scenario. In was helpful to point out this recent decision by the Supreme People’s Court.

With that, “I Pronounce You Famous and Well-known!”

Your trademark, is probably one of your most valuable assets. It rings more true if your mark has established remarkable secondary meaning in relevant market where you sell your product or service with that mark. In one of my past posts, I discussed Chinese law on trademark dilution, which is the exclusive method of protecting a famous trademark in China in terms of invoking legal actions.

This post primarily focuses on the legal standard for what constitutes a famous or well-known trademark in China. A trademark owner needs to go no further than China’s Trademark Law (2001), Implementing Regulations of Trademark Law (2002) (promulgated by the State Council) (“Implementing Regulations”), and the Interim Measures for the Recognition and Management of Well-Known Trademarks (1998) (promulgated by the State Administration of Industry and Commerce) (“Interim Measures”) [Chinese only].

According to the Interim Measures, the Trademark Office (part of the State Administration of Industry and Commerce) has the exclusive jurisdiction over the registration and management of well-known trademarks. See Article Three. To register a well-known trademark in China, an applicant must show evidence as follows:

1. the volume of product sales in connection with the registering trademark in China;
2. the main economic indicators associated with the products bearing the trademark (production volume, sales volume, profit, market shares)and comparative ranking of the products in the Chinese market;
3. the sales volume of products in connection with the trademark in foreign countries and regions;
4. the amount of advertising related to the mark;
5. the earliest date and length of continuous use of the trademark;
6. the registration status of the mark in China and elsewhere; and
7. other documentation establishing the famousness of the mark.

(The translation is mine.)

By requiring relevant market data of the mark in China, the Interim Measures set a relatively high bar in recognizing a well-known trademark prior to China’s assent to the WTO.

The amended Trademark Law (2001) and the subsequent Implementing Regulations mark a change in famous trademark law. Specifically, the Trademark Law does not stipulate that the Trademark Office has the exclusive jurisdiction over the registration and management of famous trademarks even though the Trademark office still has the exclusive administrative jurisdiction over the registration of trademarks in China. Of course, this leaves open the question of whether a foreign trademark owner can utilize the People’s court to ascertain whether a mark is famous in China (will be addressed later).

Pursuant to the Trademark Law, in order to get a “well-known” status for your trademark, a registrant must show the Trademark Office:

1. reputation of the mark to the relevant public;
2. time for continued use of the mark;
3. consecutive time, extent and geographical area of advertisement of the mark;
4. records of protection of the mark as a well-known mark; and
5. any other factors relevant to the reputation of the mark.

See Art. 14; Implementing Regulations, Art. 5.

In comparison, the amended Trademark Law covertly removes the requirements that the mark be famous inside China, with the exception of item one where the reputation of the mark is tied to the “relevant public.” This change, to a certain extent, reflects a general shift of attitude toward foreign famous trademarks. Of course, to register a famous mark in China, one still has to go through the normal procedures of hiring a local trademark agent, and present the requisite proof.

With that said, the next question, naturally, would be whether one has to register a mark with the Trademark Office in order to get the corresponding protection afforded to a famous mark. It is a fair question. In China, a trademark owner has two courses of action against infringement: through a local bureau of industry and commerce; or through a local People’s court.

Based on my observation, an owner can get a “famous” status for his mark. In Starbucks v. Shanghai Copycat, Starbucks Co. did exactly that, and the court was willing to hand out that label to it. In fact, a search on the well-known trademarks database in the China Trademark Office website revealed that Starbucks Co. has not registered its mark as a famous one. Absent errors in the database, Starbucks Co. is relying on the Shanghai court’s ruling as an official declaration of the well-known status for the “Starbucks” mark.

Should you do as Starbucks did? If you don’t mind paying high litigation cost, and if you have a stomach for unpredictability, copy what Starbucks did.

Chinese Anti-Dilution Law: Are You Sufficiently Confused?

From Ferrari’s loss to Levi’s victory in their trademark lawsuits in China, one of the common elements, as I see it, is the confusion about the Chinese law on trademark dilution. Maybe it is the Paris Convention and TRIPS Agreement in connection with the Chinese Trademark Law that caused the bewilderment. Once you see the interplay among the three, Chinese anti-dilution law will look pretty clear.

First, dilution goes hand in hand with famous or well-known trademarks. The basic purpose behind anti-dilution is to prevent “free ride” by some of famous trademarks, either nationally or internationally. For example, without anti-dilution law, someone can just take the “Coca Cola” mark and use it to market his/her cars, cigarettes, or clothes simple because of consumer’s identification with the famous brand. Over a certain period of time, the fear is that, without restraining, such use of a mark will dilute its ability to assist consumers in identifying products with their sources.

The Paris Convention is an international treaty that protects intellectual properties. Member countries are supposed to protect a famous trademark of another country. Article 6bis provides that if the legislation of a member allows, such country should prevent a well-known mark of a member country (registered or unregistered) from being used in such a way that “constitutes a reproduction, an imitation, or a translation, liable to create confusion”. It further states that protection of the subject trademark is limited to its being used for identical or similar goods.

TRIPS Agreement expands protection of famous trademarks in two ways. First, the Paris Convention Article 6bis protection applies also to service marks. Secondly, it applies to prohibit the use of a registered famous trademark from being used in another country in dissimilar goods and services.

Article 16
3. Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to goods or services which are not similar to those in respect of which a trademark is registered, provided that use of that trademark in relation to those goods or services would indicate a connection between those goods or services and the owner of the
registered trademark and provided that the interests of the owner of the registered trademark are likely to be damaged by such use.

China is signatory to both treaties, and the Chinese Trademark Law (2001) reflects China’s identification with its obligations under the two treaties. Article 13 prevents anyone from using a registered well-known trademark in China for either similar or dissimilar goods or services.

Article 13 Where a trademark in respect of which the application for registration is filed for use for identical or similar goods is a reproduction, imitation or translation of another person's trademark not registered in China and likely to cause confusion, it shall be rejected for registration and prohibited from use. Where a trademark in respect of which the application for registration is filed for use for non-identical or dissimilar goods is a reproduction, imitation or translation of the well-known mark of another person that has been registered in China, misleads the pub1ic and is likely to create prejudice to the interests of the well-known mark registrant, it shall be rejected for registration and prohibited from use.

So, let’s put all of the above in the context of the Ferrari’s horse symbol case that I wrote about. It should make things look pretty clear.

Under the Paris Convention, the Ferrari horse symbol is not registered in China, and the alleged Chinese infringer tried to register the horse symbol for use in clothing, which is a dissimilar to Ferrari sports cars. The Chinese Trademark Law protects unregistered foreign trademarks only to the extent that it is being infringed for use in similar or like goods or services. Therefore, Ferrari's argument that its unregistered famous trademark enjoys protection beyond the automotible industry failed.

Under the TRIPS Agreement, the Ferrari horse symbol still does not get protection in China since it has not been registered as a famous trademark there.

A short lesson here: if you reckon your trademark is famous in your own country (either registered or unregistered), and you don’t want anyone in China to use your trademark in any goods or services, you must obtain a famous trademark registration with the Chinese Trademark Office in order to get protection.

Even more simply--no registration; no easy protection. If you do not believe me, go ask Ferrari.

Levi’s Looking Pretty in Chinese Court Despite Painful Lesson

As Dan Harris stated repeatedly in his China Law Blog (“CLB”), Chinese trademark law is “simple and effective” when enforced. Clothing giant Levi Strauss & Co.’s (“Levi’s Co.) recent victory in a Shanghai court would further bolster Dan’s averment, but its triumph came with a unique twist. So let’s just call the victory “bitter sweet.”

Levi’s Co. is known for its jeans in America and beyond. (My first pair of jeans in the U.S was a pair of blue Levi’s, which still go well with my boots.) In 1974, Levi’s Co. registered its LEVI’S trademark with the Chinese Trademark Office and has kept the registration effective by renewing and adding more categories of clothing related to the trademark since then.

Levi’s Co. entered into a distribution relationship with Shanghai Beizi Clothing Company, Ltd. (“Beizi Clothing”) some time before 2005. (I have not been able to verify the exact starting date.) And Beizi Clothing was to be a non-exclusive distributor of Levi’s products, probably in Shanghai (for lack of information, this fact might be a little off.).

In June 2006, a branch office of the Shanghai Administration of Industry & Commerce (“SHAIC”) caught Beizi red-handed in selling counterfeit Levi’s jeans. After investigation, the SHAIC issued an administrative order, penalizing it for selling counterfeit products. Soon after, Levi’s Co. woke up from this nightmare and sued for trademark infringement in the Shanghai 1st Intermediate People’s Court. Levi’s Co. asked for an injunction, civil damages in the amount of 500,000 yuan, and a public apology in the Morning News (a local newspaper).

The Court hammered Beizi Clothing, taking the SHAIC’s administrative order as a prima facie case for trademark infringement. With some feeble attempts to challenge the “famousness” of Levi’s brand, Beizi Clothing was ordered to cease all infringement activities, pay 100,000 yuan, and issued a public apology.

Sounds like a slam dunk for Levi’s Co.? Right! Easy case. But doesn’t this whole thing bother anyone? By now, you might be thinking what I am thinking now—“What the hell was Levi’s Co. thinking in picking this unscrupulous distributor?”

Besides that thought, a few other Chinese idioms keep echoing in my head: “引狼入室” and “同床异梦”.

Let me explain. The first idiom literally means leading a wolf into your bedroom, and if you do that you might have to face the consequences of a devious company (pun intended.) The second one gets even better, which means sleeping in the same bed but with different dreams. It applies to relationships where parties only superficially cooperate, while they actually possess different visions about their relationship.

Ok, I know that Levi Strauss & Co. is incorporated in Delaware and headquartered in San Francisco, and that it is unfair for me to expect it to know traditional Chinese wisdom. But, could Levi’s Co. have done a better job of choosing a local Chinese partner? I think so and I run the risk of Monday morning quarterbacking (hindsight wisdom). However, for the sake of good corporate governance, any foreign company selecting partners in China should bear in mind choosing your partner carefully. Find yourself a friend, not a foe. To do that, you got to abide by Ten Commandments for doing business in China as compiled by ChinaSolved.

Ferrari is Famous, But Is the Horse Too?

The Beijing 1st Intermediate Court was called to decided whether the picture of the horse corresponding to the Ferrari trademark is a famous trademark. And it decided that it is not, therefore not entitled to protection that the Ferrari trademark has in China.

Ferrari’s “horsing” saga with a Chinese trademark registrant started back in 1996. A Chinese department in Guangzhou, White Clouds Sports Merchandise (“While Clouds”), sought to register a trademark with a picture of a horse for use in selling a line of clothing on April 1, 1995. When the Chinese Trademark Office published the prospective trademark for public opposition on September 7, 1996, Ferrari filed a timely opposition to the registration, claiming that the trademark at issue would cause confusion among consumers with respect to the emblematic Ferrari horse. The Chinese Trademark Office did not buy Ferrari’s argument, citing that White Clouds registered the graphic of the horse first.

Ferrari appealed to the trademark review board. It advanced the argument that both the Ferrari with the horse graphic trademark and the horse graphic alone constitute famous trademarks; therefore, the registration sought by the opponent, if granted, would cause confusion among consumers. Unfortunately to Ferrari, the review board affirmed the trademark office’s decision. Ferrari then brought its battle to the people’s court for relief.

In the Court, Ferrari averred that the Ferrari, along with the graphic of the horse which is closely tied to the Ferrari mark, should enjoy protection as famous trademarks because the Ferrari trademark has become well known around the world, and it has also gained considerable familiarity among Chinese consumers. However, the Court flatly rejected Ferrari’s claim of fame for its heroic horsy. It states three reasons:
1. Ferrari failed to provide evidence of the use and advertisement relative to the trademark at issue, meaning the “horse.” Ferrari proffered evidence supporting the famous status of a related trademark—“Ferrari”, but that is not sufficient to prove that that the mark in question is entitled to protection as requested.
2. China has established an independent system to recognize famous trademarks. The recognition of “Ferrari” as a famous trademark does not equate to the recognition of the horse graphic.
3. The focal issue in the suit is not the Ferrari trademark; rather it is the “horse” graphic. The “horse” cannot be bootstrapped to the Ferrari trademark for like protection.

After more than ten years of trekking in the Chinese legal system, Ferrari got a disappointing verdict. Hopefully, Ferrari got something else too, a lesson to register its trademark, related trademarks as early as possible. Oh, do some advertising on the horse as well, in China!

Wahaha Goes on the Offensive

On July 2, 2007, the chief of Wahaha Group, Zong Qinghou, announced in a press conference that Wahaha would sue three foreign members on the Danon-Wahaha joint venture companies' board within 30 days.

In the past few months since May 2007, Wahaha has been busy defending itself against Danon’s assault on several fronts. On May 9, Danon submitted its disputes with Wahaha Group and Zong Qinghou to arbitration in Stockholm; on June 4, Danon sued two companies managed by Zong’s wife and daughter in a California state court. On June 18, Zong feebly pulled a punch by declaring the trademark transfer agreement with Danon invalid, and submitted that to the Hangzhou Arbitration Commission.

Then Wahaha Group hired the biggest law firm in China -- King & Wood to pull off something big. If Wahaha does what it said, it will file a derivative action against 3 foreign board members: Emmanuel Faber, Francois Caquelin, Qing Peng (秦鹏). The thrust of its allegations is that these three Danon-Wahaha joint venture board members violated Company Law of the P. R. China. It will, allegedly, claim that the defendants violated their duty to be loyal to the joint venture companies as board members by serving on competitor companies’ boards. Wahaha reportedly would seek damages in the amount of 1 million yuan.

If this is the only substantive blaming stone that Wahaha and Zong have got to cast at Danon, the legal ramifications of this derivative action for Danon is less than what the Chinese media have done. Given nationalistic sentiments against Danon (the “foreign devil”), many distributors of Danon-Wahaha joint venture companies have ceased to sell and distribute their products. Legal fees and judicial assessment of damages against Danon would do far less damages than consumer sentiments. After all, that is what ultimately makes or breaks a company.

The saga continues; stay tuned.

Licensing Your Trademark in China: One More Thing to Remember

I am on a “trademark” crusade, so I want to beat this dead horse of a topic again.

If you have not registered your trademark in China (the Chinese translation of your mark, including Chinese characters, pinyin, any proprietary pictures, graphics, etc.), you should not even consider signing any licensing agreement at all. Many China bloggers have repeatedly discussed this topic, and I loathe restating the obvious.

Assuming you have done your homework and registered your trademark with the Chinese Trademark Office (“CTMO”), you still have one more regulatory hoop to jump through—submit your licensing agreement to the CTMO and local Industry and Commerce Administration agencies. (Trademark Law of China Article 43)

Please add the above to your due diligence checklist. The failure to notify the CTMO will result in serious consequences. First, you will be subject to administrative penalty for failure to do so. Second, failure to notify the CTMO will unnecessarily make your attempt to enforce the license agreement more difficult. If you did not even follow the Chinese law while doing business there, invoking the protection of the Chinese law will of course make your life a little more complicated. Third, your trademark is likely the most valuable asset, and not doing what is necessary to protect it is just simply not good business practice.

Further assuming that you have done all of the above, your next job is to vigilantly watch the quality of products or services provided under the trademark license. A failure to monitor the quality of products or services under your trademark also bears consequences. Poor quality of products or services under your trademark might cause your licensing to be considered as naked licensing, which could theoretically strip you of your rights in the trademark. In addition, poor quality associated with your trademark might also subject you to administrative monetary penalties. (See Id.)

Pepsi’s Storm in China Rages on

In my last post about Pepsi’s “Blue Storm” trademark infringement litigation, I summarized the Zhejiang Province People’s Supreme Court’s holding. The Court basically ruled Shanghai Pepsi Co., Ltd. (“SH Pepsi”), one of Pepsi’s joint ventures in China, infringed on Lanye’s rights in the “Blue Storm” trademark, and it ordered SH Pepsi to pay damages in the amount of ¥ 3 million. It also ordered a public apology to be issued by SH Pepsi in a Zhejiang newspaper. The deadline for SH Pepsi to comply with the orders has passed.

SH Pepsi is in the process of applying for the Zhejiang Province People’s Supreme Court to reconsider its decisions. So, it seems that the storm continues.

On the one hand, I understand why SH Pepsi has determined to storm on. It probably has spent millions in the “Blue Storm” advertisement campaign, which might have involved contracts that obligate Pepsi. Given the high stakes, SH Pepsi does not want to and cannot afford to throw in the white tower yet.

On the other, SH Pepsi’s perseverance in this case, judged from the outside, seems misplaced. Litigation of this scale and consequence generates bad press from all sides. Often times, big companies try to avoid bad press at all costs. Pepsi apparently does not share the same PR strategy here.

One more thing about this case that keeps bugging me is why Lanye did not join the other Pepsi joint ventures in China in the lawsuit. They are all involved in the same alleged infringement in various parts of the country. For the life of me, I failed to see the reason behind it other than legal malpractice.

Wahaha's China arbitration request granted despite pendency of Swedish and U.S. lawsuits

Brad Luo's articles have illustrated the escalation of the trademark dispute between China's beverage giant, Wahaha, and the French company, Danone. The dispute centers around the ownership of trademarks used by 39 joint ventures which have evolved contractually between the companies since 1996. Danone claims that Wahaha has been using the trademark to unfairly compete with Danone and the joint ventures; Wahaha claims that the trademark transfer contracts, under which the joint ventures operate, was never approved by China's trademark authority and are void.

Choice of venue issues are complex in multi-national lawsuits and there is no great statutory relief in certain venues which will protect parties from multi-venue fights. This has proven to be a problem for foreign companies contracting with Chinese entities, in particular. An example is the case of China National Metal Products Import/Export Company vs. Apex Digital, 379 F.3d 796 (9th Circuit 2004). Apex Digital (Apex) is a California corporation that imports consumer electronic goods from China which it sells under its own brand name to retailers in the United States. In 2000, Apex entered into a series of contracts to purchase DVD Players from China National Metal Products Import/Export Company (Metal). Each of the contracts contained the following identical arbitration clause:

All disputes from or in connection with this Contract shall be submitted to the China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration which shall be conducted by the Commission in Beijing or by its Shenzhen Sub-Commission in Shenzhen or by its Shanghai Sub-commission in Shanghai at the Claimant's option in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.

In March 2001, Apex filed a Statement of Claims concerning nine (9) of the purchase orders at the Shanghai sub-commission and the case was accepted. A week later, Metal decided that Beijing would be a better venue and filed a Statement of Claims concerning eight (8) of the purchase orders with CIETAC in Beijing.

Not surprisingly, Apex objected and requested consolidation of all claims into the already commenced Shanghai arbitration. CIETAC rejected Apex's objection and held that CIETAC could entertain both arbitrations at the same time, in different forums because the arbitrations were not "entirely the same." The difference? The Shanghai arbitration involved one additional contract.

The Beijing arbitration panel, unsurprisingly, ruled in favor of Metal as it had predicted. Metal sought enforcement in the United States. The United States District Court held, and the Ninth District affirmed, that the United States had to defer to CIETAC's internal rules to determine the validity of arbitral awards and had to enforce the Beijing decision.

Given the fact that the Wahaha/Danone dispute has been filed in three global forums, it raises serious questions: What do the joint venture contracts say about dispute resolution, venue selection, consolidation of disputes (if anything)? What happens if the Chinese tribunal rules in favor of Wahaha (that the IP transfer wasn't approved by the China Trademark Office) - will it void the contract in full or just negate the trademark transfer issues?

The Apex case exemplifies the impact of the dispute resolution clauses on the relationship and mechanisms to resolve disagreements. The agreement should always specify one institution for dispute resolution and, moreover, the issue of case consolidation should be taken into consideration when drafting contracts between multi-national parties. In Apex, CIETAC was asked to consolidate cases but refused to do so. Such refusal to consolidate cases is not improper in China. Thus, the only protection in these type of disputes is either to include a clause in the initial contract which expressly agrees to the consolidation of any cases concerning the transaction or the parties; or the warring entities can find a way to agree to consolidate the cases after a dispute arises.


In the Wahaha/Danone case, it is unlikely that Wahaha is going to agree to consolidate the cases in any venue other than Hangzhou. Hangzhou is the capital of China's eastern Zhejiang province and is home turf for Wahaha and Zong Qinghou. As the former chairman and founder of Wahaha (in the late 1980's), Zong has been the target of the allegations made by Danone and the primary catalyst for the escalated battle between the companies in the past 2 months.

Wahaha v. Danone: My Arbitration is Better Than Yours

Ok, this is getting really interesting!

Remember that Danone submitted the whole dispute to the Stockholm Institute of Arbitration on May 9, 2007? The arbitration is pending there in Sweden.

Remember that Wahaha also applied to have the Wahaha trademark transfer portion of the dispute with Danone arbitrated in the Hangzhou Arbitration Commission (“HAC”) on June 13, 2007?

In my last post, I was not sure whether HAC would take the case since the matter, on a bigger scale, is pending in Sweden.

But, surprise!! HAC accepted the petition for arbitration the very next day on June 14, 2007.

According to a report, Wahaha wants the HAC to determine whether the trademark transfer agreement, as a matter of law, is void since the Chinese Trademark Law requires such transfer to be approved by the China Trademark Office at the time of transfer (1996).

My hunch is that this might be Wahaha’s strongest argument. Wahaha Group in fact competed against Wahaha-Danone joint ventures; Wahaha Group actually used the trademark without the approval of the joint venture pursuant to the joint venture agreement. Therefore, without attacking the legality of the contract, Wahaha will have a very tough job in convincing the tribunals or a jury.

The next question that I anticipate to be raised after the “verdict” on the transfer issue is whether the contract in its entirety will be held as void. In my previous post, I discussed that Chinese Contract Law allows per se illegal clauses to be stricken in an otherwise enforceable contract. Assuming that the trademark transfer agreement is held as void by the HAC, will the original joint venture agreement (“Original Agreement”) survive the ordeal?

From a legal perspective, the rest of the Original Agreement should stand and continue to be effective given Article 56 of the Chinese Contract Law. But the really issue is what good is there for Danone if the Trademark transfer portion of the contract is void. Without the right to the Wahaha trademark, Danone’s joint ventures in China would only be a shell without its core value with which the Chinese consumers identify. Of course, Danone can rely on its own trademarks acquired elsewhere, but that is the topic of another day.

Chinese “David” Brought Down American “Goliath” for Trademark Infringement

Pepsi "Blue Storm" Litigation in China

Zhejiang Province Supreme People’s Court rendered its fascinating opinion after months of trial. This case involves yet another two beverage companies. It seems that the beverage industry in China is a highly contentious one in light of the Starbucks case and the Wahaha v. DANONE dispute. Before I digress further, let me get on with the tale of “David” and “Goliath” in modern day Chinese battle ground for market share and trademark protection.

Plaintiff / appellant is a little known alcohol & beverage company named “Lanye Alcohol Beverage Co., Ltd.”, hereafter “Lanye” and/or “Chinese David.”

Defendant / appellee is the well known Shanghai Pepsi Cola Beverage Co., Ltd, hereafter “Pepsi” and/or “Goliath.”

Another Defendant / appellee is a local supermarket that sells beverage drinks, including Pepsi Cola. And the company’s name is Hangzhou Lianhua Group, Ltd. (hereafter “seller”.)

On December 14, 2003, Lanye registered its trademark “蓝色风暴” with the Chinese Trademark Office, which can be translated as “blue storm.” The registered trademark consists of the Chinese characters, phonetic spelling of the characters, and graphic designs associated with the trademark. Lanye produces bear, bottled water, cola, etc.

In 2005, Pepsi began using the Chinese characters in its massive advertising campaign in China. The characters were also printed next to the well known Pepsi trademark itself to promote the Pepsi coke.

Guess what? Lanye sued Pepsi for trademark infringement. One of the reasons for initiating the suit was that local Industry & Commerce Administration where Lanye is located seized its beverage drinks because Lanye was suspected of infringing on Pepsi’s trademark. (How can anyone stomach that?)

The Hangzhou Intermediate People’s Court held for Pepsi on two operative issues:

a. whether Pepsi’s use of “Blue Storm” constitutes trademark infringement according to the Trademark law since Pepsi utilizes its own well-known trademark in connection with the Lanye’s trademark in question

b. whether Pepsi’s use of “Blue Storm”caused confusion among consumers, thus injuring the plaintiff.

On appeal, the Supreme People’s Court reversed the lower court’s holding on both issues. On the first issue, the court cites Article Three of the Implementation Measures of the Chinese Trademark Law, stating that trademark use is a broad concept, which encompasses the use on product, product packaging, company stationery, product advertisement, and trade shows. Therefore, Pepsi’s use of the “Blue Storm” falls within the purview of trademark use.

In addition, whether a logo constitutes a trademark is determined by the function of the logo in commercial activities. If the logo is capable of assisting consumers in distinguishing products or the origins of services received, the logo is a trademark. Based on discovery, Pepsi’s use of the “Blue Storm” did function as a tool for consumer to identify the logo with the overall brand name of Pepsi, irrespective of the Pepsi trademark.

With respect to the issue of consumer confusion, the court concluded that Pepsi’ use of “Blue Storm” as a trademark did create confusion among consumers relative to Lanye’s registered trademark. The Court noted that because of Pepsi’s extensive use of “Blue Storm” Lanye’s registered trademark has all but lost its value and function—brand name identification for Lanye.

In its conclusion, the court ordered Pepsi to pay ¥ 3,000,000 to Lanye and to issue public notice of the infringement. The Seller was, according to the court a bona fide purchaser, not liable for monetary damages, but has the responsibility to stop selling any infringing products manufactured by Pepsi. Curisously enough, the Court did not order the destruction of the existing infringing Pepsi cokes; it reasoned that would be impractical and would constitute waste.

For some reason, this case did not generate a lot of hype. Maybe Pepsi has done a good job of P.R. so that the embarrassment will not expand back home. After all, being held accountable for infringing on the trademark of a little known local company is not as tasty as a Pepsi Coke.

A few observations about the case:

a. Not all Chinese courts are willing to bend over backwards to protect foreign companies if they do not follow the Chinese law.

b. Chinese companies are getting savvy about protecting their IP rights.

c. Why Pepsi failed to perform a basic check on the “Blue Storm” with the Chinese Trademark Office totally and completely beats me.

d. Even if you own your own registered trademark and you are a big company, you still cannot take the trademark of another small company without due process of law. Not in America, not in China either.

e. Don’t assume anything, especially when you are a foreign company in China.