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.

IP Piracy: Does China Deserve the Bad Name?

The answer is more likely a “yes” than “no” for the average consumer exposed to the media’s persistent portrayal of China.

Assuming that you live in the West, you probably have heard the usually song and dance from the media—China is undergoing drastic changes, BUT its record on intellectual property is atrocious.

Now, Tim Johnson of the China Rises Blog (added to my blogroll) came out with a post, titled Is China unfairly bashed on piracy? In his post he urges a fresh look, posing the question: “Is it possible that the media have got it wrong?”

Then, he went on to cite a research report by a law professor out of Thomas Jefferson Law School:

That’s what a professor at the Thomas Jefferson School of Law in San Diego says [The media might have got it wrong]. He’s written a 24-page report that essentially says China, taken as a whole, is not the leading global pirate. When figures are adjusted for population, China's rates of intellectual property violation are lower than those of many other countries, including the United States.

Read his entire post and the underlying report; maybe a new perspective will change the way you view China’s piracy sin.

Anheuser-Busch: How Good Does a Slam Dunk in Chinese Court Feel?

Anheuser-Busch, the world’s largest brewer, recently won a trademark infringement lawsuit against a Chinese infringer, obtaining substantial damages and an injunction.

The opinion of this case has not been reported in China, or at least I have not been able to find it on the Internet after substantial searching efforts. So, the facts of the case are based on a news report in Chinese (if any part of the facts is inaccurate, please kindly inform me by leaving a comment.).

The lawsuit involved Anheuser-Busch’s registered trademark, Budweiser, which in Chinese is “百威.” And in pinyin, it is pronounced “Baiwei.” In addition to the character, Anheuser-Busch also registered two other related marks in symbols. One of them is the “Wheat + Sash” graphic; and another is a combination of the graphic and the Chinese characters “百威.”

Around April of 2006, Anheuser-Busch began to see an infringing type of beer brewed by a Chinese company named Putian Golden Key Company (“PGKC”). What Anheuser-Busch found was a product titled “New Generation Beer,” bearing the very “Wheat + Sash” graphic. What is more, PGKC packaged its beer with boxes with large font Chinese characters—“American Budweiser International Beer Group, Ltd.” (“美國百威啤酒國際集團有限公司”). This type of beer was being sold in Shanghai, Jiangsu Province, and Jiangxi Province. Anheuser-Busch was not alone in discovering these copycat activities; in fact local branches of the Bureau of Industrial and Commerce fined four companies that distributed the beer made by PGKC.

Then, Anheuser-Busch went after PGKC and the afore-mentioned four distributing companies, suing PGKC for trademark infringement in the Shanghai First Intermediate People’s Court. Anheuser-Busch also sought an injunction against PGKC for manufacturing the infringing product in addition to damages in the amount of 500,000 Yuan. Further, it asked the Court to prohibit the four distributing companies from selling the “infringing beer.”

The plaintiff’s victory did not come as a surprise for a number of reasons. First, Anheuser-Busch registered its flagship trademark “Budweiser” in China in Chinese properly in 1998, and it even registered marks related to the “Budweiser” mark. Second, Anheuser-Busch signed a trademark use agreement with Wuhan Budweiser Co., making the latter the only party in China with permission to use its registered trademarks (I assume that the trademark license agreement was appropriately recorded with relevant government agencies). Third, the plaintiff had a very strong case from the beginning given the ample evidence of infringement, such as the similarity between the infringer’s “trademark” and that of Anheuser-Busch. And quite significantly, PGKC did not appear in Court even upon proper service of process by the Court (in China, courts have the authority to serve defendants), thus basically handing Anheuser-Busch a default judgment.

Besides the relative ease of the plaintiff’s ability to obtain the win, another element of this legal dispute seems significant to me. The Court took special notice of the misleading packaging used by PGKC, which, in the Court’s view, evidenced infringement with obvious malice. As a result, the Court imposed a civil penalty on PGKC.

Civil penalties are not commonly handed down in most civil cases. Normally, in a trademark infringement case, Article 59 of the Trademark Law of China controls in terms of damages and penalties:

Where any party uses, without the authorization from the trademark registrant, a trademark identical with a registered trademark, and the case is so serious as to constitute a crime, he shall be prosecuted, according to law, for his criminal liabilities in addition to his compensation for the damages suffered by the infringed party.

As one may notice, nothing in the language of the statute mentions civil penalties in a trademark infringement case. However, the absence of a court’s power to impose civil penalties in the Trademark Law does not mean that a court does not ever have the authority to do so. Because a trademark infringement action is a civil action, the General Principles of Civil Law of China (1986) (also referred to as the “Civil Code”) is also operative in the adjudication of such a case. Pursuant to Article 134 of the Civil Code, a people’s court has the discretion to “impose fines or detentions as stipulated by law” while at the same time awarding civil damages and granting injunctions. Thus, the imposition of civil fines and penalties, although unspecified in the Trademark Law, is strictly within a court’s discretional power as granted by the Civil Code.

Naturally, the Court’s decision to fine PGKC 10,000 Yuan begs the question—why did the court go out of its way to exercise the discretional power? In my opinion, it just demonstrates the overall judicial trend, especially in economically more developed areas of China, to step up intellectual rights protection. And civil fines may operate as another deterrent to infringement.

Anti-Cybersquatting in China: A Judicial Overview

For trademark owners, it is important to know that China does not have a comprehensive law (by the National People’s Congress) or regulation (by the State Council) regarding cybersquatting. Rather, the China Internet Network Information Center (“CNNIC”) and the Ministry of Information Industry (“MII”) both issued rules and measures on the topic of domain name. Among these rules and measures, the most prominent is the Regulations of Internet Domain Name Administration in China (“Domain Name Regulations”) by the MII. In accordance with the Domain Name Regulations, the CNNIC compiled the Detailed Rules of Registration for Domain Names, the Domain Name Dispute Resolution Policy, and the Procedure Rules for CNNIC Domain Name Dispute Resolution Policy.

For a detailed account of the above-mentioned rules and measures, please refer to Professor Mo Zhang’s article on SSRN. The content of this post is attributable to his excellent research and scholarship.

Besides detailing the regulatory framework of domain name registration and dispute resolution thereof, Professor highlighted the judicial standards as set by the Supreme People’s Court of China.

Litigants, seeking to protect their trademark rights in China against cybersquatters, should pay special attention to the Supreme People’s Court’s Explanations to Several Questions on Application of Law in Civil Actions Concerning Internet Domain Names (“Explanations”). The Explanations serves as judicial guidance to all levels of people’s courts in China adjudicating domain-name related disputes.

Jurisdiction

Only intermediate level courts have jurisdiction to domain name disputes, and suits should be brought in courts where the defendant is domiciled. Where the defendant’s domicile cannot be ascertained, the court where the infringing equipment (computer terminal) is located shall have the proper jurisdiction.

Causes of Action

According to Professor Zhang’s article, two most common causes of action for trademark rights are under the Chinese law are trademark infringement and unfair competition.

Legal Test for Infringement or Unfair Competition

Based on the Explanations, if the legal test requirements are met, the plaintiff can plead in the alternative for Trademark Infringement and Unfair Competition.

The determining factors in the legal test are:
1. the plaintiff must have valid and legitimate rights to the interests for which the legal action is being initiated. (in other words, if you are want to protect your trademark rights, make sure your trademark is registered under your name in China, unless your mark is deemed legally famous elsewhere.)

2. the defendant’s domain name must “be found to be either a copy, imitation, translation, or transliteration of the plaintiff’s well-known trademark”, or it must be same or similar to the plaintiff’s “registered trademark” so as to cause confusion to the consuming public. (this is the confusion prong of the test)

3. the defendant does not have a legitimate right or interest to the registered domain name, nor does it have “reasonable grounds for its registration or use of the domain name. (this factor balances the right of the plaintiff against that of the defendant)

4. the court must determine whether there was bad faith on the part of the defendant in its registration of the domain name. (black mailing the plaintiff using the domain name, offering to sell the domain name, registering the domain name using other’s famous marks for commercial purposes are all evidence for bad faith.)

5. in case involving famous trademarks, the likelihood of confusion prong of the test is eliminated because famous trademarks deserve special protection. (this further demonstrates China’s fulfillment to its TRIPS commitment over IP protection)

6. in terms of remedies, people’s courts can only grant damages of cancellation of the infringing domain name, which means transfer of the infringing domain name is not a remedy. (obviously, a trademark owner needs to register the domain name ASAP.)

Granted, a combination of agency level rules and judicial opinions do make the scene of anti-cybersquatting law in China complicated. However, the growing popularity of e-commerce in China makes it imperative for foreign trademark owners to register domain names with their trademarks. The cost of registration is a nano-fraction of what it would cost in a lawsuit against an unscrupulous Chinese cybersquatter. In the same vein, consideration should be given for registration in other commercially significant jurisdictions to which the trademark owners are likely to expand. In order to achieve that, a coordinated and calculated approach to IP protection becomes necessary. It is called IP Strategy. Mr. Godfrey Firth has an excellent article out on this very topic of developing an IP strategy for China, and I think some of his ideas are good for anywhere.

Read Professor Zhang's full article at SSRN.

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.

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.

Wahaha v. Danone: Partnership at Grace’s End

When Danone Asia Pte Ltd. (“Danon Asia”) and other Danone subsidiaries located in Asia submitted the dispute to arbitration in Sweden, things between the two partners have turned from the good, to the bad, then to the ugly. And Danone has hired the British law firm Freshfields to represent it in the Swedish arbitration deal. As a side note, Article 26 of the Joint Venture Agreement stipulates that disputes between the contracting parties, if unresolved, are to be arbitrated in the Arbitration Institute of the Stockholm Chamber of Commerce.

My research reveals some of the details of Danone’s contentions and complaints in the arbitration. The plaintiffs/petitioners are: Danon Asia, Jinjia Investments Ltd., Myen Ltd., Novalc Ltd. The defendants/respondents are: Wahaha Group Ltd., Wahaha Shiye Ltd., Hangzhou Food Ltd., Hangzhou Wahaha Investments Ltd.

The pith of Danone’s complaints is that Wahaha Group and its non-joint venture companies violated the original Joint Venture Agreement (“Original Agreement”) between Danone and Wahaha Group, and that such violation consequently resulted in the infringement of the trademark transfer clauses of the Original Agreement. Danone alleged that the defendants, without approval from the joint venture companies, manufactured products that are same as those of the joint venture companies. These products competed against the joint venture companies’ products, injuring the interests of the joint venture companies.

In addition to the corporate defendants, Danone also joined Mr. Zong, the former chairman of the board of directors of the joint venture companies and the man behind all the non-joint venture companies, as a defendant in the arbitration. Danone, expectedly, complained of Zong’s violation of the non-compete agreement (“NCA”) and non-disclosure agreement (“NDA”). And it also alleged that Zong created conflict of interests, violating his duty to the joint venture company as a board member.

In an attempted strategic move, Zong submitted the same case to the Hangzhou Arbitration Commission on Wednesday (June 13, 2007), hoping to capture a little bit of the home-court advantage. He avers that the trademark transfer clause in the Original Agreement is void for violation of the Chinese law at the time of contract in 1996, and that Danone fraudulently induced Wahaha into the contract.

From a legal stand point, Zong is caught in a tight spot. First, his choice of venue for arbitration is against the express provisions of the Original Agreement, notwithstanding his “need” of a friendly forum. Second, the disputes have already been accepted by the Stockholm Arbitration Institute, where Zong and the other four non-joint venture companies are defendants. So, whether the Hangzhou Arbitration Commission will dismiss the petition remains a very curious legal and possibly political riddle.

And then, to make thing a little more uncomfortable for Mr. Zong, Danone lit a fire in his back yard where he could not even get to. Danone’s lawsuit in Los Angeles against Ever Maple Trading Ltd., Hangzhou Hongsheng Beverage Co Ltd., and Zong’s daughter & wife really added “insult to injury.” Zong’s immediate response to this suit is to resign his position on the Danon-Wahaha Joint Venture board, which demonstrates how enraged he might have been. Aside from making him comfortable, Danone’ choice of forum in California could not have been better since here Danone is immune from the heat of nationalism manipulated by Zong, local politics in Hangzhou (the city is a shareholder of Wahaha Group, remember?), and unpredictable courts.

Good move, Danone! Smile…

[Tomorrow, I will talk about what I think Danone did wrong. Don’t laugh yet.]

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.

How to Protect Your Trade Secrets in China?

There are four major regimes of intellectual property: trademark, patent, copyright, and trade secret. Trade secrets are the oldest and probably not most recognized form. Your trade secret is likely one of the most important things that gives you an edge in your success and survival amongst fierce competition. If you take your business into China, that still rings true. Thus, an understanding of the law of trade secrets in the P. R. China is essential in order for your to protect your trade secrets.

Unlike the United States, China does not have an unified body of law addressing the protection of trade secrets; in stead, trade secret protection laws are scattered in a few pieces of legislation, and the complexity of which warrants dedicated attention.

Definition of Trade Secret

Trade secret is defined as, pursuant to Several Regulations on Prohibiting Actions of Infringing Trade Secrets (《关于禁止侵犯商业秘密行为的若干规定》)

any formula, pattern, device, machine, process, technique, compilation of information, or program (referred to collectively as proprietaryinformation)

Regulations/Laws on Trade Secret

An article I ran into succinctly and accurately lays out the relevant laws on trade secret, I will try to shorten the pithy parts of it.

1. Article 10 of the Anti-Unfair Competition Law states that a competitor is prohibited from using the following measures to infringe upon another's trade secrets:a) To acquire the owner’s trade secret by theft, intimidation, or other improper approaches;b) To disclose, use, or allow others to use the owner's trade secrets that have been obtained through the above methods;c) To disclose, use or allow others use the trade secrets which breach the agreement or requirements of the owner.

It is considered a trade secret infringement for any third party to acquire, use or disclose another's trade secrets under the condition that he acknowledges the existence of illegal behavior as set forth in the above clauses.
Article 25 of the Anti-Unfair Competition Law further stipulates the penalties for violations under Article 10.

2. Article 22 of Labor Law of the P. R. China allows an employer to include a clause in an employment contract clause that affords protection for the employer's trade secrets. And a typical such clause appears in the form of a confidentiality agreement, which prohibits an employee from disclosing the employer’s trade secrets at the end of his/her employment.

3. Article 118 of the General Principle of Civil Law, Article 43 of the PRC Contract Law, and Article 219 of the Criminal Law.

Protective Measures

The same article quoted above suggests excellent ways to protect your trade secrets. It states:

it is important to keep the trade secrets conforming to the special features that are prescribed by the law, that is, unknown to the public, with business value and kept in secret. In the event of a breach, this allows for a legal basis for prosecution. For example, if a company leaves the trade secrets in unlocked file cabinets in unrestricted areas of the company, or leaves the documents disclosing trade secrets in garbage cans without shredding the documents, then they have more difficulty establishing that the trade secret was to remain unknown to the public or has high commercial value. It is sometimes surprising how many companies are susceptible to such a simple mistake. It is quite easy and inexpensive to establish such internal protective measures and with a documented policy on how such materials are to be handled, there becomes a point of reference for a court to base prosecution on.

Then, it provides practical steps to safeguard your trade secrets:

A. Maintain documentation that you are the legitimate owner of the trade secrets that you seek to protect.

B. Establish an internal trade secrets protection system:
Have a written trade secret plan and follow the plan
Train your employees on the protection of trade secrets
Sign and enforce confidentiality agreements

Trademark Protection in China—More Steps Forward

On the heels of the Starbucks v. Shanghai Starbuck case, another foreign trademark holder doing business in China had its day in court and won. Of course, this is only in the trial court; appeals might follow.

In this case the plaintiff is the French company Lacoste, trademark holder of the famous “Crocodile” clothing trademark. Lacoste registered the “Crocodile” mark in October 1980, and the China Trade Mark Office, according to a Chinese report, put this mark in question on the list of “Famous Trademarks to Be Targeted for Protection.” (《全国重点商标保护名录》)

Defendants are three Chinese companies: Guangzhou Tai Crocodile Clothing Co., Ltd. (“Guangzhou Crocodile”), and two other sellers of Guangzhou Crocodile’s clothes. Curiously enough, Guangzhou Crocodile had its trademark “Golden Crocodile” registered, which can be described as a crocodile crouching in water waves, and with the Chinese Character “金鳄”next to them, which means “golden crocodile.” According to the facts of the case, Golden Crocodile places the crocodile portion of its mark in the prominent areas of clothes, while sews on the water wave and the Chinese characters in the background, which bear the same colors as the materials used for clothes as a whole. The intention of this, I guess, is to display the crocodile prominently, and let the rest of the mark fade away into the background.

Lacoste sued, joining the three defendants, in Beijing’s First Intermediate People’s Court for trademark infringement and trademark dilution, and it further pleaded for an injunction, public notice of such infringement, seeking also damages in the amount of ￥1,000,000.

Congratulations to Lacoste. It pretty much wrote its own ticket in its pleadings because the Court gave it basically all it asked for: infringement and dilution of the Crocodile mark by Guangzhou Crocodile; cessation of production by Guangzhou Crocodile; destruction of all infringing clothes; damages in the amount of ￥760,000; a public apology to be issued by the three defendants on the China Industry & Commerce Times.

Yes, this is a sweet victory for Lacoste and its lawyers. While the board members of Lacoste celebrate with French wine, I celebrate this case with this blog post for the following reasons:

1. The court carefully examined the circumstances of Defendant Guangzhou Crocodile’s use of its own mark; it focused on Guangzhou Crocodile’s misuse of its mark, and held that the misuse of a legitimate trademark, in certain circumstances, could constitute infringement of another’s trademark.

2. The Court cited a case out of Changchun Intermediate People’s Court. In that case, the Crocodile trademark was held to be a “famous mark.” The Court cited this holding in part to bolster the fact that Lacoste has an indeed famous mark, which is entitled to legal protection in China.

3. The Court extended infringement liability to sellers of products that infringed on the trademark holder’s rights. In its opinion, the Court expressed in strong language that the two co-defendants, as sellers of clothing, failed to investigate thoroughly the legitimacy of Guangzhou Crocodile’s use of its trademark, and such an obviously subjective failure to investigate resulted in sales that violated the rights of Lacoste. And such a gross failure to investigate warrants civil liability (negligence, tort liability).

4. The remedies handed out by the Court are appropriate. Even though the Court did not grant the full amount sought in damages by Lacoste, it imparted more value to Lacoste and trademark holders than the ￥24,000 can buy in China—a clear message that reads: “Don’t Mess with Legitimate Trademarks of Others!”

Cheers! À votre santé ! 干杯!!

China Admits Law Enforcement Is Lagging Behind

The Starbucks Court in Shanghai did it in grand style! It explained the law, upheld the law, and actually ENFORCED it by following through all the way until "Copycat" Shanghai Starbuck Ltd. changed its corporate name and took down all signage that created confusion with Starbucks Co. of Seattle Washington.

As I was enjoying a few moments of reverie about enforcement of laws, especially in IP protection, I came across this (in Chinese only) today, which kind of woke me up and brought me back to reality. Since Mr. Harris at Chinalawblog has decided to continue the theme of "copycats," I thought I might just copy him by carry on the discussion about the enforcement of laws and court rulings in China.

No doubt about it, China's legislative efforts in recent years have ushered in a stunning array of very important laws and regulations in international and domestic commerce, foreign trade, and basic civil codes. For instance, just this year quite a number of them were promulgated, the Private Property Law, the new Corporate Tax Law, the new Franchise Law, and the Partnership Law (to be effective on June 1, 2007), to name just a few.

While all of us can be and are actually pysched about these new laws, the reality of enforcement on the ground remains a huge problem, which is in almost stark contrast with the progress that China has made in legislating.

Reasons abound for the lack of advancement and progress in enforcement. The above quoted article states a few:

1. rampant local protectionism challenges the authority of laws.
2. the unwillingness and lack of resolve to follow laws and the seeming immunity for not complying with laws all discredit the actual authority of laws.
3. the lack of a basic and fundamental framework of the rule of law permeats the society which creates a challenging environment for law enforcement.

The article then goes on to substantiate with actual examples of how law enforcement lags behind, but it falls short of expressing or even suggesting what can be done about this phenomonon.

So, it got me thinking what exactly needs to be done in China to ensure the enforcement of laws, regulations, and court orders.

To answer that question, I think that one needs to go a little further than simply examine the obvious--what the U.S. or the West does to achieve enforcement, because copying (gosh, I'm getting a little nervous about using the word "copy" now.) what the U.S. does might not work too well. (Reasons I will explain later)

With that said, I think there need to be a two-step approach to analyze the issue...

--to be continued

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!