China Law Insight : China Law Insight: China Commercial and Intellectual Property Lawyers and Attorneys, Full Service Law Firm: King & Wood

In the court hearing, Cadbury claims that its prior mark “吉百利”(Cadbury in Chinese) has acquired fame and reputation and should be protected as a well-known mark against the opposed mark on dissimilar goods. The Trademark Review and Adjudication Board (TRAB) defends that although they understand that "Cadbury" is a well-known mark, yet they believe the registration on fertilizers would not cause confusion among consumers and thus injure the legitimate interest of Cadbury. Furthermore, the third party, (also the applicant of the disputed mark) argues that the distributing channels, target consumers, and markets for candies and fertilizers are so different that the disputed mark will not mislead the public.

The lawsuit focuses on the protection scope of a well-known mark, the key of which would be whether or not the court would consider the doctrine of dilution against a well-known mark, which is also a highly controversial issue in the trademark world. We will continue to follow up the case.

Source: http://www.chinacourt.org/html/article/201011/17/436274.shtml

Proview is a HK listed company wholly invested by Proview International, and is mainly engaged in developing and producing CRT displays, LCD TVs and their fittings and accessories.

Proview International registered "ipad" trademark in EU, China, Korea, Singapore, Indonesia and other countries from 2000 to 2004, and transferred the trademark in EU to Apple early 2010. But it said Proview still held the mark in China. However, Apple claims it has taken all the "ipad" trademarks including the one registered in China based on the agreement made between Proview International and Apple. The case was brought to court in May 2010, and is still being heard in Hong Kong.

Apple is one of the companies who use similar names for their core products (iPad, iPhone, iPod), making up what some call a family of marks. The advantage of having a trademark family is that the consumers will easily associate the new product name with the old ones and hence reinforce the whole family names that enjoy the goodwill of Apple. The disadvantage is that it will be easy for competitors or trademark squatters to anticipate the future product name for preemptive filing.

Source: http://www.nbd.com.cn/newshtml/20101027/20101027015106814.html

The governing laws of the foreign-related intellectual property right relationships are provided in Articles 48-50 of this law. Firstly, the law at the locality where the protection is claimed shall apply to the dispute concerning the ownership and contents of intellectual property right. Secondly, a party may choose the laws applicable to the assignment and licensed use of intellectual property rights by agreement; otherwise, the laws at the habitual residence of the party whose fulfillment of obligations can best reflect the characteristics of this contract, or other laws which have the closest relation with this contract, shall apply. Thirdly, the laws at the locality where the protection is claimed shall apply to the liabilities for tort and for intellectual property; alternatively, the parties may also choose the applicable laws at the locality of the court by agreement after the tort occurs.

Resource: http://www.npc.gov.cn/npc/xinwen/2010-10/28/content_1602433.htm

Sources:

http://kjs.aqsiq.gov.cn/dlbzcpbhwz/ggcx/201010/t20101021_158458.htm

http://www.sipo.gov.cn/sipo_English/news/iprspecial/201003/t20100308_503905.html &

http://www.chinaipmagazine.com/en/news-show.asp?id=1337

The trademark protection for "RED BULL" is a tough story, mainly because a third party registered "RED BULL" on non-medical nutritional drinks in Class 30, which was the driving force for various trademark infringements. Through its own companies or licensing others to produce or sell energy drinks, the party has severely infringed the trademark rights of the real owner of "RED BULL". On July 16, 2010, Beijing High People's Court ruled that the aforesaid trademark shall be cancelled. The Trademark Review and Adjudication Board (TRAB) reheard the case and made its decision on September 26, 2010. As expected, WEI Tingjian, the individual who registered the mark in bad faith, sued again before the court. It is likely that, before "RED BULL" can effectively tackle the trademark infringements in China, it will have to go through a new round of fighting.

（Genuine or counterfeit?）

Further, China ranks first for the most frequently designated through the Madrid System and tenth in the world for international trademark applications, which has substantially shown the importance and attractiveness of the Chinese market.

According to the latest statistics from the China Trademark Office, the total amount of trademark applications filed with the CTMO has exceeded 1 million in 2010, i.e. 1.003 million, significantly increased from 2009 by 21 %.

 Mandarin Oriental Hotel Group operates a chain of luxury hotels in many major cities globally. In Hong Kong, they have three hotels, their flagship Mandarin Oriental, The Landmark Mandarin Oriental and The Excelsior.  The Mandarin Oriental group took exception to Rhombus including the letters “MO” as the name of the hotel and filed a lawsuit against various entities in the Rhombus group, including Hotel Mo Limited and Hotel Mo Management Limited to prevent the use of these letters.

Mandarin Oriental considers the use of “MO” as confusingly similar to its corporate brand. They claim that the public will mistakenly assume that the Hotel Mo is owned, operated or in some way associated with or endorsed by them. Mandarin Oriental went to court to seek an injunction to prevent Rhombus from opening a hotel or related business using or incorporating the letters “MO”.

Although Mandarin Oriental has a large portfolio of registered trademark in Hong Kong, it did not include registration of “MO” or a similar trademark, so it cannot claim that Rhombus infringed a registered mark. However, they had applied applications to register “MO” and “MO” with their well recognized hand fan logo with the Hong Kong Trade Mark Registry in September. Without a registered trademark, they turned to the common law theory of “passing off” to pursue their claim. This theory allows the holder of an unregistered trademark to stop others from using the same or a similar mark in the same or a related trade.

To succeed in a passing off claim, Mandarin Oriental has to establish three points.

First, it has to show that it has already established goodwill and reputation for its hotel and hotel services in the minds of the public and that the public recognizes its mark as distinctive and specially associated with its goods and services.

Second, Mandarin Oriental has to show that Rhombus has misrepresented to the public so that the public may reasonably believe that “Hotel MO” is operated or endorsed by Mandarin Oriental.

Finally, Mandarin Oriental has to show that it has suffered damages or lost business because of the erroneous belief of the pubic.

To succeed on a passing off claim, Mandarin Oriental must establish all three points.

On the first point, it may be foolish to deny that Mandarin Oriental enjoys an excellent reputation as the operator of some of the world's finest luxury hotels. Mandarin Oriental enjoys substantial goodwill in its brand in the mind of the Hong Kong public. However, for it to establish a passing off claim, it has to show more than the reputation and goodwill attached to “Mandarin Oriental” or its hand fan logo. It also has to show that it enjoys a reputation and goodwill to the letters “MO” in the mind of the public. There is no presumption that the goodwill attached to its brand automatically extends to “MO”.

Essentially, Mandarin Oriental must produce evidence that the Hong Kong public identifies “MO” as being associated with Mandarin Oriental’s hotel and related business. While there are MO Bars in some Mandarin Oriental hotels, including The Landmark Mandarin Oriental in Hong Kong, the group does not have a hotel either by the name of “MO” or one where “MO” is incorporated as a significant part of a hotel name within its group. What they have to show is that when the Hong Kong public sees “MO”, their reaction is something akin to “Mandarin Oriental”. Their challenge is to show that the presence of MO Bars in some Mandarin Oriental properties allows the Hong Kong public to make that connection.

The second part is to show misrepresentation. Misrepresentation does not necessarily mean an intentional attempt by Rhombus to mislead the public that its yet to be open Hotel MO is related to the Mandarin Oriental group. Instead, misrepresentation refers to a strong and widely recognized association between “MO” and Mandarin Oriental such that the Hong Kong public assumes that any use of “MO” is connected with the Mandarin Oriental group. So the mere use of “MO” by Rhombus will cause the Hong Kong public to erroneously believe that the hotel is a Mandarin Oriental operation even though Rhombus is not intentionally being deceitful or intentionally trying to leave this impression with the public.

Assuming that Mandarin Oriental can produce sufficient evidence to show the first two points, the third point is relatively easy to establish. Even if Mandarin Oriental cannot show that it has suffered actual damages caused by the Hotel MO, it is enough to show that its reputation will suffer if Hotel MO is allowed to operate.

Will Mandarin Oriental be able to show that Rhombus is passing off its Hotel MO as a part of its hotel group? We will know after the hearing on the preliminary injunction. Stay tuned.

Some questioned the Court's decision as the tires sold by the Defendants were in fact manufactured by the Michelin's own factory and were not counterfeits. The case concerns the parallel importation of trademarked products, a common occurrence in international trade. Parallel importation of trademarked products refers to branded goods, manufactured and sold in the country or area where the trademark owner is located or where the trademark products are authorized to be manufactured and sold. The trademarked products are then imported into the countries or areas, where the trademark owner or the exclusive licensee enjoys the trademark and related rights without the authorization of the trademark owner and/or the exclusive licensee.

Parallel importation is often motivated by extra benefits. Since manufacturing costs and consumer capability vary in different countries and areas, the trademark owner always sets different prices for their products in different markets. Parallel importers purchase products in one country at a price (P1) which is lower than the price at which they are sold in a second country (P2), and import the products into the second country. Consumers are inclined to buy the imported product in the second country at a price which is lower than P2.

Whether parallel importing of trademarked products constitutes trademark infringement is not specifically addressed in the PRC laws and regulations. There are two prevailing opinions regarding parallel importing in the academic field. Most scholars disagree that parallel imports constitute trademark infringement based on the "Exhaustion of Rights Doctrine," while some believe that trademark infringement shall be established in parallel import based on the locality nature of intellectual property rights ("IPR").

In this case, the Court focused on whether the Defendants' sale of imported MICHELIN tires shall constitute trademark infringement upon the Plaintiff's exclusive right to use the registered trademark "MICHELIN & Device." As the manufacture and sale of tire products shall be in compliance with the relevant speed requirements, geographical and climatic features, the Court held that the Defendants' failure to obtain the 3C Certification for MICHELIN tires which were originally targeting the Brazilian market may raise quality and safety issues. It was foreseeable that consumers would attribute traffic accidents or any other civil disputes to the Michelin Group as the manufacturer. Consequently, the standard of quality denoted by the Michelin trademark and plaintiff's reputation as a leading tire manufacturer would be damaged. Therefore, the Court concluded the Defendants' acts had caused substantial damages to the Plaintiff's exclusive rights to use the trademark "MICHELIN & Device".

The Court's judgment shows that the Exhaustion of Rights Doctrine or the Territoriality Principle alone is insufficient to justify the act of parallel imports. When affirming the trademark infringement, the Court should also consider whether the interests and rights of the trademark owner have been damaged. In this case, the grounds on which the Court established trademark infringement were that the tires had not obtained 3C Certification, and the tires were not manufactured for the Chinese market. According to the Court, tire products should be certified under the 3C system before they are sold in China. Otherwise the quality and safety of the products could not be ensured. Therefore, the Plaintiff's reputation as a leading tire manufacturer trademarked as "MICHELIN & Device" would be damaged. In short, the key issue of this case is the "3C Certification," which represents or proves the quality and safety of the tire products sold in China.

One subsequent issue is whether importation and selling of trademarked products not subject to 3C Certification may cause trademark infringement. According to the Court's ruling, when affirming trademark infringement in parallel importation, the key issue is whether the import and sales activities have damaged the interests and rights of trademark owners. If an imported product is without 3C Certification, it merely indicates that the parallel imported products might have potential quality and safety problems. However, the absence of 3C Certification does not necessarily establish the problems. Therefore, a trademark infringement should be established if the imports and sales of the products that are not targeting the Chinese market would damage the reputation of the trademark owner, even if the parallel imported products are not subject to the 3C Certification. In other words, although the imported products are not subject to 3C Certification, the imports and sales of the products may also constitute trademark infringement conditioned that potential quality problems and safety risks exist within the imported products to be used in China. For example, the said products may not require a 3C Certification, but they are incompliance with other national standards or have potential safety risks in use.

On the contrary, would the import and sales activities constitute trademark infringement if the Defendants had applied for 3C Certification before selling the MICHELIN tires? The answer is no according to the Court's ruling. The MICHELIN tires with 3C Certification means that they are free of quality and safety problems and, therefore, the reputation of the Plaintiff would not be damaged. The trademark owner may inevitably make less profit because of the competition of the parallel imported products in the local market. For example, the price of the trademarked products is RMB 100 in country A and RMB 80 in country B, and the profit is RMB 30 in both country A and B. Parallel importer imports the products that are sold in country B to country A and offer the price at RMB 90. As such, the trademark owner may suffer a profit loss of RMB 10 in country A. In practice, the parallel importing of the trademarked products does not necessarily constitute trademark infringement simply because the trademark owner suffers profit loss.

In Michelin, the Court demonstrated the progress of trademark infringement trials of parallel imported products into China. The ruling of the case set guidance over the issue of whether the imports and sales of parallel trademarked products constitute trademark infringement. The key focus of the issue is whether the alleged acts are detrimental to the interests and rights of the trademark owner. To trademark owners that are harassed by parallel imports, it is possible to take measures to stop others from parallel importing of their trademarked products, if they can prove the products have quality and safety problems in use. For parallel importers, they should ensure that consumers' interests would not be damaged while deriving profits.

In practice, there are some instances in which advertising slogans are granted copyright protection. For example, in the case of Cheng Du Huangchenglaoma restaurant vs. Beijing Huangronglaoma hotpot restaurant, the court held that the slogans used by the plaintiff possessed the originality to qualify as a literal work and thus should be protected under the copyright law. Accordingly, the defendant infringed on the copyrights of the plaintiff in using the same slogans during its daily business. As to how to judge the originality of advertising slogans, the court specifically made the following analysis and statement on the verdict, " 'original' mentioned in the copyright law means that the works are created by the author independently without plagiarism or imitation, which is mainly manifested in the selection, design and composition of certain material. Although the vocabulary which comprises the slogans was not original, through the plaintiff's selection, combination and arrangement, they have reflected certain personalized characters.

Moreover, if advertising slogan has become a symbol or identifier of the company through long-term use and promotion, hence closely associated with the goodwill and the products of the company, it may also seek protection under the Anti-unfair Competition Law against other party's unauthorized use.

Conclusion

In fierce market competition, companies tend to promote their brand and products by adopting unique advertising slogans. Advertising slogans could become a symbolic sign of the company and thereby attain an intangible value just like a trademark. Under the existing legislation and in practice, advertising slogans can 1) be protected under the Trademark Law through trademark registration, as long as it is original and could function as a source indicator. 2) slogans that have built a connection with certain enterprises in the course of business should also fall within the protection scope of the Anti-Unfair Competition Law. 3) original advertising slogans may also be protected under the Copyright Law. Among the three, trademark registration is the most effective means of protection.
 

Chow Fang Pu (周芳谱) had six sons, three from his wife and three from his concubine. In the 1930’s, his sons from his wife started a jewelry business in Guangzhou with money he provided. The business traded under the Chow Sang Sang name. In the early 1940's, shortly before his death, Mr. Chow split his assets among his six sons. He instructed both branches of his family to run their businesses “side-by-side in a peaceful manner” and provided that his “descendants may use the name Chow Sang Sang but they shall not allow outsiders to join in their businesses” or sell the name to outsiders.

Over the decades, both branches of the family prospered and expanded their jewelry businesses using some form of the Chinese and English versions of “Chow Sang Sang” as an integral and distinctive part of their business names. The “original brothers” formed a partnership but ultimately operated separate jewelry stores. By 1989, the last of their separate interests was bought by one of the original brothers. These businesses were consolidated and now operate under the name of “C.S.S. Jewellery Company Limited”.

The “half-brothers” branch of the family operated their business under a corporation now known as “Chow Sang Sang Jewellery Company Limited”. Its parent company, Chow Sang Sang Holdings International Limited, is listed on the Hong Kong Stock Exchange.

In recent years, relations between the two branches have become tense.

In the 1990’s, the half brothers, through their company, registered the trademark “A CORPORATE GIFT IDEA BY CHOW SANG SANG”. Then in 2003, the remaining original brother tried to register “CHOW SANG SANG” as a trademark. The application was rejected by the Registrar of Trade Marks during the preliminary stage on the grounds that the mark is too close to the earlier mark and that its registration is likely to cause confusion on the part of the public. The company then appealed the decision to the High Court of Hong Kong and recently, the court rendered its decision.

The court noted that for decades, there had already been honest and concurrent use of the Chinese and English versions of CHOW SANG SANG by both branches of the family. This is not a situation where allowing the registration of the mark may lead to public confusion that did not exist before. Whatever public confusion there may be had existed from the time the two branches of the family started using the mark and its Chinese equivalent decades ago. The court observed that the real issue is not whether confusion will be created by registration, but the increase of public confusion that may result if the mark is registered.

Noting that the honest concurrent use of the mark arose from the historical link and that the original brothers had used the Chinese and English marks for more than half a century, the judge felt that it “would be a surprising result if only one branch of the extended Chow family could have “Chow Sang Sang” registered as a trade mark, even though both branches have been using “Chow Sang Sang” (as a transliteration of “周生生”) in one form or another, continuously for decades”. Since the half-brothers branch of the family had already registered a trademark incorporating “CHOW SANG SANG”, allowing the current application to proceed will allow both branches to continue their respective use of “CHOW SANG SANG” as a trademark. On the other hand, rejecting the application at this stage may expose one branch to an infringement claim by the other branch.

After considering the background, the court decided that the risk of increase in public confusion was not substantial. The judge also observed that in recent years, the appellant, C.S.S. Jewellery Company Limited, had been deliberately using the mark in a slightly different manner and in addition had been using it with other logos and marks in attempt to distinguish its goods and services from those of the other branch of the family. To refuse registration because of this shift “would have the practical effect of ‘penalizing’ the appellant for its effort to lessen the potential confusion to the public". Allowing the application will not prevent the other branch from using CHOW SANG SANG because of its earlier registration. On the other hand, in view of the growing animosity between the two branches, rejecting the application may effectively prevent the applicant from using the mark in the future because of a real threat of a claim of infringement of the earlier mark.

On the issue of public confusion, the court confirmed that there is a distinction between creation of public confusion and an increase of public confusion in allowing registration of a similar mark for the same or similar goods or services. Where other factors, such as honest and concurrent use or special circumstances exist, the existence of public confusion is not necessarily enough to reject registration.

After weighing the relevant factors, the court concluded that the “application should not have been thrown out the window” by the Registrar of Trade Marks. While the other branch may still oppose its counterpart’s application on other grounds as the application continues to publication and public notice, the Registrar of Trade Marks was wrong in its reasoning for rejecting the application at this stage.

One point of interest is the court stopping short of saying “the public has got use to the confusion or possible confusion”. Given the proliferation of franchising and product licensing, the shifting nature of trademarks from being badges of origin to endorsement of providers of goods and services by trademark owners may be factors in countering rejection due to the likelihood of public confusion.

In other words, it may be possible in the right situation to argue that the public understands that trademarks are used by unrelated businesses and that such usage does not necessarily indicate the goods and services originated from the trademark owners. Instead, common usage may reflect the trademark owner's endorsement of the goods and services bearing the mark.
When a consumer visits a fast food restaurant operating under the same trademark as numerous other similar restaurants, the consumer may not assume automatically that all such restaurants are operated by the same entity. While the consumer may have some expectation of uniformity in menu and service, he or she may understand that each is a separate business entity operating with the permission of the trademark owner. In such a situation, public confusion may be minimal.

However, a cooperation agreement is hard to reach since the parties have different expectations. For example, the Chinese franchisee generally wishes to obtain permanent exclusive distribution rights within China, and would not want to be restricted to a subordinate position forever. On the other hand, the franchisor must maintain the quality of products and services provided by the franchisee, or risk damaging the reputation of brand.
 

Therefore, it is important to find a structure which will not only satisfy the franchisee, but also provide sufficient protection for the franchisor' s brand. As such, the franchisor may consider setting up a joint venture ("JV") with the franchisee, and assign the brand's Chinese trademark rights to the JV. As a shareholder in the JV, the requirement of "being in control" of the franchisee is more or less satisfied. At the same time, as a shareholder of the company, the franchisor, although it may be unable to have total control of the operation, may also be able to become involved in the company management thereby reducing some operational risks.
 

However, it should be noted that in circumstances where the JV pays a trademark transfer fee and the trademark rights are transferred to the JV, the JV itself will be the owner of trademark rights in China. As the PRC Trademark Office will not accept assignment with restrictions, it is thus impossible to require the Trademark Office to examine conditions attached with the assignment agreement. As a result, if the two parties of the assignment have any disputes over the terms and conditions of the assignment, they can only bring the matter to the court or an arbitration body. This is to say that, once the Trademark Office has approved the trademark assignment, the franchisor cannot reclaim the trademark in the event of disputes.
 

Suggestions for a Franchisor
 

A. Choose your franchisee wisely
 

When the franchisor evaluates a franchisee, it not only needs to have a thorough understanding of the franchisee's strengths, but is also required to look into the franchisee's experience with protecting its own business model, business philosophy, and its own brand. Moreover, even after the franchisor has selected its franchisee, it must be sure to strictly control and monitor its franchisee, and prevent any actions that are inconsistent with its brand image, even if it has to consider termination of the franchising agreement.
 

B. Develop a long term global strategy

In practice, the Chinese market has shown that some of the world's leading multinational corporations which have a well-established network of trademark rights in western countries often neglect to develop a Chinese trademark strategy until they are ready to enter the Chinese market. However, these companies often find it difficult to register their brands, because their brands have already been registered by some other companies in China, or there are already a number of similar trademarks in the Chinese market. In order to unify a global brand, these companies have had to temporarily slow down their expansions, and address the companies' trademark issues first.

Another common problem that multinational corporations face is ineffective Chinese interpretation of their trademark. They often believe that all they need is a Chinese translation of their trademark. However, most Chinese consumers believe that the "Chinese translation" is a trademark of a Chinese product, while a foreign trademark is the corresponding translation. The foreign companies will be placed in a very passive position if the Chinese version of their trademark becomes well-known, and they cannot effectively file their trademark registration.

It is more common that franchisors forget to protect Chinese versions of their brands' domain names and keywords, and thus, they get registered by others. If a company has protected the rights of its Chinese trademark, it can easily acquire a domain name that someone else has registered by using the PRC' s laws against cyber-squatting. However, if the trademark has been registered only in a foreign language, it will be very difficult to defend.

C. Ensure the enforceability of the terms of its agreement

A particularly difficult issue for franchising parties to resolve is how to restore the status quo between the parties when a dispute arises. Apart from the problems caused by the nature of dealing with intangible assets, many other problems arise from the procedures that each country's intellectual property regime imposes and the difficulty of implementing a foreign judgment in another country. Therefore, it is very important for the parties of a franchising agreement to consider national procedure laws and relevant international laws to reduce the risk that the franchise agreement will not be enforceable.

D. Consider franchisee a “regional franchisor” by developing a strong partnership.

Franchisor should stop considering the franchisee a regional agent but a true partner in a brand. This will change the franchisee from being the franchisor's agent to the franchisor's regional franchisor in China, and will enable the brand owner to promote its brand while taking advantage of the franchisee' s knowledge of the consumer market in China.
 

1. According to the decision, “a generic term” that cannot be trademarked is defined as “a product name which is set out in the national standard and/or industry criteria, or accepted by common use”. The Examiner held that “解百纳” is not the name of a grape variety published in the national standard nor the generic term of a wine regulated by the applicable “wine” related industry criteria and standards. 

In addition, “解百纳” was not deemed as the generic term accepted in common use. As a generic term, it must explicitly refer to one product and reflect the essential differences between one product from another. However, “Cabernet” has been translated into “解百纳”, “加本力”、“加本纳特”、“卡贝奈特”. The Chinese wording “解百纳” does not establish a substantial and clear relationship with “Cabernet” as it would in English since there are other equally valid translations. Secondly, three grape varieties contain the word “Cabernet”, i.e. Cabernet Sauvignon; Cabernet Franc; Cabernet Gernischt which are translated as “赤霞珠”; “品丽珠” and “蛇龙珠” respectively leading one to conclude that the wording “Cabernet” is merely a prefix to the name of grape varieties. The above three grape varieties are not translated into “解百纳” and thus are not the common use terms.

2. As for the second issue, the TRAB held that “解百纳” originated from Changyu’s first use beginning in 1936.  “解百纳” was registered as a part of Changyu's trademark and was recognized as Changyu's trademark by wine magazines, the authorities, as well as the China national food industry association. Through its long term use, “解百纳” has become a trademark for Changyu's wine and identifies the origins of the wine products. Therefore “解百纳” has developed its distinctive use by Changyu's over its 70 year history.

However it is obvious that the 6-year dispute regarding the mark “解百纳” has not come to an end since as many as 12 competitors including China Great Wall Winery, Dynasty Fine Wines Group Limited and Yantai Weilong Grape Wine Co., have all claimed to have filed lawsuits against the TRAB with the First Intermediate People's Court of Beijing. It remains to be seen to what extent the court's decision will influence the wine industry in China by this case as well as how the court will set an interesting precedent for judging what constitutes a “generic name”.