Expertise makes it possible ighlights 1

Highlights China's IP Courts, one year on
Tackling OEM infringement in China
Is OEM use trademark infringement?
Insights Use it or register it? How to protect an unregistered trademark?
How to file? Directly in China with the CTMO or through international extension to China?
Filing a trademark in foreign language and/or in Chinese language?
Designation goods or services by using general terms or a more specific description?
Using the registered trademark "as is" or using variants?
Using the trademark in OEM export business
How to make the best use of a cease & desist letter?
Administrative route or civil action? How to make the best of China's double track enforcement system?
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WHD TOP 10 CASES 2015 Orange & gray color combination of Stihl obtains registration and protection
Reputation considered as a factor to determine the similarity of goods and the likelihood of confusion in Lacoste case (SPC case)
All softwares are not necessarily similar (Microsoft LAUNCHWORKS case)
Taylor Swift successfully opposes a trademark squatter
AIIB wins back its domain name from a squatter in ADR proceeding
General Mill cancels a third party's unused "Wanchai Ferry" mark (Selected to be included in the 2015 SPC Annual Report)
Reputation as a factor to evaluate the similarity of trademarks and the likelihood of confusion in Michelin case (SPC case)
Long infringing use is not a defense in 3M vs 3N case (2015 SPC Top 50 case and Zhejiang Top 10 case)
Unwillingness to provide evidence considered as a factor in the calculation of damages in United Family case (2015 Chongqing Top 10 case)
Misleading online promotion of genuine goods considered as unfair competition in Avène case (2015 SPC Top 50 case)
Glimpse SPC's Top 10 & 50 Exemplary Cases 2015 - Keyword Summary of TM Cases
New Guidelines for the Adjudication of Network-related IP Cases: Beijing High Court
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1PART
7Highlights
Highlights
8WAN HUI DA IP Insight Report
China's IP Courts, one year on
A fter China opened up in the late 1970s and early 1980s, the protection of IP rights moved to the top of the Chinese Government’s agenda. The very first laws enacted after
the Joint Venture law of 1979 concerned trade marks (1982) and patents (1983). Now, China wants to improve the enforcement of these rights, with a special focus on the protection of patents. First, the idea was to create a unique national appellate court for the adjudication of patent related disputes. Finally, it was decided by the State Council, on August 31 2014, to create, for a trial period of three years, three specialised IP courts in the cities of Beijing, Shanghai and Guangzhou. This reform is part of a more global and continuous effort made by China to modernise its judicial system.
Almost two years after that announcement, now is a good time to assess the judicial reform, look at the details of the exclusive competence of the courts and analyse how practice differs in the IP courts, as well as look at some of the innovative decisions of the Beijing IP Court. 2
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China’s IP Courts, one year on Paul Ranjard and Zhu Zhigang of Wan Hui Da analyse how China’s new IP courts have improved enforcement and highlight some important decisions
IP COURTS
IP COURTS
Since the opening of China in the late 1970s and early 1980s, the protection of intellectual property rights has been at the top of the Chinese Government's agenda. The very first laws enacted after the Joint Venture law of 1979 concerned trademarks (1982) and patents (1983). Now, China wishes to improve the enforcement of such rights, with a special focus on the protection of patents. First, the idea was to create a unique national appellate court for the adjudication of patent related disputes. Finally, it was decided by the State Council, on August 31st, 2014, to create, for a trial period of three years, three specialised IP courts in the cities of Beijing, Shanghai and Guangzhou. This reform is part of a more global and on-going effort made by China to modernise its judicial system.
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This paper proposes to provide (1), a brief outlook of some aspects of the judicial reform, (2) details regarding the exclusive competence of the IP Courts, (3) a description of what is changing in the IP Courts compared to the practice of the other courts of China, (4) some innovative decisions recently made by the Beijing IP Court.
The judicial reform
The creation of the IP Courts is a major element of the judicial reform, but not the only one.
As part of the judicial reform, the Supreme Court has set up a Research Center, with three specialized branches 1) the “IP Case Guidance Research Center” in the Beijing IP Court, in charge of studying the use of precedents; 2) the International Exchange Center for IP Judicial Protection with the Shanghai IP Court, in charge of international relations with foreign judges and academics; and 3) the SPC IP “Judicial Protection and Market Value” with the Guangzhou IP Court, focusing on the calculation of damages.
Furthermore, China is making attempts to professionalize and qualify the judges. The court personnel is classified into three categories: 1) the judges, in charge of hearing the case; 2) the assistant judges, who assist the judge in handling the cases; and 3) the clerks, in charge of administrative works, such
as record the hearing, etc. The number of fully qualified judges is substantially reduced which means that a significant number of judges who operated at the Intermediate level have been “downgraded” to a role of assistant judges. As a result, many left the court, preferring to join law firms rather than waiting for a possible promotion.
Now, Beijing IP Court has 45 judges (the IP division of Beijing 1st Intermediate Court used to have more than 100 judges!), Shanghai IP Court has 12 judges, and Guangzhou IP Court has 13 judges.
The exclusive jurisdiction of the three IP Courts
In October, the Supreme People's Court specified the extent of the IP Courts exclusive jurisdiction: (1) civil and administrative litigation relating to patent cases, new plant varieties, trade secrets, lay out of integrated circuit and computer software; (2) appeal against administrative decisions relating to copyright, trademark and unfair competition made by ministries and municipalities at and above county level, and (3) civil litigation involving recognition of well- known trademarks. In other words, all litigation related to the registration of IP rights (patent, trademark, copyright) are subject to appeal before the Beijing IP Court (such as appeals against decisions of the Patent Reexamination Board, and against the Trademark Review and Adjudication Board). All civil litigation involving patents that take place in the geographical area of the three IP Courts
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shall be filed with these courts. A trademark case that involves the recognition of the well-known status of a trademark shall also be filed with the IP Courts. But, for other trademark civil disputes, if they are located inside the area of one of the three IP Courts, they will have to start at the basic court level, whether they are small, big or involve a foreign party.
New structural and operational features
The IP Courts become more… professional. The president and the heads of the several divisions of the court are not (like in other People’s Courts) simple administrators who let lower judges hear cases, they are directly involved in the hearing of cases. Regarding the decision making, while in most other People’s Courts judges who hear a case need to “report” the case to the president of the court, who takes the responsibility of indicating in which direction the decision is to be made, the new IP Court judges are fully in charge and make their own judgements, without having to report to the higher level. The only exception is when the case is very complicated and important and is taken over by the Adjudication Committee. The “Huayuan Pharmaceutical” case (see below) is an example of such exception.
Another new feature of the IP Court concerns the role of the Adjudication Committee, who become less “opaque” than in other jurisdictions of China. These committees exist at each of the four levels of the judicial system and are unique
to China. They are composed of the Court’s president, vice presidents and heads of the divisions. They supervise, and make the decisions, in important cases. The minutes of their discussions are classified as State secrets and do not constitute part of the trial record. Some voices complained about the shortcomings and lack of transparency of such a system, given the fact that the decisions are taken by members of the court who did not attend the hearing. So, as part of the IP Court experiment, the Beijing IP Court’s Adjudication Committee held, in September 2015, a public hearing, which was viewed as a step forward in the direction of more transparency (see below).
When a case is submitted to a panel of several judges, or to the Adjudication Committee, it is even envisaged to publish the dissenting opinion of judges, whenever this occurs.
Cases involving patents are sometimes very technical. The IP Court shall have a “technical investigations” department composed of experts who are full members of the court.
Drafting judgments is also a field of experimentation. The Beijing IP Court, in order to cope with a large number of cases (because of all the administrative appeals), is trying to modify the way judgements are drafted. Some cases, considered simple, may be drafted in a simpler manner, and a brief summary of the case may be published which facilitates the case research and the perusal of the decisions.
Regarding the reference to, or citation of, precedents, a topic for which
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the Supreme People’s Court has a great interest, it can be foreseen that the IP Courts will make use of such possibility.
Some innovative decisions:
“SPTL” case: full reproduction and publication of expert’s opinion
In the first case, a patent and trademark agent, Shanghai Patent and Trademark Law Office filed a trademark “SPTL” which were the initials of its name, in class 41 (training service, etc.). The trademark was rejected by the CTMO on the ground of Article 19.4: “Trademark agencies are forbidden to file in their own name an application for the registration of trademarks on anything else other than their services rendered”. The CTMO considered that training services are not part of the services rendered by a patent and trademark agent.
In order to clarify the interpretation of this article, the Beijing IP Court consulted five experts and obtained two different types of opinions: one literal interpretation of Article 19.4, and one more open interpretation that admitted that training services could be part of a trademark and patent agent’s services.
Finally, the Beijing IP Court followed the literal opinion and refused the registration of the trademark. What was innovative, was that the court fully
reproduced and published the expert’s opinion in its judgment.
“Huayuan Pharmaceutical” case: a regulation issued by the Trademark Office (CTMO) is declared illegal.
On December 24, 2012, the CTMO issued a “Notice On Several Issues Concerning Trademark Registrations On New Retail Or Wholesale Service” (the “Notice”), creating in class 35 a new service called “retail or wholesale service for medicinal, veterinary and sanitary preparations, and medical devices”. The Notice provided (Article 4) for a transitional period covering the month of January 2013, during which trademark applications on identical or similar new services would be deemed to be made on the same date, the prior used trademark having priority. In case of same-date use or in case of non-use, the parties concerned shall negotiate among themselves. If the negotiation fails within the time limit, the CTMO will decide by casting lots. This was inspired by Article 19 of the Implementing Regulations of the Trademark Law of 2014, which addresses the situation where two or more applicants file on the same day identical or similar trademarks.
In January 2013, three applicants filed the name “Huayuan” in class 35. The first was Huayuan Company (who filed “Huayuan Pharmaceutical”) on January 4, followed on January 11, 2013 by a Jianyiwang Company who filed the name “Huayuan”, and on January 28, 2013 by a Yixintang Company who also applied
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for the same name. None of the trademarks was in use. On October 23, 2014, pursuant to its Notice, the CTMO ordered the three
applicants to negotiate, indicating that if the negotiation fails, the CTMO would decide by casting lots.
Huayuan Company, the first applicant, appealed to the Beijing IP Court against the CTMO’s order, asking the Court to examine the legality of the Notice.
This was the abovementioned case where the Adjudication Committee of the IP Court held a public hearing.
The Court declared that Article 4 of the Notice was illegal. In a long and detailed argumentation, the Court basically explained that the CTMO, although it had the right to issue a regulation creating a new type of service, had no right to create such a “transitional period” during which all applications are deemed to have been made on the same date. Therefore, the first to file legal principle had to apply.
Revoking an administrative regulation (such as the CTMO’s Notice) for lack of legality, a possibility provided in the Administrative Procedure Code, is rare. Yet, the Beijing IP Court did not hesitate.
One year after the beginning of this project, it is worth examining what the Courts have achieved.
The Beijing IP Court is particularly busy: 8,758 cases were accepted during the year 2015 and 4,128 judgments were made.
The Guangzhou IP Court is the most efficient: 4,862 cases accepted and
3,238 cases concluded. The Shanghai IP Court has a comparatively lower workload: 1,642 cases
accepted and 1,048 cases concluded. The IP Courts, in particular the Court of Beijing, are faced with the
challenging task of coping with the ever increasing number of IP cases, while delivering, in a transparent way, judgments that are clear and strongly motivated. One of the most frequently cited quality criteria of judicial practice is predictability. Predictability very much depends on the level of transparency, and transparency not only applies to the publication of the judgments but also applies to the manner in which the procedure is conducted during the trial period.
Improving the transparency during the trial period would be an objective that the IP Courts might want to take up, as an additional experiment. For example, they could decide that all arguments submitted by the litigating parties should imperatively be made in written form, should be filed within a defined time before the hearing and should be communicated, at the same time, to the other party. The other party could be given a reasonable time to reply, in the same written way, before the hearing. This would allow the court to have, at the start of the hearing, a complete view of the case. Hearings would take less time. The drafting of the judgment could be facilitated. Thus, the courts could respond to the number of cases in due time while improving the quality of their work.
Contributors: Mr. Paul Ranjard & Mr. ZHU Zhigang
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Why it is controversial to tackle OEM infringement in China?
Huang Hui Many stakeholders who are in foreign countries use OEM factories to
produce their products with their trademarks that they own in their country (of destination). However, sometimes they do not own the trademark in China. It is too late for them to do it because the mark has already been filed or even registered by a third party. Maybe the filing of such prior mark was made in bad faith (pre-emptive registration), but it is not always easy to eliminate such obstacles. Meanwhile, they want to continue using the facilities provided by the OEM factory. And there is the risk: being sued by the prior trademark owner. So, they are in favour of making an exception for OEM exports.
Paul Ranjard This is perfectly understandable. But you also have to take into account the
legitimate owners of registered trademarks who wish to be able to take action against any unauthorised use of their trademarks in China. They want to be able to request the Customs to seize any shipment of infringing products going out of
the country. If there is such an exception in favour of OEM exports, how could they protect their rights ?
What does the latest Trademark Law interpret about this issue?
Huang Hui The Trademark Law does not provide anything in this regard (previous drafts
had specified that OEM could constitute trademark infringement, but this has not been kept in the final text). However, a small change was introduced at the end of Article 48, which defines the “use” of a trademark. The wording is exactly the same as in the previous law (to affix a trademark on goods etc.) but, in the end, the words “…to indicate the source of the goods” are added.
Paul Ranjard Actually, the Chinese Trademark Law follows the same protection principles
as the TRIPS agreement and the European Community Trademark system, but it does it a different way. In TRIPS and the Community Trademark system, the first articles define what is a trademark and the next articles define what are the rights conferred to the owner of a registered trademark (to prevent others from “using” in the course of trade, without consent etc…). In the Chinese law, the first articles define what is a trademark, then another Article (48) defines what is the “use” of
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a trademark and finally Article 52 defines what is an act of infringement (to ‘”use” an identical or similar trademark without consent etc…). This specific Article 48 on the definition of “use”, might be the reason why a confusion was made in the famous “PRETUL” case.
Please briefly summarize the Focker v Ya Huan case.
Paul Ranjard The trademark PRETUL was registered on January 17, 2002 by a Chinese
individual in class 6 for “fittings of metal for furniture, padlocks, locks of metal, other than electric”. It was then assigned to a Hong Kong company, Focker Security Products International Limited (“Focker”).
In Mexico, a company Truper Herramientas (“Truper”), is the owner of two registered trademarks “PRETUL” and “PRETUL & oval device” in class 6.
In 2010, Truper signed an OEM contract with a Chinese factory to manufacture padlocks bearing the “PRETUL” marks and export them to Mexico.
In December 2010 and January 2011, Focker applied to the Ningbo Customs for the interception of two batches of padlocks exported by the OEM factory. Focker initiated a lawsuit before the Ningbo Intermediate Court on the ground of trademark infringement.
The Court of Ningbo ordered the OEM factory to immediately stop using the infringing PRETUL & oval device trademark and pay Focker a sum of RMB
50,000. Both Focker and the factory appealed to the Zhejiang High Court. The
appeal court upheld the decision of the first instance Court. The OEM factory applied for retrial to the Supreme People’s Court. On November 26, 2015, the Supreme People’s Court revoked the Zhejiang
Court judgment. The Court reasoned as follows: since the goods are not to be distributed in China, the trademark affixed on them does not fulfil its function of distinguishing the source of the goods, and therefore, is not used, in the sense of Article 48 of the Trademark law (which defines the act of use). In addition, the Court also took into account the fact that Truper owned the mark in the country of destination.
Why is the Supreme People’s Court’s judgement ground- breaking?
Paul Ranjard This judgement provoked lots of comments. Not everybody agreed. To base
the ruling in an OEM case on the last words added to Article 48 seemed artificial. As mentioned above, these words “…to indicate the source of the goods” correspond to the TRIPS and EU wording “… in the course of trade”, nothing more. Indeed, a trademark can be used for another purpose than indicating the source of goods (for example, “fair use”, like using the trademark of a product to
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designate the repair services related to such products). It is only the use defined in Article 48 that is prohibited by Article 52. And in the PRETUL case, it was obvious that the act of affixing the mark on the products and exporting them had been done in order to indicate the source of the goods, and not for another purpose. The fact that the goods were exported did not change anything to this reality. It would be easy to demonstrate how artificial the reasoning leading to this non-use finding is: what if the goods are exported and immediately re-imported ? Is the “not used” trademark going to be automatically “used” because of this importation? What if they are first sold in China and then exported, is the “used” trademark automatically becoming “not used” ? etc…
Huang Hui Don’t forget that the Court also took into account the fact that Truper was the
legitimate owner of the trademark in Mexico. It seemed only fair to let him obtain his goods, considering that no harm could be done to the Chinese trademark owner.
Paul Ranjard This is true. And this judgment is probably a fair decision, under the
circumstances. However, since it is now considered as a “precedent” that will inevitably influence the future decisions of People’s Courts in future OEM cases, it is only fair to expect that the decision be based on solid legal grounds. You can
easily imagine that an infringer in China could register the trademark of another person in a remote and improbable country of the third world and export its infringing goods to such country and then re-route them to anywhere it wishes. If the PRETUL doctrine were to be systematically applied, this infringer would be totally free to do so.
What messages does the Supreme People’s Court deliver and how will it affect the practice?
Huang Hui It is very unlikely that the Supreme People’s Court intended to deliver a
message allowing the free exportation of infringing goods from China. It probably intended to give a fair solution to a case where, for reasons that may not be precisely explained in the case, the plaintiff was viewed as having acted in bad faith, with the sole intention of exploiting a pre-emptive registration. I agree that letting the batch of goods be exported to Mexico seemed a “fair” decision, in the circumstances. It remains that, if it was systematically followed, this case would deprive all legitimate trademark owners of the right to seek the assistance of the Customs when infringing goods are exported.
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What new messages can be obtained from the recent Shanghai Diesel v Jiangsu Changjia case regarding the enforcement of OEM trade mark?
Huang Hui This judgment made by the Jiangsu High Court (selected as one of the top
50 IPR cases of the year) follows the PRETUL case by a few weeks only. It is interesting to see that, even though it took the precaution of declaring that, in principle, if the goods are exported, there should be no finding of infringement, the court did not apply the reasoning of the Supreme People’s Court (about “use or “non use”). Instead, the court looked into the background of the case. The foreign consignor was considered as having acted in bad faith and the OEM factory was liable for not having conducted a reasonable amount of due diligence. The reasoning of the court, which switched from a radical analysis of the “use” to a factual examination of the circumstances of the case, was welcome.
Paul Ranjard However, the reasoning was not without weakness. Indeed, infringement of
a trademark is constituted regardless of whether it is committed in bad or in good faith. The related civil liability following an act of infringement may be affected by good faith, but not the act of infringement itself. Using the trademark of another
person without consent is an act of infringement… period. Good or bad intentions are irrelevant.
Huang Hui However, the Jiangsu court showed the way: examine the good or bad
faith background of the case. It should have focused on the trademark owner/ plaintiff instead rather than on the defendant. If the bad faith of the trademark owner/plaintiff is established, then, the case can be dismissed and the goods can be exported. If the plaintiff is not acting in bad faith, the goods must remain seized. The Supreme People’s Court in 2014 (the Ellassay case) showed the way when it dismissed a trademark infringement claim on the ground of the bad faith application by the plaintiff (and before the trademark was even invalidated).
In general, what are the key issues to consider when undertaking OEM practice involving goods manufactured in China?
Huang Hui The key issue is, obviously, to own the trademark in China. A risk only arises
if the trademark is owned by another person. The case law discussed above is for the time being in favour of the OEM system user. But we cannot guaranty that this jurisprudence will remain stable. If it is impossible to oppose or invalidate
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the prior registration, if no revocation for non-use can be considered, and no evidence of bad faith in the trademark application can be argued, it seems safer to abstain and arrange if possible the products to be exported without trademark.
Is OEM use trademark infringement?
O riginal equipment manufacture (OEM) has several meanings. Technically, it designates a company that makes a part, or a subsystem, that is used in another
company’s end product. By extension, it also designates a company that makes end products that bear the brand of another company and are marketed by the other company. In China, the term OEM is generally used in an export context, where the production is shipped out of China to a foreign purchaser.
The OEM practice has revealed some problems, as this article will show, when the foreign brand is not registered in China by its foreign owner. What if another person filed an application to register this trade mark, or has registered this trade mark? Could they oppose such application? Would they be considered as infringers and be sued by the owner of the registered trade mark?
China has revised its Trade Mark Law for the third time, in 2013. Both the definitions of trade mark use and trade mark infringement have been updated, which influences the answer to the above questions. Before the law was revised, Chi- 2
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Is OEM use trade mark infringement? In the light of the third revision of China’s Trademark Law, Hui Huang and Paul Ranjard of Wan Hui Da look at the issues surrounding infringement by original equipment manufacturing
TRADE MARK INFRINGEMENT
TRADE MARK INFRINGEMENT
Original Equipment Manufacture (“OEM”) has several meanings. Technically, it designates a company that makes a part, or a subsystem, that is used in another company’s end product. By extension, it also designates a company that makes end products that bear the brand of another company and are marketed by such other company.
The OEM practice revealed some problems, as this article will show, when the foreign brand was not registered in China by its foreign owner. What if another person filed an application to register this trademark, or did register this trademark? Could they oppose such application? Would they be considered as infringers and be sued by the owner of the registered trademark?
China has revised its Trademark Law for the third time, in 2013. Both the
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definitions of trademark use and trademark infringement have been updated, which influences the answer to the above questions. Before the law was revised, Chinese Courts had already handled several cases where these questions were raised. And their answers were not always the same.
Evolution of Case Law
Chinese Courts in different regions and in different periods have, indeed, different understanding of this issue.
In the first years of the century, decisions were implementing strictly the general principles of trademark protection: use of a trademark without the consent of the owner is an act of infringement. And, whether such use is for the manufacture of goods that are to be sold in China or exported (OEM context) makes no difference. For example, in NIKE v. Spanish Side1 and in Guangzhou Hong Xin Co., Ltd. v. Guangzhou Customs2, the Guangdong High Court declared that using a trademark registered by another person, even when the products are exported (such as in an OEM context), is infringing. Mr. Jiang Zhipei, former Head of IP Tribunal of SPC, expressed his opinion that “the legality of OEM use
1 (2001) Shenzhen Intermediate Court Civil Judgment No. 55. 2 (2005) Guangzhou Intermediate Court Administrative Judgment No. 10 and (2006)
Guangdong High Court Administrative Judgment No. 22 Administrative Decision.
of mark cannot be supported without reason; Chinese judicial authority cannot make exception without legal basis”.3
This opinion was not shared by all the Courts. In fact, the Beijing High Court had issued an Answer to Several Issues Concerning Trial on Trademark Civil Disputes, on February 18, 2004, which stipulates in its Article 13 that “OEM is based on the entrustment of trademark owner. The products made by OEM are not to be distributed in China which does not cause confusion and misunderstanding among consumers, thus shall not be found infringing.”
Chinese Courts gradually changed their attitude. On November 2, 2009, the Shanghai No. 1 Intermediate Court and Shanghai High Court held, in Jolida v. Shanghai Shenda4, that because the OEM products are exclusively exported to the US market without distribution in Chinese market, Chinese consumers will not be confused with regard to the origins of the goods. Therefore, the judges considered that, since the primary function of the mark is to indicate the origin of the goods in order to avoid confusion, if the goods are not marketed in China, the mark does not fulfill such primary function in China, i.e., there is no confusion in China, and therefore, no infringement. This reasoning has been followed by Guangdong and Shandong High Courts. However, there are still some dissenting
3 Legal Risk of OEM, China Trademark Magazine Issue No. 12 (2008) 4 (2008) Shanghai Intermediate Court No. 317 and (2009) Shanghai High Court Judgment No. 65 5 (2012) Zhejiang High Court Judgment No. 285
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opinions in others Courts, for example in Zhejiang Province. More recently, on February 19, 2013, the Zhejiang High Court in Focker
Security Products International Limited v. Pujiang Yahuan Lock Co., Ltd. (the Pretul case)5, held that “Firstly, Article 52 .1 (of the Trademark Law) provides the requirement to constitute a trademark infringement. As long as the acts meet the requirement, the trademark infringement shall be found. According to current laws, regulations and Judicial Interpretations, we see no exception that relates to the current case; Secondly, although Yahuan (the Defendant) argues that the accused goods are solely for exportation to Mexico without domestic distribution in China which will not cause confusion and misunderstanding among Chinese consumers as well as cause no harm to trademark right of plaintiff…this argument is not tenable. The defendant’s acts infringed upon the trademark right of plaintiff”.
This case is currently under re-trial procedure of SPC and has attracted huge attention. It is expected that the SPC will clarify the terms of the debate.
In a different context of Article 32, the SPC delivered an opinion concerning the effect of OEM: on June 29, 2012, the SPC in Ryohinkeikaku Co., Ltd. v. TRAB6 (called the MUJI case) rejected the plaintiff’s plea to recover its mark by adducing evidence of use of its mark in the context of OEM production. The SPC
6 Case No: (2012) Xing Ti Zi No. 2
held that evidence of such OEM use is not sufficient to show that a mark has been used and achieved a certain amount of influence in China as stipulated in Article 31 (now Article 32) of PRC Trademark Law.
The 2013 Trademark Law: a new legal framework
The revised law introduces (a) a more precise definition of the act of infringement and (b) a more precise definition of what constitutes “trademark use”.
Trademark infringement
According to Article 16 of TRIPs, likelihood of confusion is a requirement of infringement. This general principle was already implemented in Article 52(1) of the Trademark Law, which defines what is an act of infringement: to use an identical or similar trademark on identical or similar goods, without authorization. There was no reference to the likelihood of confusion. When China acceded to WTO in 2001, the law was revised but Article 52(1) remained unchanged.
In its 2013 revision, Article 52 was modified (and re-numbered 57). It is now split in two parts: 57 (1) which concerns the use of an identical trademark on identical products, and 57 (2) which concerns the use of a similar trademark on identical products, or the use of an identical trademark on similar products,
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or the use of a similar trademark on similar products. In this second part, the requirement “where such use is likely to cause confusion” is added.
It can be inferred from this change that the requirement of likelihood of confusion only applies when similarity is involved. When trademarks and goods are identical (“double identity”), the infringement is necessarily established.
Meanwhile, the Trademark Law adds a new 57 (6) which qualifies as infringement that the act of providing convenience to the infringement when it is committed knowingly.
Definition of trademark use
In order to emphasize the function of trademark, Article 48 of the revised Trademark Law incorporates into the law Article 3 of the Implementing Regulations, which stipulates that the use of trademarks consists in “affixing trademark on goods, packages or containers etc…” and adds the following word “…to distinguish the origin of the commodities”.
The questions raised by the OEM system need to be examined in this new legal framework: a revised definition of infringement and a revised definition of trademark use.
Can OEM be an infringement without likelihood of confusion?
The Courts who rule against the qualification of infringement, believe that if the goods bearing a trademark are not put into the marketplace, the trademark will not be seen by consumers, and since the consumers do not see the goods and the trademark, no confusion is possible, hence no infringement.
This reasoning is apparently logical, but apparently only. It overlooks the fact that when trademarks are identical and used on the same goods (“double identity”), the likelihood of confusion is not a requirement. Under the new legal framework created by the revised Trademark Law, the answer to the question is clear: using an identical trademark on identical goods without authorization from the trademark owner is an act of infringement regardless of whether the goods are sold in China or exported.
Does OEM constitute “trademark use”?
The Courts who consider that OEM cannot be an infringement, put forward another argument: since the goods are not sold in China, they have not entered the course of trade. Therefore, the trademark does not fulfill its function of identifying the origins of goods required in the new Article 48 of the Trademark
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Law, hence no “use” of the trademark. This is very much arguable. The Courts apparently confuse the general
concept of trade with the more precise notion of circulation of goods. “Trade” has a much broader meaning than “circulation”. “In the course of trade” includes not only circulation but also other acts related to commercial transaction such as preparation, storage, transportation, and even manufacture of goods as long as they are related to business and transaction.
There is no doubt, therefore, that the act of affixing a trademark on goods (in China) is an act of use of such trademark, regardless of where the goods are to be traded.
However, the abovementioned MUJI case where the SPC ruled that OEM cannot be considered as use in the context of Article 32 of the Trademark Law, seems to bring a element of doubt in the minds of some commentators. They consider that the SPC has definitely ruled that OEM (export) is not equivalent to use of the trademark in China, and therefore, cannot be an infringement. This is obviously wrong: in the MUJI case, the real problem was not whether the plaintiff has used his trademark in China, but whether he has acquired through such use, a “certain influence” in China. If all the goods are exported, the trademark cannot acquire any reputation in China, even if the mark is applied to the goods in China. The decision in the MUJI case does not mean that the SPC seems has fixed its position in this respect of the infringement committed by the exportation of counterfeiting goods.
How about exempt the innocent manufacturer but determinate OEM as infringement?
In fact, on February 13, 2006, the Beijing High Court7 published an opinion stipulating that “A person ( the entrustee) who is entrusted by another person (the entrustor) to manufacture products bearing a registered mark shall verify whether the entrustor enjoys the right to use the trademark. The entrustee who fails to perform such verification and commits an act of infringement, will bear the joint liability with the entrustee.” In 2009, the SPC8 added that “(Courts) should properly handle the trademark infringement disputes concerning OEM. With regard to the cases where the infringement is established, the Court should properly decide legal liabilities by taking into consideration whether the entrustee has performed its obligation of verification”.
Interestingly, the European Court of Justice has resolved the famous Red Bull case (C-119/10) in a very similar way: the defendant was a service provider who filled the packagings supplied to it by another person who, in advance, had affixed the Red Bull sign protected as a trade mark. In such case, the ECJ
7 Answers to Several Issues Concerning Trial on Trademark Civil Disputes 8 Article 18, Judicial Opinion on Several Issues Concerning IP Trial Under Current Economic
Situation
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considered that the service provider did not itself make use of the sign and was not an infringer. However, the third party who placed the order was found to be infringing the trademark.
In the new legal frame (Article 57.6), the manufacturer’s role is more similar to a facilitator, who, if found innocent (not acting knowlingly), should not be liable for the infringement. But the goods should still be seized by customs.
We hope that the abovementioned Pretul case under SPC review will clarify the debate, once and for all. If the SPC confirms the latest decisions, and rules that export OEM can be an infringement, this will be good news for the right owners who wish to stop the export of infringing products from China.
Contributors: Dr. HUANG Hui & Mr. Paul Ranjard
2PART
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Insights
1. Use it or register it? How to protect an unregistered trademark?
In China, just like in most countries, registration is the quickest and cheapest means to get trademark protection: just 9 months and $100. Normally, you have no reason not to register if you really want to be protected.
But, if you are already using your trademark, but for whatever reason, you have not registered it, and someone else has already filed or even registered the same trademark, what can you do ? If you do not have another prior right (copyright, design, personnel name...) that could invalidate the “obstacle” trademark, what is the solution? In that case, you still have several possibilities that are based on when and how you use your own trademark and also on the subjective status of the prior trademark owner.
Well-known trademark (13.2)
If your trademark is well-known in China after your extensive use or for other reasons (international traveling, spillover effect of TV or Internet, or just promotion), you can, according to Article 6bis of the Paris Convention and Article 13.2 of the China Trademark Law, oppose or invalidate this prior trademark and attack the registrant directly if he uses it.
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Representative or agent (15.1)
If your trademark is not well-known trademark (actually, this is difficult to prove), but the owner of the prior trademark was your representative or agent, you can, according to Article 6quinqies of the Paris Convention and Article 15.1 of the China Trademark Law, oppose or invalidate the registration and attack the registrant if he uses the trademark.
Minimum use and blatant bad faith (15.2)
But very often, the owner of the prior trademark is not your agent or distributor. In this case, Article 15.2 of the new Trademark Law (2013), brings a possible solution. If (1) your trademark has been used (anywhere in China and no requirement of extensive use) and (2) if you can prove that, for reasons related to contractual or business contacts or to geographical circumstances, the owner of the prior trademark definitely knew the existence of your trademark, this is a valid ground for opposition or invalidation
Certain influence and relative bad faith (32 in fine)
Finally, if you have none of the above, you still have Article 32 of the
Trademark Law to fall back on: “…nor shall an applicant pre-emptively register in an unfair manner a mark that is already in use by another party and enjoys a certain influence”. In this case, you do not need to prove any relationship with the prior trademark owner, you just need to prove that, because of your own use, your trademark had obtained “a certain influence” when the prior trademark was filed.
There is a seesaw effect between the two factors, reputation and bad faith. When you have a relatively high influence, you need a low level of applicant’s bad faith, and vice versa. There is no minimum influence as such. It all depends on how much evidence of the prior trademark applicant’s bad faith you can produce: the less evidence you have, the more you need to elaborate on your own use.
Sometimes, none of the above works, or maybe you missed the statutes of limitation deadlines (3 months after preliminary publication for oppositions, or 5 years after registration for invalidation).
In that case you could be sued….
Certain influence and right to continuously use (59.3)
But, even if you are sued, you might still be able to get away and be allowed to continue using your trademark. Article 59.3 of the new Trademark Law can save you. If you had started using your trademark before (a) the application date of the prior registered trademark, and (b) the owner of the prior trademark
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started using his own mark, and if you can show that you had acquired a certain influence, then you are safe. The owner of the registered trademark cannot stop you from continuing using your trademark “within its original use scope”. All he can do is ask you to add some other signs in order to facilitate the distinction…
This concept of “original use scope” is not defined in the law, and is rather vague…
In a case Sail(selected in the 2015 top ten innovative cases of Beijing IP protection), the Beijing IP court enumerates a lot of factors to define the “original scope” (such as the same person, same or similar goods…) but does not mention any geographic limitation. This could be good news for the prior user, but bad or even sad news for the later registrant who will be unable to stop a prior use from growing. The court should find a balance between the use and registration.
Contributor: Dr. HUANG Hui
2. How to file? Directly in China with the CTMO or through international extension to China?
In China, a trademark application can be directly filed with the China Trademark Office (CTMO) or be extended to China via the Madrid system. Which one is better? Both have their pros and cons but in the end, it seems that the national application might have a little more advantages.
Necessary work to be done before filing
Whether you wish to extend your trademark to China or file it directly with the CTMO, you need to perform a few verifications. You need to verify that the trademark is intrinsically registrable in China (there are, sometimes, obstacles due to local culture that you might not know about) and, of course, that it is available. So, even if you prefer the simplicity of the Madrid system, do not hesitate to seek local Chinese advice for this verification. It might save you some expenses in the future.
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Which one is simpler?
Extending a national registration or application to several countries, and for several classes at the same time, definitely seems the simplest way. You work “from home”, with your national trademark agent, and all he/she has to do is to notify WIPO.
However, this simplicity may only be apparent. You only know if the trademark is registered in China at the expiration of the
period of 12 or 18 months, if the CTMO has not notified any objection to WIPO. During that examination period you have no contact with the examiner of the CTMO. So, if for any reason, the examiner finds a problem with the trademark, you only find out after it has been refused and then, you have to file an application for review with the Trademark Review and Adjudication Board (TRAB).
Which one is more flexible?
The CTMO does not accept domestic applications that are too general and too vague in regard to a certain type of products. It is necessary to list exactly what products are designated. Besides, the CTMO divides each international class into several sub-classes, and the similarities of the goods and services are basically judged on the basis of the sub-classes. The same trademark covering goods that fall into different sub-classes could co-exist, e.g., balls for games,
body-training apparatus, machines for physical exercises, gloves for games are not similar as they respectively fall into sub-classes 2804, 2805, 2807 and 2809. As a result, it is advisable to have full discussion with a Chinese counsel on what goods and services to be covered to make sure the trademark could be well protected by covering all the related sub-classes. Also, the class heading will be classified into the specific sub-classes, and can’t cover the goods and services in the whole class.
So, even when filing an international extension, it is necessary to carefully select the list of products and services, otherwise you might believe that your trademark is protected for certain products because you believe they are similar, and you will find out later that it is not.
Actually, in certain circumstances, the international application may still have an advantage over the domestic application. The examiners of international applications are not the same as those of domestic applications. They are less strict and less prone to refuse an application for certain products, due to a lack of precision or other reason. The CTMO seldom objects the descriptions of goods and services for an international trademark unless the goods/services are not accepted in China such as gambling. Thus, if some goods/services are not accepted in a domestic application, the applicant might still be able to have such goods/services covered by the Madrid system trademark.
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Which one is faster?
For domestic applications, CTMO must conclude the examination within 9 months. Compared with the international trademark application (12 or 18 months according to the Madrid Agreement and Madrid Protocol), the advantage to domestic application is obvious. This difference of time can have disagreeable consequences: it is not unusual that the CTMO does not input right away into its system the data received from WIPO about international trademark extensions. So, if an international trademark is filed only one or two months before a domestic application, the examiner would not be aware of the existence of this international trademark when he performs the examination of the domestic application. Therefore, the domestic application will be accepted and published, even though there was a prior application, which eventually will mature to registration. And in the end, the owner of the international trademark has to file an opposition against the domestic trademark application.
Which one is easier to enforce?
In theory, there is no difference in the validity and enforceability of both domestic and international trademarks.
In practice, there is a difference, because the enforcement authorities of China (administrative or judicial) require the submission of a national trademark
certificate, to be issued by the CTMO. The certificate issued by WIPO is not accepted, and the right holder has to specifically request the issuance of registration certification by the CTMO to prove its trademark rights, which can take an additional two to four months.
Moreover, where there is any modification, assignment, renewal of the international trademark, the owner has to request a new registration certification to prove its right. According to the current practice, it may take months for the CTMO to update the renewal and/or assignment record of an international trademark in its system, and during this period, the right holder can not enforce its rights because no registration certification can be produced to prove the existence of the right.
Discretion of the Madrid system trademark
In a potentially conflictual background, it happens that you want to file a trademark even though know that it might be opposed by others. In that case, it may be advisable to go through the Madrid system. Indeed, it is more difficult to monitor the International Trademark Gazette for opposition purposes. Therefore, the risk of opposition is lower.
Contributor: Mr. YANG Mingming
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3. Filing a trademark in foreign language and/or in Chinese language?
In China, if you want to find a McDonald’s store and ask for directions saying “McDonald’s”, you may probably get nowhere. However, if you say “Mai- Dang-Lao”, which is the Chinese transliteration of McDonald’s, then you will immediately be directed to the closest shop. This example shows why it is essential to file a trademark in Chinese language in China.
A well-chosen Chinese mark is easily accepted by Chinese consumers, and this can help marketing the product in China. A good example is Coca-Cola’s Chinese name “ ” (Ke-Kou-Ke-Le, literally means “tasty and pleasing” in Chinese).
China follows the “first-to-file” principle. Therefore, whenever you prepare for filing your trademark in your own language, do it in Chinese at the same time. If you don’t, you might have to face negative and costly consequences.
Choose and register Chinese mark without delay
New Balance vs Lelun Zhou
New Balance Athletic Shoes Inc. (“New Balance”), owns the English mark
“NEW BALANCE” on shoes since 1983, but the Chinese trademark “ ” (Xin-Bai-Lun), was adopted and used much later in 2003.
Before that, a Chinese individual, Lelun Zhou, had filed applications for the Chinese mark " " (Bai-Lun) in 1994 and “Xin-Bai-Lun” (Xin means “new”) in 2004. New Balance had opposed Zhou’s trademark “Xin-Bai-Lun”, but failed and it was approved for registration.
In 2013, Lelun Zhou sued New Balance and its distributor for trademark infringement. In 2015, the Guangzhou Intermediate Court recognized the infringement and ordered New Balance to pay an amount of US$15 million as damages, half of New Balance’s profits in China. The court held that, New Balance was aware of the risk but still continued the use of the infringing mark.
New Balance appealed. The case is now under trial by the higher court.
Castel vs Daozhi Li Yu
CASTEL FRERES S.A.S (“Castel”) had been using the Chinese mark “
”(Ka-Si-Te) on wine since August 1998, but Castel did not register this Chinese mark.
A Chinese company in Wenzhou applied for the registration of the trademark “Ka-Si-Te” in September 1998, and obtained the registration in March 2000. The mark was later transferred to a Chinese-Spanish Daozhi Li Yu.
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Castel tried to settle the issue by trademark purchase negotiation, non-use cancellation and invalidation, but all failed. Meanwhile, Castel was still using the Chinese mark “Ka-Si-Te”.
In 2009, Daozhi Li Yu sued Castel and its distributors for trademark infringement. In 2012, the Wenzhou Intermediate Court recognized the trademark infringement and ordered Castel to pay an amount of US$5 million as damages. Castel appealed. The higher court maintained the judgment. Castel filed a retrial application to the Supreme Court and decided to change its Chinese mark to “ ” (“Ka-Si-Dai-Le”). In January 2016, the Supreme Court rendered its judgment, reducing the amount of compensation to US$77,000, which was a relief for Castel.
Conclusion: When you launch a product under a foreign brand, do not assume that this will be sufficient to protect you against the use of a Chinese equivalent. Always create and use the Chinese equivalent. Of course, be careful when you choose the Chinese mark, and do risk assessment before deciding whether to continue using the trademark if it is in conflict with a prior right.
Be tolerant and smart when dealing with a nick-name
Pfizer vs Viamen
Pfizer Inc. (“Pfizer”), is the owner of the mark “VIAGRA”, which was filed in
China in October 1996. Two years later, Pfizer adopted a Chinese name “ ” (Wan-Ai-Ke) and filed the application in July 1998. However, the Chinese media and consumers had already created a sort of “nick name” for the Viagra blue pill, “ ” (Wei-Ge), which means “big brother”. This name was already popular and widely accepted.
A Chinese company, Guangzhou Viamen Pharmaceutical Co., Ltd. (“Viamen”), filed the application for “Wei-Ge” in June 1998.
Pfizer opposed Viaman’s application, lost, appealed, and lost again. The court found that, Pfizer had never advertised its products under the name “Wei- Ge”, and on the contrary, claimed that its Chinese mark was “Wan-Ai-Ke”. Pfizer sued Viamen, in a civil action, trying to stop the use of “Wei-Ge” but failed again, as Viamen was able to resist such action by claiming its registered trademark.
Sony Ericsson vs Jianjia Liu
Sony Ericsson Mobile Communications AB, is a joint venture set up in 2001, between Sony Group and Ericsson Group. It is the owner of the Chinese mark “ ” (Suo-Ni-Ai-Li-Xin), which is the transliteration of “Sony Ericsson”.
However, such a long name was soon shortened by the consumers to become “ ” (Suo-Ai) and this short version became widely accepted. But, Sony Ericsson did not admit this abbreviation, at least not until October 2007.
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A Chinese individual, Jianjia Liu, had filed a trademark application for “Suo-Ai” in March 2003 and had obtained the registration in August 2004.
Sony Ericsson filed an invalidation application against this mark in June 2005. The TRAB refused the invalidation and maintained the registration of “Suo- Ai”.
Sony Ericsson appealed. The first instance court overturned the TRAB’s decision and cancelled the trademark, finding that “Suo-Ai” is widely accepted by the Chinese consumers as the source identifier of Sony Ericsson’s products and that Jianjia Liu had not been acting in good faith when he registered the “Suo-Ai” trademark.
Jianjia Liu appealed. The second instance court reversed the judgment, finding that, Sony Ericsson had no evidence of prior use of “Suo-Ai”, and had even denied many times that “Suo-Ai” was the abbreviation for “Suo-Ni-Ai-Li-Xin”. So, Sony Ericsson did not own the mark “Suo-Ai”. Sony Ericsson filed a re-trial application with the Supreme People’s court, but was dismissed.
Conclusion: It was not a good option for Pfizer and Sony Ericsson to deny the relation between their names and the Chinese nick names created by the consumers. If they had taken appropriate actions when the nick-name came out, the situation may have been in control. A nick-name is not always bad, and it can constitute an extension of your protection.
The names of celebrities are easy targets
Michael Jordan vs Qiao Dan Sports
Michael Jordan, famous NBA player, is widely known and recognized by Chinese people as “ ” (Qiao-Dan, Chinese transliteration of his last name Jordan). Michael Jordan and Nike Inc. (“Nike”) cooperated to launch the world famous basketball shoes since 1985. Nike registered the mark “MICHAEL JORDAN” in June 1991, but never registered the corresponding Chinese transliteration.
A Chinese company, Jinjiang Mai Ke Shoes and Plastic Company, which later change its name to Qiao Dan Sports Co., Ltd., in 1999, filed the logo mark
(flying man), and in 2000, the words “Qiao-Dan” in Class 25. Both were recognized as well-known trademarks by the Trademark Office. It later registered over 200 Qiao-Dan related trademarks, including “ ” (jersey number 23), “
” (Jie-Fu-Li Qiao-Dan, the Chinese name of Michael Jordan’s elder son Jeffrey Jordan), “ ” (Ma-Ku-Si Qiao-Dan, the Chinese name of Michael Jordan’s younger son Marcus Jordan).
Nike Inc. took opposition/invalidation actions against the earlier trademarks, but failed. Then, Michael Jordan himself came out and continued the fight, but lost before the courts again.
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Michael Jordan filed re-trial applications to the Supreme Court, and the court hearing was conducted in April, which may be a positive signal.
Conclusion: Foreign celebrities are commonly referred to by the Chinese transliterations of their last names. This should be included into your filing strategy.
Contributor: Mr. WU Xiangrong
4. Designation goods or services by using general terms or a more specific description?
When registering a trademark, it is essential to provide the exact description of the goods and services to be designated by the trademark. This determines the protection scope of the registered trademark and also, can be a protection against possible future non-use attacks. However, due to the complexity of the sub-class system adopted by the CTMO and to the Examiner’s attitude when examining trademark applications, which is sometimes capricious and rigid, it is not always easy to select the right goods and services. Yet, the description must be accurate and specific.
Referring to the class heading does not mean protection for the whole class
We see this quite often with international trademarks. The description of goods mirrors the class heading of the Nice Classification. But, in the sub-class system, the class heading usually only covers a few sub-classes in that particular class. For instance, the official Nice heading for Class 25 is “clothing, hats and shoes”. If you file a Madrid application with that class heading, you might think
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your trademark will cover all products in Class 25, but in fact your trademark will not have any protection for socks, gloves, scarves or belts.
The specific description may help to obtain the co-existence
The amount of trademark applications increased sharply in China in the recent years. In 2015, the CTMO received over 2.87 million new trademark applications. The total amount of registered trademarks now exceeds 10.3 million. With such a large amount of trademark applications and registrations, the likelihood of conflict with earlier marks increases. Therefore, a specific and precise description of goods may help the applicant to find space and co-exist among earlier marks.
In October 2013, Microsof t app l ied to reg is ter the t rademark “LAUNCHWORKS” in respect of “game software”, but was refused by the CTMO due to the earlier trademarks “LAUNCH” which was registered in respect of “management software for motor vehicle maintenance and repair” and “computer peripheral devices”. All these goods fall into the sub-class 0901 according to the Classification Book. Microsoft appealed against the refusal decision but was dismissed by the TRAB. Microsoft further filed an appeal to Beijing IP Court. After the hearing, the Judge found that “game software” is provided to the game players for amusement, while the “management software for motor vehicle maintenance and repair” is a tool provided to the drivers for auto repairing and
maintenance, and such goods can be deemed as dissimilar goods due to their different function, providers, sales channel and consumer groups. Thus, the Judge ruled to cancel the refusal decision made by the TRAB.
Inaccurate description of goods may be vulnerable to non- use cancellation
The requirement of evidence proving that a registered trademark is used has become more and more strict. If the goods description is different from the products on which the mark is actually used, even they could be regarded as similar goods, the trademark registration faces a high risk of being cancelled for non-use.
In previous practice, the evidence of use on one designated item was enough to maintain the entire registration on all the designated goods before the CTMO. The TRAB was stricter, but normally the use of one item at least could maintain the registration on all the similar goods in the same sub-class. However, in a recent decision made by the TRAB in March 2016, the TRAB accepted the use evidence provided for “facial creams, skin-care creams” but still cancelled the registration in respect of the similar goods “perfume, lipsticks, hair lotions, etc.”. In late April, the Supreme Court issued its 2015 Annual Report citing a retrial case in which the use on “scraping-wall greasy powder” fails to maintain the registration on “paints” in a non-use cancellation action.
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Inaccurate description may jeopardise the enforcement of the trademark
The accurate description is also of high importance for the enforcement of the trademark, especially in a criminal case which requires the use of an identical trademark on identical goods.
In early 2012, a Chinese company named DU GAO was raided by the police for manufacturing and selling “ink-jet printing machines” with the trademark “DOMINO”, which was identical to the registered trademark “ ”, owned by DOMINO PRINTING SCIENCES PLC. (“DOMINO”). The Court of first instance found that “ink-jet printing machines” should be deemed identical to the designated goods item “ink jet marking apparatus” of DOMINO’s trademark. The Court ruled, therefore that DU GAO company and its proprietors had committed the crime of counterfeiting a registered trademark. But, this case had a big turnaround in the second instance. The Court of appeal found that the “ink-jet printing machines” manufactured by DU GAO company is a kind of industrial machines and should be classified into Class 7, while the “ink jet marking apparatus” of DOMINO in Class 9 are provided for the domestic or commercial purpose, so they could not be deemed as the same products. Therefore the Court said that DU GAO did not commit a crime.
Contributor: Mr. YANG Mingming
5. Using the registered trademark “as is” or using variants?
In principle, you should use your registered trademark in your business exactly as it is registered. However, sometimes, for various reasons (change of the brand image, suit the needs of the market in a certain area, etc.), you may actually be using a variant of the registered trademark. Is there a risk?
Unfortunately, yes… there may be a risk. If the alteration is such that it changes the “distinctive feature” of the registered trademark, you might end up losing it or be unable to enforce it against others.
The risk of being cancelled for the alteration (49.1)
In principle, according to Article 49.1 of the Trademark Law, the AIC may order you to rectify the alteration, and if the rectification is not implemented within a given period, the CTMO can cancel the registered trademark ex-officio.
However, till now, this has never happened. In fact, it would be easy to defend against such an action by claiming that the (variant) used trademark is a different and unregistered trademark. So, no need to worry too much about this.
On the other hand, you might be in the opposite situation: a third party has registered a trademark and, in actual use, has substantially transformed such
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trademark to the point that the “variant” has become an infringement of your own. Then you might want to enforce fully the potential of Article 49.1. Just be aware that this is not easy…
The risk of being cancelled for non-use (49.2)
According to Article 49.2 of the China Trademark Law, a trademark can be cancelled if it has not been used for a period of three consecutive years. In an Opinion issued in 2010, the SPC specified that if the trademark is so altered that the distinctive feature of the registered trademark has been “substantially” changed, such use of the modified trademark shall not be deemed as use of the registered trademark. Therefore, if you only use the substantially changed version, your registered trademark can be cancelled for non use.
The law does not specify to what extent a trademark needs to be altered so that it runs into the risk of being considered as not used. In practice, usually, the changes in the font/case of English characters or in the type of Chinese Characters (simplified/traditional), and in the orders of the components (words/ device) will not be deemed as substantial change.
However, if you really change the trademark or any of its components, it may be a problem. For example, in the ” TINIT” case, the registered trademark was TINIT but the actual used mark was LISHIX. The Beijing High Court held that the use of LISHIX is not the use of the registered
trademark because the distinctive component “TINIT” was changed into LISHIX, and therefore upheld the cancellation based on non-use.
Risk of not being awarded damages in a civil lawsuit (64.1)
The new amended Trademark Law (Article 64.1) provides that the right owner needs to prove that its trademark has been actually used when claiming the damage. And the civil courts hold the same opinion as the CTMO about variants (sometimes even stricter). So if it is only a variant that is used, but the case is based on the registered trademark “as is”, the court may affirm the infringement but refuse to grant damages because it considers that the registered trademark is not actually used.
The bright side…
In China, the courts do not accept infringement lawsuit from one registered trademark against another registered trademark. This is the result of Article 1.2 of a SPC Interpretation issued in 2008, which, however, provides for an exception: when the “target” trademark has been substantially altered so that its distinctive features are changed, it is possible to file a lawsuit against such registered trademark.
For example, Lacoste was able to sue the registered trademark because
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it had been modified into (Lacoste’s TM is ), and BMW was allowed to sue the registered , because it had been altered into TM (BMW’s TM is ).
Conclusion: you need to monitor how your registered trademark is actually used. If, for some reason, the manner in which you use it steps away from the original, it is advisable to file a new trademark and make sure you maintain a sufficient amount of use of the original.
Contributor: Mr. HE Wei
6. Using the trademark in OEM export business Original Equipment Manufacturing or OEM is the business model that is used
when a trademark owner is “sourcing”, i.e., looking for a factory to manufacture its products, using its trademark. China is one of the most favoured countries by business operators sourcing OEM products. If you are one of them and want to ensure the safe exportation of the OEM products, is there anything you need to do? And if, assuming you do not own a registration of the trademark in China, you want to prevent others from registering such trademark, can you rely on your prior OEM export business?
Due to the lack of specific regulation in China, the nature of the trademark use in OEM export business is still an unstable issue. And the opinions of the authorities (CTMO/TRAB) and courts vary according to the type of procedure.
So it is better to understand this issue as the way suggested by Oliver Wendell Holmes Jr., that is, “The life of the law has not been logic; it has been experience” (The Common Law, 1881). Below we analyze a few issues based on recent precedents:
Can OEM use protect against a cancellation action for non-use?
If you have already registered your trademark in China, but you only use it for
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OEM export, anybody could claim that you are not using your trademark in China, since you are not selling anything in the country. Is the use of the trademark in OEM export business sufficient to defend against a cancellation action for non- use?
Before 2010, such cancellations actually happened, for the above reason: no sales in China was considered as no use.
This opinion changed after 2010. The Beij ing High Court in the “SCALEXTRIC” case, and, more recently the TRAB in the “MIRRO” case (2015) accepted that OEM use, if it reflects the true intention of using the trademark by the registrant, is sufficient to resist a cancellation action for non use. For the purpose of showing such true intention, single or occasional exportations may still be weak. Comprehensive evidence of long-time and consistent OEM exportations is necessary.
Opposition based on Article 32: can OEM use generate a “certain influence” ?
Article 32 of the Trademark Law allows the prior user of a (not registered) trademark, which has acquired a certain influence, to oppose the registration, or request the cancellation of a subsequent identical or similar trademark, if such trademark has been filed by improper means (commonly called “pre-emptive application”).
The article is very often used, but… what if our prior use is only through OEM business? Does such use count for the application of Article 32?
Well… it does not. In the famous MUJI case (2012), the Supreme People’s Court held that the use in OEM business is not able to generate “a certain influence” because the OEM products have not entered the local market at all,.
From then on, although there are few cases affirming that OEM business can also bring “a certain influence” in special circumstances, most of the cases followed the principle laid down by the SPC.
Can OEM use be affirmed as trademark infringement?
If another person has obtained the registration of “your” trademark, and you are using this trademark in OEM practice for export, can you be sued?
The answer to this question is the most controversial and least stable of all. The courts have changed their minds several times; they found that OEM export is an act of infringement and found the exact opposite.
In November 2015, the SPC handed down a “retrial” judgment in the famous Focker v. Yahuan case, also called the PRETUL case, with a reasoning according to which since the goods were exported from China, the trademark Pretul that was affixed on such goods was not “used” in the sense of the Trademark law, and therefore, no infringement was committed. The Court noted, further, that the defendant owned the trademark in the country of destination.
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It is very unlikely that the Supreme People’s Court intended to deliver a message to allow the free exportation of infringing goods from China. Letting the batch of goods be exported to Mexico seemed a “fair” decision in the circumstances. It remains that, if it was systematically followed, this case would deprive all legitimate trademark owners of the right to seek the assistance of the Customs when infringing goods are exported.
Several weeks later, the Court of Jiangsu rendered a judgment in another OEM case Shanghai Diesel v Jiangsu Changjia, which did not follow the SPC’s reasoning. The court found that the defendant should have conducted some due diligence and should have known that there was a conflict between the Chinese plaintiff trademark owner, and the Indonesian purchaser of the goods. The OEM factory was, therefore, declared infringing and the good were not exported.
Still, the Jiangsu court declared that “Generally speaking, it would be advisable to find the Chinese OEM manufacturer’s act not constituting trademark infringement if the OEM products are all for exportation and are not intended for distribution in China.”
Given the above, it can be preliminary concluded, for the time being, that if you have the trademark registration in the destination country and perform OEM business in good faith, there will be little risk of being found infringing.
This being said, the above case law is controversial, for a number of reasons. Affirming that a trademark is not used because the goods are exported can be easily challenged. Likewise, making the finding of infringement or non-
infringement contingent on the good or bad faith of the exporter, or on whether the purchaser owns the trademark in the destination country, is also very arguable.
Therefore the best advice is of course to use the trademark in China, and be the first to do so before others try to register it. But if your trademark has been pre-emptively registered by another person and if there is nothing you can do about it, it seems that, for the time being, OEM business is safe.
Contributor: Mr. HE Wei
67Insights
7. How to make the best use of a cease & desist letter?
In China, the cease and desist letter is commonly used to warn infringers. Experience showed that you may have 50% of chance to get a reply to your cease and desist letter. The cease and desist letter usually works well with straightforward counterfeit case and against small infringers. When it comes to complicated case and big infringer, it is critical that you carefully evaluate the risk of being sued before sending out the cease and desist letter.
The recognition of non-infringement lawsuit
The recognition of non-infringement lawsuit was first accepted in a patent case in 2002. Then Article 18 of the SPC’s Judicial Interpretation on Several Issues Concerning the Hearing of Patent Infringement Cases (2010) set up the procedural requirements: 1) the right owner sends the cease and desist letter; 2) the recipient urges the right owner to file the civil lawsuit; 3) the right owner does not withdraw the cease and desist letter or does not file the civil lawsuit within a reasonable period; 4) the recipient can then file a recognition of non-infringement lawsuit.
Now, the recognition of non-infringement lawsuit extends to all IP cases, and the courts are lowering the procedural requirements: the recipient is sometimes
allowed to file a lawsuit as soon as it receives the cease and desist letter. The biggest inconvenience of being sued for non-infringement is that, you
lose the control of the lawsuit: 1) you have no more choice of the jurisdiction which is very important in a lawsuit strategy; 2) you have limited time to prepare the evidences, and sometime even worse, the evidences will disappear if you did not secure them before sending the cease and desist letter.
In the Honda case (selected in the 2015 top ten IP cases by the SPC), Honda sent cease and desist letter to Shuanghuan, a Chinese car maker based in Shijiazhuang city, and its distributors, asking for immediate cease of design patent infringement. Shuanghuan filed non infringement lawsuit in Shijiazhuang in October 2003. Hongda then filed infringement lawsuit in Beijing in November 2003, claiming huge damages (RMB 3.4 billion). According to the SPC’s first-file principle, Beijing High Court transferred the infringement case to Shijiazhuang Intermediate Court in 2004 for a combined trial.
In the meanwhile, Shuanghuan filed invalidation action in December 2003, and successfully cancelled Honda’s patents in September 2007.
In April 2008 and then in April 2013, Shuanghuan lodged additional claims requiring Hongda to pay RMB 3.6 billion for the damages caused by the cease and desist letters.
Finally, in December 2015, the SPC decided that Hongda shall pay RMB 16 million for the damages caused to Shuanghuan.
69Insights
How to use the cease and desist letter?
It is recommended to make a website notarization and/or notarized purchase before sending a cease and desist letter.
If the infringer ignores the cease and desist letter, you can arrange another round of notarization to prove the infringer’s bad faith, and then file the lawsuit.
For complicated and important case, it is advisable to do the forum shopping and directly file the civil action without sending the cease and desist letter.
Contributor: Mr. ZHU Zhigang
8. Administrative route or civil action? How to make the best of China’s double track enforcement system?
Unlike most of other counties, China provides, besides the civil action, an administrative route (AIC action) to solve trademark infringement. When you have trademark enforcement issues, you need to compare the pros and cons of each of the solutions provided by Chinese law, and then deploy the most appropriate strategy to crack down on the infringers.
The AIC action:
The AIC action has been known for its simplicity and cost-efficiency. Anyone, not necessarily a licensed lawyer, can represent the right owner
to file a complaint. For straightforward counterfeit case, the AIC usually cooperates with the right owner and takes actions rather quickly. The AIC seizes the counterfeits and in exceptional circumstances the transaction records. A penalty (cease of infringement plus fine) will be issued within 2-3 months and the counterfeits will be destroyed afterwards.
If an infringer is punished twice for trademark infringement in 5 consecutive
71Insights
years, or three times for unfair competition in 2 consecutive years, the AIC can put him into a “black list” for special supervision.
It is, however, becoming more and more difficult to push the AIC to take action unless the case is a simple and straightforward counterfeiting case. This is due to a number of legal changes and administrative decisions. As a result, the official statistics show that the number of AIC actions is declining: 66,230 in 2012, 56,870 in 2013, 42,450 in 2014, and 34,000 in 2015.
The newly revised Trademark Law (2013) contains some of these changes. It sets up a short time limit for the examination of trademarks (9 months) and for opposition procedures (12 months). It further stipulates that in case of failure in the opposition, the trademark is immediately registered (Article 35.2). Finally, and this is not something new, according to an SPC’s judicial interpretation on the conflict with prior rights (2008), a registered trademark cannot sue another registered trademark.
The combination of the above rules explain why it is becoming difficult to motivate the AIC: if the target explains that it just filed a trademark, the AIC prefers to wait until the end of the examination period. Even if an opposition is pending, the AIC prefers to wait and make sure that it is not going to raid a trademark that would become automatically registered if the opposition fails.
Moreover, the AIC is now reluctant to take action against the distributor. According to the new Trademark Law (Article 60.2), when the distributor has evidence to prove that he obtained the infringing goods through legitimate
channels and indicate the name of the supplier, the seized product shall be returned with simple prohibition to sell.
Finally, since the right owner is not legally a party to the AIC procedure and cannot officially “push” the case, the efficiency of the action largely depend on the AIC motivation. And for the reasons below the AIC’s motivation is not anymore what it was:
The central government’s recent policy is to weaken the AIC’s functions and powers in order to alleviate their interference on the market economy;
The AIC is merging with other enforcement agencies (TSB, FDA, etc.) into a Market Supervision Administration. Since the focus is food and drug security, the FDA is taking the lead on both manpower and resources.
The quota of fines is no more a factor of performance evaluation for the AIC.
The newly revised Administrative Procedure Law (2014) requires that, in case of administrative lawsuit against an administrative agency, the person in charge of said agency shall appear in court.
Even so, the AIC action remains the most cost efficient way to deal with straightforward counterfeit case.
Moreover, it can be used as well to preserve infringing evidence or get the sales records or other information about the supplier or counterfeiting chain in a combined litigation strategy.
73Insights
The civil action:
The civil action is, of course, more expensive and time consuming than the AIC action. But it is the primary choice when you have to deal with complicated cases, like copy of trade name, imitation of trade dress, use of look-alike trademark (even already registered if you can prove your trademark is well- known) etc. and if you want to obtain damages.
First, the civil action is more flexible. Unlike the AIC action in which you only rely on the ex officio investigation, you can build your civil case, from the evidence collection to the forum of the case.
Second, the judges are usually well trained and more open-minded, and have a rich experience in dealing with complicated cases. You have better chance to get comprehensive protection in a civil action.
Last but not the least, the civil action is the only legal procedure that allows you to get damages. The new Trademark Law has raised the statuary damages up to RMB 3 million. The SPC is encouraging the judges to grant punitive damages against repeat offenders. You can also use the evidence preservation and property preservation measures to increase the chance to get as much damages as possible.
Contributor: Mr. ZHU Zhigang
3PART
75Highlights
1. Orange & gray color combination of Stihl obtains registration and protection
For the first time, a colour combination trade dress, before being registered as a trademark, is granted judicial protection as a “specific trade dress of famous commodity”, under the Anti-unfair Competition Law of China.
Legal and Regulatory Background
The relevant legal background is Article 5 of the Anti-unfair Competition Law: A business operator shall not harm his competitors in market transactions by
resorting to any of the following unfair means: ...........................................
(2) using without authorization a unique name, package or decoration of another person’s famous commodity, or using a name, package or decoration similar to that of another person’s famous commodity, thereby creating a confusion between its own commodity and that famous commodity and leading the consumers to mistake the former with the latter”.
77WHD TOP 10 CASES 2015
Case Summary
ANDREAS STIHL AG & CO. KG (STIHL) is the biggest manufacturer of chainsaws in the world. Since 1972, STIHL has been using the “orange and gray” colour combination as its trade dress on chainsaws and other garden power equipment around the world.
An illustration of STIHL’s “orange and gray” colour combination trade dress
As early as 1995, STIHL established a wholly-owned subsidiary company in China to explore the Chinese market, opening chain stores and providing after- sale service to consumers. STIHL’s products are sold in most of the cities and provinces in China, claiming more than half of the market share of high-end chainsaw products.
In 2013, STIHL became aware that a garden machinery company in Hangzhou was producing and selling STIHL chainsaw copies. This Company copied a series model of STIHL chainsaws, and used the specific colour combination of orange and gray

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