Application of Article 15 of the Trademark Law 2001: Chongqing Jiangxiaobai Liquor Co., Ltd. v.Chongqing Jiangjin Winery (Group) Co., Ltd. and State Intellectual Property Administration[1]
Introduction
The Trademark Law of the People’s Republic of China (Trademark Law) 2001 added an Article providing for malicious preemptive registration of a trademark by an agent or representative (“Article 15”). The legislative purposes of such additional provision are to prohibit the agent or representative from preemptively registering the trademark of the principal out of malice, maintain the principle of good faith, and protect the trademark rights and interests of the principal. Article 15 is applicable only if: (i) the principal owns a prior trademark; (ii) an agency or representation relationship exists between the parties; (iii) the disputed trademark and the prior trademark of the principal are identical or similar trademarks in respect of identical or similar goods or services; and (iv) the agent or the representative is unauthorized.
It is still somewhat disputable how to correctly understand and apply Article 15 in judicial practice. The administrative re- trial regarding the invalidation of the trademark “ 江 小 白 ” (in pinyin, “Jiang Xiao Bai”) filed by Chongqing Jiangxiaobai Liquor Co., Ltd. (“Jiangxiaobai”), advised by King & Wood Mallesons, against Chongqing Jiangjin Winery (Group) Co., Ltd. (“Jiangjin Winery”) and State Intellectual Property Administration is a typical illustration on this issue. We may conclude from the re-trial process and its results that the following two aspects matter in applying Article 15: on the one hand, the burden of proof should be clarified in order to effectively crack down on preemptive registration of trademarks; on the other hand, the trademark registration system adopted in China should be respected by controlling the threshold and boundary of its application. While effectively cracking down on malicious preemptive registration, it would be improper to unduly extend the interpretation or lower the application criteria in order to prevent the abuse of the trademark dispute resolution system as a tool for preemption of others’ legitimate trademark rights.
I.Basic facts of the case
This case is about an administrative dispute over the invalidation of a series of trademarks of the famous liquor brand “Jiang Xiao Bai,” which was created by Tao Shiquan, the founder of Jiangxiaobai, at the end of 2011. With its unique personified image and innovative marketing approach, the brand broke through the traditional concept and model of liquor consumption, becoming one of the young and fashionable representatives of liquor in China.
One of the disputed trademarks in this case was the trademark No. 10325554 “江小白” (in pinyin “Jiang Xia Bai,” the “Trademark”). As one of the earliest trademarks applied in the name of Jiangxiaobai, the Trademark was applied for registration on 19 December 2011 and approved on 14 February 2016.
Jiangjin Winery was a partner of Sichuan New Blueprint Trading Co., Ltd. (“New Blueprint”), the predecessor of Jiangxiaobai, in the early days of the establishment of the “Jiang Xiao Bai” brand. On 20 February 2012, it entered into a Sales Contract for Custom Products with New Blueprint, under which Jiangjin Winery was responsible for making liquor products as an OEM. The cooperation between the parties was terminated in March 2013. From 2013, Jiangjin Winery filed an objection and requested a review of the objection in respect of the Trademark successively on the ground that the Trademark violated Article 15, both of which ended in failure. Afterwards, Jiangjin Winery applied for invalidation of the Trademark on the same ground. After the review by the Trademark Review and Adjudication Board and court adjudication in the first instance of the administrative proceedings, Beijing Higher People’s Court made a judgment against Jiangxiaobai in the second instance proceeding on 22 November 2018, holding that: (1) New Blueprint should have known about the trademark “Jiang Xiao Bai” as it was a dealer of Jiangjin Winery and maintained communications via email with Jiangjin Winery about the design drafts of the brand; (2) the Sales Contract for Custom Products did not specify the ownership of trademark and other intellectual property rights; and (3) the sales contract, the delivery notes, the transportation agreement and other evidence submitted by Jiangjin Winery showed that Jiangjin Winery had made preparation for the actual use of the Trademark prior to the filing date of the application for the trademark “Jiang Xiao Bai” and had actually used the “Jiang Xiao Bai” brand earlier. Therefore, the filing of the Trademark application constituted the “preemptive registration by an agent” as provided for in Article 15 and thus the Trademark should be invalidated.
As the core intellectual property of Jiangxiaobai, the Trademark is of great significance to Jiangxiaobai. Jiangxiaobai objected to the judgment, and requested for retrial before the Supreme People’s Court (the “SPC”).
II.Case adjudication
After review, the SPC decided to rehear the case and finally revoked the second- instance judgment, clearly finding that: (1) the sales contract and delivery notes, transportation agreement, audit report and other evidence produced by Jiangjin Winery were insufficient to prove its prior use of the trademark “Jiang Xiao Bai” due to the doubts in many aspects; (2) the Sales Contract for Custom Products stipulates that the rights in the custom products, including those in the product concept and advertising slogan, belong to New Blueprint although there was a dealership between Jiangjin Winery and New Blueprint; and (3) the evidence submitted in the case proved that the name of “Jiang Xiao Bai” and the related product design were first proposed by Tao Shiquan, the then-current legal representative of New Blueprint. In light of the above, the SPC held that prior to the filing date of the application for the Trademark (“Filing Date”), the trademark “Jiang Xiao Bai” was not a trademark of Jiangjin Winery. In accordance with the Sales Contract for Custom Products, Jiangjin Winery did not enjoy any intellectual property rights in the custom products, including those in the product concept and advertising slogan, other than the registered trademark “几江” (in pinyin “Ji Jiang”). The application for registration of the Trademark did not infringe upon the legitimate rights or interests of Jiangjin Winery or violate Article 15.
III.Analysis of the case
The core issue of the dispute involved in this case was whether the filing of the Trademark application fell under the circumstance specified in Article 15. Around the core issue, it was also necessary to decide on the cooperation model between the parties and the ownership of the Trademark. This typical case clarifies the constituent elements, burden and standards of proof under Article 15 as well as the value orientation of that Article under the Trademark Law. It is also worth referring to when interpreting a contract and deciding on the trademark ownership and other issues. Below we will review this case to briefly analyze the above legal issues while taking consideration of relevant judicial practice.
(I)Burden and standards of proof for the “trademark of the principal” in Article 15
Article 15 provides: “[w]here an agent or a representative registers a trademark of the principal in its/his/her own name without authorization, and the principal raises objections, the trademark shall not be registered and shall be prohibited from use.” Generally, Article 15 is applicable if the following requirements are satisfied: (1) the principal owns a prior trademark; (2) there is an agency or representation relationship between the parties; (3) the disputed trademark and the prior trademark of the principal are identical or similar trademarks in respect of identical or similar goods; and (4) the agent or representative is unauthorized by the principal to apply for registration of the trademark in his/her/its own name.
The main issue of the dispute involved in this case was the first requirement stated above—whether “Jiang Xiao Bai” was a prior trademark of Jiangjin Winery prior to the Filing Date. Generally speaking, this requirement mainly involves three legal issues: (i) whether the “prior trademark” includes a “registered trademark” in addition to an unregistered trademark; (ii) whether Article 15 requires actual prior use of the prior trademark in China under the Trademark Law; and (iii) how to determine the burden and standards of proof for “prior trademark.” The judicial practice and academic discussions previously focused on the first two legal issues. The clear answers can be found in the SPC precedents[2] and Article 12.2 of the Guidelines for the Trial of Administrative Cases Involving the Grant and Confirmation of Ownership of Trademarks issued by Beijing Higher People’s Court in 2019.[3] That is, the “prior trademark” referred to in Article 15 does not include any registered trademark or require actual use. For the third legal issue, however, there is no clear judicial interpretation or policy and few precedents address this issue. This case is a typical example of the burden and standard of proof for “prior trademark.”
In this case, Jiangjin Winery submitted several exhibits of evidence to prove that “Jiang Xiao Bai” was its prior trademark before the Filing Date (i.e. 19 December 2011). However, an overwhelming majority of the exhibits occurred after the Filing Date. The exhibits related to acts before the Filing Date mainly included: (1) the sales contract signed between Jiangjin Winery and the alleged dealer, Chongqing Sen’ou Liquor Sales Co., Ltd. (“Sen’ou”) in May 2011, and the delivery notes prepared by Jiangjin Winery between July and November 2011; and (2) the audit report issued by the auditor in 2017 on the sales amount and gross profit generated from the “Jiang Xiao Bai” labelled liquor produced by Jiangjin Winery between April 2011 and January 2013. On the surface, such exhibits appeared to prove that Jiangjin Winery had actually used the trademark “Jiang Xiao Bai.” Upon thorough investigation and careful study, however, obvious contradictions could be found in the above exhibits:
(1)the time shown on the sales contract and delivery notes (i.e. May and July 2011) between Jiangjin Winery and Sen’ou was much earlier than the establishment date of Sen’ou (i.e. July 2012). According to a reliable handwriting authentication report, it was found that the handwriting of the same signatory on these delivery notes was inconsistent with that on the delivery notes submitted by Jiangjin Winery between it and New Blueprint. In addition, Jiangjin Winery admitted in the court proceedings that such sales contract and delivery notes were backdated and it failed to produce any invoices, payment vouchers and other evidence that could objectively prove that such sales contract had been actually performed in 2011; and (2) with respect to the audit report, the period covered by the audit report was determined according to the engagement of Jiangjin Winery. In the absence of original accounting vouchers, the audit report prepared later could not prove that Jiangjin Winery had used the trademark “Jiang Xiao Bai” earlier. Furthermore, the sales amount and gross profit recorded in the audit report contradicted other evidence submitted by Jiangjin Winery. For the above reasons, the SPC decided that the above exhibits could not prove that Jiangjin Winery had used the trademark “Jiang Xiao Bai” earlier.
In addition, Jiangjin Winery also submitted several exhibits of evidence occurring after the Filing Date, intending to prove by “backward induction” that it had made preparations for the use of the trademark “Jiang Xiao Bai” prior to the Filing Date. Such exhibits mainly included: the transportation agreement dated 20 December 2011, and the related agreements and purchase orders for bottles, bottle caps and decals signed and placed within six months of the Filing Date. As shown by the evidence produced by Jiangxiaobai, however, such exhibits submitted by Jiangjin Winery were doubtful in the following aspects: (1) as one of the exhibits admitted by the second-instance judgment, the transportation agreement was entered into by Jiangjin Winery and its actually controlled affiliate and was not supported by invoices or payment vouchers; and (2) the related agreements, purchase orders and other exhibits for bottles, bottle caps and decals were contradictory with respect to product codes, signatories and official seals; and they all lacked valid invoices and payment vouchers. In the absence of any valid evidence occurring before the Filing Date, “Jiang Xiao Bai” shall not be recognized as a prior trademark of Jiangjin Winery simply based on the doubtful exhibits occurring after the Filing Date. Therefore, the SPC refused to admit the above exhibits.
Based on the above analysis and relevant judicial practice, we are of the opinion that:
Firstly, in respect of burden of proof, the party claiming that the disputed trademark violates Article 15 should bear the primary burden of proof. If it fails to provide sufficient and valid evidence, it should bear the adverse consequence resulting from such failure. Given that the prior trademark owned by the principal is the prerequisite for the application of Article 15, if the principal cannot take the burden of proof, it should not be found that the trademark in dispute fall under circumstances prescribed in Article 15 even if the parties have an agency or representation relationship.
Secondly, with respect to the standards of proof, although Article 15 does not require actual use of the prior trademark in China, it does not mean that Article 15 requires no proof of the existence of such prior trademark. The principal still has to prove that the asserted trademark has become a trademark under the Trademark Law before the Filing Date and belonged to it. According to judicial practice, the evidence used to prove a “prior trademark” usually includes a trademark registered or used abroad, a trade name registered, an agreement or authorization document (indicating that the trademark is owned by the principal), and of course, evidence of actual use of the trademark in China. In addition, the standards of proof should be properly and strictly controlled, and any doubtful evidence without corroboration should not be admitted. For example, in the absence of objective evidence such as invoices and payment vouchers to prove the transaction, the backdated contracts, self-prepared delivery notes and agreements concluded with affiliates should generally have no probative force. In the absence of original accounting vouchers, the audit report issued by an auditor engaged unilaterally after the filing date of the trademark application should not have probative force either.
(II)Legislative purposes and value orientation of Article 15
In recent years, China has continuously strengthened its efforts to crack down on malicious registration and infringement of intellectual property rights in order to strictly protect intellectual property rights. Against such a backdrop, malicious registrations and infringement of trademarks have been effectively curbed. At the same time, however, the guilty party sometimes files a complaint first. Some business operators attempt to improperly use the trademark invalidation system to preempt the prior trademark of another, and some even bring lawsuits maliciously. In essence, this case is a typical preemption of famous trademarks of others by taking advantage of Article 15. In view of the above, in order to accurately understand and apply Article 15 in judicial practice, it is meaningful to correctly grasp the legislative purposes and value orientation of Article 15.
According to the Interpretation of the Trademark Law of the People’s Republic of China (as amended in 2001) prepared by the Legislative Affairs Commission of the Standing Committee of the National People’s Congress, Article 15 is added in the Trademark Law 2001 in the following background: (1) as a member State of the Paris Convention for the Protection of Industrial Property (Convention), China is required to fulfill its obligations under the Convention; and (2) malicious preemptive registration of others’ trademarks continues and even intensifies. In this context, the addition of Article 15 aims at cracking down on malicious preemptive registration of trademarks and protecting the trademark rights and interests of the principal. If read with the Understanding and Application of the Opinions of the Supreme People’s Court on Several Issues Concerning the Trial of Administrative Cases Involving the Grant and Confirmation of Ownership of Trademarks and the Standards for Trademark Examination and Trial, Article 15 specifically embodies the principle of good faith in the Trademark Law with the intended purpose of protecting bona fide right holders and cracking down on malicious preemptive registration in violation of the above principle.
With respect to the value orientation, Article 15 is essentially to provide protection to unregistered trademarks in exceptional circumstances under the trademark registration system of China. It is an integral part of the Trademark Law to regulate the preemptive registration of others’ unregistered trademarks under different circumstances. Moreover, as judicial interpretations and practices continue to provide “extensive interpretation” of the “agency or representation relationship” referred to in Article 15,[4] and considering that the Article has almost no requirement for the fame of the right holder’s trademark, Article 15 may provide extraordinarily effective protection for unregistered trademarks under the existing trademark system. On the one hand, the above value orientation means that only unregistered trademarks are protected by Article 15. The registered trademarks should seek protection from other provisions of the Trademark Law. On the other hand, in applying Article 15, consideration should be given to the background that China adopts trademark registration system and overall balance should be kept for the trademark system. For the protection of unregistered trademarks, Article 15 should be consistent with other provisions. It is required to precisely control the threshold and boundary of its application. While effectively cracking down on malicious preemptive registration, it should not blindly extend the interpretation or unduly lower the standards of proof in order to prevent the abuse of Article 15 as a tool for preemption of others’ legitimate trademark rights.
In consideration of legislative purposes and value orientation stated above, the criteria for application of Article 15 shall be reasonably applied in practice on a case- by-case basis:
Firstly, in consideration of legislative purposes, if a party commits any dishonest act at the stage of trademark review and adjudication proceeding or in the process of litigation, stricter standards of proof shall apply to such party and the evidence submitted by such party shall be examined in a more scrupulous way. In this case, Jiangjin Winery committed dishonest acts. It submitted obviously untrue or contradictory evidence in the related review of objection, invalidation request as well as administrative proceedings. In 2016, Beijing Higher People’s Court issued the Notable Legal Issues in the Current Intellectual Property Trials, which provides: “[i]f part of the evidence for use produced by the trademark registrant is forged, all evidence shall be strictly examined, the standards of proof shall be raised accordingly. Forgery of evidence shall be punished as a warning to others.” By reference to the above provision and based on the legislative purposes of cracking down on malicious preemptive registration and protecting bona fide right holders as specified in Article 15, Jiangxiaobai claimed in this case that the court should raise the standards of proof for Jiangjin Winery and examine all its evidence more strictly. The SPC did not explicitly comment on this in its judgment. From the SPC’s detailed analysis of the evidence submitted by Jiangjin Winery and the conclusion of inadmissibility in its judgment, it can be seen that Jiangjin Winery’s dishonest acts actually had affected the judges’ evaluation of evidence.
Secondly, in consideration of value orientation, Article 15 should be applied in a strict and prudent manner as it is a breakthrough and exception to the trademark registration system of “prior application and prior registration.” On the one hand, the standards of proof applicable to Article 15 shall be consistent with those applicable to other provisions of the Trademark Law. In this case, the evidence submitted by Jiangjin Winery, including the contract and delivery notes, was not supported by objective evidence such as invoices or payment vouchers. According to the judicial practice, such evidence should be inadmissible for actual use of the registered trademark even in the dispute over revocation of a registered trademark due to non-use for three consecutive years. It should be examined and admitted subject to higher standards and stricter requirements in the dispute over invalidation that directly relates to the validity of the prior registered trademark. On the other hand, in applying Article 15, relevant evidence should be strictly examined appropriately. If the standards of proof were set too low, and relevant evidence (especially that proving a prior trademark) was examined too loosely, Article 15 would easily become a tool for competitors to preempt the others’ legitimate registered trademarks. If so, it would break the balance of different levels of protection for unregistered trademarks in the entire system under the Trademark Law and even affect the trademark registration system.
(III)Determination of cooperation model and trademark ownership
Article 15 of the Trademark Law regulates the act of trademark registration under specific business relationships. In practice, such disputes mostly originate from business cooperation. In the context of the Trademark Law, the dispute over “agency or representation relationship” and “trademark of the principal” is essentially also a dispute over the cooperation model and the agreement on ownership of trademarks between the parties. In this case, the parties were undisputed over the business cooperation between New Blueprint and Jiangjin Winery with regard to the product “ 我是江小白” (in English “I am Jiang Xiao Bai”). The dispute was how to understand the cooperation model between the parties and to whom the trademarks belong.
Firstly, the cooperation model between the parties should not be mechanically recognized as a traditional dealership simply because the word “sales” is included in the contract name. Instead, comprehensive considerations shall be given to specific terms and performance of the contract, other agreements entered into by the parties and other factors. In this case, New Blueprint and Jiangjin Winery signed the Sales Contract for Custom Products and the Sales Contract on 20 February 2012. The two contracts have many obvious differences in terms of their names and specific terms. The former emphasizes “custom products,” which obviously did not establish a traditional dealership. In addition, Clause 6.2 of the Sales Contract for Custom Products provides for the ownership of the intellectual property created by New Blueprint and invested in “Custom Products.” Specifically, “Party A (Jiangjin Winery) shall respect the product concept, packaging design, advertising pattern, advertising slogan and marketing and promotional plan of Party B (New Blueprint), and without authorization of Party B, shall not use the same on any products sold directly by Party A or by other customers of Party A.” What were used on the custom products during the cooperation were exactly the advertising pattern and slogan (“我是江小白，生活很简单,” in English “I am Jiang Xiao Bai, my life is simple”) created and designed by New Blueprint. “Jiang Xiao Bai” is a commercialized trademark derived from the advertising pattern and slogan and should certainly be owned by New Blueprint in accordance with the above provision of the contract. In terms of the actual performance of the contract, during the cooperation, New Blueprint created, designed and developed the product concept, packaging design, advertising pattern, advertising slogan, marketing and promotional plan in respect of the “Jiang Xiao Bai” labelled products and exclusively sold and invested a large amount in marketing and advertising such products. Jiangjin Winery was simply authorized by New Blueprint to label and manufacture the custom products labelled “Jiang Xiao Bai.” After the cooperation ended, Jiangjin Winery did not continue to use “Jiang Xiao Bai” related trademarks. Thus, in this case, the relationship between the parties was not a traditional dealership but a cooperation model for the specified products.
Secondly, for non-traditional business cooperation model, full consideration should be given to whether there are similar precedents in the industry. In this case, the cooperation model between New Blueprint and Jiangjin Winery was closely related to the unique business model of liquor and wine industry and the work experience of Tao Shiquan, founder of Jiangxiaobai. The cooperation model of OEM in the liquor industry originated in 1998 as represented by the cooperation model between Wuliangye Group and Changsha Haida Liquor & Food Wholesale Co., Ltd. (“Haida”) for the “金六福” (in pinyin “Jin Liu Fu”) labelled products. Under such cooperation model, the “Jin Liu Fu” labelled liquor products present both the trademark “ ” owned by Wuliangye Group as the producer and the trademark “Jin Liu Fu” independently created and held by Haida as the brand owner. After the success of “Jin Liu Fu,” its OEM model quickly prevailed in the liquor industry. Tao Shiquan had worked for Jinliufu for ten years before he founded the brand “Jiang Xiao Bai.” The experience enabled him to deeply understand the advantages of the OEM model. Thus, he chose such cooperation model with Jiangjin Winery at the beginning of his business. Due to the above industry background and Tao Shiquan’s work experience, New Blueprint signed the Sales Contract for Custom Products with Jiangjin Winery in respect of the OEM processing and cooperation for the “Jiang Xiao Bai” labelled products.
In this case, when interpreting the cooperation model of the parties and their agreement on the ownership of intellectual property rights under the Sales Contract for Custom Products, the SPC made accurate findings after analyzing the contract itself and considering the industry background stated above. In determining the ownership of the trademarks under the OEM model between the parties, considering that (1) the Sales Contract for Custom Products explicitly provides that the product concept, advertising pattern and advertising slogan designed by New Blueprint for the custom products shall be owned by New Blueprint; (2) the name of “Jiang Xiao Bai” and related product design were first proposed by Tao Shiquan, the then-current legal representative of New Blueprint, as evidenced by the emails between Jiangjin Winery and New Blueprint during the cooperation; and (3) as the claiming party, Jiangjin Winery failed to submit any valid evidence for its alleged “prior trademark,” the SPC finally determined that “Jiang Xiao Bai” does not belong to Jiangjin Winery but to New Blueprint (now Jiangxiaobai).
Guiding Case No. 162 in the Notice by the Supreme People’s Court of Issuing the Twenty-Eighth Group of Guiding Cases (Document Number: No. 182 [2021] of the Supreme People’s Court). http://ipc.court. gov.cn/zh-cn/news/view-1425.html (last visited August 26, 2021).
As explained by the Supreme People’s Court Xing Ti Zi [2014] No.3, “[w]hether the principal has put the trademark into commercial use is not a condition for application of Article 15 of the Trademark Law.”
Article 12.2 of the Guidelines for the Trial of Administrative Cases Involving the Grant and Confirmation of Ownership of Trademarks issued by Beijing Higher People’s Court: “[t]he trademark registered or applied for by the principal prior to the filing date of the application for the disputed trademark is not the ‘trademark of the principal’ referred to in the Paragraph 1, Article 15 of the Trademark Law. Whether the principal has actually used such trademark is not a requirement set forth in Paragraph 1, Article 15 of the Trademark Law.”
Notable Legal Issues in the Current Intellectual Property Trials issued by Beijing Higher People’s Court in 2016 states: “[a]lthough Article 15 of the current Trademark Law provides for other business relationship than the agency or representation in a separate paragraph, when Article 15 of the 2001 Trademark Law needs to be applied to the trial of a case, due to the absence of differentiation in that Article itself, ‘agent or representative’ may still be understood extensively to regulate such preemptive registration of trademarks in accordance with Article 12 of the Opinions of the Supreme People’s Court on Several Issues Concerning the Trial of Administrative Cases Involving the Grant and Confirmation of Ownership of Trademark.”
