Introduction
The “Shanghai Story” silk scarf is one of the featured souvenir gifts from Shanghai popular among visitors and tourists. However, as the brand becomes more and more famous, the brand is faced with more trademark infringement from both online and offline. On 31 October 2017, the suit brought against Shanghai Bingli Clothing Co., Ltd. (hereinafter, Shanghai Bingli Company, the “Defendant” in the first instance, and the “Appellee” in the second instance) for infringing the name peculiar to well- known goods by Shanghai Story Silk Development Co., Ltd. (hereinafter, Shanghai Story Company), Shanghai Ziqi Clothing Co., Ltd. (hereinafter, Shanghai Ziqi Company) (collectively, the “Plaintiffs” in the first instance, and the “Appellants” in the second instance) has received its final court decision. In the second instance decision, Shanghai Intellectual Property Court concluded that the scarves and the silk scarves that bear the mark “Shanghai Story” owned by the Appellants were well-known goods, and the mark “Shanghai Story” is a name peculiar to such well-known goods. Shanghai Bingli Company was found having engaged in unfair competition, and was ordered to compensate the Appellants for its unauthorized use of the mark “Shanghai Story” peculiar to the well-known goods
In China, registered trademarks are protected under the Trademark Law of the People’s Republic of China (Trademark Law). For unregistered marks, the distinctive names peculiar to well-known goods can obtain protection pursuant to Paragraph (2) of Article 5 of the Anti-Unfair Competition Law of the People’s Republic of China 1993 (Anti-Unfair Competition Law). In this case, the Plaintiffs had not obtained the exclusive right to use the registered trademark “Shanghai Story” until 13 February 2017 (when the case was under the first instance review). Thus, the Plaintiffs decided to sue the Defendant for such infringements prior to the registration of trademark under Paragraph (2) of Article 5 of the Anti-Unfair Competition Law.
One may wonder, before the trademark registration becomes valid, under what circumstances the protection for the name peculiar to well-known goods under the Anti-Unfair Competition Law would be granted. This article explores the answer via the case of “Shanghai Story.”
I. Case review
“Shanghai Story,” a brand fostered by unique Shanghai culture, was a brand created by Shanghai Ziqi Company in 2003. Since then, Shanghai Ziqi Company has been focusing on the retail business of scarves (including silk scarves and shawls) under the brand name—“Shanghai Story.” In 2009, Shanghai Ziqi Company established Shanghai Story Company and assigned the brand of “Shanghai Story” to Shanghai Story Company. Notwithstanding the establishment of Shanghai Story Company and the subsequent assignment of the brand, the trademark registration of “Shanghai Story” has encountered various hurdles.
Founded in 2015, Shanghai Bingli Company sells the same types of goods as those sold by Shanghai Ziqi Company and Shanghai Story Company. Shanghai Ziqi Company and Shanghai Story Company discovered that Shanghai Bingli Company used “Shanghai Story” as its product and store name without authorization, and sold products of the same kind. Further, the Chinese characters “上海故事” were used in the store decoration and packaging design. Shanghai Ziqi Company and Shanghai Story Company believed that the Defendant’s unauthorized use of the mark was a willful free ride upon the goodwill of the famous mark, which severely confused the public and constituted unfair competition. As such, the Plaintiffs brought a lawsuit against Shanghai Bingli Company for its unfair competition by using the name peculiar to the well-known goods owned by them and requested the court to enjoin the Defendant’s conduct of unfair competition, destroy relevant packages immediately, eliminate influence and compensate the Plaintiffs.
II.May protection granted for names peculiar to well-known goods before registration becomes valid?
This case went through two court trials, and the court of appeals finally ruled in favor of the Appellants, finding that “Shanghai Story” was the name peculiar to well- known goods within the territory of Shanghai and is protected under the Anti-Unfair Competition Law. We will use the case of “Shanghai Story” as an example along with our discussion regarding the requirement to obtain protection for names peculiar to well-known goods before the trademark registration becomes valid.
(I)Legal basis for the protection for unregistered trademarks as “names peculiar to well-known goods”
Paragraph (2) of Article 36 of the Trademark Law provides that “[f]or a trademark which is registered after an objection is examined and found to be unjustifiable, the trademark registration applicant shall be deemed to have obtained exclusive rights to use the trademark on the date of expiry of a three-month period from the preliminary validation and gazette. During the period from the date of expiry of gazette period for the said trademark to the date of registration decision, the rights shall not apply retrospectively on the use of a mark identical or similar to the said trademark by others on the same type of commodities or similar commodities; however, where the malicious use of the user causes the trademark registrant to suffer losses, such user(s) shall make compensation.” According to the above provision, the exclusive right to use the trademark owned by the plaintiff shall not apply retrospectively on the use of the mark by the Defendant during the period from the date of expiry of gazette period for the trademark to the date of registration decision. If the plaintiff has used the trademark as the name of goods for a long time before the trademark is approved for registration, and such trademark plays the role of distinguishing the source of goods objectively, the trademark has become a name peculiar to the well-known goods. The plaintiff may then claim rights based on the name peculiar to the well-known goods against infringement by the defendant before the trademark registration is approved. In this case, after the trademark application was approved for registration on 7 December 2016, Shanghai Story Company and Shanghai Ziqi Company shall claim rights under the Trademark Law; while before 7 December 2016, they shall seek protection under the Anti-Unfair Competition Law.
(I) Important timing for protection for unregistered trademarks as names peculiar to well-known goods
Despite the restrictions on the right to prohibit a third party to use a trademark during the period from the date of expiry of the publication for opposition period to the date of decision to approve registration under Paragraph (2) of Article 36 of the Trademark Law (stipulates that the exclusive right to use the trademark owned by the owner of the trademark shall not apply retrospectively on the use of the mark by another party during said period), the right holder may claim its right under the Anti-Unfair Competition Law for unfair competition activities occurred during such period.
In accordance with the above, Shanghai Story Company and Shanghai Ziqi Company claimed their right under the Anti-Unfair Competition Law against unfair competition conducted by Shanghai Bingli Company from June 2015 to 7 December 2016 (i.e. the period from the date of expiry of the publication for opposition period to the date of decision approving the trademark registration).
(II) Requirement for obtaining the protection for names peculiar to well- known goods before trademark registration becomes valid
According to Article 5 of the Anti-Unfair Competition Law, a business operator shall not use, without authorization, the name, package or decoration peculiar to well- known goods, or a name, package or decoration that is similar to that of such well- known goods, which would result in confusion and mislead consumers to identify their goods as others’ goods. Protection for the name peculiar to the well-known goods is in fact protection for rights and interests of marks used in commerce. Therefore, the primary issue is to determine whether there are legitimate rights and interests that can be protected under laws.
1. Burden of proof
“Well-known goods” is an essential element in establishing unfair competition. As indicated by the principle saying “the burden of proof is on the party who makes claims,” the owner of the infringed right bears the burden to prove that the goods at issue is “well-known.” This is the most essential element in establishing a claim under Subparagraph (2) of Article 5 of the Anti-Unfair Competition Law. The owner of the right would have to bear the failure to produce sufficient evidence in establishing its claim.
2. Prove the goods at issue to be “well-known”.
According to Article 1 of the Interpretation of the Supreme People’s Court on Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition (Fa Shi [2007] No.2) (the “Interpretation”), “[g]oods that have certain market popularity within the territory of China and are known by the relevant public shall be regarded as ‘well-known goods’ under Subparagraph (2) of Article 5 of the Anti-Unfair Competition Law. In examining whether certain goods are well known, the people’s courts shall take into consideration the period of time, region, volume and targeted consumers for selling such goods, the duration, degree and territorial scope for any advertising and promotion of such goods, as well as the protection obtained as well-known goods. The plaintiff shall bear the burden to prove the market popularity of its goods.”
Specifically, based on the case of “Shanghai Story,” the court may consider all relevant factors in determining whether the goods at issue are “well-known goods,” including but not limited to:
Ⓒ Duration and territorial scope in which the goods are sold under the mark
The court considers whether the goods at issue constitute “well-known goods” before the alleged unfair competition act occurs and within the territorial scope of its occurrence. Evidence in support of this factor includes the territorial scope, the amount of the stores in operation within such territorial scope, and the duration of sales of goods.
In this case, the court of second instance held that the evidence produced by Shanghai Story Company showed that, from 2005 to the date of hearing of the case, the Plaintiffs operated “Shanghai Story” independent stores or counters in several shopping centers and airports in Shanghai, and franchised stores across the country.
Therefore, “Shanghai Story” branded scarves and shawls have been sold for a lond time and in a wide territorial scope.
Ⓒ Volume and targeted consumers for sale of the goods
The popularity of the goods at issue can be established by the main business and sales profitability, operating performance, popularity and reputation of the right owner.
In this case, Shanghai Story Company and Shanghai Ziqi Company produced, among others, the income statement, certificates of awards, and brand rankings by relevant websites to prove that, since the establishment of the “Shanghai Story” brand, its main business and revenue have experienced steady increase year by year. In addition, thanks to the long-term efforts in operation, the “Shanghai Story” brand has become a domestic well-known brand to convey the sentiment and conception of Shanghai culture.
Ⓒ Duration, extent and territorial scope of advertising
Considerations may include, on one hand, whether the goods at issue have been widely advertised via newspapers, magazines, the internet or other media channels, as well as the territorial scope, the amount of the targeted audiences and influence of such media channels; and, on the other hand, the operating status of the entity,
i.e. whether there is continuous sales of goods along with constant accumulation of reputation, which can be supported by honorary certificates, award certificates, industry reputation, and the like. Moreover, in this case, the court of appeals emphasized that the popularity of the goods is closely connected with the brand, and is also inseparable from the operation of the entity.
By producing enormous evidence regarding wide media coverage on various channels and award certificates granted by shopping malls in Shanghai, Shanghai Story Company and Shanghai Ziqi Company proved that their scarves and shawls using “Shanghai Story” as the brand have established wide recognition in Shanghai, based on which the court of second instance concluded that the scarves and shawls using “Shanghai Story” as brand had popularity in Shanghai, and were known to the relevant public, thus rendering the scarves and shawls the well-known goods protected under the Anti-Unfair Competition Law.
3.Proving that the name at issue is “peculiar to well-known goods”
A name peculiar to well-known goods refers to the unique name of well-known goods
which is significantly distinct from the generic names. After proving that the good at issue are “well-known,” it is required to further prove that the unregistered mark has acquired distinctiveness, popularity and the capacity to distinguish the origin of goods, thus constituting the “name peculiar to well-known goods.”
In this case, the court of appeals concluded that the brand of “Shanghai Story,” after years of use in commerce by Shanghai Story Company and Shanghai Ziqi Company, had established connection with the relevant scarves and shawls, and gained popularity among relevant consumers through the sales and marketing activities in Shanghai and other regions, thus had distinctiveness. On 7 December 2016, the Trademark Office approved the registration of the trademark “Shanghai Story” applied by Shanghai Story Company and Shanghai Ziqi Company, which also proved that the brand had certain distinctiveness. Therefore, “Shanghai Story” constitutes a name peculiar to well-known goods in Shanghai, and can be protected under the Anti-Unfair Competition Law.
4.Proving that the infringing party has conducted unfair competition activities
The last element to prove is the existence of the unfair competition activities conducted by the infringing party. This requires the infringed party to show that (i) such activities are sufficient to cause confusion or cause mistake among consumers, and (ii) the infringing party bears a willful intent to freeride on the famous mark and to cause confusion.
Article 4 of the Interpretation provides that “[w]here it is sufficient to cause the relevant public to misunderstand the source of goods, including the misunderstanding of such a specific relationship as licensed use or affiliation with the business operator of well-known goods, it shall be deemed as ‘causing confusion with the well-known goods owned by others, and making the purchasers mistake it for the well-known goods’ as set forth in Subparagraph (2) of Article 5 of the Anti-Unfair Competition Law. The use of an identical or visually indistinguishable name, package or decoration on the same goods shall be considered as sufficient to cause confusion with the well- known goods owned by another party. The identity or similarity with the specific name, package, or decoration of well-known goods may be determined by referring to the principles and methods for judging identical or similar trademarks.”
The court of second instance concluded that Shanghai Bingli Company was Shanghai Story Company and Shanghai Ziqi Company’s competitor under the Anti- Unfair Competition Law because Shanghai Bingli Company also conducted business in Shanghai, which overlapped the Appellants’ territorial scope of business. Given the established popularity of the brand “Shanghai Story” in Shanghai, Shanghai Bingli Company, as a Shanghai-based market participant, still used “Shanghai Story” as itstores’ name and in stores’ decoration, indicating that it knew or should have known that Shanghai Story Company and Shanghai Ziqi Company had used “Shanghai Story” as their brand on their scarves and the like. As such, the use by Shanghai Bingli Company proved its clear intent to freeride on the famous mark “Shanghai Story,” which was the name peculiar to the well-known goods, and, as a matter of fact, had caused confusion and mistake among relevant consumers. Therefore, such act by Shanghai Bingli Company had caused unfair competition using the name peculiar to well-known goods without authorization.
III.Takeaways
The core issue of the “Shanghai Story” case is whether the protection for the name peculiar to well-known goods can be granted before its trademark registration becomes valid.
To sum up, owners of the right who claim rights under Paragraph (2) of Article 5 of the Anti-Unfair Competition Law prior to the date of the decision to approve the trademark registration may seek for protection for “names peculiar to the well- known goods” under the Anti-Unfair Competition Law, if the owners of the right can produce sufficient evidence with respect to the duration, territorial scope, volume and targeted consumers of sales, the duration, extent, and territorial scope of advertising and marketing of goods to prove that: 1) the goods at issue are “well-known,” 2) the owner of the right has used the mark at issue, through which the mark has developed distinctiveness, popularity, and capacity to distinguish the origin of goods, and 3) the infringing party conducted the infringing act with the willful intent to freeride upon the recognition of the famous mark and to cause confusion among consumers.
Thank associate Zhang Siwei for her contribution to this article.
