Trademark Piracy Results in Civil Liabilities? Note on Emerson Electric v. Xiamen Anjier

Fighting against trademark piracy has become one of the priorities in the governance of trademark system in China for years, which has also been a long-time headache to genuine brand owners. The most common strategy is to file oppositions to defeat registration of the pirate marks, in order to avoid market confusion among the public if the pirate marks are used for commerce. While most of the bad-faith filing can be defeated at the early stage under the current practice, the strategy incurs significant costs for genuine brand owners – legal costs, such as attorney fees for filing oppositions, are substantially higher than the costs of trademark pirates. This imbalance of costs makes trademark piracy “unstoppable”, resulting in continuous and strong interference with ordinary business operation of genuine brand owners.

We recently represented a genuine brand owner in a civil lawsuit seeking injunctive reliefs and damages against serial trademark piracy (the pirated marks were not substantially used in commerce), which was upheld by Xiamen Intermediate People’s Court and later affirmed by Fujian High People’s Court. The trademark pirate in this case paid a price for their piracy, and its trademark agent was even found liable for a portion of the granted damages. This case provides genuine brand owners a fresh new approach in their battles against trademark piracy, and it is of course a strong message delivered by Chinese government and people’s courts regarding their determination on resolving the trademark piracy.

The trademark in dispute – In-Sink-Erator – is a world-renowned brand in the field of food waste disposer. Emerson Electric Co. (“Emerson”) filed to register the In-Sink-Erator trademarks in Latin and Chinese characters in China in 1994 and 1998, respectively, and filed to register of the graphic trademark “ ” in 2006. These trademarks were approved for registration on goods in Class 7 "Food Waste Disposer" and Class 11 "Water Purification Device" (the “In-Sink-Erator Trademarks”). In-Sink-Erator Trademarks had enjoyed a certain degree of fame in China as early as 2010 by Emerson’s continuous and extensive use in commerce.

Xiamen Anjier Water Angel Drinking Water Equipment Co., Ltd. (now called as Xiamen Home Spring Drinking Water Equipment Co., Ltd., “Xiamen Anjier”) was established in 2008. Starting from December 2010, Xiamen Anjier filed to register trademarks that were identical with the In-Sink-Erator Trademarks on goods and services that were closely associated with those offered by Emerson in several classes. Emerson had to file oppositions, opposition appeal and even court appeals against decisions on opposition appeals to defeat these bad-faith filings. After Beijing High People’s Court ruled in its appellate review that Xiamen Anjier’s piracy violated Article 41 of the Trademark Law (2001)¹, the legal representative of Xiamen Anjier – Wang Yiping – registered another company called Xiamen Hai Na Bai Chuan Network Technologies Co., Ltd. (“Xiamen HNBC”) to continue the piracy with Xiamen Anjier.

As of the filing date of the civil action, Xiamen Anjier and Xiamen HNBC had filed 48 trademarks that were identical or similar with the In-Sink-Erator Trademarks in 14 classes, 47 of which were represented by the same trademark agent named Xiamen Xingjun Intellectual Property Co., Ltd. (“Xiamen Xingjun”).

In March 2020, Emerson sued Xiamen Anjier, Xiamen HNBC, Wang Yiping and Xiamen Xingjun for unfair competition with Xiamen Intermediate People’s Court, seeking injunctive reliefs, damages, and an order for eliminating negative effects. On April 22, 2021, Xiamen Intermediate People’s Court rendered its first-instance judgment², finding that the defendant's trademark piracy violated Article 2 of the Anti-Unfair Competition Law. Xiamen Anjier, Xiamen HNBC and Wang Yiping constituted joint infringement, and Xiamen Xingjun constituted contributory infringement. The court issued an injunctive order against all four defendants enjoining them from filing to register any trademarks that are identical or similar with the In-Sink-Erator Trademarks, granted an award of damages to compensate Emerson for the losses of attorney fees and reasonable expenses incurred by stopping trademarks piracy, and issued an order to the defendants to make a statement on a national-wide media to eliminate negative effects. Xiamen Anjier and Xiamen HNBC withdrew all trademark applications before the hearing. On September 27, 2021, Fujian High People's Court rejected the appeals filed by the defendants and affirmed the first-instance judgment³.

This is the very first case that People’s Court finds that trademark piracy without substantial use or malicious assertion of the pirated marks also constitutes violation of Article 2 of the Anti-Unfair Competition Law.

The first-instance court first clarifies that the dispute is actionable, that is, a civil claim for recovery of attorney fees against trademark piracy is a lawsuit for civil liability arising from property relations as the result of trademark piracy, and can be adjudicated in a civil court. In the meantime, the court clarifies that the trial of such civil disputes does not interfere with CNIPA's administrative authority over managing trademarks registration system.

The court rules that the In-Sink-Erator Trademarks had already had a certain influence in the field of food waste disposers and water purification devices as early as 2005. Xiamen Anjier and Xiamen HNBC could not provide a reasonable explanation for their intention for these filings and their “source” of the design related to register identical or similar trademarks on different classes, which obviously exceeds their needs in normal business operation. Furthermore, the court further holds that Xiamen Anjier’s piracy forced Emerson to file oppositions, invalidations, administrative court appeals and finally civil lawsuits to safeguard its legitimate rights and interests, which to a certain extent interfered with the normal business operation of Emerson. In addition, the court also considered the fact that Xiamen Anjier, Xiamen HNBC and Wang Yiping, their legal representative and person in charge, had filed to register trademarks identical or similar with more than 100 trademarks that were identical or similar with famous brands in China, such as Dow, Daimler, Unilever, etc.

Based on the above facts, the first-instance court holds that the two defendants' piracy of the In-Sink-Erator Trademarks violated the principle of good faith, disrupted the order of fair market competition, damaged the legitimate rights and interests of the plaintiff, violated Article 2 of the Anti-Unfair Competition Law, and constituted unfair competition.

This is the third ruling given by People’s Court that trademark piracy upon trademarks with certain degree of fame constitute violation of Article 2 of the Anti-Unfair Competition Law, following Bayer v. Li decided by Hangzhou Yuhang District People’s Court in 2018⁴ and Brita v. Shanghai Kangdian decided by Shanghai Minhang District People’s Court in 2020⁵. The court moved a step further in this case – i.e. neither substantial infringing use nor malicious assertion of the pirated marks existed in this case (although Fujian High People’s Court considered Xiamen Anjier’s incidental use of the pirated mark on its website, Xiamen Anjier actually did not use this mark continuously to indicate any goods or services, but a single logo on the banner of its front page). This ruling is a new solution for those genuine brand owners bearing high legal costs to defeat flood of bad-faith filings.

In addition to the ruling of unfair competition, the injunctive relief and damages awards granted by the court are exemplary.

Although Xiamen Anjier and Xiamen HNBC had filed to deregister registered trademarks and withdrawn all trademark applications before the first trial, the courts of both first and second instances emphasized in their opinions that compared with the very low costs for trademark pirates, genuine brand owners usually spend a lot of legal cost to protect its legal rights by filing oppositions, invalidation, and administrative lawsuits, and at the same time a waste of public resources can be incurred. Therefore, it is necessary to order the defendants to stop filing to register trademarks identical or similar with the In-Sink-Erator Trademarks.

As for the damages, Emerson submitted evidence to prove that it had paid attorney fees associated with oppositions, opposition appeals, invalidations, and administrative court appeals, as well as enforcement costs incurred in filing the civil case. Considering the popularity of the In-Sink-Erator Trademarks, the defendant's infringement, the plaintiff's reasonable expenses, and the defendant's subjective malice, the court granted a statutory damages award in an amount of RMB 1,600,000.

In fact, Xiamen Anjier retained the same trademark agent to commit the trademark piracy, did not participate in the administrative proceedings or filed simple answers, and registered a shell company that did not require paid-in capital for trademark piracy. The economic cost for trademark piracy was less than RMB 1000 per mark, and under the existing framework, the sanctions for the above-mentioned acts were very limited. On the contrary, in order to stop the piracy, Emerson had initiated more than 70 legal proceedings and spent millions yuan in attorney fees. Taking the earliest batch of pirate trademarks (8 trademark applications) as an example, Emerson had gone through the procedures of opposition, opposition appeal, administrative court appeal before courts of two instances, reexamination for opposition appeal or invalidation before finally eliminating the 8 trademarks.

It is also worth to mention that the person in charge was found to be jointly and severally liable for joint infringement, and that the agency assisting in trademark piracy was found to jointly liable under the contributory infringement theory.

In this case, Wang Yiping, the legal representative, executive director and general manager, and controlling shareholder of Xiamen Anjier and Xiamen HNBC, was the person in charge of the two entities committing trademark piracy. The court found that Wang Yiping carried out trademark piracy through Xiamen Anjier, and after the court determined that Xiamen Anjier's behavior was illegal, he registered Xiamen HNBC to continue its piracy. With the knowledge of the illegality and conscious operation, Wang Yiping shall be jointly and severally liable for joint infringement.

The trademark agency, Xiamen Xingjun assisted Xiamen Anjier and Xiamen HNBC in registering 47 of the 48 pirated trademarks and continued to assist piracy after the court ruled that it was illegal. The court holds that, according to Article 19 of the Trademark Law, trademark agencies shall follow the principle of good faith, abide by laws and regulations, and actively review the trademarks entrusted for registration. Xiamen Xingjun not only failed to fulfill these obligations, but actively assisted in trademark piracy even when the act of its principal was found to be in violation of Article 44 of the Trademark Law. Consequently, Xiamen Xingjun shall be jointly liable under the contributory infringement theory.

One of the most commonly used scheme in trademark piracy is to register and use new shell companies in order to avoid illegal determinations made by courts and administrative authorities. In this case, the person in charge who did not directly commit trademark piracy is determined to bear joint and several liability for joint infringement, which can effectively deter persons in charge like him who normally orchestra and manage piracy scheme. As for trademark agencies, this case clarifies the duty of care that trademark agencies have under the Trademark Law and the civil liability that may arise due to violations. Thus, in coordination with administrative measures imposed by the local Administration of Market Regulation and CNIPA, the rule set in this case will certainly become an integrated part of Chinese government’s efforts on managing the practices of trademark agencies.

This case is another valuable “exploration” from the judiciary in the field of civil litigation in the fight against malicious trademark piracy in China. It provides a new approach and reference for genuine brand owners to raise their claims against trademark piracy and safeguard their legitimate rights and interests, by clarifying that: 1) trademark piracy is actionable under the unfair competition law, 2) injunctive relief can be justified in light of the balance test of economic and social costs of trademark piracy, 3) damages awards are available based on the attorney fees incurred and other relevant factors, and 4) the legal responsibilities of the person in charge and trademark agency.