Major brands, such as Japan’s MUJI and America’s New Balance, have made headlines for their stunning setbacks in China trademark litigation. In MUJI’s case, the company was even ordered to apologize to an infringer, highlighting the results of a failure to recognize the complexities of defenses under the China Trademark Act that create a maze of pitfalls just waiting for you to fall in. Even if you are dealing with an obvious counterfeiter, Chinese courts have to balance infringement claims against legitimate use and that can mean raising defenses that lead to catastrophic defeat for unwary companies.
This article describes the several kinds of defenses against infringement available and how Chinese courts resolve them. Being prepared for these defenses helps ensure you don’t make costly mistakes during enforcement, and all principles described below are based on authoritative Chinese government guidance, which we have translated for you here, and practical experience from lawyers we work with.
Contents
Unfair Abuse of Trademark Rights
Similarity based defenses
The Marks Aren’t Similar, and Therefore Won’t Cause Confusion
This common trademark enforcement mistake involves initiating action against a party without first clearly establishing that the mark would confuse buyers. Under such circumstances, the burden of proof lies with the plaintiff to show that the marks are similar or could otherwise cause confusion, and the defendant will always vehemently deny any similarity between the marks. In the reported cases, defenses raised against allegations of similarity revolve either around the dissimilarity of the trademark symbols or the dissimilarity of the goods and services provided.
Chinese courts judge arguments of dissimilarity based on a comparison of the graphics and language.
The courts use a balancing test to weigh each of the following factors:
- Similarity of the symbols and goods/services
- Distinctiveness of the marks
- Popularity and recognition of the mark among the consuming public
- Evidence of bad faith (see CBL’s article on trademark squatters here)
Weighing these factors, the judge will then consider whether sales under the defendant’s mark will cause confusion among the “consuming public”. This group need not include ordinary consumers, as it is explicitly defined to include any workers involved in providing the goods or services to consumers. For example, if Micron chips are packaged into Lenovo computers, a finding of confusion could still occur if the consuming public could be misled as to this fact.
Chinese trademark law now places a heavy emphasis on bad faith, which is different from other jurisdictions in that there is no declaration of bona fide intent to use during the application phase. You can make informed decisions in this area by being familiar with the China Trademark Office’s official guidance about what constitutes “bad faith,” which you can find at CBL’s free translation here.
The Goods or Services are Not Similar
Differences in the goods or services involved are a common pitfall that can lead to dismissal of an infringement claim, and one that is often exploited deliberately by counterfeiters to confuse judges. Chinese courts assess three key elements when deciding whether goods or services are similar:
- Recognition of the goods or services by the consuming public
- The trademark office’s reference table for distinguishing similar goods and services
- Information about the defendant, including who their customers are, how the mark is used, and the context in which the mark appears
Even if the trademark office classifies goods and services differently, they may still be determined similar goods or services by the court under Trademark Act.
A key reason courts is that judges consider how evolving consumer trends and industry changes may not yet be reflected in official trademark office registration standards. Since industry usually moves faster than regulators, allowing private parties to introduce current evidence allows for the most correct and current decisions to be made.
Usage based defenses
The Defendant Didn’t Use the Content as a Trademark
A deadly mistake when pursuing trademark infringement claims in China is failing to establish that the defendant used disputed content as a trademark. §59(a) of the China Trademark Act provides for three kinds of situations where a defendant is not using a trademark; when the trademark is used merely as a name, description, or indicator.
Reported cases in the Chinese courts look at the general knowledge of the consuming public across China to determine whether the defendant used the mark as a trademark, rather than looking at a single province or city. This defense is frequently raised where the main ingredient or component of a product is used as the trademark. The courts are only willing to offer weak protection to such marks, and competitors may generally use those marks.
Chinese law instructs judges to focus on the identification function of trademarks, meaning that judges looks at the manner in which the defendant used the trademark symbol. On this issue, classic cases such as Volkswagen v. Baidu illustrate numerous instances where an unlicensed infringer purchased ranking or pay-per-click advertising using another company’s trademark, leading to such advertisements being mixed with organic search results for the trademark and thus misleading the consuming public. Chinese courts hold that this practice constitutes trademark use, and thus trademark infringement when loss of sales or other value is involved.
Additionally, certain Chinese search engine business practices, such as the sale of keyword rankings (something not done by engines like Google or Bing) has attracted significant judicial scrutiny. Judges generally agree that search engines selling keyword rankings (or PPC advertising, boosted posts, etc.) have a duty to review content to avoid infringing on any trademarks, and that those failing to do have contributory liability for the infringement.
However, good faith constrains a trademark owner’s right to restrict other businesses; that usually happens when the disputed content is used for descriptive purposes and not for distinguishing goods or services.
In addition to use as a defense, courts may sua sponte declare that a defendant’s usage did not constitute trademark use, and therefore rule no infringement occurred.
Prior Use Protects the Alleged Infringement
Chinese courts strive to balance the interests of trademark registrants and prior users to the extent possible while maintaining the integrity of the trademark registration system. Here, prior use is a powerful defense, provided that a defendant can prove the following elements:
- The trademark was in fact in use prior to the date of the conflicting trademark’s application.
- Both the trademark and the goods or services are similar enough to create a likelihood of confusion between the prior user and registered trademark. The prior use must have been significant.
- The alleged infringement involves the same kind of goods or services.
A judicial analysis of whether a defendant has an effective prior use defense for the trademark requires there be a likelihood of confusion between the two marks, but only considers the time from before the trademark application. The courts have interpreted the China Trademark Act to not permit a prior user to raise a defense based on its use of the trademark subsequent to the trademark registrant’s application time.
The scope of this defense in the judgment is based on the trademark goodwill created by the prior user. In a similar vein, a fair use defense in China may be raised where the trademark is used outside its registered class of goods or services, where the distinctiveness is changed, or where splitting or combining of the mark occurs and the disputed content is no longer being used as a trademark.
A strong rationale for denying the infringement claim is suspicion you make be acting as a trademark squatter.
Unfair Abuse of Trademark Rights Can Defeat Your Claims
Recent developments in Chinese law have led to crackdowns on abusive trademark ownership practices. Previously, trademark trolls – parties registering marks in bad faith to unjustly benefit or block competition – ran wild in China because of previous policy need to force businesses to formally register their marks before use. A practice otherwise known as “squatting,” which China defines as the bad faith prior registration of a mark that is identical or similar to an existing unregistered trademark for the same or similar goods, with the sole purpose of obtaining unjust enrichment or frustrating competition.
Where a defense against a trademark squatter is raised, courts in China will apply a multi-factored test to determine if the plaintiff had the intention to abuse the trademark registration. Specifically, judges will look at the distinctiveness of the mark, how well the mark is known, and whether the plaintiff was subjectively acting in good faith. Each of these needs a close investigation to develop a strategy.
You could easily blunder into making a new mistake here; imagine you registered trademarks without using them, and later on someone else carries on a legitimate business using a brand name you trademarked. Even if your English name is famous, the Chinese name is not, and you could wind up facing trademark trolling accusations.
Succeeding with enforcement
Taking a hands-off approach to trademark enforcement in China can lead to awful results, but is a common approach taken due to difficulty understanding local counsel. Avoid ineffective enforcement by making sure litigation counsel provides thorough, transparent case updates, and hold them accountable to providing good results. Have an English versions of the materials such as memoranda done by professional translators, and not outsourced to unprofessional freelance workers or in-house staff. Supervise and collaborate with local staff on executing an enforcement plan of action.
For an example of what can happen when attempting to take a hands-off approach, see our other article that introduces New Balance’s numerous problems with trademark enforcement. You want to be like Nike, which succeeded with enforcement, and not New Balance or MUJI, which failed so badly that courts ordered them to pay damages to the alleged infringers.
FURTHER READING
Get authoritative insights about Chinese foreign investment law from official government guidance in translation:
- Getting China’s regulators to stop trademark infringement
- How China trademark infringement litigation actually works
For a general overview of this topic, see also CBL’s China Trademark Law FAQ.