By Futang Dai with Unitalen Attorneys at Law

December 16 of 2004 witnessed the consequence of the hearing by Beijing No.2 Intermediate People’s Court (“ the Court”) regarding stirring Montagut trademark infringement and unfair competition (case No. omitted –translator). The author, the plaintiff’s attorney in the hearing, analyzed below the issues reflected upon the case.   

I. Background ---- Case Statement and Judgment

The Court found through hearing that the plaintiff, Bonneteric Cevenole S.A.R.L., is a limited liability company duly registered in France. Tracked back to 1991, the Trademark Office of PRC granted the registration application of the plaintiff’s two MONTAGUT trademarks embodied respectively in traditional Chinese and a flower figure (see Figure 1), the trademarks approved to be used in clothes, shoes, millineries, and headdresses and other goods included in Class 25. The registered trademarks of the plaintiff have maintained valid and has become well-known trademarks among the relating pubic in China through extensive advertisement and long-term use. Meanwhile, the decoration of the plaintiff’s  goods is composed of the registered figurative trademark, i.e., the combination of a red flower and green leaves, MONTAGUT, and a green horizontal bar marked with “PARIS.” Such combination is the plaintiff’s unique decoration design for goods.

The court also found that the defendants, Guangzhou MOONGBOY Trade Co., Ltd.(“MOONGBOY Trade Co.”) and Guangzhou MOONGBOY Clothes or accouterments Co., Ld.(“MOONGBOY Clothes Co.”), as the general agency and the general distributor of so-called “MOONGBOY (Hong Kong) Development Co., Ld.”(“Hong Kong Co.”) sold in Beijing, Guangzhou, and other cities so-called “MONTAGUT” attirement, and remarkably used the Chinese of MONTUGUT and a flower figurative mark[1] similar to the plaintiff’s registered flower figurative trademark in its attirement goods, packaging, and trade documents. The above activities of the defendants easily arouse confusion among the relating public and infringe the registered trademark right of the applicant [plaintiff]. Moreover, the decoration of the goods of the defendants adopted a figure composed of a red flower and green leaves (see Figure 2: two circles enclose the flower figure),black “MENGJIAOBOY” and a green horizontal bar bearing “GUANGZHOU.” The defendants used such decoration of goods close to the plaintiff’s said decoration of goods both in design and in color to a level that cause or be able to (be ready to) cause  the confusion of the consumers or be able to cause such confusion and constituted unfair competition against/with the plaintiff. Further, the defendants directly used the palintiff’s trade name, “Bonneteric Cevenole S.A.R.L.,” in their anti-counterfeiting plate for their goods which is also similar to the anti-counterfeiting plate of the plaintiff; such conduct also constitute unfair competition upon the plaintiff. 

The court ruled that in accordance with/to the General Principles of Civil Law, the Trademark Law, the Implementation Regulation of the Trademark Law, and the Anti-Unfair Competition Law of the PRC, as well as the judicial interpretation regarding the Trademark Law, the defendant shall (1) stop immediately the above infringement on the plaintiff’s trademark right, (2) stop immediately the above anti-unfair competition activities; and (3) pay damages of RMB 350,000 to the plaintiff, etc.

II. Perspective of Phenomenon of Accompanying Famous Mark

The current case is a typical case of accompanying famous marks.  

On September 14, 2001, The State Trademark Office granted Shanghai Hongda Feather Products Co., Ltd. (“Shanghai Hongda Co.”) the trademark with two circles enclosing a flower figure (see Figure 2, Trademark No.1633439) to be used in attirements, shoes, and millineries, and other goods included in Class 25.  On April 10, 2002，so called FRANCE DAVID YLUS (SARL)（“David Co.” ）obtained No.1633439 registered trademark from Shanghai Hongda Co. by an assignment contract. In the June of 2002, the MOONGBOY Trade Co. was set up in Guangzhou; On June 26, 2002, David Co. licensed MOONGBOY Trade Co. to use this trademark.  In May of 2003, the Hong Kang Co. was established in Hong Kong; On September 4, 2003, the MOONGBOY Trade Co. licensed the Hong Kong Co. to use this trademark.  On June 30, 2003, the MOONGBOY Attirements Co. was set up. The Hong Kong Co. authorized MOONGBOY Attirements Co. and MOONGBOY Trade Co. as its general distributor and general agent to sell clothes marked the No. 1633439 registered mark. In the clothes to be actually sold and the clothes’ packaging decoration, MONTAGUT’s Chinese spelling, which is the plaintiff’s famous registered trademark, was remarkably used and the peripheral circles have been left out from the actually used flower figure (see Figure Appendix 3). The MONTAGUT Chinese and the Hong Kong Co’s trade name were remarkably used in the actually sold clothes and their inner and outer packaging.

On December 14, 2002, David Co. registered a trademark (Registration No. 1986056) consisting of MOONGBOY and its Chinese translation which is similar to the plaintiff’s said Chinese trademark. The approved coverage of use is Class 26 including buttons and zips to be used on clothes and other related stuff . On December 25, 2003, David Co. licensed MOONGBOY Trade Co. to use No.1986056 trademark. However, in the offer-to-sell clothes and their packaging, only the MOONGBOY part were used, sometimes together with defendant’s figurative mark with the two circles left out (see Figure 3). which has been changed from their own registered trademark and become closer to the plaintiff’s trademark. Defendants’ mark and packaging decoration used in the markets are very similar to the plaintiff’s MONTAGUT Chinese character trademark, the flower figure trademark (see Figure 1) and the unique packaging decoration; therefore confuse the relating consumers.   

The strategy of accompanying famous marks has been fiercely criticized by those companies owning well-known marks in China. In 2003, during the period of the National People’s Congress session, the People representatives propose a bill requesting the government to take strong measures against the phenomenon of accompanying famous marks, and suggested to restraint the registration application filed with the Hong Kong local government of the famous trade names and trademarks of China.  The State Administration for Industry and Commerce replied, “Hong Kong is a highly self-governed regime. Parties may protect their own legitimate rights and benefits by requesting local industry and commerce offices to repress unfair competition or bringing action to court.”

Just as the existence of the jurisdiction of Cayman Islands，different systems of various legal jurisdictions attracts different interest pursuers. The issue is how to maintain trade order and protect the market participants’ legitimate rights and benefits manageably within the permitting range of law. To do so requires the right owners to recognize the protection of intellectual property right, to study sufficiently the counterfeiting and imitating conducts, Chinese domestic law, and international conventions in order to seek practically manageable strategies to avoid, prohibit, and eliminate counterfeiting and imitating conducts. 

III. The Judicial Application of Paris Convention in China

According to the principle of judicial sovereignty, what a court with jurisdiction Is supposed to protect is the rights obtained within the jurisdiction. In this case, the plaintiffs trademark rights and the goods decoration rights are protected naturally by the Chinese law. However, the plaintiff’s trade name was obtained in France, which is not necessarily protected by the Chinese government. Then how could the plaintiff obtain legal remedies?

This case involves the fact that the defendants use without authorization the plaintiff’s trade name“Bonneteric Cevenole S.A.R.L.” The Chinese law does not stipulate directly to protect the trade names of foreign companies, and courts resort to the provisions of the Paris Convention as the hearing criterion.  Article 142 of the General Principles of Civil Law of the PRC stipulates, “under the situation that an international treaty to which China is a party has different stipulations from the provisions of the Chinese law, the international treaty is applied except those stipulation upon which China declared a reservation. ”  On November 14, 1984 the Standing Committee of the 6th Session of the National People’s Congress decided that China joined the Paris Convention for the Protection of Industrial Property (1967 Stockholm Act) (“Paris Convention”). Article 8 (Trade Name) of the Paris Convention states, “[a] trade name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of a trademark.” Article 10bis (Anti-Unfair Competition) stipulates, “(1) The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition.

(2) Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.”

Both China and France are the members of the Paris Convention; therefore, according to the above stipulation of the Convention, the plaintiff has a right to request to repress unfair competition conducts, which is against the good faith business tradition, in business operation within a member country of the Convention. The plaintiff has a right to claim a protection for its French trade name in China, and such claim shall be supported by the Chinese law. The Court therefore ruled as follows， “the defendants use of the plaintiff’s trade name without authorization constitutes unfair competition and shall be ceased immediately.  Through directly resorting to international conventions, the Chinese courts effectively protect foreign parties’civil rights established according to their domestic laws.

IV. Litigation of suspected infringement of registered trademark

In this part, we focus on the problem of what to do when the defendants argue enjoying the exclusive right to the use of the registered trademark suspected under infringement. Such matters are frequently seen in trademark infringement cases of “accompanying name brands”. It is the administrative power of the State Trademark Bureau to confer the exclusive right to the use of trademarks. Before a registered trademark loses efficacy or is removed with relevant procedures, the exclusive right to the use of the trademark is put under the protection of laws, with nothing to do upon itself with violating others’ rights. Correspondingly, jurisdiction shall not interfere with executive power. In other words, judicial organs shall not make the verdict that one registered trademark violates the exclusive right of another registered trademark.

In this case, the defendants enjoy the exclusive right to the use of the mark (the flower figure in figure 2) suspected of infringement. The defendants counterplead the infringement accusation therewith. However, the court did not support the defendants and ruled that the defendants violated the exclusive right to the use of the plaintiff’s registered trademark (flower figure in figure1) with the flower figure mark. This is attributed to elements as follows:

At the very beginning of the litigation, the plaintiff makes out that the accusation is not related to the matter of registered trademark as appealed by the defendants. It focuses on the figurative mark the defendants practically use, with the two peripheral circles left out. It constitutes infringement, as it is very similar to the plaintiff’s above described flower figure registered trademark. The court rules that the flower figure the defendants practically use leaves out two peripheral circles, thus not legitimate use of the registered trademark. As stipulated in article 44 of the Trademark Law, where a trademark user commits the act of altering the registered trademark by himself, the Trademark Office shall order it to rectify the situation within a time limit or revoke the registered trademark. Article 51 of the Trademark Law regulates that the exclusive right to the use of a registered trademark shall be limited to trademarks which are registered upon approval and to goods the use of a trademark on which it is approved. Therefore, as the defendants fail to use the trademark in line with the authorized registration, it has nothing to do with the legitimate use of the trademark. It naturally falls into the realm of protecting the exclusive right of registered trademark similar to those of others.

At the same time, even if the defendants do not change the registered trademark and use it with other commercial marks to the effect of overall similarity with others’ registered trademarks or packing decorations, it might also constitute trademark infringement or illicit competition. As the case is concerned, the court holds that in the defendants’ packaging decoration composition elements which are close to the plaintiff’s, the defendants adopt the figure composed of a red flower and green leaves with two pale-shade circles enclosing the flower figure, black “MENGJIAOBOY”, and a green horizontal bar bearing “GUANGZHOU”. Although they do not leave out the two peripheral circles in the registered trademark, the defendants use it with other commercial marks to constitute combined patterns, to the effects of close to the plaintiff’s peculiar packaging decorations. They are sufficient to lead to confusion and misunderstanding for unfair competition.

Here the competent court settles the issue not to directly countermine registered trademark with registered trademark. In other words, even if the accused registered trademark is applied in the mode as stipulated in the Trademark Law, such uses (with other commercial marks) fall into the realm of protection with the Anti-Unfair Competition Law. It constitutes illicit competition as it violates the right owner’s exclusive right to the use of the peculiar packaging decorations.

V. Legal protection of packaging decorations

Legal protection of packaging decorations is mainly conducted in the spirits of the Anti-Unfair Competition Law, promulgated in 1993, with reference to the Provisions on Prohibiting Illicit Competition of Counterfeiting and Imitating Peculiar Names, Packaging and Decorations of Well-Known Commodities, promulgated by the State Administration of Industry and Commerce in 1995, and some mature judicial practices, such as the Answer to a Number of Questions on Hearing Illicit Competition Cases with the Beijing Municipal High People’s Court in 1998. The Anti-Unfair Competition Law stipulates in Article 5 that operators shall not adopt the unfair means of using, without authorization, the names, packaging or decorations peculiar to well-known goods or using names, packaging or decorations similar to those of well-known goods. As shown in the stipulation, for the protection of packaging decorations, we need to determine that the commodities are “well-known” and the packaging decorations are “peculiar”. The Anti-Unfair Competition Law highlights the protection of actual commodities. In comparison, the Trademark Law stresses the protection of registered trademarks. Under the trademark authorization system, the release of trademark registration certificates marks the acquisition of the exclusive right to the use of the registered trademarks. Therefore, in terms of protecting the right of the right owners, it becomes much harder and complex in the protection of packaging decorations that are also part of commercial marks than the protection of registered trademarks.

In judicial practice, legal protection of packaging decorations are related to the following main problems:

1. Honesty and credibility principle

The Honesty and Credibility principle is termed as the “empire clause”, widely and abundantly introduced in judicial practices. In cases relating to counterfeiting and imitating others’ commercial marks, the Honesty and Credibility principle is frequently cited. The second clause of the Anti-Unfair Competition Law stipulates that “In carrying on transactions in the market, operators shall follow the principle of voluntariness, equality, fairness, honesty and credibility, and observe generally recognized business ethics.” This clause forms a general clause-vs-special clause relations compared with other clauses under it in the Anti-Unfair Competition Law. For instance, regarding the counterfeiting and imitating of packaging decorations in the case, judicial practices including the verdict of the competent court cite the clause and other concrete clauses as the basis of deciding cases. When no concrete clauses and stipulations are available to constrain diversified counterfeiting and imitating acts, the Honesty and Credibility principle becomes the “bottom line clause” for deciding on a verdict.

2. How to determine “well-known” commodities

To protect packaging decorations of commodities with the Anti-Unfair Competition Law, commodities must be “well-known”. This is a big difference with the Trademark Law. In applying the Trademark Law, popularity of registered trademarks is highlighted, which is however not a lawful condition as stipulated in the Anti-Unfair Competition Law. As stated in Item 2, Article 5 of the Anti-Unfair Competition Law, the objects under protection include peculiar names, packaging and decorations of “well-known” goods, or names, packaging and decorations similar to those of “well-known” goods. Therefore, right owners must first prove the well-known feature of commodities.

How to testify the popularity of commodities? State Administration of Industry and Commerce follows the principle of “those are well-known, which are counterfeited and imitated” to determine the popularity of commodities: When the name, packaging or decoration of a commodity is used by others for the same or similar purposes without authorization，which is sufficient to mislead buyers, the commodity is taken as a well-known commodity. As we observe it, this stipulation no doubt facilitates industry and commerce administrations to execute the law and alleviate right owners in the pressure of adducing evidences. But it will inevitably result in the harmful consequences of great many abuse of power, unfavorable for the growth of the market. “Well-known” commodities shall be those with considerable popularity on peculiar markets and widely known to related public. The judgment of the “well-known” feature of commodities shall integrate the elements of the history of producing and selling the commodities on peculiar markets, rational occupancy rate of the market, product quality, reputation, and the coverage, time and frequency of making advertisements.

In this case, the plaintiff submits a large amount of proofs to the court testifying the popularity of “MONTAGUT” apparels. The court rules that “MONTAGUT” is a “well-known” product. In fact, a few days before the verdict of the case was delivered, “MONTAGUT” (in Chinese), “MONTAGUT” and the flower figure trademark were approved by the State Administration of Industry and Commerce as well-known trademarks. The proofs submitted by the plaintiff testify the “well-known” feature of the commodities, serving as a precondition for the plaintiff to win protection of the packaging decorations with the Anti-Unfair Competition Law.

3. How to determine “peculiar” packaging decorations

Generally speaking, packaging decorations that are also commercial marks, in a similar manner with registered trademarks, are expected to have the capacity of obviously differentiating different operators or the sources of commodities. It should be acknowledged that registered trademarks all have their own distinctive features. Otherwise, they shall not be authorized for registration. When packaging decorations become prominent, they have the objective probability of enjoying protection with the Anti-Unfair Competition Law.

“Peculiar” here refers to that operators exclusively use or authorize others the right of exclusive use of the names and packaging decorations so as to differentiate with same types of commodities of other operators. It must follow the principle of respecting prior use to determine the “peculiar” feature of commodities. Prior use is exclusive use and is thus “peculiar”. The “peculiar” feature must be recognized in the same markets, including the markets with rivals at the same place and the markets of same types of commodities with competition relations. As a result, “peculiar” may be absent in one market and frequently seen in other markets. The case of “Lao Gan Ma” (granny) adjudicated at Beijing courts before long is such an example of peculiar names. The verdict reads that although “Lao Gan Ma” is a popular title, the right owner took the initiative to associate the name with specific commodities. It is recognized by consumers after application, capable of differentiating the commodity with other goods. In fact, it has served as a mark for consumers to judge the source of the commodity. Therefore, Lao Gan Ma may be recognized as peculiar name of the commodity.

In this case, the court rules that the packaging decorations of the plaintiff’s commodities adopt the combined pattern of a figure composed of a red flower and green leaves, black MONTAGUT, and a green horizontal bar bearing “PARIS”. The pattern is an original design of the plaintiff, falling into the category of peculiar decorations of commodities of the plaintiff. The combined pattern of the defendants’ commodity packaging decorations is very similar to those of the plaintiff’s well-known commodities in composition and colors, sufficient to confuse consumers to constitute unfair competition with the plaintiff.

4. How to judge “approximation” and “confusion” results

As stated previously, because the legislation lags behind, laws and regulations and judicial interpretations have not yet stipulated how to determine the “approximation” and “confusion” issue in packaging decorations in the case. But the people’s courts do not refuse to hold court trials because of this. Actually in judicial practice, they refer to the principle of determining “approximation” and “confusion” of trademarks to deal with the cases. As we just mentioned, the judgment of “approximation” and “confusion” in this case follows the principle of handling trademark problem.

How to judge “approximation”? It should be done with the following principles. First, take the general attention of related public as the standard, instead of the insight of experts and special attentions. Second, make overall comparison of packaging decorations as well as comparisons of main parts of packaging decorations. Do not sedulously search for differentia by a single hair. Third, comparisons shall be conducted respectively under the state that the objects are separated (apart in both time and space). Follow the objective state when related public buy commodities, comparing physical goods with impressions of the goods in their minds. Fourth, the judgment of approximation shall consider the peculiar features and popularity of packaging decorations requesting for protection.

How to judge “confusion”? “Confusion” refers to the state sufficient to make related public misunderstand the sources of commodities or believe that the sources of counterfeiting and imitating goods are associated with well-known commodities. Meanwhile, as we see, if counterfeiting and imitating goods expect for acceptance with related public with the high reputation of well-known commodities, they shall be regarded as “confusion” as well. For instance, in this case, the defendants seek connections with MONTAGUT reputations to induce related public to acknowledge the counterfeiting and imitating commodities of the defendants. “Confusion” under this state has surpassed the concept that practical buyers purchase mistakenly because of “confusion”. Abstract buyers shall intentionally purchase the counterfeiting and imitating commodities because of the feasibility of “confusion” (pass off the spurious as genuine). Obviously, “confusion” under this situation will give birth to greater social harmfulness.

It must be noted that “approximation” and “confusion” are matters at different layers. They are of step-up relations logically. “Approximation” will not inevitably lead to “confusion”, which is related to the responsibility of right owners adducing evidences (we shall not elaborate the issue here). “Confusion” includes the two aspects of practical confusion and potential confusion. If right owners are able to testify that buyers are hard to distinguish with eyes packaging decorations of two commodities in designs, shapes, colors, and other combinations, that commodities are identical or similar in functions and purposes, that they share same marketing channels and consumers, and that commodities of right owners have considerable reputations, we are in a position to determine that confusion and mistake are likely for the two commodities.

5. Need to prove yielding “harmful consequences”?

As shown in the above discussion, different from other traditional infringement theories, the composition of intellectual property infringement liability does not follow the strict liability principle. It will do to determine the composing of infringement, so long as we are able to raise proof “sufficient” for confusion and “l(fā)ikely” for mistake. Therefore, in normal circumstances, provided we are able to testify operators counterfeiting or imitating peculiar packaging decorations of right owners, we will hold the operators have committed infringement without the necessity to prove they have brought about harmful consequences.

VI. Conclusion

As China develops into the “workshop of the world”, it has become the object of developed countries as represented by the United States in the rebuke of indifference to intellectual property rights protection. Counterfeiting and fraudulent modeling that have existed and will likely go on to exist on the country’s market do not necessarily mean the Chinese Government and independent judicial organs disregard the presence of the situation. The country’s market subjects are taking positive measures to develop independent intellectual property rights. The Chinese Government should naturally protect the national brands and national industries, just like other countries do. Meanwhile, as shown in the pledge of WTO accession, China has bestowed effective protection of intellectual property rights of overseas market subjects in the country under the TRIPS framework with domestic legislation and judicial practice.

 (Details of the case in this article including information on parties concerned have been published by the Beijing No.2 Intermediate People's Court  in the form of Paper of Civil Judgment in 2004.)