Case Studies

Identification of trademark infringement in foreign-related licensing processing

【Facts of case】

The plaintiff Honda Co., Ltd. is a large-scale multinational enterprise specializing in the ships, vehicles and other means of transportation, etc.  It was approved by the Trademark Office on August 14, 1998 to register the trademark No. 1198975 for use on the goods in class 12 as ‘vehicles, land-use mobile vehicles, air-use mobile vehicles, and  water-use mobile vehicles, automobiles, motorcycles, etc.’and has been renewed until August 13, 2018, and was approved on December 17, 1988 to register the trademark No. 503699 for use on ‘motorcycles, tractors, and components of the afore-mentioned goods’and the duration of exclusive right of use of the trademark has been renewed until November 9, 2019.

Hengsheng Group Company is a limited liability company registered on September 29, 1998, Hengsheng Xintai Company is a limited liability company registered on June 9, 2001, the legal representative of Hengsheng Xintai Company and Hengsheng Group Company is Wan Xun, both companies are the relationship of head office and the subsidiary. On June 30, 2016, Kunming Customs issued to Honda Co., Ltd. the "Notice on Kunming Customs of the People's Republic of China Confirming the Intellectual Property Status of Imported and Exported Goods" (Kunming Customs Zhiqinzi [2016] No. 40) informing Honda Co., Ltd. That on June 28, 2016 Ruili Customs, a subsidiary of Kunming Customs, seized a batch of motorcycles in number of 220 declared for export with the trademark "HONDAKIT" . Kunming Customs believes that the batch of goods may be suspected infringing Honda's intellectual property right recording with the General Administration of Customs, requiring Honda Co., Ltd. to submit no later than July 3, 2016, in accordance with Article 14 of the Regulations on Customs Protection of Intellectual Property Rights of the People's Republic of China, a written application to Kunming Customs for requesting protection measures of the intellectual property rights, and submit a security deposit of 100 thousand CNY.

On August 22, 2016, Ruili Customs issued to Honda Co., Ltd., the "Notice of Ruili Customs Investigation Results on Suspected Infringing Goods" (Ruiguan Zhitiaozi [2016] No. 2-1)  informing Honda Co., Ltd. that Hengsheng Xintai entrusted Ruili Lingyun Freight Forwarding Co., Ltd. to declare to the Ruili Customs for exporting 220 complete motorcycle parts marked with the "HONDAKIT logo, with declared total value of US$118,360 and destination of Myanmar. Ruili Customs detained on July 12, 2016 the above-mentioned goods in light with the request of Honda Co., Ltd.. After investigation, the batch of goods were authorized by Meihua Company to Hengsheng Group Company for processing. Whether this batch of exported motorcycles constitutes infringement is difficult for the customs to determine. According to Article 23 of the "Regulations on the Customs Protection of Intellectual Property of the People's Republic of China" , Honda Co., Ltd. may apply to the People's Court to order the suspension of infringement in relation with the above-mentioned goods or to take measures for property preservation, the customs shall release the above-mentioned goods if without receiving a notice of assistance from the Court within 50 working days (that is, before September 20, 2016) as of detaining the said goods. Honda Co., Ltd. filed a lawsuit with the court of first instance on September 13, 2016.

The defendant refused to accept the Decision and filed a lawsuit with the court of second instance. The court of second instance held that the act of Hengsheng Xintai Company and Hengsheng Group Company was not sale of commodities but act of foreign-related original equipment manufacturer(OEM), and the use of the logo involved in the case by Hengsheng Xintai Company and Hengsheng Group Company is not a trademark use activity in the sense of trademark law. Foreign-related OEM usually refers to an international trade model in which domestic manufacturers are legally authorized by foreign legal trademark owners to produce and export all the products they produce to countries and regions where the trademark owner has trademark rights. Whether the production under this model infringes the trademark rights of the relevant trademark owners in China should be analyzed in detail based on the specific circumstances of the case. All 220 sets of motorcycle parts are exported to Myanmar, if they are not sold in the Chinese market, it is impossible for the relevant public in China to have access to the product, therefore, there is no issue as causing confusion to the relevant public in China, and there is no harm to actual interests of Honda Co., Ltd., that is, it does not have essentials to constitute trademark infringement. The second-instance judgment: (1) To revoke the first-instance judgment; (2) To reject Honda's claims. The plaintiff applied to the Supreme People's Court for a retrial. The Supreme People's Court held that the defendant's infringement was established and ruled to revoke the second-instance judgment and uphold the first-instance judgment.

【Reason for judgement】

The Supreme People's Court held that:(1) In regards to behaviour of foreign-related OEM: Based on the facts ascertained in the first instance and the second one, our Court confirm that the court of second instance recognized the facts clearly which is determined that the alleged act of infringement of Hengsheng Xintai Company and Hengsheng Group Company was foreign-related OEM and conducted of an in-depth analysis.

(2) With regard to behaviour of trademark use: The charged behaviour of infringement of Hengsheng Xintai Company and Hengsheng Group Company constitutes behaviour of trademark use. The Article 48 of the Trademark Law provides: "The use of a trademark, as referred to in this Law, means the use of the trademark on goods, packages or containers of the goods or in trading documents, or the use of the trademark in advertising, exhibition or any other business activities so as to distinguish the origin of goods.’, in which ‘ to distinguish the origin of goods ’means the purpose of the trademark user is to distinguish the origin of goods including the possibly achieved effect of identifying the source of the goods and actually achieved effect of identifying the source of the goods.

 Behaviour of trademark use is an objective behavior usually including many lines such as physical attachment and market circulation, etc.. Whether it constitutes "trademark use" in the sense of trademark law should be interpreted in a consistent manner based on the trademark law but should not cut apart one behavior but considers one certain line, and it is necessary to prevent a single line from concealing the behavior process, and to overcome the replacement of the whole behavior with a single aspect. Trademark use means that a certain trademark is used on a certain product, which may conform to the common will of the product provider and the trademark owner, or it may not conform; Which a certain trademark is used for a certain commodity and so the two are integrated becomes the object for observation by consumers to identify the commodities and the sources, it may make consumers to correctly identify the source of the commodity, or incorrectly, and even cause such a complicated situation that some consumers may correctly identify the origion of the goods but the others misidentify. These phenomena are complicated and all are dominated by use of trademarks, and these interests are repeatedly gamed and all are dominated by trademark laws. Therefore, if a trademark is used in labeling on products manufactured or processed or in other ways, as long as it has the possibility of distinguishing the source of the goods, it should be determined that the state of use is a "trademark use" in the sense of trademark law.

 The Article 8 of ”the Interpretation of the Supreme People’s Court on the Relevant Issues Concerning Application of Laws for Hearing Trademark Cases of Civil Disputes” provides that:“The relevant public in the trademark law refers to consumers related to a certain type of goods or services identified by the trademark and other operators closely related to the marketing of the aforementioned goods or services." In this case, the relevant public should include operators the consumers of the charged infringing goods and the operators closely related to the marketing of the said goods. In this case, the operators in the transportation of the charged infringing goods may possibly be in touched. Moreover, with the development of e-commerce and the internet, even if the charged infringing goods are exported abroad, there is the possibility of returning to the domestic market. At the same time, with the continuous development of China's economy, there are a large number of Chinese consumers who travel and consume abroad, and possibility of contact and confusion about " foreign-related OEM products". The court of second instance found that the 220 sets of motorcycle parts handled for export by Hengsheng Xintai Company and Hengsheng Group Company were all exported to Myanmar without entering the Chinese market and participating in "commercial activities.", and the relevant public in China would not have access to the product  Therefore, this use behavior of Hengsheng Xintai Company and Hengsheng Group Company cannot play a role in identifying the source of goods in China, so this is not a trademark use behavior in the sense of trademark law. There were errors recognizing the facts and applying the applicable laws in the second instance and , and the court rectifies them.

(3) Constituting infringement: The charged infringement of Hengsheng Xintai Company and Hengsheng Group Company constituted trademark infringement. The Article 57-i of the Trademark Law stipulates: "A person infringes the exclusive right to use a registered trademark if he:---(2) uses a trademark that is similar to a registered trademark in relation to identical goods, or uses a trademark that is identical with or similar to a registered trademark in relation to similar goods, without the consent of the owner of the registered trademark, and liable to create confusion.”.

The basic function of a trademark is the identification to distinguish the source of goods or services. Infringement of trademark rights is essentially the destruction of the identification function of the trademark, causing general consumers to confuse and misunderstand the source of goods. From the perspective of legal provisions, the principle of liability for trademark infringement should belong to the principle of no-fault liability, and should not take the actual damage as constitutive requirements of infringement. The aforementioned term "easy to cause confusion" as stipulated in the Trademark Law refers to the possibility of confusion if the relevant public comes into contact with the charged infringing goods, not requiring the relevant public actually having accessed the said goods or the fact of confusion certainly having happened.

 In this case, Hengsheng Xintai Company and Hengsheng Group Company used "HONDAKIT" text and graphics on the charged infringing motorcycles they produced and sold and prominently enlarged the text part "HONDA" and the reducing the "KIT" part. The letter H and similar wing-shaped parts are marked in red at the same time, which constitutes similar trademarks on the same or similar products with the three trademarks requested by Honda for protection. As mentioned earlier, the charged infringing behaviour constitutes the use of a trademark, and also has the possibility of causing confusion and misidentification by the relevant public, which is liable to confuse the relevant public.        (Reference case number: Supreme Court Mingzai No. 138)   

The unique names, packaging and decoration of famous commodities should be essentially taken awareness by part of the public in China, and the reputation thereof overseas may be for reference.

【Facts of case】

The plaintiff, CHATEAU Company, is the registrant of the trademarks ‘LAFITE’No. 1122916 approved on the goods Alcoholic beverages (except beer) of class 33 and the trademark No. G764270 approved on the alcoholic products in class 33.

The defendant Jinhongde Company uses the logos of "Lafite Family" and "拉菲世族" in its wine products, website and brochures, and the introduces its historical origin, which is the same as CHATEAU Company in the respects of history. The defendant’s biomedical company sold the charged infringing product. CHATEAU Company filed lawsuits of trademark infringement and unfair competition. The Intermediate People's Court of Changsha City, Hunan Province held that: Jinhongde Company and the Biomedical Company constituted infringement of the trademarks "LA FTE FAMILY" and "拉菲世族" and Device, and judged the companies to stop the false promotion, to cancel the "lafitefamily.com" domain name, and to compensate the plaintiff for the loss of 300,000 CNY, published a statement of elimination of the impact, and the Biomedical Company stopped selling infringing products and using promotional materials. Jinhongde Company appealed against it. The Hunan Provincial Higher People's Court ruled: To dismiss the appeal and uphold the original judgment.

【Grounds for the rules】

The court held that:Jin Hongde Company's use of "LA FT TE FAMILY" and other signs on its wine products without the permission of the trademark owner infringes CHATEAU's trademark rights and shall bear corresponding civil liabilities. The domain name "lafitefamily.com" used by Jinhongde Company completely contains the text of registered trademark "LAFITE" No. 1122916 of CHATEAU Company's, and in the website it combines Late famiy and other logos to promote its wine products, which is liable to cause the relevant public misidentify that the goods provided by the appellant came from CHATEAU Company and constitutes infringement.

The famous commodities referred to in the Chinese "Anti-Unfair Competition Law" refer to commodities that have a certain reputation in the Chinese territory and are known to the relevant public. To identify a famous product, the sales time, sales area, sales and sales target of the products, duration, degree and geographical scope of any publicity, as well as the facts of protection as a famous product should be considered, and other factors as well-known in foreign countries and regions. The LAFITE wine produced by CHATEAU  Company has a long brand history and is considered in France as one of the best wines. Before LAFITE wine entered the Chinese market, relevant media and mainstream Chinese websites in our country carried out extensive publicity reports on it. Since "LAFITE" wine entered the Chinese market in 2006, Shangdu Company has promoted its "LAFITE" wine products on its company website, and relevant domestic media and websites had continued to promote and report on "LAFITE" wine products. Therefore, it should be recognized as a famous commodity under the Anti-Unfair Competition Law. "拉菲" is in fact the only Chinese name corresponding to the well-known product of LAFITE wine. It is provided with distinctiveness distinguishing sources of goods and should be recognized as the unique name of the famous product of LAFITE wine. Jinhongde Company prominently used the words "拉菲世族" on its wine products, which caused confusion with other famous products and caused buyers to mistake them as the said famous products, behavior of which constituted unfair competition.

Jinhongde Company shall also bear the corresponding reliability for misleading false publicity in its website and products promotional materials on the quality, production ingredients, natures and use of the products, producer, and place of origin.