Facts

Appellant (defendant below): Quanzhou Niubanlun Sporting Goods Co., Ltd. (Niubanlun) Appellee (plaintiff below): New Balance Athletic Shoe, Inc. (New Balance)

New Balance highlighted the use of a slightly distorted “N” letter mark, capitalized and in bold face on the central part of both sides of shoes that was close to shoelaces ( “N” letter mark). New Balance had opened several specialty stores in Beijing, Shanghai, Hangzhou, Nanjing and other cities after entry into China’s market, and put up advertisements on Life Style, Modern Weekly and other newspapers and magazines for promotion and introduction of its new balance athletic shoes, which prominently featured numerously use of “N” letter mark on both sides of its athletic shoes. It also used “N” letter mark on both sides of such athletic shoes in its 2007 Product Brochure to display several kinds of its new balance athletic shoes, and such “N” letter marks were prominently displayed in the pictures.

The plaintiff through an agent made a purchase in 2010 under seal of notarization of the allegedly infringing products from the defendant. At trial, the sealed purchase was introduced into evidence in court. The court found that although there were differences among the six pairs of athletic shoes purchased under notarization, they were featured by: (a) a slightly distorted, capitalized and bold “N” mark with two smaller slashes below the right side of every shoe (“N” logo) was used on both sides of four shoes, and such “N” logo was also prominently displayed in the central part on both sides of other two shoes; (b) “N” logo and character of “N?PAI” was used on tags of the six pairs of shoes; (c) “N” logo was used on the front shoeboxes for six pairs of shoes, and character of “N牌”(“N Brand”) was found in the product name that was pasted on the tag, and such “N” logo was prominently used on both sides of shoelaces which were equipped by four pairs of shoes; (d) “N” logo, “N PAI” and other displays were used in shoe tongues, backup counters, insoles and other positions of the six pairs of shoes.

The defendant also used “N” mark on both sides of athletic shoes in exhibition in its Retro product publicity atlas, and such mark was also prominently used in most of its goods pictures.

New Balance claimed that “N” letter mark used by itself on the central part of shoes it produced had been a distinctive decoration for its famous goods, that Niubanlun used such “N” graphic mark on its athletic shoes and packaging in quantity, which was sufficient to cause confusion or misidentification among consumers concerned, and that such acts had thus constituted unfair competition against the plaintiff. Therefore, New Balance requested the court to render a judgment of (1). an immediate injunction against defendant from unfair competition, and (2). damages against defendant, and reasonable cost totaling 500,000 yuan.

Niubanlun counter argued that the plaintiff had no evidence to prove the reputation of its goods, that the sole “N” logo used by the plaintiff was separated from get-ups and lost integrity in consequence, which should not be ascertained as the object under the protection of distinctive getups for famous goods, and that unfair competition alleged by the plaintiff cannot be established.

Judgment

At trial, Shanghai Huangpu District People’s Court found that New Balance was entitled to relevant legal rights and interest to its goods, that it stated a cause of action against unfair competition in the form of passing-off by the getup of its products, and that the “N” logo used on both sides of the athletic shoes was the most prominent and distinctive part of the get-up and had nothing to do with the function of such products. But, as the long publicity and extensive use of the “N” logo had been sufficient to make the public associate those shoes having such a logo on both sides with athletic shoes produced by New Balance, thus the letter N without distinctiveness in nature had acquired distinctiveness to distinguish special goods because of its being continuous used in fixed position of athletic shoes. Therefore, the “N” letter mark used by New Balance on both sides of shoes had constituted the special get-ups under the provision of Article 5 (2) of China’s Anti-unfair Competition Law. Although it ought to have known the foresaid get-up used by New Balance on its products, Niubanlun still decided to use “N” logo on the same location in respect of the same products it produced that was extremely similar to and almost not visually different from “N” logo of New Balance. As a result, Niubanlun had an obvious intention of free rider to take off on the goodwill of New Balance, which was sufficient to cause confusion or misidentification among consumers in terms of the source of goods and obviously violated the principle of good faith and widely accepted business ethics. Thus it should be ascertained as unfair competition against New Balance and should bear civil liabilities in the form of cessation of infringements and compensation for losses. Therefore, Shanghai Huangpu District People’s Court entered the judgment of (1). an immediate injunction against New Balance, (2). damages for a total of 480,000 yuan in compensation with reasonable cost within ten days after the decision, and (3). dismissal of all other claims of New Balance.

Dissatisfied with the judgment of the first instance, Niubanlun appealed to Shanghai Second Intermediate People’s Court.

Niubanlun contended on appeal that the “N” logo used by New Balance on both sides as product getup was not special decoration for famous goods and as a result, it requested the court of second instance to reverse the ruling in (1) and (2) of the judgment above.

New Balance requested the court of second instance to reject the appeal and sustain the judgment because it was clear in fact finding and correct in application of law.

The court of second instance entered a judgment in favor of New Balance.

Comments

There have been hot controversies in judicial practice on whether distinctive get-up of famous goods on specific position (“localized get-up”) should be protected by Anti-unfair Competition Law as distinctive trade dress. The courts made some useful explorations in the case, which will not only enrich the theoretical connotation of ascertainment of distinctive decoration for famous goods, but also provide courts with judgment skills and wisdom as useful reference to future trials of similar cases.

I. Controversies on whether protection should be available to localized get-ups

It is sure that localized get-ups may convey the source information of some goods or service to consumers, which will be useful for their shopping according to such mark. However, opponents have voiced their concerns about legal protection for localized get-ups.

Firstly, protection for localized get-ups may cause a monopoly of specific mark and this may be a hindrance for other competitors to use such mark for free competition. It is highly possible that other competitors may be restricted to use such mark because of its distinctiveness on a special position although it is just a simple and frequently used letter, design etc. and has no distinctiveness in a general sense. Take the case for example. The “N” logo is one of the 26 English letters and has no distinctiveness in nature. Even if it has acquired secondary meaning after being used on a special position for a long period of time, it still has no distinctiveness as a mark on other positions. It is highly possible that other competitors may be restricted to use letter “N” as a get-up for their goods and this will hinder free competition if legal protection is granted to it.

Secondly, there may be over protection for localized get-ups where there is no clear statutory provision under China’s Trademark Law that logo may be applied for registration. As a kind of new trademark, the logo is a visible sign which is used in localized portion in respect of designated goods or at a place providing designated service in order to distinguish one source of goods or service from another. The only official stipulation regarding position mark can be found in the Article 3 (5) of Regulations under the Singapore Treaty on the Law of Trademarks, which provides that “Where the application contains a statement to the effect that the mark is a hologram mark, a motion mark, a color mark or a position mark, a Contracting Party may require one or more reproductions of the mark and details concerning the mark, as prescribed by the law of that Contracting Party.” However, there is no provision on position mark under China’s Trademark Law. Legal protection for trademark and trade dress is homogeneous in nature. Even if trademark law cannot be applied to protect position mark, anti-unfair competition law should not intervene in for protection by ascertaining it as a special decoration. Otherwise, there will be disorders among legal systems, which will result in a higher protection of anti-unfair competition law than that of trademark law.

II. Justification for the legal protection of trade dress

Refusal to protect trade dress will not only fail to protect the commercial achievements from operator’s long-term investments and management, but also fail to maintain market order for fair competition.

Firstly, protection for localized get-ups will effectively protect a proprietor’s commercial achievements. Trade dress is a kind of ornamentation for items and its first function is to make items more beautiful. Some special get-ups can usually give consumers some impressions other than beauty after being used and publicized for a long period of time, and thus become marks for consumers to distinguish one goods from another in the process of their purchase. It is necessary for operators to publicize and promote such commodities and make massive investment in the process from which such decorations gradually become distinguishable marks. The nature of protection under anti-unfair competition law for get-ups in respect of famous goods is just to protect such commercial achievements resulting from the long term investments of the operators. It seems that the “N” logo in this case was simple and ordinary; however, it might become the mark for consumers to make a distinction among commodities concerned as long as the operator chose it as its trade dress for its goods, which usually required operator to make more investment. In fact, New Balance proved its efforts in publicity and promotion for its goods, and made special prominent popularization and reportage of such mark in many promotions. It will be harmful to refuse to protect such mark on the grounds that it is only used by operator on special position instead of other positions. If so, operator’s longterm investment will come to nothing, and it will not be conducive to enhance and encourage operators to invest in brand promotion and enthusiasm.

Secondly, protection for localized get-ups will effectively safeguard market order for free competition, which is the inherent demands for the protection of consumer’s legitimate rights and interests and the effective safeguard for the healthy development of market economy. It will be a kind of somewhat encouragement to free rider’s unfair competition in violation of business ethics if no protection is granted to trade dress because of the get-up where it is used, although it has a relative higher market reputation. Take the case for example. Although it knew that the “N” logo was used by New Balance in a localized portion in respect of its products, Niubanlun still decided to use the “N” logo that was similar to that of New Balance on the same position in respect of the same goods produced by it. Therefore, Niubanlun had an obvious bad faith in its use of “N” logo and had objectively made it sufficient to cause confusion and misidentification among consumers concerned in terms of sources of goods, which apparently violated the principle of good faith. If there is no order to stop the acts of defendant, it will be difficult to provide an effective protection for consumers’ rights and interests and to maintain market order for fair competition.

In fact, the legal protection for the get-up will also enrich the theoretical connotation of distinctiveness to some extent. That is to say, position may be taken into consideration for the ascertainment of distinctiveness, which does not require that the special get-ups must be distinctive on all positions where it is used. Although the get-up is used by the plaintiff on some positions without distinctiveness, it can still be ascertained as distinctiveness on special position as long as it has distinctiveness in comparison with that used by the defendant on special position and can be granted protection under anti-unfair competition law. The judicial judgments for the case make a proper abutment of law application between relatively standard legal provisions and irregular social practices, which is a full incarnation of sense and wisdom in practice in judicial judgments.

III. Response to opponents against protection for get-ups

Protection for get-ups will neither cause disorder of legal systems in respect of anti-unfair competition law and trademark law, nor hinder free competition between and among other competitors in relevant market.

On the one hand, protection for get-ups is just a supplement of anti-unfair competition law to trademark law. There is something beyond the statutory provision of trademark law that some operators use some atypical marks as trademark in respect of their goods for ingenuity and innovation and the position mark used by New Balance in this case is a good example in this regard. Such typical marks have the function of trademark and have no way to be granted for registration because trademark right is governed by statute as a kind of exclusive right. “Too strict application of law will inevitably grant no timely protection to those newly emerging commercial achievements that need to be protected, and hence hurt the enthusiasm of market innovation. Anti-unfair Competition Law appears on the stage as a complementary role to mitigate the possible side effects of overdue strict adherence to the statute in terms of intellectual property law.” Therefore, the courts, by exploitation of protection for get-ups in respect of famous goods, ruled in the case that protection should be granted to get-ups where such protection could not be granted by trademark law, which is just an embodiment of the supplementation of anti-unfair competition law to the protection of commercial marks.

On the other hand, protection for position getups will not result in an overdue protection and hinder the free competition between and among other competitors. Whether to grant protection for position get-ups is different from how to protect such get-ups. The former involves an attitude of whether such get-ups should be ascertained as commercial achievements of operators, which is a relatively objective matter of fact. As long as a special get-ups actually has the function of identifying the source of goods or services and has no function that is prohibited by law, it should be ascertained as a commercial mark of the operator for protection. The latter involves a relatively subjective legal issue of how to protect such commercial achievements, namely, the scope of protection. If a special decoration acquires distinctiveness on a special position, there may be a limitation on the protection scope of such decoration. Therefore, opponents confuse the question of whether to grant protection and how to grant such protection and the protection for position get-ups will not inevitably result in limitation on other competitors’ use of such get-ups.

IV. The scope of legal protection for get-ups

As a result of the distinctiveness acquired by get-ups that is used on localized portion in respect of commodity, there will be a limitation on the protection scope of get-ups for famous goods in terms of special position. Except such special position, the proprietor of get-ups has no right to prohibit other competitors from using identical or similar trade dress on other positions. Both the courts of first and second instances set limitation on the protection scope on the condition that the “N” logo involved in the case can be ascertained as the special decoration for famous goods. The court of first instance ruled that Niubanlun should stop using get-ups that were identical with or similar to the “N” logo on the central position on both sides of athletic shoes produced and sold by itself when requiring it to stop unfair competition. The court of second instance also confined the use of get-ups to both sides of athletic shoes. Therefore, other competitors are free to use the “N” logo on other locations and protection for getups results in no restraint on free competition between and among other competitors.

(Translated by Yuan Renhui)