From the “CABERNET” Dispute to Corporate Trademark Policy
By Wang Yu，Deputy Director of Beijing City University Intellectual Property Research Center,[Trademark]
On January 14, 2010, Beijing First Intermediate People’s Court rendered a first-instance ruling in a trademark dispute case over “解百纳” (the allegedly Chinese transliteration of “Cabernet”). The case has lasted for eight years from; the filing of the registration application by Changyu to the adjudication by the court going through almost every step in the process of trademark dispute. Though the final result is yet to come, the unsettled war over解百纳tells us a lot about trademarks.
Pursuit of a strategy
The Outline of the National Intellectual Property Strategy divides IP work into four categories; creation, utilization, protection and administration, similarly, a trademark strategy also includes these four areas. All businesses seek profit, and they must also design their trademark strategies around business profit by setting out integrated goals for long term development. A fundamental principle is to prioritize profits, and the end determines the means. For this reason, trademark strategy requires some degree of thinking.
Let’s look at Changyu’s strategy behind the”解百纳trademark. A multi-billion market is the real target of competition between Changyu and other wineries. In the”解百纳trademark game, Changyu dealt the first card by taking out a trademark registration, but an alliance of other industry giants formed and became the other player. It appears to be a two-party match, but actually it is a game between one corporate player and an entire industry. If during the game there is only one round, one party’s strategy is naturally contrary to that of the other player, namely, the principle of betrayal. China is a huge market and no single company has the strength to monopolize the market. Competition is always accompanied by cooperation within the market, and collaboration with a competing enterprise does not necessarily harm its own in interests. An enterprise that only regards industry peers as competitors and unilaterally takes measures which may bring about temporary competitive advantage may be viewed as “betrayal” by industry peers. Obviously, from the view of either trademark application proceedings or market competition, there are several repeated rounds to the game, even after several plays; there may not necessarily be a final winner. After eight years and repeated rounds; the case has not reached a final conclusion. In the several rounds of this complex game, both players should have strategically considered whether cooperate or be disloyal. When one player betrays, the best measure for another player will be tit for tat, namely, betrayal, hence, the game will recycle and continue. In the defense of 解百纳, Changyu’s acts were seen as a betrayal of the industry. During the game, the parties extended their battle lines from legal proceedings to market competition. Prices were lowered and huge market benefits of 解百纳were gradually reduced, while Changyu, having the largest market share, obviously suffered the biggest market losses. Changyu’s acts resulted in its isolation from the entire industry and loss of opportunities for cooperation with the industry, thereby inevitably putting it in an unfavorable position for future operations. Changyu’s trademark strategy has gone against its fundamental purpose - enterprise interests.
The 解百纳trademark dispute centers on the parties market interests of 解百纳, but the final outcome does not exclusively give the winner a market feast of解百纳products, nor does the loser walk away. Another possible strategy between the parties during several rounds of play should be cooperation, that is, both enter into a beneficial-sharing agreement and end this game. The author has proposed on a number of occasions that the parties cease fire and regard the解百纳trademark as a trademark of a certification nature, and the parties jointly set standards, while each takes a share of the 解百纳fruits. The Chinese wine industry has currently seen a great opportunity for development and demands a peaceful environment, so that the industry can expand and is able to withstand the impact from foreign wines, thereby leaving room for the Chinese wine industry to survive. As Changyu’s解百纳trademark dispute falls into a game between an enterprise and industry, will there be cooperation or betrayal? The choice not only requires a certain vision, but also demonstrates the strategic decision-making level of an enterprise. If the enterprise blindly pursues a unilateral victory and persists with the game to the very end, obviously, it is narrow-minded strategic thought, and the result of which will go against its ultimate interests.
Error of trademark registration
Creation is the first in priority of an IP strategy. As far as the trademark strategy is concerned, creation is embodied in the trademark registration. A good trademark registration lays a foundation for a successful trademark strategy. It is like an Olympic champion, not everyone can be an Olympian relying only on their efforts, the athletes also need talent. They have to undergo a multi-level selection process before being picked as a “seed” for nurturing, which is the gene for a champion. Ultimately, a well-known trademark also has the gene, however not every trademark can be nurtured to become a well-known trademark; it also needs a certain “talent”.
The解百纳dispute focuses on whether it is a generic name or not, but the law does not provide a clear definition for the generic name. According to an academic description in the textbook, Intellectual Property Law, published by the China University of Political Science and Law, “Generic name is a standardized denomination distinguishing one product from another, including common names and nicknames.” Academic interpretations of generic names include not only standardized names, but also common names and nicknames. Take a potato for example; it is called”tudou” in Beijing, “Shanyaodan” in Shanxi, and “Yangyutou” in Jiangxi. “Tudou” is the standardized name, while “Shanyaodan” and “Yangrutou” are both nicknames; therefore, both “Shanyaodan” and “Yangrutou” are generic names for potato. Although currently no definitive decision has been made as to whether解百纳is a generic name or not, it can be considered as a “suspect” generic name in such a great controversy. It does not possess the inherent quality for a well-known trademark, but was ill-devised even before it came into being, and thus, a defective gene. It is very difficult for a genetically defective trademark to mature into a well-known trademark. Application for registration of a suspected generic name will give rise to ceaseless disputes. Even if the suspected generic name is lucky enough to obtain trademark registration, it is always prone to a cancellation challenge. There are cases in China of effective trademark registrations being invalidated by courts. In 1994, a Beijing winery secured a trademark registration for甑馏, and subsequently sued Niulanshan Distillery and others for trademark infringement. The Beijing First Intermediate People’s Court found that甑馏 was a generic name of goods and that defendants’ use was in the normal realm. Therefore, trademark infringement could not be established and the case was dismissed. A registered trademark, suspected for a generic name, which had been in use for more than 10 years, could not escape the fate. Even under a stay of execution, the million dollar word解百纳 , in the never-ending battle, would be greatly depreciated, or might even become worthless in market value. There are many examples of well-known trademarks going down the drain due to endless litigation. Changyu had some problems from the very outset in its trademark strategies, as it chose and secured a genetically defective word for a trademark.
Woes of trademark use
The second important part of a trademark strategy is use, which has been overlooked by Chinese enterprises. They generally do not pay attention to use of trademarks; even the most basic trademark symbol “○” is missing. A good way to utilize trademarks has numerous favorable effects, while improper use may ruin the trademarks. Trademarks, such as 吉普 (JEEP), 席梦思 (SIMMONS) and氟氯昂 (FREON), have been genericized into common names of goods due to improper use, while the generic name dispute of解百纳is directly related to the improper use by Changyu.
All product names are by nature, generic, as a product name has to be agreed upon within the industry. The established practice in the industry results from use over a certain period of time, basically because of improper use or unfavorable maintenance. The theory of trademark genericism refers to any mark that degenerates, for various reasons, into a generic word. There is a lack of understanding of trademark generism in this country. GOOGLE, e.g., was taken as a word heading in a dictionary, which was hailed by media in this country, but in fact, it is a horrible generism of the mark. GOOGLE, as a trademark, once listed in a dictionary, loses its trademark function to distinguish, and is no longer a trademark, its invaluable trademark merit immediately going up in smoke. In the event, the trademark holder must actively advocate its rights to well protect its trademark, thus “Google” immediately issued a statement to the media to protect the trademark. Chinese trademark holders fear that their trademarks are not well-known and spend huge amounts of money in promoting, while many inappropriate promotions are a dilution of their trademarks.
Changyu said that 解百纳 came into being in 1931, when Mr. Xu Wangzhi, then a part-time manager of Changyu, organized a number of personnel from companies and banks to name the company’s wine products. They decided to uphold the idea of “integration of China and the West” advocated by Changyu founder Zhang Bishi, and named such high-end wine as解百纳Dry Red incorporating meanings from “as inclusive as the ocean, which is vast enough to admit hundreds of rivers.” Since then, 解百纳Dry Red has been the core sub-brand of Changyu and been already integrated with cultures of Changyu for many years. Some said that the word解百纳was a transliteration from the French word “Cabernet” and was not exclusively owned by Changyu. We cannot deny that解百纳had been a registered trademark in the 1930s, but解百纳itself has also been ignored by Changyu. A dispute would never have arisen if the name had been registered when China’s Trademark Law was reinstated. Whatever the origin and history of解百纳, there is no denying that there are numerous varieties of解百纳wines on the market, and the majority of wineries think that解百纳is a generic name. This is closely related to the improper use by Changyu. At the beginning of the founding of the People’s Republic of China, Changyu held training courses for personnel sponsored by the national wine industry, and the trainees were informed of a “three-in-one” wine variety called解百纳. Later these novices became the backbone of China’s wine industry and vinified解百纳 wines across China, which was the beginning of genericization of the trademark on its own initiative by Changyu. Changyu was not aware of genericism, until now its adverts all promotion “Changyu解百纳” and its product logos also use “Changyu解百纳” (see Graphic 1). “Changyu” is a trademark, naturally解百纳” is also deemed as a product name in accordance with consumers. On the basis of uses of Changyu, the market also has解百纳with the “Great Wall” trademark (see Graphic 2) and other brands (see Graphic 3). The解百纳trademark falling into a generic name dispute is a woe of trademark uses by Changyu.
Plight of trademark protection
Pure rights protection has gradually been played down in IP strategy, thus trademark strategy can no longer become entangled with success or failure in individual cases, and trademark litigation strategies shall be taken into full account from the perspective of enterprise interests. Earlier reports said that Changyu was recruiting a large number of legal professionals, reserving talent in trademark protection across China. IP protection through litigation is a losing game where there are basically no winners. Martin Shubik designed the “Dollar Auction Game”, an extremely simple, highly amusing and instructive game. The game involves a dollar bill to be auctioned off with the following rules: the dollar goes to the highest bidder, who pays the amount he bids. The second-highest bidder also must pay the highest amount that he bids, but he gets nothing in return. Subik’s game quickly drove people crazy, because the second bid always puts the first bidder into an uncomfortable position, and nobody wants to be the fool, as the second bidder will be charged for nothing. Therefore, the players compete to outbid the other players. As a result, it is easy to raise the bid to over one dollar, and the player who bids one dollar gets one dollar but the amount he pays exceeds one dollar. The second highest bidder is even unluckier and pays one dollar without getting anything in return. The man-who designed the rules of the game, tells us rationally, that this is a game for lunatics, and people would not be so foolish in reality. However, this is not the case, the irrational game is seen everywhere. Changyu has also fallen into the plight of the “Dollar Auction Game” in several rounds of the game in connection with the “Cabernet” trademark dispute. After every round, the costs of the parties rise, and there will always be a loser which becomes the “fool” or the second bidder. All costs incurred will be reduced to nil, while the highest bidder will also get more kicks than halfpence.
If a player is involved in the “Dollar Auction Game”, it is very easy for him to become irrational, what shall he do when he is aware of the problem? Will he stop “bidding” to let the other player win or will he continue to “bid” to make the other player the fool being the second highest bidder? If both sides realize that the game is a trap for fools, they may cooperate agreeing that one party will win and share the loss of the second highest bidder, so that they are able to avoid falling into the trap of the “Dollar Auction Game” after several rounds, regain their rationality and reduce their losses. If one party fails to comply with the cooperation agreement and chooses to betray, making the other party the fool or the second highest bidder, he may reap all the proceeds. However, his betrayal is sure to bring retaliation from the other party; as a result, the vicious and crazy game of fools begins to repeat again. In the end, the parties will suffer.
In several rounds of the IP game, if the parties do not want to be “fools”, the only alternative is for all players to cooperate and reconcile as soon as possible. Mature multinationals end all IP disputes by way of “reconciliation”, particularly in patent infringement litigations, thus allowing them to easily reach cross-licensing agreements and trade patents with each other. In so doing, infringement litigation is prevented, and patented technologies are also obtained free of charge from others. Therefore, the parties are harmonious and create a win-win situation. Chinese enterprises are also gradually maturing and avoiding the trap of IP litigation. In the big patent battle between Beijing Huaqi Information Digital Technology Co., Ltd. and Netac Technology Co., Ltd., Netac won the first instance trial, however, product prices industry wide fell with the news even before its mighty publicity train arrived in Beijing, and prices of Netac inevitably were also dragged down. Therefore, in the second instance trial, the two “foes” shook hands and reached reconciliation. In the time-consuming “Cabernet” game, Changyu cannot afford the loss compared with other big names. If Changyu fails, the huge costs previously spent on “Cabernet” would be reduced to ashes. A wise Changyu should reach a “peace agreement” in private with the alliance of giants and end the crazy “Dollar Auction Game,” however; no sign of reconciliation has been seen from Changyu so far.
The defensive war of解百纳waged by Changyu has not yet entered the rights protection stage, but Changyu’s lack of overall trademark strategy has been exposed during the battle. It lacks depth or even general understanding of the trademark system, and thus is unable to review the pros and cons of litigation from a long-term strategic level. Changyu is a large-scale enterprise, in fact, this is also the common problem among domestic enterprises which carries out self-examination, and reflects and plans their trademark strategies in the解百纳trademark dispute.
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