Facts

Plaintiff: Lacoste Co., Ltd. (Lacoste)
Defendants: Shanghai Europe Crocodile Stationery Co., Ltd. (Europe Crocodile)
Shanghai HengFuLi Trading Co., Ltd. (HenFuLi)

Plaintiff, being a corporate entity organized in France, obtained a registration for a design mark of a crocodile, having a priority date of December 18th 2002 for the duration from May 6th 2003 to May 6th 2013, designating stationery, pens, ball pens, ink, ink bottles and so on. Registration was cancelled on September 23rd 2009 by the Trademark Office on basis of three year non-use.

On July 21st 2009, plaintiff’s attorney obtained sealed evidence duly notarized by Shanghai Putuo Notary Office from the purchase of a number of commodities from the shops of defendant HengFuLi, including “Lacoste 668 Mermaid Diamond Iridium-point Pen,” “702# Black Knight Iridium-point Pen,” “Lacoste Knight Black Roller Pen,” refills and ink. Upon verification at trial, the court found that the crocodile logo is used on all sealed commodities of pens, ink and refills, as well as on the packaging, specifications, paper bags and brochures.

On July 22nd 2009, under the supervision of Shanghai Putuo Notary Office, the plaintiff’s attorney logged onto the webpage of www.crocodilepen.com, and printed the relevant pages at real time. The printings showed the information of the defendant Europe Crocodile, including company profile, products display, online ordering and contact information, which contained the crocodile design mark used by the two defendants on their products and packaging as well as the promotional materials.

After comparison, both of the crocodile design mark registered by plaintiff and the mark used by defendants were designs of alligator. They were similar in appearance yet with differences in these aspects: 1. the head of the plaintiff’s crocodile turns right while defendants’ turns left; 2. the crocodile on plaintiff’s mark is covered with scales, opens its mouth revealing the jagged teeth, and its tail is serrated; while defendants’ crocodile does not have scales or protruding teeth and its tail is smooth; 3. plaintiff’s crocodile is plump, while defendants’ is relatively thinner.

From 2002 to 2003, the Europe Crocodile secured 14 design patents on refill boxes, pens, refills, pen cap covers, etc. 4 designs filed on September 3rd 2002 used the alleged infringing crocodile design. At the hearing, witnesses testified that the defendant Europe Crocodile had started to use the crocodile design on its pens and pencil cases since May 2002.

The Trial

Shanghai Second Intermediate People’s Court found that though plaintiff’s trademark registration had been revoked, plaintiff was still entitled to protection against infringing activities before the revocation; that plaintiff failed at trial to produce evidence to show that it actually used the trademark after its approval. Although plaintiff’s crocodile logo enjoyed high popularity on clothing and other goods, it cannot be presumed that the trademark also had high visibility on the stationery commodities. Before the priority day of the plaintiff’s trademark registration, defendant had used the crocodile logo in its design works for pens, and continued using it for many years. Since the attention from relevant public was generally isolated, the two marks would not produce confusion and misunderstanding, so that it can be determined that the crocodile logo used by the two defendants did not constitute similar marks to the registered trademark of the plaintiff. Therefore, the two defendants’ acts of using the crocodile logos on their pen products did not infringe the registered trademark of the plaintiff. In accordance with Article 52 (1) (2) of China’s Trademark Law, Article 9 (2), Article 10 of Interpretations of the Supreme People's Court of Several Issues Concerning the Application of the Law to the Trial of Civil Dispute Cases Involving Trademarks, and Article 2 and 11 of Regulations by Supreme People’s Court on Evidence in Civil Cases, the plaintiff’s claim was dismissed.

After the first-instance trial, the plaintiffs duly filed an appeal with Shanghai Higher People’s Court which sustained the decision below by dismissing the appeals on the grounds of insufficient basis on facts and law.

Comment

In this case, the plaintiff failed to actually use the registered trademark. What is the effect of unused registered trademark? How should such a registered mark be protected? In judicial practices, there are different opinions and the judging standards. Under the trademark registration mechanism, though the protection for registered trademark does not depend on its actual use, the protection for unused registered trademark will be limited in scope. The exclusive right of trademark registrant authorizes the use of the registered trademark on designated goods or services. Whether the registered trademark is in use or not, others may not use the registered trademark on the same goods without permission. If other people use a similar mark on the same or similar goods or services, given the registered trademark is not in use, it will not cause confusion or misunderstanding to customers. Therefore, the trademark registrant is not entitled to prohibit others from using the trademark on similar goods or services.

I. Status quo of protection of registered trademarks not in use

With regard to the protection of trademarks not in use, it is generally believed in judicial practices that the protection of the exclusive rights of registered trademarks does not hinge on actual use. A trademark is a property right that includes two prongs ----- the right to use by its owner, and the right to exclude others from using it ----- both being independent from each other. Even if the owner does not use the trademark, so long as registration is not cancelled, others may not use the trademark. Trademark owners may exercise www.chinaipmagazine.com 3-4/2014 China IP 49 the right to exclude others from using the mark. Therefore, before registration is revoked, a defendant may not challenge the exclusive trademark right of the plaintiff on basis of nonuse. However, when it comes to infringement, there are different views in judicial practices.

In finding infringement, most courts do not consider whether or not the trademark is in use. If the defendant uses the same or similar registered trademark on the same or similar goods or services, which is likely to cause confusion or misunderstanding among consumers, the defendant’s conduct constituted infringement and should compensate for the economic loss of the plaintiff. For example, in the trademark infringement dispute of Beijing Yu Sheng Tang Biological Engineering Technology Co., Ltd. v. Beijing Yu Sheng Tang Bioengineering Co., Ltd., the court of first instance did not consider the fact that the plaintiff had already stopped using its registered trademark before the defendant started the infringing acts. So the court found that the profits made by the three defendants surpassed the amount of 5 million yuan as claimed by the plaintiff, and thus fully supported the plaintiff’s claim for compensation. Taking into account the fact that the plaintiff had stopped using the trademark, the second-instance court decreased the amount of compensation to 500,000 yuan.

Some courts find that the defendant’s conduct has infringed the plaintiffs’ rights of unused registered trademarks. At the same time, the courts believe that the unused trademarks show that the infringement acts do not cause losses to the plaintiffs. Therefore, since the plaintiffs cannot prove economic loss, courts would not support the plaintiffs’ claims for economic damages. In the trademark infringement case of Beijing Zhongnongke Technology Development Co. v. China National Agricultural Means of Production Group Corporation, the court held that although the plaintiff’s registered trademark has not been used for three consecutive years, the trademark has not been revoked by relevant authority, so that the trademark should still be protected. However, this could also prove that the defendant did not cause actual loss on the plaintiff, and therefore the plaintiff’s claim for economic compensation was not supported.

A few courts allow the owners of unused registered trademarks to state a cause of action in infringement lawsuits, but believe that the plaintiffs do not actually use the trademarks so that the marks of the two parties cannot be compared. Therefore, these courts find that the defendants’ conducts do not constitute infringement. In the trademark infringement dispute of Guizhou Changshoule Health Products, Inc. v. Yunnan Honghe Guangming Co. Ltd., the second instance court held that the defendant used the “Honghehong” logo as trade name, which was different with the registered trademark “Honghe” of the plaintiff from font and character. Since the plaintiff did not provide evidence for the use of “Honghe” mark on any commodity, it was impossible to distinguish the two marks. Taking general attention as standard, customers will not mistake the origin of commodity when judging from the bottle labels and packaging of the defendants’ wine product with the mark of Kaiyuan Honghehong.

Different judicial practices have different perceptions on identifying infringement on unused registered trademarks, because the current Trademark Law does not have specific provisions on the effectiveness of unused registered trademark. It is necessary that further interpretations should be made for the trademark registration system under the existing legal framework.

II. Significance of actual use to registered trademark under the current system

Trademark in legal sense is not just an extrinsic indicia, but a symbol with special referential meaning. From the perspective of its structure, trademark is a unity of three parts: the people who use the trademark, the commodity where the trademark is used and the mark itself. First of all, trademark must take some form of “visible marking.” The “word, name, symbol or design and any combination thereof” constitute the indicia of a trademark. When court claims that the trademark “marks the product origin or producer,” the claim in fact shows that the trademark is a form that can be perceived. Secondly, a trademark must specify its commodities or services, which are the objects for trademark. Finally, the trademark must “mark out and distinguish” its objects from others, that is, the trademark should show the origin of the product and the goodwill of its producer. Origin and goodwill are signified by the trademark. Take Haier for example, “Haier” is a signifier and the company’s goodwill is signified. The objects are the refrigerators, air conditioners and other appliances with the “Haier” logo. Therefore, the concept of trademark, trademark significance and trademark infringement are using the term “trademark” in the sense of ternary structure. The signifier alone is not protected by the trademark law. The functions of recognition and quality assurance depend on the whole reproduction ternary structure composed by the signifier, the signified and the objects.

To encourage trademark owners to apply for registration timely and to maintain a stable economic order, China adopts the principle of “first registration, first authorization,” but it does not mean the actual use of registered trademark is not significant. From the perspective of trademark ternary structure, trademark registration merely indicates the possibility that a particular mark (signifier) could signify the origin of the approved commodities or services. After the actual use of registered trademark in market transactions, consumer can identify the related commodities or services when shopping. So the above possibility can be transformed into reality and the ternary structure in the overall sense can be performed. Thus, trademark registration only authorizes the registrant with exclusive rights to turn the possibility of identify marking into reality. If it is not put into use, the trademark only shows its function as a signifier, and thus the registrant only enjoys a registered trademark in form. After being put into use, the trademark can establish a stable connection between the signifier and its objects, and the trademark in form can be transformed into a trademark in practice. “Any form of text, graphics or symbols, no matter how naturally they are suited to mark certain goods or services, would not turn into trademark naturally. Without the legal connection between the text, graphics or symbol and a particular commodity or service on the market, which are linked as a ‘mark’ and ‘object,’ it will not generate the legal term of ‘trademark.’ In final analysis, trademark reflects the relationship of interest, which is generated by linking the mark with the particular goods or services in the market.”

In summary, under the current trademark registration system, the unused registered trademarks are merely symbols without meaning and embodiment. Only the actual use of a registered trademark can give “life” to trademark and make it real. Although in this case the plaintiff’s trademark was registered, it was not actually put into use. The plaintiff gained the trademark only in form, but did not get the trademark in practical sense.

III. Impact of nonuse on validity of trademark exclusive rights

It is generally believed that registered trademark includes two prongs: the right to use the trademark and the exclusive right generated by actual use. The two rights are the two functions of trademark: the right to use is a positive function while the other is negative. From the positive perspective, trademark right authorizes the registrant to use the trademark on the approved goods or services. The right is only authorized to the registrant and others must not use the registered trademark without permission. On the negative side, the registrant may prohibit others from using identical or similar marks on identical or similar goods or services. For common property rights, the scopes of positive power right and negative right are consistent. However, the scope of trademark’s prohibition right is larger than the scope of right to use. Besides prohibiting the use of the same mark on the same goods, trademark right also prevents others from using identical or similar marks on similar goods. WIPO data indicate that: “Trademark has the function to distinguish its owner’s goods or services from others’. This basic function determines that, in order to prevent consumers and the general public being misled, trademark owner must be able to stop the use of confusingly similar trademark, which is the essence of the exclusive right given by trademark registration to the trademark owner. The owner must be able to prohibit a third party to use the trademark on the approved commodities or services by any form. Furthermore, since consumers are protected from confusion, such protection is generally extended to the use of similar marks on similar goods, if such use is sufficient to cause confusion.”

It can also be concluded that owner of registered trademark cannot prohibit others from using identical or similar marks on similar goods, except that the mark is identical enough to cause confusion. The so-called trademark confusion is www.chinaipmagazine.com 3-4/2014 China IP 51 that considerable amount of consumers, who are generally cautious enough, are confused about the origin of related products. In the history of trademark protection, confusion was initially limited to the direct source of the product, and then gradually extended to the relationship and sponsorship with the source, which turned from direct to indirect confusion. Whether it is direct or indirect confusion, the prerequisite should be the existence of two separate but identical marks that are used on the same or similar commodities or services. In fact, to cause consumer confusion or likelihood of confusion, there should be a specific trademark image in customers’ cognitive network. The mark can bring customers with information on the origin and quality of goods. When a third party uses the same or similar mark, consumers’ cognitive network will be activated, making consumers mistakenly believe that the third party provides goods from the same source of the registered trademark, which leads to confusion. In order to form such cognitive network on the trademark, consumers must have access in advance or purchase of goods marked with the trademark, which requires that the registrant should put trademark into practical use. The goods bearing the registered trademark can continue to give consumers sensory stimulation and actual consumer experience in the market, thereby enabling consumers to immobilize the trademark information in their heads. Therefore, consumers cannot buy or even come into contact with the goods of unused registered trademark in the market and thereby cannot build cognitive network with the information about the mark. When a third party uses the same or similar trademark on similar commodities, the mark will not activate the consumers’ cognitive network, so that consumers will not take the goods provided by the third party for goods from the trademark holder.

With regard to a third party’s use of the same mark on the same goods, since it falls into the scope of positive right, it infringes the trademark registrant’s right whether it leads to consumer confusion or not. Whether the trademark holder actually uses the mark or not, others should not use the mark without permission. As the owner’s exclusive right for a house, others cannot live in it without permission even if the house has been empty. In this area, there are different rules in foreign countries. One approach is to presume the use of same trademark on the same products as confusion, which does not require the burden of proof. For example, the Europe Community Trade Marks Regulations and the TRIPs Agreement have such provisions. Another approach is to request the plaintiff to provide evidence to prove that the defendant’s use of the trademark “may lead to the misleading, confusion or fraud to the consumers on the product sources.” The Lanham Act of the United States has such regulation. Since Article 51 of China’s Trademark Law clearly states: “the exclusive right to use a registered trademark is limited to the trademark which has been approved for registration and to the goods in respect of which the use of the trademark has been approved,” the law should ensure that such exclusive right is entitled to the trademark registrant. Even if the registrant does not use the trademark, the registrant has the right to choose the way of using registered trademark and should assume the risks that the mark could be revoked if not being used.

In summary, before the administrative department makes the decision of revocation, unused registered trademarks should be protected, but with the limited scope of protection, i.e. the owner cannot prohibit others from using the identical or similar trademarks on similar goods. In the present case, since the plaintiff’s registered trademark was not the same as the defendants’ mark, the mark does not encroach the space of exclusive use reserved for the plaintiff and therefore did not infringe the positive right of the trademark. On the other hand, since the plaintiff did not actually use the registered trademark, while the defendant had already begun to use the mark before the plaintiff’s registration, consumers could only get access to the defendant’s goods and would not confuse or mistake. Therefore, the mark used by defendants did not constitute similar mark as the registered trademark of the plaintiff, and thus did not infringe the negative right of the trademark. For this reason, the court found that the defendants’ conduct did not constitute infringement. The plaintiff had no right to prohibit the use and thus the plaintiff’s claim was dismissed.

(Translated by Li Guanqun)