Case overview

From July 1987 to November 2004, the plaintiff (and appellee) SWAROVSKI AKTIENGESELLSCHAFT (SWAROVSKI) successively acquired the registered trademarks of “SWAROVSKI,” “施华洛世奇”, “” and “.” These SWAROVSKI trademarks, which are still valid, are approved to be used on goods in Class 14 of the International Classification of Goods. With a history of protection from law courts and arbitration tribunals around the world (including China), they enjoy fame and good reputation. The defendant (and appellant) Shanghai Wangxing Information Technology Co., Ltd. (Wangxing) was incorporated in July 2001, and the defendant Wang Chenyun was the legal representative and shareholder of Wangxing. In June 2008, Wang Chenyun registered the domain name “chinaswarovski. com,” and in July, Wangxing registered the three domain names-“chinaswarovski.cn,” “swarovski8. cn” and “swarovski-shop.cn.” On April 30th, 2009, a notarization was issued by Beijing Guoxin Public Notary Office, stating that the above four domain names were assigned to websites which contained the combination of “Swarovski, 施华洛世奇 and the starfish image,” the combination of “Swarovski hearts” and several other heart images, and the combination of “” and “Swarovski;” and that on the homepages of those websites, the images, names and prices of crystal products all contained the words “施 华洛世奇水晶” (Swarovski Crystal). On April 21st, 2009, another notarization was issued by the same notary office, to notarize the process that the notary public and the attorney of SWAROVSKI bought Swarovski Crystal products by accessing the websites using a computer in their office.

During the proceedings, Wang Chenyun transferred his domain name suffixed with “.com” to Wangxing, and Wangxing agreed in writing to be bound by court judgments with respect to such domain name. Moreover, as presided by the trial court, the three other domain names suffixed with “.cn,” which expired on July 16th, 2010, was registered and used by SWAROVSKI’s affiliate, Swarovski (Shanghai) Trade Co., Ltd. on September 25th.

SWAROVSKI alleged that the defendants infringed the exclusive user rights of the plaintiff to the SWAROVSKI trademarks by registering the four domain names using letters or words similar to the registered trademarks of the plaintiff, employing the registered trademarks of the plaintiff on the four websites intensively and prominently, and marking and selling crystal products by faking the registered trademarks of the plaintiff. It requested the court to order the defendants to stop the above infringing actions, transfer the domain names suffixed with “.com” to the plaintiff for registration and use, publish a statement to this effect on the People’s Court Newspaper and related websites, and compensate the plaintiff for economic losses and reasonable costs, in the total amount of 400,000 yuan, as sustained by the plaintiff.

The defendants argued that the four domain names were assigned to a single IP address and a single website; the four domain names were owned by Wangxing, who also actually operate the websites; and that the Swarovski Crystal products and information on the websites came from a trusted seller at Taobao.com who pledged that his products were genuine. Because their products were from a legal source and had not defrauded the public, and because the employment of the trademarks of the plaintiff had been indicative only, no infringement had occurred and the defendants should not be liable for damages.

Trial and judgment

The People’s Court of Huangpu District, Shanghai held that the trade name “SWAROVSKI”, translated as “施华洛世奇” in Chinese, was the family name of its creator, Mr. Daniel Swarovski, who specialized in manufacturing and selling crystal products. From 1987 to 2004, SWAROVSKI legally and effectively registered the four trademarks with the Trademark Office of the People’s Republic of China, enjoying the exclusive user rights to such trademarks according to law. Also, a number of records on the protection of these trademarks can be found in courts or arbitration tribunals between 2000 and 2009. Thus, they are known to the relevant public as the trademarks of SWAROVSKI, with a high fame and reputation. It was in June or July, 2008 that the two defendants registered the domain names incorporating letters or words similar to the trademarks of SWAROVSKI. Thus, apparently the SWAROVSKI trademarks were registered and used by SWAROVSKI earlier than the defendants. The comparison finds that the four domain names of the defendants consist of components identical with the trademarks of the SWAROVSKI. Using these domain names, Wangxing built four similar websites, each of which marketed SWAROVSKI Crystal products and was capable of selling such products independently. Because Wang Chenyun, as an individual, never subjected his domain name to commercial purposes, but transferred it to Wangxing during the trial, and Wangxing agreed in writing to be bound by the court judgment in that respect, therefore it may be deemed that all four domain names were registered and used by Wangxing. Because Wangxing, when it registeredthese domain names, would have been aware of the relatively high fame of the registered trademarks of the SWAROVSKI, but regardless still went on to use the domain names to build the websites for commercial purposes and operate its business online to cause confusion or misunderstanding among the relevant consumers. Therefore Wangxing’s registration and use of the domain names constitute infringement. Without the license or permission of SWAROVSKI, the four registered trademark of SWAROVSKI were used prominently on the four websites to which the four domain names were assigned, with a statement that the websites sell genuine SWAROVSKI Crystals. Also, the products that SWAROVSKI bought from the websites, by means of notarization, used the registered trademarks of SWAROVSKI on the exterior packages, inside the boxes and on the upper main part of the products. The use of the registered trademarks of SWAROVSKI by Wangxing infringed upon the exclusive use rights possessed by SWAROVSKI. SWAROVSKI, as the exclusive owner of the registered trademarks, examined the purchased products and argued that faked trademarks belonging to SWAROVSKI were used on such products. For this argument, Wangxing cannot prove the legal source of its products, nor provide any counter evidence. Moreover, it admits, during the trial, that through the websites, it had sold out 22 times of various products passed off as SWAROVSKI Crystals. Therefore, Wangxing may not be exempted from liabilities for selling goods that infringed upon the exclusive user rights of SWAROVSKI. Because Wang Chenyun never actually owned the domain names or operated the websites and because SWAROVSKI failed to produce evidence that the two defendants contained the common subjective intent and collaborated in the infringement, therefore SWAROVSKI’s claim of joint infringement is not affirmed by the court.

The first-instance court judged as follows: 1. Wangxing shall cease and desist immediately using the domain name“chinaswarovski.com”, exploiting the four registered trademarks of SWAROVSKI, and selling the goods infringing the exclusive user rights of SWAROVSKI; 2. Wangxing shall transfer the domain name "chinaswarovski. com” to SWAROVSKI; 3. Wangxing shall publish an announcement on the People’s Court Newspaper to eliminate the effect of the infringement; and 4. Wangxing shall compensate SWAROVSKI for the economic losses and reasonable fees, in the amount of 98,000 yuan, as sustained by SWAROVSKI from the infringement. After the judgment was given, Wangxing was not satisfied and appealed.

The No.2 Intermediate People’s Court of Shanghai, through a trial, held that the firstinstance judgment was clear in its finding of the facts and correct in its application of law. Therefore, it is ruled to reject the appeal and affirm the original judgment.

Commentary and analysis

This is a typical case where the domain name of the computer network infringes the trademark rights. With the development of computer networks and e-commerce, more and more people, either by incorporating a company or individually, squat on domain names and go on to build websites using the squatted domain names to trade goods and develop e-commerce. In this Internet era, the challenge is how to protect trademark rights and other intellectual property rights and how to adjust the relationship between domain name users and owners of the rights.

I. Judicial determination and assumption of liabilities for trademark infringement in domain name disputes

The domain name, in Internet-based trademark infringement disputes, means the words, letters and/or numbers contained within the Uniform Resource Locator (URL). This is commonly referred to as the web address and entered into an address bar within a web browser. The domain name of a company, as its address on the Internet, represents its proprietor and goods or services. A domain name that is identical or similar with the business identity of another person may cause confusion about the proprietor. A domain name that contains the trademark of another person may lead to association or confusion among the public between the domain name and the trademark. Thus, as a distinguishing feature, domain names develop a function to identify different users and services within the networking environment, which is similar to that of trademarks and trade names. The registration and use of domain names lead to the generation and development of the identifying function, and the realization of the economic value associated with domain names. Thus, this will result in a conflict between domain names and the more traditional trademarks or trade names. The key to a legal and correct settlement for domain name disputes is to find whether the registration of a domain name and the use of such registered domain name by the defendant constitute infringement or unfair competition. In the Interpretation of the Supreme People’s Court on Several Law Application Issues in the Trial of Civil Disputes Involving Computer-based Internet Domain Names, Article 4 provides that infringement or unfair competition is constituted if the registration and use of a domain name by the defendant satisfies the following four conditions: 1. The civil rights and interests that the plaintiff claims for protection are legal and effective; 2. Similarity exists between the domain name of the defendant and the object to which the plaintiff claims his rights; 3. No justifiable cause exists for the defendant to register and use the domain name; and 4. Malice is contained in the defendant. The infringement or unfair competition cannot be established unless all the conditions are met. Among them, the similarity and malice elements are provided in both subjective and objective terms. The similarity element, as a general element in infringement finding in the more traditional genre of trademarks and trade names, applies also to domain names. According to relevant international conventions and global practices, the similarity finding is done differently between well-known marks and other registered trademarks. The similarity element is present as long as “the domain name of the defendant or its main part amounts to a copy, imitation, translation or transliteration of the well-known mark of the plaintiff.” For other registered trademarks, the similarity cannot be established unless the domain name of the defendant is “identical or similar to the registered trademark or domain name of the plaintiff” and such identicalness or similarity is “sufficient to cause confusions among the relevant public.” It should be noted, however, that in the Interpretation of the Supreme People’s Court on Several Law Application Issues in the Trial of Civil Disputes over Trademarks published thereafter, Article 1(3) provides that an act to “register a domain name using words identical or similar to the registered trademark of another person, and through such domain name, develop e-commerce by trading goods related to those of such another person, which easily lead to confusions among the relevant public” is one of “other acts” in Article 52(5) of the Trademark Law that damages the exclusive user rights of other people. Obviously the provision replaces the scope of trademark infringement and all acts of registering later domain names identical or similar to the prior registered trademarks of other persons, so as to exclude the application of unfair competition clauses. This creates a statutory basis for the court when a domain name dispute involves both trademark infringement and unfair competition. Moreover, it further clarifies that when a registered trademark is involved, the later domain name must be used commercially before it amounts to trademark infringement. This provision on malice indicates that the law is careful with the protection of civil rights and interests in the area of domain names; unless and until the defendant commits an act of infringement with malice, the owner of trademarks or trade names may not extend his exclusive rights to apply to the domain name area. The term “malice” means that the doer acts knowingly against fundamental civil law doctrines, such as honesty and credibility. However, it is often hard to prove the subjective knowledge. Thus, several circumstances are provided for in the relevant judicial interpretation; as long as any of the circumstances is found, it may be inferred that the doer does have the required knowledge. In the SWAROVSKI case here, first the exclusive user rights of SWAROVSKI in the SWAROVSKI trademarks are legal and effective, and should be protected by law; second the domain names registered and used by Wangxing are similar to the registered trademarks of SWAROVSKI, which are likely to cause mistakes among the relevant public as to the source of the crystal products on the websites to which the domain names were assigned or whether any special relationship exists between the goods of the defendant and those of SWAROVSKI; third Wangxing fails to produce evidence that it owns any prior right or interest in the disputed domain names, or to prove any justifiable cause to register or use such domain names; fourth Wangxing should, when registering the domain names, have known about the high fame of the registered trademarks of SWAROVSKI in the market, but went on to use the domain name for commercial purposes by building and operating the websites, intending to take advantage of the fame of the registered trademarks of SWAROVSKI and lead to confusion or mistakes among the relevant consumers so that they would access and buy related products from the websites, so that the defendant would be enriched economically. Therefore, the actions of Wangxing were malicious. Moreover, Wangxing registered four domain names using words similar to the registered trademarks of SWAROVSKI; developed, through the domain names, e-commerce involving crystal products similar to those of SWAROVSKI; and promoted its products by passing them off as SWAROVSKI Crystals, without evidence on the legal source of its products. These actions are extremely likely to cause mistakes among the relevant public, which damage or infringe the exclusive user rights of SWAROVSKI to its registered trademarks.

II. The application of exemption clauses

The exemption for infringement is governed by Article 56, Paragraph 3 of the Trademark Law, that is, “a person will be exempted if he sells goods without knowledge of his infringement upon any exclusive user right to any registered trademark, proves that he has acquired such goods legally, and states who provides such goods.” For the above clause, a seller of infringing goods may be exempted from paying damages if the following two conditions are satisfied: subjectively, he does not know the goods he sells infringe the exclusive user rights to the registered trademark; and he proves the legal acquisition and identifies the provider, of such goods. The first condition means that subjectively the seller does not contain a fault or the infringing intent, which precludes the situation where the seller knows or should have known that he is selling infringing goods. The second condition means that the infringing goods that the seller sells are from a legal source. In practice, generally the source is found on the following criteria.

First whether the seller can tell the provider of the infringing goods, such as, the supplier or the channel of buying and selling, which can be evidenced by the sales contract, invoice, delivery receipt or delivery order. If the provider cannot be identified, this proves that the infringing goods do not have a legal source. Second whether the seller can prove that the buying price is a rational price. If the seller cannot tell the buying price or if the buying price is obviously lower, than the cost of the genuine goods for which the seller cannot explain, this proves that the buying price is not rational. The knowledge of the seller about the price of the genuine goods, which should be determined on the influence, sale and advertisement of the genuine goods in the market and the type of seller, is an important element in determining the rationality of the buying price. In this SWAROVSKI case, Wangxing sold crystals, which are similar to the products that SWAROVSKI sold. Because of the high fame and high brand value of the SWAROVSKI trademarks in China, the products of SWAROVSKI sold at high prices. Wangxing admited that SWAROVSKI paid only 46 yuan to buy the infringing goods from the websites of Wangxing for the purpose of notarization. As a professional seller of crystals, it should have known that the goods bought at so low a price from Taobao.com were not from SWAROVSKI. Second as a professional seller of crystals, Wangxing had the capacity and assumed the full obligation to examine the source of its goods by, for example, requiring the supplier to provide the document on the trademark rights or the license to use the trademarks and the delivery order. But, as it tells the court, it was aware that the merchant on Taobao.com made DIY crystals and put them on sale at the website before he purchased the DIY crystals and sold them on its own websites. Apparently Wangxing failed its due care to prove the legal source of the goods. Therefore, no legal exemption can be awarded to Wangxing, which contained a fault subjectively and engaged in the infringement of the exclusive user rights of SWAROVSKI objectively.

III. Constitution of joint infringement

The constitution of joint infringement can be found in Article 130 of the General Principles of the Civil Law or Article 8 of the Law on Infringement Liabilities, which provides that two or more persons, who jointly engage in an infringement and thereby damage any other person, should be liable jointly and severally. Because the legislator is prudent with the expansion of the scope of joint liability in judicial practice, and because it values more how to unify liability assumption and subjective fault, it tries to be strict with the “joint” element, that is, it recognizes only the subjective joint infringement where there is communication of intentions between the doers, but does not accept any objective joint infringement where the doers act in conjunction with each other. Therefore, joint infringement comprises of the following elements: 1. The inflicting subject must be plural, that is, the inflictors must be two or more persons and each of them is capable of civil disposition; 2. The inflicting action is collaborative, that is, the inflictors have the inflicting acts allocated between them so that they can take advantage of and support each other; 3. The subjective intention is shared, that is, the inflictor has the same intention subjectively, which can be joint intent or joint fault; and 4. The consequence of damage is consistent with the joint intention of the inflictors. In this SWAROVSKI case, despite the allegation of SWAROVSKI that the two defendants engaged in joint infringement, one of the defendants, Wang Chenyun, transferred his domain name suffixed with .com to the other defendant, Wangxing, during the proceedings. Wangxing agreed in writing to be bound by the judgment of the court with respect to such domain name. The transferring act was established pursuant to Article 8 of the Uniform Policies for Settlement of Domain Name Disputes and Article 39 of the Measures for the Administration of Internet Domain Names of China. Because Wang Chenyun never actually owned any of the four domain names, nor operated any of the websites, and because SWAROVSKI fails to provide evidence that in the three infringing actions alleged by SWAROVSKI, the two defendants shared the subjective infringing intention, collaborated in the infringing actions and contributed to the consequence of damage, the court would not affirm the joint infringement allegation of SWAROVSKI.

IV. Assumption of liabilities for domain name-based infringement

The assumption of liabilities for domain name-based infringement can be found in Article 8 of the Interpretation of the Supreme People’s Court on Several Law Application Issues in the Trial of Civil Disputes Involving Computer-based Internet Domain Names. It provides that after the infringement or unfair competition of the defendant is found by the court, the assumption of civil liabilities can be determined on three levels. First the civil liability is assumed by the defendant by stopping the infringement and deregistering the domain name. In the case of deregistration of the domain name, the defendant should go to the domain name registration authority to have the domain name deregistered; if the defendant fails to do so within the specified time frame, the plaintiff may request the court to give an enforcement assistance notification to the domain name registration authority to enforce the deregistration. Second the domain name is transferred to the plaintiff upon his request. In this case, depending on the situation, the court may declare that the domain name be owned by the plaintiff, so that the plaintiff can go to the domain name registration authority to have the domain name transferred. When necessary, the court may also give an enforcement assistance notification. Finally damages may be awarded to the plaintiff if he proves any damage it suffers as a result of the act or action of the defendant. The statutory provisions represent a spirit to balance the interests between and reduce the litigious burden on, the parties. To better comply with this spirit, in this SWAROVSKI case, upon the request of the plaintiff, the court ruled that the domain name suffixed with .com that was owned by Wangxing be re-registered and used by SWAROVSKI. It also presided over the transfer of the other three domain names suffixed with .cn to the affiliates of the plaintiff. In this way, the domain name dispute was settled fast and efficiently, which focuses on both judgment and enforcement and exemplifies the unification between legal effects and social effects.