Docket No.: 479, second instance (终), civil case (民), (2020) High People's Court of Zhejiang Province (浙)

Lower Court Docket No.: 972, first instance (初), civil case (民), (2017) Intermediate People's Court of Hangzhou, Zhejiang Province (浙01)

SUMMARY OF THE ARGUMENT

In trademark infringement cases, under the prerequisite that the infringing goods in dispute are authentic and they coming from the right holder is the objective fact, if the QR anti-counterfeiting code and production batch number or other information of the infringing product in dispute that can be used to trace back to the distributor have been removed, in the case that the seller has been fully informed of the removal, it will not lead to the impairment of the trademark in dispute in its function of identifying source and the likelihood of confusion of the relevant public, nor will it affect consumers' review in terms of the quality of the product and the reputation of the trademark owner. Therefore, the principle of exhaustion of trademark rights can be applied to the sale of products with no anti-counterfeiting code, which does not constitute trademark infringement.

STATEMENT OF THE CASE AND FACTS

Mary Kay Inc.

Plaintiff-Appellee

v.

Ma **

Defendant-Appellant

Mary Kay Inc. is the registrant of trademarks “玫琳凯” (No.594710) and “MARY KAY” (No.1275186) involved in the dispute, with the Class 3 “cosmetics” as the approved purpose of goods. Since its entry into China in 1995, Mary Kay Inc. has continuously used and widely publicized the trademarks in dispute, and the trademark “Mary Kay” has gained a high awareness. Instead of the traditional way retail cosmetics brands selling over counter, Mary Kay Inc. has used the business pattern of “direct selling + distribution”, through which the consumers can get personalized skin care solutions and other services from beauty care consultants. Ma ** has run a Taobao Shop named “Fenhong Xiaopu Authentic Beauty Makeup Store”. In the store, there are pictures showing various beauty and skin care goods marked with “MARY KAY”. The reminder on its home page has showed that the products of the shop are all authentic, stating that they are selling products with anti-counterfeiting codes removed. Mary Kay Inc. found that Ma **’s Taobao Shop sold its products after removing the codes, claiming that it infringed on the trademark right in dispute and constituting unfair competition, and then filed a lawsuit to the Intermediate People’s Court of Hangzhou, Zhejiang Province, requesting an order to Ma ** to immediately stop the infringement act and compensation of RMB 500,000 for its economic loss.

By the first instance, Hangzhou Intermediate People’s Court judged that Ma ** should immediately stop unfair competition act by infringing the exclusive right to use registered trademarks No.594710 and No.1275186 enjoyed by Mary Kay Inc., and stop selling “Mary Kay” goods with removed codes on its online store. Ma ** should publish a statement on the China Intellectual Property News within 10 days from the effective date of the judgment to eliminate the impact of trademark infringement and unfair competition. Ma ** should also compensate Mary Kay Inc. RMB 500,000 for economic losses (including reasonable litigation expenses) within 10 days from the effective date of the judgment. Other claims of Mary Kay Inc. were rejected.

Ma ** refused to accept the first instance judgment and appealed to the High People’s Court of Zhejiang Province. In the second instance, the High People’s Court of Zhejiang Province held that in trademark infringement cases, under the prerequisite that the infringing goods in dispute were authentic and they coming from the right holder was the objective fact, if the QR anti-counterfeiting code and production batch number or other information of the infringing product in dispute that can be used to trace back to the distributor have been removed, in the case that the seller has been fully informed of the removal, it would not lead to the impairment of the trademark in dispute in its function of identifying source and the likelihood of confusion of the relevant public, nor would It affect consumers’ review in terms of the quality of the product and the reputation of the trademark owner. Therefore, the principle of exhaustion of trademark rights could be applied to the sale of products with no anti-counterfeiting code, which did not constitute trademark infringement.

In the process of market competition, the operator does not have the obligation to maintain the business pattern of other operators. In order to compete for business opportunities, different business subjects will inevitably cause friction and impairment, thus affecting the interests of other competitors. As a result, the fact that the operator’s business pattern is affected or interests are harmed is not sufficient evidence for us to judge illegality of competition act, and the principle of proportionality is also required to be used to weigh the interests among operators, consumers and other market competitors.

When determining whether it violates business ethics, it is necessary for us to consider the moral level of operator in the e-commerce platform in accordance with the characteristics of e-commerce rules, and it cannot be generalized into the moral standards corresponding to personal morality or social morality.

In conclusion, the High People’s Court of Zhejiang Province in the second instance revoked the judgment of the first instance and rejected all the claims by Mary Kay Inc.

ANALYSIS

This case is a new type of trademark infringement and unfair competition, because the direct selling enterprises are under great impact from the development of e-commerce platform, in order to control the sales channels, they usually don’t allow their products to be directly sold via e-commerce platform. From the perspective of adding consumers’ choices and increasing the dynamic competition, the court finally held that under the prerequisite that the goods were confirmed to be authentic and the seller had done its duty of full reminder, the act that only removing the corresponding marks that was useful in tracing back to the sales channel would not lead to trademark infringement for the likelihood of confusion of the source of the product, nor would it constitute unfair competition by damaging the market competition order and consumers’ interests.

This case has put forward the view that the application of general terms should be viewed from the perspective of competition efficiency and effectiveness, and that business ethics should not be generalized as personal ethics. It has a high reference value and innovative significance for the identification of unfair competition act under the new circumstances.