Docket No.: 66480, first instance (初), civil case (民), (2017) Pudong New District People's Court of Shanghai Municipality (沪0115)

SUMMARY OF THE ARGUMENT

A registrant has the ill intention of trademark squatting if he with the knowledge that an unregistered trademark previously used by others has certain influence rushes to register the trademark. The registrant who abuses its right and causes economic losses to the prior user after trademark squatting shall bear civil liability for loss compensation according to law.

STATEMENT OF THE CASE AND FACTS

PAULA’S CHOICE, LLC,

Plaintiff-Appellant

v.

CHONGQING KAIMENHONG TRADING CO., LTD.,

Defendant-Appellee

The Plaintiff PAULA’S CHOICE, LLC (“PAULA’S CHOICE”) is a skin care company established in the United States in 1994 and has become a world-famous brand in the industry. Shanghai Yingwen Economic and Trading Co., Ltd. (“Yingwen”) has been licensed by PAULA’S CHOICE to sell the Plaintiff’s goods through Taobao, JD and other Chinese platforms, and has further granted Shanghai Bi’ao Network Technology Co., Ltd. (“Bi’ao”) a license to operate an official PAULA’S CHOICE flagship store through Tmall platform.

In 2006, Liu X, a party not involved in this case, registered “PAULA’S CHOICE宝拉之选” in China in respect of soap, perfume for cosmetics, cosmetics and other goods in Class 3, and later assigned the trademark to the Defendant Chongqing Kaimenhong Trading Co., Ltd. (“Kaimenhong”). In 2017, Kaimenhong submitted an IP complaint to Tmall platform, claiming that the PAULA’S CHOICE flagship store operated through Tmall platform infringed its trademark rights. The complaint led to the removal of a variety of goods from the PAULA’S CHOICE flagship store, and forced the PAULA’S CHOICE distributor to stop or decrease its distributing activities.

Hence, PAULA’S CHOICE resorted to Pudong Court to confirm the non-infringement upon trademark rights. PAULA’S CHOICE claimed that it had good faith and prior legal rights and interests in the “宝拉珍选” and “PAULA’S CHOICE” commercial marks, and the complaint of Kaimenhong constituted malicious squatting, malicious complaining and abuse of rights, so Kaimenhong should bear the civil liability. The Defendant defended that this case did not met the condition for file a lawsuit to confirm the non-infringement upon trademark rights, that it was not idle in exercising its rights, and that the Plaintiff did not have prior right in the “宝拉珍选” and “PAULA’S CHOICE” commercial marks.

After trial, Pudong Court held that, for the infringement warning sent by the Defendant Kaimenhong to the PAULA’S CHOICE flagship store operated through Tmall and other Taobao distribution stores in respect of the trademark in dispute, the Plaintiff had fulfilled its obligation of interpellation, and the Defendant did not take action or other remedies but submitted a complaint to JD against the PAULA’S CHOICE flagship store so that the normal operation of the Plaintiff was affected. In this case, the Defendant delayed in claiming its rights so that it was very instable that the Plaintiff used the “宝拉珍选” and “PAULA’S CHOICE” marks on its goods, and further the operations of the Plaintiff’s distributors in China were affected. Hence, the lawsuit filed by the Plaintiff to confirm the non-infringement upon trademark rights in this case met the condition for filing the lawsuit.

As the Defendant for an improper purpose rushed to register the trademark which had been used by the Plaintiff and had certain awareness, this constituted malicious squatting. Later, the Defendant complained against the Plaintiff, Yingwen, Bi’ao and other distribution stores. As they properly operated PAULA’S CHOICE goods, this violated the good faith principle and constituted abuse of rights. The Defendant’s asserted act caused long-term instability that the Plaintiff used the marks properly on the goods, and the malicious squatting and abuse of rights of the Defendant adversely impacted the Plaintiff’s reputation, so the Defendant should bear the civil liability to eliminate the adverse impact and clarify the fact.

Therefore, the court ruled to confirm: the use by the Plaintiff PAULA'S CHOICE of the “宝拉珍选” and “PAULA’S CHOICE” marks on cosmetics did not infringe the exclusive right to use registered trademark held by the Defendant Kaimenhong Taking into account the market margin, the decline in the Plaintiff's sales, the adverse impact caused and other relevant factors comprehensively, the court ruled that the Defendant Kaimenhong should compensate the Plaintiff for economic losses in the amount of RMB 373,000. Meanwhile, the Defendant was ordered to post a statement in Economic Daily to eliminate the adverse impact caused to the Plaintiff PAULA’S CHOICE by the act involved in this case.

The Defendant refused to accept the first instance judgment, appealed to Shanghai Intellectual Property Court, and later withdrew its appeal. Shanghai Intellectual Property Court ruled to permit the withdrawal of the appeal by the Appellant and the Parties should execute the judgment of the original trial.

ANALYSIS

The judgment of this case defines the judging rules for confirming the non-infringement upon trade rights, protects legal rights and interests of the prior user in the trademark, and effectively regulates malicious trademark squatting and abuse of rights. In this case, the trademark in dispute is an US well-known skin care brand “PAULA’S CHOICE”. The judgment of this case fully protects legal rights and interests of a foreign company and shows the equal protection of intellectual property rights between Chinese and foreign entities by Chinese judicature. After the judgment of this case was published, a number of media reported it, and the legal representative of the Plaintiff also sent a personal letter of thanks from the United States, saying that as an American enterprise, they reinforced his confidence in expanding their business in China and further felt China’s responsibility, ability and determination to continuously strengthen intellectual property protection for legitimate brand owners.