China’s Tianjin High People’s Court on April 13 upheld in part, vacated in part, and reversed in part a decision by the Tianjin First Intermediate People’s Court relating to French luxury goods conglomerate Cartier International SNC’s lawsuit against Chinese jeweler Mokingran Jewelry Group Co., Ltd. (梦金园黄金珠宝集团股份有限公司), its wholly owned subsidiary Shandong Mokingran Jewelry Co., Ltd. (山东梦金园珠宝首饰有限公司), and its four franchisees, alleging trademark infringement of Chinese Trademark No. 202386 and Chinese Trademark No. G892848 and unfair competition. The appellate court ordered all defendants to pay a total of 430,000 yuan ($64,000) in damages and costs.

Tianjin municipality-based Mokingran was founded in 2000 and is in the midst of its third-time sprint towards an initial public offering (IPO) at the Shenzhen Stock Exchange. Mokingran specializes in the sourcing, designing, wholesaling, and retailing of gold and gem-set jewelry. Its retail chain business was propped up by 28 company-owned gold shops and jewelry stores and 2,543 franchisee-owned ones located in 300 third-tier and fourth-tier cities and 1,400 counties of 29 provinces in China as of December 2020. Mokingran recorded revenue of 14 billion yuan ($210 million) and 1.6 billion yuan ($24 million) in 2019 and the first half of 2020 respectively. The four franchised stores named as defendants in this complaint are all based in Zhejiang province.

Paris city, France-based Cartier was founded in 1847 and is a wholly owned subsidiary of the Swiss Richemont Group through a merger back in 1988. Regarded as one of the most prestigious jewelry manufacturers in the world, Cartier operates more than 200 stores in 125 countries. As of 2021, the brand appears to be steadily on the rise and Forbes Most Valuable Brand List shows that Cartier has moved up three spaces, from 59th in 2018 to 56th in 2020. It registered a brand value of $12.2 billion and revenue of $6.2 billion in 2021.

Cartier in August 2018 sued Mokingran, Shandong Mokingran, and the four franchised jewelry stores in the Tianjin First Intermediate People’s Court for manufacturing and selling jewelry utilizing trademarks and decorations similar to those of its LOVE-branded jewelry to cause likely consumer confusion and dilute its brand. Cartier created the LOVE jewelry collection with the launch of the iconic LOVE bracelet in 1969. Cartier registered Chinese Trademark No. 202,386 for “CARTIER” for goods in Class 14 including mainly precious metals and certain goods made of precious metals or coated therewith, as well as jewelry, clocks and watches, and component parts therefor in 1983 and Chinese Trademark No. G892,848 for “LOVE” for goods in Class 14 in 2006.

The trial court ruled for Cartier and ordered Mokingran and Shandong Mokingran to pay 200,000 yuan ($30,000) in damages and costs, three franchised stores to pay 50,000 yuan ($7,500) in damages and costs each, and a fourth franchised store to pay 30,000 yuan ($4,500) in damages and costs. Cartier in January 2020 appealed the case to the Tianjin High People’s Court.

The appellate court increased the damages award from Mokingran and Shandong Mokingran to 250,000 yuan ($37,000) and upheld the damages awards from the four franchised stores while having Mokingran and Shandong Mokingran held jointly and severally liable for the damages awards from the four franchised stores. The court held that Mokingran and Shandong Mokingran as master franchisers failed to exercise a duty of care to keep world-famous jeweler Cartier’s trademarks from being ripped off by their contracted franchisees, and therefore should be responsible for their shares of the franchisees’ damages owed to Cartier.

In a franchise relationship, a franchisee buys the right to use a franchiser’s trademarks, reputation, trade secrets, copyrights, and marketing and service information in selling a product. Whether the franchiser can be held liable for the actions of the franchisee in running the business depends on the degree of control retained by the franchiser over the operation of the business. If the franchiser has a strict set of policies for the day-to-day operation of the franchise, there is a high degree of control and the franchiser may have liability for the damages that result from the franchisee’s implementation of the policies.

The U.S. Supreme Court established the test for contributory liability in a franchise context in Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982). The Court concluded that liability may attach when the defendant: (1) intentionally induces another to infringe a trademark, or (2) continues to supply goods to a party whom it knows, or has reason to know, is engaging in trademark infringement. Today, to establish a claim for contributory liability, the claimant must prove four factors: 1. The defendant had sufficient control over the instrumentality used to infringe; 2. The defendant possessed the requisite knowledge of trademark infringement activity; 3. The defendant continued to supply its service despite said knowledge; and 4. The defendant failed to take sufficient remedial steps to stop the infringing activity.

The case docket no. is （2021）津民终63号, whose English translation is 63, second instance (终), civil case (民), (2021) Tianjin High People’s Court (（2021）津).

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