— Taking the dispute over unfair competition in the case of Brita GmbH et al. v. Shanghai Kangdian Industrial Co., Ltd. as the point of departure
Authors | Xu Yi, Zhao Yi Beijing Lusheng (Shanghai) Law FirmEditor | Bruce IPPower
Case Brief
The plaintiff Brita GmbH was incorporated in Germany in 1966. Since 1993, the plaintiff has successively registered in China multiple trademarks including “BRITA” and “碧然德”, and has carried out brand sales and operations through agents and wholly-owned subsidiaries. In 2010, Shanghai Kangdian Industrial Co., Ltd. was incorporated. It promoted and sold its “碧然德” water filter jugs, filter cartridges and other products on multiple online platforms, used wording such as “German Brita water filter jug, original genuine products, wholesale and distribution” on Taobao webpages, and opened an online shop on the WeChat platform under the WeChat account name “碧然德” for business operations and sales. The above public account was cancelled upon the plaintiff’s complaint, but thereafter the defendant changed the name and re-registered to continue sales. Meanwhile, the defendant filed as many as 21 applications for registration of the trademarks “碧然德”, “德碧然德” and “BRITA” in multiple classes of goods and services, and further used its “德碧然德” trademark, which it had applied for registration in respect of goods such as kettles and kitchen containers, as a cited mark to request invalidation of the plaintiff’s registered “碧然德” trademark, and lodged oppositions against another six “碧然德” trademarks that the plaintiff was applying to register. Upon examination, all such requests were rejected. The plaintiff subsequently applied for invalidation of the defendant’s “德碧然德” trademark, and after administrative and judicial proceedings, the application was ultimately upheld. The plaintiff brought an action before the court, requesting confirmation that the defendant had committed acts of infringement of the plaintiff’s exclusive right to use its registered trademarks, false advertising and other unfair competition, and seeking an order that the defendant eliminate the adverse effects and compensate the plaintiff for economic losses in the amount of RMB 3 million.
Upon trial, the People’s Court of Minhang District, Shanghai held that a trademark owner shall abide by the principle of good faith and commercial ethics and exercise its rights within the scope prescribed by law. The defendant’s relevant conduct constituted trademark infringement and unfair competition in the form of false advertising, and its malicious trademark squatting and abuse of trademark opposition procedures constituted acts in violation of the Anti-Unfair Competition Law. The necessary expenses incurred by the plaintiff in responding to the abused trademark administrative procedures constituted direct economic losses caused by such unfair competition and should be compensated. The court ordered the defendant to compensate the plaintiff for economic losses and other damages totaling RMB 2.8 million. The judgment of first instance has now taken legal effect.
Case Analysis
I Two stages in regulating malicious trademark squatting in civil cases
China implements a trademark registration system. The network of systems composed of trademark opposition, trademark invalidation, and cancellation for non-use for three consecutive years collectively constrains malicious trademark squatting from the perspective of administrative examination of trademarks. However, with the evolution in practice of malicious trademark squatting and China’s determination to intensify its crackdown on such conduct, it has become a practical necessity, in addition to administrative remedies, to identify maliciously squatted trademarks in civil litigation and to make negative evaluations of acts whereby maliciously squatted trademarks are used as a basis of rights to launch malicious attacks against prior right holders, so as to protect the legitimate rights and interests of prior right holders. In this regard, through case research, the authors have found that the judicial practice of Chinese courts on this issue has roughly gone through the following two stages:
The first stage is the passive relief stage, namely that in trademark infringement cases, the court finds that the registered trademark on which the plaintiff bases its claims was maliciously obtained by harming others’ prior rights and interests, and, where such registered trademark is valid and the accused sign is indeed similar to the plaintiff’s sign, dismisses the plaintiff’s claims on the ground that the plaintiff’s action violates the principle of good faith and constitutes an abuse of rights. For example, in the dispute over trademark infringement between Shenzhen Ellassay Apparel Co., Ltd., Wang Suiyong and Hangzhou Yintai Century Department Store Co., Ltd. decided by the Supreme People’s Court in 2014[1], the court held that “Wang Suiyong had long operated a leather goods business in Guangzhou, Guangdong Province. As a business operator in a geographically close area and in a highly related line of business, it is unlikely that Wang Suiyong was completely unaware of the ‘歌力思’ trade name and trademark. Under such circumstances, Wang Suiyong still applied in 2009 to register the No. 7925873 trademark in respect of goods such as handbags and wallets, which are highly related to clothing goods; such conduct can hardly be deemed legitimate. Accordingly, the infringement action brought by Wang Suiyong on the basis of a trademark right acquired in bad faith against the legitimate use by Ellassay constitutes an abuse of rights, and the claims related thereto should not be supported by law.” Likewise, in the dispute over trademark infringement between Uniqlo (China) Commercial Co., Ltd. and Guangzhou Compass Exhibition Service Co., Ltd. decided by the Supreme People’s Court in 2018[2], the court pointed out that “Compass and Zhongwei obtained the trademark right by improper means, with a clear target directed at Uniqlo and others, intending to transfer the trademark at a high price. After failing to transfer the trademark successfully, they brought a series of lawsuits, on substantially the same facts, against Uniqlo, Fast Retailing and their respective stores on the ground of infringement of the exclusive right to use the trademark. Their subjective bad faith is obvious, and their conduct clearly violates the principle of good faith. This Court will not protect their conduct of seeking improper benefits by leveraging trademark rights and judicial resources.” It can be seen that, at this stage, courts in civil cases mainly examined the legitimacy of the basis of rights. When the squatter improperly acquired and exercised trademark rights, the squatted party was often in a passive defensive position, and the outcome of the case was merely that the squatter’s infringement claims could not be upheld by the court.
The second stage is the active relief stage. As situations of malicious squatting and improper exercise of trademark rights have become increasingly diverse, squatters have more “brazenly” relied on their maliciously squatted trademarks to carry out various “rights protection actions” against the squatted party. For example, they file malicious complaints on e-commerce platforms, resulting in large-scale takedowns of the genuine right holder’s products, causing huge economic losses to the genuine right holder and directly affecting its normal business operations. In judicial practice, some prior right holders have brought civil actions on the ground of having suffered civil damages as a result of such conduct. In the dispute over unfair competition between Bayer Consumer Care AG, Bayer Consumer Care Holdings LLC et al. and Li Qing et al. heard by the People’s Court of Yuhang District, Hangzhou in 2018[3], the court held that “Li, knowing that the plaintiffs enjoyed prior rights in the design at issue and had used it earlier on the products at issue, still took advantage of the plaintiffs’ failure to register the trademark in a timely manner and applied to register the main distinctive part of the design as a trademark, and then filed complaints against the products at issue based on the maliciously squatted trademark in order to seek benefits… Such conduct of maliciously acquiring and exercising trademark rights by infringing others’ prior rights violates the principle of good faith, disrupts the order of fair market competition, and should be found to constitute unfair competition as prescribed in Article 2 of the Anti-Unfair Competition Law.” In the dispute over confirmation of non-infringement of trademark rights between Paula’s Choice LLC and Chongqing Kaimenhong Trading Co., Ltd. heard by the People’s Court of Pudong New Area, Shanghai in 2019[4], the court held that “Kaimenhong maliciously squatted the trademark that Paula’s Choice had used earlier and that had acquired a certain influence, and, on that basis, abused its rights by sending infringement warnings to the sales platforms of Paula’s Choice’s products, causing economic losses and damage to goodwill to Paula’s Choice. Kaimenhong was clearly at fault and had infringed Paula’s Choice’s civil rights and interests, and shall bear civil liabilities such as compensation for losses and elimination of adverse effects according to law.” The important change from the passive relief stage to the active relief stage lies in that, upon the active assertion of rights by right holders, courts further regulated such conduct: where malicious squatters improperly acquire and exercise rights and thereby cause damage to others, courts order the squatters to compensate for the corresponding losses.
II The legitimacy of providing remedies under the Anti-Unfair Competition Law for malicious squatting plus abuse of trademark administrative procedures
(I) The jurisprudential basis for providing remedies under the Anti-Unfair Competition Law for abuse of trademark administrative procedures
1. The statutory nature of administrative protection and the non-statutory nature of civil protection
Administrative procedures and civil protection each play their respective roles in the legal system governing registered trademarks and have distinct legal attributes. Administrative procedures follow the principles of “administration according to law” and “legality of administrative acts”. The relevant systems concerning registered trademarks (such as invalidation, opposition, cancellation, etc.) must comply with explicit statutory provisions; otherwise, administrative authorities would have no rules to follow, and administrative acts, as exercises of public power, would lose their constraints. In civil litigation, however, judges may not refuse to adjudicate on the ground that there is no explicit legal provision or that the law is unclear or incomplete. Therefore, resolving civil disputes through civil litigation is characterized by non-statutory nature[5]. When the consequences of a series of acts in trademark administrative procedures spill over beyond the scope of remedies available under the administrative system and cause damage in the sense of civil law to relevant third parties, the non-statutory nature of civil protection allows the application of general provisions of civil law to provide remedies for such damage even in the absence of specific legal provisions targeting such conduct.
2. Compensation for damage is an important function of tort law
Unfair competition is known as “tort law in the field of competition”, and an important function of tort law is to compensate for damage and prevent damage. Article 1165 of the Civil Code of the People’s Republic of China provides that where an actor, due to fault, infringes upon another’s civil rights and interests and causes damage, it shall bear tort liability. Malicious squatting and abuse of trademark administrative procedures are subjectively at fault and objectively force the prior right holder’s trademark registration time to be artificially prolonged and cause the prior right holder to incur expenses such as legal service fees in responding to the relevant administrative procedures, which constitute property losses. Where there is damage and a causal link between the accused conduct and the occurrence of the damage, the injured party is entitled, under the principles of tort law, to seek civil remedies from the actor.
3. The dual public-private nature of the Anti-Unfair Competition Law
The Anti-Unfair Competition Law, in addition to its private-law function of protecting the legitimate business achievements of market participants, also has a public-law function of maintaining market competition order and protecting consumer rights and interests. China implements a trademark registration system, and registered trademarks, once approved, have a public notice effect. Abuse of trademark administrative procedures to attack competitors and, under the cover of maliciously squatted trademarks, to engage in false advertising and crowd out competitors’ market share will damage the order of fair market competition, the reliance interests of business operators (including third-party platforms such as the WeChat platform in this case) on registered trademarks, and consumer rights and interests. There is a need for protection from both public-law and private-law perspectives.
(II) This case meets the conditions for invoking Article 2 of the Anti-Unfair Competition Law
In this case, the court applied the general clause in Article 2 of the Anti-Unfair Competition Law. Generally speaking, the application of Article 2 of the Anti-Unfair Competition Law should be approached with caution and only be invoked where truly necessary. The conditions for its application include: the actor violates the principle of good faith and generally recognized business ethics and disrupts the order of market competition; another’s legal interests are damaged by the actor’s unfair conduct; and the conduct is not directly provided for in other provisions of the Anti-Unfair Competition Law.
In this case, the conduct of malicious squatting and improper use of trademark rights by the defendant Kangdian met the above constituent elements under Article 2 of the Anti-Unfair Competition Law.
First, Brita has long used and vigorously promoted its “碧然德” and “Brita” trademarks, and these two trademarks have acquired a high degree of recognition among the relevant public. As a subsequent operator of goods such as water filter jugs, the defendant Kangdian should have been aware of the enormous commercial value of the “碧然德” trademark and the market efforts made by Brita in this regard. Nevertheless, it still squatted and extensively used trademarks identical or similar to the “碧然德” trademark in multiple classes, which clearly violates the principle of good faith and evidences obvious subjective bad faith.
Second, the defendant Kangdian’s abuse of trademark rights was not isolated, but rather a means serving its overall infringing conduct and an indispensable part of its comprehensive infringement. After squatting the “碧然德” series of trademarks, Kangdian extensively used them on its product packaging, instructions for use, sales invoices and test reports, and applied for a WeChat public account based on the squatted trademarks, claiming to be the “Brita Official Flagship Store Micro Official Website” and the “Brita Official Micro Platform”, thereby misleading the relevant public into believing that it was Brita’s official WeChat platform or that it had a business cooperation relationship with Brita. At the same time, based on its squatted trademarks, Kangdian abused the trademark opposition procedures to interfere with and obstruct Brita’s normal trademark applications, significantly delaying the time for Brita to obtain trademark registration and use and affecting its normal production and business operations. It is thus evident that Kangdian’s abuse of trademark administrative procedures was part of its overall infringing conduct. Its purpose was, on the one hand, to take advantage of the high reputation of the “碧然德” trademark to obtain an unfair competitive advantage for itself, and, on the other hand, to create obstacles to Brita’s legitimate acquisition of trademark registration and exercise of trademark rights, thereby improperly weakening Brita’s competitive advantage. Its conduct seriously disrupted the order of fair market competition.
Finally, Brita suffered actual losses as a result of Kangdian’s abuse of rights. Brita invested a large amount of time and money to seek invalidation of the trademarks maliciously squatted by Kangdian, and, due to the multiple malicious trademark opposition proceedings initiated by Kangdian, Brita had to incur additional expenses in responding. In addition, Brita’s normal trademark registration activities were obstructed and more time costs were incurred, its time to obtain trademark registration was greatly delayed, and its normal production and business operations were disrupted.
Since Kangdian’s above-mentioned abuse of trademark administrative procedures is not a type of unfair competition expressly enumerated in the Anti-Unfair Competition Law, yet indeed has the attributes of unfair competition that disrupts market order and harms competitors’ interests, the court held that Article 2 of the Anti-Unfair Competition Law should be invoked to regulate such conduct and to compensate Brita for the direct losses it suffered as a result of such unfair competition.
It should be noted that not all acts of abuse of trademark administrative procedures necessarily warrant and justify remedies under the Anti-Unfair Competition Law. Case-by-case analysis is still required in light of the specific facts and the constituent elements for remedies under the Anti-Unfair Competition Law.
III The typical significance of this case
This is the first judgment nationwide in which Article 2 of the Anti-Unfair Competition Law was invoked to provide civil remedies for losses suffered by a right holder due to a malicious squatter’s abuse of trademark administrative procedures. On the basis of an in-depth exposition of the substance of the defendant’s conduct, the judgment applied Article 2 of the Anti-Unfair Competition Law to provide civil remedies, including full compensation for losses, to the prior right holder, thereby deepening, from the perspective of civil law, the regulation of malicious trademark squatting.
In the longer term, China’s trademark registration system requires a certain period of time for opposition and invalidation administrative procedures to self-correct. In practice, there are situations where squatters take advantage of this time gap and use squatted trademarks to shield their infringing conduct and even to lodge malicious complaints and interfere with right holders’ normal business operations. This case provides a strong response to such conduct from the perspective of civil law, plays a good warning role in purifying trademark registration conduct, reducing the administrative costs brought about by a large number of malicious squatting activities, and encouraging honest business operations.
At the same time, through the dynamic application of the Anti-Unfair Competition Law in individual cases, this case makes up for the shortcomings of trademark administrative remedies, which require a long time and cannot fully compensate economic losses. By mutual supplementation between systems, it provides optimal remedies for right holders and effectively maintains the order of fair market competition, embodying the dual vitality of the Anti-Unfair Competition Law in protecting both public and private interests.
Notes:[1] Civil Judgment No. Min Ti Zi 24 (2014)[2] Civil Judgment No. Zui Gao Fa Min Zai 394 (2018)[3] Civil Judgment No. (2017) Zhe 0110 Min Chu 18624[4] Civil Judgment No. (2017) Hu 0115 Min Chu 66480[5] Kong Xiangjun, “On the Demarcation between Civil Judicial and Administrative Procedures in Resolving Conflicts of Intellectual Property Rights”, Henan Social Sciences, November 2005;
*This article is reproduced from IPPower
Xu Yi
■ Senior Lawyer
■ Lusheng Law Firm
Ms. Xu Yi is a senior lawyer in the dispute resolution team of Lusheng. Before joining Lusheng, she served as a judge at the Intellectual Property Tribunal of the Shanghai courts.
Ms. Xu focuses on intellectual property litigation, including copyright, trademarks, unfair competition, trade secrets, domain name infringement, disputes over licence agreements, disputes over computer software development contracts, and others. She provides tailored legal protection strategies for different types of infringers. She is particularly adept at trade secret infringement cases, parallel import cases, and cases involving conflicts between trademarks and trade names. Her work also involves protecting collective marks and preventing online infringement.
Zhao Yi
■ Lawyer
■ Lusheng Law Firm
Ms. Zhao Yi has practiced in the field of intellectual property for many years and has provided IP-related contentious and non-contentious legal services to a large number of multinational companies. In the many dispute resolution matters she has handled, Ms. Zhao has provided tailored dispute resolution strategies and services by taking into account the different industry characteristics of the parties and the different types of rights involved.
Ms. Zhao has extensive experience in handling trademark infringement cases, patent infringement cases, patent invalidation administrative cases, IP administrative protection cases, and unfair competition cases involving trade dress.
