By May Shen

I. INTRODUCTION

In commercial practice, where a trademark owner has not used its trademark on the commodity or service (“commodity”) approved and recorded in the PRC registration certificate, which means the fundamental identifying function of the trademark fails to be performed, the trademark infringement causes the IPR owner neither any damages and reduction of the market share of the recorded commodity, nor any damages relating to the company’s profits arising from the recorded commodity. Therefore, the compensation for the trademark owner for the infringement shall not be calculated on the basis of the infringer’s commercial operating profits.

II. FACTS

Sanyo Electric Co., Ltd. (“Sanyo Electric”), the trademark owner, a multinational company with headquarters in Japan, registered the trademark “SANYO 三洋” in the Mainland China in 1997. In 2008, this trademark was recognized as a well-known trademark by the PRC Trademark Office (“TMO”).

In 2001, Sanyo Elevator（Wuxi）Co., Ltd (“Sanyo Wuxi”), a manufacturer of elevators, was established in Wuxi. It had used the mark of “SANYO 三洋” on the main parts of its elevators. While selling the above products over the years, Sanyo Wuxi highlighted the use of the word of “SANYO” and “三洋” in its commercial activities. Moreover, Sanyo Wuxi registered the domain name www.sanyoelevator.cn in the name of Sanyo Hangzhou Elevator Co., Ltd. (“Sanyo Hangzhou”, Sanyo Wuxi’s dealer in Hangzhou). Afterwards, the trademark of “三洋” and “SANYO” had been used repeatedly by Sanyo Wuxi on the website. Meanwhile, a large quantity of commercial achievements of “Sanyo Electric” had been quoted to publicize Sanyo Wuxi.

Sanyo Electric sued Sanyo Wuxi and Sanyo Hangzhou to the PRC court, claiming that they jointly infringed its exclusive right to use the trademark of “三洋” and “SANYO”, which constituted unfair competition. Sanyo Electric requested that the court order the two defendants to stop their infringement forthwith; to make apology and eliminate adverse effects on the Xinmin Evening Paper, a newspaper published in Shanghai; to jointly pay RMB5,000,000 compensation and RMB100,000 fees relating to its expenses on stopping the infringement, investigating and collecting evidence, etc., and to bear joint and several civil liability.

Sanyo Wuxi defended that it was established under the approval of the local Authorities for Industry and Commerce and its trade name “三洋” was legally obtained and used without any intent of infringing the plaintiff’s trademark. Sanyo Wuxi had already ceased using the trademark “三洋” after receiving the administrative punishment issued by the Jiangsu Administration for Quality and Technical Supervision for all the elevators manufactured and sold with the trademark “三洋”. What is more, the infringing website publicizing that Sanyo Wuxi belonged to Sanyo Hangzhou and the domain name was registered and used by Sanyo Hangzhou while Sanyo Wuxi had not used it. Therefore, Sanyo Wuxi should not bear joint and several liability for the website infringement.

Opinion of the PRC Wuxi Intermediate Court

The Wuxi Intermediate Court held that “三洋” and “Sanyo” were not only the components of Sanyo Electric’s registered trademarks in the PRC, but also its trade names, and all of Sanyo Electric’s legitimate intellectual property rights (“IPR”) should be protected by the PRC law. Since Sanyo Electric had registered No.1128994 trademark of “三洋 SANYO” in Class No.7 (including elevators) in the TMO and this registered trademark was within the period of validity, thus it had the exclusive right to use the trademark and prohibit anyone else from using it without its permission. Sanyo Wuxi used the Chinese word of “三洋” and the English word of “SANYO” on its elevators and sold them without any authorization, which constituted an infringement upon the plaintiff’s exclusive right to use the registered trademark. Although the contents of the website were published by Sanyo Wuxi, Sanyo Hangzhou admitted during the trial that it registered and used the domain name and owned the website by itself. Therefore, it could be confirmed that Sanyo Hangzhou provided assistance to Sanyo Wuxi with clear knowledge of Sanyo Wuxi’s trademark infringement on the website, which constituted joint and several liability together with Sanyo Wuxi.

As for the domain name www.sanyoelevator.cn, Sanyo Wuxi was the user of such domain name, and Sanyo Hangzhou provided Sanyo Wuxi with this domain name to conduct e-commerce for elevators. Thus the acts of Sanyo Wuxi or Sanyo Hangzhou regarding registering and using the domain name was an infringement of the exclusive right to use Sanyo Electric’s registered trademark, and they should stop such infringement and withdraw the domain name.

Furthermore, the company name of “Sanyo Electric” should be protected in the Mainland China. Sanyo Electric, together with Sanyo Wuxi and Sanyo Hangzhou were manufacturers and operators in mechanical and electrical equipment industry. The infringing acts of Sanyo Wuxi and Sanyo Hangzhou had diluted the distinctive feature of Sanyo Electric’s trademark and trade name (“三洋 SANYO”), and also damaged Sanyo Electric’s reputation as a commercial competitor, which could easily mislead the relevant public to confusingly believe that three of the above companies were affiliated enterprises. These acts violated the principle of honesty and good faith and the basic commercial moralities for competitors. Thus the acts constituted unfair competition.

The information on the website of Sanyo Wuxi was apparently false. Sanyo Wuxi intended to get a “free-ride” on Sanyo Electric’s reputation of the trademark and the trade name, so as to cause the public concerned to mistakenly believe that it was the affiliated company of Sanyo Electric. Its behaviors have constituted unfair competition of false publicity. Sanyo Hangzhou, the registrant and user of the website, provided assistance to Sanyo Wuxi in uploading the false information onto the website, and therefore it shall be considered a joint tortfeasor with Sanyo Wuxi.

With regard to the compensation caused by the trademark infringement, since Sanyo Electric did not manufacture elevators, the trademark infringement neither caused Sanyo Electric any loss or reduction of the market share in elevators market where it had not been involved, nor caused Sanyo Electric any actual loss of profits on elevators. Therefore, the amount of compensation shall not be calculated on the basis of the profits produced by the infringing parties.

Taking overall consideration of the intentional fault and the infringement details of Sanyo Wuxi, and the losses of the involved trademark of Sanyo Electric, the court of the first instance held that Sanyo Wuxi should immediately stop infringing Sanyo Electric’s the exclusive right to use the No.1128994 registered trademark. Specifically, Sanyo Wuxi should stop using the words of “SANYO” or “三洋” on elevators, promotional materials, website and other operating items; Sanyo Wuxi should immediately stop using the domain name of www.sanyoelevators.cn; Sanyo Wuxi should immediately stop using the company name containing “三洋”or “SANYO” both in English and Chinese; Sanyo Wuxi should publish announcement on Xinmin Evening Paper and eliminate the adverse effects in terms of its infringement of Sanyo Electric’s exclusive right to use the registered trademark and its unfair competition within 30 days after the judgment took effect; Sanyo Wuxi should compensate Sanyo Electric RMB 500,000 within 5 days after the judgment took effect; Sanyo Hangzhou should immediately stop using the domain name of www.sanyoelevator.cn and withdraw it within 30 days after the judgment took effect; Sanyo Hangzhou should immediately stop using the company name containing the word of “三洋”. Regarding the other defendant, Sanyo Hangzhou, as Sanyo Electric had no evidence to prove that Sanyo Hangzhou conducted joint infringement to manufacture and sell elevators bearing the counterfeited registered trademark, Sanyo Hangzhou should not undertake joint and several liability for the compensation. The attorney fees for this case in amount of RMB100,000 paid by Sanyo Electric were reasonable expenses and should by jointly burdened by Sanyo Wuxi and Sanyo Hangzhou as the joint tortfeasors.

Opinion of the Jiangsu High Court

Sanyo Wuxi appealed to the Jiangsu High Court. During the appeal, Sanyo Wuxi said that it had reached preliminary reconciliation intent with Sanyo Electric and motioned to the court to withdraw the appeal. The Jiangsu High Court approved the motion, and the original judgment took effect immediately.

III. COMMENTS

The latest amendment to the PRC Trademark Law is made in 2001. Based on the original meaning of this amendment, the expectations of the relevant social public to the trademark’s function, and the business practice at that time, we believe that the function of trademark is to visually distinguish the sources of products, i.e., the basic identifying function. Comparing with other jurisdictions beyond the Mainland China, where legal protection of trademark has been gradually extended to its functions of communication, investment and/or advertisement, the legal protection of trademark in the Mainland China is apparently not sufficient at present. Since the law and business practice in the Mainland China were based on historic gap and strongly tentative, the rigid way of legal protection of the trademark through prior registration and approval under the existing PRC Trademark Law could be understood in some sense.  

In business practice, some multinational corporations do not intend to manufacture a specific product or provide specific service in the Mainland China, but they defensively register a trademark in relevant class mainly for business purpose. Whether such special registered trademark which has not been commercially used will be under the protection of the PRC Trademark Law and the Anti-Unfair Competition Law, and how to protect them if they shall be, have been concerns for Chinese IPR researchers and practitioners for a long time.

This case creatively provides a way to solve the above problems, in which the court confirmed the relevant acts constituted infringement, but properly reduced the compensation. Through this approach, the judicial policy is fulfilled, i.e., protecting the defensive registered trademarks which are not expressly written in the PRC statutory trademark law.

The PRC Trademark Law adopts the statutory compensation rule to the infringement of the exclusive right to use trademark, i.e., the amount of compensation shall be based on the profits arising from the infringement during the period of infringement, or the losses suffered by the IPR owner due to the infringement during the period of being infringed, including the reasonable expenses paid by the IPR owner in order to stop the infringing acts. If it is difficult to determine the profits arising from the infringement, or the losses suffered by the IPR owner due to the infringement, the PRC court shall determine a compensation of RMB500,000 or below based on several statutory factors. The judicial opinion of the PRC Supreme Court further explained that if it is difficult to determine the profits arising from the infringement, or the losses suffered by the IPR owner due to the infringement, the PRC court shall determine a compensation complied with Article 56 (2) of the Trademark Law according to the request of the parties or ex officio.

Sanyo Electric might not be compensated if the compensation was calculated in accordance with the actual losses, since it had not manufactured any elevators in the Mainland China. If the compensation was calculated according to the profits arising from the infringement of Sanyo Wuxi, then it might result in unjust enrichment to Sanyo Electric. Balancing all various factors in this case, the court of the trial ordered that Sanyo Wuxi should stop infringing the trademark right; Sanyo Wuxi and Sanyo Hangzhou should stop unfair competition acts which infringed the trade name right of Sanyo Electric, and stop the unfair competition acts of false publicity; Sanyo Wuxi should pay maximum RMB500,000 as the statutory compensation to Sanyo Electric ex officio, and Sanyo Wuxi and Sanyo Hangzhou should jointly and severally burden the attorney fees of RMB100,000 for this case.

Not long time after the aforesaid trial judgment, the judicial policy document of the PRC Supreme Court stresses that the relationship between the actual use of the registered trademark and the civil liability shall be properly dealt with in order to make the civil liability beneficiary to push the use of trademark, and activate trademark resources as well as prevent improper opportunism by taking advantages of the registered trademark. It also held that when deciding the civil liability regarding infringements over the registered trademark which has not been commercially used, the main judicial remedy for the IPR owner may be to order the tortfeasor to stop the infringing act while the fact that the trademark has not actually been used shall be taken into consideration. Generally, in the event that there are no actual losses and other damages, the compensation shall not be decided according to the profits arising from the infringement other than the reasonable expenses paid for the IPR protection. If the registrant and assignee do not have the intent to actually use but only take the registered trademarks as tools for claiming damages, they may not be compensated. The request for compensation will not be supported if the registered trademark has not been used for three (3) consecutive years as prescribed in the PRC Trademark Law. This document elaborates the Supreme Court’s opinion that the registered trademark which has not been commercially used shall also be judicially protected. It also points out that the main protection method is to stop the infringing acts and the IPR owner may not be compensated.  

Since the facts of this case do not fall in the scope of “improper opportunism by taking advantages of the registered trademark”, which is emphasized in the aforesaid judicial document, therefore it can be an exceptional case to provide compensation for the trademark owner, although the trademark had not been commercially used.

(The English version of this Issue has been edited by Sean J. Pratt, a New York licensed attorney with Global Law Office’s Shanghai office.)

Ms. May Shen is a Shanghai-based partner with Global Law Office who specializes in Antitrust &Competition, Intellectual Property, and litigation. (E-mail: shendongmei@glo.com.cn)