20 Nov
2020

An exploration of whether a trademark constitutes confusion

Chang Tsi & Partners

China’s Trademark Law was substantially amended in 2013 and entered into effect in May 2014. Article 57(2) of the amended law has added the new expression “which may cause public confusion” to the original criterion for determining trademark infringement, affirming that “using a trademark that is identical with or similar to a registered trademark in connection with the same or similar goods may constitute infringement”. This new expression compels the court to consider whether a mark can “easily lead consumers to confusion”, even if the trademark used by the alleged infringer is similar to the registered trademark cited. In other words, even when marks are similar, provided that they do not ‘cause confusion’, it does not constitute trademark infringement.

Two particular trademark infringement cases (Zhe Min Zhong 157 (2018); and Min Min Zhong 1247 (2019)) significantly influenced China in 2018 and 2019. The defendant accused of trademark infringement in the two cases was finally held not to have committed the alleged infringement. The main applicable criterion for determining this non-infringement was that the two trademarks involved did not easily ‘cause confusion’ and did not therefore constitute trademark confusion. These two cases are typical examples where the court determines that one party does not constitute trademark infringement where the trademarks do not easily cause confusion.

Trademark confusion

MK

The plaintiff in the MK case was Jianfa Handbag Craft Factory registered in Chenghai District, Shantou City, Guangdong Province. Jianfa submitted a trademark registration application of ‘mk’ (lower case) in 1997, which was approved for registration in 1999. According to the Classification Table of Goods and Services, it was designated to be used in Class 18 including luggage and other goods. Thereafter, one of the defendants, Michael Kors (Switzerland) International Co Ltd, created the ‘MK’ logo (upper case) in 2000 based on the first letters of its company name and the main trademark MICHAEL KORS. In 2007, two further logos (upper case letters ‘MK’ encircled) were also created and were subsequently used in the 18th category of bag products.

The plaintiff sued the defendant in Hangzhou Intermediate Court in 2017, requesting it to cease using the Michael Kors MK trademarks and claiming huge indemnity. Before filing the lawsuit, not only had the plaintiff filed an invalidation application with China’s trademark registration authority regarding the trademark MICHAEL KORS (Registration Number 3603887; NICE Classification 18) owned by the defendant Michael Kors, it also proposed infringement claims against a number of small retailers selling Michael Kors products attempting to obtain a precedent judgment of trademark confusion and to thereby mislead the court. However, the court eventually held that the defendant’s use of the MK trademarks did not constitute infringement of the plaintiff’s ‘mk’ trademark because the marks involved caused no confusion in the market.

The plaintiff refused to accept the first-instance decision and filed an appeal with the Zhejiang High Court. The plaintiff requested that the original judgment be revoked, stating that the defendant’s use of the trademarks had constituted infringement and should be stopped immediately and even that the defendant should pay Rmb11 million to the plaintiff as compensation for losses. Eventually, in June 2019, the Zhejiang High Court held that the defendant Michael Kors had not infringed the plaintiff’s trademark right, maintaining the first-instance decision. The decision has since entered effect.

Throughout the first and second instances, both decisions affirmed that the plaintiff’s ‘mk’ trademark is similar to the MK trademarks used by the defendant, but ultimately held that the marks did not easily “constitute confusion” in the consumer market. Although the specific reasons for the first and second-instance decisions are different, the basic principles are the same. Both held that that the main considerations for determining whether the plaintiff’s trademark and the defendant’s trademarks could result in confusion were:

  • distinctiveness;
  • popularity;
  • market influence;
  • commodity prices for consumer groups; and
  • the ‘hitchhiking’ behaviour of trademark reputation.

The final decisions were confirmed:

  • the plaintiff’s trademark was weak and obtained no further significance through use;
  • the price of the plaintiff’s goods was different from that of the defendant’s goods, which was sufficient to distinguish between consumer groups; and
  • there was also a significant difference between the sales market and that of the defendant – the former being sold through a centralised market in China selling small commodities, the latter being sold through exclusive stores across the globe.

These differences were sufficient to result in consumers having enough brand awareness of the trademarks of the two brands to be able to distinguish their different sources without confusion. After receiving the second-instance decision, the plaintiff filed a retrial application with the Supreme Court. However, the Supreme Court rejected the application.

Baiguoyuan

The plaintiff was agricultural company Dongfang Xianglin Vegetable Fruit Base Co Ltd, registered in Dongfang City, a small city in Hainan Province. In July 2000, the plaintiff filed an application for the registration of the Baiguoyuan trademark in Class 31, which was approved to be used in the designated goods of fruit, vegetables and fish, among others. The defendant was Shenzhen Baiguoyuan, an industrial development company registered in Shenzhen City in Guangdong Province. In 2008, the defendant filed an application for the registration of the word mark ‘百果园’ (‘Baiguoyuan’), to be used in Class 35 for the in-store use of its fruit shop. The defendant’s main business method is to set up chain stores throughout China. By 2018, the defendant owned nearly 3,000 fruit shops nationwide and had become one of the top 100 chain stores in China.

In 2018, the plaintiff sued the defendant in Quanzhou City, Fujian Province, demanding that nearly 3,000 of the defendant’s fruit shops stop using the word mark ‘百果园’ (‘Baiguoyuan’), and that the defendant pay Rmb90 million for the plaintiff’s economic losses. The defence opinions forwarded by the defendant included the following:

  • the word mark ‘百果园’ (‘Baiguoyuan’) used by the defendant is clearly different from the plaintiff’s registered trademark;
  • the category of trademark used by the plaintiff and the defendant is different – the plaintiff’s trademark is a commodity trademark, while the defendant’s trademark is a distribution service trademark; and
  • the plaintiff and the defendant have different business models.

The plaintiff is an agricultural enterprise and most of its fruit plants are sold in batches for self-production. However, in the consumer market, especially in retail, consumers cannot see the plaintiff’s trademark. In addition, the defendant only uses the trademark in its own fruit chain stores. The market is specific. Consumers cannot buy the defendant’s fruit through other consumption channels. Therefore, the plaintiff and the defendant’s markets are completely isolated. Consumers could not confuse or misidentify the plaintiff’s trademark with the defendant’s trademark, and there is no significant competition between the plaintiff and the defendant. After more than 10 years of continuous and extensive use of the defendant’s registered trademark, especially through the development of the defendant’s chain business, it gained significant popularity and reputation in the relevant market, while the plaintiff’s trademark has not entered the consumer retail market. The plaintiff’s goods have not been sold in supermarkets or any specialised shops, meaning that there could be no trademark confusion.

The Quanzhou Intermediate Court in Fujian Province confirmed the following facts:

  • The retail service of commodities falls within the scope of Category 35 in the Classification Table of Goods and Services.
  • The defendant and its authorised shops use ‘百果园’ (‘Baiguoyuan’) as a logo or words, which is a lawful use of its own Registered Trademark 6807648 within the scope of the approved service items.
  • The defendant’s use of the ‘百果园’ (‘Baiguoyuan’) logo or words through its official websites, computer software, third-party platforms and other media in the computer network environment of its shops is an extension use of the commodity retail service provided by the defendant. The use should also be regarded as lawful use of Registered Trademark 6807648 within the scope of the approved service items.
  • Even if the logo actually used by the defendant and its shops authorised to use the trademark contains the word ‘百果园’ (‘Baiguoyuan’) and the trademark of the plaintiff also contains the word ‘百果园’ (‘Baiguoyuan’), it could not be considered that the defendant used a trademark similar to the plaintiff’s trademark in the 31st category, because the goods and services provided by the plaintiff and the defendant are separately the front and the back end of an industrial chain – in fact, the two companies did not enter into each other’s business field or scope.
  • The defendant’s trademark was officially recognised as a well-known trademark in China at the end of 2017 and is therefore considered to have a high reputation. The first-instance judgment held that, on condition that both the plaintiff and the defendant held a registered trademark in their respective business scopes, the use of their trademarks was not similar and could not be confused. Accordingly, the first-instance court rejected all claims of the plaintiff.

The plaintiff refused to accept the first-instance judgment and filed an appeal with the Fujian High Court, requesting the second-instance court to revoke the first-instance judgment and to support the plaintiff’s request in the first instance. After the trial, the second-instance court maintained all the facts ascertained in the first instance, and further confirmed that the defendant was not a production-oriented company, but a retail-oriented company. The purpose of the defendant using the trademark ‘百果园’ (‘Baiguoyuan’) in both the shops and online environments is not to lead consumers to identify the source of the goods, but to show that it is a unique retailer. Therefore, the defendant’s actions will not cause consumers to confuse the trademark used by the defendant with the plaintiff’s trademark.

Throughout these trademark infringement cases, due to the different places and business models of the trademark used by the plaintiff and the defendant, a pattern and scope could be distinguished in the market, particularly due to the fact that the defendant’s trademark is well-known and has a high reputation following long-term use, consumers could have a clear understanding of the relevance of the respective trademarks. Therefore, there should be no confusion and the actions of the defendant do not constitute infringement of the plaintiff’s mark.

Comment

Plaintiffs in some cases may be small unknown companies, while defendants could be large well-known enterprises. The main reason for a small company to sue a large enterprise for trademark infringement is usually that the use of a well-known trademark of a large enterprise would constitute ‘reverse confusion’ regarding the plaintiff’s trademark, based on which, the small company may request that the defendant stop using the trademark and pay a significant sum in compensation. Lawyers will usually help clients to find facts to prove that the plaintiff’s trademark is similar to the defendant’s, but confusion can affect the strength of the case put forward as a defence in court.

In the two cases discussed in this chapter, the reason that the court judged that that there was no confusion is set to be used as a reference for Chinese courts dealing with similar trademark infringement cases in the future.

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Jianmin Chen

Partner

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