Influential Trademark Cases in China (2007-2008)

July 18, 2008
By Qiang Ma, Unitalen Attorneys at Law

Case 1: Danone vs. Wahaha (Trademark in conflict: )

In 1996, the French food company Danone Group (Danone) entered into a joint-venture contract with the Chinese beverage company Wahaha Group (Wahaha), jointly establishing five Sino-foreign joint ventures among others Hangzhou Wahaha Food Co., Ltd, which engages in manufacturing bottled water and congee. Danone invested 45 million US dollars while Wahaha invested the whole assets of value of the brand “娃哈哈” (Wahaha) into the joint venture. Wahaha then concluded a contract with the core joint venture Hangzhou Wahaha later in 2006, assigning the WAHAHA trademarks to the latter according to the joint venture contract. In 2007, Danone hold the 51% shares for the joint ventures while Wahaha hold 49%. However, Hangzhou Wahaha sought for recording the trademark assignment with the Trademark Office in 2007, the application was refused. The parties then arranged a sole license agreement between Wahaha and Hangzhou Wahaha, providing that Hangzhou Wahaha shall have the right to solely use the WAHAHA trademarks in China. The simple version of the license agreement was recorded with the Chinese Trademark Office.

During the eleven-year cooperation between Danone and Wahaha till 2007, Danone totally invested 221 million USD into the joint ventures and got 452 million USD as the net profit. In the meantime of the development of the joint ventures, Wahaha has also been operating and establishing more than 40 non-joint venture companies using the WAHAHA brands, making great profits (147 billion USD in 2006 as net profit). In 2006, Wahaha became Top 1 in the Chinese beverage industry and ranked Top 5 in the world. Dissatisfied with the booming business of the Wahaha non-joint venture companies using the WAHAHA brands, Danone offered to buy 51% shares of all the Wahaha non-joint venture companies at the price 588 million USD in late 2006. Wahaha refused the offer without any compromise. After broken negotiations, Danone initiated legal battles against Wahaha as well as its boss Mr. Zong Qinghou, including the arbitration cases before the Sweden Stockholm Chamber of Commerce- Arbitration Institute based on joint venture contracts, the civil cases before California LA Higher Court for alleging Zong Fulin (Zong Qinghou’s daughter and her business partners of business fraud). Wahaha counter-attacked Danone by filing domestic arbitration cases and civil cases, including arbitration case before Hangzhou Arbitration Committee, who decided the effect of the trademark assignment contract signed in 2006 already ceased in late 2007. Wahaha also impeached Danone’s senior officials, alleging them of unfair competition in the same trade and harm the rights of shareholders before several local Chinese courts and won the cases. Now, the two parties are still fighting each other and the chance of compromise is very slim.

Comments:
The legal nature of the conflicts between the parties Danone and Wahaha is indeed trademark dispute. The core question herein is whether the trademark assignment contract signed by Wahaha and Hangzhou Wahaha in 1996 is still valid or not. If it is valid, the real owner of the trademark WAHAHA should be Hangzhou Wahaha, for which Daone holds 51% shares. And the parties shall file for recording trademark assignment again with the Trademark Office. From the facts described above, it is clear that there exist five contracts between the parties:

1) Joint venture contract between Danone and Wahaha, providing the respective contribution of the parties to the joint venture (Feb.9, 1996); 2) Trademark assignment contract between Wahaha and Hangzhou Wahaha, stipulating that the trademark WAHAHA is owned by the joint venture Hangzhou Wahaha (Feb.29, 1996); 3) Trademark License Agreement between Wahaha and Hangzhou Wahaha, stating that Hangzhou Wahaha enjoys sole rights to use the trademarks (May 18, 1999); 4) Trademark License Recordal Agreement (two-page) (May 18, 1999); 5) Trademark License Agreement (No.1 Revision) between Wahaha and Hangzhou Wahaha (October 12, 2005)

With regard to the legal validity of the trademark assignment contract of Feb.29, 2009, there are different views: 1) it took effects in 1996 but already terminated in 1997 when the Trademark Office refused the assignment of the trademark; 2) it took effects in 1996 but was already cancelled by parties because of the refusal by the Trademark Office; 3) it took effects in 1996 and is still effective today, but need to be cancelled by the parties because of the refusal by the Trademark Office; 4) it took effects in 1996 and is still effective now – the parties should comply with the contract by re-applying for recording the assignment before the Trademark Office; 5) the contract is already standing but its validity is still uncertain due to the refusal by the Trademark Office.

The author supports the fourth view: the trademark contract is still effective despite the three later nominal trademark license agreements. The basis for this view is briefed as follows:

1.The joint venture contract and the trademark assignment contract are undivided. The transfer of the WAHAHA marks from Wahaha to the core joint venture Hangzhou Wahaha is the precondition for Danone to contribute investment and establish joint ventures. To attract Danone’s capital to get away from business plight, Wahaha clearly agreed to invest all the brand value of WAHAHA marks into the joint venture Hangzhou Wahaha.

2.It is from the real will that Wahaha decided to put all the brand value of WAHAHA trademarks into the joint venture. As the trademark assignment contract does not violate any prohibitive regulations of the laws, the spirit of Autonomy of the Will shall be followed. Wahaha should follow its words in the contract to transfer the WAHAHA marks to the joint venture Hangzhou Wahaha.

3.Although Wahaha entered into license agreement with Hangzhou Wahaha, which was recorded at the Trademark Office, it should be understood as business tactics to avoid the unfavorable impact of an administrative litigation to the normal business of the joint ventures. Indeed the Trademark Office’s refusal against the assignment just means that the assignment cannot become valid against any good-faith third party. The WAHAHA trademarks should vest in the trademark assignee Hangzhou Wahaha.

4.From our common knowledge, it is clear that even if the WAHAHA trademarks are recorded owned by Hangzhou Wahaha, for which Danone owns 51% shares, the national interests as well as rightful interests of any parties will not be harmed at all. The refusal by the Trademark Office against the assignment, if made again, should be subject to judicial review at administrative tribunal aof Beijing No.1 Intermediate Pople’s Court. (End.)

Case 2: Johnson & Johnson vs. Foshan Shengfang (Trademark in conflict: 采乐) Johnson & Johnson registered the mark “采樂＂(the traditional version of the Chinese word “采乐”) in Chinese Trademark Register in 1993 under Reg.No.627498 in respect of the goods “antimicrobial for human part body use” in Class 5, which is indeed a hair lotion with medicinal function but sold in just drug stores. Through the use and promotion by its Chinese subsidiary Xian Jenson, the mark enjoyed some influence in the Chinese marketplace. On August 6, 1997, Nanhai Mengmeisi sought for registration for just the Chinese word together with its pinyin “采乐CAILE” for “hair lotions, etc” in Class 3, which was registered on October 14, 1998 and later assigned to Foshan Shengfang in 2002. After its registration, Shengfang strenuously promoted the goods in the channels of department stores and supermarkets, emphasizing its medicinal function and adopting similar decoration with the Johnson’s goods, which indeed caused confusion among the public. It should be noted that the Trademark Office approved the later mark is because under Chinese classification practice, the goods covered by the two marks are dissimilar from each other.

Johnson & Johnson then petitioned to cancel the later mark before the Chinese Trademark Review and Adjudication Board (TRAB) in 1998, arguing that the later mark will cause confusion because of the similarity of the marks and the goods covered thereby despite their different marketing channels. Due to the lack of confusion evidences, however, TRAB dismissed the petition and maintained the registration of Shengfang’s mark in 1999. Johnson & Johnson did not give up and re-initiated a cancellation in 2000 but failed again in 2001. After the two decisions, Shengfang became more active in promoting the goods and even invited famous movie stars to help promoting the goods. After the revision of the Chinese Trademark Law in 2001, Johnson & Johnson, after collecting many new evidences to prove confusion, lodged a cancellation against the later mark in 2002 for the 3rd time. On June 23, 2005, TRAB, based on the new evidences filed by Johnson & Johnson, finally cancelled Shengfang’s mark and recognized Johnson’s mark as well-known. It was ironic that Shengfang’s mark was also recognized as a well-known mark by a local court on June 13, 2003, which is just ten days before the cancellation decision. Shengfang then initiated administrative lawsuit before the Beijing No.1 Intermediate Court but failed, and thereafter appealed to Beijing Higher People’s Court. In early 2007, Beijing Higher People Court made a final decision, upholding the cancellation decision. The most recent news is that the Supreme Court accepted Shengfang’s petition on June 4, 2008, deciding to rehear the case and suspending the enforcement of the judgement.

Comment:

This case reflects a notable issue inherent in the Chinese trademark legislation: how to deal with the conflicts between two registered trademarks; more specific, how to have the owner of a later registered trademark undertake the consequences of ceasing use of a famous but “illegal” registered trademark. Currently in China, the laws say that the courts shall not accept the civil lawsuit arising from conflicts of two registered trademarks, for it is TRAB’s duty to deal with it. But it normally takes quite a few years for TRAB to render a decision on a cancellation, which resulted in the situation that both marks co-exist in the market, meaning the earlier right owner must suffer from the harm caused by the use of the infringing registered trademark. Even after the later infringing trademark is cancelled, there is no legal provision regarding the compensation for the earlier owner. For this case, the author holds that the cancellation should be finally affirmed by the Supreme Court to give a warning signal to the public not to take unfair advantage from an earlier trademark.

Case 3:

Crayon Shin-Chan Case 

It is known that the designs of Crayon Shin-Chan are owned by the Japanese company 双葉社. The Chinese company Guangzhou Chengyi Glasses Co., Ltd., however, applied for the similar word and design marks in connection with “eyeglasses” in Class 9 and registered them in 1997 and 1998. After eight years as of the registration, 双葉社first successfully obtained an interim injunction from Shanghai No.1 People’s Court against the use of the marks but failed both in the suit and the appeal. Shanghai courts decided in 2005 that before the cancellation of the registered marks, the courts should not accept such cases because it should be first examined by TRAB for the validity of the registrations. 双葉社then filed cancellations against the registrations in 2005 but TRAB holds it was already eight years for 双葉社to cancel the marks registered, which exceeds the five-year statutory period. Despite the lawsuit before the Beijing No.1 Intermediate Court and the appeal before Beijing Higher People’s Court, 双葉社failed again, which means the registrations by Chengyi for the marks remains valid.

Comments:

In 2004, the Supreme Court, in a reply to Jiangsu Higher People’s Court, opined that all courts should not accept a case related to the use of a registered trademark. This reply has been adopted by Chinese local courts at various levels to refuse accepting a case related to the infringing use of a registered trademark. In the Crayon Shin-Chan case, 双葉社is the owner of earlier copyright but Shanghai courts still refused to accept the civil case.

After realizing the wrongs of the 2004 reply, the Supreme Court adjusted its stance by allowing such civil cases in early 2008. In the Opinion regarding Hearing the Cases of Conflicts between Registered Trademark in February 2008, Trade Name and other Civil Rights, the Supreme Court clearly says that the courts should support earlier copyright and other civil rights against an infringing registered trademark. This will bring significant influence to the Chinese trademark legislation because a registration in China is currently regarded as absolute right and can support absolutely safe use even if it infringes upon an earlier right. Before the judicial opinion, a trademark registered after five years was considered as incontestable not only in the Register but also in actual use. Now 双葉社 can initiate lawsuits against the actual use of the infringing Crayon Shin-Chan marks before a suitable Chinese court, which may order cease of use of the marks notwithstanding the incontestable registrations.

　

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