Why Nippon Lost Its Lawsuit against Trademark Infringement by Taobao Sellers?

u=2281873618,2747446169&fm=23&gp=0_副本(By Luo Yanjie)In March 2011 the globally well-known paint producer Nippon Paint Co. Ltd. (“Nippon”), discovered Zhanjin Company had set up a shop on Taobao.com, the biggest online market in China, and had been using Nippon trademarks, ads and trade dress concerning Nippon products with no approval or license from it. With no reply from Taobao.com after filing a complaint, Nippon sued Zhanjin and Taobao in court, and yet the complaint was rejected by the judge. Dissatisfied with this result, Nippon made an appeal to the Shanghai No.1 Intermediate People’s Court, who ruled that the adoption of Nippon’s trademark by Zhanjin is for product information display only, and it could lead to no likelihood of confusion among the public. In addition, the court ruled that no commercial interests of the plaintiff would be damaged. Based on these rulings, the alleged trademark infringement claim could not be established, and therefore the original decision was maintained.

This case is a typical one showing the non-infringing descriptive use of trademarks, displaying the limitations of trademark rights. In the meantime, the decision in this case allows all online retailers to rest easy: provided the products sold in one’s shop are genuine articles and not counterfeits, the use of a producer’s trademark and trade dress can be legally used. But one must take care to note that not all use of another’s mark will be deemed lawful; once such using is beyond the fair scope stipulated in the law, it would be deemed as an infringement. We would like to share our opinions on this topic below:

I. Limitations on trademark rights.

Despite the monopolistic character of the trademark right, the law does not provide an absolute protection on it. The main reason is a mark may have other meanings in addition to its function as a trademark. In addition, in one’s business operations, use of a trademark will also be involved. Because of this, there are set limitations on the use of a trademark, in order to avoid abuse.. But for the proprietors of online shops, the following limitations have exempted them from most liability when using others’ trademarks:

1. The principle of the right of exhaustion

The principle of the right of exhaustion refers to the launching of a product through a licensing scheme or other similar method, and the purchaser of the licensed articles is allowed to resell the articles with the mark with no license or approval otherwise granted. This principle is also the legal grounds for a finding of no infringement arising out of the retail sale of marked products. Surely, the exhaustion principle is host to its own exceptions which makes infringement possible, even in the sale of rare goods. We will discuss this further in the latter part of this article.

II. No infringement from the descriptive use of a trademark

When selling products in online shops, it is inevitable that one may copy anothers’ trademark; and provided that such use of a mark is only done for the purposes of providing information about a product or service, and such information is in fact true, then typically no trademark infringement will be found. In the case discussed above, the court rejected Nippon’s claim based on the same reasoning. (As indicated in the judicial decision made by the 2nd instance, the court took the view that the defendant did in fact make improper use of the trademark in its advertising, and yet due to no timely evidence of what the advertisement contained at the time of the alleged infringement, and further considering the defendant at that time was no longer selling products on Taobao, the author could not decide whether the picture did in fact contain Nippon’s trademark. But it can be reasonably concluded from the statement in the court’s decision and the non-infringement adjudication that no trademark could be seen in the advertising photo.)

II. The limits of trademark fair use

Just as discussed above, the trademark right is not limitless. Other parties may make use of one’s trademark even without any license, but that unlicensed use is also limited in law:

1. The descriptive use shall not lead to mistake or a likelihood of confusion

As discussed above, when selling a genuine product in an online shop, the display or use of the trademark will not constitute trademark infringement if the use of another’s mark is to explain the origin of the product, or to provide an explanation of the product’s features. However, once the use of the mark is beyond what is considered the scope of fair use, infringement liability may be found if there is evidence of a likelihood of confusion among the consuming public as to the source or origin of the product. For example, like for a online shop engaged in the business of selling paint, although its main articles for sale could include Nippon paint, once the proprietor names the shop “the exclusive shop of Nippon” or something similar, or adopts the trademark of Nippon as its signage, then that may confuse the consumer, leading them to believe that the shop itself is either run by Nippon itself or has a close business agreement with Nippon. This likelihood of confusion is often grounds for trademark infringement liability, and is not considered fair use.

2. A parallel imported genuine product may also constitute trademark infringement

The previously discussed “rights exhaustion principle” enables the selling of genuine products without a license from the trademark holder, and no infringement will be found. But considering the various polices governing the global sales of products, the “rights exhaustion principle” cannot be applied to parallel imports. For example, if a retailer purchases cosmetics in the United States with the intent to sell them on the retail market in China, even if the product is manufactured by the same company and carries the same brand name and trademark, the products may have different qualities conforming to the statutory standards for product quality as determined by each individual market the product is sold in. This type of behavior may influence the opinions of domestic consumers in China as to the actual value of the trademark. Thus trademark infringement could be found. Since the Internet is entirely global in nature, the problems associated with parallel importing requires special attention from those engaged in the selling and marketing of products online. If you would like to know more about trademark infringement from the sale of parallel imports, you may check our previous post “Could Selling Parallel Imported iPhone 5 be Trademark Infringement in China?”.

Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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