How A.O.SMITH Corporation Protects Its Interests against the Free Rider AOSIMIHE?

1(By Luo Yanjie) Trademark infringement via the unauthorized use of an enterprise’s name is a common phenomenon in China. Since the requirements for registering a company in Hong Kong are well known for being comparatively lax, many companies attempt to register well-known trademarks as an enterprise name in Hong Kong, and then run a business in Mainland China using this registered name, effectively fulfilling its role as a “free-rider” of another’s well known trademark.

 The A.O.SMITH Corporation was founded over 100 years ago in Milwaukee, Wisconsin, USA, and is a global leader applying innovative technology and energy-efficient solutions to products marketed worldwide. However, the “American”AOSIMIHE (note: AOSIMIHE is a rough approximation of the name A.O. Smith transliterated into Chinese) Appliances (International) Group Ltd., registered in Hong Kong, is a free rider attempting to imply a connection between it and the United States-based A.O. Smith Corporation. Based on its Hong Kong company and trademark registration, the former succeeded in registering its “AOSIMIHE” trademark in Mainland China. Today, we’ll discuss how A.O.SMITH Corporation protected its legal interests against the “American” AOSIMIHE Appliances (International) Group Ltd.

 Introduction to the Case:

 A.O.SMITH Corporation (the “plaintiff”) applied for the “SMITH” trademarks numbered 1114992 and numbered 8041336, respectively, as well as number 1403496 for use with water heaters, and authorized the plaintiff A.O.SIMTH (China) Corporation to use and protect these trademarks in China.

In 2009, a Hong Kong-based “American”AOSIMIHE Appliances (International) Group Ltd applied for and was granted exclusive rights for use of the“AOSIMIHE” trademark (the “disputed trademark”) for water heaters and related appliances.

On July 20, 2009, Zhongshan Factory (the “first defendant”) gained ownership of the AOSIMIHE trademark from the Hong Kong-based “American” AOSIMIHE Appliances and subsequently authorized the Guangzhou-based Smith Company (the “second defendant”) to use the disputed trademark as well as a third defendant to distribute its products bearing the trademark. On their websites, products and packaging, as well as within its instruction manuals, the three defendants made regular use of the registrant’s name, i.e., “American” AOSIMIHE Appliances and Smith Appliances, making use of the disputed trademark while also utilizing seemingly random dots and horizontal lines to act as hyphens.

 The plaintiff brought a lawsuit to the People’s Court of Pudong District, Shanghai, alleged that the three-named defendant’s actions constituted trademark infringement and unfair competition. The plaintiff demanded the court shall order the three defendants to immediately cease infringement and eliminate the adverse effects resulting from their infringement, specifically requesting the second defendant, i.e., the Guangzhou Smith Company, change its name and that the three defendants collectively compensate the plaintiff in the amount of 100,000 Yuan and pay reasonable fees of 20,000 Yuan for infringement of the plaintiff’s trademark rights.

     The court heard the case and held that the disputed trademark was substantially similar with that of the plaintiff’s, numbered 8041336. Although the defendant did not infringe the trademark before the plaintiff registered its No.8041336 trademark, when the defendant made use of the trademark “American AOSIMIHE Appliances” and other relevant information in connection with the disputed trademark, and highlighted as well as used individually the trade name “Smith Appliances,” knowing that the plaintiff owned a famous brand name that was substantially similar or nearly identical, the court summarily held that these actions infringed the plaintiff’s trademarks numbered 1403496 and 1114992. Therefore, the court decided that the defendants’ acts constituted trademark infringement. Subsequent to the court issuing its decision, the defendants appealed. However, the court in the second instance rejected its appeal and affirmed the original judgment.

Lawyers Comments:

In this case, the plaintiff’s rights were rather complex, and the defendants’ infringement manifested itself in a number of ways. In regard to the determination of the defendants’ infringement and questions of legal interpretation, we provide the following analysis:

 1. The defendant’s registration for the disputed trademark would not constitute trademark infringement.

     Although the plaintiff holds an exclusive right to use the trademark “SMITH” in China in connection with its water heaters and similar appliance, and although it is true that the defendant’s “AOSIMIHE”trademark is substantially similar to the “SMITH” trademark, due to the “AOSIMIHE” mark being a registered one, the defendants’ use of the disputed trademark did not infringe the plaintiff’s rights in the “SMITH” trademark. If the plaintiff thought the disputed trademark infringed the prior right of its previous trademark, it may file a petition for trademark removal with the Trademark Office in accordance with the Provisions of the People’s Supreme Court on Several Issues Concerning the Trial of Civil Disputes Cases Involving Confliction between Registered Trademarks or Enterprise Names with Prior Rights. Article 1 of the Provisions stipulates,“in the event the plaintiff files a lawsuit on the ground that another’s registered trademark used on the relevant approved commodity is similar or identical to the prior registered trademark of the plaintiff, the people’s court shall, in accordance with Item 3 of Article 111 of the Civil Procedure Law, inform the plaintiff that the plaintiff should apply to the relevant competent administrative department for settlement.”In the event the disputed trademark is removed from the trademark registration, the defendants may legally exercise its right in the mark prior to this occurring.

2. The defendant’s use of an enterprise’s actual name as a label may constitute trademark infringement.

 Although it is legal for the defendants to use its trademark, actually, the defendants’ use of the registrant name “American AOSIMIHE Appliances (International) Group Ltd.” on its products is not entirely incorrect in and of itself. We have seen from the court’s judgment, however, that this does not suggest the defendant’s action were entirely legal, either. To definitively answer the question as to whether the defendant’s acts were legal, one must first gain a comprehensive understanding of the defendant’s original motivation in making use of this particular mark.

In this case, aside from the registrant’s enterprise name and mark, the defendant’s also made regular use of the disputed mark on its website and other promotional materials. This, combined with the plaintiff’s degree of recognition in the relevant market, persuaded the court to hold that, taking into consideration the likelihood that the relevant public would incorrectly presume a connection between the defendant and the plaintiff, and to some extent this would reflect on the plaintiff’s reputation and products. It was clear that the defendant was subjectively operating in bad faith; based on this finding, the defendants were found guilty of infringement. From this point of view, the judgment handled down by the court maintains fair competition in the market and upholds general notions of justice; the author agrees with the courts findings on this basis. Furthermore, this case also triggers an alarm for other copycat companies and free riders that justice will prevail in the end, no matter what type of clothing they may wear to cover their tracks.

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You Yunting86-21-52134918

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