Can Prior Rights in a Business Name Counterfeit With a Subsequent Trademark Right?

Abstract: trademark holder is not necessarily entitled to prevent others from using its trademark into a business name because operation method needs to be judged. On the contrary, consideration upon prior right of business name does not just depend on first registration but on operation methods.

(By Luo Yanjie)Using another’s registered trademark as a business name is a common phenomenon of copycat brand names in China. In today’s post we would like to introduce a typical case to you. Relying on the fact that the business name “凯伦 Kanren” was registered earlier than that of the trademark, the court determined the defendant did not infringe upon the exclusive rights in the trademark. In the author’s opinion, the ratio decidendi is worth further discussion:

Introduction to the Case:

The Tongling-based Kanren Western Restaurant in Anhui province ( the “Kanren Restaurant”) was established on April 9, 2003. Its business scope included coffee, western-style food, and tea. Kanren Restaurant then put up a billboard with the words “KARENCOFFEE 凯伦咖啡” and printed “凯伦咖啡会所、Coffee” on its interior decoration and serviceable tools. The Yingkou-based Kanren Coffee Entertainment Co., Ltd in Liaoning province ( the “Yingkou Kanren”), established in 2001, filed an application for the “凱倫 Kanren” trademark with the State Trademark Office in 2004 under the class 7 Classification of Goods and Service, including coffee shops, restaurants, bars and tea houses. In Chinese, “凱倫 Kanren” is the complex form of the same characters for “凯伦Kanren”. Yingkou Kanren filed a lawsuit in a Chinese court, alleging that Kanren Restaurant constituted similarity within the same business scope of Yingkou Kanren with its unauthorized use of the “凯伦Karen” trademark, and infringed its exclusive rights to the registered trademark.

The Hefei Intermediate People’s Court decided that, despite Kanren Restaurant having the right to use the business name “ 凯伦 Kanren” starting from April 2003, its operational methods, including making use of “凯伦 Kanren” on billboards and serviceable tools were part of a non-standard usage of the business name. Taken the form and content of usage into consideration, the court held that Kanren Restaurant’s intention to use “凯伦 Kanren” to demonstrate the source or identification of its commodity was in effect the same use as that of a trademark. For this reason, the court determined that Kanren Restaurant infringed the exclusive rights to Yingkou Kanren’s registered trademark, and shall undertake legal responsibility for its infringement, including providing proper compensation. Obviously dissatisfied with the decision, the litigants appealed.

After the second instance trial, the Anhui Higher People’s Court held that Kanren Restaurant had a reasonable prior use of the “凯伦 Kanren” brand name, and did not infringe the exclusive right to use the “凯伦 Kanren” trademark. On that basis, the higher court reversed the original court’s decision and rejected Yingkou Kanren’s claims.

Lawyers’ Comments:

The two decisions behind the two courts evidence a very different view on the same set of facts. Thus, each court’s theoretical basis is worth our consideration:

I. A trademark holder is not necessarily entitled to prevent others from using its trademark on a corporate name.

Generally, a business name and a trademark are mutually independent. The reality is, however, that they could conflict the intention of “identifying the source of goods or services”. Pursuant to the Interpretations of the Supreme People’s Court Concerning the Application of Laws in the Trial of Cases of Civil Disputes Arising from Trademarks, “using wording that is identical or similar to another’s registered trademark as a business name and displaying it prominently on identical or similar goods, thereby easily causing mistaken recognition on the part of the relevant public” constitutes trademark infringement. Reading this provision, whether a business name consisting of another’s registered trademark constitutes infringement or unfair competition depends on the “consumers’ confusion”. In other words, if consumers aren’t confused, then a business name consisting of another’s registered trademark constitutes no infringement. Hence, a trademark holder is not necessarily entitled to prevent others using its trademark as a business name. Moreover, the defendant owned the business name earlier than that of the plaintiff in this case. The plaintiff’s claims that the defendant’s business name is the same as its trademark could not prove that the defendant was guilty of trademark infringement.

II. Can prior rights in a business name counterfeit with trademark rights?

As already noted in our previous post, a trademark holder is not necessarily entitled to prevent others using its trademark as a business name. It does not mean the owner of a prior right in a business name cannot use its business name as a trademark. In this case, Kanren Restaurant had a legal prior right in its business name. Aside from using it as a shop name, its usage on interior decoration and serviceable tools must be applied with sufficient good faith. Whether such usage is considered a regular use of a business name is questionable. The second instance court should have first reviewed whether such usages are applied in practice earlier than the registration of the trademark, and then review whether the defendant expanded the range of application after it registered the trademark. If there was improper use, regardless of a prior business name, it would still infringe upon the trademark rights. Otherwise, according to the principle of protecting legitimate prior rights, such usage was determined to have been done with good faith and didn’t infringe any other party’s trademark rights.

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