Why Does Shanghai Court Dismiss a Non-use-Oriented Trademark Register in Malicious Lawsuit?

(By Yue Mengyan) There are many applicants who register a tremendous number of trademarks without the use-oriented purpose. Moreover, they register trademarks on obvious malicious purpose. In such situation, their enforcement for trademark protection shall be limited and their claims for compensation against trademark infringement may not be favored by the court.

Case Introduction

Appellant (Plaintiff at the first instance): Guangzhou Zhinanzhen Exhibition Service Co., Ltd. (the “ZHINANZHEN”)

Appellant (Plaintiff at the first instance): Guangzhou Zhongwei Enterprise Management and Consulting Co., Ltd. (the “ZHONGWEI”)

Respondent (Defendant at first instance): UNIQLO Trading Company (the “UNIQLO”)

Respondent (Defendant at first instance): UNIQLO Trading Company, Shanghai SDC Store (the “SDC Store”)

Court of First Instance: Shanghai No.1 Intemediate People’s Court   No.: (2014)沪一中民五(知)初字第113号

Court of Second Instance: Shanghai Higher People’s Court   No.: (2015)沪高民三(知)终字第96号

The plaintiffs are the joint right holders of the disputed trademark under Class 25 for clothing, while their main business is exhibition planning. They registered over 2,600 trademarks in total, and transferred several registered trademarks for profits. The two defendants are mainly engaged in clothing business. The signs and tags on the defendants’ clothes were printed with the  marks, similar to the disputed trademark. Thus, the two plaintiffs filed a lawsuit, claiming that the defendants infringed the exclusive rights of the disputed trademark, and requiring that the defendants shall cease infringements and pay for the compensations.

The court at first instance concluded that the mark used by the defendants has function of distinguishing the source of goods or services as a trademark, and basically the mark used by the defendants and the disputed trademark have few visual differences. Thus, the defendants had infringed the disputed trademarks of the plaintiffs. However, the plaintiff registered the disputed trademark without intention to use but to sell the trademark for profits. As such, the court determined no damage caused to the disputed trademark. Therefore, the court adjudicated that the defendants shall cease infringements, but rejected their claims for any compensation.

The court at second instance concluded that the behaviors of the respondents had constituted infringements against the appellants. As to the civil liabilities on the respondents, firstly, the appellants cannot prove that they had used the disputed trademark prior to that of the accused infringements; secondly, since the appellants have never used the disputed trademark, the respondents didn’t bring about any damage towards the potential market shares and thus the appellants shall have no actual damage. The court at second instance then dismissed the appeal and sustained the original judgment.

Lawyer’s Comments

The purpose of trademarks is to distinguish the sources of the goods or services among consumers by use of trademark. In China, the Trademark Law is to encourage use of trademark, and improve the value of trademark via the use of trademark. Registering trademarks for the purpose of subsequent transfers at a high price is not in line with the principles in the Trademark Law.

As to these right holders who have registered large quantities of trademarks and made profits by trademark transferring, though some courts have approved compensations in such lawsuits, the judicial trend now is much more inclined to protect the values of trademark in use. It has been a more and more popular judicial opinion that it is not proper to indulge such malicious right holders to seek for profits by litigation.

In practice, malicious intentions can be determined from different aspects of evidences. In this case, the plaintiffs have obtained more than 2,600 trademarks, and most of them are non-relevant to their major business on exhibition planning. Furthermore, the defendants have proven that the plaintiffs have transferred several trademarks for profits and the intention of such registrations are simply to make profits from such transfers. During the proceeding, evidences such as holding masses of trademarks, publicly selling trademarks, malicious registrations on well-known trademarks or collective litigation against one trademark can be all taken as the proofs of malicious intentions.

Since such right holders usually chase the purpose of higher profits from transferring these trademarks in applying trademarks, instead of any intention or potential intention for using these trademarks in daily operation. Therefore, the others may constitute infringements by using the disputed trademarks, but at the same time, the right holders of such trademarks won’t suffer any commercial damage. Thus, the court can dismiss all such claims for compensations filed by these right holders.

Regarding those companies which is intended to gain improper profits from registering trademarks, besides during lawsuits, some reasonable actions can be taken during the preliminary stages of registrations as well. In our website, we once introduced an article, How Venture Companies Should Deal with Trademark Squatting, discussing about how to tackle with malicious registrations of trademarks, and what initiative actions companies may take to protect their own interests.

Lawyer Contacts

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

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