The sophistication of modern marketing environment poses enormous challenges to brand owners, not only by counterfeiters, looks-like infringers, but ironically also by their business partners who procure and distribute the genuine goods in the market. The seemingly absurd issue often arises where the brand owners have concerns that the usage of their trademarks by the traders in the market could risk their control over the mark and distribution management, bringing in other unfavorable consequences to the marks, such as devaluation, dilution, and other potential disadvantages. A few recent China trademark litigation cases illustrate the intriguing scenarios that shed light on how China judicial organs dealt with this part of the law, which seems to have not explicitly embodied in the current trademark law regime. This article will examine the legislation background, academics opinions, and the application of law in these cases, to hopefully dictate a unambiguous boundary of trademark nominative use.
The legislation
Rather than laws and regulation, the definition of nominative use can only be found in academic papers, for example, the nominative use means that the market player uses others’ mark in bono fide purpose and at a reasonable scale, that is an objective indicative of the true owner of the trademark, and description of the feature and content of the commodity or service. While an upperseat concept of “fair use” was adopted in The Implementation Rules of China Trademark Law promulgated in 2002, it did not really refer to nominative use. Article 49 of the Implementation Rule (2002) specified that the brand owner shall have no right to prohibit others from properly using the generic name, graphics or models of a commodity, or information directly indicating the quality, main raw materials, functions, purposes, weight, quantity or other features of the commodity, or the names of geographical locations as contained in the registered trademark. Such rule was subsequently adopted by the revised China Trademark Law which came into effect on May 1st 2014.
However, on closer observation, such term only refers to “descriptive use” where the registered mark is lack of inherent distinctiveness but enjoy a “second meaning” as trademark. In such context, the use of a term bearing a second meaning in nature is not trademark use that indicates the product origin. While as mentioned above, the nominative use functions as indicative of product and service origin, the current laws and regulation remain absent in regulating the regime of nominative use.
It was the first time that Beijing Higher People’s Court introduced the term of “fair use” (or literally Legitimate Use) in its Opinions on Certain Issues Concerning the Trial of Civil Cases Involving Trademark Disputes adopted in year 2006 (the 2006 Opinion). Article 26 of the 2006 Opinion set out three elements in determining if a trademark use is fair and legitimate, i.e., i) the use is out of bona fide purpose, ii) the trademark at issue is not used for the trader’s own goods or service, iii) the purpose of the use is to describe and represent the goods. Article 27 of the 2006 Opinion provides that “the use of a certain trademark in a reasonable scope with the purpose to indicate its product origin and function is legitimate use.” Notably, the 2006 Opinion wrote off the “confusion” element which was adopted by its preceding 2004 version. The wording of Article 26 and Article of the 2006 Opinion is abstract as “bona fie” is highly discretionary, and seems the simple-wording 3 steps is not capable of addressing complex issues in a real market scenario. As issuing authority of the 2006 Opinion is Beijing Court, it can hardly be binding upon others jurisdictions in China.
However, the 2006 Opinion came in step with that practice of fair use under the EU Trademark law, and the US case laws which favor a broader sphere of use of others’ mark provide it is out of bona fide purpose. In KP Permanent Make-up Inc. v. Lasting Impression Inc, the US Supreme Court made a unanimous ruling that even if the likelihood of confusion does exist, the defense of fair use can prevail over infringement claim, and the defendant is not obliged to prove that there is no likelihood of confusion. Equally, Article 33(b) of the US Lam Act does not require the defendant to deny the likelihood of confusion. Therefore, seems it is reasonable to conclude that the confusion and nominative use can co-exist.
The case precedents
NipponPaint V. Zhanjin Co., Ltd
The defendant operated an online storefront which is engaged in sale of decorative materials, including “NipponPaint” branded painting oil. While confirming that the “NipponPaint” painting oil are genuine, the plaintiff claimed that the defendant’s prominent use of its “NipponPaint” trademark and other registered marks on its storefront would mislead the consumer that the defendant has certain business connection with the plaintiff thus infringed the plaintiff’s exclusive trademark right. The Shanghai Xuhui District Court turned down the plaintiff’s claim, ruling that the defendant used the plaintiff’s mark in its market promotion, the purpose of which is to convey true message to the consumer the product brand and its features, thus the use is nominative in nature; second in using the plaintiff’s mark, the defendant did not make any attempt to establish a connection between the trademark and its own.
The court therefore concluded that it use conformed to business convention. The court went on to reason that if the defendant’s use of mark is restricted improperly, then the free market circulation principle will be impaired. In laying down its conclusion, the court also addressed that the benchmark justification of trademark protection primarily lies on the assurance of consumer to select goods or service through trademark, and prohibit from confusion.
Zippo v. Mr. Wang Lei case
Mr. Wang Lei operated an online storefront selling “ZIPPO” lighters and others. The “ZIPPO” logo was prominently posted on its signage while the “ZIPPO” lighters sold on the site were found as legitimate.
In addition, Mr. Wang was found registering a domain name www.zippo.org.cn which incorporates the “ZIPPO” mark. Zippo sued for trademark infringement. The Hebei Baoding Intermediate People’s Court issued a judgment favoring ZIPPO, that among others, ordering the defendant to stop prominent posting “ZIPPO” mark on its shop signage. In a later media release, the plaintiff attorney argued that nonetheless the “ZIPPO” lighters are genuine, the use of “ZIPPO” mark in a prominent manner, would lead to consumer confusion that the store is operated by ZIPPO, or it is licensed or associated with the brand owner, that in turn could cause damage to the trademark rights and its business goodwill.
Lenovo v. Ms. Xialijun case
Ms. Xiaolijun operated a laptop store, primarily selling “Lenovo” computers. The “Lenovo” mark was prominently used on its store signage and its internal decoration is identical to authorized Lenovo retail stores. The court in the first instance ruled that the use of “Lenovo” mark in a prominent manner would mislead the consumers to believe that Lenovo Company has certain business relationship with the defendant, and the store is an authorized retail store of Lenovo.
Although the court recognized that Mr. Xiao and his store had been granted legitimate authorization in selling the “Lenovo” computers, the court held that the defendant was not authorized to use the “Lenovo” mark on its signage. The defendant appealed to the Hubei Higher People’s Court while the latter upheld the original judgment, ruling that the defendant’s use of “Lenovo” had exceeded the scope of “fair use”.
Lenovo v. Guqinghua
The Jiangsu Taizhou Intermediate court held that Mr. Gu’s use of “Lenovo” mark had exceeded the scope of fair use as it was comprehensive and prominent that covers not only signage, but business card, sales receipt, so by constructively deduction such act would lead to the public’s misunderstanding that Mr. Gu’s store has established franchise, exclusive agent relationship with Lenovo Company. Second, the misuse of mark had caused damage to Lenovo, as the function of trademark not only guarantees the origin of goods, but represents the business goodwill of Lenovo. Such misuse would cutoff the connection between the mark and Lenovo Company, prohibiting Lenovo from exerting its mark’s full usage, which consequently caused damage to its exclusive trademark rights.
Analysis
However the foregoing case facts differ in certain extents, the case scenarios can be boiled down to as simple as that if a trader either authorized or non-authorized is engaged in sale of genuine goods while the registered trademark was prominently used in the course of trading shall be found liable for trademark infringement. While most court judgments favored the brand owners and concluded that the use of others trademark in a prominent manner constituted trademark infringement, the courts’ reasoning remain highly questionable. Because of the absence of existing laws, regulation concerning the “trademark nominative use” defense, these judicial practice warrant in-depth observation on the current China trademark law regime, and in turn beg the following questions:
i) Would “likelihood of confusion” be considered?
The 2014 Revised China Trademark Law introduced the concept of “confusion” in determining if an act is infringement, however the wording of Article 57 can be narrowed to apply only where Using a trademark that is similar to a registered trademark on the same goods, or using a trademark that is identical with or similar to the registered trademark on similar goods without the licensing of the registrant of the registered trademark, which is likely to cause confusion. In a nominative use case, seems Article 57 is not applicable at all where the identical trademark was used in relation to identical goods. While the China Trademark Law prior to its 2014 revision did not adopt the concept of “confusion”, it is a common factor that the Chinese courts would take into account in trademark infringement cases. The definition of “confusion” was construed by Beijing Higher People’s Court at Article 12 of the 2006 Opinion as first level, the confusion of origin, and second level, if the conception of origins is clear, the misunderstanding of the two parties had certain business operational or legal connection.
Further, the theory of confusion is aimed to ban the use of marks in a function to identify the origin of goods, which is also the foundation of trademark infringement. While the nominative use conveys mere true message to the consumers (for example, the “Lenovo” branded computer was produced by Lenovo Company), if the trader did not use the misleading terms, such as “Franchised”, ”Exclusive” store, it can hardly establish that the consumers will be confused.
As introduced above, the change of the 2006 Opinion from its early 2004 version in relation to the requirements of “fair use” which takes down the “confusion” element further implies that, even if the likelihood of confusion exists, that cannot invalidate the nominative use.
ii) What is the test of nominative use?
In concluding that the traders’ use of mark constituted trademark infringement, seems the courts in Zippo v. Wang Lei cases not only considered the prominence manner of the use, but also the factor that the defendant registered a domain name incorporating “ZIPPO” mark. The courts in Lenovo cases also quoted that the use of “Lenovo” marks were prominent and comprehensive that could easily mislead the consumers they are official “Lenovo” stores. As reflected in Article 26 of the 2006 Opinion, it is commonly accepted in practice that a fair use defense shall be legitimized on two grounds, i.e. the use is out of bona fide purpose, ii)the scope of use is reasonable.
While it is always difficult to demonstrate the trader’s initiative, because of its subjective nature, mere consideration of the size of the mark or the decoration seems not to be sufficient to conclude that the confusion will be generated.
The courts’ reasoning seemed to be ignoring the market environment, the normal business practice as well as other factors that the defendant used the mark at issue. A counter argument can likely be made that if the use of mark is not prominent, the mark’s value and function in attracting consumers will be weakened. On the other side, it will be inefficient for the consumers to identify specific goods. While both of which serve the better recognition and circulation of the goods, if any.
The court’s reasoning also seems not to be convincing if not harsh in Lenovo v. Ms. Xialijun case as fact is affirmed the defendant is an authorized vendor of Lenovo Company, the court simply put that such use is not authorized by the brand owner. While logically, the brand owner’s permission shall not be considered in fair use defense case, including nominative use, as the use is spontaneous.
In addition, if the decorations of the stores in the Lenovo cases appear to be similar to Lenovo’s official store, that is an issue of passing off of trade dress under China Anti-unfair Competition Law, which shall not matter with trademark law regime.
By contrast, the Shanghai court in NipponPaint V. Zhanjin Co., Ltd, made a step further to observe that the defendant did not make attempt to establish a business relationship with the brand owner by using the mark, thus its use did not carry any bad faith apart from indicating the product origin. It worth noting that the Shanghai court addressed that the free market circulation principle will be impaired if the trader’s use of mark is restricted and reasoned deeper in trademark’s core function, that is to assure the consumer to select goods or service by trademark, and prohibit it from confusion.
Conclusion
The dichotomy in the courts’ reasoning and conclusion underlines the need to bring some consistency to this area of law. While even though the current trademark law regime is lack of a clear say on nominative use, it is necessary to note that while trademark is a right of monopoly, the monopoly focus on the business goodwill of the mark, its function of distinguishing different goods, not the trademark itself. Also, a sound balance needs to be strike between the trademark owner and good faith market player, and public, so as to smooth the market activity and to prevent the abuse of trademark rights. Hopefully, a Supreme Court Judicial Interpretation or at least a Case Example will dictate the extent of nominative use to which the trader can exploit while the brand owner can feel comfortable certainty.
