Introduction & background

China trademark can be anything but straight forward as Christian Laboutin’s long pursuit of a China trademark illustrates. The trademark in question, a distinctive red sole on equally distinctive shoes for women is a stand out in the crowd point of  difference.

The traverse through the China trademark regime began for Christian Laboutin when they sought, on April 15, 2010, to extend their existing mark to become a China trademark. They filed the following, seeking a China trademark with “high heeled shoes” as the goods designation. (Color may not be accurately represented).

Christian Laboutin China trademark Filed

China Trademark Office

The China Trademark Office (“CTO”) rejected the application in October 2010, finding that the trademark applied for was devoid of any distinctive character regarding the designated goods.

China Trademark Review and Adjudication Board

Undeterred, Christian Laboutin applied to the China Trademark Review and Adjudication Board (“TRAB” – consolidated into the National Intellectual Property Bureau in 2019) for review.

On January 22, 2015, the TRAB decided that the trademark applied for was a device mark consisting of the shape of one high-heel shoe with the bottom in a single color and inherently not distinctive.

The TRAB also held that the evidence provided to them did not prove that distinctiveness had been acquired by extensive use in commercial activity.

Beijing IP Court

Pressing on, Christian Laboutin filed a case with the Beijing IP Court. The case was accepted on June 12, 2015 (Chinese courts have a discretion whether to accept a case).

The Beijing IP Court delivered its judgement on December 20, 2017. It held that the China trademark applied for should be regarded as a 3D trademark, not a device. Accordingly, the case was referred back to the TRAB for them to consider whether the evidence was sufficient to establish the distinctiveness of this 3D trademark.

Beijing High Court

Christian Laboutin then appealed to the Beijing High Court. The case was accepted and the final decision was handed down on December 24, 2018.

The Beijing High Court decided that the China trademark under review was not a device mark or a 3D mark but a trademark made up of a single color used in a specific position – the sole of high heeled women’s shoes.

The Beijing High Court held that Article 8 of the China Trademark Law provides that any “signs” which can distinguish the commodities of a natural person, a legal person or other organisation from those of others can be used and registered as a trademark. The China trademark applied for by Christian Laboutin is within this definition.

The Beijing High Court accordingly requested the TRAB to reconsider the distinctiveness of the China trademark applied for based on the Beijing High Court’s findings of its true nature.

At the time of writing the TRAB has not made its decision.

Commentary

China Trade Mark Law – Article 8 and relevant part of Article 9

Article 8: Any signs, including words, graphs, letters, numbers,
three-dimensional symbols, color combinations, sound or any
combination thereof, that are capable of distinguishing the goods
of a natural person, legal person or other organization from
those of others may be applied for registration as trademarks.

Article 9: A trademark submitted for registration shall bear
noticeable characteristics and be readily distinguishable, and it
may not conflict with the legitimate rights obtained by others
earlier. …(WIPO translation).

Clearly, it has taken Christian Laboutin a very long time and a lot of money to legally establish the true nature of the China trademark applied for. It is not so clear, however, why it was so difficult to achieve this.

We have not seen the pleadings or the evidence in this case but the device mark and 3D findings do not seem to fit well with the practical reality of what has made shoes from Christian Laboutin stand out in use – the flash of red sole as the wearer stands, walks, and moves.

It is also not possible for us to know whether any limitations that might have been in the application were due to extending an existing mark as a China trademark as opposed to a direct China trademark application. Overall, we find that direct application usually leads to more predictable results.

China has been cautious in its approach to non traditional trademarks: sound, position, 3D, color and the like. They are quite difficult to register without demonstrable distinctiveness acquired by use in the China market place. It seems that the Beijing High Court has read “including” in Article 8 as “including but not limited to”. A very positive step in China’s trademark jurisptrudence.

Whether it is possible to register a China trademark of a type not specifically mentioned in Article 8 of the China Trademark Law has been long debated among China scholars and IP practitioners. The CTO has generally taken a very conservative approach. The decision of the Beijing High Court that a trademark type not specifically mentioned in Article 8 of the China Trade Mark Law can be registerable is welcome.

So far as we can ascertain, to date no single color trademark or position trademark has been approved for registration in China.

This decision of the Beijing High Court opens up the possibility of more scope for non traditional trade marks in China. It must be kept in mind, however, that China is not a case law jurisdiction and this decision provides guidance, not legal certainty.

The final decision of the TRAB is greatly anticipated by all parties, including the trademark practitioners in China. If the TRAB approves this trademark, it will be a big step in the development of the China trademark registration system with particular interest to those with non traditional trademarks.

There is also the nice legal issue of whether the TRAB will consider the distinctiveness in the market as of the date of the original China trademark application, the original TRAB review application, or now.

Wei Xin (Wei Xin currently chairs the INTA East Asia & Pacific NTM Sub-Committee)

 

 

 

 

Introduction & background

Pets are very popular in China

Domestic pets have become an integral and much loved part of the life of many Chinese. Different types of animals and birds may be kept as pets, but cats and dogs have become extremely popular among city dwellers adding a new dimension to the China pet food trade.

A huge market has grown up to cater to pet owners wanting to look after and pamper their pets and imported pet food is a significant part of it.  Sources of supply have grown rapidly, and range from pet shops and other retail outlets through to E-commerce in all its forms, including cross-border. Overall this market has grown faster than its regulatory regime.

China pet food regulatory system changes – overview

On April 27, 2018 China’s Ministry of Agriculture and Rural Affairs (“Ministry of Agriculture”) issued Announcement 20 which referred to attached regulations. Some specifically directed at cat and dog food. The changes were effective from 1 June, 2018, but with a grace period until August 31, 2019. From September 1, 2019 the new regulations will apply with full force.

China has a complex regulatory system for the import of pet food that involves multiple government departments and levels. In summary:

  1. the pet food should be registered at the Ministry of Agriculture;
  2. an offshore pet food manufacturer should be registered at the China General Administration of Customs (“China Customs”);
  3. a domestic pet food importer should be formally recorded at the local delegate of China Customs; and
  4. the pet food should pass the Customs quarantine and inspection, and for pet foods containing animal ingredients or formula pet food, a Permit for Animal and Plant Import is needed.

Announcement 20 also made it clear that:

  • existing holders of a valid import registration certificate for their cat and dog food product could continue to export and sell until that certificate expired, but then a new application would have to be made;
  • if dog and cat foods were presently being imported without an import registration certificate, an import registration certificate should be applied for and obtained by September 1, 2019; and
  • holders of an existing import registration certificate for additive premixes to be directly consumed by a pet cat or dog (not as part of a product manufactured by others) should apply for and obtain a new import registration certificate by September 1, 2019.

Cross-border E-Commerce

Certain E-commerce modes, but not all, are presently excluded from the full scope of the changes in Announcement 20 but labeling and hygiene requirements should be met.

Key issues for the China pet food trade

  1. The Methods on the Administration of Pet Feed provide that they only apply to cat and dog food and pet formula feeds and pet additive premixes to be directly consumed by cats and dogs.
  2. An offshore manufacturer should obtain the import registration certificate for pet feed for each product before it can be exported to China. It usually takes about 6 months to obtain a certificate for a product.
  3. Imported pet feed should comply with the Labeling Rules for Pet Feed. A Chinese language label is essential and should include required information such as place of origin, details of the offshore manufacturer, details of the Chinese importer and its contact information. Expert advice should be obtained about this.
  4. Trademark is an important issue arising from this labeling requirement. The Chinese name of the product and the manufacturer is required on the label, but including them there is no protection from trademark infringement. Both should be trademarked in China by the offshore manufacturer, not the importer.
  5. Pet feed that contains raw materials or additives prohibited in China cannot be imported. A List of Raw Materials for Animal Feed and a List of Additives for Animal Feed have been adopted and will be updated from time to time.

Protecting label information with trademark

As noted above a Chinese language label is required for imported cat and dog food but use there does not give any real rights or protection.

Every product sold in China becomes known by its Chinese name: not the name in the home country language. If the offshore supplier does not decide on and control the Chinese name it wants to use in China, it will get one anyway, but it will almost certainly be controlled by someone else.

Remember that China has a “first to file” trademark system – the first to register the trademark owns it. If the offshore supplier’s name, or its product name, is registered as a trademark in China by someone else the China business is then effectively owned by someone else.

Note that nothing related to a China trademark is less expensive than registering it!

Take away points

  • The present signal from China is clear. The government has tightened its control over the China pet food market, including the manufacture, import and sale of cat and dog food in China. September 1, 2019 is the day of change.
  • The new regulations do not affect all cross border transactions immediately but it cannot be assumed that the current limited exemptions will continue indefinitely, or at all. Anybody directly or indirectly engaged in the China pet food market should consider their position carefully and seek advice.
  • A prudent supplier into the China pet food market, even if presently participating in the exempt E-commerce business, should take the steps to become fully compliant for all forms of the China pet food business.
  • September 1, 2019 is almost upon us. China pet food imports without an import registration certificate (except for the current limited E-commence exception) will very soon be history.

 

OEM manufacturing in China with a China trademark – a changed landscape

OEM manufacturing in China with a China trademark was clarified by a recent decision of the Supreme People’s Court of the PRC which held, on the facts of the case before it, that OEM manufacturing in China with a China trademark but solely for export did not infringe the rights of the owner of the China trademark.

The judgment, issued on November 26, 2015, appears to be the first time that the Supreme People’s Court has directly addressed the issue of OEM manufacturing in China with a China trademark but solely for export.

This decision of the Supreme People’s Court clarifies a previously confusing array of local court judgments in cases regarding OEM manufacturing in China with a China trademark. Some local courts have issued conflicting decisions on apparently similar facts, others have consistent outcomes supported by materially different reasoning.

China is a civil law country and legal precedents have no binding legal effect. Despite this doctrinal position, it is expected that local courts in China will follow the decision of the Supreme People’s Court when facing similar cases regarding OEM manufacturing in China with a China trademark but solely for export, bringing a degree of certainty to this important part of China related business.

Background

The plaintiff, Focker Security Products International Limited (“Focker”) is a Hong Kong company and obtained the China registered trademark No.3071808 “PRETUL with an oval” from an individual on March 27, 2010. This trademark is registered on “hardware, hardware lock, padlock, metal lock and etc.” in Class 6 in China (“TRADEMARK”).

The defendant, Pujiang Yahuan Locks Co., Ltd. (“Yahuan”) is a Chinese manufacturer of locks and other hardware in Zhejiang Province, China.

In 2010, Yahuan signed two contracts with a Mexican company, providing that they wouldmanufacture 684 dozen padlocks for a total price of USD 3,069.79 and 10,233 dozen padlocks at the total price of USD 61,339.03. As required by their Mexican customer, Yahuan would affix “PRETUL” as a trademark on the locks.

Trial at first instance

On January 30, 2011, Focker filed a lawsuit at Ningbo Intermediate Court (“Trial Court”) claiming that Yahuan infringed its TRADEMARK rights by using an identical mark in the manufacture and export of locks. Remedies sought included:

  1. an order that Yahuan immediately stop the infringing activities;
  2. forfeiture of the infringing locks, packaging materials, and tools used in the manufacture of the infringing locks; and
  3. RMB 450,000 (a little more than USD 70,000) compensation to Focker.

Findings of fact

The Trial Court found the following facts:

  1. “PRETUL” was affixed and used on the body of the locks manufactured and exported by Yahuan, the keys of these locks and their product specifications.
  2. “PRETUL with an oval” was affixed and used on the sales package of locks.
  3. In the sales package, the Mexican customer was identified as the consignor with its address, telephone number, fax number, etc. indicated on the package. The words “Made in China” were also shown on the package but there was no information about Yahuan.
  4. The Mexican customer had registered “PRETUL” and “PRETUL with an oval” as trademarks in Mexico in Class 6 and Class 8.
  5. The Mexican customer issued a written authorization to Yahuan on March 24, 2011. In the authorization, it confirmed that it was the legitimate owner of the relevant “PRETUL” trademarks in Mexico and Yahuan was engaged to manufacture locks bearing this mark on its behalf for export only to Mexico.
  6. Yahuan agreed with the Mexican customer that: it should not sell any of the locks in China; the Mexican customer owns all trademarks and related IP rights; it should not apply for or register any trademark or copyright, directly or indirectly; and the Mexican customer was entitled to terminate the transaction at any time.

Trial Court judgment

The Trial Court held that:

  1. Yahuan was an OEM manufacturer for the Mexican customer; and
  2. its use of “PRETUL” on the body of locks, keys and product specifications should not be regarded as infringing the trademark rights of Focker with respect to the TRADEMARK because the mark used was not identical to the TRADEMARK and the goods would not be available in the China market.
  3. Yahuan’s use of “PRETUL with an oval” on the sales package of locks should be regarded as infringement of the TRADEMARK.

The Trial Court ordered Yahuan to immediately stop the use of “PRETUL with an oval” on the lock package and to pay compensation of RMB 50,000 (almost USD 8,000) to Focker.

Appeal of the Trial Court Judgment to the Zhejiang High Court

Both Focker and Yahuan appealed to Zhejiang High Court (“Zhejiang HC”) for review. No additional evidence was submitted by either party and no new facts were found.

Zhejiang HC overturned the decision of the Trial Court regarding the use of “PRETUL” on the body of locks, keys and product specifications holding that it did infringe the TRADEMARK but let the other part of the Trial Court’s findings stand.

Accordingly, Zhejiang HC revoked the trial judgment and held that Yahuan should immediately stop all use of “PRETUL” and “PRETUL with an oval”, and compensate Focker with RMB 80,000 (approx USD 12,500).

Supreme People’s Court review and judgment

Yahuan applied to the Supreme People’s Court for review of the Zhejiang HC judgment. The Supreme People’s Court approved the application on January 2, 2014, set the hearing date for April 11, 2014 and issued its judgment on November 26, 2015.

In its judgment, the Supreme People’s Court held that, OEM manufacturing in China with a China trademark should not be regarded as use of the trademark under the China Trademark Law because the basic function of a trademark is identifying the source of goods.  It cannot be infringement because there is no possible confusion in the China market.

The use of an identical or similar mark on the same or similar products in OEM manufacturing in China with a China trademark should not be regarded as infringing the rights of the owner   of the China registered trademark, because the goods are not available in the China market.

Based on its findings, the Supreme People’s Court revoked the trial judgment and the judgment of the Zhejiang HC, and rejected all claims by Focker.

Commentary

This decision, although apparently logical is not in accord with the position in some other jurisdictions and to that extent may not be welcomed by many that have their products manufactured in China.

Anybody having goods manufactured in China should ensure that their trademarks are registered in the likely destination jurisdictions because that will probably have to be relied upon if counterfeits are manufactured in China.

Customers with China registered trademarks being applied to OEM goods solely for export may need to develop a strategy to keep their trademarks alive as this decision suggests that they would not meet the “use” test if their trademark is challenged.

It remains to be seen whether this decision will be followed in local and other courts and also whether it will be applied in practice by China Customs.  In the latter case, there is a potential question of liability if goods solely for export are detained at the request of the owners of a China registered trademark.  This is an area to be watched closely.

Take away points

  • Overall, the effect and scope of this decision will take some time to work through the China courts and China Customs.
  • Despite that, we suggest that anyone involved in OEM manufacturing in China needs to reconsider their trademark strategy and OEM documentation to ensure that they are still relevant in the changed China OEM landscape.
  • Action should be taken now because the consequences of inaction are serious.

© 2016 Graham Brown And Wei Xin. All rights reserved. The assistance of Peng Wei is gratefully acknowledged.

 

Plan for China – your trademark is important

Many businesses operate without registering a trademark in their home territory. While this is not a good idea, it is possible in many jurisdictions because at least some legal rights may accrue through use.

Home trademark rights do not extend to China

China is quite a different story. Your accumulated “at home” use of trade names, logos, and the like may accrue the rights previously referred to even without trademark registration.

Those rights are of no practical use in China, because trademarks are territorial. Rights outside China are not applicable inside China, the exception being where a local registered trademark is formally extended to China through the Madrid protocol.  China trademark registration is very important for China success.

China is first to register – why wait?

There is another complication: China is a “first to register” trademark jurisdiction, not “first to use”. Put another way – you do not have to show any prior use at all to register a trademark in China. China is a developing country with lots of budding entrepreneurs looking for ways to get ahead. Some of them have taken to registering foreign trademarks in China, either to use as the name for their own business, or to sell to the rightful user outside China, In some cases it is just a tactic to prevent the rightful user from using its trademark in China. Irrespective of motivation, there is a real chance that someone in China will register your “brand” as a trademark in China.

China trademark registration protects you

There is an easy and relatively inexpensive way to prevent this – register your own trademark in China before others do. Chinese can register directly, but others must use an agent in China for this. It takes a little time, but it is the surest way to protect your brand in China. China trademark registration is therefore  very important.

As with everything else, “cheap” is not usually the best value, so it is best to ensure that you get a complete service, not some bargain basement deal. It is your business future that is a stake here.

You could lose your China opportunity if you do not register your trademark in China.

An example might make the picture clearer. Imagine you are a well known wine producer, (say) “Alpinia Wines”. Every bottle you produce proudly bears the “Alpinia” mark at the top of the label, the masthead brand if you like. In the usual way the label then identifies the particular vineyard, the variety etc etc. Even the corks have the Alpinia brand on them.

Alpinia Wines decides that it wants to sell into China, one of the fastest growing markets for quality wines. The first shipment of wines is dispatched to their importer. Unfortunately, there is a problem. The importer advises that the shipment has been detained by China Customs because the labels infringe trademarks held by others. Alpinia has already been registered as a trademark for wine in China! China Customs warehousing charges are mounting and the wines will probably have to be destroyed. There could also be fines.

The owner of the Alpinia trademark in China for wines can request the China Customs to detain infringing goods . If products get past the China Customs undetected, as might happen, the trademark owner can still take action further down the line.

In the short term Alpinia Wines has no real options if China Customs has detained the goods. They might be able to quickly negotiate a licence with the trademark owner, but that is probably not very likely.

In the medium term, Alpinia Wines has limited options: it can re-brand for the China market, an expensive and unwanted course of action; it can try to obtain a licence or buy the China trademark from the China trademark owner; or it can try to find a legal ground that would permit them to have the China trademark cancelled or invalidated, allowing Alpinia Wines to apply for it.

Each of these options has common factors – they are inconvenient, expensive, uncertain, and time consuming. The time and cost invested in registering a trademark in China is trivial by comparison.

The example above has been drawn from our experience in this area. It is just an example on these pages, but for the business people involved it is devastating. The cost is not just the actual money costs, but the secondary cost of being diverted from developing the business and lost business opportunities that may be taken up by others. All preventable by timely trademark registration in China, which is what we have been recommending for a long time.

Take away point: China trademark registration is very important

  • To answer our own question, on any rational analysis, having registered China trademarks is very important for anyone that may do business with China, even if doing business in or with China looks a long way off now.
  • At the very latest, China trademarks should be registered as one of the very first steps in actually engaging with China.
  • The likely cost of failing to register far outweighs the cost of registration.

GB

© 2014 Graham Brown and Wei Xin. All rights reserved.