Legal Reflections on Trademark Infringement and Unfair Competition: The Starbucks Case

Issue 21 By Lv Guoqiang,[Trademark]

Shanghai's No. 2 Intermediate People's Court, in the trademark infringement and unfair competition case filed by Starbucks Corporation and United Starbucks Coffee Shanghai Co., Ltd. (the "Plaintiffs") against Shanghai Starbuck Co., Ltd. and its Branch on Nanjing Road (the "Defendants"), found that the English word STARBUCKS and its Chinese translation "星巴克" (pronounced xing ba ke) are well-known trademarks, and that the defendants had infringed Starbucks' trademark rights and engaged in unfair competition. These two marks are the first two famous trademarks recognized by the Shanghai court since the implementation of the new Trademark Law. This article will explore, among other issues, the determination of famous trademarks concerned in this case.

 I. Trademark Infringement and Unfair Competition   

The plaintiffs sued the defendants for the registration of the Chinese characters for "Starbucks", i.e., "星巴克", as the trade name for their enterprise name. The plaintiffs alleged that their right to the trademark "星巴克" was acquired earlier than the defendants' right to the enterprise name, and thus, the plaintiffs were entitled to the prior rights. The defendants argued that in terms of authorization time, their right to the enterprise name is prior to the plaintiffs' trademark rights.

The court held that Starbucks Corporation was the first to use the characters "星巴克". With respect to the time of use of the characters "星巴克", Starbucks Corporation registered the trademark "星巴克" in Chinese Taiwan on Feb. 1, 1999, while Shanghai Starbuck's enterprise name was pre-approved on Oct. 20, 1999.

In terms of the registration time of the enterprise name and the trademark in the Mainland, the trademark "星巴克" was approved for registration on Dec. 28, 1999 and Starbucks Corporation acquired the right to exclusive use of the trademark as of the date of approval of the registration; the enterprise name of Shanghai Starbuck was pre-approved on Oct. 20, 1999. Shanghai Starbuck was established on March 9, 2000. According to the "Implementation Measures for the Registration Administration of Enterprise Names", an enterprise may, as of the date of establishment, enjoy the right to the name it has registered. Therefore the right to the trademark "星巴克" was acquired earlier than the defendants' right to their enterprise name.

Before Shanghai Starbuck registered its enterprise name, the trademarks "STARBUCKS" and "星巴克" already were very prestigious. Shanghai Starbuck is also an enterprise engaging in coffee service, and should have been fully aware of the fact that the STARBUCKS and "星巴克" trademarks enjoy a strong reputation in the same industry. According to a Jiefang Daily report dated August 1, 2003, Mr. Mao, General Manager of Shanghai Starbuck, said when interviewed, that US Starbucks Corporation had established more than 4,000 stores, and that the "星巴克"brand was valuable, so he rush-registered "星巴克" in Shanghai. However, at the court hearing, Shanghai Starbucks denied rush-registration, and presented another explanation for its claim of originality for the enterprise name as follows: after Zhuang Lizhi, Board President of Shanghai Starbucks, watched Lion King, she liked very much Simba, the movie's hero, and was deeply impressed by the image of Simba sitting in the night full of stars, and thus came up with this original idea. Later, she changed "辛巴" (Chinese for Simba) into "星巴". Meanwhile, considering that she wished to gain the upper hand over her competitors, she added the character "克", which means "overcome" in Chinese, and composed the characters "星巴克".

The court held that Shanghai Starbuck had subjective malice and its above explanations were contradictory. It was hard to believe that the defendants' use of the Chinese characters "星巴克" for "Starbucks" was merely due to a coincidence of originality. Thus it held that Shanghai Starbuck had subjective malice in registering the Chinese characters "星巴克" as the trade name for its enterprise. In terms of both the use of the Chinese characters for "Starbucks" and the acquisition of the relevant rights, Starbucks Corporation was earlier than Shanghai Starbuck. Shanghai Starbuck, with the express knowledge that it had no legitimate civil rights and interests in the Chinese characters for "Starbucks", still registered the characters "星巴克" as its enterprise trade name and used it in its Branch's enterprise name. Shanghai Starbuck's conduct fell under the circumstance of Article 52 (v) of the Trademark Law, i.e., "causing other damages to another's right to the exclusive use of the registered trademark", violated the principles of fairness, honesty and good faith for civil activities, and infringed Starbucks Corporation's right to the exclusive use of "STARBUCKS" and "星巴克".

Operators shall, in market transactions, comply with the principles of free will, equality, honesty and good faith, and abide by recognized commercial ethics. Shanghai Starbuck was an enterprise that ran a cafe chain and provided coffee services, and competed against Starbucks Corporation in the same industry. The trade name "星巴克" registered by Shanghai Starbuck was the core part of its enterprise name, and was completely identical to the "星巴克" trademark owned by Starbucks Corporation and licensed to the Unified Corporation for its use. Thus, its registration had obvious malice, and caused the public to misidentify or misunderstand the trademark registrant and the enterprise name owner, and constituted unfair competition against Starbucks Corporation.

The plaintiffs alleged that the defendants used the plaintiffs' various marks in business activities, which constituted trademark infringement and unfair competition. The defendants argued that their business conduct was reasonable and lawful, and did not constitute trademark infringement or unfair competition.

The court held: Firstly, the defendants used in their business the characters "星巴克" either as a trade name in their enterprise name or as the shortened enterprise name, or used them in combination with the general name of the commodities. The defendants' registration of the characters "星巴克" as the trade name in the enterprise name constituted trademark infringement, and thus their use of various marks containing the trade name "星巴克" in business activities was unlawful.

Secondly, when the English word "Starbuck" used by the defendants was compared with the word "STARBUCKS" used by the plaintiffs in their trademark, "Starbuck" lacked a letter "S", and the manner of capitalizing the letters was also different. However, the alphabetic order of the other letters of the two marks were completely the same, and their pronunciations were very similar to each other. Since "Starbuck" was the core part of Mark 5, in view of the distinctiveness and prestige of the plaintiffs' "STARBUCKS" trademark, it should be determined that Mark 5, which contained the English word "Starbuck", was similar to the trademark "STARBUCKS".

Thirdly, when "coffee cup logo" (see the right picture) used by the defendants was compared with the word "STARBUCKS" and graphic mark "mermaid trademark" (see the left picture), it was found that they were identical in the following aspects: each of the marks had two circles with the big circle surrounding the small one; both marks adopted green as the basic color; each mark had two symmetrical pentacles in the middle of the two circles. Their differences included the following: in the plaintiffs' trademark, there was a mermaid logo in the inner circle, while there was a coffee cup logo in the same position of the defendants' mark; in the plaintiffs' trademark, there was the word "STARBUCKS" above the two circles with a blank below, while there were the words "上海星巴克" (pronounced "Shanghai xing ba ke") at the same position as the defendants' mark and the words "咖啡馆" (meaning "cafe") below. After all the elements were combined, the integral structures were similar to each other. Upon a separate observation and consideration of the distinctiveness and prestige of the word and graphic mark "STARBUCKS", it should be determined that the defendants' Mark 3 was similar to "STARBUCKS" in terms of word and graphic mark.

To conclude, by using various marks identical to Starbucks Corporation's "星巴克" trademark in business activities, and by using marks similar to Starbucks Corporation's "STARBUCKS" trademark and its word and graphic mark "STARBUCKS", Shanghai Starbuck and the Branch jointly infringed Starbucks Corporation's right to the exclusive use of the well-known "STARBUCKS" and "星巴克" trademarks, as well as the right to exclusive use of the "STARBUCKS" and "星巴克" trademarks and of the word and graphic mark "STARBUCKS". Meanwhile, they infringed Unified Corporation's right to use the above said trademarks. Their conduct fell under the circumstances prescribed in Article 52 (v) of the Trademark Law, i.e., "causing other damages to another's right to exclusive use of a registered trademark". The defendants' conduct meanwhile constituted unfair competition against the plaintiffs.

II. Determination of Well-known Trademarks

The plaintiffs alleged that the right to the exclusive use of STARBUCKS and the other five trademarks, which are well-known trademarks, should be under the protection of the Trademark Law. The trademark series of "STARBUCKS" as an entirety should not be split by time or territory. The defendants argued that the registered "星巴克" trademark and the registered "STARBUCKS" trademark were independent from each other, and the latter was irrelevant to the present case; None of the plaintiffs' 6 trademarks was qualified as a well-known trademark.
The court held that in order to settle the dispute over the plaintiffs' "星巴克" trademark and the defendants' enterprise name, and upon request of the plaintiffs for confirming as well-known trademarks the 6 trademarks, including the STARBUCKS trademark, it was necessary to decide whether the relevant trademarks in question, including "星巴克", were well-known trademarks.

"STARBUCKS" is the plaintiffs' core trademark. Among the trademarks claimed by the plaintiffs, the trademark "STARBUCKS" was the earliest registered, and became the core of a series of trademarks registered thereafter. Both the word and graphic "STARBUCKS" mark and the word and graphic "STARBUCKS COFFEE" mark contained the word "STARBUCKS". Since the "STARBUCKS" trademark was registered in the U.S. in 1985, the "STARBUCKS" trademark series were registered in more than 120 countries and regions around the world for a wider range of classes of a large quantity of commodities and services.  With the operation and advertisements of relevant right holders, the "STARBUCKS" trademark series and their brands gained prestige around the world. The "STARBUCKS" trademark was even protected in South Korea as a well-known trademark. The "STARBUCKS" trademark was registered on the Chinese Mainland as early as in 1996.

The registered "STARBUCKS" trademark is closely connected with the registered "星巴克" trademark. According to the relevant evidence produced by the plaintiffs, among the characters "星巴克", "星" is the liberal translation of "STAR" in "STARBUCKS", and "巴克" is the transliteration of "BUCKS". Integrally, "星巴克" is the combination of the liberal translation and transliteration of the "STARBUCKS" trademark. The court held that the plaintiffs' explanation was reasonable and should be admitted. The "星巴克" trademark is the Chinese translation of the "STARBUCKS" trademark, and a variation of the "STARBUCKS" trademark in the Chinese-speaking regions. In February 1999, the word mark "星巴克" was registered in Chinese Taiwan, and was recognized as a "well-known" mark. Although Starbucks Corporation registered the trademark "星巴克" in the Mainland a little later, it filed the application for registration in 1998, and meanwhile, advertised and used the word mark "星巴克". In December 1999, the "星巴克" trademark was approved for registration under Class 35, and was later registered by Starbucks Corporation under Class 42.

The plaintiffs' "STARBUCKS" (Class 42) and "星巴克" (Class 42) trademarks should be recognized as well-known trademarks. After Starbucks Corporation entered the Mainland market, it developed business by franchising in such large cities as Beijing, Shanghai and Shenzhen. New chain stores emerged as mushrooms, and the sales rose by a huge margin in each following year. The right holders of the trademarks made long-term, large-scale advertisements for the "STARBUCKS" and "星巴克" trademarks, and spent a lot of money. Due to the international prestige of the "STARBUCKS" trademark series, and the plaintiffs' advertising and use of the "星巴克" trademark in the Chinese-speaking regions, the reputation of "STARBUCKS" and "星巴克" grew rapidly, and have been familiar to the public of the Mainland. On the basis of the above said facts, it should be determined that the "STARBUCKS" (Class 42) and "星巴克" (Class 42) trademarks were well-known trademarks.

As to whether the other 4 trademarks claimed by Starbucks Corporation and United Corporation were well-known trademarks, the court held that since the two trademarks "STARBUCKS" and "星巴克" was determined as well-known, and thus sufficient and effective legal protection could be given to the plaintiffs' rights, there was no necessity to determine whether the other 4 trademarks were famous or not. Therefore, the plaintiffs' above said claim was not upheld.

III. Compensation

The compensation claimed by the plaintiffs totaled RMB 1,060,000, including RMB 500,000 for economic losses and RMB 560,000 for reasonable expenses and legal fees. The defendants argued that the calculation of the plaintiffs' profits was groundless, and thus should not be admitted. The defendants had no objection to the manner of collecting the notarization fee and legal fees, but held that the defendants' lawyers spent too much time in collecting evidence proving the trademarks were well-known.

The court held that it was on the basis of the profits made by the defendants from the infringement that the plaintiffs claimed compensation for economic losses. The amount of profits was calculated on the basis of the notarized statistics of the defendants' customer volume. Although some factors on the formation of the defendants' profits were taken into account at the time of calculation, the said amount is not completely objective and reasonable. Therefore, the court did not adopt this calculation for determining the amount of profits. The claim of the plaintiffs should be upheld for the retainer, notarization fee and translation fee as well as other fees. In the present case, the defendants committed trademark infringement and unfair competition. The overlapping parts should not be calculated repeatedly in the determination of compensation. Since it was hard to determine the profits made by the two defendants from the infringement and the losses suffered by the two plaintiffs from the infringement, the compensation should be lawfully determined as RMB 500,000 in view of the specific circumstances. In determining the compensation, the court comprehensively considered the nature, period and consequences of the infringing acts as well as the prestige, reputation and reasonable expenditure of the litigation.

In order to eliminate within a reasonable scope the ill effects of the defendants' infringement suffered by the plaintiffs, the defendants shall publish an announcement in the Xinmin Evening News as designated by the court, make an apology to the plaintiffs for their infringement, and eliminate the ill effects. The plaintiffs' claim for publishing the announcement in two newspapers was not upheld.

About the author:
    Lv Guoqiang is the vice president of Shanghai No.2 Intermediate People's Court.
                                                                               (Translated by Zhang Meichang)

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