Baixiang v. Baijia, a Seesaw Battle of Intellectual Property

Issue 29 By Liu Rong,[Trademark]

Intellectual property disputes are nothing but common between business competitors. In July 2007, when Henan Zhenglong Food Co., Ltd. (Baixiang) entered the instant rice noodle market, it became a rival of Sichuan Baijia Food Co., Ltd. (Baijia), which had been in that market for seven or eight years. From 2007 to the present, they have both been engaged in a war known for covering almost all kinds of intellectual property disputes, if not for the duration of time.

In 2007, citing a “design patent infringed by Baixiang”, Baijia lodged a request seeking administrative protection for the patent with the Henan Intellectual Property Office and the Zhengzhou Intellectual Property Office. In November of that year, Baijia sued Baixiang for design infringement in the Shandong Weifang Intermediate People’s Court. That same month, Baixiang sued Baijia for trademark infringement at the Henan Zhengzhou Intermediate People’s Court. Again, in that same month, Baixiang filed a petition to invalidate Baijia’s design patent with the State Intellectual Property Office. Then, in early 2008, the Zhengzhou court ruled that Baijia had infringed upon Baixiang’s trademark. In September of that year, Baixiang lodged an opposition to Baijia’s trademark registration. That same year, Baijia withdrew its charge against Baixiang with the Weifang court. Again in 2008, Baijia sued Baixiang at the Sichuan Chengdu Intermediate People’s Court for infringing a famous product design and unfair competition, but later withdrew the suit. Then, that same year, unhappy with the decision regarding its design patent invalidity, Baijia started a judicial review proceeding with the Beijing No.1 Intermediate People’s Court. Likewise, in 2008, after refusing to accept the first-instance judgment regarding trademark infringement, Baijia appealed to the Henan Higher People’s Court. 

In February 2009, after the first judgment was affirmed, the two companies engaged in a media “mud-slinging” fight. On February 11, the Beijing No.1 Intermediate People’s Court heard the administrative proceeding filed by Baijia. Who will be the final winner of these muddy disputes? With the opening of one new battlefield after another, the true story behind the legal battles may be hard to see.

Background

Established in 1997, Henan Zhenglong Food Co., Ltd. is the holder of the “Baixiang” trademark (literally “White Elephant”). It produces the “Baixiang” instant noodle series and sold them to north China, central China, and the northeast. It was recognized by the Henan government in 2001 as one of the “top ten deep processors of food under key protection” by the province and the “Baixiang” registered trademark was recognized in October, 2006 by the Trademark Office of the State Administration for Industry and Commerce as a well-known trademark. To give full play to its brand advantage, the company set up the “Baixiang Food Group” to replace its original name.

Sichuan Baijia Food Co., Ltd. is a producer of starch noodles and rice noodles, which was set up in 2001. Its predecessor was the Sichuan Yashi Food Co., Ltd., which used the registered trademark “Baijia” (literally “White Family”). Its sales covered the whole country and held 45% of the domestic market for starch noodles. Its brand was recognized as a well-known trademark by Chengdu city and Sichuan province.

Both companies are leading producers of instant food in their respective provinces and examples of local companies. Although both are instant food makers, on the highly divided market for fried noodles and instant noodles, they were not in direct competition. So the two had been at peace until July 2007, when Baixiang entered the market for instant noodles.

The clouds of war began to gather after that month. A relatively neutral description was that Baijia believed Baixiang copied its trade dress for instant noodles, while Baixiang argued that Baijia’s trademark, with the two Chinese characters printed vertically, highly resembled its own.
   
For the former, Baijia published a “ten thousand word” statement saying “Baijia sales staff found in July 2007 on shelves across the country a Baixiang instant noodle that looked very much like the Baijia product. Even they cannot tell the minute differences in package, let alone consumers…”

For the latter, Baixiang published a statement in the Trademark Identity Research Report by the Beijing branch of Hyperlink Research, a Shanghai-based market research company, on January 8, 2008. According to a sample survey, among 100 consumers, it said, 68% mistook “Baijia” as “Baixiang,” and 78% believed that there is a connection between “Baijia” and “Baixiang” No. 1506193 trademark.

Then a war for the defense of intellectual property unfolded between the two, each holding weapons to its advantage. But both kept silent over accusations by the other.

First engagement: administrative proceeding over design patent

According to Sheng Jiawu, Executive Vice President of Baijia, Baijia sent two attorney letters to Baixiang. In its version of the story, Baixiang recalled the products from shelves across the country products “because they knew they were thieves,” but refused to apologize. So Baijia decided to resort to public power.

Baijia President, Chen Zhaohui, owns more than 40 patents, including 30 designs, all on instant food packaging bags, bottle labels, lid labels, and packaging boxes. Most patents were filed in 2006, and issued in 2007, and all of them are licensed to Baijia Company. Baijia decided that Baixiang resembled Baijia with its package of ten single products of different flavors, and lodged an administrative complaint alleging design infringement in late 2007 to the Henan and Zhengzhou intellectual property offices.

The Law Division of the Zhengzhou Intellectual Property Office acknowledged receiving and accepting Baijia’s request letter for “patent administrative protection” in early November, 2007.

In response, Baixiang immediately asked the State Intellectual Property Office for a patent reexamination of Baijia and the invalidity declaration.

The counter-attack worked. The Zhengzhou office suspended Baijia’s case and waited for the result from the state office.

The first battle was initiated by Baijia, but ended with Baixiang gaining an upper hand. However, Baijia was not discouraged and continued with its design infringement lawsuit.

Second engagement: patent infringement lawsuit

In mid November 2007, Baijia sued Baixiang at the Weifang Intermediate People’s Court, seeking an injunction against the design patent infringement and maximum damages of 1 million Yuan. On the 23rd, the court notified Baijia of its acceptance.

The puzzle of the lawsuit lay in its choice of venue. A rights holder usually sues at a venue most convenient to itself to facilitate transportation and evidence gathering. Why did Baijia choose Weifang, which was far away from both companies? Hu Yuanqiang, the public relations chief of Baijia, explained that the case was filed there “because we found Baixiang sold much of its products in Shandong.” He avoided Henan due to worries about local protectionism, but refused to answer why not in Sichuan.

The lawsuit caused quite a stir and was labeled the “first case of food packaging infringement.” However, Baijia withdrew before a result was issued. For this, Baijia announced, “In June 2008, a legal affairs chief of Baixiang surnamed Wei came to Chengdu for settlement talks with Baijia. The two sides reached an agreement of reconciliation and a mutual withdrawal of charges. Under the request of Baixiang, Baijia withdrew its cases in the Weifang and Chengdu courts as a token of good will. But Baixiang not only did not withdraw, but pushed a second-instance judgment, double crossing Baijia.”

Baixiang responded by saying that there was no such settlement agreement, and that Baijia was known in the industry for often filing lawsuits and then withdrawing their cases. According to Zhan Tao, former spokesman of Baixiang, Baijia had withdrawn all of its three cases because it knew they were frivolous. A withdrawal, after all, would be better than a defeat since the cases had already served to cause a stir.

Since the two sides were sharply divided over the point, “why the withdrawal” has remained one of the largest mysteries in their battles.

Third engagement: design patent invalidated

Baijia had been basing all of its claims on the instant noodle packaging design patents owned by Chen Zhaohui, while Baixiang counter-attacked by challenging their validity.  In June and July of 2008, on Baixiang’s petition, four of Baijia’s design patents were canceled by the State Intellectual Property Office for failure to meet statutory requirements. According to Baixiang, all of these Baijia patents were claimed to be infringed.

Baijia responded by stressing that its patents were invalidated on the basis of its own prior patents, and “had nothing to do with Baixiang”.

A state office staff member told a reporter that a reexamination of Baijia’s patents was indeed carried out upon Baixiang’s request. The result was that some of Baijia’s patents were sustained, while others were invalidated in whole or in part. The invalidation was chiefly based on Article 23 of the Patent Law: “Any design for which a patent right may be granted must not be identical with or similar to any design which, before the filing date of the application, has been publicly disclosed in domestic or foreign publications or has been publicly used within the country.”

However, Baijia was also correct. The staff member admitted that in Baixiang’s application, the references used to compare with Baijia’s patents were not published documents, but were all previous patents filed by Baijia. That is to say, Baijia’s patents were indeed invalidated by its own previous patents.

Baijia would be able to avoid this circumstance according to stipulations on associated designs found in the revised Patent Law, but its patents can only be canceled according to the original ones. The patents included the No. 200630027017.2 bowl label and the No. 00333253.5 lid label owned by Chen Zhaohui.

Since July 2008 was the same time period during which Baijia withdrew its charges from the Weifang court, some suspected that this was precisely because Baijia’s patents were invalidated. In any case, Baixiang dealt a heavy blow successfully on Baijia, and did not stop with the trademark infringement accusations against Baijia.

Climatic finale: two rounds of trademark infringement suits

On November 28, 2007, Baixiang lodged a suit with the Zhengzhou Intermediate People’s Court, claiming that Baijia’s unregistered, vertically printed two characters infringed upon Baixiang’s registered trademark, and asked the court to stop any such use of the mark.

The judgment was handed down on January 31, 2008, only 62 days later. The court demanded that Baijia immediately stop using the vertical “Baijia” trademark on its instant noodle packaging, which it found infringed upon Zhenglong’s No. 1506193 “Baixiang” registered mark. Baijia then appealed to the Henan Higher People’s Court.

The higher court heard the case on November 11, 2008, and gave a nearly verbatim judgment on the 26th. As a result, the lower court’s decision was affirmed due to its “correct finding of facts, appropriate application of law and equitable disposition of substantive rights.”
 
The decision was a bomb shell. Since the end of 2008 when it was delivered, local industry and commerce authorities have begun to take down products bearing “Baijia” vertical characters. Baijia, on the one hand, reiterated to the press its wish to appeal to the Supreme People’s Court, and on the other hand said it would accept the current judgment and take back its old products.

The Chengdu Bureau for Industry and Commerce, realizing the significance of the matter, rushed to Beijing in early March of 2009, and reported the case to the fair competition, trademark, and trademark review departments of the State Administration for Industry and Commerce. At the same time, a counterpart team from Zhengzhou also arrived in Beijing. After hearing reports from both sides, the Administration decided in mid-March on a three-month grace period for Baijia products to remain on shelves until June 15, during which time local authorities would suspend actions against Baijia instant noodles.  
 
Meanwhile, Baijia and the Chengdu Bureau for Industry and Commerce were still waiting for the state’s judgment on Baijia’s vertical trademark. If the administrative ruling clashed with the judicial judgment, that is, if the state office decided that the mark is legal and registerable, then the lawsuit would go on and on.

In its written report to the State Administration for Industry and Commerce, the Chengdu Bureau for Industry and Commerce said: “despite our reserved disagreement with the judgment of the related courts and our belief that the dispute does not constitute a trademark infringement, our bureau will respect the judicial judgment and will guide, according to law, Baijia to use its mark correctly.”

Trademark battle 1: registration

Why did trademark become a focus of this dispute? Why did Baijia never accept the related judgment? Four trademarks were involved in the dispute, which complicated the situation from the very beginning.

The Baijia No. 1686854 registered mark includes the term “Baijia” printed horizontally, which was registered in December 2001, under category 30 including goods such as noodles and edible starch. The font is Kai. 

The Baijia No. 4805951 unregistered mark is “Baijia” printed vertically, which was first registered in 2005 under the category of coffee; a second application was made in July 2005 under category 30, which includes noodles and condiments. The first announcement of the mark was in August 2008, which uses the Huawen Xingkai font.

The Baixiang No. 1506193 registered mark is “Baixiang” printed vertically, which was registered in January 2001, under category 30, which includes instant noodles, flour and noodles. The font is Shuti Xingkai.

The Baixiang No. 1387591 registered mark is “Baixiang” printed horizontally, registered in April 2000, under the category including instant noodles, fine dried noodles, cakes and bread.

Of these, the marks that clashed most directly in the lawsuit were Baijia No. 4805951, an unregistered vertical mark, and Baixiang No.1506193, a registered vertical mark.

Baixiang registered its vertical mark as early as 2001, and started using it immediately after this registration. The problem is found in Baijia’s mark. Its No. 4805951 unregistered vertical mark was actually registered in July 2005, but the company argued that it started using the mark as early as 2000.

The vertical “Baijia” mark was already found on its food packaging (design patent No. 00333252.7, applied for on October 16, 2000, and approved in April 2001). Although the mark was unregistered, it was used along with the use of the package. Baijia used this as evidence that it did not copy Baixiang’s mark. However, since the patent was still a little bit later in registration time than Baixiang’s vertical mark, it carried no weight in the fight for the right of first use and Baijia did not use it in the real lawsuits.

Without legal registration, Baijia’s No. 4805951 vertical mark was directly determined by the court to be an infringement without the necessity of any other administrative procedures. Baijia’s President, Chen Zhaohui, began to show regret over his trademark plan. According to what he told the National Business Daily, from 2000, when the mark was first used to 2005, when the application was filed, Baijia missed three opportunities to register, either due to ignorance of the difference between horizontal and vertical marks, or by missing the noodle category application, or by losing the chance to explain by missing the trademark bureau’s rejection letter in the bustle of moving their office. “The situation today is a result of my unfamiliarity with the trademark law and weak awareness in the protection of intellectual property,” he said.

In any case, Baixiang turned out to be much more meticulous in its trademark strategy. As early as 2000, it registered its No. 1387591 oblique “Baijia” mark; however, it had not gained an opportunity to debut it in the dispute over two vertical marks.

After the court’s judgment, Baijia reprinted its packages using its No.1686854 horizontal “Baijia” mark (words and pinyin) registered at the end of 2001. Interestingly, Baixiang also uses a horizontal mark. Now their products look nothing alike either from their look or trademark.

Trademark battle 2: litigation

In the two trials before the Zhengzhou Intermediate People’s Court and the Henan Higher People’s Court, the disputes between Baijia and Baixiang bogged down over two issues:

1. Whether Baijia’s instant noodles are similar goods compared to Baixiang’s instant noodles;

2. Whether Baijia’s mark (the No. 4805951 unregistered vertical mark) is similar to Baixiang’s No. 1506193 registered mark.

For the first question, the first-instance court believed: (i) both the starch noodles and instant noodles are instant foods with basically the same method and requirements when consuming, packing, and storing, including a similar shelf life; (ii) both are aimed at providing convenient, fast food for consumers, which are mechanically processed and sold in supermarkets and shops, and then placed on shelves of the same area; and (iii) both are food targeting common consumers. Thus, they can be identified as similar goods due to their resemblance in function, purpose, production, sales channels, and target consumers.

The second-instance court further explained that: the International Patent Classification and Classification of Goods can be taken as a reference in the judgment of similar goods or services, but are not the sole reference; similar groups listed in the law panel are not a must in judging. In this case, Baixiang’s instant noodles and Baijia’s instant noodles not only possessed the same function, purpose, and consumption and packaging methods, but are also the same in terms of production, sales channels and target consumers. According to evidence filed by Baixiang in the original trial, the two products were put together in many supermarkets and many sellers and consumers confused the two. Therefore, they can be regarded as similar goods.

For the second question, the first-instance court believed that: both marks are composed of two Chinese characters and printed vertically and both use the Xingkai font. Baijia uses a hand-writing type and Baixiang belongs to the font of Shu and can be printed directly by a computer. For both, the first character is Bai with identical pronunciation, form, and meaning; the lower parts of Jia and Xiang are the same, and their upper parts also look alike due to their fonts. Consequently, the two marks look alike as a whole. Considering their similarity in sales channels and target consumers, they were consequently confused by consumers.

Since Baijia argued its mark was not hand writing, the second-instance changed the description above to: both marks are composed of two Chinese characters and printed vertically; both fonts are Xingkai; for both, the first character is Bai with identical pronunciation and meaning; Xiang and Jia, though of different pronunciation, look alike when written in the font of Xingkai. Thus, as a whole, Baixiang and Baijia look alike. Considering the distinctness and market reputation of Baixiang’s No. 1506193 registered mark, it can be asserted that Baijia’s No. 4805951 unregistered vertical mark constitutes a similarity to Baixiang’s. Baijia’s arguments that the two do not constitute similar marks were thus groundless. As for inconsistency in Baijia’s used and registered marks, as proposed by Baijia, whether the holder uses a hollow-carved mark or not has no impact on the determination of infringement. Besides, when considering the meaning of the “Baijia” trademark, the company’s evidence cannot prove that it is a place name. Even if the mark carries the meaning of a place name, Baijia should have avoided other registered marks in the principle of honest operation. Yet, Baijia failed to fulfill its duty to pay reasonable attention in this regard and actually caused confusion among consumers.

The second-instance judgment has now come into effect, but time is needed to know whether the result will have an impact on similar or future cases.

The war lingers on: mudslinging

As a result of all of this, there is now bad blood between the two companies. After the ruling of the Henan Higher People’s Court, Baixiang held a press conference in Beijing on February 18, 2009, to publicize the result of the case. Baijia also acted quickly by sending the Baixiang attorney a letter accusing it of dishonest reporting and commercial libel.

The exchange of fire has gone beyond market competition. Baixiang called Baijia an advertising company that began with robbery and one that does not hesitate to “sell” itself for its own benefit. Baijia responded by calling Baixiang a company with an evil heart and expressed its determination to fight to the end.

Hu Yuanqiang, Baijia’s public relations chief, was still quite excited when he told a reporter that an appeal to the Supreme Court was pending, saying “Baijia will not give up”. By contrast, Baixiang, the winner of the lawsuit, is trying to lay low. Its spokesman, Deng Min, did not say much, stating only briefly that “you can count on what they (Baijia) said.”

Although the case has not ended, both companies suffered a considerable loss in the intellectual property war. They confessed to the media separately of spending at least millions of Yuan in a few years. Just as the trademark chief of the Henan Bureau for Industry and Commerce commented: both companies are exhausted by these lawsuits that lasted for more than two years. However, the fundamental reason lies in their lack of a full understanding of related laws, which led them down the wrong road. 

(Translated by Li Heng)

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