The decision of April 23, 2009 (No. 29 U 5712/07) of the Higher District Court of Munich affirms a judgment of the District Court of Munich of November 11, 2007 (No. 21 O 21512/06) insofar as it states that the registration of China registered trademark in Germany by the German importer of Chinese goods bearing such trademark can constitute an act of unfair competition according to the German Act Against Unfair Competition.

Case review

The plaintiff/appellee, a company domiciled in the People’s Republic of China, is one of the leading producers of spices and food ingredients in China. It distributes these products under the following trademarks:

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The defendant/appellant, a company domiciled in Germany (defendant/appellant 1) and its executive director (defendant/appellant 2), have distributed products of the plaintiff/appellee bearing the above depicted trademarks in Germany since 2003.

On November 21, 2005 the defendant/appellant 1 applied for the registration of the below depicted word and device mark with respect to foodstuffs in classes 29 and 30 and with respect to certain services in class 35 with the German Patent and Trademark Office (DPMA) without the agreement of the plaintiff/appellee. On February 16, 2006 the German trademark No. 305 70 147 was registered.

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The plaintiff/appellee requested the District Court of Munich:

1. To commit the defendants/appellants jointly and severally to refrain from the use of the sign at large (as depicted) and single parts thereof, namely the picture of the head or the Chinese characters or the term WANGZHIHE, if such use does not take place in order to designate the products of the plaintiff/appellee.

2. To commit the defendant/appellant 1 to assign the German trademark No. 305 70 147 to the plaintiff; alternatively to commit the defendant/appellant 1 to consent to the cancellation of the trademark; to commit the defendant/appellant 1 to provide information about the amount of advertisement using the disputed sign and about the realized turnover.

3. To declare that the defendants/appellants are obliged to the plaintiff/appellee to make up for the damages resulting from the actions named under 1.

The defendants/appellants requested the District Court of Munich to dismiss the lawsuit of the plaintiff/appellee.

The District Court of Munich sentenced the defendants/appellants to refrain from the use of the disputed sign at large (as depicted) and single parts thereof, namely the picture of the head or the Chinese characters or the term WANGZHIHE, if such use does not take place in order to designate the products of the plaintiff/appellee. Furthermore, the District Court of Munich sentenced the defendant/appellant 1 to agree to the cancellation of the German trademark No. 305 70 147. For the rest, the plaintiff’s/appellee’s lawsuit was dismissed.

The defendants/appellants appealed the decision of the District Court of Munich and the plaintiff/appellee filed a cross appeal against it with the High District Court of Munich.

The High District Court of Munich rules:

The plaintiff/appellee only has the right to sue based on unfair competition law insofar as it is a competitor of the defendants/appellants. The parties are competitors with regard to the foodstuffs in classes 29 and 30 but not with regard to the services in class 35 for which the trademark No. 305 70 147 is registered as well. As the plaintiff/appellee does only compete with the defendants/appellants in the area of foodstuffs it does not have the right to sue based on unfair competition law when it comes to the disputed sign claiming protection for services in class 35.

The application and registration of a trademark constitutes an act of unfair competition if it systematically obstructs a competitor’s freedom to act within the market.

The application of a trademark does not already constitute an act of unfair competition when the applicant knows that the competitor uses or intends to use the same sign with respect to the same goods without having acquired formal (trademark-) protection. In addition, specific circumstances are required.

Such specific circumstances are on hand if the applicant has applied for the registration of the sign fully aware of the established rights of the previous user worth protecting without having a sufficient objective reason for registering an identical or similar sign with respect to identical or similar goods, if the applicant has applied for the registration with the objective of disturbing the established rights of the previous user or with intent to block the previous user from using the sign.

According to these principles the application and registration of trademark No. 305 70 147 by the defendant/appellant 1 with respect to foodstuffs in classes 29 and 30 constitutes an act of unfair competition.

The trademark No. 305 70 147 is identical or at least extremely similar to the trademarks which the plaintiff/appellee has used to distinguish its foodstuffs in the past. At the time of the application of trademark No. 305 70 147 the plaintiff/appellee also owned corresponding trademarks in the People’s Republic of China and in other non-European countries. Being the importer of the products of the plaintiff/appellee the defendant/appellant 1 was aware of the trademarks used by the plaintiff/appellee. The defendant/appellant 1 wanted to secure its position as the sole importer of products of the plaintiff/appellee and to prevent maybe not being supplied with the products of the plaintiff/appellee anymore. The trademark No. 305 70 147 was to serve as leverage in order to force the further supply with products of the plaintiff/appellee and to secure its position as the sole importer of such products. This is a misuse of the trademark as a means of fighting in competition. In addition, the defendant/appellant 1 also applied for the registration of other trademarks of Chinese companies in Germany.

The plaintiff/appellee can neither request the cancellation of the trademark No. 305 70 147 with respect to services in class 35 based on unfair competition law nor based on trademark law. In principle, such cancellation could be reached based on § 51 paragraph 1 in connection with § 10 and § 9 paragraph 1 No. 3 of the German Trademark Act. According to § 9 paragraph 1 No. 3 the registration of a trademark may be canceled if it is identical with or similar to an earlier filed or registered trademark, and has been registered for goods or services which are not similar to those for which the earlier trademark is filed or registered, where the earlier trademark has a reputation in Germany and where the use of the registered trademark without due cause would take unfair advantage of, or be detrimental to, the distinctive character or the repute of such trademark. The plaintiff/appellee did, however, not substantiate these requirements.

A cancellation of the trademark No. 305 70 147 with respect to services in class 35 based on § 51 paragraph 1 in connection with § 15, § 12 and § 5 of the German Trademark Act and Art. 8 of the Paris Convention cease to apply as well. § 12 of the German Trademark Act states that the registration of a trademark may be canceled where another person, prior to the date relevant for the seniority of the registered trademark, has acquired rights to a commercial designation and those rights confer on him the power to prohibit the use of the registered trademark throughout the entire territory of Germany. § 15 of the German Trademark Act states that third parties shall be prohibited from using in the course of trade, without authorization, the commercial designation or a similar sign in a manner capable of causing confusion with the protected designation. Where the commercial designation has a reputation in Germany, third parties shall also be prohibited from using the commercial designation or a similar sign in the course of trade if there is no risk of confusion where the use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the commercial designation. Art. 8 of the Paris Convention stipulate that a tradename shall be protected in all the countries of the Union without the obligation of filing or registration and whether or not it forms part of a trademark. In the case at hand it is not clear whether the plaintiff/appellee enjoys protection for its tradename in Germany as it is not established that it used its tradename in Germany. In any case the similarity of the industries regarding foodstuffs on one hand and services in class 35 on the other hand in order to establish a likelihood of confusion is lacking. Furthermore the plaintiff/appellee did neither substantiate that its tradename is known in Germany nor that the trademark No. 305 70 147 claiming protection for services in class 35 takes unfair advantage of or is detrimental to the distinctive character or the repute of its tradename.

A cancellation of the trademark No. 305 70 147 with respect to services in class 35 based on the plaintiff’s/appellee’s copyright (§ 51 paragraph 1, § 13 paragraph 1, paragraph 2 No. 3 of the German Trademark Act in connection with § 2 paragraph 1 No. 4 and paragraph 2 of the German Copyright Act) fails too as the picture of the “smiling Chinese in a circle” does not possess the necessary individuality for works of applied art according to § 2 paragraph 1 No. 4 and paragraph 2 of the German Copyright Act.

The Higher District Court of Munich restricted the scope of the injunctive relief defined by the District Court of Munich which covered the use of the disputed sign as a trademark with respect to all goods and services and moreover every other use of the disputed sign (see above). It held that the plaintiff/appellee was only entitled to an injunctive relief to the extent that it regards the use of the disputed sign as a trademark with respect to foodstuffs in classes 29 and 30.

Finally, the Higher District Court of Munich dismissed the cross appeal of the plaintiff/appellee requesting a declaratory judgment regarding the damages and a commitment of the defendants/appellants to disclose information.

The Higher District Court of Munich sentenced the defendants/appellants to refrain from the use of the disputed sign as a trademark with regard to meat, fish, poultry and game; meat extracts; preserved, frozen, dried and cooked fruits and vegetables; jellies, jams, compotes; eggs, milk and milk products, edible oils and fats; coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard; vinegar, sauces (condiments); spices and ice if such use does not take place in order to designate the products of the plaintiff/appellee. Furthermore, the Higher District Court of Munich sentenced the defendant/appellant 1 to agree to the cancellation of the German trademark No. 305 70 147 with regard to meat, fish, poultry and game; meat extracts; preserved, frozen, dried and cooked fruits and vegetables; jellies, jams, compotes; eggs, milk and milk products, edible oils and fats; coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard; vinegar, sauces (condiments); spices and ice.

Case remarks:

The result of this decision was very encouraging for Chinese companies and should strengthen their confidence in safeguarding their intellectual property rights abroad. Moreover, this decision could inspire Chinese courts which have to rule on corresponding matters in China. There are various aspects which are worth mentioning because they demonstrate interesting differences/similarities between/of the German and the Chinese practice:

For a Chinese practitioner it may appear unusual to decide such a case based on unfair competition law (German Act against Unfair Competition) and not based on trademark law (German Trademark Act). After all, in Germany a trademark right can not only be obtained through registration but also through use and well-known trademarks are protected as well.

One explanation is that even if the plaintiff’s/appellee’s products have been distributed in the German market for several years it was not able to provide sufficient evidence to substantiate the use and the reputation of its trademark in Germany. It therefore has to be stressed that Chinese companies distributing their products in foreign countries should pay attention to the collection of evidence to prove the use and the reputation of their trademarks abroad. The same applies to the documentation of the use a company’s tradename.

The fact that the courts primarily decided the case based on unfair competition law has, however, another reason as well. Both courts held that the plaintiff/appellee primarily based its applications on unfair competition law and alternatively (in this order) on trademark-, tradename- and copyright law. The District Court of Munich further stated that the plaintiff/appellee did this after a corresponding hint of its chamber at the jurisdiction of the German Federal Court of Justice regarding the matter in dispute if a lawsuit is based on various property rights.

According to the jurisdiction of the German Federal Court the matter of dispute is determined by the application and by the facts which the plaintiff puts forward. If the plaintiff bases its complaint on a registered property right the matter of dispute is determined by the plaintiff’s application and the named property right. If the plaintiff based its complaint on a property right which was not established through registration the matter of dispute is determined by the plaintiff’s submission of the facts regarding the establishment and the continuance of this right. If the plaintiff not only bases its complaint on property rights but also on unfair competition law two different matters of dispute are at hand because the core of the respective facts changes. Where the plaintiff is entitled to various property rights and/or additionally claims that the defendant’s behavior constitutes unfair competition the court can only decide the case based on the property right or on the unfair competition claim on which the plaintiff explicitly bases its complaint.

In China, such a case would probably have been decided based on trademark law.

The decision of the District Court of Munich further held that the plaintiff/appellee had no right to demand the assignment according to Section 17 of the German Trademark Act – this provision states that were, in breach of Section 11, a trademark has been filed or registered in the name of an agent or representative of the person who is the proprietor of that trade mark, without the proprietor's authorization, the latter shall be entitled to demand the assignment of the right conferred by the application or registration of the trade mark from the agent or representative - because the plaintiff/appellee did not substantiate that the business relationship between the plaintiff/appellee and the defendant/appellant 1 exceeded the exchange of goods and included the obligation of the defendant/appellant 1 to protect the interests of the plaintiff.

The decision of the Higher District Court of Munich does not broach the issue of Section 11 or Section 17 of the German Trademark Act. It, however, states in a different context that there is no direct contractual relationship between the plaintiff/appellee and the defendant/appellant 1.

The German Trademark Act does not contain a definition of the “agent” or the “representative” named in Section 11 and Section 17. According to the German doctrine, a business relationship which exceeds the mere exchange of goods and which obliges the trader to protect the interest of the supplier is necessary though. The mere distribution cooperation without specific obligations to protect the interests of the principal on the other hand does therefore not constitute an agency relationship.

The Trademark Law of the People’s Republic of China contains a very similar provision in Art. 15 and does not contain a definition of the “agent” or “representative” either. Even if the Chinese jurisdiction or doctrine have not established clear requirements regarding the agent or representative relationship, the Supreme People’s Court also holds that the agent shall have a special relationship with the principal which goes beyond that of a general sales agent or a sole distributor.

The key point of the decision is, however, that the court protected the plaintiff/appellee’s interests and convicted the defendants/appellants because of their behavior. The unfair competition law leaves room for justice even if the plaintiff has no registered property rights and is not able to prove the establishment of unregistered property rights in a certain country.

About the authors:
Yi Wenhui is Partner and IP litigator of the IP Group of Hylands Law Firm.
Dr. Saskia Eschmann is a Swiss attorney of Hylands Law Firm.