Defense of Trademark Infringement Exceptions — A Study from the Perspective of Cases

2011/4/19By Sun Hailong and Yao Jianjun,[Trademark]

I. A Jurisprudential Analysis of Fair Use Defense
The most essential function of a trademark is to indicate the source or origin of goods in order to prevent confusion and to establish goodwill so that consumers can distinguish and select goods. A trademark represents to consumers that the goods originated from a certain producer and have the same quality. A trademark can also be a powerful tool for advertising and a carrier of the goodwill for a manufacturer established by the producer through providing quality goods and launching many advertising campaigns. The Trademark Law also prohibits passing off to guarantee the trademark holders obtain corresponding remuneration for their goods and goodwill. Only when the trademark holders receive legal protection can they commit themselves to the research and development of high quality goods, thus promoting the prosperity of the goods.
However, just like every other limited right, a trademark right is subject to certain restrictions. A trademark does not make use by others taboo. A trademark does grant to its owner a power to exclude others from any use of it in any way; it only forbids use likely to cause confusion. Most trademarks come from indicia in the public domain. Being granted a trademark does not give the owner a monopoly over the mark. The trademark right is protected only to the extent that it serves to indicate the source of a product. Free competition depends on competition among the brands of businesses.
The trademark law is designed to spur business and encourage businesses to improve their products or public image. It promotes competition by guaranteeing consumers’ access to accurate information about the goods, especially with “descriptive” marks. Descriptive marks do not inherently have the distinctiveness required for trademarks. However, on account of the mark holder’s use, the nexus between the mark and the particular subject is established, i.e., the descriptive mark acquires a “secondary meaning.” It is at this point that the descriptive mark acquires the function of indicating the source of the goods and that the Trademark Law endows it with the status of registration as a trademark. However, the inherent meaning of the mark, i.e., the “primary meaning,” still remains and the trademark holder has no right to enjoin others from describing the characteristics of their own goods based on the primary meaning of the mark. This is precisely the jurisprudential foundation for trademark “fair use.”
II. The Elements of Fair Use
This analysis is consistent with international views on the fair use doctrine. Article 17 of the TRIPS provides: “Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.” Section 1115(b)(4) of Lanham Act of 1946 completely adopted the common law doctrine of fair use whereby, good faith and reasonable use of the name, term, or device of others by any third party to describe the products or services of such party does not constitute trademark infringement, provided the use is used descriptively otherwise than as a mark.
This analysis is also consistent with the fair use doctrine of specific countries. U.S. courts have defined three fair use exceptions: (i) Non-trademark use. This is use where the alleged infringer does not use the plaintiff ’s descriptive trademark as a trademark. Fair use states that a trademark can be used if the purpose in using this mark is to describe the features of goods rather than to indicate the source of its goods. If the use of another’s trademark is to indicate the trademark holder or its goods, for example, using the original mark on the repackaged goods or using another’s trademark in comparative advertising, then the fair use doctrine does not apply. (ii) Only to describe its goods or services. Use is permitted if the use of another’s trademark is not as a trademark but only to describe the characteristics of its goods. (iii) Use that is fair and in good faith. This is a more complex exception. Fair use states that a competitor’s right to describe its products fairly shall not be jeopardized by another’s registration of a descriptive mark as a trademark. This exception requires that the use be out of necessity, that it be reasonable and used in good faith. Fairness and good faith are subjective terms inferred on a case by case basis. Courts consider many factors, such the degree of correlation between the descriptive meaning of the mark and the goods being described or whether there are any alternative descriptions. Knowledge that a mark is a registered trademark does not necessarily mean that the use is in bad faith. Knowledge can play a role though. If the user changes a descriptive term after another party registers the trademark or if the descriptive use involves features which are irrelevant to the descriptive meaning, for example, font, style, or color, bad faith or unfair use may be presumed.
Within China, the Implementation Regulations of the Trademark Law mainly relates to the description of such features as the name and the main raw materials of a product. Under these circumstances can the use of another’s trademark be fair and immune from infringement liabilities? The answer is affirmative. There are judicial precedents. One example is Hagaoke Suileng Second Plastics Co., Ltd. (“Hagaoke”) v. Beijing Ligao Waterproofing Work Co., Ltd. and Others, which was tried to the Xi’an Intermediate People’s Court. On July 7, 2002, a Helongjiang company registered the trademark of “SBC” device (in stylistic script), covering waterproof coiled materials in class 19. On June 7, 2004, the mark was assigned to Hagaoke. In November 2004, Hagaoke discovered that Wang Jing yu sold waterproof materials manufactured by Ligao. Ligao used “SBC” in its product qualification certificate, promotional materials and product name. However, the style of the letters used by Ligao was different from Hagaoke’s registered trademark. Meanwhile, Ligao used in its products its own registered trademark “Ligao.” In its National Industrial Product Manufacture Licensing Certificate, Ligao identified the name of its products as: other waterproof building materials (SBC Polyethylene polypropylene fiber composite waterproof coiled materials). The Certificate of Key Science and Technology Achievements Promotion Program of Shannxi and the Certificate of Identification for Scientific and Technological Achievements of Shaanxi specified that “The project name of Ligao: ‘Ligao’ SBC macromolecule composite waterproof coiled material.” Hagaoke brought an action in court claiming that the three defendants infringed its registered trademark rights. The court found that Ligao did not use “SBC” as a trademark in its waterproofing materials and further, the “SBC” used by Ligao was different from Hagaoke’s registered trademark in style. Ligao used its own registered trademark “Ligao” in front of “SBC” in promoting its products. Such use neither resulted in confusion among the public as to the source of its products nor did it mislead the public into believing that the products had a specific relationship with the goods bearing the plaintiff ’s registered trademark. Ligao’s use of the litigated mark was fair use and would not cause damage to Hagaoke’s registered trademark. The author believes that Ligao’s use of the “SBC” was not the act of using a trademark, which satisfies
the elements of fair use, and thus did not constitute trademark infringement.
III. The Nature of the Fair Use Defense
It is interesting to note whether the fair use defense is a non-infringement defense or an exception defense to infringement, and whether the fair use defense is correlated with the likelihood of confusion. Different views existed even in the judicial opinions of the U.S. In some cases, the courts held that fair use was merely related to the determination of the likelihood of confusion. The fair use principle shall not apply if the courts found that there was a likelihood of confusion. In other cases, fair use was deemed an independent defense. Even if it is likely to cause public confusion, the defendant may still be free from infringement liabilities, provided the requirements for fair use are met. The two views are diametrically opposed to each other.
The clash of the two opposing views is best illustrated in the case of KP Permanent Make-up Inc. v. Lasting Impression Inc , which has drawn much attention. In this case, KP (Defendant) and Lasting (Plaintiff) were direct competitors in the business of permanent makeup. Both KP and Lasting had a separate line of pigments for use in the permanent makeup process. The plaintiff used “Micro Colors” as a trademark on its pigment products. The defendant also used the term “micro color” on its pigment bottles as well as in its advertising brochures to describe the degree of pigment and color variety of its products and do the relevant marketing pitch. In response to the plaintiff ’s claims of trademark infringement, the defendant raised the counterargument of statutory defense of fair use.
Though Plaintiff has made a prima facie case of likelihood of confusion, U.S. Federal District Court upheld Defendant’s fair use argument, and granted summary judgment for Defendant. However, the Ninth Circuit on appeal rejected Defendant’s fair use argument, as it ignored the likelihood of confusion issue. On December 8, 2004, the U.S. Supreme Court delivered its decision on this case. A unanimous Supreme Court opinion of all nine justices held that in a trademark infringement case, the fair use Defendant has no independent burden of showing confusion is unlikely. The defendant carries no burden to rebut likelihood of confusion when relying on the statutory fair use defense. Logically, the significance of fair use, which exists as a defense, is that “if the defense is valid, there is no infringement; otherwise, infringement results.”However, the premise for the finding of infringement lies in the existence of a likelihood of confusion. If the plaintiff cannot prove likelihood of confusion, no infringement can be established and thus there is no need for the defendant to rely on fair use as a defense. If fair use could not coexist with the likelihood of confusion, there would be no need for the existence of fair use defense.
The theoretical basis of fair use lies in our perception that in some situations the trademark owner’s rights are outweighed by public’s interest for a bona fide description of its goods despite the likelihood of confusion. In other words, the existence of the “likelihood of confusion” originated from the initial selection of a descriptive indicium as a trademark. Such confusion may be prevented by other more distinctive measures, e.g., by using one’s own mark in a salient manner, or by clearly distinguishing one’s own mark from that of the trademark holders. It can be said that in the event of fair use, the defendant’s use of a mark for the purpose of describing the features of its goods rather than as a trademark means in itself that no confusion would occur generally. However, fair use should not, logically or theoretically, be premised on the absence of likelihood of confusion. Of course, in case of a likelihood of confusion, more cautious attitude should be adopted in determining whether the alleged use constitutes fair use. Actual situations should be taken into account in determining whether a trademark owner’s interests should be truncated by another’s rights to fairly describe its goods.
IV. Application of the Fair Use Principle to Some Cases in China’s Judicial Practice
1. The use of another’s trademark for the purpose of designating the content of its own goods is fair use. In the case of (U.S.) Educational Testing Service (“ETS”) v. Beijing New Oriental Language School for copyright and trademark infringement , ETS, the plaintiff, was the sponsor and developer of TOEFL and had the copyright to TOEFL tests. ETS had registered TOEFL was its trademark in China, which was approved to be used in such classes as cassettes, testing services and publications. The New Oriental School marked in its publications of TOEFL tests “TOEFL” with eyecatching fonts and thereby was sued for infringement. The court of first instance found that the typeface “TOEFL” used by the New Oriental School was identical with the ETS’s registered trademark and both were used in the same classes of goods, and therefore the New Oriental School infringed ETS’s trademark. The court of second instance ruled differently, holding that “In China’s current social conditions, publication and distribution are a special industry regulated by the State. Publications are special goods and identification of the source of publications is generally realized through the authors and the publishing houses of the publications. In this case, though ETS lawfully registered the trademark ‘TOEFL’ in publications and audiotapes and the New Oriental School used in a prominent manner the typeface ‘TOEFL’ on its ‘TOEFL series teaching materials’ and ‘TOEFL listening tapes’, the alleged use by the New Oriental School is descriptive or narrative for the purposes of demonstrating and stressing that the contents of the publications are relevant to the TOEFL test and informing the readers of the contents thereof and rather than for the purpose of indicating the source of the publications, which will not cause mistake and confusion in the readers as to the source of the goods.” Based on the above analysis, the court of second instance ruled that the New Oriental School’s foregoing acts of use did not infringe on ETS’s exclusive rights to the trademark TOEFL.
2. The use of place name is, to some extent, also fair use. As a trademark, a place name is likewise of special nature. The Chinese Trademark Law provides that the geographical names as the administrative divisions at or above the county level shall not be registered as trademarks. This is in accord with the international practice because the public within the region has the right to use the geographical name, which should not be monopolized by a particular individual. However, the trademark law does not prohibit the registration of the geographical names that are not at or above the county level or that have acquired a secondary meaning as trademarks. For these trademarks, there still exists the issue of fair use by others. This issue, for example, was reflected in the trademark infringement case of Nanjing Liyuan Property Development Co., Ltd. (“Liyuan”) v. Nanjing Jinlanwang Real Estate Development Co.,. Ltd. (“Jinlanwan”). In Jiangning district of Nanjing municipality, there is a “Baijiahu”, which was well-known to the public due to the development and advertising campaigns of multiple real estate developers. Liyuan succeeded in developing the building with the name of “Baijiahu Garden” and also registered the characters “Baijiahu” as its service trademark under service class “real estate management.” Jinlanwan developed in this area a high-rising residential tower, which was named “Maple Homeland” (i.e., Fengqingjiayuan). Jinlanwan used “Baijiahu • Maple Land” as its advertising slogan to publicize the “Maple Homeland.” In this case, the use of “Baijiahu” by Jinlanwan was to designate the relationship between the goods and a particular geographical location. Jinlanwan did not have bad faith to take advantage of the goodwill of Liyuan. The appeal of “Baijiahu” came from the geographical environment of Baijiahu itself rather than from Liyuan and therefore Jinlanwan’s use constituted fair use. It is worth noting that the Third Civil Division of the Supreme People’s Court mentioned in its reply to the request for instruction on how to decide this case five factors that should be considered in hearing this case. Among them is “the classification of the relevant goods or services.” It maintains the classification of the relevant goods or services often determines the necessity of showing its geographical location, but showing the geographical location in sale of real estate should be generally deemed to be based on the need imposed by the natural property of the goods.
3. Fair use of generic technical names or terms. For example, in the trademark infringement case filed by Xiamen Overseas Chinese Electronic Co., Ltd. against Beijing Branch of Sichuan Changhong Electric Co., Ltd. , the court found that the term “HDTV” was an English abbreviation for the technical term “High Definition Television,” which had been widely used by TV producers and recognized as a national standard. The use of the term “CHDTV” by Changhong was not likely to cause confusion and mistake in the relevant public and thus such use constituted fair use. Another example is the case involving trademark infringement and unfair competition filed by Shenzhen Yuanhang Sci-tech Co., Ltd. against Shenzhen Tencent Computer Systems Co., Ltd., which was adjudicated by Xi’an Intermediate People’s Court. The court held that “wakeng” and “baohuang” were names of poker games originating from Shaanxi province and Shandong province respectively and had been in existence as names of particular poker games and used widely by the public. Thus, as the names of poker games, they had been generally accepted by the public. The defendant’s use of “wakeng” and “baohuang” were fair use and did not constitute infringement.
4. Fair use through the signing of a license contract. In the case Harrow Strait Co., Ltd. (Plaintiff) v. Wuhan Yinshabie Leisure Products Co., Ltd. (Defendant) for trademark infringement, the Supreme People’s Court found that the defendant’s use of the plaintiff ’s registered trademark on the costume it manufactured and sold did not constitute infringement to the plaintiff ’s trademark.
V. Conclusion
Based on the study of the above issues, the author believes that in the determination of trademark infringement, the Chinese current Trademark Law may be improved in the following aspects: expressly setting out the constituting elements of trademark infringement and adding both similarity and confusion into the elements for determining trademark infringement. Law should expressly define the rules of logic used in determining trademark infringement and treat “similarity” and “confusion” as necessary elements. If the statutory defense and the exception defense in the legal theory are valid, by law there should be no infringement. However, the exception defense should be premised logically on “causing confusion,” otherwise there will be no need to raise the exception defense.
(Translated by Zhang Meichang)

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