A Legal Minefield for Trademark Squatters

Issue 26, By Li Xiang,[Trademark]

The case addressed many legal issues concerning judgments involving trademarks that are “detrimental to socialist morals or customs, or having other immoral influences” and the recognition of a well-known trademark as provided in Articles 10 and 14 of China Trademark Law. The key issue was how to understand and apply provisions of Article 31 of China Trademark Law involving “registering through fraudulent means a mark which is already in use by another party and enjoys substantial influence.”

The legislative intent of Article 31 of China Trademark Law was primarily to preserve the good faith principle, with a key purpose to call on people to be honest and faithful in pursuit of their interests without causing any damage to the interests of others and the public interests of society. In specific, under China Trademark Law, the following prerequisites must be met when applying the aforesaid provisions:

1. A trademark that has been previously used should not be a sign that is prohibited from registration or use by China Trademark Law. In addition, the prior “use” must also comply with other relevant provisions of China Trademark Law.
First, a trademark is a visible sign that is used to distinguish the goods or services provided by different businesses. However, all signs are not capable of functioning as trademarks. For example, those listed in the first paragraph of Article 10 of China Trademark Law are signs related to effects on public policy, the public’s interests, and the state’s interests. In addition to these examples, Article 11 provides that a sign that is devoid of any distinctive character shall not be registered as a trademark. Therefore, in applying the above-mentioned provisions in Article 31 of China Trademark Law, a trademark that has been previously used may be registrable if it is not a sign prohibited by Paragraph 1 of Article 10 and Article 11 of China Trademark Law. Otherwise, the trademark will not be protected by China Trademark Law.

Second, the prior “use” must comply with other relevant provisions of China Trademark Law. For example, a trademark registration is necessary for goods that are subject to laws or administrative regulations that require the use of a registered trademark, as mentioned in Article 6 of China Trademark Law and Article 4 of Regulations for the Implementation of the China Trademark Law. Where no trademark registration has been granted, such goods cannot be sold on the market. Therefore, if a company uses an unregistered trademark on certain goods, such as tobacco and medicine for human use, for which laws or administrative regulations require the use of a registered trademark, then an application for registration of a later trademark will not constitute an act of “pre-emptive registration,” even if the “use” is earlier than the later application.

2. A prior use trademark is an unregistered trademark.

An unregistered trademark means a sign that has been used on goods or services that is capable of identifying different origins of goods or services, but has not been approved and registered by the China Trademark Office (CTMO). For example, in business activities, the name, packaging, or decoration peculiar to well-known goods usually function as an identifier of different goods or services and may be deemed as an unregistered trademark.
What is worth noting is that a “prior use” trademark as stipulated in Article 31 of China Trademark Law means only an unregistered trademark instead of a registered trademark. Where a trademark of a later filing conflicts with a registered cited trademark, provisions in Article 28 of China Trademark Law should be applied, which has nothing to do with the provisions in Article 31.

3. Cases involving prior use

The use of a trademark, as mentioned in Article 3 of Regulations for the Implementation of the China Trademark Law, shall include the use of trademarks on goods, packages or containers of goods, or in trading documents, and the use of the trademark in advertising, exhibitions, or any other business activities. The core property of a trademark is to identify the origin of goods or services. Therefore, use of a trademark in business should “enable the relevant public to get to know the trademark, goods bearing the trademark, and the goods supplier.”1

In the subject case, the key issue involved whether Sony Ericsson Mobile Communications (hereinafter referred to as Sony Ericsson) had used the “索爱”(initials of Sony Ericsson in Chinese characters) trademark prior to the application date of the disputed trademark. First, though Sony Ericsson had not taken the initiative to use the “索爱” trademark on its mobile products prior to the application date of the disputed trademark, the relevant public users of phone and mobile products, directly influenced by Chinese language habits, have associated “索爱” with Sony Ericsson in an exclusive and determined fashion, under the “tacit” agreement and use by the media, distributors, and consumers in the society. That is to say, “索爱” has been capable of identifying the origins of goods or service and had functioned as a trademark. Second, the relevant public’s “association of ‘索爱’ with Sony Ericsson in an exclusive and determined fashion” was more explicit in demonstrating the use of the “索爱” trademark and the effects thereof than promotional advertisements and the sales of products. Finally, regarding the subject case, the judge focused more on the results of the use rather than on the forms of use in determining whether there was any use. What needs to be emphasized is that the relevant public’s “association of ‘索爱’ with Sony Ericsson in an exclusive and determined fashion” had an effect only on the fame of Sony Ericsson products and did not relate to any other enterprises or persons.

The above view has also been adopted in US judicial practice. As demonstrated in the ACE case, 2 the United States Court of Appeals for the Federal Circuit ruled that “even without use directly by the claimant of the rights, the courts and the Board generally have recognized that abbreviations and nicknames of trademarks or names used only by the public give rise to protectable rights in the owners of the trade name or mark. Such public use by others inures to the claimant’s benefit and, where this occurs, public use can reasonably be deemed use ‘by’ that party in the sense of a use on its behalf.”

4. The trademark enjoys substantial influence through prior use.

One of the core properties of a trademark is to identify the origin of goods or services. If a trademark of prior use does not enjoy substantial influence through use, it cannot be relied on to deny registrability of any trademark in a later filing. After all, China adopts the first-to-file policy in its trademark system.

The author holds that, firstly, “substantial influence” is a result of use, meaning that the trademark is well-known to the relevant public within a particular geographical area. The “substantial influence” a prior use trademark enjoys can be determined through the time and place of use, and forms, and effects of use. In practice, where a kind of goods or service is put into the market, the influence of a trademark has arisen among the public through advertising and trade. Therefore, the degree of “substantial influence” shall not be too demanding or absolute. By all appearances, “substantial influence” will in no way amount to the influence of a well-known trademark or a famous trademark. However, if the tenure of use is too short, such as two or three months; the geographical area of use is too narrow, such as in towns and villages; or if the forms of use are limited, such as through sporadic road placards in advertising, then it is difficult for a prior use trademark to achieve “substantial influence.” Secondly, one thing that is worthy of attention is that the primary aim of the Good Faith Principle provided in Article 31 of China Trademark Law, is that the influence of a prior use trademark extends to the trademark applicant of a later filing, which can be a criterion used in judgments for specific cases. If the indefinite applicant of a trademark of a later filing has known the prior use trademark and its associated goods or services, then it can be determined, in principle, that the prior use trademark has had “substantial influence.” In addition, this can also be used as an important criterion in determining whether the trademark applicant of a later filing filed in an unfair manner.

Based on the above, in the subject case, the “索爱” trademark had been extensively used on mobile products and in advertisements on the Internet. In addition to this, the trademark was offered to Sony Ericsson by the relevant public. All are sufficient to show the influence of the “索爱” trademark.

5. Bad faith, i.e., fraudulent attempt, may be assumed on the part of the applicant who applied to register a trademark that was already in use by another party.

The author is of the opinion that bad faith here should be premised on the knowledge or presumed knowledge by the applicant regarding the existence of a prior use trademark. A prima facie case for such a determination is when the influence of a prior use trademark has extended to the applicant.

As for the subject case, first, Liu Jianjia, who had “engaged in electronic manufacturing and sales for more than ten years,” had no reason not to know of news of the establishment of Sony Ericsson joint venture in 2001 by the Sony Corporation and Telefonaktiebolaget LM Ericsson, since both Sony and Ericsson were large corporations in electronics prior to the establishment of the joint venture. “索爱” had a substantial influence as an unregistered trademark of Sony Ericsson before Liu applied to register the disputed trademark. Liu, as a professional in the related industry, should have known “索爱” was a representation of “Sony Ericsson in Chinese characters” and that Sony Ericsson was entitled to the trademark rights to “索爱.” Secondly, in light of Chinese habits in contractions and abbreviations, it is very natural to abbreviate “索尼爱立信” to “索爱.” Liu’s claim that his original idea came from words “爱我所爱”of a popular Chinese song “一剪梅” is meritless. Therefore, knowing that “索爱” had been an unregistered trademark of Sony Ericsson and had substantial influence, Liu applied to register the disputed trademark covering telephones and other similar goods, obviously with a fraudulent intent.

Based on the above analysis, Liu Jianjia’s registration of the disputed trademark damaged the legal interests of prior user Sony Ericsson.  Therefore, the People’s Court’s understanding and application of Article 31 of China Trademark Law was appropriate. In the meantime, we need to note that should the disputed mark be granted registration, it would damage not only the commercial interests of Sony Ericsson, but also cause general consumers to doubt the exclusive association of “索爱” with “索尼爱立信” and damage their interests accordingly.

1. See Article 2 of the Interpretation of the Beijing Supreme People’s Court on the Relevant Issues concerning the Trademark Civil Dispute Cases.
2. See National Cable Television Ass’n. v. American Cinema Editors Inc., 937 F.2d 1572 (Fed. Cir 1991).

   (Translated by Wang Hongjun)


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