Posts by: Ai-Leen Lim | (5) posts

Has China taken another Bite out of the Apple?

After locking horns with a local Chinese company for six years over the IPHONE trademark, Apple took a drubbing after last month’s decision by the Beijing High People’s Court.

Apple applied for the “IPHONE” trademark for software and hardware (Class 9) in China in 2002. A Chinese company, called Xingtong Tiandi, which makes leather goods, is the owner of the suit mark “IPHONE’, which was filed in 2007, the same year Apple’s first Smartphone, the iPhone, was sold. The brouhaha began in 2010 when the US giant opposed Xingtong Tiandi’s trademark.  The appeal was dismissed by the Beijing Court on 31st March stating that Apple was unable to prove that its “IPHONE” mark was well known in China before 2007 when it first sold its smartphones.

After being dealt a series of unsuccessful outcomes; Apple was unlucky at the opposition, the opposition review, the appeal at the Beijing Intermediate People’s Court and finally the appeal at the Beijing High People’s Court. Apple has stated that it plans to vigorously protect its intellectual property rights by requesting a retrial by the Supreme Court.

The Beijing High People’s Court made specific reference to the fact that Apple’s iPhone was released in June 2007, and sold on the Mainland China in October 2009.  The evidence filed by Apple was predominantly after the application date of the suit mark, i.e. 29 September 2007. The Court found that Apple was unable to establish that its iPhone trademark was well known before that application date.

This is another case demonstrating the difficulty that brand owners face in the fight against trademark squatters, in the absence of registered trademark rights in China.  If the brand owners have to rely on the ‘well-known mark’ ground, the odds are stacked against them unless they have been on the ground in Mainland China for a significant period, before the relevant time.   So, the cardinal lesson/key takeaway for brand owners is to register the trademark for the goods that you need protection for in China at the earliest possible time.  It is expensive and time consuming to deal with a preemptive application, not to mention the negative publicity that inevitably arises out of a legal throw-down.

A degree of bewilderment seems to underlie some reports, especially the non-Chinese ones, on the decision that iPhone is not a well-known trademark in China.  The decision has made it clear that the relevant point of time in determining the well-known mark status is the application date of the suit mark. It is irrelevant as to how famous iPhone is nowadays or at the time of the hearing of the court of appeal.  Though without the benefit of knowing what the evidence consisted of, it is not difficult to imagine how onerous it would be to produce the required evidence of use and reputation in China before 29 September 2007.

Another point to note is that in the appeal to the Beijing Higher People’s Court, Apple claimed an additional ground, which provides for the invalidation of trademarks that are, for example, registered by deception or other improper means.   The Court did not consider this ground because it was never raised in the first instance appeal and the opposition review, and the Court did not comment on the applicability of the ground.  If Apple has some prospect of success by availing of this reasoning, it is curious as to why this was not pleaded in previous proceedings.

Apple was reported to plan to seek a retrial by the Supreme People’s Court and to continue to vigorously protect its trademark rights.  It will be interesting to see if the Supreme Court decides differently.

Ai-Leen Lim, CEO and Principal Counsel, AWA Asia

AWA Asia likes Facebook’s victory in China

In a recent high profile case, Facebook secured a victory against a trademark squatter at the Beijing High People’s Court. This comes shortly after Apple Inc was defeated in its iPhone trademark battle.

In 2011 a Chinese individual, who is alleged to be associated with a local beverage company, applied to register the trademark FACE BOOK for various food and drink products in Classes 29, 30 and 32. Facebook opposed the applications in 2012. The oppositions and subsequent opposition reviews were unsuccessful. Facebook appealed to the Beijing Intermediate People’s Court and won. The Trademark Review and Adjudication Board were ordered to reissue the opposition review decisions. The applicant appealed to the Beijing High People’s Court, which affirmed the first instance court judgment.

The High People’s Court ruled that the suit mark FACE BOOK should not be registered. The court, relying on Article 41(1) of the then Trademark Law (Article 44(1) of the current Trademark Law), which allows for the invalidation of trademarks that are registered by deception or other improper means, endorsed the use of the provision in disallowing the registration of the applied-for trademarks.. In this case, the impropriety of the applicant was supported by the fact that he had applied for several FACE BOOK marks and had a couple of other marks such as the Chinese mark for the toothpaste brand ‘Darlie’. The court held that the applicant clearly intended to duplicate and copy other famous marks and such behaviour would disrupt the normal trademark registration management system, undermine fair competition and violate the principles of good public order and custom, which the above provision served to protect.

On the basis of what was said in the judgment, it appears that the court’s decision hinged upon the applicant’s applications for other famous trademarks. The judgment does not expressly state that FACEBOOK was famous, although Facebook alleged and seemed to produce considerable evidence to prove the same. The court also stated that activities where a person applies for a large number of famous trademarks belonging to others in order to squat on the trademarks and try to attain benefits by way of assigning the trademarks should be stopped. The judgment did not enumerate all the famous trademarks that the applicant squatted on and it did not set out the specific pieces of evidence the court relied on to reach its decision. The trademark database of the Chinese Trademark Office indicated that the applicant had no more than 20 trademarks and it is uncertain if all of those were famous trademarks belonging to others. It is unclear from the judgment whether there is a threshold in respect of the number of squatted trademarks and, if so, how many. It is also unclear whether evidence showing attempts made by the squatter to sell the marks is essential. Therefore, while it is not at variance with the law and practice to disallow a trademark application on the basis of Article 41(1), it might be premature to be too hopeful that more reliance will be put on the provision. Time will tell whether bad faith applications will in future be more stringently dealt with under Article 41(1) by the administrative authorities and the courts.

This judgment is in stark contrast to the blow dealt to Apple about a month before. Apple strived to achieve the same outcome as Facebook (i.e., to prevent the registration of a hijacked mark) but both companies were unable to convince the court that their marks were well-known in China at that time. However, unlike Facebook, Apple was unable to rely on Article 41(1) because it had not pleaded that ground in the previous procedures.

Ai-Leen Lim, CEO and Principal Counsel, AWA Asia

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Copycats in China: The canary in the coalmine for foreign companies?

The recent media report concerning the “fake” Goldman Sachs in China has sparked another series of stories about counterfeits in China… but has it sparked a call to action yet? Throwbacks to the bogus Apple stores and the concocted IKEA shops both found in Kunming in 2011 come to mind. Whilst foreign companies are amazed or even amused by such stories, the question is whether or not they have really deliberated upon the issue of how they can best protect themselves from this happening in the future, and whether or not they have considered necessary next steps as the canary emerges from the coalmine?

The expose of the fake Goldman Sachs was first covered by Bloomberg in late August 2015. A company called Goldman Sachs (Shenzhen) Financial Leasing Co. was said to be operating in Shenzhen, a city in the south of China. This company also used the Chinese trade name of the real Goldman Sachs, and it claimed to provide financial leasing services. It had a website; however this was allegedly no longer available when the reporters tried to access it. The financial leasing company did not claim to be related to the real Goldman Sachs based in the US, but it did not explain how its name came about. This bogus Goldman Sachs was alleged to be related to triads and gambling activities in Macau, and it came to light after a US based casino workers’ union – which monitors the gambling industry in Macau -requested that China investigate the company.

The foreign media has described the spurious Goldman Sachs as another “pinnacle of fakes” in China. But, the incident of the fictitious Apple stores in China has already demonstrated that this is not a new phenomenon. In fact, shortly before the counterfeit Goldman Sachs was revealed by the media, a fake branch of the China Construction Bank, which is said to be the second largest bank in the world by assets, was established by a man in Shandong province in July this year. And he only spent RMB 4,000 to set it up. The bogus branch supposedly looked like the Real McCoy – that is, a genuine bank with counters, computers and all the trimmings. In addition to replicating the name, it also adopted the logo of the bank. The scam was discovered when a person who deposited RMB 40,000 and was given a passbook, could not withdraw the money from a real branch. Curiously, the culprit thought this a quick way to make money. He was arrested by the police in August.

Another more recent case involves dm-drogerie markt, which is a chain of retail stores that sells cosmetics, healthcare and household products, and health food, and it is one of Germany’s major retailers by revenue. In September 2015, it was reported that the dm drugstore was replicated in Shenyang city, in Liaoning province. The sham drugstore copied the decor, used the trademark and also dm’s advertisement in German. The drugstore had not opened for business, that is, it was not yet operational, when the report came out. According to the CEO of the company, Erich Harsch, the real dm does not have any drugstores in China, and the company has not authorized anyone in China to use its brands- including its trademark or slogan. The company has not yet decided what action will be taken, if any. According to media content analysis, the baby food scare in China led to a lot of Chinese tourists purchasing milk powder from the original dm-drogerie markt in Germany, so the name is arguably synonymous with premium milk powder and other domestic goods. The dm drugstore name was accordingly assumed by the counterfeiter to lend credibility to its product in a bid to make more money.

The underlying commentary that one can take away from these incidents is that respect for IP rights is still lacking and enforcement of IP rights is still fundamentally weak in China. While this may to some extent be true, foreign companies must do what they can, within the Chinese framework, to minimize the damage.

It appears from media reports that a significant majority are taking a rather pessimistic view of Goldman Sachs’ prospects of succeeding against the counterfeiter in court given that it is difficult for a foreign plaintiff to overcome the necessary hurdles to convince the court that there has been trademark infringement, and that it is still customary that the first who has registered the name will win. However, the position for Goldman Sachs is not as bleak as portrayed. According to the Chinese Trademark Office’s online database, Goldman Sachs registered its name “Goldman Sachs” and its Chinese name, as trademarks in China in respect of financial services within Class 36 many years ago. The counterfeit leasing office by contrast, does not have any registered trademarks in China. Given that the marks and the services in question are directly in conflict, it should not be too difficult to convince the Chinese courts that there has been trademark infringement.

In the event that Goldman Sachs had not registered its trademark, and the charlatan leasing company had, the real Goldman Sachs could have been sued for trademark infringement and may have been precluded from operating in China under its name.

This brings us back to the New Balance case in April 2015. The US New Balance had not registered its trademark for the Chinese name it had been using in China while a Chinese company had, all the while allegedly using the same Chinese name on its shoes. The Chinese company sued. The original New Balance was ordered by the Guangzhou Intermediate People’s Court to pay a record high of RMB 98 million as damages for trademark infringement. It is reported that the US New Balance has filed an appeal.

Unlike the fake Goldman Sachs, the bogus dm drugstore did not seem to attract the same attention from the English media. But, the fake dm drugstore case illustrates the types of difficulties and obstacles lesser known MNCs – but nevertheless very well established foreign companies – can face in China. These companies have never entered the Chinese market and they have not registered their trademark in China. They are walking a slippery slope and face the thin end of the wedge in the event they have not registered their trademarks in China – and are pipped at the post by counterfeit establishments who adopt their name, logo and brand for monetary gain.

The most crucial lesson here is to register your trademark in China before somebody else does. China is a first to file jurisdiction. In other words, beat them to the punch-line or you may very well face massive financial headaches and challenges put up by opportunistic pirates, not to mention legal ones in the case of preemptive bad faith registrations by trademark squatters. Even if you have not taken the necessary steps to enforce your rights against others in China, the fact that you have registered your trademark will be sufficient to protect you from infringement claims and you can still carry on with your activities in China without staring down the barrel of a lawsuit and/or any attached penalties.

Ai-Leen Lim, CEO and Principal Counsel, AWA Asia

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Tougher measures on advertising in China (wef 1 September 2015): Caveat Vendor

The recent case of smart phone maker Xiaomi coming under investigation for misleading consumers through false advertising, is a cautionary tale for companies seeking to promote their products and services in China. The company was caught by the New Advertising Law in China, enacted on 1st September 2015, which clamps down on fictitious advertising. By using words like ‘best’ and ‘most’, Xiaomi invoked superlatives that could not be objectively proved in order to induce customers to buy its product. This case is a wakeup call to companies in China who attempt to use hyperbole as part of their marketing campaign, as essentially any statement that cannot be verified puts them at risk of being caught under the new regime.

The New Law, which had not been reformed for 20 years, safeguards the rights of consumers and prohibits the use, by companies, of promotional material which cannot be substantiated. In order to refute a claim brought by an aggrieved consumer, objective criteria can be advanced. This includes statistics, scientific evidence and proof of geographic origin to defend the claim.

Even prior to the New Law being enacted, there were signs last year that the scales were tilting in favour of the consumer. When Procter & Gamble came under scrutiny in March 2014 for using touched-up digital images to enhance the impact of its whitening effects for its Crest brand of toothpaste, the global MNC was fined nearly US$1 million for employing misleading advertising.

In addition to stipulating more stringent measures, the New Law empowers the AIC with a wide-reaching mandate, which enables it, amongst its other policing powers, to inspect the premises of a company, confiscate documents and close down suspect operations. At a time when the New Law is seeking to boost the transparency of information and clarify the language used in advertising, the augmented scope of the AIC’s powers make it an even more accessible forum for aggrieved consumers… and the number of complaints is on the rise.

The anti-puffery provision is another new component of the law that brand owners should be wary of. Celebrities who endorse a product, for example, could also be held jointly and severally liable for false advertisements. They are advised to tread carefully before endorsing lookalike products given that they could be accused of passing off. Due diligence into the veracity of the advertising – and the product – prior to endorsement is therefore strongly advised.

A key take-away from the new regime and the cases outlined above is that companies should ensure that they are fully compliant with the stricter measures as well as the sanctions that they could potentially be caught by. For brand owners what the new regime does is to give them a mechanism through which to robustly protect their rights, but for potential infringers it is more than monetary compensation at stake. If a claim is fabricated, they run the risk of tainting their reputation irreparably and on a global scale.

Ai-Leen Lim, CEO and Principal Counsel, AWA Asia

New IP courts major step forward in China’s judicial reforms

In November and December 2014, China announced the long awaited establishment of three specialized IP courts in the Tier 1 cities of Beijing, Guangzhou and Shanghai. These courts are empowered to hear the following cases:

  • First instance civil and administrative cases related to patents, new plant varieties, layout design of integrated circuit, technological secrets and computer software;
  • First instance administrative cases involving copyright, trademark and unfair competition against administrative decisions of the State Council Department or above the county level departments (Beijing IP court will have exclusive jurisdiction over first instance appeals against decisions of the IP Administrative Authorities, such as the Patent Review Board and the TRAB);
  • First instance civil cases regarding the recognition of well-known trademarks and;
  • Second instance civil and administrative cases regarding copyright, trademark and unfair competition heard at first instance by district/primary courts.

The IP courts in Beijing and Shanghai will have jurisdiction over the cases in their respective cities, while Guangzhou IP court will have cross-regional jurisdiction over the entire Guangdong province.

IP professionals in China are generally upbeat about these welcome developments and see many potential advantages for IP owners flowing from the introduction of these new IP courts:

  • The establishment of specialist IP courts will help unify the trial standards and make rulings more consistent (For example, the rulings made in different IP tribunals in Beijing No.1 and No.2 Intermediate Courts were not always consistent previously).
  • This will bring more specialization and expertise. The judges will hear only IP cases and will therefore be specialized in handling IP disputes. The new system also allows for “technical investigators” (not judges or lawyers) in the IP courts. These technical investigators are employees of the court with scientific backgrounds, and their role is to assist the judges on the complicated technical issues, provide judges with professional advice and technical support. Undoubtedly, they will play an important role in patent and software copyright cases.
  • The “Decision on establishment of intellectual property courts in Beijing, Shanghai and Guangzhou” also states that IP courts could have cross-regional jurisdiction on IP cases in the upcoming 3 years. If this is implemented, the IP courts would function more independently, which will help curb the problem of local protectionism during the trial and in relation to the judgments of IP cases.

In light of the above, the establishment of specialized courts is a major step forward in relation to China’s judicial reforms. We still have much to look forward to, for instance the IP court’s jurisdiction to hear IP criminal cases, establishment of specialized IP appellate courts, etc. Also, there are still many problems and challenges for China’s IPR protection. China is still on the US 301 Watch List, and counterfeiting is still rampant. Nonetheless, from the continuous improvement of the IP legal system, we can see the Chinese government’s strong determination as well as its unremitting efforts in strengthening IPR protection, and we expect that the legal environment in China will continue to evolve in the right, positive direction in the next few years. We are after all only 5 years away from 2020, by which time China wishes to be in a position to say that it is a knowledge based economy, and no longer the world’s factory.

Ai-Leen Lim, CEO and Principal Counsel, AWA Asia