Accurately defining a trademark and the effect of this on practice

By Damien Wang, Chang Tsi & Partners in Beijing
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Looking at the trademark laws of countries around the world, and relevant international agreements, one can see that they all require trademarks to be capable of identifying the source of goods. This functional requirement is at the very essence of trademarks. Anything that does not have this function cannot constitute a trademark. By understanding this point, one grasps the crux of trademark law, which is helpful in resolving many legal issues encountered in practice.

王亭入 Damien Wang 铸成律师事务所 高级律师 Senior Lawyer Chang Tsi & Partners
Damien Wang
Senior Lawyer
Chang Tsi & Partners

With respect to the use of “marks” in the original equipment manufacturing (OEM) sector, there remains a debate as to whether it constitutes infringement. OEM mainly refers to the production of goods by a manufacturer in a certain country, based on the requirements of another manufacturer located in another country, with the “mark” used for the goods provided by the client.

When the trademark provided by the foreign client conflicts with the trademark of a domestic trademark rights holder, an infringement dispute may arise, with the authorities most often dealing with such disputes being customs and people’s courts. At present, not only has no consensus been reached on such cases between customs and courts, but such consensus is also absent within customs and within the courts.

Mainstream view

However, the author believes the mainstream view is tilting toward its not being infringement, because in the OEM sector the goods are not targeted at consumers in China, a trademark cannot fulfil its function of identifying the source of the goods, and therefore does not constitute use of a trademark. Pursuant to the Trademark Law, infringement can only be constituted when an identical or similar trademark is used for identical or similar goods, therefore where even use is not constituted, infringement cannot be constituted.

However, changing perspective and approaching the issue from the essence of a trademark, it can be seen that, for the consumer in China, the “mark” used on OEM goods is not there for the purpose of indicating the source of the goods to the Chinese consumer, its function at most being that of a sign or decoration. There is no essential difference between that sign and the other constituent parts of the good, such sign only becoming a trademark when consumers in the importing country see the brand and are shopping, whereupon its attribute changes. Accordingly, it is necessary to go beyond appearances and look at the essence, boldly deny that trademarks as contemplated in the Trademark Law exist in OEM processing, and thereby cut to the chase and deny infringement.

Reasonable use

Both article 49 of the previous version of the Implementing Regulations for the Trademark Law and article 59 of the new 2014 version of the Trademark Law set out the circumstances that constitute reasonable use of a trademark.

For example, where a registered trademark contains the generic name, depiction or model number of the goods concerned, directly indicates the quality, main raw materials, functions, intended purpose, weight, quantity or other characteristic of the goods, or contains a place name, the holder of the exclusive right to use the registered trademark does not have the right to prohibit others from making reasonable use of it.

In addition to the cases of reasonable use expressly specified in law, there exist other forms of reasonable use of trademarks, including using another’s registered trademark not for the purpose of identifying the source of one’s goods, but simply for purposes of explanation or elucidation. For example, in a comparative advertisement where the use of another’s trademark is unavoidable, such use is not for the purpose of explaining the source of one’s goods, and its function remains that of identifying the goods of the trademark rights holder. This is the top layer explanation.

Next, pursuant to the new Trademark Law, due to the special nature of comparative advertisements, it is clear that the relevant public will not mistake another’s trademark as the goods of the publisher of the advertisement. Accordingly, there is no confusion and trademark infringement is not constituted. Of course, the question of whether comparative advertising is lawful is still dependent on other laws, such as the Law Against Unfair Competition, the Advertising Law, etc.

Pirate registrations

The “pirate registration” of trademarks comes in many forms, among which article 31 of the Trademark Law specifies that no one may use unfair means to pre-emptively register another’s trademark that has prior use and has a certain degree of influence. The precondition to the application of this provision is that the thing that has prior use is a trademark, in other words, a sign that does not identify the source of goods, e.g. a sign that lacks distinctiveness and has not achieved such distinctiveness through actual use is not subject to the protection of article 31.

An illustrative case is the dispute between Inner Mongolia Little Sheep and Xi’an Little Sheep over the trademark 小肥羊 (Chinese characters for “little sheep”). Xi’an Little Sheep applied for registration of 小肥羊 first, but was rejected because it lacked distinctiveness.

Subsequently, Inner Mongolia Little Sheep applied for 小肥羊, to which Xi’an Little Sheep filed an opposition which was, however, rejected on the grounds that Xi’an Little Sheep’s scope of use was limited, and its 小肥羊 had not yet achieved distinctiveness, and thus did not constitute a trademark.

Through wide-ranging use, Inner Mongolia Little Sheep, on the other hand, had caused its 小肥羊 to achieve distinctiveness and, naturally, could apply for and secure registration. Please note that in such cases, the requirements in respect of distinctiveness achieved through use exceed having “a certain degree of influence”.

The approach of using the essence of trademarks to analyse issues is reflected in different provisions of the Trademark Law. For example, with regard to determining whether an enterprise name, or the name of a product, infringes upon trademark rights, provisions of laws all make whether such name misleads the public an important factor to be considered, and this, in essence, is taking into consideration whether the enterprise name, or the name of the product, indicates the source of the product.

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