Determining ‘pre-sale confusion’ in TM infringement

By Chen Jianmin, Gaowo Law Firm

An analysis of split court decisions for using another company’s name as a search keyword

In trademark infringement cases, we usually only focus on in-sale confusion. Whether in the case of goods or services, we determine infringement based on whether the trademark used by the infringer in the duration of the sale constitutes counterfeit of, or causes public confusion with, that of the rights holder. However, with the development of the internet, “pre-sale confusion” may also constitute trademark infringement. This article will dive into a recent case to explore the issue.

Chen Jianmin
Senior counsel
Gaowo Law Firm

In the recent case where Xi’an iRain IoT Technology Services sued Xiamen Keytop for trademark infringement and unfair competition, two judgments have been rendered. The judgment of first instance, from the Intermediate People’s Court of Xi’an Municipality, Shaanxi, in 2019, did not find the defendant guilty of trademark infringement, but found that its actions did constitute unfair competition. The judgment of second instance, delivered by the Shaanxi Provincial High People’s Court in 2020, found the defendant guilty of both trademark infringement and unfair competition. The different judgments have been the subject of much debate.

The plaintiff had the exclusive licensed right to use the registered trademark of iRain (艾润) and the exclusive right to use the trade names iRain and iRain IoT (艾润物联) in its company name. These names are influential in the intelligent parking field, with iRain on its way to become a nationally well-known brand in the industry.

In October 2018, the plaintiff discovered that the defendant was using “iRain” and “iRain IoT” as keywords without authorisation and promoting them in a paid listing on “”. Thus, when a user searched for “iRain” and “iRain IoT” on Baidu, the first item to pop up was a link with the heading “iRain has extensive practical experience with independent R&D capacity”, followed by texts reading “iRain, brand enterprise, etc.” underneath the heading.

Upon clicking the link, the user would be directed to the defendant’s official website. In view of this, the plaintiff sought legal action against the defendant in the Xi’an Municipal Intermediate People’s Court on the grounds of trademark infringement. At first instance, the defendant argued that it did indeed use iRain as a keyword for searching on Baidu, but because it operated in a different industry with the plaintiff, its act did not infringe on the plaintiff’s exclusive right to use the registered trademark.

In its judgment of first instance, the Xi’an Intermediate People’s Court found that the defendant’s use of iRain did not constitute a use of trademark, and thus did not commit trademark infringement. However, the defendant’s act was sufficient to mislead consumers into believing that there was a certain connection between the link and the plaintiff iRain, only to be directed to the defendant’s website, Keytop. Accordingly, the defendant’s act clearly obstructed the plaintiff’s own online promotion, causing loss of trade opportunities. This act constituted unfair competition.

While upholding the finding that the defendant was guilty of unfair competition, the judgment of second instance by the Shaanxi Provincial High People’s Court additionally found that the defendant was guilty of infringing the plaintiff’s trademark.

In trademark infringement cases, all eyes often rest on “in-sale confusion”, ignoring the fact that trademarks continuously have an effect at different stages of the sale of goods or the provision of services. In fact, the function of a trademark in distinguishing the source of goods or identifying the provider of the services takes effect before, during and even after the completion of a sale.

In this case, as admitted by the defendant, most consumers clicking the link leading to its official website did so because they were drawn by the keyword of “iRain”. This indicates that confusion had been created regarding the source of goods before any sale had taken place. Even if a consumer had been made aware, at the time of purchase, that the counterparty to the transaction was the defendant, it remains undeniable that the defendant’s act was in fact a form of “bait and switch” at the pre-sale stage that caused consumers to briefly mistake the source of goods or the provider of services.

Accordingly, the defendant’s use of “iRain” as an online advertising and promotional keyword should be deemed to have caused “initial interest confusion” around the trademark. In other words, the defendant rode the coattails of the goodwill towards the trademark rights holder by misleading the consumers regarding the source of goods or the provider of services prior to a sale, with the intention of inducing them to enter into a contract.

The judgment at first instance did not find the defendant guilty of trademark infringement because it focused on the “in-sale confusion” caused by the use of the trademark. The judgment at second instance, on the other hand, did find the defendant guilty of trademark infringement because it took note of the actual harm to the trademark rights holder caused by the “pre-sale confusion”, namely the disruption to the direct and necessary connection between the plaintiff’s registered trademark “iRain” and the plaintiff itself.

The authors argue that this is the main reason behind the different judgments.

In online commercial activities, the path to a consumer’s heart is often through his/her eyeballs – the so-called “eyeball economy”. The creation and promotion of keywords is one of the concrete manifestations of the eyeball economy. Even though searching keywords are not directly connected to the relevant goods or services, they attract consumers’ attention and clicks, thereby directing them to specific webpages, which is the typical instance of pre-sale confusion.

Based on the characteristics of online economic activities, the judgment of second instance rendered by the Shaanxi Provincial High People’s Court in 2020 found that “using another’s trademark as an advertising keyword to engage in promotion” constituted trademark infringement, further acknowledging the role of trademarks in the pre-sale stage. This is undoubtedly a positive development in protecting the exclusive right to use registered trademarks on the internet.

Chen Jianmin is a senior counsel at Gaowo Law Firm. She can be contacted at +86 10 82873 665 or by e-mail at Tan Rui, an assistant intern at Gaowo Law Firm, assisted with the article