Trademark infringement issues with gift promotions

Gift promotions are one of the most common methods used by businesses to boost sales performance. However, the question of whether providing free products as gifts constitutes a sales activity or trademark infringement is a concern for many enterprises. This article explores relevant regulations on this issue, with case references.

GIFT LEGALITY

Article 26 of the Trademark Infringement Judgment Standards issued by the National Intellectual Property Administration in 2022 clarifies that attaching goods that infringe on exclusive rights to use a registered trademark to a product for sale constitutes a trademark infringement under article 57, paragraph 3 of the Trademark Law.

According to this clause, giving of gifts during a sale is regarded as a sales activity.

This is essentially in line with article 26 of the Answers of the Beijing High People’s Court to Several Questions Concerning the Trial of Civil Trademark Dispute Cases of 2006, which states that gift promotions are a type of sales activity.

Gift promotion as a form of sales activity is generally accepted in judicial practice. In Jinqiao Gas Station v Hebei Nalixin Washing Chemical (2020), the defendant, Jinqiao Gas Station, claimed that providing the alleged infringing goods as a gift during refuelling was neither a sales activity nor a trademark infringement.

However, the court determined that Jinqiao Gas Station had sold the alleged infringing goods because it had given them as promotional gifts to customers – and the act of giving the gift was a component of its sales activity. According to the Trademark Law, sellers generally bear responsibility to stop infringement and compensate for losses if they cannot provide a legitimate source.

INFRINGING SITUATIONS

In practice, there are two main situations in which gift promotions may involve trademark infringement.

One is where the gift product itself is a counterfeit product, which constitutes trademark infringement because gift promotions are considered a form of sales. In Jinbozhuang Hotel v Luolai Lifestyle Technology (2020), the defendant, Jinbozhuang Hotel, provided customers with free silk quilts as gifts to enhance customer satisfaction.

However, these gifts were not products produced or commissioned by the plaintiff, but were counterfeit goods that infringed on the registered trademark. The defendant argued that they did not specialise in the plaintiff’s products, and only gave gifts to customers to boost satisfaction. As this did not involve an external sale, they challenged their accountability for trademark infringement.

But the court ultimately ruled that they used gifts as a means of promotion to drive overall sales performance – a marketing method commonly used by businesses – and that gifts should also be considered goods. The defendant had an obligation to ensure the quality of the gifts, and the fact that they were provided for free did not exempt them from their responsibility for trademark infringement.

In some cases, a free gift may be a genuine product to which a merchant has added its own trademark for a promoted or core product. Trademark infringement may occur if a third party registers a trademark that is identical to, or confusingly similar to, the trademark that appears on the gift, or a related item.

This is a common situation in which merchants may be liable for trademark infringement in gift promotions. For example, in Guangzhou Operations Department of Zhongshan Commercial & Industrial v Du Guibin (2016), the defendant added the “DARLIE” trademark to a paper handkerchief that was given as a gift with the sale of “Black Man” toothpaste.

However, a third party had already registered the “Black Man DARLIE” trademark for goods in class 16, including paper handkerchiefs. The trademark owner, Du Guibin, reported to the administrative authorities that use of the “DARLIE” trademark on the paper handkerchiefs constituted infringement.

Although Hawley & Hazel Chemical had registered the “DARLIE” trademark for products such as toothpaste, the approved products did not include paper handkerchiefs. Therefore, use of the “DARLIE” trademark on the paper handkerchiefs was illegitimate and could easily lead the public to confuse the source of the product. As a result, the paper handkerchiefs in question were deemed to infringe Du Guibin’s registered trademark rights.

Furthermore, if the attached gift is a genuine product with its own trademark, and a merchant attaches its own promotional or core product’s trademark to the gift without obtaining permission of the original trademark owner, this changes the status of the product, infringing trademark rights, if claimed.

In such a case, if the merchant wishes to add its own trademark to the gift, it should try as hard as possible to obtain permission from the gift product’s trademark owner.

AVOIDING INFRINGEMENT

In conclusion, giving away goods is a sales activity and not a defence to trademark infringement, according to relevant laws and relevant legal precedent. When giving away goods in promotional activities, businesses should exercise good judgement, evaluating the legitimacy of the source and the possibility of trademark infringement.

When giving away goods to customers, a business operator should first examine the source and related intellectual property rights of the goods. Once it is found that goods are not genuine, the operator should immediately stop giving them away to customers.

If the operator has fulfilled its due diligence obligation, it should keep evidence that can prove the legitimate source of such giveaways. This evidence should form a complete chain to prepare for a future legal defence.

To avoid violating any third parties’ prior rights, the operator should search for any registrations of the same or similar trademarks as the giveaway’s existing trademark. It should also make efforts to get permission from the giveaway’s original trademark owner.

Tan Qiaosha is a trademark attorney at Sanyou Intellectual Property Agency