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Bad Faith Intellectual Property Litigation

05

JAN

2019

Recently, Yuhang district people's court in Hangzhou city, Zhejiang province made a new first-instance judgment in favor of Bayer Consumers Care AG against Qing LI (Chinese individual) in an unfair competition infringement. The court held that defendant Qing LI applied for plaintiff’s trademark in bad faith and maliciously filed complaints against the plaintiff, its wrongful acts constitute unfair competition and award the plaintiff economic loss of seven hundred thousand RMB. This case is the first time for Chinese courts to clarify and make a judgment against professional trademark squatters that the misconduct of trademark squatters constitute unfair competition and can be punished under the Anti-unfair Competition law.

Background

In July, the Chinese Trademark Office announced that China's trademark applications still maintain continuous and rapid growth and in the first half of 2018, the total trademark filing number was 3.58 million with an increase of 55.76 percent. Up to the end of June 2018, China has 31.428 million trademark filings in total, 19.395 million accumulated registrations, 16.807 million valid registrations. China is the top filer for 16 years in a row in the world. Since 2001, China exceeded the United States and become the top filer country. China has become an important force to promote the growth of global trademark intellectual property rights.

On the other hand, it costs only official fees 300 RMB to file a trademark in China and the term is 10 years if it is successfully registered. If some trademark registrations become popular in the future, it could be sold at a price of tens or even hundreds of times. Moreover, as China has been strengthening IP protection for years and the Chinese market is great of importance, some people treat trademark squatting as good “business opportunities” with low illegal cost and huge profit margin. As a result, bad faith applications have been dramatically increased. Some bad faith applicants file trademark applications for some brands which are not registered yet in China by the brand owners, or file similar trademarks to famous brands which already registered in China.

In order to demand a high price and make more profits, some bad faith applicants very often take all possible legal actions, such as the lawsuit, raid action before AIC, complaint before online platform, custom Recordal in China against real brand owner after they obtain exclusive trademark rights. Because they have trademark rights, sometimes they indeed could win in some actions, which will give more pressure to the real brand owners to purchase squatted trademarks at a high price.

Case review

The products involved in this case are "Coppertone Ultra Guard" and "Coppertone Kids" (hereinafter referred to as "the products involved") in the brand series of "Coppertone" of Bayer group. Established in 1944, Coppertone is a professional sunscreen cream product under Bayer group. After more than 70 years of continuous use and publicity, the Coppertone brand enjoys very high popularity worldwide and is widely favored and recognized by Chinese consumers. Plaintiff Bayer Consumer Care AG has also registered its Coppertone trademark in both English character and Chinese character in China.

Defendant Qing LI knew that the plaintiff has filed many trademarks for its Coppertone trademarks in both English character and Chinese character in China. Under this circumstance, the defendant filed trademark applications for the product packaging, which was designed by the third party entrusted by the plaintiff and was originally put into commercial use by the plaintiff. Qing LI obtained the trademark registration in 2016. Later, QING LI used the two registered trademark rights to launch large-scale and continuous complaints against Coppertone products sold on Taobao platform by distributors of Bayer and provided removal services of its complaints to Coppertone product distributors if Qing LI received payments.

Due to Qing LI's unfair competition behavior, the plaintiff's products involved in the case were taken down from the platform during the peak sales season, and the distributors were also demoted and punished with point penalty by the platform, which further led to the inability to carry out normal commercial production and operation activities.

According to the data of Alibaba intellectual property protection platform, the defendant totally filed 249 times complaints against the products involved, involving 121 distributors, and withdrew 19 times after complaining. Alibaba also found that defendant had registered the word mark of several well-known brands for complaint purpose at the same time, including "TFBOYS" and the words "JEJUGREENTEA". Alibaba further confirmed, the defendant totally filed 2605 complaints in its intellectual property protection platform, involving 8 trademarks, against 1810 online stores. During the complaint period, defendant had contacted Bayer several times, seeking to transfer the two trademarks at a high price, by providing the service of withdrawal complaints. After being rejected by Bayer, he began to bargain and arbitrarily disturbed the normal production and operation activities of the related enterprises when he could not achieve his purpose.

Bayer group has repeatedly sent a letter to Qing LI to clarify that the plaintiff has prior copyright for the two trademarks registered by him, and the use of the two trademarks is reasonable and legal. QING LI should immediately stop the malicious nuisance and actively negotiate with the plaintiff to deal with the follow-up matters of the two trademarks. QING LI has been ignoring the news and insisted that Bayer bought the trademarks at a high price, otherwise the complaints will not stop. In this case, Bayer filed invalidation action against its registration and initiated unfair infringement lawsuit against Qing LI for its bad faith registration and malicious complaints on October 31, 2017, before Yuhang district people's court.

Main points of judgment

The court held that two trademarks registered by the defendant are a major copy of the copyright created by the plaintiff, it infringes the plaintiff’s prior copyright.

Registration in bad faith - the defendant has never actually used the trademark in any way after the trademark has been approved for registration. Instead, it began to launch a large number of complaints on the Taobao platform after obtaining the registration. While initiating the complaint, the defendant made a "paid withdrawal" through QQ, Alibaba and other channels. It can be seen that the purpose of the defendant's trademark registration and complaint is to gain corresponding benefits rather than to truly safeguard its trademark right.

Sale in bad faith - the defendant repeatedly contacted the plaintiff's agent to ask the plaintiff to purchase two trademarks at a high price and clearly offered RMB 700,000. It can be seen that the defendant's motive for trademark registration is not to use the trademark involved to carry out normal business activities, but to make profits through complaints, sales and other means.

"Hoarding trademarks" and "mass complaints" - over the years, the defendant applied for hundreds of trademarks involving multiple different categories of goods, using the same means as in this case, many of which were identical or similar to the patterns used on the packaging of goods of other brands. Meanwhile, according to the data provided by Taobao, the defendant made 2,605 complaints on the Taobao intellectual property platform, involving 8 trademarks and 1,810 online stores. It can be seen that the defendant's extensive trademark registration is not a normal business activity, but an obvious act of hoarding trademarks for profit.

Importance of the case

First, this is the first successful case for the right owners to attack professional trademark squatters under Anti-unfair competition law. In particular, the behavior of professional trademark squatters, such as registration in bad faith, malicious complaint, sale in bad faith, hoarding trademarks and paid withdrawal of the complaint, could be managed by Anti-unfair competition law. Even though China is not a case law country, this case will be no doubt helpful to expand vision in dealing with similar cases.

Second, this case will definitely awe many other professional trademark squatters, increase their illegal costs and achieve justice. As we know that there are many professional trademark squatters in China, who are using same or similar model, such as registration in bad faith, malicious complaint, sale in bad faith, hoarding trademarks and paid withdrawal of the complaint. Those people are making money by the way which is not based on honest labor for profit but on the acquisition of others' prior achievements and accumulated goodwill, which is a typical unearned behavior. Such acts of maliciously obtaining and exercising the trademark right through infringement of the prior rights of others violate the principle of good faith and disrupt the fair competition order in the market, and shall be deemed as unfair competition acts as stipulated in article 2 of the anti-unfair competition law.

Third, if professional trademark squatters could not make profits and will also undertake serious unfavorable legal consequence, then they will have no motive to apply for trademarks of other brand owners. As a result, it will also help to reduce the volume of new trademark applications, oppositions, invalidations and administrative litigations. Eventually, it will save judicial resources and create a healthy and fair market in China.

About the Firm

Unitalen Attorneys At Law
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Tel 86-10-59208888
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