Annotated Leading Trademark Cases in Major Asian Jurisdictions 9780367313432, 9780429316395

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Annotated Leading Trademark Cases in Major Asian Jurisdictions

There has been little or no study on trademark laws in Asia on a cross-jurisdictional level. This book aims at filling the existing gap and provides a comprehensive overview of trademark laws of eight major Asian jurisdictions and their mostupdated trademark case law. The book analyses six of the principal issues that best reflect Asian features in trademark law and trademark development. The cases in the book are principally the most authoritative decisions, usually the first to deal with certain new emerging issues, or the first to apply particular statutory provisions in the respective jurisdiction. Also included are a small number of direction-changing, outlying or even controversial decisions. Each case report is divided into six sections: summary, legal context, facts, reasoning of the court, legal analysis, and commercial or industrial significance. Readers will find this book useful in both its overview of the legal context and how those cases are to be interpreted legally and commercially. Kung-Chung Liu is Lee Kong Chian Professor of Law (Practice), Director of the Applied Research Centre for Intellectual Assets and the Law in Asia (ARCIALA) at Singapore Management University and also Professor at Renmin University of China.

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Available: Intellectual Property, Finance and Corporate Governance Janice Denoncourt Protecting Intellectual Property in the Arabian Peninsula The GCC States, Jordan and Yemen David Price and Alhanoof AlDebasi Biodiversity, Genetic Resources and Intellectual Property Developments in Access and Benefit Sharing Edited by Kamalesh Adhikari and Charles Lawson Pharmaceutical Patent Protection and World Trade Law The Unresolved Problem of Access to Medicines Jae Sundaram Patent Pools, Competition Law and Biotechnology Devdatta Malshe Copyright Law and Derivative Works Regulating Creativity Omri Rachum-Twaig The Patentability of Software Software as Mathematics Anton Hughts Annotated Leading Trademark Cases in Major Asian Jurisdictions Edited by Kung-Chung Liu For more information about this series, please visit www.routledge.com/ Routledge-Research-in-Intellectual-Property/book-series/INTELLPROP

Annotated Leading Trademark Cases in Major Asian Jurisdictions Edited by Kung-Chung Liu

First published 2020 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2020 selection and editorial matter, Kung-Chung Liu; individual chapters, the contributors The right of Kung-Chung Liu to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record has been requested for this book ISBN: 978-0-367-31343-2 (hbk) ISBN: 978-0-429-31639-5 (ebk) Typeset in Galliard by Apex CoVantage, LLC.

Contents

List of contributorsxi PART 1

Introduction1   1 Features of trademark laws and cases in major Asian jurisdictions

3

KUNG-CHUNG LIU

PART 2

Use of trademarks/likelihood of confusion on the Internet23 Right-maintaining use and infringing use of trademark   2 Legal consequences of non-use in Indonesia

25

PRAYUDI SETIADHARMA

  3 Google’s keyword advertisement in Taiwan: no use of trademark, but obviously unfair

35

KUNG-CHUNG LIU

Confusion and passing off   4 Similarity in appearance, concept or pronunciation alone does not automatically lead to similarity of marks in Japan

46

CHRISTOPHER HEATH

  5 The principles of passing off under trademark law apply to domain names in India PRASHANT REDDY THIKKAVARAPU

58

vi  Contents PART 3

Application of market survey in solving trademark disputes69 Market survey not well accepted   6 Market survey recently recognised as a persuasive tool to solve trademark disputes in China

71

HAIJUN JIN

  7 Market survey in Malaysia: an impracticable and undesirable way to adduce evidence in trademark lawsuit

83

CHENG PENG SIK

  8 Market survey seldom accepted by Taiwanese courts in trademark litigation

94

KUNG-CHUNG LIU

Proving acquired distinctiveness through use by questionnaire   9 Three-dimensional shape of Coca-Cola bottles registrable: acquired distinctiveness evidenced by questionnaire in Japan

105

YOSHIYUKI TAMURA

PART 4

Limitation of trademark rights115 International exhaustion 10 International exhaustion in Singapore: broad interpretation of “put on the market”, yet offer for sale excluded

117

SUSANNA H.S. LEONG

11 International exhaustion of trademark rights in India

129

ARUL GEORGE SCARIA

12 The exhaustion defence to trademark infringement and parallel importation in Malaysia LIM HENG GEE

142

Contents vii 13 Justifiability of parallel import and trademark infringement by imports produced in breach of a licensing agreement in Japan

155

MASABUMI SUZUKI

14 Scope of a parallel importer’s permissible use of a trademark in marketing activities in Korea

165

WON BOK LEE AND KYOUNG-SHIN PARK

Fair use 15 Right of a trader in India to use another trader’s mark by way that is reasonably necessary

176

RAMAN MITTAL

16 “Denominative” use of another’s trademark can constitute prima facie “due cause” under Section 29(4) of the Indian Trade Marks Act

187

RENUKA MEDURY

17 Establishing a parody defence standard within the framework of Taiwan’s Trademark Act

198

YACHI CHIANG

Compulsory trademark licensing? 18 Finding infringement but refusing to grant permanent injunction under Chinese Trademark Law

208

HUAIWEN HE

PART 5

Protection of well-known marks219 Against likelihood of dilution 19 The protection of well-known marks against dilution via SPC in China

221

WEIJUN ZHANG

20 Dilution of a well-known trademark as ground for refusal of registration of an identical or similar mark for different goods or services in Malaysia TAY PEK SAN

230

viii  Contents 21 Trade mark dilution before and after Section 29(4) of the Indian Trade Marks Act

240

RENUKA MEDURY

22 Taiwan IP Court decisions tend to treat likelihood of confusion and likelihood of dilution as mutually interchangeable

252

KUNG-CHUNG LIU AND FA-CHANG CHENG

Against registration of confusingly similar trademarks 23 Bad-faith registration of marks similar to well-known ones as ground for registration cancellation in Indonesia

266

PRAYUDI SETIADHARMA

Against unfair competition 24 Protection of famous product configuration mark (Viagra trademark for diamond shape and blue colour) in Korea

278

BYUNGIL KIM

25 Concurrent trademark infringement and unfair competition in the Philippines

290

ALEX FERDINAND S. FIDER

Against abuse of registered trademarks 26 Unregistered well-known trademark owner accused of infringement in Japan: abuse of right defence after five-year invalidation period

302

MASAHARU MIYAWAKI

PART 6

Infringement and damages 313 Infringement 27 Trademark rights-infringing comparative advertising in India

315

ARPAN BANERJEE

28 Contributory trademark infringement liability of online open market operators based on the civil code in Korea BYUNGIL KIM

331

Contents ix 29 Exclusive licensee’s rights in Singapore: contractual and not proprietary against owners of marks

340

SUE-ANN LI

Defense against damages: no trademark use 30 The de-linkage and re-linkage between trademark use and damages in China

351

LI CHEN

Defense against damages: non-occurrence of damage 31 Trademark infringement defence based on non-occurrence of damage in Japan

361

ICHIRO NAKAYAMA

Measure of damages 32 Determination of damages for trademark infringement by the separate unit retail prices approach in Taiwan

371

HAO-YUN CHEN

33 Measure of damages for infringement in Malaysia: lost profits (~profit margin) times loss of sales

381

AINEE ADAM

34 Damages for trade mark infringement in Singapore: getting what one deserves?

392

BENJAMIN THAM

PART 7

Jurisdiction and applicable law in trademark litigation 407 Cross-border litigation 35 Exclusive jurisdiction over registration claim and applicable law to transfers of foreign trademark rights in Japan

409

YASUTO KOMADA

Cross-region litigation 36 Principles for applicable law for trademark infringement in Taiwan applicable to cases involving Hong Kong companies KUNG-CHUNG LIU

419

x  Contents 37 Private international and inter-regional law rules for trademark infringement in mainland China

429

LIZHOU WEI

Domestic litigation 38 Remedying mischief in deciding jurisdiction favouring the plaintiff in India

442

GARGI CHAKRABARTI AND SAAHIL DAMA

Index453

Contributors

Ainee Adam, Senior Lecturer, Faculty of Law, University of Malaya, Malaysia Arpan Banerjee, Assistant Professor and Executive Director, Centre for Intellectual Property and Technology Law, Jindal Global Law School, India; Scientia Doctoral Scholar, University of New South Wales, Australia Gargi Chakrabarti, Associate Professor of Law, National Law University Jodhpur; Coordinator, IPR Chair-NLUJ, Ministry of Commerce and Industry, India Hao-Yun Chen, Assistant Professor, College of Law, National Taipei University Li Chen, Professor, Holder of UNESCO Chair in Copyright and Neighboring Rights, Renmin University of China Fa-Chang Cheng, National Kaoshiung University of Science and Technology Yachi Chiang, Associate Professor, IP Graduate Institute, National Taipei University of Technology, Taiwan Saahil Dama, Associate, Trilegal Alex Ferdinand S. Fider, LLB. LLM. Lecturer, University of the Philippines College of Law Huaiwen He, Professor of Law, Zhejiang University Guanghua Law School Christopher Heath, Appeal Board, European Patent Office Haijun Jin, Professor, Renmin University of China Law School Byungil Kim, Hanyang University, Korea Yasuto Komada, Professor, Sophia University, Tokyo Won Bok Lee, Professor, Ewha Womans University, School of Law Susanna H.S. Leong, Vice Provost (Lifelong Education) and Professor of Law, National University of Singapore Sue-Ann Li, Partner, Ravindran Associates

xii  Contributors Lim Heng Gee, Faculty of Law, Universiti Teknologi MARA, Malaysia Kung-Chung Liu, Lee Kong Chian Professor of Law, Director, Applied Research Centre for Intellectual Assets and the Law in Asia, Singapore Management University; Renmin University of China; National Chenchi University (Taiwan) Renuka Medury, External Research Fellow, Applied Research Centre for Intellectual Assets and the Law in Asia, Singapore Management University Raman Mittal, Associate Professor, Faculty of Law, University of Delhi Masaharu Miyawaki, Professor, Ritsumeikan University, Kyoto Ichiro Nakayama, Professor, Hokkaido University Kyoung-Shin Park, Adjunct Professor, Kyunghee Cyber University Tay Pek San, Associate Professor, Faculty of Law University of Malaya Arul George Scaria, Assistant Professor of Law, National Law University, Delhi Prayudi Setiadharma, PhD candidate at the University of Newcastle, Australia Cheng Peng Sik, University of Malaya Masabumi Suzuki, Professor, Nagoya University Graduate School of Law Yoshiyuki Tamura, Professor, Tokyo University Benjamin Tham, Research Associate, Applied Research Centre for Intellectual Assets and the Law in Asia, Singapore Management University Prashant Reddy Thikkavarapu, Assistant Professor, National Academy of Legal Studies & Research (NALSAR) University of Law, Hyderabad Lizhou Wei, PhD Candidate, Ludwig-Maximilian University of Munich, Germany Weijun Zhang, Director of Intellectual Property and Competition Law Research Centre, Tongji University, Shanghai

Part 1

Introduction 1 Features of trademark laws and cases in major Asian jurisdictions KUNG-CHUNG LIU

3

1 Features of trademark laws and cases in major Asian jurisdictions Kung-Chung Liu1

Purposes, limitations, and topics Trademark law is probably the most internationally harmonised area of intellectual property (IP) law, with more than a dozen international treaties and agreements signed. However, the harmonisation is mostly procedure-oriented, and substantive trademark laws of national states still differ in significant respects. How then are the trademark landscapes here in Asia? And how are the trademark laws in Asia? As the largest and fastest-growing market on earth, while at the same time being the world factory (for both legitimate and illegitimate goods), Asia has almost unavoidably become frequently associated with “rampant piracy”. That said, it is also undeniable that the trademark landscape in Asia has undergone a sea change, at least since the publication in 2000 of The Protection of Well-Known Marks in Asia (Christopher Heath and Kung-Chung Liu, Kluwer International Law). Who could have imagined back then that China would have annual trademark applications of a staggering 5.784 million in 2017 (a 55.7% increase compared with 2016), far more than the total number in the rest of the world?2 Growing interest in trademarks can also be observed in the city-country of Singapore: it registered 50,218 trademarks (9,224 owned by Singaporeans and 40,994 by foreigners) in 2015 and 53,000 trademarks (10,432 owned by Singaporeans, and 42,568 by foreigners) in 2016.3 With regards to trademark laws in Asia, there has been little or no study to date on a cross-jurisdictional level. As the third book in the “Annotated Leading IP Cases in Major Asian Jurisdictions” trilogy organised by the Applied Research

1 The author would like to thank Haoran Zhang, PhD student at Renmin University of China, for his help in finding and analysing trademark laws from PRC, Japan, and Korea. 2 As of the end of 2017, In China there are a total of 173 million accumulated registered trademarks, among which 149.2 million are currently valid. See www.chinanews.com/ cj/2018/01-18/8427846.shtml. 3 See IPOS 2016–2017 Annual Report, 46, available at: www.ipos.gov.sg/docs/defaultsource/about-ipos-doc/annual-reports/ipos-ar-2016-2017-(amended).pdf. However, the number of registered trademarks in Singapore in 2017 dropped to 37,030 (8,595 owned by Singaporeans, and 28,435 by foreigners). See IPOS Annual Report 2017–2018, available at: www.ipos.gov.sg/docs/default-source/about-ipos-doc/annual-reports/ipos-ar(spread).pdf.

4  Kung-Chung Liu Centre for Intellectual Assets and the Law in Asia (ARCIALA), School of Law Singapore Management University, this volume is aimed at filling this vacuum with a more comprehensive and updated study.4 Admittedly, given the diverse and complex legal backgrounds of Asian trademark laws, a single-volume monograph or treatise such as this can at best provide some snapshots by choosing and analysing some of the key principles that best reflect Asian features, by following the seven-chapter structure of the first book of the trilogy:5 namely “use of trademarks/likelihood of confusion on the Internet”, “use of market survey evidence in solving trademark disputes”, “limitations of trademark rights”, “protection of well-known marks”, “infringement and damages”, and “choice of jurisdiction and applicable law in trademark litigation”. As it turns out, Part 4, Limitations of trademark rights is the longest, with nine case reports, and more or less reflects the tension between trademark rights and other competing interests. The parts that have the second highest number of case reports are Parts 5 and 6, Protection of well-known marks and Infringement and damages, respectively; each has eight case reports. Wherever appropriate, case reports within one part are further grouped under subtopics. So, for example, Part 4, Limitations of trademark rights, consists of three subtopics, namely international exhaustion, fair use, and compulsory trademark licensing. This systematic arrangement of case reports is aimed at revealing their internal logic/ relatedness and enhancing the usefulness of the book. As part of ARCIALA’s efforts to promote the study of Asian IP laws amongst IP scholars as widely as possible, the present volume permits 34 eminent Asian and European scholars and practitioners to write on 37 leading recent decisions from nine major Asian jurisdictions: People’s Republic of China (PRC), India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, and Taiwan.6 These leading cases are principally the most authoritative decisions, usually the first to deal with certain new emerging issues, or the first to apply particular statutory provisions in the respective jurisdiction. Also included are a small number of direction-changing, outlying or even controversial decisions. To coordinate this number of experts (most of whom do not use English as their mother language) and to maintain a uniform style and level of quality among this number of cases has been a daunting task. Each case report is divided into six sections: summary, legal context, facts, reasoning of the court, legal analysis, and commercial or industrial significance. The purpose of this structure is to give readers both an overview of the legal context and how those cases are to be interpreted legally and commercially.

4 ARCIALA has helped the publication of the following two trademark-related books that have strong Asian input: Irene Calboli/Jacques De Werra (ed.), The Law and Practice of Trademark Transactions, EE, 2016; Irene Calboli/Edward Lee (ed.), Research Handbook on Intellectual Property Exhaustion and Parallel Imports, EE, 2016. 5 Kung-Chung Liu (ed.), Annotated Leading Patent Cases in Major Asian Jurisdictions, City University of Hong Kong Press, 2017. 6 28 cases are from after 2010, seven cases are from 2001–2009, with only one case from 1997 and 1968 respectively.

Features of trademark laws and cases in Asia 5

Introduction to the six parts Part 2: Use of trademarks/likelihood of confusion on the Internet National trademark regimes vary in their definition and requirement of “trademark use”. US, European Union, and German trademark laws treat differently “right-maintaining (rechtserhaltende Benutzung) use” and “infringing use” of a trademark (rechtsverletzende Benutzung), with the latter having broader scope than the former. However, Asian trademark laws, such as those of the PRC, Japan, Korea, and Taiwan make no such distinction. Many Asian trademark regimes (including PRC, Indonesia, Korea, and Taiwan) provide that if there has been no use of the registered trademark in trade either since the date of registration or the date of its last use for three consecutive years, this is a ground for removal from the register. In the Inter IKEA System B.V. v PT. Ratania Khatulistiwa case, the Indonesian Supreme Court adopted a narrow or even harsh definition of “use in the course of trade of goods and/or services” and ordered the IP Office to remove IKEA’s undoubtedly famous trademark registrations from the register (Prayudi Setiadharma, Chapter 2). On the other hand, use that is infringing is mostly using other’s trademarks to cause confusion amongst consumers as to whether your goods and/or services are those of the other trademark owner. However, the Taiwan IP Court has held that the two types of “use” are one and the same, and therefore Google, by providing web pages that exhibited search results for firms to place their advertisements, did not use the trademark in dispute as an indicator for goods or services, and hence could not cause a likelihood of confusion. This has been heavily criticised by academics (Kung-Chung Liu, Chapter 3). To determine whether there exists a likelihood of confusion between two marks, one needs to adopt a step-by-step approach to first discern factually the similarity between the two marks and the similarity between the goods or services that those two marks designate separately, and then make an overall decision on the legal issue of whether there is a likelihood of confusion as a result of those similarities.7 In other words, there may be cases of trademark similarity without a likelihood of confusion. The issue of how to determine similarity between two trademarks was dealt with by the Japanese Supreme Court as long ago as 1968: the determination should be based on a comparison of the appearance, meaning, and pronunciation of the two trademarks. Similarity in appearance, concept or pronunciation alone does not automatically lead to similarity of marks in Japan

7 Kung-Chung Liu, Trademark Law­A Comparative Treatise (in Chinese), New Sharing Publishing Company, Taipei, 2014, 203. This is also the approach taken by the Singaporean courts, see David Llewelyn/Ng Hui Ming/Nicole Oh Xuan Yuan, Cases, Materials and Commentary on Singapore Intellectual Property Law, Academy Publishing, 2018, 484 et al. However, at least Taiwanese and Korean courts tend to decide the issue of similarity between trademarks from the perspective of whether they are likely to cause mistaken recognition or confusion by consumers. For Korean case law, see Byungil Kim, Chapter 24.

6  Kung-Chung Liu (Christopher Heath, Chapter 4). However, the Taiwanese Supreme Administrative Court unfortunately adheres to its long-held conviction that “so long as there is similarity either in appearance, concept or pronunciation (or sound) between two registered trademarks, they are similar marks.”8 With the Internet intruding into many areas of the commercial world, likelihood of confusion on the Internet has become an urgent issue. Prashant Reddy Thikkavarapu (Chapter 5) reports on and analyses how the Indian Supreme Court applied principles of passing off and trademark law to domain names. Thus, it is possible for a domain name owner in India to sue for either trademark infringement or passing off depending on the registration status and reputation of the disputed name.

Part 3: The use of market survey evidence in solving trademark disputes The market survey (demoskopisches Umfragen) has proved to be a useful tool for solving trademark-related disputes in the US,9 Germany (since 1939), and the European Union10 but not in Asia. For example, Chinese courts did not even recognise the admissibility of market surveys as probative evidence until the Michael Jordan case decided by the Supreme People’s Court (SPC) of China in 2016 (Haijun Jin, Chapter 6). Taiwanese courts seldom accept market surveys and there has been only one case in which the Taiwan IP Court commissioned ex officio a market survey (Kung-Chung Liu, Chapter 8), and conducting a market survey in Malaysia may turn out to be a waste of time and money (Cheng Peng Sik, Chapter 7). In Japan, the Intellectual Property High Court did not interpret a questionnaire submitted by parties to demonstrate acquired distinctiveness correctly until a 2008 decision (Yoshiyuki Tamura, Chapter 9), which recognised that some 77% of the respondents precisely identifying the applicant as the origin was sufficient to prove acquired distinctiveness of a 3D mark.

Part 4: Limitations of trademark rights International exhaustion With the “propertization” of trademarks, which entails giving powerful exclusive rights to the right holders, the issue of curtailing trademark rights through

  8 Kung-Chung Liu, Trademark Law­A Comparative Treatise (in Chinese), New Sharing Publishing Company, Taipei, 2014, 185.   9 See generally James Berger/Mark Halligan, Trademark Surveys: A Litigator’s Guide, Lexisnexis, 2015. 10 Roland Knaak, Demoskopische Umfragen in der Praxis des Wettbewerbs- und Warenzeichenrechts, The German Association for the Protection of Intellectual Property (GRUR), 1986, 45 et al; Andrej Levin, Der Nachweis der Verkehrdurchsetzung im Markenrecht, Peter Lang, 2010, 41–42.

Features of trademark laws and cases in Asia 7 limitations to better protect public interests such as freedom of expression11 and market competition12 has come to the fore. Part 4 deals with this issue. One important limitation of trademark rights is through the exhaustion doctrine, which can have national, regional, and international scope. The TRIPS Agreement has provided flexibility for members to decide on the exhaustion principle they want to follow in relation to the diverse types of IPRs. International exhaustion is a common limitation of trademark rights in Asia and has undergone changes in the past decades in major Asian economies.13 Jurisdictions such as Taiwan and14 Singapore15 recognise the international exhaustion principle expressly in their respective trademark laws. In support of free trade, Singapore adopts the principle of international exhaustion that allows parallel importation. Consequently, the Singapore High Court has taken a liberal interpretation of the term “put on the market,” but has not yet been prepared to include the pre-sale acts of marketing (advertising, promotion etc.), offering for sale and other forms of goods exposure for the purpose of sale (“Susanna H.S. Leong, Chapter 10). However, Indian, Japanese, Korean, and Malaysian trademark legislation does not explicitly mention the kind of exhaustion principle (parallel import) that should be applied. In what is considered the leading case in India, pending the Supreme Court’s confirmation, the Division Bench of the Delhi High Court held in 2012 that India adopt the principle of international exhaustion regime in the area of trademark law. The Division Bench also discussed in detail the circumstances that might act as an exception to the international exhaustion principle: in particular, situations where the physical condition of the goods has been changed or impaired (Arul George Scaria, Chapter 1116”). In Malaysia, according to a

11 Martin Senftleben et al., Recommendation on Measures to Safeguard Freedom of Expression and Undistorted Competition in EU Trade Mark Law, available at www.ssrn.com/ abstract=2496351. 12 See generally Deven Desai/Ioannis Lianos/Spencer Waller, Brands, Competition Law and IP, Cambridge University Press, 2015. 13 For example, in 2012 the Taiwanese Trademark Act adopted the stance taken by the Taiwanese Supreme Court that has recognized international exhaustion principle since 1992. See generally Christopher Heath (ed.), Parallel Imports in Asia, Max Planck Series on Asian Intellectual Property Law, Volume 9, Kluwer Law International, 2004. 14 Article 36(2) of Taiwanese Trademark Act provides: Where goods have been put on the domestic or foreign market under a registered trademark by the proprietor or with his consent, the proprietor is not entitled to claim trademark rights on such goods, unless such claim is to prevent the condition of the goods been changed or impaired after they have been put on the market or there exist other legitimate reasons. 15 Section 29(1) of the Singapore Trade Marks Act: Notwithstanding section 27, a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market, whether in Singapore or outside Singapore, under that trade mark by the proprietor of the registered trade mark or with his express or implied consent (conditional or otherwise). 16 Actually, the Delhi High Court also expressed the view that differences in service and warranties, differences in advertising and promotional activities, and differences in packaging, or

8  Kung-Chung Liu 2009 decision by the High Court, a limited form of international exhaustion defence is available to parallel importers of trademarked goods. Enterprises planning to parallel import into Malaysia trademarked goods need to carry out the necessary due diligence and investigate the economic and legal link between the overseas manufacturer of the products and the proprietor of the trademark in Malaysia. If they are regarded to be in the same group of companies as the owner of the trademark, then it is unlikely that the parallel importation and further dealing with the imported goods would result in a successful infringement action (Lim Heng Gee, Chapter 12). The Japanese Supreme Court first recognised the legality of parallel importation of genuine goods in relation to trademark rights in 2002, based on the trademark function theory: (1) the trademark has been legally affixed to the imported goods by a trademark right holder or his licensee in a foreign country; (2) the trademark right holder in the foreign country and in Japan are the same person or have a relationship wherein they can be regarded as being legally or economically identical to each other; and (3) the trademark right holder in Japan is able directly or indirectly to control the quality of the imported goods. The Japanese Supreme Court did not discuss other complicated issues such as refilling the products or modifying or transforming the shape or appearance of products (Masabumi Suzuki, Chapter 13). In Korea, the prevailing scholarly view, as well as the Supreme Court, is that parallel importing is allowed so long as it is not likely to harm the functions of trademarks and cause domestic customers to mistake the source or the quality of the goods bearing the trademarks (Won Bok Lee and Kyoung-Shin Park, Chapter 14). Different from Japan, however, if a trademark owner manufactures and sells his branded goods within the territory of South Korea, he can block parallel imports from another country; however, if he does not manufacture his branded goods within South Korea, he cannot block parallel imports.17

Fair use In sharp contrast to the wide adoption of the international exhaustion principle as a way of limiting trademark rights, “fair use” as an overarching trademark infringement defence which serves to protect public interests and market

the language of accompanying literature might also act as an exception to the international exhaustion principle. However, this is a weak part of the judgement and the judges were using these examples primarily with the objective of proving that India follows the international exhaustion regime. As those examples are based on case laws in other jurisdictions and do not have much statutory backing, it is expected that they might be modified by the Supreme Court. 17 Byungil Kim, New Developments in Trademark Exhaustion in Korea, in Irene Calboli/ Edward Lee (ed.), Research Handbook on Intellectual Property Exhaustion and Parallel Imports, EE, 2016, 417.

Features of trademark laws and cases in Asia 9 competition is not widely accepted or used in Asia,18 and remains mostly an academic topic.19 However, some common law jurisdictions such as India and Malaysia stand out from their Asian peers and allow the fair use (“reasonably necessary”) of trademarks by third-party manufacturers of spare parts which are intended to be ancillary or used as an accessory to the core goods of another party (Indian Trade Marks Act section 30(2)(d) and Section 40(1)(e) of the Malaysian Trade Marks Act 1976).20 However, the High Court of Delhi opined that it is not reasonably necessary for the manufacturer of a gasket of a particular size that fits the lid of all pressure cookers manufactured by different manufacturers to indicate, for the benefit of the consumer, that the goods relate to only one particular brand of pressure cookers. (Raman Mittal, Chapter 15). The Indian trademark regime is also advanced in the sense that it deals expressly with comparative advertisements, which treatment however is very much limited under the court’s practice (for more details see Arpan Banerjee, Chapter 27: Trademark rights-infringing comparative advertising in India in Part 6). When India first introduced the statutory concept of “dilution” in Section 29(4) of Trade Marks Act of 1999, it counterbalanced the protection of well-known marks by allowing under the “due cause” condition the protection 18 Section 43(c)(3) of the US Lanham Act (15 USC 1125) foresees an overarching fair use exception to dilution liability: The following shall not be actionable as dilution by blurring or dilution by tarnishment under this subsection: (A) Any fair use, including a nominative or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person’s own goods or services, including use in connection with – (i) advertising or promotion that permits consumers to compare goods or services; or (ii) identifying and parodying, criticizing, or commenting upon the famous mark owner or the goods or services of the famous mark owner. (B) All forms of news reporting and news commentary. (C) Any noncommercial use of a mark.

Section 28(4) of the Singapore Trade Marks Act does mention “fair use”, but only in a narrow sense when a comparative advertisement is involved: “(4) Notwithstanding section 27, a person who uses a registered trade mark does not infringe the trade mark if such use – (a) constitutes fair use in comparative commercial advertising or promotion”. 19 Kung-Chung Liu, Trademark Law­A Comparative Treatise (in Chinese), New Sharing Publishing Company, Taipei, 2014, 310. 20 Section 40(1)(e) of the Malaysian Trade Marks Act 1976 provides: Acts not constituting infringement (1)Notwithstanding anything contained in this Act, the following acts do not constitute an infringement of a trade mark – (e) the use of the trade mark by a person in relation to goods or services adapted to form part of, or to be accessory to, other goods or services in relation to which the trade mark has been used without infringement of the right given or might for the time being be so used, if the use of the trade mark is reasonably necessary in order to indicate that the goods or services are so adapted and neither the purpose nor the effect of the use of trade mark is to indicate otherwise than in accordance with the facts a connection in the course of trade between any person and the goods or services.

Although also being a former British colony, Singapore does not adopt similar provision.

10  Kung-Chung Liu of free speech-related fair use (including fair comment, parody, and criticism) (Renuka Medury, Chapter 16). In Taiwan, Article 36(1) of the Trademark Act recognises specifically enumerated fair uses of others’ trademarks, which do not include a parody defence. Nevertheless, the Taiwan IP Court in a 2014 criminal decision subtly admitted parody as a fair use defence, and even explained the parody test and its standards in detail (Yachi Chiang, Chapter 17). Whether this will be followed and become the dominant view of the IP Court remains to be seen.

Compulsory trademark licensing? The TRIPS Agreement explicitly disallows members of the WTO to issue compulsory trademark licenses.21 However, given diverse constellations of competing interests, it has been contended that there might very well be scenarios in which compulsory trademark licensing is not only justified but also imperative.22 In the PRC, the SPC has in a 2013 decision found trademark infringement by a housing developer, awarded damages, and yet refused to issue an injunction to cease the continued use of the infringing trademark by the developer and residents, making it a de facto compulsory trademark license of the trademark at issue (Huaiwen He, Chapter 18).

Part 5: Protection of well-known marks Well-known trademarks have always exerted a magical influence on people’s buying behaviour and are nowadays a very important type of IPR in the era of the online world of the Internet. As a result, the protection of well-known trademarks is a leading demand of the day. Part 5 takes on this burning topic with eight case reports.

Against likelihood of dilution Some Asian economies do not yet provide protection against dilution of wellknown trademarks, such as Indonesia and the Philippines. Some Asian economies, 21 Article 21 (Licensing and Assignment) of the TRIPS Agreement provides: Members may determine conditions on the licensing and assignment of trademarks, it being understood that the compulsory licensing of trademarks shall not be permitted and that the owner of a registered trademark shall have the right to assign the trademark with or without the transfer of the business to which the trademark belongs. 22 Kung-Chung Liu, The Need of and Justification for a General Competition-oriented Compulsory Licensing, 43 International Review of Industrial Property and Competition Law, No. 6 (June 2012), 679–699.

Features of trademark laws and cases in Asia 11 such as India, Japan,23 Korea,24 Singapore, and Taiwan have explicit provisions in their respective trademark statute against the dilution of well-known trademarks, some do not, such as the PRC and Malaysia. However, in the PRC, according to Article 9(2) of the Judicial Interpretation of Well-known Marks Protection, issued by the People’s Supreme Court (SPC): “[misleading] the public so that the interests of the owner of the registered well-known mark are likely to be impaired” under Article 13(3) of the Trademark Law, includes the likelihood of leading the relevant public to believe that a substantial degree of relationship exists between the allegedly infringing mark and the well-known mark, so that the distinctiveness of the well-known mark is weakened, or the market reputation of the well-known mark is disparaged or being taken unfair advantages of. (Weijun Zhang, Chapter 19).25 Similarly, Malaysia does not have specific laws protecting against the dilution of well-known trademarks, nor is the word “dilution” found in the Trade Marks Act 1976. However, the Malaysian Court of Appeal in 2017 recognised that the dilution of well-known trademarks is a ground for the Registrar of Trade Marks to refuse the registration of an identical or similar trademark belonging to a third party for different goods or services (Tay Pek San, Chapter 20). India introduced the concept of dilution in Section 29(4) of the Trade Marks Act, 1999. However to date, there has been no court decision that has dealt with the threshold or reach of the requirement to have “reputation in India.” Noteworthy is that the Indian Supreme Court did allow under the 1958 Trade and Merchandise 23 Article 4 of the Japanese Trademark Act covers dilution, without however using the term “dilution”: (1) Notwithstanding the preceding Article, no trademark shall be registered if the trademark: (xix) is identical with, or similar to, a trademark which is well known among consumers in Japan or abroad as that indicating goods or services pertaining to a business of another person, if such trademark is used for unfair purposes (referring to the purpose of gaining unfair profits, the purpose of causing damage to the other person, or any other unfair purposes, the same shall apply hereinafter) (except those provided for in each of the preceding items). 24 The Korean Trademark Act (Amended by Act No. 14689, Mar. 21, 2017) Article 34 (Trademarks Ineligible for Trademark Registration) provides: (1) Notwithstanding Article 33, none of the following trademarks shall be registered: 11. Any trademark likely to cause confusion with goods or business of another person remarkably recognized by consumers or to dilute their distinctiveness or reputation. 25 It is understandable that SPC adopts judicial activism to fill the gap left by the inactive legislative branch (National People’s Congress convenes only once in a year). However, the gap-filling function has not been done through adjudication but through quasi-legislative activities, such as issuance of all kinds of judicial interpretations, regulations, etc. For more details and critique see Kung-Chung Liu/Haoran Zhang, Assessment and Critique of the Views of the SPC on IP Laws and the Ways through Which SPC Expresses Its Views (in Chinese), Intellectual Property (May 2018), 40–51.

12  Kung-Chung Liu Marks Act, which identified and determined dilution, if any, under the general rubric of “passing off” that itself required the presence of confusion, that fame acquired in a niche geographical area, rather than the whole of India, suffices for a finding that reputation and goodwill has been harmed (Renuka Medury, Chapter 21). In Taiwan the introduction of protection against dilution by the Trademark Act was modelled on the US Federal Trademark Dilution Act of 1995, evolving also from the requirement of “actual dilution” in 2003 to that of “likelihood of dilution” in 2010, as the US did with its Trademark Dilution Revision Act of 2006. However, like US courts, the Taiwan IP Court decisions have struggled with the notion of dilution and have tended to treat likelihood of confusion and likelihood of dilution as mutually interchangeable, among other deficiencies, neglecting the historical fact that the “likelihood of dilution” was developed to cover what “likelihood of confusion” was not able to cover, namely the situation where although there is no “likelihood of confusion” as to the source of the trademarked product or service, the distinctiveness or reputation of a well-known mark is nevertheless being whittled away or taken unfair advantage of (Kung-Chung Liu and Fa-Chang Cheng, Chapter 22).

Against registration of confusingly similar trademarks The Indonesian Supreme Court in a 2016 decision confirmed that bad-faith registration of well-known marks, among others, is not subject to a time limit for filing a cancellation lawsuit, which in turn influenced the 2016 Law of Trademarks and Geographical Indications to list “bad-faith registration” as one of the grounds for cancellation that are exempt from the time limit for filing a cancellation lawsuit (Prayudi Setiadharma, Chapter 23).

Against unfair competition The protection of well-known trademarks can also be realised under unfair competition law as well as trademark law, as trademark law was developed under the umbrella of unfair competition law.26 This can lead to overlapping or double protection by trademark law and unfair competition law. Taiwan decided to avoid this problem after years of trial and error, by stipulating clearly since 2015 that its Fair Trade Act deals only with the protection of unregistered marks commonly known to the public against a likelihood of confusion.27 By contrast, in Korea

26 However, in Indonesia, while in general unfair business competition is regulated under the Law on Anti-Monopoly and Unfair Business Competition, and the law expressly excludes IPR-related arrangements from its rules and restrictions, protection against unfair business competition alongside consumer protection has been the primary consideration of virtually each and every national trademark law that Indonesia has enacted since 1961. For more see Prayudi Setiadharma, Chapter 23. 27 Article 22(2) of the Taiwanese Fair Trade Act provides: The provisions of the preceding paragraph are not applicable to the personal name, business or corporate name, or trademark of another, or container, packaging, or appearance

Features of trademark laws and cases in Asia 13 the scope of protection for indications is much broader under the Unfair Competition Prevention and Trade Secret Protection Act (UCPTSPA) than under the Trademark Act (TMA), and protection under UCPTSPA is available both for registered and unregistered marks which are widely known, while the TMA protects only registered well-known marks. In addition, the TMA can protect marks only within the scope of the identity/similarity of marks and identity/ similarity of goods requirements. Protection under the UCPTSPA can also be afforded against the use of the same or a similar mark for dissimilar goods (also so in Japan). However, in a 2013 case in Korea which involved the notorious Viagra’s diamond shape and blue colour registered as a three-dimensional trademark and a generic version product which was almost a carbon-copy of Viagra, the Korean Supreme Court rightly ruled that despite some commonalities in form, the appellations written on the packaging and the generic products themselves, as well as the trademark and company name on the generic products, plus the fact that most generic products are provided by pharmacists under prescriptions from doctors at hospitals, all make it difficult to establish that the generic products are likely to cause mistaken recognition or confusion by consumers (Byungil Kim, Chapter 24). In the Philippines, according to its IP Code, confusing similarity to a wellknown mark is recognised as a ground to refuse registration of a trademark, and both trademark infringement and unfair competition causes of action may be available when there is a likelihood of confusion between the marks, general similarity in the appearance of the goods, and intent by the defendant to pass off its goods as that of the plaintiff. The Filipino Supreme Court in a 2004 decision recognised that the element of “confusing similarity” need not necessarily lie in the trademarks but may appear in the “devices or words used on the wrappings”; proof of actual fraudulent intent is not necessary but an intent to deceive and defraud may be inferred from the similarity of the appearance of the goods as offered for sale to the public (Alex Ferdinand S. Fider, Chapter 25).

Against abuse of registered trademarks As a general rule, a trademark registration is subject to revocation or invalidation up to a certain timeframe (for example, five years since registration in PRC, Japan, and Taiwan, and three or five years since registration in Korea). In Japan, Article 47(1) of the Trademark Act gives registered trademarks against which no requests for invalidation trial have been filed during the five-year period incontestable validity. However, after the expiration of the five-year timeframe, an unregistered well-known trademark owner accused of infringement is still entitled to a new

of another’s goods, or any other symbol that represents such person’s goods, as referred to in the preceding paragraph, if that enterprise has obtained a legally registered trademark.

14  Kung-Chung Liu abuse of right defence according to a 2017 Supreme Court decision (Masaharu Miyawaki, Chapter 26). By contrast, the PRC and Taiwan specifically provide in their respective trademark statutes (Article 45(1)28 and Article 58(2))29 that wellknown trademarks are not subject to the five-year timeframe and their owners can still file for revocation after the expiration of five years if the later applicant filed for registration in bad faith.

Part 6: Infringement and damages Infringement The most classical form of trademark infringement is likelihood of confusion as to the source or origin of the goods or services. Dilution is another form of trademark infringement on the rise. Unexpectedly, in India disparaging and denigrating comparative advertising has been considered as another major form of trademark infringement, as Indian courts place strict limits on comparative advertising and allow unnamed traders or trademark owners to bring an action in situations where their rival products are generically disparaged (Arpan Banerjee, Chapter 27). The popularity of online markets/electronic marketplaces or platforms is plagued by counterfeit and pirated products. This leads to the legal issue as to whether and to what extent internet platforms should be subject to secondary trademark infringement/liability. While most Asian trademark regimes do not have express provisions on this issue and some chose to regulate it with other laws,30 courts in Korea have applied Article 760 of the Korean Civil Code, which 28 Article 45(1) of the Chinese Trademark Act prescribes: Where a registered trademark stands in violation of the provisions of Article 13 paragraph two and three, Article 15, Article 16 paragraph one, Article 30, Article 31, or Article 32 of this Law, the earlier right owners or any interested party may, within five years from the date of registration, request the Trademark Review and Adjudication Board to declare the registered trademark invalid. Where the registration has been made in bad faith, the owner of a well-known trademark shall not be bound by the five-year time limit. 29 Article 58 of Taiwanese Trademark Act provides: (1) No invalidation shall be filed, or no proposal for an invalidation shall be submitted, against a trademark registration on the grounds that such registration falls under Subparagraph 1 or 3 of Paragraph 1 of Article 29, any of Subparagraphs 9 through 15 of Paragraph 1 of Article 30, or Paragraph 3 of Article 65 if the registration has at that date been published for not less than five years.(2) The period referred to in the preceding paragraph shall not apply to the invalidation against a trademark registration on the grounds that such registration falls under Subparagraph 9 or 11 of Paragraph 1 of Article 30 if the registration was applied for in bad faith. 30 Japan and PRC include provisions on the liabilities of intermediaries not in trademark law, but elsewhere. In Japan, the platforms are broadly exempted from liability and are only liable when they actually know or should know of the infringement (Article 3 of Act on the

Features of trademark laws and cases in Asia 15 provides for liability of joint tortfeasors by incitement or abetting, to solve the issue. In 2012, the Korean Supreme Court decided for the first time that a market operator has no duty of censorship, filtering, and monitoring etc., that secondary liability is only acknowledged when it knew or had reason to know of the infringing act and had specific means to prevent or eliminate the infringing activities of individual sellers, and that it has a certain duty of care to take appropriate measures to prevent trademark infringement on its website (Byungil Kim, Chapter 28). Whether, and to what extent, an exclusive licensee of a trademark can exclude the trademark owner from exploiting the trademark should depend on the licensing agreement. However, when there is no licensing agreement between the exclusive licensee and the “beneficial owner of the mark” (who was not yet the actual owner prior to the transfer and rectification be made with the registry of trademarks), can the former assert that its licensing agreement with the previous trademark owner is proprietary and therefore exclude the latter? This issue was answered in the negative by the Singapore Court of Appeal in a 2105 decision. It was decided also that nor can the exclusive licensee rely on Section 42(5) TMA, which provides that a license to use a trademark is binding on every successor in title to the grantor’s interest, as that is only operative where a successor in title acquires an interest in the registered trademark subsequent to the grant of the license (Sue-Ann Li, Chapter 29).

Defence against damages In the Asian jurisdictions observed here, there are some unique defences against the award of damages after the establishment of trademark infringement. One can find a general “no trademark use” defence in the PRC and one specific non-award of damages defence against a claim for lost royalties in Japan. Both were rooted in the basic compensatory principle of their respective and yet common tort law, namely that there should be no damages if there is no actual harm or loss. The PRC, reacting to some distorted hypes in the trademark landscape, has developed some specific trademark provisions not found elsewhere in Asia. One recent example is that the 2013 amendment to the Trademark Law in Article14 (5) provides that “No manufacturers and business operators may indicate the words ‘well-known trademark’ upon the goods, the packaging or the containers of the goods, nor may they use the same for advertising, exhibition or other commercial activities.” Violators “shall be ordered to make correction by the relevant local administrative department for industry and commerce, and be imposed with a Limitation of Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identification Information of the Senders). PRC establishes “notice and take-down” rule in the E-Commerce Law to determine the secondary liability of the intermediary, namely joint liability with the infringer when the intermediary becomes aware of the infringement (Articles 42 and 45).

16  Kung-Chung Liu fine of RMB 100,000 yuan (Article 53).”This seems to indicate a swing back from the extremes of euphoria for protecting and publicising well-known trademarks31 to the extreme of no publicity for them. Another example is the fact that the Trademark Law established a “no use, no compensation by damages” defence principle in 2013: Where the holder of the exclusive right to use a registered trademark claims for damages, and the alleged infringer counterclaims that the right holder has never used the registered trademark, the people’s court may require the right holder to provide evidence of its actual use of the registered trademark during the past three years prior to the lawsuit. The alleged infringer shall not be liable for damages if the right holder is neither able to prove its actual use of the registered trademark during the past three years prior to the lawsuit, nor able to prove other losses suffered as a result of the infringement (Article 64(1)).32 In a 2015 decision, the Shanghai Higher People’s Court ruled that if a trademark owner without sincere intention to use his trademark filed a series of lawsuits just for making profits from compensation, his expenses for lawsuits should not be compensated as “reasonable expenses for stopping the infringing act” prescribed by the Trademark Law (Li Chen, Chapter 30). The change was a backlash against the rise of trademark speculators (or trolls) in the PRC who file trademarks for the purpose of reselling rather than using them and ask for high license fees or compensation in a lawsuit if someone uses identical or similar marks. In Japan, the Supreme Court held in 1997 that infringers could avoid liability for damages based on lost royalties that trademark owners would have been entitled to receive for the use of the registered trademarks if they successfully allege as a defence, and prove the impossibility of any damage to the trademark right holders (Ichiro Nakayama, Chapter 31).

Measure of damages In civil law jurisdictions in Asia, damages for trademark infringement can be actual damages (e.g., the PRC, Japan, Korea, and Taiwan) and lost profits of the trademark owner (e.g., Korea and Taiwan), infringer’s profits (e.g., PRC, Korea, Taiwan), lost trademark royalties (PRC, Japan, Korea, and Taiwan), statutory (pre-determined) damages (capped at a fixed amount, e.g., the PRC and Korea

31 For more analysis, see Kung-Chung Liu et al., The Use and Misuse of Well-Known Marks Listings, 40 International Review of Industrial Property and Competition Law, No. 6, 2009, 685–697. 32 The Korean Supreme Court held that damages could not be granted if the registered trademark has not been used in South Korea (Case 2002Dah58594, September 2, 2004), see Jay YoungJune Yang/Sung-Nam Kim, Anti-counterfeiting Strategies in South Korea, available at www. worldtrademarkreview.com/anti-counterfeiting/anti-counterfeiting-strategies-south-korea.

Features of trademark laws and cases in Asia 17 or capped at a multiple of the retail price of the infringing goods, e.g., Taiwan) and even punitive triple damages (e.g., the PRC). While courts in the PRC,33 Japan, and Korea enjoy wide discretionary power in deciding the level of damages, Taiwanese courts may only reduce the amount of damages if such amount is “apparently inequitable”. The basis on which those damages are to be awarded varies from country to country. Compensation for the loss of goodwill as a result of trademark infringement is only expressly recognised in the Korean TMA.34 However, courts in Japan35 recognise such compensation in practice. In 1985 Taiwan introduced a unique method for calculating the amount of statutory damages for trademark infringement, namely the unit retail price of the infringing products multiplied by a number between 500 and 1500 to be chosen by the courts, despite the fact that there is no similar provision in other Asian jurisdictions. The lower limit was criticised for its possibility of disproportionate overcompensation and repealed in 2011. Indeed, Hao-Yun Chen (Chapter 32) suggests that this regime should be abolished entirely. By contrast, in the common law jurisdictions of Asia such as Malaysia, the two forms of pecuniary relief are limited to either damages or an account of profits, in order to prevent double recovery. Singapore follows the same model but recognises also statutory damages when the use of a counterfeit trademark was involved.36 In Malaysia there is no hard and fast rule regarding assessment of damages. However, in 2011 the Federal Court rejected loss of sales as well as loss of net profit in assessing damages for trademark infringement, which has set a binding precedent

33 The SPC (2013 Min-Shen-Zi 1567) opined that courts have discretion to determine damages exceeding the amount of statutory damages. 34 Article 113 of the Korean TMA (Recovery of Reputation of Trademark Right Holder, etc.) provides: The court may order a person who has damaged business reputation of a trademark right holder or an exclusive licensee by wilfully or negligently infringing the trademark rights or the exclusive license to pay damages at the request of the trademark right holder or the exclusive licensee, or order the person to take measures necessary to reinstate the business reputation of the trademark right holder or the exclusive licensee along with compensation for damages.

Taiwan recognized such compensation between 1985 and 2010. The reason for abolishing it was that such compensation was non-proprietary in nature and was justifiable because trademarks were not separated from the businesses that owned them, hence the introduction of an extra compensation of non-proprietary damages in 1985. However, since the 1993 revision has deleted the provision that mandated trademarks can only be assigned along with the business that owned them and trademark right has become independent from business that owned it and a pure proprietary right, it is no longer necessary to provide trademark rights owners a right to claim non-proprietary damages. 35 AIPPI Japan, Damages for Infringement, Counterfeiting and Piracy of Trademarks, p. 7, available at: aippi.org/wp-content/uploads/committees/203/GR203japan.pdf. 36 For a more detailed analysis see David Llewelyn, Statutory Damages for Use of a ‘Counterfeit Trade Mark’ and for Copyright Infringement in Singapore, 28 Singapore Academy of Law Journal, (2016), 61–88.

18  Kung-Chung Liu in Malaysia. Malaysia and Singapore recognise the possibility of compensation for loss of goodwill as a result of infringement (Ainee Adam, Chapter 33). In Singapore, as a matter of procedural propriety, any of the parties could have applied prior to the trial for a bifurcation of the hearing on liability and damages pursuant to O 33 r 2 Rules of Court. Therefore, it is common in Singapore for parties to bifurcate actions for trademark infringement, such that the trial on liability takes place before the quantum of damages is dealt with separately at a later assessment heard by Assistant Registrars of the court. This allows parties to save both time and costs because a failure by the claimant to succeed on liability would clearly render the need to adduce evidence on damages unnecessary. If and when the claimant succeeds at the liability stage, parties would normally settle on the amount of damages, failing which Assistant Registrars of the court will conduct assessment of damages. The factors to be taken into consideration set out in two recent decisions by Assistant Registrars after the establishment of trademark infringement for determining damages are instructive in relation to how the courts may assess damages arising from trademark infringements: the flagrancy of the infringement, the loss suffered or likely to be suffered, the benefit accrued to the defendant, the need to deter other similar infringements, and other relevant matters (Benjamin Tham, Chapter 34).

Part 7: Jurisdiction and applicable law for trademark litigation Generally, in the Asian economies covered in this book, few have direct provisions on international jurisdiction (Japan is one exception since 2011). In the Asian jurisdictions covered, the freedom of the parties to choose the court with jurisdiction has not been statutorily allowed with the exception of Singapore, and China in near future. In terms of exclusive jurisdiction, while some recognise it (e.g., Japan),37 some (e.g., Taiwan) do not. The lex loci protectionis principle is widely adopted for cross-border IPR infringement cases,38 and for entitlement and ownership of IPR as well. In other words, the applicable law to be applied to such cases is the law of the country in which legal protection is claimed. This is an understandable and acceptable result of the principle of territoriality of IPRs. For more details, please refer to Chapter 7 of the second volume of the trilogy: “Annotated Leading Copyright Cases in Major Asian Jurisdictions”. 37 Art. 3–5 (2) of Japanese Civil Procedure Code provides for the exclusive jurisdiction of a Japanese court. Paragraph 2 of the article provides as follows: “An action related to a registration is under the exclusive jurisdiction of the Japanese courts if the place where the registration is to be implemented is within Japan.” 38 In Korea, Article 24 of the Private International Act provides that “the protection of intellectual property rights shall be governed by the law of the place where such rights are infringed.” In the PRC, Article 50 of the Law of the Application of Law for Foreign-related Civil Relations stipulates: “Liability for infringing intellectual property rights is governed by the law of the place where protection is sought.” In Taiwan, Article 42(1) of the Choice of Law in Civil Matters Involving Foreign Elements states: “A right in an intellectual property is governed by the law of the place where the protection of that right is sought.”

Features of trademark laws and cases in Asia 19 Part 7 contains four case reports. The first one (Yasuto Komada, Chapter 35) reports the Japanese case law prior to the coming into force of the new provisions on international jurisdiction introduced into the Japanese Civil Procedure Code in 2011, which would reverse the ruling of the courts on international jurisdiction. In addition, while the reported decisions adopted the unitary approach of interpretation, according to which the law applicable to IP transfer contracts shall also decide whether the rights were validly transferred, the majority of the academic writings and judicial cases prefers to divide the legal relationship into the contract causing the transfer and the transfer itself. Professor Komada tends to agree with the reported decision. The two case reports following deal with the special issue of the so-called “cross-region trademark litigation” arising from the four greater-China areas of mainland China, Taiwan, Hong Kong, and Macau (Kung-Chung Liu, Chapter 36 and Lizhou Wei, Chapter 37). Currently, both Taiwan and mainland China accept that the principles for determining jurisdiction and applicable law in private international cases apply mutatis mutandis to inter-regional cases involving the four areas. The last case report deals with the issue of balancing traditional jurisdictional requirements with the rapid increase in e-commerce and online businesses on the one hand, and on the other, the interests of defendants in not being forced to contest legal actions in faraway locations in India (Gargi Chakrabarti and Saahil Dama, Chapter 38). Indian courts have been willing to do away with traditional jurisdictional requirements of the plaintiff/defendant having to be physically present to conduct business. However, to curtail such broadening of jurisdiction, the Indian Supreme Court has required that when there is an overlap of the plaintiff’s place of residence or business and the place of the cause of action, then the plaintiff must file the suit at such place.

Conclusion Much can be learned from reading the selected Asian trademark laws and decisions that follow. First of all, Asia is a fertile ground for the trademark industry as there are clear interests in and strong demand for trademark registration, commercialisation, branding, and dispute resolution. If developed well, Asia’s thriving trademark industry will cater to the divergent interests of SME and conglomerates alike, and help build the economic foundations for all IP industries to take off in Asia. Trademark law is therefore probably the most ideal area of IP for Asian economies to start work on towards harmonisation and integration with some pan-Asian arrangements. Second, there are some features that are unique, such as: 1 In terms of protection of well-known trademarks, Chinese Trademark Law prohibits manufacturers and business operators from indicating the words “well-known trademark” upon goods, their packaging or containers, or using these words for advertising, exhibition or other commercial activities.

20  Kung-Chung Liu 2

In terms of limitations of trademark rights, the SPC of the PRC has recognised a de facto compulsory license of a trademark in the context of a housing unit development project by the government, which raises compatibility with Article 21 of the TRIPS Agreement. Additionally, providing a specific parody defence does not seem to be the cup of tea for major Asian economies, as there are few reported cases in which parody has been successfully accepted as a defence to trademark infringement. Perhaps it has to do with traditional Asian values which tend to treat people and objects with respect. It could also be a result of a historical scar caused by being accused by Western countries of being “pirates” that makes Asian jurisdictions hesitant to be less serious about IP rights. 3 In terms of damages, Chinese Trademark Law establishes the “no actual use by the owner, no damages” principle, to which the Korean Supreme Court subscribes. Similarly, the Japanese Supreme Court allows the alleged infringer to raise “(the trademark rights owners suffered) no damages defence” to avoid paying damages based on lost royalties that trademark owners would otherwise have been entitled to receive. In this area, Taiwan has a unique method for calculating the amount of statutory damages for trademark infringement, namely the unit retail price of the infringing product multiplied by a certain number below 1,500 to be chosen by courts.

Last but not least, Asian civil law jurisdictions could learn from their Asian common law neighbours to allow the parties to apply at the outset of an action for a bifurcation of the hearing on liability and damages for trademark infringement, such that the trial on liability takes place first before the quantum of damages at a later assessment heard by junior judicial staff of the court. This would allow parties not to argue the two issues at the same time and come to their senses quickly in reaching an agreement, under the auspices of court officials, on the amount of damages after the liability issue has been established. This would save time and costs for the courts as well. Looking forward, the Indian and Malaysian TMA fair use clause that permits reasonably necessary use of trademarks by third-party manufacturers of spare parts or accessories to the core goods of the other party, relied on the Trade Marks Act 1938 of the United Kingdom as a model and resembled Article 14(1) (c) and (2) of the EU Trademark Regulation39, is conducive to competition and 39 Article 14(1)(c) and (2) of the European Trademark Regulation provides: 1. An EU trade mark shall not entitle the proprietor to prohibit a third party from using, in the course of trade: (c) the EU trade mark for the purpose of identifying or referring to goods or services as those of the proprietor of that trade mark, in particular, where the use of that trade mark is necessary to indicate the intended purpose of a product or service, in particular as accessories or spare parts. 2. Paragraph 1 shall only apply where the use made by the third party is in accordance with honest practices in industrial or commercial matters.

For a more detailed analysis of the article see J. Miller et al., Kerly’s Law of Trade Marks and Trade Names, 16th edition, Sweet & Maxwell, 2018, 17–028 et al.

Features of trademark laws and cases in Asia 21 surely a step in the right direction. Other Asian trademark regimes are advised to follow suit. It is the heartfelt wish of the authors that Asian courts and scholars do not just know, cite, and learn from the trademark statutes and decisions of the US or the EU, but also from those of their Asian neighbours.

Part 2

Use of trademarks/ likelihood of confusion on the Internet Right-maintaining use and infringing use of trademark   2 Legal consequences of non-use in Indonesia

25

PRAYUDI SETIADHARMA

  3 Google’s keyword advertisement in Taiwan: no use of trademark, but obviously unfair

35

KUNG-CHUNG LIU

Confusion and passing off   4 Similarity in appearance, concept or pronunciation alone does not automatically lead to similarity of marks in Japan

46

CHRISTOPHER HEATH

  5 The principles of passing off under trademark law apply to domain names in India PRASHANT REDDY THIKKAVARAPU

58

2 Legal consequences of non-use in Indonesia Prayudi Setiadharma

Case information: Inter IKEA System B.V. v. PT. Ratania Khatulistiwa, Supreme Court of Indonesia delivered on May 12, 2015 under the docket number 264 K/Pdt. Sus-HKI/2015.

Summary Proceedings for the present case started when a lawsuit was filed at the Commercial Court of Central Jakarta by the PT. Ratania Khatulistiwa (hereinafter “the respondent”), demanding removal from the Trademark General Registry of the Directorate General of Intellectual Property (the DGIP – the intellectual property office of Indonesia)1 of trademark registrations: • number IDM000277901 for the mark “IKEA” in class 20 for “household furniture, mirrors, picture frames, stuff made from wood, cork, grass, bamboo, rattan, horn, bone, ivory, baleen, shell, amber, leather, pearl, clay, magnesium, or other materials, or from plastics” – registration date October 27, 2010; and • number IDM000092006 for the mark IKEA in class 21 for “household or kitchen utensils or vessels, combs and corals, brushes (not including paintbrushes), brush-making materials, cleaning utensils, steel, wool, half-made glass (not including for building materials), glass, porcelain, and pottery wares not included in other classes” – registration date October 9, 2006. both registered in the name of the Inter IKEA System B.V. (“the plaintiff”). The respondent’s demand was based on the allegation that for three consecutive years the plaintiff had failed to properly use both registered trademarks in the trade of goods for which each was registered.

1 The plaintiff in this cassation proceeding was in fact the respondent at the first instance, whereas the respondent in this cassation proceeding was the plaintiff at the first instance.

26  Prayudi Setiadharma The Commercial Court of Central Jakarta decided on September 17, 2014 in the judgment no. 99/PDT.SUS-MEREK/2013/PN.Niaga.Jkt.Pst. in favour of the respondent, concurred with the entire demand of the respondent and ordered the DGIP to remove the plaintiff’s trademark registrations from the registry. The plaintiff filed cassation2 to the Supreme Court, which was heard before a panel of three justices. The Supreme Court was eventually divided, as one justice took a dissenting opinion from the eventual judgment that reaffirmed the earlier commercial court’s decision. The plaintiff’s cassation was rejected and the plaintiff was further ordered to bear the official costs of the cassation proceeding.

Legal context Removal of registration from the Trademark General Registry administered by the DGIP is one of the two legal actions that can be launched by a third party against a registered trademark under the Indonesian system of trademark registration, the other being the cancellation of registration. Article 61 of the Law no. 15 of 2001 concerning trademark – the Indonesian national legislation on trademark protection that was in effect throughout the case proceedings – provided that removal of registration can be initiated by either the DGIP or the owner of the registered trademark in question.3 Removal of registration could also be demanded by a third party in the form of a lawsuit launched at a commercial court.4 The law provided that the DGIP’s – or a third party’s – initiative for removal of a registered trademark could be based upon, among others: for 3 (three) consecutive years since the date of registration or the date of its last use, the trademark is not used in the trade of goods and/or services, unless for any reason acceptable to the DGIP.5 What would be regarded as a “reason acceptable to the DGIP” is in fact limited to the following: a b c

Import restriction; Restrictions concerning distribution licenses for products bearing the trademark in question or temporary decision from the authority, or Similar restrictions enacted under government regulation.6

2 Cassation is the official legal term used for appeals filed and considered at the Supreme Court. The Supreme Court is one of the two institutions holding the highest judicative authority in Indonesia, the other being the Constitutional Court, whose jurisdiction is limited only to disputes concerning constitutionality of legislation as well as disputes concerning election results. 3 Article 61(1) – Law no. 15 of 2001 concerning Trademark. 4 Article 63 – Law no. 15 of 2001 concerning Trademark. 5 Article 61(2)(a) – Law no. 15 of 2001 concerning Trademark. 6 Article 61(3) – Law no. 15 of 2001 concerning Trademark.

Legal consequences of non-use in Indonesia 27 The law’s stipulation on removal of registration could arguably raise some degree of controversy, especially on how the term “used in trade” within Article 61(2)(a) should be construed and interpreted to determine whether or not the owner of the registered mark has complied with the requirement to actually use the mark in the trade of goods and/or services. The elucidation section of the Law on the particular Article did not provide any elaboration other than specifically on the term “last use”, which referred to the last manufacturing batch of the products bearing the trademark in question, regardless of whether the product was still in circulation afterwards.7 Articles 61(2)(a) and 61(3) of the 2001 law were reintroduced in the new Law no. 20 of 2016 concerning Trademark and Geographical Indications as Articles 74(1) and 74(2) respectively, with mere non-substantial paraphrasing.8 Again, the new law’s provision was not elaborated in the elucidation section, as even the elucidation of “last use” in the old law is now omitted from the new law. In absence of more detailed explanation within the Indonesian statutory trademark laws, the present decision would indeed set precedent for defining how the statutory law on removal of trademark registration based on non-use should be interpreted and applied in practical situation.

Facts Furniture products bearing the plaintiff’s registered mark “IKEA” in classes 20 and 21 had been produced and/or manufactured in Indonesia by a number of Indonesian companies, among others PT Karya Sutarindo and PT Findora Internusa, as authorised by the plaintiff (respondent of the first instance) under purchase orders made by the plaintiff or its affiliate companies. This fact is supported by evidence presented by the plaintiff during both the first instance proceedings and the cassation proceedings, mainly in the form of documentation of purchase orders issued by the plaintiff, as well as invoices and affidavits issued by the plaintiff’s Indonesian manufacturing partners. As a matter of fact, the Commercial Court did not in particular reject the claim that production and/or manufacturing of products bearing the disputed registered “IKEA” trademarks owned by the plaintiff had actually occurred in Indonesia as indicated by this presented evidence. Rather, the Commercial Court failed to consider such production and/

7 Elucidation of Article 61(2)(a) – Law no. 15 of 2001 concerning Trademark. 8 Article 74(1) – Law no. 20 of 2016 concerning Trademark and Geographical Indications: Removal of registered trademark can also be requested by a third party with legitimate interest in the form of lawsuit to the Commercial Court on the grounds that the trademark in question has not been in use for 3 (three) consecutive years in the trade of goods and/or services since the date of registration or last use thereof. Article 74(2): The grounds mentioned in Paragraph (1) are not applicable in case of: a Restriction of importation; b Restriction related to licensing for circulation of goods bearing the Mark in question or related to temporary decision from relevant authority; or c Other similar restriction under Government Regulation.

28  Prayudi Setiadharma or manufacturing in Indonesia by the authorised Indonesian manufacturers of products bearing the disputed registered “IKEA” mark owned by the plaintiff as sufficient to qualify as “use of registered mark in the trade of goods or services” by the plaintiff. Furniture products bearing the plaintiff’s registered mark “IKEA” in classes 20 and 21 had actually been purchased through online channels by individuals as well as entities located in Indonesia, and thus shipped to those individuals as well as entities in Indonesia directly by the plaintiff and/or its affiliate companies, within the timeframe of 2006 to 2013. This fact is supported by evidence presented by the plaintiff during both the first instance proceedings and the cassation proceedings, mainly in the form of documentation of purchase orders as well as invoices related thereto. Neither the first instance panel at the Commercial Court nor the cassation panel at the Supreme Court examined this evidence in particular. Construction of an official store had been completed by the plaintiff and/ or its affiliate company, located in Alam Sutera, Tangerang, Jakarta, bearing the mark “IKEA” similar to the disputed registered “IKEA” mark in classes 20 and 21 owned by the plaintiff. Evidence in the form of photographic images of the store’s exterior from different angles was also presented by the plaintiff in both the first instance and cassation proceedings as evidence. The respondent (plaintiff of the first instance) is an Indonesian registered limited liability company based in the city of Surabaya, whose trade is mainly in the furniture industry, particularly in the manufacture and distribution of various household furniture made of metal, wood and/or rattan. The respondent not only operates in the domestic market but also engages in exportation to various countries, including Spain, Japan, the United States, and Australia. The respondent is the applicant of two trademark registration applications at the DGIP for: •

•

The mark “ikea”, application filed under application number D002013061337 in class 20 for “household furniture, mirrors, picture frames, and stuff made from wood and rattan”; received filing date as of December 20, 2013; and The mark “ikea”, application filed under application number D002013061336 in class 21 for “household and kitchen utensils and vessels”; received filing date as of December 20, 2013.

The respondent claimed the mark “ikea” they sought to register is an acronym of the following: • “i” stands for “intan” (Indonesian for noun “diamond”), but also a further acronym for “industry rotan” (Indonesian for the phrase “rattan industry”; • “k” stands for “khatulistiwa” (Indonesian for noun “equator”), which is also part of the respondent’s company name; • “e” stands for “Esa” (Indonesian for the adjective “sole/single”); and • “a” stands for “Abadi” (Indonesian for the adjective “eternal”).

Legal consequences of non-use in Indonesia 29

Reasoning of the court 1 The supreme court The Supreme Court reaffirmed judgments of the first instance made by the Commercial Court of Central Jakarta: the submitted [plaintiff’s] objections [against the Commercial Court judgment] cannot be justified, based on (the cassation panel’s) close examination upon the cassation memoranda . . . and the counter-cassation memory . . . as cross-examined with the [panel’s] consideration in their decision, in this regards the Commercial Court of the District Court of Central Jakarta has been appropriate and correct and thus has not erred in applying the law9 The Supreme Court cited the following as the basis of its re-affirmation of the Commercial Court decision: it is correct that in accordance to Article 61(2)(a) of the Law no. 15 of 2001 concerning Mark, a registered mark that is not used by the owner in three consecutive years can be removed from the General Registry of Mark; a condition of which is evidently established in the present case that the registered mark IKEA in classes 21 and 20 in the name of the Plaintiff under registration numbers IDM000092006 and IDM000277901, respectively, had not been used by the plaintiff for a three-consecutive-year period since the mark was registered; therefore the first instance decision is appropriate and shall be reaffirmed.10

1.1 Sale of furniture must be through furniture stores within the territory of Indonesia The Supreme Court opined that: Considering that the respondent (of the first instance) since the respective registration date of the mark IKEA under registration number IDM000277901 in class 20 and the mark IKEA under registration number IDM00092006 in class 21, had never sold and/or marketed products with the IKEA mark in furniture stores within the territory of the Republic of Indonesia until the registration of this lawsuit, this should establish that the registered mark IKEA under registration number IDM000277901 as registered on 27 October 2010 in class 20 as well as the registered mark IKEA under registration number IDM000092006 as registered on 9 October 2006 in class 21 was not used in the trade of goods in Indonesia for three consecutive years since the respective registration date.

  9 Supreme Court, Decision No. 264 K/Pdt.Sus-HKI/2015, p. 50. All the italicized sentences were translated directly from the decision’s wording, which are sometimes not entirely correct in Indonesian language grammar. 10 Supreme Court, Decision No. 264 K/Pdt.Sus-HKI/2015, p. 50.

30  Prayudi Setiadharma

1.2 Products with IKEA mark had not been marketed, sold or distributed by IKEA The Supreme Court did not differ from the Commercial Court’s decision, which stated that: Considering that the aforementioned facts were learned from the result of a market survey conducted by Berlian Group Indonesia (“BGI”). BGI had conducted market surveys in 5 (five) major cities in Indonesia, which should represent the entire territory of Indonesia, i.e. Medan, Jakarta, Bandung, Surabaya, and Denpasar, within the timeframe of November to December 2013, with the method of exclusive interviews upon 140 (one hundred and forty) stores/respondents; Considering, that result of the market surveys should conclude or present the facts that products with IKEA mark registered in the name of the respondent (of the first instance) in classes 20 and 21 had neither been marketed and/or distributed by the respondent (of the first instance) in furniture stores throughout the territory of the Republic of Indonesia nor in the respondent (of the first instance)’s own store, since it is evident that until the registration date of this lawsuit the respondent (of the first instance) had yet to open its own store in Indonesia for selling or distributing products with the IKEA mark in the territory of Indonesia; Considering, that result of the market surveys shall establish that products bearing IKEA marks as registered in the name of the respondent (of the first instance) in classes 20 and 21 evidently had never been sold and/or marketed by the respondent (of the first instance) in the trade of goods and services in Indonesia since the respective date of registration until the registration date of this lawsuit. This shall establish that the respondent (of the first instance) had not used the mark IKEA for 3 (three) consecutive years since the respective registration date thereof; Based upon the aforementioned considerations, therefore, the plaintiff (of the first instance)’s fifth and sixth demands shall be allowed.

1.3 Photographs of storefronts are not sufficient to establish IKEA’s marketing of their products On the pictures of plaintiff’s store in Indonesia as evidence presented by the plaintiff to support the plaintiff’s claim of using their registered mark IKEA in classes 20 and 21 in the trade of respective goods in Indonesia, the Supreme Court did not differ from the Commercial Court’s decision, which stated that: the photographs of the storefronts are not sufficient to establish that the respondent (of the first instance) has marketed or has been marketing their products.11 11 Commercial Court of Central Jakarta, Decision No. 99/PDT.SUS-MEREK/2013/ PN.Niaga.Jkt.Pst., p. 82.

Legal consequences of non-use in Indonesia 31

2 Dissenting opinion: no sufficient grounds for removal of the well-known mark’s registration Dissenting opinion in the cassation panel wrote that: the objections presented in the cassation justify concluding that the judges of the Commercial Court of the District Court of Central Jakarta have erred in applying the law.12 Reasoning for the dissenting opinion: that the plaintiff has successfully established its claim that the respondent’s IKEA mark is legitimately registered in both classes, that the mark should qualify as well-known mark and thus deserves adequate protection, that there are no sufficient grounds for removal of the mark’s registration in both classes, and that stores selling the plaintiff’s products are visible including the considerably large official store of the plaintiff located at the Jalan Alam Sutera in Tangerang/ Banten; to the effect that Article 61(2)(a) of the Law no. 15 of 2001 concerning Mark is not applicable.13

Legal analysis 1 Narrow definition of “uses in trade of goods and/or services” an unreasonable setback from precedents The Commercial Court’s conclusion that the plaintiff’s registered marks were not used for three consecutive years based on a market survey is in my opinion very questionable, if not gravely erroneous. Lack of physical sales of products bearing the registered mark in question at conventional stores in five cities alone is hardly sufficient to draw a conclusion that the plaintiff had never sold and/ or distributed such products in Indonesia; the Commercial Court also arguably jumped too far from such an ill-supported conclusion to its next conclusion that the plaintiff had not used the registered “IKEA” marks in the trade of goods for three consecutive years. As a matter of fact, it was the same Commercial Court that delivered a judgment back in 2002 in a lawsuit against the DGIP decision to remove a trademark registration due to non-use, in which the court stated that a “mark that is entitled to legal protection is a mark that is actually used in the activities of production and trade”14 – a decision which had been reaffirmed twice by the Supreme Court

12 Supreme Court, Decision No. 264 K/Pdt.Sus-HKI/2015, p. 50. 13 Supreme Court, Decision No. 264 K/Pdt.Sus-HKI/2015, p. 51. 14 Commercial Court of Central Jakarta, Decision No. 12/MEREK/2002/PN.NIAGA.JKT. PST., dated 23 May 2002.

32  Prayudi Setiadharma in a cassation15 and later in judicial review16 proceedings. The 2002 decision should have been regarded as precedent on how “non-use” should be considered in respect of both production as well as sales and distribution of goods and/or services.

2 Concerns about the coverage of the market survey and credibility of the institution conducting such survey While I agree that a market survey could provide substantial evidence upon which a determination of actual “use in the trade of goods and/or services” of a registered mark by the registered owner could primarily – although not solely – be based, in my opinion the Supreme Court should not have disregarded the plaintiff’s concerns as it pointed out in the cassation regarding how the survey was conducted, particularly with regards to representativeness of the survey in terms of area and respondents coverage, as well as credibility of the institution conducting such survey. Concerning area and respondent coverage, the plaintiff had reasonably argued that the market survey should have been conducted in every city in Indonesia, or at least in every major city on each island of Indonesia, instead of only in five major cities.17 To support this argument, the plaintiff fittingly cited a prior decision also on removal of trademark registration due to non-use,18 in which the Supreme Court rejected the use of a market survey conducted with a total number of 365 respondents in two major cities on the island of Java as a basis for establishing three consecutive years of non-use since: Indonesia consists of numerous islands and hundreds of cities throughout the whole nation; the Respondent could have been distributing the MOSAICMICRO mark outside of Java island, e.g. on the islands of Sulawesi, Sumatra, Irian and Molucca.19 It was evident that this prior decision of the Supreme Court was neither referred to nor followed by the Commercial Court and the Supreme Court in the present case, only three years later. This indeed brought inconsistency into the law. The plaintiff, in my opinion, was also reasonable in questioning the credibility and competence of BGI, which conducted the market survey on behalf of the respondent, as there had been no record of any market survey conducted by BGI that was referred to by either the Commercial Court or the Supreme Court in prior decisions related to non-use removal of trademark registration.20 While the

15 Supreme Court, Decision No. 13K/N/HaKI/2002, dated 3 September 2002. 16 Supreme Court, Decision No. 06/PK/N/HaKI/2003, dated 19 August 2003. 17 Supreme Court, Decision No. 264 K/Pdt.Sus-HKI/2015, p. 49. 18 Supreme Court, Decision no. 421 K/Pdt.Sus/2012. 19 Supreme Court, Decision no. 421 K/Pdt.Sus/2012, p. 40. 20 Supreme Court, Decision No. 264 K/Pdt.Sus-HKI/2015, p. 49.

Legal consequences of non-use in Indonesia 33 track record of a market survey provider could be one of main indicators of its credibility and competence, it would be very important to have legal parameters to ensure that each and every market survey was conducted by a credible and competent institution so as to not jeopardise the quality of any legal decision that might be based upon said survey. It is regrettable that such an important question was simply ignored and left unaddressed by the Supreme Court in the present decision. By acknowledging market surveys as one of the bases for establishing non-use and yet refraining from addressing the concern over the market survey provider’s credibility, the Supreme Court again missed a precious opportunity to fill in a gap in the law, which might lead to attempts to remove a competitor’s trademark registration by employing dubious market surveys.

3 Missing an opportunity to address some legal issues of “non-use-based removal” The present case actually presented an opportunity for the Supreme Court to fill in gaps left open by the non-detailed provision on non-use-based removal of trademark registration in both the 2001 Trademark Law and its replacement, the 2016 Law concerning Trademark and Geographical Indication, which concerns whether marketing and sales of products bearing the registered mark in question through internet websites or other indirect marketing and/or sales channels owned by a third party, would qualify as “use in the trade of goods and/or services”. In the present case, the plaintiff had presented evidence on the existence of marketing and sales of the plaintiff’s products bearing the plaintiff’s registered mark through indirect channels operated by third parties to the Commercial Courts, who did not address and basically disregarded the evidence altogether. Although the same evidence was also available to the Supreme Court during the cassation, the Supreme Court took the same approach as the Commercial Court did, namely disregarding the evidence altogether, simply affirming the Commercial Court’s decision.

Commercial or industrial significance The legal consequences of the Supreme Court affirming the Commercial Court’s decision for the removal of the plaintiff’s registered marks were, in accordance with Article 65(1) of Law no. 15 of 2001 concerning trademark, that the DGIP shall immediately remove the mark registrations in question from its General Registry. Once removed, the owner of the registered marks shall instantaneously be deprived of the exclusive rights to use the marks on the respective goods.21 Since the 2016 law concerning trademark and geographical indications does not

21 Article 65(3), Law no. 15 of 2001 concerning Trademark.

34  Prayudi Setiadharma make any significant departure from the 2001 Act concerning non-use-based removal of trademark registration, the Supreme Court’s decision in the present case must be carefully observed by anyone wishing to employ better trademark protection strategy in Indonesia. Noteworthy is that the first instance decision was delivered by the Commercial Court just one day before the much-anticipated opening date of the plaintiff’s first store in Jakarta. While IKEA came to Indonesia later than to other major markets in South East Asia,22 many Indonesians had already been familiar with the Swedish furniture brand. The decision was believed by many to be a severe blow to IKEA, as many national newspapers in Indonesia put up bombastic headlines such as “World’s Richest Person Defeated, IKEA now belongs to Surabaya Businessman”,23 “IKEA Lost Trademarks in Indonesia”24 and “Supreme Court Loss, IKEA Cannot Use Its Trademarks in 2 Classes of Goods”.25 However, in March 2012 the plaintiff has filed again not only one, but four registration applications for “IKEA” marks – two for classes 2026 and 2127 respectively (one in black and white, the other one in colour configuration) – covering even broader ranges of items and long before the filing date of respondent’s “ikea” applications. Three of the said later applications were registered on 19 September 2014, which was two days after delivery of the Commercial Court’s decision and one day after opening of the plaintiff’s store. Therefore, regardless of the respondent’s success in removing the plaintiff’s registrations, the victory was of no use for the respondent since the plaintiff still retains exclusive rights over “IKEA” trademarks for an even broader range of goods in classes 20 and 21 based upon the later registrations. Eventually, both of the respondent’s applications were also rejected by the DGIP.

22 The first IKEA Store in South East Asia opened in Singapore in 1978. The first IKEA store was opened in Malaysia and Thailand in 1996 and 2011, respectively. 23 https://news.detik.com/berita/2987249/orang-terkaya-di-dunia-kalah-merek-ikea-dimiliki-pengusaha-surabaya. 24 www.cnnindonesia.com/ekonomi/20160207165056-92-109451/ikea-kehilangan-merekdagang-di-indonesia. 25 http://news.liputan6.com/read/2290071/kalah-di-ma-ikea-tak-bisa-gunakan-mereknya-pada-2-kelas-barang. 26 The black and white variation bears registration number IDM424079; the coloured variation has registration number IDM424086, both having the same filing date (28 March 2012) and registration date (19 September 2014). 27 The black and white variation, registered on 2 December 2016, has registration number IDM553488; the coloured variation, registered on 19 September 2014, has registration number IDM424087.

3 Google’s keyword advertisement in Taiwan No use of trademark, but obviously unfair Kung-Chung Liu

Case information: Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, decided on 12 February 2015

Summary Taiwan IP Court in its capacity as the first instance court with a single-judge panel has in a 2012 Min-Shan-Su-Zi 22 decision (decided on 24 January 2013) for the first time dealt with the legal liability of a search engine, namely Google, in its keyword advertisement practice concerning one famous trademark in Taiwan for interior design and decoration portal, i.e., “幸福空間” (Chinese characters which mean “happy space”) owned by “幸福空間” Limited (www.hhh.com.tw), from the perspectives of the Trademark Act and Fair Trade Act. The decision ruled that it was the Internet users who keyed in the keyword, which has nothing to do with Google; Google, by providing web pages that exhibited search results for firms to place their advertisements, did not actively exhibit any trademark, nor did it use the trademark at dispute as an indicator for goods or services. In addition, Internet users, when confronted with advertisements showing up in the ads section of the resultant web pages, as triggered by the keyword they had keyed in, were not aware that the ads were intended as exhibiting trademarks. The decision therefore concluded that there was no use of the trademark “幸福空間,” and therefore there was neither trademark law liability, nor liability due to unfair competition. Upon appeal, the Taiwan IP Court in its capacity as the second-instance court with a three-member panel in 2013 Min-Shang-Shang-Zi 8 (decided on 12 February 2015) upheld the ruling of no use of the trademark “幸福空間,” yet held Google liable for jointly violating Article 25 of the Fair Trade Act by helping advertisers to conduct unfair competition, and granted injunction against Google to prohibit it from selling the trademark “幸福空間” as a keyword for keyword advertisement to advertisers. The decision also awarded triple damages to “幸福 空間” Limited, as it found Google had engaged in said violation with intention. The appeal was rejected by the Supreme Court (2016 Tai-Shang-Zi 81, decided on 14 January 2016).

36  Kung-Chung Liu

Legal context The present case involves mainly two provisions of the Trademark Act, Articles 5 and 68 of the Trademark Act, and Article 25 of the Fair Trade Act.1 Article 5(1) of the Trademark Act defines trademark use as for the purpose of sale and conducting any of the following acts, which is likely to cause consumers to recognize this as trademark: 1. To apply a trademark to goods or packaging or containers thereof; 2. to possess, display, sell, export, or import the goods referred to in the preceding subparagraph; 3. to apply a trademark to articles relating to the provision of services; or 4. to apply a trademark to commercial documents or advertisements relating to goods or services. Article 5(2) further provides that “The preceding paragraph shall also apply to acts performed by digital audio-video means, through electronic media, on the Internet, or through other media.” Article 68 requires “likelihood of confusion among relevant consumers” for trademark infringement when identical or similar trademarks are used on similar goods or services.2 Article 25 of the Fair Trade Act is a catch-all general clause that prohibits “any other deceptive or obviously unfair act that is likely to affect the trading order.” This article has been widely used by the Taiwanese Fair Trade Commission (TFTC) to fight against ever-emerging new types of unfair competition.

Facts Google sold the well-known trademark “幸福空間” owned by “幸福空間” Limited as a keyword to advertisers. Through internal program design, Google linked the keyword with the advertisers’ ads, so that whenever users keyed in the keyword in the web page of the search engine, those ads showed up in a prominent

1 The decision actually applied the former Article 24 of the Fair Trade Act, which was renumbered as Article 25 in 2015 without any change in the provision itself. To make the present case report relevant for the current law, Article 25 will be referred to, rather than Article 24, throughout. 2 Article 68 of the Trademark Act (infringement of registered trademark) provides Any of the following acts, in the course of trade and without consent of the proprietor of a registered trademark, constitutes infringement of the right of such trademark: (1) using a trademark which is identical with the registered trademark in relation to goods or services which are identical with those for which it is registered; (2) using a trademark which is identical with the registered trademark and used in relation to goods or services similar to those for which the registered one is designated, and hence there exists a likelihood of confusion among relevant consumers; or (3) using a trademark which is similar to the registered trademark and used in relation to goods or services identical with or similar to those for which the registered one is designated, and hence there exists a likelihood of confusion among relevant consumers.

Google’s keyword advertisement in Taiwan 37 place at the top, right-hand side, and bottom of the resultant search web pages, accompanied by small words saying that these were “幸福空間-related ads” or “ads.” Google charged the advertisers fees according to the number of clicks consumers made on the ads of the advertisers to browse their web pages. Despite the fact that Google denied that it sold the keyword “幸福空間” to advertisers and alleged that all the keyword advertisements were done by ads agents, advertisers did not design the keyword advertisements when they bought such ads. Rather, Google designed them according to the goods and services offered by the advertisers and the ads promotion programs of ads agents, and proposed the appropriate combinations of keywords. Google did actively suggest to its keyword ads resale agents that they use the trademark of “幸福空間” as a keyword for search, and these resale agents in turn did the keyword advertisement on behalf of the advertisers. In sum, there is no denying that Google was “in total control of the sales of keyword advertisements and did actual keyword ads business in the Taiwan area.”3 Although Google was not in the business of interior design and not in a competitive relationship with “幸福空間” Limited, it first listed the trademark at dispute into the compilation of suggested keywords and suggested that advertisers buy such keyword advertisement, should have known that advertisers were conducting keyword advertisement using “幸福空間” as a keyword by the time resale ads agents made monthly reports, and further knew by the time it had been asked twice by “幸福空間” Limited through registered letters urging removal, that such keyword advertisements might have constituted unfair competition and infringed the rights and interests of “幸福空間” Limited, and yet did not remove the said keyword advertisement, instead asking “幸福空間” Limited to file complaints with Google headquarters in the US.4

Reasoning of the court 1 Unitary definition of trademark use The Taiwan IP Court in the present decision is of the opinion that since Article 5 is in Chapter 1 (‘General Provisions’) of the Trademark Act, its definition of trademark use is equally applicable to trademark use in the sense of maintaining trademark right and trademark use in the sense of trademark infringement, provided that other Chapters do not provide otherwise. Some argue that a distinction be made between trademark use 3 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1499–570. 4 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 2011–2040. It is quite common for Taiwanese courts to use long sentences with only commas in between, so this cited content is just one sentence and could look a bit odd when translated into English.

38  Kung-Chung Liu in the sense of maintaining trademark right and trademark use in the sense of trademark infringement, however given that other Chapters of the Act do not have special provision for trademark use in the sense of trademark infringement, then (the definition of) the provision of the General Provisions still apply. Therefore the legislative reasons for the current Article 5 specifically clarify that ‘Trademark use can be distinguished into two types, namely, right-maintaining use and infringing use of trademark, and each serves different normative purposes; however, given that their substantive contents all depend on whether the use (of a trademark) in the course of trade is likely to cause consumers to recognize it as trademark, it is therefore expressly provided for in the General Provisions, so that it will be applied throughout (the whole Act).’ Likewise, the ‘Annotated Trademark Act’ by the Taiwan IP Office (TIPO) states that ‘the (legality) of modalities of infringing use of a trademark not authorized by the trademark owner shall still be determined according to Article 5.’ . . . Based on both the form and arrangement and purpose of the legislation, trademark use by the trademark owner and the infringing use of a trademark by others (excluding however the deemed trademark infringement)5 must equally qualify as trademark use defined by Article 5.6

2 “Likely to cause consumers to recognize this as trademark” requires external and tangible use of trademarks The term ‘likely to cause consumers to recognize this as trademark’ shall mean that, objectively speaking, such use is likely to cause relevant consumers to recognize that it was a trademark that was being used, which fulfills the distinguishing function of a trademark and realizes the purpose of trademark use. In other words, in addition to the trademark use by the owner of a trademark to fulfill the distinguishing function of such mark,

5 Article 70 of the Trademark Act provides “Acts deemed infringement”: Any of the following acts, without consent of the proprietor of a registered trademark, shall be deemed infringement of the right of such trademark: (1) knowingly using a trademark which is identical with or similar to another person’s well-known registered trademark, and hence there exists a likelihood of dilution of the distinctiveness or reputation of the said well-known trademark; (2) knowingly using words contained in another person’s well-known registered trademark as the name of a company, business, group or domain or any other name that identifies a business entity, and hence there exists a likelihood of confusion for relevant consumers or a likelihood of dilution of the distinctiveness or reputation of the said well-known trademark; or (3) manufacturing, possessing, displaying, selling, exporting or importing labels, tags, packaging or containers that have not been applied in relation to goods or services, or articles that have not been applied in relation to services, knowing that such articles would likely infringe trademark rights as prescribed in Article 68. 6 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1588–1615.

Google’s keyword advertisement in Taiwan 39 any trademark use by a third party other than the trademark owner that is likely to cause relevant consumers of goods or services to be confused and unable to correctly identify the source of goods or services shall be prohibited, to avoid the disruption of the distinguishing function of a trademark. Consequently, trademark use must be external and tangible in order to be likely to cause relevant consumers to recognize that it is a trademark and further to be confused or mistaken about the source of goods or services.7

3 What Google did does not qualify as trademark use The keyword advertisement that Google sold to ads agents for further sale to advertisers is through Google’s internal programming directive that linked “幸福空間” with advertisers’ ads, so that when Internet users keyed in “幸福空間” as the keyword for search at Google, the ads of the advertisers who have chosen to buy “幸福空間” appeared in the ads space of the resultant web pages. Although the keyed-in keyword in the search column and the advertisements appeared on the same resultant web page, the keyword was keyed in by Internet users, not by Google nor by advertisers. Google, by providing web pages that exhibited search results to advertisers for them to place their advertisements, did not actively exhibit any trademark; Google was not in the business of interior design or decoration, and did not use the trademark at dispute to indicate its goods or services; in addition, Internet users, when confronted with advertisements showing up in the ads section of the resultant web pages, which was triggered by the keyword they had keyed in, were not aware that the ads were intended to exhibit trademarks; Google’s linkage of “幸福空間” with its internal programming directive was an internal and intangible use, not an external and tangible use (of the trademark “幸福空間”), was not likely to cause consumers to recognize this as a trademark, and therefore did not satisfy the requirement of trademark use.8,9

4 The specific keyword advertisement did not lead to likelihood of confusion among relevant consumers Although the decision found there was no trademark use and it was therefore not really necessary to examine whether there was a likelihood of confusion among

7 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1616–1633. 8 The whole paragraph is just one sentence in its original text, which has to be broken down by semicolons in order to be understood when translated into English. 9 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1669–1695.

40  Kung-Chung Liu relevant consumers, the decision, after looking at the ads appearing on the search web page and finding some did not use “幸福空間” at all, went on to say some ads used the term ‘幸福空間’, but only in a descriptive way to describe the fact that the design teams would create space with happiness and ambience for consumers, rather than using ‘幸福空間’ as company name or source indicator for its service or as trademark. Even if relevant consumers clicked on the website of such an ads and entered the website of the advertiser, (they would find) the website did not use the trademark, all relevant written characters involved descriptive use in nature and not trademark use, and were accompanied by company names by which people can distinguish, and therefore would not mistake the entered website for that of the trademark owner of ‘幸福空間’, nor mistakenly think that the goods/services exhibited on the website of the advertiser were owned by the trademark owner of ‘幸福空 間’. In addition, the trademark owner of “幸福空間” had not provided concrete incidents or evidence for actual confusion or likelihood of confusion of consumers after they had entered and viewed the website of the advertiser. Therefore it is appropriate to conclude that there was no likelihood of confusion among relevant consumers.10

5 “Initial interest confusion” under US law does not qualify as “leading to likelihood of confusion among relevant consumers” ‘Likelihood of confusion among relevant consumers’ under Article 68 of the Trademark Act emphasizes the issue of whether relevant consumers would be confused or mistaken at the brink of actual trading. It is probable that consumers would mistakenly think that the ads of the advertisers on the resultant search web page were those of the trademark owner of “幸福空間” after keying “幸福空間” as a keyword for search and would click on the links to the websites to view their content. However, what the consumers experienced is called “initial interest confusion” by American scholars; that is, they might have been misled by the ads on the search web page into believing that it was the website of the trademark owner of “幸福空間;” however, after entering the website, consumers would find that the website did not use the trademark, all relevant written characters were descriptive in nature and not trademark use, and that they were accompanied by company names by which people can distinguish, and therefore they would not mistake the entered websites for those of the trademark owner of ‘幸福空間’, nor mistakenly think that the goods/services exhibited on the website of the advertiser were owned by the trademark owner of ‘幸福空間’. Therefore, ‘initial interest confusion’ caused by mistaking ads on the search web page does not qualify

10 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1696–1719.

Google’s keyword advertisement in Taiwan 41 as leading to likelihood of confusion among relevant consumers required by Article 68 of the Trademark Act.11

6 “幸福空間” was already a well-known trademark since 13 April 2011 The assertion by “幸福空間” Limited that “幸福空間” is was a well-known mark was convincing for the following reasons: “幸福空間” Limited was the leader in the business of Internet media marketing for interior design, used “ 幸福空間” as the name of its website, brand, and distinctive part of its company name, promoted this on a dozen nationwide TV and radio channels, all of which made the trademark well known in the interior-design-related area since 13 April 2011, a date recognized by the Opposition Decision Concerning No. 10380052440 trademark by the TIPO (Zi-San40268 decided on 19 January 2014), and a fact not disputed by Google.12

7 However, Google violated Article 25 of the Fair Trade Act as joint tortfeasor Google sold keyword advertisements for marketing purpose and making profits by charging advertisement fees, programmed the registered wellknown trademark as a keyword for search and linking, and caused ads of advertisers to appear at the top, bottom, and on the right of the search web page after general consumers keyed in “幸福空間” on the search web page of Google. Although Google either showed the ads of the advertisers against a light yellow background, or added “ads” or “ads – why showing these ads” above or below the ads, the yellow colour was too light and the print of the added words too fine, so that consumers might neglect them and become confused or mistakenly take those ads as natural search results for “幸福空 間” Limited or related to the website of “幸福空間” Limited and click to enter the websites of the advertisers to view their contents.13 As interior design undertakings, the advertisers were in a competitive relationship with “幸福空間” Limited. They bought the trademark of “幸福空間” as a keyword from Google in order to use the renown of “幸福空間”, which was also the distinctive part of the company name of “幸福空間” Limited, in the business of interior design that reached the level of a well-known mark to attract consumers to key in‘ “幸福空間”

11 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1858–1880. 12 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1954–1966. 13 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 1991–2000.

42  Kung-Chung Liu on search engines so that their website information could be searched by search engines and potential consumers of “幸福空間” Limited would be guided onto the websites of advertisers, and the chance of concluding transactions increased. All these were obvious free-riding on the renown of “幸 福空間” and exploiting the fruits that “幸福空間” Limited has built over a long period of industrious management, and were detrimental to “幸福空 間” Limited, thus a deceptive and obviously unfair act.14 The decision continued to deliberate why the keyword advertisements by Google and the advertisers violated Article 25 of the Fair Trade Act: The keyword advertisements by Google and the advertisers had been questioned twice by “幸福空間” Limited with registered warning letters issued on 31 October 2011 and 21 November 2011 respectively, urging the removal of the trademark in question for keyword advertisement and the cesation thereof; however, Google did not cease its sale of this keyword, not even during the proceeding of the first-instance trial and the present second-instance trial, self-righteously defended its act as allowed by law, and conducted such keyword advertisement for several years, from 12 November 2009 to October 2014; (during that period of time) consumers have clicked at least 2,627 times, and Google has collected NT$22,382 in advertisement fees; given that Google possessed over 50% of the market share for Internet search engines, Google’s act, if unstopped for a long time, must have affected or been likely to affect the trading order of the interior design market; and therefore the keyword advertisements by Google and the advertisers must constitute an unfair act stipulated by Article 25 of the Fair Trade Act.15 Google’s sale of the [searchword of] Chinese characters of “幸福空間”, which is the trademark at dispute, in the Taiwan area in exchange for advertisement fee to gain profits, not stopping its joint infringing activity (upon notice and knowing of such) against the rights and interests of “幸福空間” Limited, and asking “幸福空間” Limited to file complaints directly with Google headquarters in the US, were indeed not reasonable measures to take; furthermore, Google continued to sell the keyword advertisement in question during the proceedings of the first instance trial and the present second instance trial. Therefore, Google clearly aided the advertisers conducting

14 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 2001–2010. 15 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, 2011–2025. Again, the whole paragraph in its original text is just one long sentence with only commas in between, which has to be broken down by semicolons in order to be understood when translated into English. A long and hard look at the long sentence reveals that its subject remains “the keyword advertisements by Google and the advertisers.”

Google’s keyword advertisement in Taiwan 43 unfair acts prohibited by Article 25 of the Fair Trade Act, and should be held jointly liability according to Article 185(2) of the Civil Code.16,17

Legal analysis 1 US, European Union and German trademark law treat rightmaintaining use and infringing use of trademark differently National trademark regimes vary in their definition and requirement of “trademark use”. Noteworthy is that trademark laws in the US, European Union and (therefore also) Germany treat right-maintaining use and infringing use of trademark differently. In the US, there is no definition of trademark use as such. Section 32 of the Lehnam Act (15 USC 1114) requires only that trademark infringers “use in commerce” or that the illegal “reproduction, counterfeit, copy, or colorable imitation” be applied to labels, signs, prints, packages, wrappers, receptacles or advertisements intended “to be used in commerce.” Section 45 of the Lehnam Act (15 USC 1127) contains a definition of “use in commerce,” namely “the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark,” which apparently does not fit infringing trademark use, as infringer is normally not “bona fide.” More clearly distinguishing the right-maintaining use (rechtserhaltende Benutzung) from the infringing use (rechtsverletzende Benutzung) of trademark are the European Trademark Regulation and the German Trademark Act, which foresee broader application scope for the latter than for the former. Although the German legislature stated in the legislative reasoning that Article 26(1), which contains the definition of trademark use for the assertion and upholding of a registered trademark18, shall be “universally applied to provisions in this Act that concern the assertion of a registered trademark and provisions that concern the upholding of the validity of trademark registration whose application depends on trademark use”, this statement has been criticised as having “gone too far and being too undifferentiated (zu weitgehend und zu undifferenziert), and for not fully reflecting the difference in nature and trademark doctrine between the right-maintaining use and the infringing use of trademark.” For the application

16 Article 185(2) of Taiwanese Civil Code provides: “If several persons have wrongfully damaged the rights of another jointly, they are jointly liable for the injury arising therefrom. The same rule shall be applied even if which one has actually caused the injury cannot be sure.” 17 Taiwan IP Court, 2013 Min-Shang-Shang-Zi 8, lines 2025–2040. 18 Article 26(1) of the German Trademark Act (Use of the trade mark) provides: (1) Where the assertion of rights from a registered trade mark or the upholding of the registration depends on the trade mark having been used, it must have been seriously used in this country by its proprietor for the goods or services in respect of which it is registered unless there are legitimate grounds for non-use.

44  Kung-Chung Liu of Article 26, the sufficient and necessary condition is to use a registered trademark in ways that fulfill the function of a trademark.19 In contrast, in order to effectively protect trademark rights, the infringing use of a trademark by a third party must be broadly interpreted,20 more broadly than the use stipulated by Article 26.21 Article 14(3) of the German Trademark Act22 therefore provides an open-ended list of infringing use of trademarks, rather than an exhaustive list – following Article 9(3) of the European Trademark Regulation.23

2 Infringing use should be broader than right-maintaining use of trademark As a matter of fact, both the legislative reasoning of Article 5 and “Annotated Trademark Act” are the work of the TIPO, which not infrequently understands IP law in a defective way. Here is a case in point. Clearly, right-maintaining use of trademark and the infringing use of trademark are different. Right-maintaining use aims at preserving one’s own registered trademark by genuine, bona fide, or function-fulfilling use of it to promote one’s own goods and/or services, known as branding. In contrast, the infringing use is mostly using other’s trademarks to cause confusion among consumers so that one’s own goods and/or services are passed off as those of the other trademark owner, which is free-riding (passing off) but not branding. Free-riding (passing off) can take many forms, especially in the Internet era we are living in, which are definitely broader than “genuine, bona fide, or function-fulfilling use”. To insist that “likely to cause consumers to recognize this as trademark” requires external and tangible use of trademarks is correct when determining whether there is a right-maintaining use of trademark, but off the mark when determining whether there is an infringing use of trademark.24 In the present case, both the sale of the trademark “幸福空間” as a keyword by Google25 and the buying of it by advertisers should qualify as “trademark use.”26 19 Karl-Heinz Fezer, Markenrecht, 4. Aufl., 2009, §26 Rdnr. 1. 20 Fezer, Markenrecht, §26 Rdnr. 3. 21 Hacker in Ströbele/Hacker, MarkenR, 12 Aufl., 2018, §14 Rdnr. 75. 22 Article 14(3) of the German Trademark Act provides: (3) If the prerequisites of subs. 2 are met, it shall in particular be prohibited 1. to affix the sign to goods or their wrappings or packaging, 2. to offer goods under the sign, to put them on the market, or to stock them for the above purposes, 3. to offer or provide services under the sign, 4. to import or export goods under the sign, 5. to use the sign in business papers or in advertising. 23 Fezer, Markenrecht, § 14 Rdnr. 837. 24 The German Federal Supreme Court is clearly of the same opinion; see BGH, 18 May 2006 I ZR 183/03 (Quellentext). 25 Rescuecom Corp. v. Google Inc., 562 F 3d. 129, 130(2d Cir, 2009) is of the same opinion. 26 Germany (BGH, 18 May 2006 I ZR 183/03), UK (Kerly’s Law of Trade Marks and Trade Names, 16th edition, Swet & Maxwell, 2018, 28–082 et al.); EU (Joined Cases C236/08 to C-238/08) are of the same opinion.

Google’s keyword advertisement in Taiwan 45

Commercial or industrial significance 1 Missing the ever-increasing internetisation of trademark commerce To lower the threshold for recognition of an infringing use of trademark as a “trademark use” does not mean that a trademark infringement has already been established. Rather, it is just the first step to satisfy the requirement that there is a “trademark use,” in order to initiate the next step of examination, i.e., whether such use really constitutes trademark infringement in that relevant consumers are likely to be confused about the source of goods or services. The third step of examination will be a further examination of whether there are exceptions and justification for infringement. However, if an infringing use of trademark is disqualified as a “trademark use,” then the two steps of the examination just mentioned will be altogether redundant. This is not a sound public policy for trademark law. Taking the present case for example, since Google’s act does not qualify as “trademark use,” then no matter what else Google has done, Google is entirely immune from the scrutiny of the Trademark Act. One would question whether this is suitable for the ever-increasing internetisation of trademark commerce.

2 Disincentive for trademark owners to challenge the keyword ads by powerful search engines “幸福空間” Limited spent several years to litigate throughout three instances and paid substantial legal fees to lawyers and the retained expert witness who authored a legal opinion on the present case. However, the present decision awarded only NT$67,146 (about US$2,000) to “幸福空間” Limited, which was triple the actual damages (NT$22,382 × 3), as Google’s violation was intentional. The small amount of damages were calculated solely based on Google’s statistics, which neither “幸福空間” Limited nor the IP Court can verify or falsify. Actually, the powerlessness of the court also limits its control over the injunction; that is, it cannot verify whether Google continued to sell “幸福空間” as a keyword to advertisers or not. Putting these factors together, one would think there is high disincentive for trademark owners, even owners of well-known trademarks, to challenge the keyword ads practice by powerful search engines. If that remains so, a vicious circle leading to the search engines’ business activities being completely unchecked by courts will be triggered.

4 Similarity in appearance, concept or pronunciation alone does not automatically lead to similarity of marks in Japan Christopher Heath

Case information: Japanese Supreme Court, decision of 27 February 1968 – Hyo¯zan, Minshu¯ Volume 22 No. 22, at 399

Summary Although this case was decided 50 years ago in 1968, it was identified by former Judge Toshiaki Iimura at the Tokyo High Court as the fundamental and leading case where the Supreme Court for the first time applied a rational and transparent approach for determining similarity1 between two registered trademarks: similarity should be judged based on a comparison of the two signs regarding their appearance, their meaning and their pronunciation. If one of these three parameters is similar, yet the others are not, there is a presumption of confusion that can be rebutted by the specific circumstances of the product market for which the trademark is registered.

Legal context Article 4(1)(xi) of the Japanese Trade Mark Act (at the time of decision Article 4(1)(ix)) states that no trade mark shall be registered if the trade mark is identical with, or similar to, another person’s registered trade mark which has been filed prior to the filing date of an application for registration of said trademark, if such trademark is used in connection with the designated goods or designated services relating to the said registered trademark, or goods or services similar thereto.

1 T. Iimura, Sho¯hyo¯ no ruihi ni kan suru hanrei no ko¯sokuryoku (The precedent for determining trademark similarity), 52 Law & Technology 51 (2011).

Similarity of marks in Japan 47 In Japan, all trademark applications are examined ex officio for conflicts with earlier marks. Article 2(1)(i) of the Japanese Unfair Competition Prevention Act lists as an act of unfair competition “the act of using an indication of goods etc . . . which are identical with or similar to those well-known amongst consumers as an indication of goods, etc., of another person . . . and thereby causing confusion with the goods or business of such other person.”

Facts The plaintiff in the present case is Nittô Bôseki KK, and the defendant is the Japanese Patent Office. The plaintiff had applied for registration of the word/ device mark “氷山印” (HYÔZANZIRUSHI or HYOUZANZIRUSHI) which has the meaning of “iceberg”, for the designated goods “fiberglass”. The Japanese Patent Office refused the application for similarity with the earlier registered mark “しようざん” (SHÔZAN or SHOUZAN), which has no meaning in the Japanese language. The earlier mark was also registered for fibreglass. The plaintiff appealed against the refusal and prevailed before the Tokyo High Court. The Japanese Patent Office appealed to the Supreme Court, which was unanimously rejected.

Reasoning of the court2 1 Actual marketing conditions of the product marketed under a trademark may be taken into account when determining similarity Similarity between two trademarks should be decided by considering whether a trademark causes confusion regarding the place of origin of a product when it is used for a product identical to or similar with that of another trademark of another person. In such a case, the trademark used on the goods should be decided by taking into account the totality of its impression, memory, and imagination, etc. which a person in commerce gets from the appearance, concept, pronunciation, etc. of the trademark after considering this on the basis of the specific commercial circumstances of the actual marketing conditions of the product as long as these can be demonstrated. The designated product of the filed trademark in the present case is fibreglass and conceptually it is clear that the trademark is used for fibreglass and not for other products. Therefore, the original judgment was not incorrect to consider the actual marketing conditions of fibreglass when judging the similarity between

2 Verbatim translated by Ryoko Oshikamo. However, the subtitles of this section are given by the author. Readers should note that particularly older Japanese decisions tend to use a rather vague terminology and are difficult to read, let alone translate.

48  Christopher Heath the two trademarks. Taking into account the actual circumstances of fibreglass trading, the two trademarks could be distinguished only phonetically, while the quality of the product was hardly of relevance when determining the place of origin of the product. Thus, it was correctly decided that the [allegedly infringing] trademark for the designated product is not likely to cause confusion in connection with the commercial origin of the product even where the pronunciation of the two trademarks was not elaborated in much detail [in the decision under appeal]. The appellant argues that the original judgement failed to apply the rules for an analysis of similarity in trade. However, the original judgment did not ignore the trademark’s function of distinguishing the place of origin in the fibreglass trade, and therefore decided that general rules of determining similarity in trade (that is, that a phonetic similarity between two trademarks could cause confusion as to the place of origin of a product) cannot be directly applied, that the pronunciation of a trademark is less important than in general trade when a trader in another way distinguishes the place of origin of its products, and that the appellant’s argument does not correctly interpret the original judgment. The appellant argued that as far as the actual marketing conditions of fibreglass were concerned, upon which the original judgment based its reasoning, these conditions neither reflected those in general trade nor those in the trade of fibreglass, but rather the cited conditions were temporary and irregular trading circumstances based on specific conditions at the beginning of developing a new product. However, the original judgment identified all the evidence that was filed, and all the arguments as to the marketing conditions of fibreglass on and after the filing date of the trademark application. Further, there is no evidence to support the argument that these conditions were specific and temporary phenomena as argued by the appellant. If the appellant’s argument was correct, the registration of the present trademark should be invalidated.

2 Similarity in appearance, concept or pronunciation alone does not automatically lead to similarity of marks The similarity in appearance, the similarity in concept and the similarity in pronunciation of a trademark are merely standards for presuming confusion as to the place of origin of a product bearing such a trademark. Therefore if one of the preceding three criteria is similar, but the other two are quite different or there are specific conditions in the market for the goods at issue, and the trademark is not considered to be likely to cause confusion as to the place of origin of the product, the two marks should not be considered as similar. Considering the present case, the filed trademark includes the image of an iceberg and the words “Garasu-senni (Katakana and Kanji characters),” “hyo¯zan-jirushi (Kanji characters),” and “nittoh-bo¯eki (Kanji characters)” while the prior trademark consists merely of the wording “sho¯zan (Hiragana characters).” Therefore, the filed trademark is clearly different in appearance from the prior trademark; the prior trademark obviously does not have

Similarity of marks in Japan 49 the concept of an iceberg. The appellant did not contest the dissimilarity regarding the above two points as held by the original judgement. Therefore, the original judgement considered that even if the filed trademark is pronounced “hyo¯zan jirushi” or “hyo¯zan”, and the prior trademark is pronounced “sho¯zan jirushi” or “sho¯zan”, and the pronunciation of both trademarks is relatively similar, when considering the differences of appearance and concept between the two trademarks, similarity of the two marks should not be determined by comparing only the pronunciation of both trademarks. Moreover, the original judgment can be understood in that even if the pronunciation of both trademarks is similar, the phonetic difference between the two trademarks can easily be recognised. This is so even when taking into account that there are parts of Japan where people hardly tend to distinguish between the pronunciation of “hi” and “shi;” In the specific and actual marketing conditions of the fibreglass market described above, it is difficult to imagine that the place of origin of the product can be confused by mixing up two trademarks which are different in appearance and concept and whose pronunciation is different at least to some degree. Therefore, both trademarks are considered to be dissimilar to each other. In addition, considering the actual marketing conditions in the fibreglass market, it could be said that the comparison of pronunciation of a trademark can be relatively broadly analysed as described above. From this viewpoint, the original decision was not incorrect to conclude that [even] the above-mentioned difference of pronunciation made the two marks dissimilar. [underlined in the original text]

Legal analysis 1 There may be cases of trademark similarity without confusion The concepts of similarity and confusion are fundamental parameters for determining the scope of trademark rights. A trademark that is identical or similar to another registered one for identical or similar goods is likely to cause confusion in trade, the prevention of which is the object of trademark law. By relying on a trademark that would indicate a commercial origin, consumers should be able to distinguish the goods of one undertaking from those of another. The function of a trademark to indicate an origin is seriously compromised if consumers mistake goods from one undertaking as goods from another. In order to determine whether confusion is likely, the degree of similarity between the two marks at dispute should be determined. The present decision of the Supreme Court makes two fundamental statements. First, similarity between two marks should be determined according to the parameters of meaning, pronunciation, and appearance. Second, similarity is not an isolated concept per se, yet a very important parameter in determining confusion, avoidance of which

50  Christopher Heath is the ultimate purpose of trademark law. In other words, there may be cases of trademark similarity without confusion.

2 Principles for determining similarity of trademarks In Japan, the Patent Office in checking trademark applications for prior marks tends to reject an application if it is identical or similar to a prior mark that has been registered for identical or similar goods. Apart from this ground of rejection under Article 4(1)(xi) Trade Mark Act, Article 4(1)(xv) Trade Mark Act allows to reject applications that cause confusion with a prior well-known mark or indication, which is primarily concerned with unregistered indications. Thus, the examination as to confusingly similar prior marks extends both to registered and unregistered yet well-known marks. The Examination Guidelines of the Japanese Patent Office (as of 1 April 2017, “Guidelines”)3 list the following principles for determining the similarity of trademarks.

2.1 Comprehensive observation in judging similarities Judgment on the similarity of trademarks is made by observing in whole the trademark as applied and the cited trademark by taking into consideration the impression, memory, association, etc. given to consumers by the appearance, sound or concept, etc. of such marks and then considering whether or not the trademark as applied is likely to cause confusion as to the source of goods or services with respect to the cited trademark when the trademark as applied is used for its designated goods or designated services. In making the judgment, the general and regular state of transactions of the designated goods or services will be taken into consideration4 while the state of transactions that is only special or limited with respect to the goods or services for which the trademark is currently used will not be taken into consideration.

2.2 Method to observe the trademark Judgment on the similarity of trademarks is not only made by making an overall observation but also by comparing part of the composition of the trademark with another person’s trademark. Judgment on the similarity of trademarks is made by remote observation based on different times and places.

3 www.jpo.go.jp/tetuzuki_e/t_tokkyo_e/pdf/tt1302-002/0310.pdf. 4 The question of how the registered goods are marketed played a prominent role in the present decision. The Guidelines list the following issues to be considered: “(i) Specific mode and manner of the trade mark actually used and (ii) Difference in the specific goods or services for which the trade mark is actually used.”

Similarity of marks in Japan 51

2.3 Standards for the attentiveness used in judging the similarity of trademarks A judgment on the similarity of a trademark needs to be made based on attentiveness usually possessed by the user, with consideration given to a class of main users (for example, difference in expertise, age and gender, etc.) of the designated goods or services on which the trademark is used and other actual state of transactions of the designated goods or services.

3 Similarity between goods at dispute does not follow the formal classification of goods or services The present case applies a rational standard of how to determine confusion, and speaks out against formalistic equations, a line that has been reiterated in a number of subsequent decisions. The 1990 Robinson Helicopters decision rendered by the Osaka District Court was the first case emphasising the point made by the present decision that similarity of goods must be determined with reference to the relevant consumer group. While registration of a trademark with respect to goods or services now follows the Nice classification, the scope of similarity with respect to goods or services is determined according to the level of similarity and confusion of the public. The term “similarity” does not necessarily follow the formal classification of goods or services. In the case at issue, the trademark owner for the word mark “Robinson” registered for helicopters had sued against a third party using “Robinson” for bicycles, and argued that there was a similarity of goods already for the fact that the class of registration was the same. The court disagreed: Although belonging to the same class of goods, the use of the “Robinson” trademark on bicycles was deemed not confusing with the trademark “Robinson” for helicopters, because the potential customers were different.5 The court thus denied that similarity of goods should be schematically decided along the lines of the classification system for goods and services for the purpose of registering trademarks, but with a view to potential customers of the goods in question. Should there be no or little overlap, confusion is unlikely and similarity should be denied. In a further case, the defendant wanted to register the trademark “Riscoat” for pharmaceutical products meant to cure eye ailments, while the plaintiff was the owner of the previously registered mark “Viscoat”, registered for the same class of goods and actually for the same products. Despite similarity of goods and marks as such, the Tokyo High Court6 denied any risk of confusion in this specific case. After all, the products could not be purchased by the average customer off the shelf, but were available only by prescription through doctors or for use in hospitals. Since it was this specific group of professionals that made 5 Decision of the Osaka District Court, 9 October 1990, 22–3 Mutaishu¯ 651 [1990] – Robinson Helicopters. 6 Tokyo High Court, 13 September 2001, 35 IIC 338 (2004) – Riscoat.

52  Christopher Heath the actual purchasing choice, confusion had to be determined according to the understanding of this group of professionals. When applying such a standard, it would become clear that there was no risk of confusion. Thus, registration of the mark “Riscoat” was granted.

4 Peculiarities in determining trademark similarity in Japanese trademark law It should be noted that at least in the eyes of the Western user of the Japanese trademark system, there are a number of peculiarities about determining trademark similarity in trademark law.7

4.1 In Japanese there is no difference between ‘b’ and ‘v’, ‘l’ and ‘r’, and each consonant must be followed by a vowel The first is the imperfect transliteration of foreign words into Japanese katakana script. As there is no difference between ‘b’ and ‘v’, ‘l’ and ‘r’, and each consonant must be followed by a vowel, there may well be surprising similarities or dissimilarities owing to this fact. Just to give an example, Japanese transliterate the phrase “I love you” in the same way as “I rub you”. Where words are registered in Western writing, or where a mark in the Latin alphabet is compared to one in Japanese writing, the courts assume that the foreign mark is pronounced in American English. This issue has been the subject of the seminal “L’Air du Temps” decision by the Supreme Court8. Here, the defendant had obtained registration of a trademark in katakana script that may be transliterated in alphabetic script as “reerudyutan” [L’Air du Temps in French pronunciation] for clothing, etc. In addition, the defendant had also obtained registrations of the marks (all in katakana) Cabochard, Calandre, Narcisse Noir, Farouche, etc., all filed on the same day. The plaintiff is the holder of rights to the trademark consisting of the horizontally written alphabetic script characters “L’AIR DU TEMPS”. In order to determine similarity, it was critical how the latter mark was pronounced by the Japanese public. The court essentially held that in the case of perfumes, a French pronunciation could be assumed: Amongst the plaintiff’s trade marks, the prior trade mark is identical at least in pronunciation as far as the word “reeru-dyu-tan” [L’Air du Temps] is concerned. It bears an obvious superficial resemblance, and to judge from the representation of a registered trade mark and the goods that it designates, the name “reerudyutan” is clearly created from the French reading of the prior trade mark, meaning that the registered trade mark is identical in name

7 A very detailed analysis (in German) is provided by K. Hinkelmann, Gewerblicher Rechtsschutz in Japan, 2nd ed., Wolters Kluwer, 2010, 417–438. 8 Japanese Supreme Court, decision of 11 July 2000, 1721 Hanrei Jiho¯ 141 – L’Air du Temps

Similarity of marks in Japan 53 to the prior trade mark. . . . Of the designated goods bearing the registered trade mark, “cosmetic appliances, bodily accessories, head accessories, cases and bags” and perfumes bear an extremely close connection in terms of use principally with women’s wear, and the consumers who purchase both types of goods are to a considerable extent the same. The result in “L’Air du Temps” might have been influenced by the fact that the defendant had acted in bad faith. Where no such intention can be proven, it is rather difficult to affirm similarity, as the seminal “Frank Miura” rendered by the Tokyo Intellectual Property High Court9 demonstrates. This case is of particular interest because it highlights the difficulties in proving similarity between marks in the Latin alphabet on the one hand, and those in Japanese scripts on the other. The case concerned the well-known Swiss watchmaker Franck Muller (plaintiff) who had registered the following trademarks in Japan: フランク ミュラー (transcribed as Furanku Miurâ), FRANCK MULLER, and FRANCK MULLER REVOLUTION. The defendant had registered the following trademark: フランク三浦 (transcribed as Furanku Miura). Both marks had been registered inter alia for watches, and were actually used for these goods that in appearance had a certain similarity. The Tokyo Intellectual Property High Court made an analysis of similarity that essentially reiterated the criteria established by the Supreme Court in decisions Hyo¯zon and L’Air du Temps: The subsequently registered mark is written in horizontally in katakana in the same type, size and spacing: “フランク” (pronunciation: FURANKU), and “三浦” (pronunciation: MIURA) in Japanese Kanji characters (although without the dot at the above right-hand side of the second character “三 浦”). The word “三浦” (MIURA) is a typical Japanese name, and also the name of a place while “フランク” (FURANKU) is a common name of a foreigner, and the katakana script also points to the English word “frank” and is associated therewith. And by the way, there were a number of examples for names that are composed of a Japanese surname and a foreign first name, e.g. for children one parent of which is Japanese, and one parent foreign, or for a Japanese who adopts a pen name by combining a foreign name or an English word with a Japanese surname. In this respect, the allegedly infringing trade mark can be associated with a Japanese or a person with a relation to Japan who has adopted the name “フランク三浦 (FURANKUMIURA) Based on the above considerations, the allegedly infringing mark and the mark 1 are similar in pronunciation, yet . . . clearly different in appearance, and evoke also different concepts. And there are no circumstances according to which the origin 9 Tokyo Intellectual Property High Court, decision of 12 April 2016.

54  Christopher Heath of the goods bearing the allegedly infringing mark should only be determined according to its pronunciation. . . [the court goes on to consider whether there could still be a confusion by association]: In addition, the allegedly infringing mark containing the word “三浦” (MIURA) clearly indicates a connection to Japan, as the appearance of the mark consists of Chinese characters in handwriting. The idea of origin contained in this mark is clearly different from the one in mark 1 that is attached to the goods of the plaintiff. Furthermore, there is no evidence that the plaintiff uses words in its company that would indicate a connection to Japanese names or places, or marks that would contain such words. For this reason, consumers would not make a mental connection between the defendant’s mark and the cited mark 1 although the pronunciation of the two may be similar. It cannot be affirmed that consumers would make an association between the two marks, or that the two marks would evoke a similar idea. And the two marks confer a different idea or concept not least because the plaintiff’s marks are sold in a price range of one million Yen, while the defendant’s marks sell between 4.000 and 6.000 Yen. The customer circle of the plaintiff’s mark is different from that of the defendant’s mark, as the latter’s representative stated in an interview: ‘Our concept is cheap until the last step.’ For this reason, it is not conceivable that traders or consumers confuse goods of the two enterprises. In consideration thereof, the concrete circumstances of marketing do not change the above finding of dissimilarity.

4.2 Issues to be noted for similarity between a word mark and a device mark In principle, similarity can be affirmed in cases where one mark is a word mark, and the other a device mark that confers to the average consumers the very same meaning as the word mark. In the “Ko¯zo¯ Sushi” case, two marks were registered for various food items, one Kanji word mark “ko¯zo¯” (meaning apprentice), and the other the picture of an apprentice bowing. Both the Patent Office and the Tokyo High Court denied similarity, though, as both word and device mark could be interpreted differently from the meaning “apprentice in a restaurant”.10 A subsequent infringement suit also failed.11 However, it should be noted that the concept that a trademark confers is not taken into account where no such concept is perceived by Japanese consumers, e.g., in cases of a foreign-language mark. The foreign-language mark “Glacier” would thus be considered different from “Hyo¯zan”, because the meaning of

10 Tokyo High Court, 10 September 1990, 1382 Hanrei Jiho¯ 116 – Ko¯zo¯. 11 Supreme Court, 11 March 1997, 51–3 Minshu¯ 1055 – Ko¯zo¯ Sushi.

Similarity of marks in Japan 55 “Glacier” (in French) as “iceberg” would be unfamiliar to a Japanese consumer.12 For this reason, the graphical representation of a foreign language mark would be deemed neither similar nor infringing.

4.3 Also for well-known Western marks, the scope of similarity has been defined very narrowly Also for word/device marks, Western companies experienced that similarity and confusion are interpreted rather narrowly by the Japanese courts (for word marks only, see the preceding “Frank Miura” case). The Japanese courts do not automatically prohibit what in some Western countries would be perceived as an undue palming-off of the image of foreign, well-known marks. Similarity was denied in the 1994 Tokyo High Court decision that involved the registered trademark “Puma” plus device for the marks that bore similarity to Puma’s jumping cat. About 15 years later, Tokyo Intellectual Property High Court arrived at a conclusion of dissimilarity with respect to two marks: the plaintiff’s trademark resembling Puma’s jumping cat logo in terms of both text and device placement.13 These two decisions just as the above “Frank Miura” case may be criticised for allowing the registration of marks that are clearly “inspired” by wellknown foreign marks. Yet one should acknowledge the thorough analysis of the confusion requirement by the Japanese courts and the fact that trade mark similarity does not automatically equal confusion.

5 Differences between trademark law and unfair competition law in interpreting “similarity” and “confusion” The preceding cases first and foremost concerned issues of registrability rather than infringement. Thereby, the conflict between two marks was analysed as of the date when the subsequent mark was applied for registration. Yet similarity of indications is equally essential both to establish trademark infringement and to constitute an action of passing off under unfair competition law (protection of well-known indications against confusing use, Article 2(1)(i) Japanese Unfair Competition Prevention Act). In both cases, the plaintiff’s aim is to establish a 12 The Guidelines specifically mention the trademarks “Earth” and “Terre” both listed in class 9 for TVs, and explain In light of the domestic consumers’ level of understanding of foreign language with respect to the relevant designated goods, the trade mark “EARTH” gives rise to the concept of “earth” but the French term “terre” does not give rise to the concept of “earth,” and thus the two trade marks differ in terms of the concept. In the field of goods where French is generally used for trade names, etc., such concept may be produced. 13 Tokyo Intellectual Property High Court, 10 February 2009, 41 IIC 986 (2010) – Shi-sa.

56  Christopher Heath confusing similarity. In order to prove confusion under unfair competition law, the plaintiff has to show that the defendant’s indication is not only confusing or misleading as such, but that this means misappropriation of the plaintiff’s goodwill. It is thus a valid defence for the defendant to establish that while there might be similarity of indications, customers do not associate the defendant’s indication with the goodwill of the plaintiff’s enterprise.14 In the infringement context, the trademark owner does not have to specifically show that the defendant’s use is a misappropriation of her goodwill, because such misappropriation is presumed by the fact of registration. For this reason, it is questionable whether, as some academics15 and court decisions16 have argued, the approach towards determining similarity should be different for trademark law and unfair competition law. One other decision held that the approach should be the same.17 The differences are not so big if one chooses the right alternative parameters: a competitive relationship in geographical terms and/or in terms of similarity of goods/services. Trademark law does not require a competitive relationship in geographical terms because registration is valid for the whole of Japan, and so is the assumption of use: Goodwill based on a merely regional use of an unregistered indication may not give rise to an action under unfair competition law against the use of a similar indication in other parts of Japan. While passing off protection is granted in order to protect an indication that is well-known in the very form and manner that it has been used, protection under trademark law is granted for the trademark as

14 Tokyo District Court, 25 October 1991, 1993 Tokkyo Kanri 1185 – Belt Clasps: the plaintiff (manufacturer) had sold belt clasps that had become well-known as products of the parent company, not the manufacturer itself. The court therefore concluded that recognition had not been obtained particularly with respect to the plaintiff’s enterprise. While correct in principle, this formalistic approach (distinction between parent and subsidiary company) looks rather artificial. In the case Tokyo High Court, 23 March 1994, 26–1 Chizaishu¯ 254 [1994] – Rubber Mats, the court found that the plaintiff’s insulating mats were distinctive, but did not indicate any specific origin traceable to an enterprise and therefore did not find in his favour by mentioning the fact that no indication of the plaintiff’s enterprise was featured on the goods (presumably because they were used in the construction sector and quickly became covered with dirt and gravel). 15 T. Katsube, Shôhyôhô ni okeru kondô gainen no bunkatsu (The concept of confusion under trade mark law) 49/3 Patent 25 [1996]. 16 The first view is taken by Tokyo District Court, 3 August 1981, 1042 Hanrei Jiho¯ 155 [1982] – Seiko¯: Determining similarity under unfair competition law does not, as in the case of trade marks, require comparison between two marks on an aesthetic or formal basis, but rather an examination of the goods with respect to the competitive relationship, the degree of competition, the degree the goods are chosen because of the indication, and, in short, an evaluation of the relevant trading climate. It is on this basis that confusion as to the presentation of the goods should be determined.

This was also held by Osaka District Court, 28 June 1984, 536 Hanrei Times 266 [1984] – Asahi Bemberg. 17 Tokyo District Court, 27 October 1966, Fusei Kyo¯gyo¯ Ho¯ Hanreishu¯ 945 – Waikiki Pearl. In fact, this decision concerned the question of similarity rather than that of confusion.

Similarity of marks in Japan 57 it has been registered. In the case of trademarks, protection does not extend to use outside the registered scope – the legislation even makes the trademark liable to cancellation if it is used in a manner that differs from the one it has been registered.18 It is certainly correct to say that under the Unfair Competition Prevention Act the examination of confusion permits, even mandates, the scrutiny of target groups and sales methods,19 whereas under the Trade Mark Act there is less scope for this.20

Commercial or industrial significance Anticipating the criteria for trademark similarity and thereby registrability is of fundamental importance for developing global trademark strategies and managing a trademark portfolio, more so in countries with scripts different from Latin, in the case of Japan with two syllabic scripts (hiragana and katakana) and kanji characters that can often be pronounced in different ways, kunyomi and onyomi. Deficiencies in reproducing foreign words add another layer of difficulties in anticipating what would be considered similar, and what not. While the Supreme Court has not anticipated and could not anticipate all these issues, it has at least provided a rational basis for determining similarity.

18 Supreme Court, 13 October 1981, 14 IIC 429 [1983] – McDonald’s III: cancellation may be requested if the actual use differs from registration and thereby causes confusion with another person’s business, goods or services, Article 51(1) of the Trade Mark Act. 19 In the Tokyo District Court’s McDonald’s I decision, 9 IIC 175 [1978], the court had refused to recognise confusion, since the defendant was only selling through automatic vending machines and this apparently precluded confusion. 20 However, importance may be attached to the characteristics of Japanese customers as a whole, see the decisions Hyo¯zon and L’Air du Temps. In this respect, confusion with marks consisting of, or containing, words spelt in the Roman alphabet may be more readily assumed than in Western countries, Nagoya District Court, 16 June 1964, 15–6 Kakyu¯ Minshu¯ 1426 – Hatto Bus; Tokyo District Court, 24 March 1993, 26 IIC 566 [1995] – Type Chanel No. 5.: because of this, greater importance is attached to the artistic elements of the mark.

5 The principles of passing off under trademark law apply to domain names in India Prashant Reddy Thikkavarapu

Case information: Satyam Infoway Ltd. v. Siffynet Solutions Pvt. Ltd. before the Supreme Court of India, Case No. Appeal (Civil) 3028 of 2004 decided on May 6, 20041

Summary This was an action for passing off under trademark law and is considered an important precedent because it was the first time the Indian Supreme Court issued an opinion in a case involving similar sounding domain names. The principal question decided by the Supreme Court was whether internet domain names are subject to the same legal norms as trademarks? This was an important question because India, unlike the law of some other countries, did not have specific laws mandating the protection of domain names. Further, since the phrase in the domain name had not been registered as a trademark, the court was required to apply existing principles of passing off to domain names. The case was initially filed before the City Civil Court at Hyderabad, where the court granted the plaintiff an interim injunction restraining the defendant from using the disputed domain name. On appeal to the Andhra Pradesh High Court, the injunction was vacated and the defendant was allowed to continue using the disputed domain name. The matter was then further appealed to the Supreme Court of India, which delivered a final judgment on May 6, 2004 reversing the High Court’s ruling and confirming the City Civil Court’s ruling.

Facts The appellant in this case, Satyam Infoway Ltd. was a leading information technology services company and one of the largest internet services providers in the country at the time this case was heard. It registered the domain name called “Sify”, in June 1999, under which it offered various services. The appellant had 1 The decision is available at https://indiankanoon.org/doc/1630167/ and the Supreme Court website does not seem to have the judgment. The open source version of the decision does not contain any paragraph numbers for the judgment.

Passing off under trademark law in India 59 claimed that “Sify” was a coined phrase that was invented by using elements of its corporate name “Satyam Infoway”. At the time of filing this lawsuit, Satyam the company was a very well-known internet company in India and was also one of the first internet companies to get listed on the NASDAQ. Apart from providing IT solutions, it also provided internet services to an approximate 500,000 subscribers. The respondent, which seemed to be more of a local entity when compared to the appellant’s pan-India and global presence, created a domain name called “Siffynet” in June 2001 and allegedly began offering some of the same services as the appellant. The respondent sought to justify its name on the grounds that it was the combination of the first letters of the names of the main founders. The appellant was also a prior user of the tradename “Sify” and had trademark applications pending registration for the name.

Legal context This judgment was delivered at a time when India lacked any special sui generis law to guide courts on resolving domain name disputes. Other countries like the United States for example, had already enacted specific laws like the Anti-Cybersquatting Consumer Protection Act, 1999 and the Federal Trademark Dilution Act, 1995 to regulate domain name disputes. Given the lack of a specific statutory mandate in India to protect domain names, judges in lower courts had been falling back on principles of passing off to decide domain name cases. Two such judgments from the Delhi High Court and Bombay High Court were delivered in the case of Yahoo Inc. v Akash Arora2 and Rediff Communication Ltd. v Cyberbooth and Anr.3 In both cases, the courts applied the principles of passing off under common law to decide the domain name dispute in question. The three requirements for establishing the tort of passing off are the (i) the existence of a reputation associated with a certain business; (ii) that there was misrepresentation by another person who wrongfully claimed an association with the bonafide user of the name in question and (iii) finally, that such misrepresentation caused damage to the goodwill of the bona-fide user. The Supreme Court’s judgment in the Satyam Infoway case merely confirmed that this approach is in fact correct thereby ensuring certainty in this field of law. As per the Indian Constitution, judgments of the Supreme Court are binding across the country.

Reasoning of the court The judgment of the Supreme Court can be divided into two parts. In the first part, the court tackles the issue of whether principles of passing off under trademark law can be applied to domain names. In the second part of its decision, the

2 78 (1999) DLT 285. 3 1999 (4) Bom CR 278.

60  Prashant Reddy court applies its analysis from the first part of the judgment to the facts of the case to rule in favour of the appellant and allows the appeal. This case report will deal with both parts individually.

1 Do the principles of passing off under trademark law apply to domain names? The Supreme Court begins by observing that several High Courts had proceeded on the basis that “the principles relating to passing off actions in connection with trademarks are applicable to domain names”.4 Yet, the court had to examine this seemingly axiomatic issue because the respondent had argued that the “domain name could not be confused with ‘property names’ such as Trade Marks” because according to the respondent, “a domain name is merely an address on the internet”. The respondent tried to substantiate this conclusion by pointing out that the mere registration of a domain name with ICANN did not confer any intellectual property right and that the registration of a domain name was akin to the registration of a company name which, although a unique identifier, did not confer any intellectual property rights on the company. The court then initiates its analysis by examining the question of whether the domain name can be said to be a word or name which is capable of distinguishing the subject of trade or service made available to potential users of the internet. While this may appear to be a rather obvious question today, it should be remembered that the internet was still in its infancy in 2004, which is why the court sought to examine this basic question. To answer this question, the court begins by examining the evolution of the internet, commenting that the “internet has developed from a mere means of communications to a mode of carrying on commercial activity”. In this context, the court examines how domain names facilitate the navigation of the internet by customers looking for specific products or services thereby underlining the fact that the domain names for all practical purposes act as a unique identifier for business. On the basis of this logic, the court concludes that the domain names may fall within the definition of “services” in Section 2(z) of the Trade Marks Act, 1999 which is as follows: “service” means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding,

4 Rediff Communication Ltd. v. Cyberboothand Anr., AIR (2000) Bombay 27, Yahoo Inc. v. Akash Arora, (1999) PTC 19 201, Dr. Reddy’s Laboratories Ltd. v. Manu Kosuri, (2001) PTC 859 (Del.), Tata Sons Ltd. v. Manu Kosuri, (2001) PTC 432 (Del.), Acqua Minerals Ltd. v. Pramod Borse & Anr., (2001) PTC 619 (Del.), and info Edge (India) Pvt. Ltd. & Anr. v. Shailesh Gupta & Anr., (2002) 24 PTC 355 (Del.)

Passing off under trademark law in India 61 lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising; On the basis of its analysis, the court answers in positive the question of whether a domain name is capable of helping potential users distinguish between different trades and services. The court then proceeds to examine the issue of whether the principles of passing off under trademark law can apply to domain names. In order to answer this question, the court describes passing off as an action in law “to restrain the defendant from passing off its goods or services to the public as that of the plaintiff’s. It is an action not only to preserve the reputation of the plaintiff but also to safeguard the public.” The court explains that in order to establish passing off, “the defendant must have sold its goods or offered it service in a manner which has deceived or would be likely to deceive the public into thinking that the defendant’s goods or service are the plaintiff’s.” The three key elements of a passing off action, as reiterated by the court, are first, the existence of a distinctive reputation that is associated with the good or service in question. In other words, the reputation should be such that the name (or could be any other unique feature) of the good or service should act as a source identifier for the consumer in question regardless of whether the same has been registered as a form of IP. The second element is the requirement of misrepresentation by the defendant to the public regarding the sources of the goods or services that are being offered under the disputed name. The court clarifies that it is not necessary for the plaintiff to prove the defendant’s mala-fides in this regard and that it would suffice for the plaintiff to establish the “likelihood of confusion” in the minds of customers or likely customers who may be persons of imperfect recollection with an ordinary memory. The third and final element of a passing off action is the loss or likelihood of loss due to the confusion. In the specific context of domain names, the court notes that the use of a similar domain name may lead to diversion of customers because customers seeking to log on to the website of one business may log on to the similarly sounding domain name belonging to another business because of similarities in the domain names used for both websites. In particular, the court states: Ordinary consumers/users seeking to locate the functions available under one domain name may be confused if they accidentally arrived at a different but similar web site which offers no such services. Such users could well conclude that the first domain name owner had mis-represented its goods or services through its promotional activities and the first domain owner would thereby lose their custom[ers]. It is apparent therefore that a domain name may have all the characteristics of a trademark and could found an action for passing off. (sic) The court then proceeds to review judgments by various Indian High Courts, with regard to domain name disputes between trademark holders and domain

62  Prashant Reddy name owners where the courts had consistently applied the law relating to passing off to domain name disputes. Examining the approach of the High Courts in these cases, the Supreme Court states that these high courts were correct in their approach of applying principles of passing off under trademark law to domain names. The court then makes a brief reference to the Uniform Domain Name Disputes Resolution Policy (UNDNR Policy) formulated by the Internet Corporation for Assigned Numbers and Names (ICANN),5 noting that the policy allows persons interested to sue for domain names that are identical or confusingly similar to a trademark or service mark. The judgment then comes to the categorical conclusion that despite that no law specifically provides for the protection of domain names, the same could be protected under the law of passing off. The court states in pertinent part: As far as India is concerned, there is no legislation which explicitly refers to dispute resolution in connection with domain names. But although the operation of the Trade Marks Act, 1999 itself is not extra territorial and may not allow for adequate protection of domain names, this does not mean that domain names are not to be legally protected to the extent possible under the laws relating to passing off. Thus, it would be possible for a domain name owner to sue for either trademark infringement or passing off depending on the registration status and reputation of the disputed phrase under the Trade Mark Act, 1999.

2 Was the respondent liable for passing off the appellant’s trade name? After explaining the principles of passing off under trademark law, the Supreme Court judgment proceeds to apply these principles to the present fact situation to decide whether the appellant could be granted an interim injunction to restrain the respondent from using the disputed domain name pending trial. The traditional three-step test for issuing a temporary injunction under Indian law is based on a combination of three factors, which includes the existence of a prima facie case, balance of convenience in favour of the plaintiff and possible irreparable injury to the plaintiff. In order to establish the existence of a prima facie case, the court first examines the strength of the appellant’s tradename “Sify” by examining the goodwill accrued by it over the years. To this end, the court examines the growth of the appellant’s business as a technology services company and an internet service provider. Given the undisputed fact that the appellant had over 500,000 subscribers, 480 cyber cafes providing internet services, and 54 points of presence all

5 ICANN was formed in 1998 as a non-profit and helps in maintaining the domain name system on the internet.

Passing off under trademark law in India 63 over India, the appellant was on firm ground while establishing the strength of its goodwill. Apart from its business exposure in India, the court also takes note of the fact that the company was one of the first Indian internet companies to be listed on the NASDAQ stock exchange and that it operated the website www.sify. com as a comprehensive internet site. The appellant also claimed to have prominently advertised the name “Sify” during the course of its business operations and submitted its sale figures and expenses incurred on advertisement and market promotion. In addition, the court also took cognisance of the various awards and newspaper coverage of the appellant under its tradename “Sify”. In the court’s opinion, these documents prima facie established the appellant’s goodwill in connection with the tradename “Sify”. The court then examines the respondent’s explanation for adopting the name “Siffynet” as its corporate name and its domain name. In this regard, the respondent argued that its domain name was a combination of the first letter of the five promoters of the respondent namely “Saleem, Ibrahim, Fazal, Fareed and Yusuf”, followed by the phrase “net” since the latter described its business. The Supreme Court refused to accept this argument, preferring to dismiss it as an “invented post-rationalisation” because the initial set of pleadings filed before the trial court did not provide this explanation. Similarly, the court was also reluctant to accept the respondent’s evidence that it had a membership of 50,000 people for its services and that the public had come to associate the disputed name with the respondent. There was no prima facie evidence of the respondent’s customer base. On a comparison of the evidence, date of use, and goodwill the court was convinced that the appellant had made out a strong prima facie of being a prior user of the phrase “Sify”, that it had considerable goodwill associated with the tradename and that the respondent’s phrase “Siffynet” was phonetically similar to the appellant’s name “Sify” thereby leading to the likelihood of confusion. The respondent also tried to argue that confusion is unlikely, because both businesses were operating in different business fields. The court dismissed even this argument on factual grounds since printouts of the respondent’s website clearly established that it was making available services that were similar to those being offered by the Appellant under the tradename “Sify”. Together, the preceding factors swung the balance of convenience in favour of the appellant especially since the court was of the opinion that the respondent’s adoption of its tradename “Siffynet” was prima facie dishonest. As a result, the Supreme Court overruled the High Court and affirmed the decision of the City Civil Court to grant the appellant an interim injunction.

Legal analysis The court’s decision for most part is well reasoned and, on the facts, an interim injunction was warranted, especially since the tradename in question was a coined phrase. However, certain propositions laid down by the court certainly require a more detailed examination.

64  Prashant Reddy

1 Is it correct to equate domain names to a trademark? In its judgment, the Supreme Court at one point holds that “It is apparent therefore that a domain name may have all the characteristics of a trademark and could found an action for passing off”. This holding appears to equate domain names to trademarks, but is such a characterisation accurate? As explained by one academic, the relationship between consumers and domain names is fundamentally different from the relationship between consumers and trademarks. This academic explains “To surf the web, users type a domain name in their Internet browser to access a website. This is not the case with trademarks: Consumers react to trademarks, but they do not act or interact with them.”6 This is a valid criticism because the relationship of domain names and trademarks with consumers is crucial for a confusion analysis. The domain name, unlike a trademark, is merely a signpost pointing to a direction where a particular product may be found. A trademark however is essentially an “address-board” indicating the source of a particular product. It performs a greater role than merely pointing towards a particular direction. Given this fundamental difference between trademarks and domain names, each is of differing importance in the ultimate confusion analysis that underpins the tort of passing off.

2 The domain name should be only one component of the confusion analysis At a particular point in the judgment, the court concludes that similar sounding domain names may cause loss to the legitimate user of the mark because of diversion of traffic away from the website of the legitimate user. The judgment states in pertinent part, the following: The use of the same or similar domain name may lead to a diversion of users which could result from such users, mistakenly accessing one domain name instead of another. This may occur in e-commerce with its rapid progress and instant (and theoretically limitless) accessibility to users and potential customers and particularly so in areas of specific overlap. Ordinary consumers/users seeking to locate the functions available under one domain name may be confused if they accidentally arrived at a different but similar web site which offers no such services. While it is true that similar domain names may cause diversion of consumers away from the intended website, the court should have also noted that domain names are only one of the elements that may lead to confusion amongst the consumers. The most significant element of the confusion analysis should be the design and content of the website using the similar or identical domain name. It is possible 6 Cedric Manara, “A foreign outlook on Satyam Infoway Ltd. v. Siffynet Solutions Pvt. Ltd.” 1 Indian Journal of Law & Technology 158 (2005).

Passing off under trademark law in India 65 that at times, the design and content of the website is enough to instruct the consumer that the source of goods or services are entirely different despite the domain name sounding similar to that of another service provider. Such an understanding becomes important in cases where persons other than a trademark owner may have legitimate reason to use a particular domain name in good faith. For example, a fan club or a forum of product users may have a legitimate reason to use a particular domain name that is similar to the name of a celebrity or product which they want to discuss amongst each other. The good faith intent of such users should therefore be a valid concern. The tort of passing off should be used to prevent only confusion and should not be used to censor otherwise legitimate speech.

3 The sophisticated internet user The tort of passing off generally revolves around the average person who is of average intelligence and imperfect recollection. This standard can however vary depending on the goods and services involved and the prospective consumers of such goods or services. In an earlier case, the Supreme Court had held “The class of purchasers who are likely to buy the goods bearing the marks they require, on their education and intelligence and a degree of care they are likely to exercise in purchasing and/or using the goods”7 can be relevant factors while deciding a case of passing off. In the present case, the Supreme Court adopts the standard of the average person who is of average intelligence and imperfect recollection, while assessing passing off but the question is whether internet users in India, especially in 2004, should have been held to a higher standard. Back in 2004, the average internet user was likely a far more sophisticated user than the average consumer in other fields of commerce because internet access was expensive and limited at the time in India. The general level of education of a consumer is a relevant consideration to factor into the confusion analysis in most cases of passing off and the court should have better defined the standard of the average internet user in 2004 by examining the general socio-economic profile of the Indian internet user. This argument regarding the sophisticated internet user was used by a defendant in a different case before the Delhi High Court. At the time, the High Court rebutted this argument on the grounds that even if an individual is a sophisticated user of the Internet, he may be an unsophisticated consumer of information and such a person may find his/ her way to the defendant Internet site which provides almost similar type of information as that of the plaintiff and thereby confusion could be created in the mind of the said person who intends to visit the Internet site of the plaintiff, but, in fact reaches the Internet site of the defendant.8

7 Cadila Healthcare Limited v Cadila Pharmaceuticals Limited, 2001 PTC 541 (SC). 8 Yahoo! Inc. v. Akash Arora & Anr. 78 (1999) DLT 285.

66  Prashant Reddy This distinction between a “sophisticated user of the internet” and “an unsophisticated consumer of information” does not make much sense and appears to be self-contradictory. This was a standard that should have ideally been reviewed by the Supreme Court.

4 No analysis on irreparable injury Interim or temporary injunctions are an equitable remedy under the law. The long-accepted criteria for the issuance of an interim injunction is the threefold test that starts with the existence of a prima facie case, followed by establishing the balance of convenience in favour of the plaintiff and the possibility of irreparable injury to the plaintiff if a temporary injunction is denied. Very often Indian courts simply conduct only the first leg of this test, i.e., whether or not there exists a prima facie case, without examining the other two legs of the test. In this particular case, the court does conduct the “balance of convenience” analysis but is completely silent on whether the appellant would also suffer from irreparable injury pending trial. This is despite the fact the High Court ruling that the respondent was more likely to face irreparable injury if an injunction was granted against him. If the appellant was unable to establish the likelihood of irreparable injury being caused, the court should have denied an interim injunction until all the averments could be tested on the basis of evidence led during trial.

5 This approach does not adequately take care of instances where the opposing parties are operating in different fields The one significant shortcoming of applying principles of passing off to domain name disputes is that it does not adequately take care of instances where the opposing parties are operating in different fields. For example, if a plaintiff and defendant are using similar domain names but are selling tennis equipment and food items respectively, it would be difficult to apply principles of passing off to stop the defendant from using a particular domain name because one of the key ingredients of passing off is establishing confusion due to the similarity of products and names. If confusion cannot be established there is no question of establishing passing off. Therefore, passing off will be of limited help in cases where the domain names in question are for different products or services. In such cases the plaintiff may be able to invoke the principles of dilution under the Trade Marks Act, 1999 if it has registered its trademark with the Trade Mark Registry and is able to establish its reputation. Registered trademark owners have an opportunity to sue for dilution even if confusion is not established, although it should be mentioned that the law in this regard is still developing in India.

Commercial or industrial significance The case is of significant commercial importance because it signaled to potential cyber-squatters that the Indian judiciary would not take a dim view of

Passing off under trademark law in India 67 cybersquatting on domain names that had names commonly associated with others’ brands in the brick-and-mortar world. While there have been no detailed studies on the economic impact of this judgment, it is very likely that a conclusive judgment of the kind delivered by the Supreme Court raised the cost for future cyber-squatters. This would naturally have had the effect of reducing the business risks for those Indian businesses who were yet to register domain names for their businesses. A less conclusive judgment may have led to more confusion in the then nascent world of Indian e-commerce. The judgment also precluded the need for Parliament to enact a specific legislation to protect domain names on the internet.

Part 3

Application of market survey in solving trademark disputes Market survey not well accepted   6 Market survey recently recognised as a persuasive tool to solve trademark disputes in China

71

HAIJUN JIN

  7 Market survey in Malaysia: an impracticable and undesirable way to adduce evidence in trademark lawsuit

83

CHENG PENG SIK

  8 Market survey seldom accepted by Taiwanese courts in trademark litigation

94

KUNG-CHUNG LIU

Proving acquired distinctiveness through use by questionnaire   9 Three-dimensional shape of Coca-Cola bottles registrable: acquired distinctiveness evidenced by questionnaire in Japan YOSHIYUKI TAMURA

105

6 Market survey recently recognised as a persuasive tool to solve trademark disputes in China Haijun Jin

Case information: Michael Jordan v. China TRAB and Qiaodan Sports Co., Ltd., Supreme People’s Court of China, (2016) Administrative Case No. 27, decided on December 7, 2016

Summary China’s Trademark Law provides for the “prior right doctrine” as one of the grounds to refuse to grant trademark registration. In Michael Jordan v TRAB & Qiaodan Sports, the Chinese Supreme People’s Court (SPC) clarified that the right to one’s name is a category of prior rights, and that the specific name as a qualified subject matter of prior right shall meet three requirements: (1) it has been some kind of celebrity’s name in China and known to the relevant public; (2) the relevant public uses it to refer to this person; and (3) it has established a stable correspondence with this person. In the present decision, the SPC found that such requirements were satisfied based on the facts provided by Jordan and that the market surveys were of probative value in conjunction with other evidence. Although it is rare for Chinese courts to recognise the admissibility of market surveys as probative evidence, the present decision leaves a large space for applying such tool to some major issues in the trademark law.

Legal context China’s Trademark Law (CTL)1 provides protection for registered trademarks. The owner of a registered trademark has the exclusive rights to use the mark on goods as applied and to prohibit others from using such mark, identical or similar, on the same or similar goods, if there is a likelihood of confusion.2 For unregis1 CTL was adopted in 1982 and amended in 1993, 2001, 2013. The law applied to the present case is the revised version of CTL in 2001 (CTL 2001). However, for the purpose of enhancing understanding of the current CTL as amended in 2013 (CTL 2013), the corresponding provisions of CTL 2013 are also cited for reference. 2 Article 52(1), CTL 2001; Article 57(1),(2), CTL 2013.

72  Haijun Jin tered trademarks, only if they are proved and recognised as well known in China can they enjoy the same protection as registered trademarks.3 It is therefore the first and most important step for businesses to apply for trademark registration with China’s Trademark Office (CTO) if they want to obtain trademark protection in China. One of the substantive grounds for refusal of trademark registration is the socalled “prior right doctrine” according to Chinese trademark law. CTL provides that an application for trademark registration shall not infringe the prior right of another person.4 The prior right owner may, within three months from the date of an accepted and published application, file an opposition, if she finds that the application is in violation of her prior right.5 If the prior right owner has not found and opposed trademark registration during this period, the trademark in question will be registered. The alternative remedy available for the prior right owner is to seek the invalidation of said registered trademark. CTL provides that the prior right owner may, within five years from the date of registration, request that the Trademark Review and Adjudication Board (TRAB) declare the registered trademark invalid.6 If unsatisfied with the decision made by the TRAB, the owner of the registered trademark or the counter party seeking to invalidate the said trademark can file an administrative lawsuit before the Beijing Intellectual Property Court after 2014 (previously Beijing No. 1 Intermediate People’s Court), which decision can further be appealed to the Beijing Higher People’s Court. The final decision made by the appellate court can be petitioned to the SPC on exceptional occasions. Although a case filed against the TRAB is apparently an administrative lawsuit, such a dispute essentially happens between private parties, e.g., a prior right owner and a trademark applicant. The present chapter focuses more on the substantial issues between these private parties, rather than the claims against the TRAB. There are two substantial issues related to the prior right doctrine: (1) what are prior rights and their categories? For example, is the right to one’s name a prior right under CTL? (2) If yes, how is the scope of such protection under the circumstance of each specific case determined? This is especially unclear for those names beyond one’s official and full names, such as transliteration of a foreign celebrity’s name, a nickname, pen name, etc. While the first issue is a matter of law, the second one is more a matter of fact, and relies more on evidence. With regard to the issue of market surveys, although they have been accepted as evidence for solving trademark disputes in some jurisdictions around the world, there is no specific rule in CTL or its regulations on market surveys, and only very few, if any, trademark cases in China have argued and debated about it.

3 Article 13, CTL 2001; Article 13, CTL 2013. 4 Article 31, CTL 2001; Article 32, CTL 2013. 5 Article 30, CTL 2001; Article 33, CTL 2013. 6 Article 41(2), CTL 2001; Article 45, CTL 2013.

Market survey recognised as a persuasive tool 73

Facts Michael Jeffrey Jordan (“Michael Jordan” or “Jordan”) is one of the most famous basketball players in the history of the National Basketball Association (NBA) in the United States, and has been well known in China since the 1980s. Jordan teamed up with Nike to sell basketball sneakers under the mark of “Air Jordan”, which has been one of Nike’s most popular products and is sold worldwide, including in China. In 1993, Nike applied for and received a trademark registration for “JORDAN”, but never applied for trademarks based on the Chinese transliteration of “Michael Jordan” or “Jordan”, which are “乔丹” in Chinese characters or “QIAODAN” in Hanyu Pinyin romanisation of the Chinese language. Qiaodan Sports Co. Ltd. (“Qiaodan Sports”), accused by Jordan of using the Chinese transliteration of his name on its goods, has been established since 1984 under the trade name of Factory No. 2 of Daily Necessities Fujian Jinjiang Chendai Xibian (福建省晋江市陈埭溪边日用品二厂). In 2000, it changed its trade name to the current one, “Qiaodan Sports”, with highlighted “乔丹” (Qiaodan). Since 2002, Qiaodan Sports has also applied for and been granted the trademark registration for the word mark “乔丹”, “QIAODAN” and the Jumpman device on goods from Class 25: “sports shoes, sportswear and sports accessories”. In 2012, Qiaodan Sports tried to extend the designated goods for the trademarks of “乔丹” and “QIAODAN” to Class 28, which includes “sports equipment, swimming pools (entertainment), roller skates, and Christmas tree decorations (except lighting and candy)”. The trademark registrations were granted without opposition. Michael Jordan then requested that the TRAB invalidate these registered trademarks based on right to his name, among other reasons. The TRAB denied Jordan’s claim and affirmed these registered trademarks. Jordan also failed before the first instance court and the appellate court in Beijing. As a last resort, Jordan petitioned to the SPC for review, which was granted. The adjudication panel of the SPC for the case was chaired by the Vice Chief Justice Tao Kaiyuan and included four other justices from the Intellectual Property Division. The panel held a public hearing on April 26 and decided on December 7, 2016. Michael Jordan won the case concerning the trademark with Chinese characters “乔丹”, but failed on that with Chinese Pinyin “QIAODAN”.7 Among the evidence submitted by Michael Jordan, there are two reports by Horizon Research Consultancy Group, one of the top survey companies in China, titled “Survey Report on the Association between Michael Jordan and Qiaodan Sports Brand” (“Horizon Survey Reports”). On the other hand, Qiaodan Sports also produced a market survey report completed in 2011, titled “Qiaodan Brand’s Recognition Research Report” (“Qiaodan Report”). The SPC adopted the Horizon Survey Reports in the decision and rejected the Qiaodan Report. 7 The latter one was decided by the SPC on December 7, 2016, (2016) Administrative Case No. 31, though it had not been discussed further in this report.

74  Haijun Jin

Reasoning of the court The present chapter focuses on the decision concerning the trademark of “乔丹”, the Chinese characters of the transliteration of Jordan, and especially the facts and legal issues surrounding market survey. The SPC ruled in favour of the petitioner Michael Jordan by considering the following eight factors: (1) the legal basis for name right protection; (2) scope of such protection; (3) the level and scope of petitioner’s celebrity; (4) effects of the reality that the petitioner himself or his licensee Nike has not used “乔丹” to refer to Jordan; (5) specific circumstance for the relevant public to mistakenly associate the trademark in question with the petitioner; (6) Qiaodan Sports’ apparent bad faith during application for registering trademarks; (7) impacts of Qiaodan Sports’ using “乔丹” as trade name and advertising tool; and (8) laches on the side of petitioner to claim the right to his name. When determining the right to one’s name and the scope of such protection, the SPC touches upon the following three points, which concern not only legal questions, but also factual problems:

1 The legal basis for defining “prior rights” under Article 31 (currently 32) of CTL 2001 and the scope of the right to one’s name as a prior right Article 31 of CTL 2001 provided a very simple rule that the application for trademark registration shall not prejudice the prior rights of others. The SPC first interprets this provision from the point of legislative history. Due to the diversity of private rights and interests under the civil law and the difficulty in enumerating exhaustively in legislation, Article 31 did not clearly stipulate or enumerate any specific types of prior rights, but summarises them in a general term of “prior rights”. The SPC then considers that the prior rights under Article 31 should be protected in accordance with other specific provisions of the CTL. However, no such provisions in the CTL can be found at all; therefore the provisions of China’s General Principles of Civil Law (GPCL) and other private laws, such as the Torts Liability Law, shall be applied. The rights and interests stipulated under these laws shall be enjoyed by entities and protected against later trademark registration that might undermine those rights and interests. With respect to the right to one’s name as claimed by Michael Jordan, the SPC applied Article 99 of GPCL (“persons shall enjoy the right to names, which includes the right to decide, use and change their names accordingly, and prohibit others from interfering with and misappropriating them”) and Article 2 of the Tort Liability Law (“the civil rights and interests referred to in this Law include the right to life, health and name . . . and other personal and property rights and interests”) to conclude that the right to one’s name may constitute a kind of “prior right” under Article 31 of CTL and that if the registration of a trademark infringes the other’s right to her name, it shall be rejected.

Market survey recognised as a persuasive tool 75 Finally, the SPC reasoned that a personal name is usually used to refer to and distinguish a natural person from others, therefore the right to one’s name is a personal right enjoyed by each natural person. However, with the development of China’s market economy and widespread monetisation of its celebrities by natural persons through licensing contracts or other means, the SPC opined that celebrities’ endorsements are increasingly becoming an important marketing tool for businesses to enhance their brands, promote their goods or services, and increase their popularity, and that the protection of the prior right to one’s name under Article 31 of CTL applies not only to protect the dignity of natural persons, but also to protect the economic benefits inherent in their names, especially those of celebrities. Since the primary function of mark is to distinguish the source of its goods or services, the unauthorised registration of another person’s name as a trademark would not only impair the dignity of such person, but also lead the relevant public to mistakenly believe that there exist endorsements, authorisation or other specific links between the trademark and this other person. The SPC further concludes that registration of such a mark would harm not only the other person’s right to her name, but also the legitimate rights and interests of consumers.

2 The requirements for protecting the right to one’s name under Article 31 (currently 32) According to the SPC, when applying Article 31 of the CTL 2001 to protect the right to one’s name, the specific name as subject matter shall meet the following three conditions: (1) the person with such a name has been some kind of celebrity in China and is known to the relevant public; (2) the relevant public uses it to refer to this person; and (3) it has established a stable correspondence with this person. This opinion is different from those of the lower courts and the TRAB, which held that there shall be a unique correspondence between the specific name and the person who claims the right. The SPC gives a persuasive explanation on this issue. If the unique correspondence were a prerequisite for the right to one’s name, then a person who has the same name as others would not be able to establish the unique correspondence and get protection for his name, even if he has been a celebrity among the relevant public, as a defendant could always bring up an example of another person, e.g., a non-celebrity, who happened to have that name as well. To make things more complicated, this person may have other names than her formal name, such as a nickname, pen name and so on, which increases the difficulty in establishing the unique correspondence. Such a standard is too harsh, and the SPC therefore replaces it with a relatively reasonable one, namely, a stable correspondence in the view of the relevant public. With respect to Qiaodan Sports’ claim that the Chinese transliteration of Michael Jordan’s surname as “乔丹” does not qualify as the subject matter of his name right to Jordan, because there are over two thousand Chinese people

76  Haijun Jin with the name of “乔丹” as the National Census statistics shows, the SPC found this issue actually concerns the protection of foreigners’ right to their names in Chinese translation or transliteration, and held that due to the differences in language and culture, and for purpose of convenience in communication, the relevant public in China is generally accustomed to referring to the Chinese translation or transliteration of the foreigner’s surname, rather than his or her foreign name. Therefore, it is necessary to consider such a custom for the relevant public in China, when judging whether a foreigner can claim to protect part of his or her name in Chinese translation or transliteration. The SPC concludes that “乔丹” as a part of the Chinese transliteration of Jordan’s full name can be protected as the subject matter of Michael Jordan’s prior right, as it has met the following three conditions, thereby proving a stable correspondence between “乔丹” and Michael Jordan.

2.1 Michael Jordan with the specific name “乔丹” has been a celebrity in China There are a large number of articles on Michael Jordan published in newspapers, periodicals, and websites, as well as books and other publications in China, which use “乔丹” to refer to Michael Jordan. It is proven that the Chinese public and news media generally refer to Michael Jordan as “乔丹”, and the name “乔 丹” has established a stable correspondence with Michael Jordan. As statistics show, from June 26, 1984 to May 22, 2010, there were 282 news reports on Michael Jordan published by “人民日报”(People’s Daily), “参考消息”(Reference News) and “经济日报” (Economic Daily), which are among the most popular and authoritative newspapers in China; all of these news reports have referred to the NBA player Michael Jordan as “乔丹”.

2.2 The relevant public refers to Michael Jordan as “乔丹” The SPC noticed that during the first instance trial, Qiaodan Sports recognised that “乔丹” is related to Michael Jordan, but that he “is not the only one”, claiming that although the relevant public in China refers to Michael Jordan as “乔丹”, “when referring to the Chinese characters ‘乔丹’, it does not necessarily mean the plaintiff, i.e., Michael Jordan”. It further noticed that Qiaodan Sports made a statement in its Prospectus for initial public offering in 2011 to warn specially on brand risk and said that “there may be some consumers who associate Qiaodan Sports and its products with Michael Jordan, incurring misunderstandings or confusion.” The SPC therefore held that such recognition and statement indicated that Qiaodan Sports acknowledges that the relevant public may associate “乔丹” with Michael Jordan.

2.3 “乔丹” has a stable correspondence with Michael Jordan According to the SPC, the Horizon Survey Reports provided probative evidence to prove the two points mentioned in section 2.2, namely Michael Jordan with

Market survey recognised as a persuasive tool 77 the specific name “乔丹” has been a celebrity in China, and the relevant public uses “乔丹” to refer to Michael Jordan. The next point will discuss how the SPC examined the process and results of this survey in more details.

3 The admissibility of survey reports Both Michael Jordan and Qiaodan Sports submitted survey reports before the courts, which failed to be recognised by the lower courts. However, the SPC acknowledges that it is helpful for the court to clarify the public knowledge of “乔丹” through an objective, fair, standardised, and transparent market survey, because the facts or the legal application of this case are closely related to the public’s knowledge on these things. The SPC accepts the admissibility of the survey reports.

3.1 The survey reports submitted by Michael Jordan were found credible The SPC found the two survey reports completed by the Horizon Research Consultancy Group (Horizon Survey Reports) credible based on these factors: the investigations were conducted in five cities: Beijing, Shanghai, Guangzhou, Chengdu, and Changshu in 2012 in order to obtain information on general consumers’ knowledge of Qiaodan Sports brands and Michael Jordan; the public surveyed included local residents aged 28–60 years who had lived in the place where the surveys took place for more than two years, had not taken part in any other market survey in the last six months, and did not have employment in sensitive industries, such as investigation, consultancy and advertising, or clothing and sports; the reports were completed by a professional entity in the field of market research; the investigating process of the surveys has been notarised, which provided detailed description on the composition of interviewees (chosen by a multi-stage stratified random sampling method), approach of the interview, sampling methods and the process of reaching conclusions; and the demographic characteristics of the relevant public surveyed were basically the same as those of the Sixth National Census in 2010. The surveys were conducted by interviews with questionnaires. The conclusions of the Horizon Survey Reports can further prove that the relevant public usually refers to Michael Jordan as “乔丹”, and a stable correspondence has been established between “乔丹” and Jordan. When asked the question “when ‘乔丹’ is mentioned, what’s your first response?”, 85% and 63.8% of the respondents in the reports answered respectively that they associated it with “Michael Jordan”, and only 14.5% and 24% of respondents replied respectively that they associated it with “Qiaodan Sports.” When asked about the relationship between Michael Jordan and Qiaodan Sports, 68.1% and 58.1% of the respondents thought them to be related. Among the respondents who purchased Qiaodan Sports’ products in the last two years, 93.5% and 78.1% of them respectively took Michael Jordan to be related to Qiaodan Sports. As to the question concerning a specific relationship between Michael Jordan and Qiaodan

78  Haijun Jin Sports, the top three answers from the respondents were “products endorsement”, “authorized use”, and “company’s founder”.

3.2 Rejecting the survey report by Qiaodan sports The Qiaodan Report from Qiaodan Sports looks very simple and its conclusions are that only 7% of the respondents think that ‘乔丹’ is the brand of Michael Jordan; 90% of consumers who purchased products from Qiaodan Sports think of Qiaodan Sports as a Chinese native brand, and think that it has nothing to do with Michael Jordan; and 3% of these consumers have never heard of Michael Jordan. The SPC did not permit it as evidence. The main reason is that it did not contain any explanation about the investigation process, the questionnaire, or specific issues required for survey. What’s more, the sources of the relevant survey data and the ways of reaching these conclusions are undisclosed. The credibility of this report is difficult to affirm, and its conclusions are therefore unacceptable.

Legal analysis 1 The nature of the right to a name: personal right or the right of publicity? In the theory and legislation of Chinese civil law, the right to one’s name has long been recognised as the right of personality, which concerns more the individual’s dignity and reputation rather than the economic benefits. However, business reality in China has recently changed this view. For example, in the present decision, the SPC actually recognised that the right to one’s name can have economic benefits, especially for celebrities. From this perspective, the SPC acknowledges that there is a kind of right similar to the right of publicity in the US. Generally speaking, the right of publicity belongs to the realm of property right, because it can be defined simply as “the inherent right of every human being to control the commercial use of his or her identity.”8 The SPC clarifies the scope of the right to one’s name as a prior right under Article 31 of CTL 2001. In its opinion, the SPC enumerates three requirements for protection of said right.9 With the change of the third requirement from unique correspondence to a stable correspondence, it is more convenient for celebrities, especially those outside China, to protect their right to names, including

8 Thomas J. McCarthy, The Right of Publicity and Privacy, 2nd ed., Thomson Reuters, 2008, §1:3. 9 See Reasoning of the courts, point 2.

Market survey recognised as a persuasive tool 79 their surnames, pen names or nicknames, against other’s misappropriation without their permission. Such an opinion has been adopted by the SPC in its latest Provisions on Several Issues Concerning the Trial of Administrative Cases Involving the Granting and Confirmation of Trademark Rights.10 The Provisions stipulate that the prior rights under Article 32 of CTL 2013 cover private rights and other legitimate interests enjoyed by the others before the filing date of trademark application at issue;11 the right to one’s name is among those prior rights, and the court shall find the infringement of one’s name right by the trademark at issue if the relevant public take said trademark as referring to such person and are likely to think that the goods with the said trademark are permitted by or have a specific connection with such person. When one claims the right to her name based on other forms of name, such as pen name, stage name, or translation to her name, the court shall decide in favour of such claim if those forms of name have established certain degree of renown, a stable correspondence with the said person, and are regarded by the relevant public to refer to the said person.12 These provisions obviously come from the present decision, and have expanded the scope of protected names to other forms of name.

2 Attitudes toward market survey as probative evidence in trademark disputes: comparing China with other jurisdictions. In some jurisdictions, such as the US and EU, market surveys have been recognised as useful tools to deal with trademark disputes. Such activity is usually undertaken under the term of consumer survey in the US. A consumer survey is a scientific method of presenting evidence of mental associations of a given group of people by asking a representative sample of the relevant target group. In other words, surveys gather data on the attitudes and beliefs of consumers towards a given product, name, or concept.13 After the developments in the last decades, surveys have become a standard form of evidence in the US on consumer perception in cases involving trademarks and deceptive advertising.14 Market surveys have been used to measure the major issues in trademark law: likelihood of confusion, generic terms, secondary meaning, deception, fame, and likelihood of dilution. Several US federal courts in some cases have described surveys as the most direct form of evidence that can be

10 Promulgated on January 10, 2017 and effective on March 1, 2017. 11 Id, Article 18. 12 Id, Article 20. 13 Robert C. Bird, “Streamlining Consumer Survey Analysis: An Examination of the Concept of Universe in Consumer Surveys Offered in Intellectual Property Litigation”, 88 Trademark Rep. 269, 270 (1998). 14 Shari S. Diamond and Jerre B. Swann ed., Trademark and Deceptive Advertising Surveys, American Bar Association, Chicago, 2012, p. 3.

80  Haijun Jin offered. Indeed, some courts have drawn negative inference from the absence of a survey, taking the position that failure to undertake a survey may strongly suggest that a properly conducted survey would not support the party’s position.15 Under the EU case law, market surveys are also used as evidence, and such surveys are in practice often given substantial weight.16 In a trademark case, the Board of Appeal maintained that: The Board would like to stress that in relation to the level of recognition of a trademark on the market, polls can be very convincing and solid means of evidence, depending on the circumstances of survey, the questions asked, the number of participants, the neutrality of the company conducting the survey, etc. According to the established case law of the Court of Justice, consumer research polls are recognized means of evidence, alone or in conjunction with other elements.17 However, China is a totally different story. There has been no judicial decision that recognised the admissibility of a market survey as probative evidence until the present case. For example, in a trademark infringement case in 2003, both parties used survey data and research reports by survey companies before the court. However, the court did not adopt any statistical conclusions based on the survey data from both sides.18 As to the key issue of trademark infringement, i.e., the likelihood of confusion, empirical study shows that the judicial practice of China’s trademark law in the last two decades has just a few cases in which market survey reports have been provided by the parties, but no court decision has ever accepted them as probative evidence to solve trademark disputes.19 Another trademark dispute in which market surveys are often employed is the genericisim of a trademark, which means a registered trademark losing its distinctiveness when becoming a generic term. One study also shows that there is not yet any Chinese case recognising the admissibility of survey evidence on this issue.20

15 Id. pp. 4–5. 16 Guidelines for Examination in the Office for Harmonization in the Internal Market (Trade Marks and Designs) on Community Trade Marks (OHIM Guidelines), 2014, Part B, section 4, para 2.6.8.4. 17 Case R 235 / 2001–3. See Frank Bøggild and Kolja Staunstrup, Community Trade Mark Law, Wolters Kluwer, Alphen aan den Rijn 2016, p. 238. 18 Toyota Motor Co. v. Zhejiang Geely Automobile Co., Beijing No. 1 Intermediate Court, (2003). 19 See Haijun Jin, The Survey Evidence and Statistical Methods in the Trademark Litigations: Likelihood of Confusion and its determination (调查统计方法在商标诉讼案件中的 应用 – 以商标混淆可能性的认定为例), Intellectual Property《知识产权》, No. 6 (2011), pp. 26–32. 20 See Haijun Jin, Consumer Survey for the Legal Issues Concerning Trademark and Generic Terms: An Empirical and Comparative Study (商标与通用名称问题的消费者调查方法 – 实 证与比较), Jinan Journal (Philosophy & Social Science Edition) 《暨南学报(哲学社会科学 版)》, Vol. 35, No. 10 (October 2013), pp. 25–34.

Market survey recognised as a persuasive tool 81

3 The first leading case to acknowledge market survey in trademark dispute Although the main issue of the present decision concerns “prior right doctrine” under the Chinese trademark law, and the market survey was accepted only as probative evidence by the SPC to prove the stable correspondence between the trademarks in question and a celebrity’s name, it is the first leading case in trademark law to accept the admissibility of market surveys. It suggests the possibility of using such evidence for other key issues of trademark disputes, such as likelihood of confusion, acquired distinctiveness or genericisim. More good news for market surveys as evidence is that the Beijing Higher People’s Court has accepted their admissibility to prove likelihood of confusion in trademark dispute. In its Guidelines on Reviewing Administrative Cases concerning Trademark Granting and Confirmation (2014), the court points out in Article 13: As to whether the relevant public can distinguish between the trademark in question and the cited trademark, the parties may provide the conclusions of market surveys as evidence. Market surveys should simulate, as far as possible, the actual and specific circumstances of purchasing goods by the relevant public and should provide the detailed descriptions on these elements, such as the scope, quantity and determination of the relevant public, the degree of attention paid by the relevant public in purchasing goods, and the application of the methods of overall comparison, observation in isolation, and comparison of dominant elements. The conclusions of a market survey that lack these elements, or are based on the wrong application of methodology or unverified, shall not be adopted.21 The Beijing Higher People’s Court gave further explanations on this provision. It emphasised that it is an issue of fact to see whether the trademark in question and the cited trademark can be actually distinguished from each other, rather than an issue of law. Therefore, it needs to be proven through evidence. Market surveys are direct evidence for such fact and should be properly used in trademark litigation. Article 13 of the Guidelines further clarifies the process, methods, necessary elements and conclusions of market surveys, without which the conclusions of market surveys will not be accepted by the court. The Guidelines also mention that such evidence can be applied to other trademark cases beyond the issue of likelihood of confusion, such as the determination of the required distinctiveness for trademark registration, especially that obtained by the secondary meaning

21 Beijing Higher People’s Court, Guidelines on Reviewing Administrative Cases Concerning Trademark Granting and Confirmation (2014) (《北京市高级人民法院关于商标授权确权 行政案件的审理指南》), available at www.bjcourt.gov.cn/article/newsDetail.htm?NId=25 000688&channel=100001011&m=fyyw.

82  Haijun Jin through trademark use.22 It can be expected that there will a big application space for market surveys in the field of trademark dispute in the future.

Commercial or industrial significance When the SPC chose to hold a public hearing on Jordan v Qiaodan Sports on 26 April 2016, WIPO’s IP Day, it made a milestone in China’s history of judicial protection for intellectual property rights. After hearing the news that the SPC had partially ruled in his favour, Michael Jordan said in an emailed statement that “I am happy that the Supreme People’s Court has recognized the right to protect my name through its ruling in the trademark cases” and “Chinese consumers deserve to know that Qiaodan Sports and its products have no connection to me.”23 It is true that a case is worth a thousand words to show the efforts and developments of China’s IP system. The decision has been regarded by the SPC as one of the top ten IP cases in the year of 2016 around China, as it provides some useful insight into the tools for people to protect the right in their names, and could have broad implications for foreign companies and other foreign celebrities, who have long complained of trademark registration that amounts to infringement in China. In addition, there are also some lessons for businesses to learn. First of all, the extreme importance of filing application for trademark registration as early as possible in China should be noted. Second, the evidence of published materials can help to establish the priority in use. Third, market surveys can be probative evidence, and more importantly, businesses need to find a professional survey service to conduct proper investigation and reach a reliable or convincing conclusion.

22 http://bbs.mysipo.com/thread-91779-1-1.html. 23 Sui-Lee Wee, Chinese Court Likes Mike in Mandarin Characters, N.Y. Times, December 8, 2016, at B7.

7 Market survey in Malaysia An impracticable and undesirable way to adduce evidence in trademark lawsuit Cheng Peng Sik

Case information: Liwayway Marketing Corporation v Oishi Group Public Company Limited [2017] MLJU 464; [2017] 5 CLJ 133, Federal Court, 27 March 2017

Summary The case concerned an application by the respondent to expunge the appellant’s trademarks on the ground of non-use of the trademarks. The respondent tendered a market survey report to support its claim that the appellant had not used the trademarks during the period of three years up to one month prior to the application. Premised on the market survey, both the High Court and the Court of Appeal ruled that the respondent had proved a prima facie case of non-use and thus the burden shifted to the appellant to show that there was use of the trademarks during the relevant period, which the appellant had not successfully discharged. On appeal, the Federal Court found that the survey report did not comply with the Whitford guidelines. Accordingly, the respondent did not discharge the burden of proving a prima facie case of non-use. It follows that there was no requirement for the appellant to show use of the trademarks. Thus the Federal Court allowed the appeal.

Legal context Market survey is sometimes conducted and introduced in trademark litigations in order to show the likelihood of confusion or deception, the meaning of a trademark to the public, or non-use of a trademark. Market survey refers to the collection of evidence from members of the public through market research methods such as interviews and questionnaires, usually by professional market research organisations.1 In general, market survey evidence has received lukewarm reception from the judges.2 Whitford J, for instance, commented in Imperial Group plc v Philip Mor1 C Fellner, “Survey Evidence in Passing-Off Cases” 5 J. Media L. Prac. 273 (1984), 273. 2 D Kitchin, D Llewelyn, J Mellor et al. (2005) Kerly’s Law of Trade Marks and Trade Names. London: Sweet & Maxwell, para 17–079.

84  Cheng Peng Sik ris Ltd that market research survey is ‘an unsatisfactory way of trying to establish questions of fact which are likely to be matters of dispute’.3 Likewise, Lewison LJ expressed in Interflora v Marks & Spencer4 that a judge should not let in market survey evidence unless the party seeking to do so satisfies him that it is likely to be of real value and that the likely value of the evidence justifies the cost.5 Essentially, judges do not consider survey evidence significant.6 Market survey evidence may be considered but the question is ultimately one for the judge to decide.7 The same is generally observed with regard to the reception of market survey evidence by judges in Malaysia. The High Court in Suria KLCC Sdn Bhd v Makamewah Sdn Bhd8 commented that there is little evidentiary value in these surveys, depending much on the questions framed and asked of the participants, where the surveys are conducted, the demographics of the participants and so on. Likewise, the High Court in Consitex SA v TCL Marketing Sdn Bhd9 expressed that courts have generally been cautious in accepting surveys conducted by one side of the parties.10 However, being wary does not mean total disregard of such survey. This was clearly expounded by the Court of Appeal11 and endorsed by the Federal Court in Maestro Swiss Chocolate Sdn Bhd & Ors v Chocosuisse Union Des Fabricants Swsses De Chocolat & Ors and another appeal.12 Whitford J in Imperial Group Plc v Philip Morris Ltd13 laid out the guidelines for conducting surveys for trademark matters, which are commonly referred to as Whitford guidelines. The guidelines were summarised by the English Court of Appeal in Marks & Spencer plc v Interflora Inc & Anor14 as follows:     i) The interviewees must be chosen so as to represent a cross-section of the public;   ii) The survey must be of a size that is sufficient to generate some relevant result viewed statistically; iii) The party relying on the survey must make a fullest possible disclosure on the exact number of surveys conducted, the actual way in which the surveys

  3 [1984] RPC 293, 302–303.   4 [2013] EWCA Civ 319.   5 Prior to this, the approach was to allow market survey evidence unless the judge considered that it would be useless. See A & E Case [2011] EWHC 1038 (Ch).  6 Noel Leeming Television Ltd v Noel’s Appliance Centre Ltd (1985) 1 TCLR 290.  7 Neutrogena Corporation v Golden Ltd [1996] RPC 432.   8 [2010] MLJU 1443.   9 [2008] CLJ 444. 10 See also Maestro Swiss Chocolate Sdn Bhd & Ors v Chocosuisse Union Des Fabricants Suisses De Chocolat & Ors and another appeal [2016] 2 MLJ 359, para 60. 11 Chocosuisse Union Des Fabricants Suisses De Chocolat & Ors v Maestro Swiss Chocolate Sdn Bhd & Ors [2013] 6 CLJ 53. 12 [2016] 2 MLJ 359, para 60–62. This stand was followed by the High Court in Hyundai Motor Company v Sun Yuen Rubber Manufacturing Co Sdn Bhd [2017] MLJU 700. 13 [1984] RPC 293. 14 [2012] EWCA Civ 1501.

Market survey in Malaysia 85 were conducted, and the total number of persons involved, in order to draw any reliable inference from the answers given by the interview respondents;   iv) The questions posed must not be leading, and must not lead the interview respondent into a field of speculation upon which that person would never have embarked upon had the question not been put;     v) The exact answers, as opposed to just abbreviation or digest of the answers, must be recorded;   vi) The totality of all answers given to all surveys must be disclosed; and vii) The instructions given to the interviewers must be disclosed. The Whitford guidelines were adopted by the Malaysian judges. As Mahadev Sankar JCA expressed in Lim Yew Sing v Hummel International Sports & Leisure A/S,15 survey evidence, to have validity, must meet the minimum criteria set out in the Whitford guidelines. Apart from complying with the Whitford guidelines, to be admissible into evidence a survey has to be proved by the party seeking to rely on it. In Lim Yew Sing, since nobody was called from the company conducting the survey purporting to show confusion in the market, the survey was merely hearsay evidence and inadmissible.16 The Whitford guidelines were also accepted by the Malaysian courts in dealing with market survey seeking to establish non-use in applications to expunge a trademark. For example, the High Court in Service Master (M) Sdn Bhd v MHL Servicemaster Sdn Bhd & Anor17 expressed that the Whitford guidelines were fundamental criteria to be satisfied in order for survey evidence to be of any weight. Likewise, the High Court in Lam Soon Edible Sdn Bhd v Hup Seng Perusahaan Makanan (M) Sdn Bhd18 adopted the Whitford guidelines and stated that the minimum criteria should be equally applicable to survey evidence to purportedly proving non-use of a trademark. Overall, the Whitford guidelines are regarded by the Malaysian courts as the fundamental criteria that a market survey shall comply with in order to be admitted in evidence. Survey evidence was rejected on the ground of non-compliance with the Whitford guidelines in numerous other Malaysian cases relating to trademark disputes, such as Sanbos (M) Sdn Bhd v Tiong Mak Liquor Trading (M) Sdn Bhd,19 Ginvera Marketing Enterprise Sdn Bhd v Tohtonku Sdn Bhd,20 and Tokai Corporation v DKSH Malaysia Sdn Bhd.21 Nonetheless, Wong Kian Kheong JC in Hyundai Motor Company v Sun Yuen Rubber Manufacturing Co Sdn Bhd22 seemed to hold a slightly different

15 [1996] 3 MLJ 7; [1996] 4 CLJ 784. 16 [1996] 3 MLJ 7, 16; [1996] 4 CLJ 784, 793. 17 [1998] AMR 379. 18 [1998] AMR 379. 19 [2008] 3 MLJ 100. 20 [2010] MLJU 636. 21 [2016] MLJU 621. 22 [2017] MLJU 700.

86  Cheng Peng Sik view on this matter. In the case, Wong Kian Kheong JC observed that a market survey’s non-compliance with the Whitford guidelines does not ipso facto result in its rejection by the court. On the other way round, a market survey’s compliance with the Whitford guidelines does not automatically mean that the court must accept the results of the market survey. The learned Judicial Commissioner expressed further that the court must give reasons in accepting or rejecting a market survey, and whether the court accepts or rejects a market survey depends very much on the particular facts and circumstances of the case.

Facts In 2011, the respondent applied to the Registrar of Trade Marks for the registration of the trademark “OISHI” in Class 32.23 However, the respondent’s application was rejected due to the appellant’s trademarks which were already registered in the Register of Trade Marks in Class 3024 and Class 43.25 The reason was that the respondent’s trademark was similar to the appellant’s trademarks and would thus likely deceive the public and cause confusion. In 2013, the respondent commenced an action in the High Court26 to expunge the appellant’s trademarks on the ground of non-use of the trademarks under sections 45(1)(a)27 and 46(1)28 of the Trade Marks Act 1976 (“the TMA 1976”). In support of its claim that there was non-use of the trademarks by the appellant, the respondent commissioned DNA Risk Sdn Bhd to conduct an independent inquiry and market surveys on any “Oishi” goods of the appellant in the market. The survey was carried out at 260 outlets in three major locations in Malaysia, namely, the Klang Valley, Johore Bahru, and Penang. The High Court was of the view that even if the said three locations are not reflective of the whole nation, if the appellant’s trademarks cannot be found in these three locations, it was highly doubtful that the same can be found in an obscure location in the small town of Song in Sarawak. The High Court found that the 23 Class 32 is for beers; mineral and aerated waters and other non-alcoholic beverages; fruit beverages and fruit juices; syrups and other preparations for making beverages. 24 Class 30 is for coffee, tea, cocoa, and artificial coffee, etc. 25 Class 43 is for services for providing food and drink, etc. 26 Oishi Group Public Company Limited v Liwayway Marketing Corporation [2014] MLJU 1154; [2015] 2 CLJ 1121. 27 Section 45(1)(a) of the Act 1976 provides that the court may on the application of any person aggrieved by the non-insertion in or omission from the register of any entry or by any entry made in the register, or by any error or defect in any entry in the register, make such order for making, expunging or varying such entry as it thinks fit. 28 Section 46(1) of the Act 1976 provides that the court may, on application by a person aggrieved, order a trade mark to be removed from the register on the ground that up to one month before the date of the application a continuous period of not less than three years had elapsed during which the trademark was a registered trademark and during which there was no use in good faith of the trademark in relation to those goods or services by the registered proprietor or the registered user of the trademark for the time being.

Market survey in Malaysia 87 survey report had complied with the Whitford guidelines and thus the respondent had established a prima facie case of non-use.29 Accordingly, the burden shifted to the appellant to prove that there was use of the trademarks during the relevant period,30 which the appellant had failed to discharge.31 Hence, the High Court decided in favour of the respondent and allowed the respondent’s application. The appellant appealed to the Court of Appeal.32 The Court of Appeal examined whether the market survey met the minimum criteria laid down in the Whitford guidelines. It was found that the survey report had disclosed the instructions given to the interviewers, in compliance with guideline (vii) of the Whitford guidelines.33 Since the interview never went past the first question of whether the interviewees had ever heard of Oishi products, the Court of Appeal ruled that the survey complied with guidelines (iv)–(vi) of the Whitford guidelines.34 In addition, the Court of Appeal opined that Klang Valley, Penang, and Johore Bahru were the three most suitable locations to conduct surveys on the penetration of any good or products in trade in Malaysia.35 The survey was conducted in 17 local areas in the Klang Valley, 14 local areas in Johore Bahru and eight local areas in Penang. A total of 260 outlets were involved. The outlets comprised of supermarkets, mini-markets, etc. constituting a cross section of the retail outlets in the said three locations.36 The report disclosed the names and address of all the outlets37 as well as the names of the interviewees, wherever available.38 Therefore, the survey had met guidelines (i)–(iii) of the Whitford guidelines.39 As the market survey complied with the Whitford guidelines, the respondent had established a

29 Oishi Group Public Company Limited v Liwayway Marketing Corporation [2014] MLJU 1154; [2015] 2 CLJ 1121, paras 20–21. 30 As observed by Ramly Ali J in E-Toyo Global Stationery Sdn Bhd v Toyo Ink Sdn Bhd & Anor [2004] 7 CLJ 368, if an applicant fails to show a prima facie case of “non-use” of the trade mark, the registered proprietor would not be required to show that it had used the trade mark in question during the relevant period. 31 Oishi Group Public Company Limited v Liwayway Marketing Corporation [2014] MLJU 1154; [2015] 2 CLJ 1121, para 25. 32 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286. 33 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 56. 34 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 57. 35 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 58. 36 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 59. 37 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 59. 38 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 60. 39 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 61.

88  Cheng Peng Sik prima facie case of non-use by the appellant. The appeal was thus dismissed by the Court of Appeal.40 The appellant appealed to the Federal Court. The Federal Court found the respondent’s survey report did not meet the threshold requirements and both the High Court and the Court of Appeal erred in ruling that the respondent had discharged the burden of proving a prima facie case of non-use. Since the respondent had not established a prima facie case of non-use, the appellant was not required to prove that it had used the trademarks upon any of the goods. Subsequently, the Federal Court allowed the appeal.

Reasoning of the court 1 Sufficiency and the weight to be given to the survey’s content is a matter of evidential evaluation by the judge The Federal Court found that the Judicial Commissioner at the High Court relied substantially on the evidence from the survey report. The Federal Court held that both the Judicial Commissioner and the Court of Appeal had applied too lax a test in accepting in toto the market survey report.41 The Federal Court stressed that compliance or fulfilment of the Whitford guidelines does not automatically translate into a case where the prima facie burden of proof has been discharged. Sufficiency and the weight to be given to the survey’s content is a matter of evidential evaluation by the judge.42 The counsel of the appellant criticised the acceptability and sufficiency of the market survey on various grounds.43 First, only summarised versions of the answers given by the interviewees were disclosed. Second, there was no evidence that the data compiled by DNA Risk Sdn Bhd have been accepted as authoritative source of information or data by the court in Malaysia. There was no introduction of the company or its investigators including their credentials or experience in the report. The statement at the beginning of the report that “No other party may rely on this report for any purpose . . . DNA makes no representation or warranty with respect to the contents or use of this report . . . DNA reserves the right to amend or change this report, at any time” put the reliability of the market survey to further question. Third, there was no evidence on how the report was made or how the data was collected. Fourth, there was no evidence that the alleged data was collated from outlets that constituted a cross section of the relevant trade in Malaysia or from a wide enough spread of geographical location to represent a cross section of the public or those in trade conducting business in relation to class 30 goods. 40 Liwayway Marketing Corporation v Oishi Group Public Company Limited [2016] MLJU 1766; [2017] 2 CLJ 286, para 62. 41 [2017] MLJU 464; [2017] 5 CLJ 133, para 27. 42 [2017] MLJU 464; [2017] 5 CLJ 133, para 28. 43 [2017] MLJU 464; [2017] 5 CLJ 133, para 24.

Market survey in Malaysia 89 The Federal Court appeared to have accepted the abovementioned criticisms on the market survey made by the counsel of the appellant without making any further comment on them.44

2 The survey failed to cover all the registered classes and the requisite continuous period of the alleged non-use of the trademarks The Federal Court pointed out another two reasons why the market survey relied on by the respondent was defective. One of the reasons was that the respondent claimed that the appellant had not use the trademarks in respect of their registered goods in Classes 29, 30, and 43 but the survey was in respect of Class 30 goods only.45 The other reason why the market survey was flawed was that it did not cover the requisite continuous period of the alleged non-use of the trademarks. Section 46(1)(b) of the TMA 1976 requires an applicant seeking to expunge a trademark on the ground of non-use to prove that there was continuous non-use of three years up to one month before the filing of the action. Since the respondent commenced the action on 19 February 2013, the crucial period of non-use to be established was from 19 January 2010 to 19 January 2013. However, the market survey relied on by the respondent did not cover the entire period from 19 January 2010 to 19 January 2013.46 The report indicated that DNA Risk Sdn Bhd was instructed to conduct the survey on 11 August 2011 and the survey was concluded on 22 August 2011. The survey covered a period of only ten days. It did not reflect or answer the question whether there was non-use of the trademarks in dispute after 22 August 2011 and before the end of the three-year period, namely 19 January 2013.47 Accordingly, the Federal Court held that the survey was inconclusive and failed to meet the criteria as laid down in the Whitford guidelines.48 In its decision, the Federal Court referred to the case of Lam Soon Edible Sdn Bhd v Hup Seng Perusahaan Makanan (M) Sdn Bhd,49 which also involved an application to expunge a trademark on the ground of non-use and the market survey conducted did not cover the requisite relevant period of non-use.50 The High Court in Lam Soon Edible Sdn Bhd held that the market survey report clearly did not comply with the Whitford guidelines. Azahar Mohamed J quoted Mahadev Shankar JCA’s statement in Lim Yew Sing v Hummel International

44 [2017] MLJU 464; [2017] 5 CLJ 133, para 31. 45 [2017] MLJU 464; [2017] 5 CLJ 133, para 31. 46 [2017] MLJU 464; [2017] 5 CLJ 133, para 31. 47 [2017] MLJU 464; [2017] 5 CLJ 133, para 34. 48 [2017] MLJU 464; [2017] 5 CLJ 133, para 34. 49 [2010] 5 CLJ 975. 50 [2017] MLJU 464; [2017] 5 CLJ 133, para 37.

90  Cheng Peng Sik Sports & Leisure A/S,51 “if a survey is to be of any use, it must fairly reflect the factual position at the time the application to expunge is made.”52 The Federal Court in Liwayway Marketing Sdn Bhd held that the lack and insufficient coverage of the market survey meant that the respondent had failed to discharge the burden of proving a prima facie case of non-use of the trademarks in dispute. Hence, there was no need for the appellant being the registered proprietor of the trademarks to show use during the relevant period.53

Legal analysis 1 Divergence on what exactly need to be done in order to meet the standard of the Whitford guidelines The Federal Court in Liwayway Marketing Sdn Bhd highlighted the fact that a market survey’s compliance with the Whitford guidelines is a matter separate from its evidentiary value. In other words, even if a market survey strictly complies with the Whitford guidelines and is thus admissible in evidence, the weight to be given to such evidence is a matter to be assessed and determined by the judge. Once again, a cautious stand on the part of the court in accepting market survey evidence was demonstrated in Liwayway Marketing Sdn Bhd. The Whitford guidelines were endorsed by the Federal Court as the minimum criteria that a market survey must comply with for it to be of any use. In Liwayway Marketing Sdn Bhd, the Federal Court correctly pointed out that the market survey was flawed in two aspects, apart from the Whitford guidelines. In respect of an application to expunge a registered trademark on the ground of non-use under the TMA 1976, it is crucial for the market survey to encompass the requisite period of time, that is, a continuous period of not less than three years up to one month before the date of the application.54 In addition, it is necessary to conduct the market survey to establish non-use of the trademark in respect of the class of goods under which the trademark is registered. The Federal Court, however, did not scrutinise the compliance or non-compliance of the market survey with each of the Whitford guidelines, unlike the way the Court of Appeal did in delivering its decision. The appellant’s counsel criticised the acceptability and sufficiency of the market survey on several grounds which appeared to have been accepted by the Federal Court, though without commenting anything further on them. At the Court of Appeal, it was found that all interviewees answered negatively to the first question of whether the interviewees had had ever heard of the appellant’s products and thus the interview never went beyond the first question; the court held that the survey complied with guidelines (iv), (v), and (vi) of the 51 [1996] 3 MLJ 7; [1996] 4 CLJ 784, 793. 52 [2010] 5 CLJ 975, para 14. 53 [2017] MLJU 464; [2017] 5 CLJ 133, paras 35–36. 54 Section 46(1)(b) of the TMA 1976.

Market survey in Malaysia 91 Whitford guidelines. However, at the Federal Court, the appellant criticised that the exact answers were not disclosed in the market survey. The manner in which the market survey was conducted was also discussed in detail by the Court of Appeal which ruled that the market survey complied with guidelines (i), (ii), and (iii). The instructions given to the interviewers were also disclosed and thus met guideline (vii). However, the appellant’s counsel reproached the market survey report that there was no evidence on how the report was made or how the data was collected. There is obviously a divergence of opinion on what exactly need to be done in order to meet the standard imposed under the Whitford guidelines, as it may be observed from the Court of Appeal’s and the Federal Court’s decisions.

2 The authority of the company carrying out the market survey is not within the Whitford guidelines The appellant’s counsel also found fault with the authority of the company engaged by the respondent to conduct the market survey. It was said that there was no evidence that the data compiled by the company was accepted as an authoritative source of information by the court in Malaysia. The authority of the company carrying out the market survey is not within any of the Whitford guidelines. The criticism on this point is among the reasons accepted by the Federal Court as to why the market survey was flawed. It appears that the credibility of a market survey which strictly complies with the Whitford guidelines may nevertheless be questioned if the data compiled by the company conducting the survey has never been accepted by the court in Malaysia.

3 Whether the expectations that market survey represents a cross section of the public and is of statistically significant size are too onerous to satisfy The Whitford guidelines require a market survey to select interviewees that represent a cross section of the public. The size must also be statistically significant. However, the question of whether the interviewees selected constitute a cross section of the public or what size is statistically significant may vary depending on how “a cross section of the public” and “statistically significant” is understood and interpreted. Both the High Court and Court of Appeal in Liwayway Marketing Sdn Bhd were satisfied that Klang Valley, Penang, and Johore Bahru were the most suitable locations to conduct surveys on the availability of goods or products in Malaysian market. Nonetheless, at the Federal Court, the appellant attacked the market survey on the ground that it was not conducted from outlets that amounted to a cross section of the relevant trade in Malaysia or from a wide enough geographical area to represent a cross section of the public. This raises questions as to how big the sample size should be for it to constitute a cross section of the public and to be statistically significant; as well as how broad the geographical areas should be covered to meet the requirements.

92  Cheng Peng Sik By contrast, the Court of Appeal in Chocosuisse Union Des Fabricants Suisses De Chocolat & Ors v Maestro Swiss Chocolate Sdn Bhd & Ors55 was satisfied with the survey being conducted only in the Klang Valley which was, in the opinion of the court, consistent with the fact that the subject matter was the consumers’ perception of chocolate products, an essentially urban consumer product.56 The Court of Appeal’s view on the acceptability of the survey was fully endorsed by the Federal Court.57 The expectations of the court in Maestro Swiss Chocolate Sdn Bhd seem to be laxer than that in Liwayway Marketing Sdn Bhd.58 However, it should be noted that the survey in Maestro Swiss Chocolate Sdn Bhd was introduced to show likelihood of confusion, unlike the survey in Liwayway Marketing Sdn Bhd which was meant to establish non-use of the trademarks in dispute. In the former, the survey of a size less statistically significant may nevertheless still suggest the existence of the alleged likelihood of confusion. Whereas in the latter, it is imperative that the survey involves respondents who sufficiently represent a cross section of the public and its size is statistically significant to establish a prima facie case of no genuine use of the trademarks during the relevant time period. Nonetheless, it leaves the question whether the expectations imposed for a market survey to represent a cross section of the public and for the size to be statistically significant are too onerous to satisfy.

Commercial or industrial significance The Federal Court in Liwayway Marketing Sdn Bhd expressly endorsed the Whitford guidelines as the minimum criteria for market surveys to meet for it to be of use. It follows that any party seeking to introduce market survey evidence in the court should ensure that the market survey strictly complies with the Whitford guidelines. Nevertheless, compliance with the Whitford guidelines alone does not warrant the sufficiency and reliability of a market survey. For the purposes of an application to expunge a trademark on the ground of non-use, it is crucial to ensure that the market survey embraces the required period of non-use. It is also vital to conduct the survey with reference to the class of goods for which the registered trademark is registered.

55 [2013] 6 CLJ 53. 56 [2013] 6 CLJ 53, para 52. 57 Maestro Swiss Chocolate Sdn Bhd & Ors v Chocosuisse Union Des Fabricants Suisses De Chocolat & Ors and another appeal [2016] 2 MLJ 359, para 62. 58 The court in Maestro Swiss Chocolate Sdn Bhd also noted that leading questions were among the questions in the survey form. Nevertheless, as a whole, the questions in the survey were acceptable for their intended purpose. In addition, the survey respondents were not called as witnesses and thus not cross-examined. There were no contact details of the respondents except their identity card numbers. The court opined that there was no suggestion that the respondents did not exist or that the survey or its result was falsified. The court did, however, observed that the results must be treated with caution. See [2013] 6 CLJ 53, paras 53–56.

Market survey in Malaysia 93 Plainly, a market survey in strict compliance with the Whitford guidelines would be costly and burdensome. In fact, it is questionable whether such a market survey is practically feasible at all. The market survey in Liwayway Marketing Sdn Bhd was conducted in the relevant outlets in three major locations in Malaysia. However, it was not regarded as sufficiently representing a cross section of the public in Malaysia. Unfortunately, the Federal Court did not explain further on what would amount to a cross section of the public in Malaysia or what size would be acceptable as statistically significant. Meanwhile, the Federal Court in Liwayway Marketing Sdn Bhd emphasised that a market survey’s compliance with the Whitford guidelines is a matter distinct from the evidentiary value to be attached to it by the judge. This fact, together with the demanding expectations the court has of a market survey, may make any party to a trademark lawsuit think twice about conducting a market survey. In conclusion, conducting a market survey may turn out to be an impracticable and undesirable way to adduce evidence in a trademark lawsuit.

8 Market survey seldom accepted by Taiwanese courts in trademark litigation Kung-Chung Liu

Case information: Taiwan IP Court, 2017 Xing-Sang-Su-Zi 50, decided on 1 August 2018 Taiwan IP Court, 2017 Xing-Sang-Su-Zi 57, decided on 6 September 20181

Summary Adidas filed for registration of a trademark (“three stripes to be used on the outer side of jackets from the shoulders to the cuffs”) to be used on “jackets” under Class 25. The Taiwan Intellectual Property Office (TIPO) rejected the application on the grounds of lack of distinctiveness, whether inherent or acquired. Adidas filed for review with the Ministry of Economic Affairs, but to no avail. Adidas appealed to the Taiwan IP Court. Chamber 3 of the IP Court agreed that the mark in question has acquired distinctiveness, revoked TIPO’s decision, and ordered TIPO to register the filed trademark. However, in a dictum, Chamber 3 dismissed the market survey that China Credit Information Services (“China Credit”) had prepared for Adidas to support the acquired distinctiveness of the mark (2017 Xing-Sang-Su-Zi 50), with detailed reasons. In a related case, Adidas filed for registration of the trademark (“three stripes to be used on the outer side of trousers from the waist to the ankles”) to be used on “trousers” under Class 25. TIPO rejected the application also due to lack of distinctiveness. Adidas did not get vindicated until Chamber 3 of Taiwan IP Court agreed that the mark in question has acquired distinctiveness and ordered TIPO to register it (2017 Xing-Sang-Su-Zi 57). Noteworthy is that Chamber 3 of the Taiwan IP Court has ex officio commissioned China Credit to conduct a market survey, which is the only case where a court has ever done so in Taiwan, and defended its admissibility in details, in direct contrast with 2017 Xing-Sang-Su-Zi 50.

1 It is not clear from the website of the Judicial Yuan (https://law.judicial.gov.tw/FJUD/ Default_AD.aspx), whether the two decisions have been appealed or not.

Market survey seldom accepted 95

Legal context 1 Market survey as a tool to solve trademark disputes: a rough start, rejected for over 30 years, accepted only in isolated cases Market survey as a tool to help courts determine trademark-related disputes, such as consumers’ perceptions about similarity between trademarks and similarity between goods and services, had a rough start in Taiwan when the Supreme Administrative Court in the notorious “Textwood (jeans) v Apple (jeans)” case started to deal with market survey in the 1980s. In that case, the Supreme Administrative Court handed down two decisions criticising the market surveys TIPO had conducted itself2, as well as one decision faulting TIPO for not having conducted a market survey3 and one decision rejecting a market survey TIPO had commissioned the Sociology Department of National Chung Hsing University4 to conduct. TIPO then conducted a replacement survey in that case. The Supreme Administrative Court then unexpectedly accepted all of the previously mentioned surveys in one passing sentence5–three self-conducted and one commissioned by TIPO. However, the ensuing decades did not see market survey being accepted by courts in Taiwan. Courts almost always found fault with market surveys prepared by the parties, without ever thinking of commissioning a market survey ex officio.6 Things started to change slightly for the better starting from 2012, as IP Courts accepted market surveys in about five decisions, with one (accepting a market survey by AG Nielsen)7 later revoked by the Supreme Administrative Court8 and one admitting the indirect probative effect of a market survey.9 Three of the four accepted market surveys were conducted by China Credit,10 and the other by China Industrial and Commercial Research Institute (CICR).11

2 Legal nature of a market survey in administrative disputes A market survey is, according to 2015 Pan-Zi 792 of the Supreme Administrative Court, “an analytical method through the collection, arrangement, and

  2 Supreme Administrative Court 1981 Pan-Zi 337, and 1983 Pan-Zi 1675.   3 Supreme Administrative Court 1986 Pan-Zi 870.   4 Supreme Administrative Court 1988 Pan Zi 1688.   5 Supreme Administrative Court 1992 Pan-Zi 2022.   6 Supreme Administrative Court 2015 Pan-Zi 104 is one recent example.   7 Taiwan IP Court, 2014 Xing-Sang-Su-Zi 83, decided on 6 November 2014, lines 395–564.   8 Supreme Administrative Court 2015 Pan-Zi 792, decided on 31 December 2015.   9 Taiwan IP Court, 2011 Xing-Sang-Su-Zi 154 (decided on 23 May 2012), lines 467–500. 10 Taiwan IP Court, 2011 Xing-Sang-Su-Zi 154, 2015 Xing-Sang-Su-Zi 54 (decided on decided on 31 December 2015), and 2017 Xing-Sang-Su-Zi 57. 11 Taiwan IP Court, 2013 Xing-Sang-Su-Zi 23(decided on 11 July 2013). The three judges sitting on the panels are different from 2017 Xing-Sang-Su-Zi 50 and 2017 Xing-Sang-SuZi 57, including the current Chief Justice of the IP Court, Chung-Shin Chen.

96  Kung-Chung Liu quantification of materials, based on certain experiment design that verifies the hypothesis via statistics results, for reaching a judgement, and should be one kind of ‘expert testimony’.” The decision continues: However, if parties commission outside of the court proceedings any public/private units to provide expert testimony and later filed report based on the expert testimony to courts to help courts determine facts, such expert testimony is not conducted by an expert witness appointed by courts and shall therefore not qualify as expert testimony according to the Chapter on Evidence and Investigation of the Administrative Procedural Act. In the administrative procedure, in order to be accepted as evidence, expert testimony must comply with the relevant procedures provided by the Administrative Procedural Act. The procedure leading to the above-mentioned private expert testimony report (in the present case) has not involved the Administrative Court, and its ways and procedures have not been debated by both parties, thus, both the neutrality and appropriateness of such reports are questionable, and can only be treated as statements to substantiate the assertion by the presenting party. Nevertheless, the Administrative Court shall in its Reasoning take into consideration the statement and assertion made by the parties against the total oral debate, examine whether those statements are admissible and whether the administrative agency has violated the law while accepting or rejecting such a market report, and may not neglect such a market report; otherwise the Administrative Court would be making decision without comprehensive reasoning, and thereby violate the law.12 To sum up, a market survey will only have a binding effect on the Administrative Court as accepted evidence if it was conducted as a result of appointment by the court and its results have been debated by the parties. Otherwise, market survey will be treated by courts merely as a statement made by the parties, which can be easily discredited due to lack of neutrality and appropriateness.

Facts Adidas had tried to register its three stripes on a series of sportswear, including sport shirts, jackets, and trousers, which were all rejected by TIPO due to lack of distinctiveness. Adidas had to go through court proceedings to get them registered. After succeeding in getting three stripes registered to be used at the underarm of a sport shirt,13 Adidas managed to succeed in registering three-striped jackets and trousers in the following two cases.

12 Supreme Administrative Court 2015 Pan-Zi 792 (decided on 31 December 2015), lines 285–299. 13 Taiwan IP Court, 2011 Xing-Sang-Su-Zi 154.

Market survey seldom accepted 97

1 Adidas filed “three stripes” as marks to be used on specific parts of jackets and trousers In the 2017 Xin-San-Su-Zi 50 case, Adidas filed for registration of the trademark (“three stripes to be used on the outer side of jackets from the shoulders to the cuffs”) to be used on “jackets” under Class 25. The TIPO rejected the application on the grounds of lack of distinctiveness. Adidas filed for review with the Ministry of Economic Affairs, but to no avail. Adidas appealed to the Taiwan IP Court. Chamber 3 of the IP Court agreed with Adidas that the mark in question has acquired distinctiveness and revoked TIPO’s decision, ordering TIPO to register the filed trademark. However, Chamber 3 dismissed as inadmissible the market survey that Adidas had commissioned China Credit to conduct between 2 to 14 February 2018 to support the acquired distinctiveness and provided detailed reasoning. In the 2017 Xin-San-Su-Zi 57 case, Adidas filed for registration of the trademark (“three stripes to be used on the outer side of trousers from the waist to the ankles”) to be used on “trousers” under Class 25. TIPO rejected the application, also due to lack of distinctiveness. Adidas got its vindication from Chamber 2 of the Taiwan IP Court when the latter opined that the mark in question has acquired distinctiveness and ordered TIPO to register it. Noteworthy is that Chamber 2 of the Taiwan IP Court ex officio commissioned China Credit to conduct a market survey on 3 October 2017, and later justified its admissibility in detail in the decision, which is in direct contrast with the 2017 Xin-San-Su-Zi 50 decision.

2 Two similar market surveys by China credit to prove the acquired distinctiveness of the marks 2.1 One commissioned by Chamber 2 of the IP Court around October 2017 In the 2017 Xing-Sang-Su-Zi 57 case, during the proceedings, Chamber 2 of the IP Court felt the necessity to ask another institution to conduct a market survey, and asked Adidas to report on the issues of market surveying, including institutions and the ways to conduct a survey and its content, and took into consideration the defendant’s opinion. Adidas reported that it had commissioned China Credit to conduct a market survey on the distinctiveness of the mark in question in the following way: (1) chosen members of the general public above 20 years of age and living in the business area of Taipei (Ximen, Taipei train station, etc.), Taichung (Fenjia, Yizhong etc.), and Kaohsiung (Big Dome etc.) as surveyees; (2) interviewed them at fixed locations on the streets of the three cities, each with 400 valid questionnaires; (3) Sampling by choosing every sixth person passing by, and the same sampling method repeated after each successful interview; (4) 1,200 valid interviews, with sampling error of ±3% for a single questionnaire, conforming with the statistical requirement used in social sciences (error

98  Kung-Chung Liu of less than ±5%), allowing valid inference about the opinions, perceptions, and attitudes of the sampled universe; and (5) The questionnaire contained “select questions”, including on the “degree of recognition of the picture, trademark or brand”, and “basic information of the interviewee.” The defendant was not against a market survey, but only asked that garment dealers and schools also be included as interviewees. Chamber 2 of the IP Court then commissioned China Credit to conduct a market survey accordingly. The market survey eventually included a sample of 1,200 interviewees, with an extra survey targeted at garment dealers.14 According to the market survey, 84.3% of the interviewees were of the opinion that the product in the picture was from Adidas, while 89.4% used the three stripes to judge the brand of the product.15

2.2 One commissioned by Adidas conducted between 2 to 14 February 2018 Adidas asked China Credit to do the same market survey again some four months later, following exactly the same survey method, which shows that 81.3% of the 1,200 interviewees in general and 94.4% of the 90 interviewed garment dealers in specific were of the opinion that the product in the picture was from Adidas, while 84.1% of the 1,200 interviewees in general and 94.4% of the 90 interviewed garment dealers in specific used the three stripes to judge the brand of the product.16

Reasoning of the court 1 Reasons that 2017 Xin-San-Su-Zi 50 decision used to reject the market survey The third Chamber of the IP Court opined that the previously mentioned market survey has the following flaws and should consequently be rejected.

1.1 Wrong sampling The subject to perceive the applied trademark based on acquired distinctiveness due to use and the fact that the applicant’s mark has been recognized in trade as a distinguishing indicator should be the relevant consumers. The relevant consumers means consumers who have bought or used products to which the mark was applied, and potential consumers who might buy or use such products in the future. Given that the applied trademark, namely Adidas brand, is a well-known brand for sports goods, 14 2017 Xing-Sang-Su-Zi 57, lines 453–461. 15 2017 Xing-Sang-Su-Zi 57, lines 354–359. 16 2017 Xing-Sang-Su-Zi 50, lines 461–479.

Market survey seldom accepted 99 Adidas’ products appeal to mainly to the relevant consumers [, namely,] students or youngsters. . . . However, the market survey by Adidas showed that interviewees aged between 20–30 made up 16.8% and those between 30–40 made up 9.9% respectively, only, a total of 26.7% of the interviewees, which has already more or less affected the reference value of the market survey report. In addition, the report chose only residents of Taipei, New Taipei, Taichung, and Kaohsiung as the sample universe, and was conducted only in Taipei, Taichung, and Kaohsiung; the interview ceased whenever the sampled interviewees were residents in other counties or cities (Q3 of the questionnaire). Obviously, the report indicates only the perceptions of residents of highly commercialized urban areas about the applied trademark, and is not a general sampling of all residents of Taiwan. . . . Adidas has not asserted that the relevant consumers of its applied trademark are limited to urban residents and yet (the report) excluded sports goods consumers living in areas other than urban areas from the sample universe, and subsequently affected the reference value of the market survey.17

1.2 Misleading questions 1.2.1 Q8–1

Q8–1 of the questionnaire was conducted by first showing placard 2 with a picture of Adidas’ product to the interviewee, asking what brand the product was, and then showing placard 2–1 to the interviewee, asking him/her to choose one from the seven brands, with four in the sequence of Adidas, Converse, Fila, New Balance on the left of the placard, and three in the sequence of Nike, PUMA, and Under Armour on the right of the placard. The seven brands were taken from a 2017 consumer survey about what branded clothes consumers had bought in the previous year, conducted by E-ICP [Eastern Integrated Consumer Profile],18 by choosing the first seven brands related to sportswear. However, although the option of “others” was listed on the questionnaire, it was intentionally not mentioned on the placard; the placard indicated that the interviewee could only choose one [out of the seven]. [Adding these together] Interviewees were of course highly likely to either adopt the deduction method while thinking and making a judgement or answer the raised question even by guessing. It is therefore not without doubt whether the so derived survey results were sufficient to prove that the relevant consumers had an association between the brand names and the pictured goods.19 17 2017 Xing-Sang-Su-Zi 50, lines 495–539. 18 The website of E-ICP: www.isurvey.com.tw/1_about/2_en.aspx. 19 2017 Xing-Sang-Su-Zi 50, lines 540–571.

100  Kung-Chung Liu 1.2.2 Q8–2

Q8–2 of the questionnaire was also conducted by first showing placard 2 with a picture and asking the interviewee ‘How do you discern the brand of the exhibited product?’ and then by showing placard 2–2 to the interviewee, asking him/her to choose from the suggested answers of [upper left] ‘according to the three stripes shown in the picture’, [centre left] ‘according to the words shown in the picture’, [bottom left] ‘according to the signs shown in the picture’, [upper right] ‘according to the colors shown in the picture, and [centre right] ‘others’. However, the picture on placard 2 was a white sports jacket with 3 black stripes on the outer side of the right arm from shoulder to cuff, simply black and white, with neither special colors nor other words or signs, clearly leading the interviewee to choose the one [upper left] ‘according to the three stripes shown in the picture’, failing to be fair.20

2 Reasons used by 2017 Xing-Sang-Su-Zi 57 decision in accepting the market survey In contrast, the second Chamber of the Taiwan IP Court accepted the market survey conducted by China Credit, based on the following reasons.

2.1 Q8–1 well-grounded and neither biased nor misleading The choices on placard 2–1 were presented to the interviewee at the same time, without affixing Arabic numbers of 1, 2, 3 etc., making the chance of those choices being chosen by him/her the same; regarding the issue of why these seven brands were listed on placard 2–1 instead of an open-ended approach, according to witness “(name omitted)”, people from the general public will use their imaginations when seeing a picture, and their answers could be too diffuse, and sometimes the interviewee would refuse to answer when seeing a picture. Moreover, given that EICP conducts an annual survey about consumers’ habits, and the seven brands listed on placard 2–1 were the top seven brands in EICP’s survey, it is appropriate to conclude that listing these seven brands as choices on placard 2–1 was well grounded, and not biased nor misleading. The listing of the seven brands was based on their alphabetical order, therefore Adidas was listed at the first position on the left of placard 2–1 due to its first initial “a”.21

2.2 Q8–2 not leading the interviewee to choose the answer The picture on placard 2–2 was a pair of white trousers with three black stripes on its sides. 1.5% of the interviewees answered that they chose “according to

20 2017 Xing-Sang-Su-Zi 50, lines 572–587. 21 2017 Xing-Sang-Su-Zi 57, lines 498–501.

Market survey seldom accepted 101 the colors shown in the picture”, and 0.3% answered that they chose ‘according to the signs shown in the picture’, which clearly shows that it was not that no one chose an answer other than “according to the three stripes shown in the picture”; in addition, placard 2–2 showed the choices in parallel, and did not affix the Arabic number 1 to the choice of “according to the three stripes shown in the picture”, therefore all choices on the placard had an equal chance of being chosen (by the interviewee), making the accusation by the defendant, that placard 2–2 led the interviewee to choose the one [upper left] “according to the three stripes shown in the picture”, not creditable.22

2.3 The trustworthiness of China Credit China Credit, which conducted the market survey, was founded in 1961, and was once ranked as the second largest (market) investigation company in Taiwan by the journal Brain due to its long history (over 50 years), the biggest registered capital (NT$170,000,000) and the second biggest staff (about 100 full-time employees). In Taiwan, China Credit is second only to the global market investigation company AG Nielsen, and has been commissioned by the government a number of times. For example, the Ministry of Economic Affairs commissioned China Credit to conduct a survey of the 100 best brands in 2011, which included surveying brands for industrial and consumer products by questionnaires directed at managers at largescale enterprises, consumers, experts, and academics in Taiwan. [ll these lead to the conclusion that] Credit China commands substantial credibility. The market survey in question has listed in details the time frame, method, geographic area, interviewees, sampling, population from which sample was taken, and the number of respondents, whose content has been confirmed by the director of the Science & Technology Law Institute OOO under the Institute for Information Industry as not likely to lead the interviewee in his/her answering the questionnaire. The contents and conclusions of the questionnaire possess reasonableness and relatedness, and its methodology and statistics have been confirmed by Professor OOO.23

Legal analysis 1 The long-held mistrust of courts against market surveys in trademark litigation unjustified 24 This author has been criticising the long-held mistrust of courts against market surveys in trademark disputes since 1997 after authoring a monograph “On 22 2017 Xing-Sang-Su-Zi 57, lines 502–515. 23 2017 Xing-Sang-Su-Zi 57, lines 525–543. The whole quoted text is just one long sentence, which however has to be broken down into several ones when translated into English. 24 In contrast, the Taiwan Fair Trade Commission has evolved from limiting market surveys to “cases with grave influence” in the context of protecting well-known unregistered indicators

102  Kung-Chung Liu Likelihood of Trademark Confusion.”25 The book advocated the use of market surveys26 as a useful tool to determine the perceptions of the relevant consumers about the similarity between goods and services from different sources and similarity between trademarks owned by different holders early on in trademark dispute proceedings, and preached the methodology of conducting market surveys, such as having 600–800 valid questionnaires as statistically credible proof of consumers’ perceptions,27 and to avoid misleading and double-edged questions.28 However, this call fell on deaf ears. Courts kept rejecting market surveys. In 2015, almost 20 years later, this author again advocated the use of market survey: Trademark law is a legal area closely related to the market and market behaviour; it is therefore not suitable for officials or courts to replace the actual perception of consumers with subjective imagination. At least in the determination of facts of the market, the proper use of market surveys can increase the objectivity of application of law. It is a great pity that courts have not developed a comprehensive method for conducting market surveys after dealing with it for 40 years . . . by establishing criteria and a framework and demanding that survey institutions and the parties abide by them, courts could arise from the vicious circle of distrusting survey institutions, always and only finding fault with and dismissing conducted market surveys, rendering market surveys even more unacceptable.29 Perhaps this time the appeal was heeded by the IP Court, therefore the 2017 Xin-San-Su-Zi 57 decision. However, the strong tradition of dismissing market surveys lingers, and thus the 2017 Xin-San-Su-Zi 50 decision, which in a dictum smashed the same market survey that was accepted by a different chamber.

2 The recognised trustworthy market survey institutions The IP Court has recognised China Credit as creditable survey institution in three decisions based on reasons mentioned earlier (2.3. of Reasoning of the court

(broader than trademarks) to generally accepting market surveys in 2005 when it revised the Guidelines on the Application of Article 21 of the Fair Trade Act. The Guidelines specify how market surveys should be conducted in order to be accepted. However, as a matter of fact, there has not been much market surveying in this regard. 25 Kung-Chung Liu, On Likelihood of Trademark Confusion (in Chinese), 1997, Wu-Nan book company, Taipei. 26 see Hacker in Ströbele/Hacker, MarkenR, 12 Aufl., 2018, §4 Rdnr. 52. 27 Kung-Chung Liu, On Likelihood of Trademark Confusion (in Chinese), 1997, 126. In Germany, for the whole of West and East Germany a representative number would be between, 1,000–2,500 interviewees; see Hacker in Ströbele/Hacker, MarkenR, 12 Aufl., 2018, §4 Rdnr. 53. 28 Kung-Chung Liu, On Likelihood of Trademark Confusion (in Chinese), 1997, 127. 29 Kung-Chung Liu, Trademark Law–A Comparative Treatise (in Chinese), 2014, New Sharing Publishing Company, Taipei, 305.

Market survey seldom accepted 103 section). In addition, it also recognised AG Nielsen on the following grounds: AG Nielsen is a world-renowned authority among market investigation companies, has over 100 years of experience in market surveys, and has conducted market surveys with over 100 million relevant consumers, with clients from over 100 countries. AG Nielsen entered Taiwan’s market in 1981, undertakes over 300 research projects per year, interviews over 100,000 people annually, and serves many world-class conglomerates in Taiwan. It is therefore sufficient to recognise that AG Nielsen possesses high professionalism and credibility in the investigation and analysis of consumers.30 What is slightly surprising, to the author at least, is that ICIR was also recognised by the IP Court as a creditable survey institution on the following simple ground: “ICIR has been recognized by the government as an academic research institute for the study of industry and commerce, and has given expert testimonies at courts and should therefore possess a certain credibility in market survey.”31 In any case, these three institutions, namely China Credit, AG Nielsen, and ICIR, constitute a pool of market survey institutions for Taiwan, and courts should work with them to develop sound market survey methodology that would guide parties, courts, and survey institutions to conduct readily admissible market surveys that would help resolve trademark disputes in their early stage.

3 The relevant consumers of Adidas Admittedly, “who the relevant consumers of Adidas are” is not a legal issue in itself. However, it concerns the admissibility of the market survey in question, and the two chambers of the IP Court have different views on this. It is therefore still legitimate and relevant to shed some light on this issue. Being a popular and well-known brand for sports goods in Taiwan since the 1970s, Adidas has been consumed by all kinds of people, whether urban or rural, young or old. In addition, Taiwan’s society as a whole is ageing fast. So the assumption by 2017 Xing-Sang-Su-Zi 50 that “Adidas’ products appeal mainly to the relevant consumers [who are] students or youngsters” simply ignores the fact that the relevant consumers for sporting goods are also ageing and no longer limited to youngsters. This author for example would still consider Adidas when making purchase decisions about sports goods, after 30 years of patronage of Adidas.

4 Misleading is every question in the eyes of a biased court 2017 Xin-San-Su-Zi 50 is a typical decision that finds faults with market surveys. It sounds very biased to conclude that no showing of the choice “others” on

30 Taiwan IP Court, 2014 Xing-Sang-Su-Zi 83, decided on 6 November 2014, at 肆、四、 （七） . 31 Taiwan IP Court, 2013 Xing-Sang-Su-Zi 23. According to the website of ICIR, www.cicr. org.tw, it was recognized by the Ministry of Education in 1981.

104  Kung-Chung Liu placard 2–1 was “on purpose” and to further draw the serious conclusion of dismissing the whole survey report: the option of ‘others’ was listed on the questionnaire, but was intentionally not mentioned on the placard; the placard indicated that the interviewee could only choose one (out of the seven). Interviewees were of course highly likely to either adopt the deduction method while thinking and making judgement or answer the raised question even by guessing. As the seven listed brands are already the top seven or most popular brands among the relevant consumers, there is little room for “others” and almost no need to show the option “others.” It is also difficult to comprehend why interviewees were therefore highly likely to either adopt the deduction method or answer by guessing (one out of the seven), and why “adopting the deduction method or answering by guessing” is a problem that would discredit the whole survey report.

Commercial or industrial significance Trademark owners who would commission a market survey to prove the perceptions of the relevant consumers in Taiwan are advised that it will not be easily accepted by courts in principle, and that they should only commission those survey institutions that have been recognised by courts as credible. They should also ask courts’ opinions first, invite the defendant to discuss the design of the survey before commissioning one (such as to vary the order of the options shown at random, so that the ‘desired’ response is not always first or last), and refrain from tampering with the survey. More importantly, market survey is not only a useful tool for solving trademark or competition disputes, but also a big business in itself. If developed well, jobs will be created and market competition facilitated, as it will enhance the transparency and identification of fast changing markets and the relevant consumers.

9 Three-dimensional shape of Coca-Cola bottles registrable Acquired distinctiveness evidenced by questionnaire in Japan Yoshiyuki Tamura

Case information: Intellectual Property High Court, 3rd Division, May 29, 2008, Case No. 2007 (Gyo-Ke) 10215, Hanrei Jiho, No. 2006, p. 36

Summary In the present case, the three-dimensional (3D) shape of goods was found to be registrable as a trademark in light of the results of questionnaire surveys and other related factors. Although 3D trademarks have been registrable in Japan since the Trademark Act was revised in 1996, it had been very challenging, in practice, to register the shapes of goods. Furthermore, 3D trademark registration had been completely denied even if favourable results might have been obtained from questionnaire surveys. However, in the present case and another earlier case, the Maglite case, the Intellectual Property High Court (the “IP High Court”) ruled that even the 3D shape of goods should be eligible for trademark registration if it meets the same requirements as those imposed on other descriptive indications, that is, if the shape has become well-known to a certain extent.1 This ruling turned the tide and was followed in other subsequent cases.

Legal context 1 Related articles on the registration of 3D shapes Since the Trademark Act was revised in 1996, 3D shapes have been registrable in Japan’s trademark registration system, according to the main paragraph of Article 2(1) of the Trademark Act: “ ‘Trademark’ in this Act means any character(s), 1 For a descriptive mark, it is required that it is well-known nationwide. See Yoshiyuki Tamura, Trademark Law (in Japanese), 189 (Koubundou, 2nd ed. 2000).

106  Yoshiyuki Tamura figure(s), sign(s) or three-dimensional shape(s), colour(s), any combination thereof, sound(s), or any other items designated by ordinance, which are recognizable by human perception.” The Trademark Act also stipulates the requirements for 3D trademark registration, which will be explained in what follows. If a 3D trademark is to be used as an advertising medium independent of goods or services, the trademark can be registered without being used as a trademark in accordance with the registration rule. By contrast, if trademark registration is sought for the shape of goods or their packaging, such a shape shall be regarded as a descriptive indication and is registrable only if the shape has acquired such distinctiveness through use that consumers can recognise the shape as indicating the applicant (Articles 3(1)(iii) and 3(2) of the Trademark Act).2 Further, a 3D shape which is indispensable for the function of goods or their packaging is not registrable even if the shape has acquired distinctiveness through use (Article 4(1) (xviii) of the Trademark Act).3

2 Article 3 of the Trademark Act stipulates as follows: Article 3(1) Any trademark used in connection with goods or services pertaining to the business of an applicant may be registered, unless the trademark: [. . .] (iii)  consists solely of a mark indicating, in a common manner, in the case of goods, the place of origin, place of sale, quality, raw materials, efficacy, intended purpose, shape [. . .], the method or features including time of production or use, quantity, price, or, in the case of services, the location of provision, quality, articles to be used in the provision, efficacy, intended purpose, modes, method or features including time, quantity or price of provision; [. . .] (2) Notwithstanding the preceding paragraph, a trademark that falls under any of items (iii) through (v) of the preceding paragraph may be registered if, as a result of the use of the trademark, consumers are able to recognize the goods or services as those pertaining to a business of a particular person. 3 Article 4(1) of the Trademark Act stipulates as follows: Article 4(1) Notwithstanding the preceding Article, no trademark may be registered if the trademark: [. . .] (xviii)  consists solely of a three-dimensional shape of goods or packaging of goods that is indispensable for the goods or their packaging to properly function. The language of Article 4(1)(xviii) which is quoted in footnote 2 was the effective language when the decision was rendered in the present Coca-Cola case. Following the revision in 2014, Article 4(1)(xviii) now reads “consists solely of features provided by Cabinet Order among features that are naturally provided to goods, etc. (goods, or packaging of goods, or services [. . .])” and accordingly, Article 1 of the current Order for Enforcement of the Trademark Act reads “the features specified by Cabinet Order as referred to in Article 4(1)(xviii) [. . .] of the Trademark Act are three-dimensional shapes, colors or sounds (in the case of services, three-dimensional shapes, colors or sounds of articles to be used in the provision of the services).” This revision was intended to specifically define unregistrable trademarks with a view to introducing a new trademark registration system that covers non-traditional types of trademarks such as color trademarks, motion trademarks and hologram trademarks (“Heisei 26-nen Tokkyohou tou no

3D shape of Coca-Cola bottles registrable 107

2 Past court decisions Previously, the threshold for trademark registration under Article 3(2) was particularly high in practice. Courts denied trademark registration of certain famous (or at least generally thought to be famous) shapes of goods or their packaging, such as the Yakult drink bottle, Suntory’s square whiskey bottle, and the shape of the “Hiyoko” pastry. In those cases, courts focused on the fact that the applied trademark in use accompanied a word mark. Courts held that in the case of an applied trademark that represents a 3D shape and does not accompany a word mark, consumers do not identify the relevant goods with the applied trademark alone because it is not identical to the trademark actually used. For example, in a case before the Tokyo High Court ([Pegcil case]),4 the court held that the 3D shape was not sufficiently distinctive to warrant trademark registration. The court’s holding was based on the fact that the goods using the relevant 3D shape accompanied two word marks (the good’s name “Pegcil” and the company name “OKAYA”), and these word marks had been functioning to identify the trademark holder. Thus, without the accompanying word marks, the 3D shape alone could not be found to be distinctive enough to identify the origin. In another case before the Tokyo High Court ([Ferragamo Bag Metal Fitting Case]),5 the court found no “acquired distinctiveness through use” in the 3D shape of the metal fitting that was identical or similar to the applied trademark. The court’s finding was based on the ground that the 3D trademark which was actually used accompanied “Ferragamo” or other similar word marks stamped on the 3D trademark and also appeared along with “Salvatore Ferragamo” or other similar names on magazine articles or elsewhere. In other cases before the Tokyo High Court, namely the (Yakult Drink Bottle case6 and the Suntory Square Whiskey Bottle case),7 the court found no “acquired distinctiveness through use” in the 3D shape of bottles. This time the court’s finding was based on the ground that the bottles had been used with “Yakult” (name of the company and the goods) or the “Hibiki” mark (Suntory’s emblem) and “SUNTORY” (Suntory’s company name in alphabetical letters), and these word marks appeared prominently on the bottles. Further, certain 3D trademark registration was denied even if, unlike in the cases above, no word marks appeared. In the Hiyoko case before the IP High

Ichibu Kaisei – Sangyouzaisanhou no Kaisetsu (2014 Partial Revision of the Patent Act and Other Acts – Review of Industrial Property Law)” edited by General Coordination Division and Legislative Affairs Office, Policy Planning and Coordination Department, Japan Patent Office (2014, published by Japan Institute for Promoting Invention and Innovation, pp. 166–167)). 4 December 21, 2000, Hanrei Jiho No. 1746, p. 129. 5 July 18, 2002, Case No. 2001 (Gyo-Ke) 446447. 6 July 17, 2001, Hanrei Jiho No. 1769, p. 98. 7 August 29, 2003, Case No. 2002 (Gyo-Ke) 581.

108  Yoshiyuki Tamura Court,8 no word mark was attached directly to the baby-bird–shaped “Hiyoko” pastry actually sold. Nevertheless, on the grounds that the pastry had been sold in paper wrapping bearing the word “Hiyoko” and then was packed into boxes bearing the word “Hiyoko” and further that the word “Hiyoko” also appeared in a number of places for display at stores, the court found that the “Hiyoko” pastry has been sold and advertised in a manner to draw consumers’ attention to the word mark “Hiyoko”. In so finding, the court concluded that the 3D shape of the “Hiyoko” pastry had not acquired distinctiveness independently of the word mark “Hiyoko” used along with the 3D shape. Symbolic of this trend is the previously mentioned Suntory Square Whiskey Bottle case before the Tokyo High Court9 wherein the court found the relevant 3D trademark to be unregistrable because it did not satisfy Article 3(2) even though the results of questionnaire surveys favoured registration. In this case, the plaintiff conducted questionnaire surveys by showing a drawing of the relevant 3D trademark to 200 bystanders in the cities of Tokyo and Osaka and asking which manufacturer came to their minds. The plaintiff submitted the results which showed that 74% of the respondents answered “Suntory.” However, considering, among other things, that 26% of the respondents did not think of the plaintiff, the court found that such results should have no effect on the conclusion that the relevant 3D trademark should not be registrable as it failed to satisfy Article 3(2).10 The foregoing practice underwent a drastic change due to a landmark decision by Mr. Toshiaki Iimura, the then presiding judge, in the Maglite case before the IP High Court.11 In the Maglite case, the shape of a flashlight was actually used and accompanied a word mark which was small and not famous. The court held that the shape should be registrable as falling under Article 3(2). Given that the Trademark Act sets two thresholds, Articles 3(1)(iii) and 4(1)(xviii), for registration of the 3D shapes of goods and the packaging of goods or services (collectively, “Goods”), the IP High Court stated that the 3D shapes of Goods, even if they are used along with a word mark, should be found registrable insofar as they have acquired distinctiveness, unless they fall under Article 4(1)(xviii).

  8 November 29, 2006, Hanrei Jiho No. 1950, p. 3. See Ryu Gyosei, 16 Intellectual Property Law and Policy Journal (Case Review), 311–344 (2007).   9 August 29, 2003, Case No. 2002 (Gyo-Ke) 581. 10 In a related case also filed by Suntory, its word trademark “Kakubin (square bottle in Japanese)” was held registrable as falling under Article 3(2) (Tokyo High Court, January 30, 2002, Hanrei Jiho No. 1782, p. 109 [Kakubin case]). The questionnaire surveys in this case were conducted by the same institution, on the same date and time, in the same place and by the same method as those in the aforementioned Suntory Square Whiskey Bottle case. Nevertheless, the Tokyo High Court in the Kakubin case positively viewed the survey results that 77% of the respondents recalled the plaintiff as the manufacturer. In sum, the results of the questionnaire surveys were not decisive and supposedly, the mark in one case was registrable because it was a word trademark, while the mark in the other was unregistrable because it was a 3D trademark. 11 June 27, 2007, Hanrei Jiho No. 1984, p. 3.

3D shape of Coca-Cola bottles registrable 109 The IP High Court further stated that it is unreasonable to find any and all 3D shapes of Goods to be unregistrable only because they are used along with a word mark. More specifically, the 3D trademark at issue in the Maglite case was found registrable as falling under Article 3(2) because the trademark had acquired distinctiveness among consumers through advertisements and sales of goods using the trademark over a long period. Another issue in the Maglite case was that the following figure and letters were drawn around the face cap on the goods in use: (1) a head-like figure on the right side to which a very small-sized registered trademark symbol (®) was attached at the upper right part; (2) the alphabetical letters “MINI MAGLITE” to which a very small-sized registered trademark symbol (®) was attached at the upper right part; and (3) the alphabetical letters “MAG INSTRUMENT” in a smaller size. The 3D trademark at issue was nevertheless found registrable as falling under Article 3(2) in light of, among other things, the fact that the figure and letters were proportionally smaller than the goods as a whole and the letters were not noticeable since they were engraved in thin lines, that the plaintiff’s leading products are the flashlights of the Maglite Series, mainly the goods at issue, and that the plaintiff’s name “MAG INSTRUMENT” merely shows the relationship between the plaintiff and the relevant flashlights. The name itself is not regarded as being independently well-known and famous. Another case decided by Mr. Iimura which further clarified the requirements for 3D trademark registration under Article 3(2), is the present Coca-Cola decision.12 The present Coca-Cola case is an important precedent because the court held that a 3D trademark was registrable as falling under Article 3(2) even though the word mark “Coca-Cola”, which was attached to the 3D trademark, was both prominent and famous, unlike the Maglite case.

Facts On July 2, 2003, an application for registration of a 3D trademark, which is the bottle of Coca Cola, was filed with the designated goods “cola drinks” in Class 32. That application was refused by the Japan Patent Office (“JPO”). The applicant appealed the refusal, which was also refused by the JPO. To seek rescission of the JPO’s decision, the applicant then filed the case with the IP High Court. The JPO’s decision to refuse the appeal by the plaintiff (applicant) was mainly based on two facts. First, the trademark sought must fall under Article 3(1)(iii) of the Trademark Act as it solely consists of a mark using regular methods to show goods, the packaging of goods, or articles to be used for the provision of services. Second, the trademark sought per se fails to satisfy Article 3(2) as it had not acquired such distinctiveness that the goods are distinguishable from those of others.

12 See Yoshiyuki Tamura and Ryu Gyosei, 58 Intellectual Property Management (Case Review), 10:1267–1278, 11:1393–1404 (2008).

110  Yoshiyuki Tamura

Reasoning of the court The IP High Court rescinded the JPO’s decision on the basis of the reasons set out as follows.

1 General registrability of 3D shapes of goods with acquired distinctiveness [I]n the case of a shape that cannot be considered to be indispensable for ensuring the function of goods, etc., even if such shape has been chosen to facilitate the execution of the function of the goods, etc. or enhance the aesthetic quality of the goods, etc., the registrability of the shape as a threedimensional trademark should not be denied completely as long as the shape is used as a mark to indicate the origin of goods or services and distinguish one’s goods or services from those of others. . . . If a three-dimensional trademark has been used and consequently its shape has acquired distinctiveness, there should be no problem in granting trademark registration to the shape.13

2 Applicability of Article 3(2) of the trademark Act Whether a trademark having a three-dimensional shape has acquired distinctiveness should be determined based on a comprehensive evaluation of various factors such as the shape of the trademark or the goods, etc., date of starting use and duration of use, area of use, sales volume of the goods, duration, area and scale of advertisements, and whether or not there exist other goods, etc. that have a similar shape. In principle, the shape of the trademark or goods, etc. in use should be substantially identical to the trademark claimed in the application, and the designated goods claimed in the application should cover the goods in use. Needless to say, goods, etc. that have been manufactured, sold, or otherwise handled continuously normally carry the name of the manufacturing company, etc., or a mark consisting of signs or characters, etc. It is also common to change the shape of goods, etc. in order to maintain the quality or functionality to reflect technical advancements and changes in social environment and business practices. Under these circumstances, it would be unreasonable to simply conclude that a trademark in use cannot acquire distinctiveness only because a three-dimensional shape of goods, etc. in use carries the name of the company, etc., signs or characters, or underwent a slight change in the shape. Whether a three-dimensional shape has independently acquired distinctiveness should be determined by making a comprehensive

13 Hanrei Jiho, No. 2006, p. 47.

3D shape of Coca-Cola bottles registrable 111 evaluation as to whether the three-dimensional shape attracts consumers’ attention and gives a strong impression despite the facts that the trademark or goods, etc. in use carry such company name or mark and that there are slight differences in the shape.14 Regarding the fact that ‘Coca-Cola’ or other indications are affixed to the plaintiff’s goods packaged in returnable bottles and used in the advertisements for those goods, the following is found: In the world of business, traders and consumers often identify the origin of goods with reference to a single mark consisting of two-dimensional characters, figures, signs, etc. Providers, etc. of goods also often use a single mark to distinguish one’s goods from those of others, which would be convenient. However, the actual transactional practices are diverse. Rather than affixing a single mark on goods, providers, etc. sometimes affix multiple marks to identify the origin of the goods or distinguish their goods from those of others. Furthermore, traders and consumers could sometimes identify the origin of goods and distinguish one’s goods from those of others by paying attention to the characteristics of the shape of the goods (such as two-dimensional marks or three-dimensional shapes) that have nothing to do with the mark affixed by the provider of the goods. In consideration of such trading practices, the fact that some twodimensional characters, figures, signs or other marks are affixed to goods or that such marks are registered as a trademark does not necessarily mean that other characteristics of the goods (such as two-dimensional marks or three-dimensional shapes) do not have the function to distinguish one’s goods from those of others (Articles 2(1)(i) to 2(1)(iii) of the Unfair Competition Prevention Act). Examining the shape of the plaintiff’s goods packaged in returnable bottles from this perspective, it is found that. . ., in view of the long-term continuous use of the shape. . ., the great sales volume. . ., the manner and frequency of advertisement activities. . ., the survey results that the shape of the goods has the function to identify the origin of the goods as the plaintiff15. . ., the three-dimensional shape of the returnable bottles can be considered to have acquired high distinctiveness. Thus, the fact that the ‘Coca-Cola’ or other indications are attached to the plaintiff’s goods

14 Ibid. 15 In response to the questionnaire concerning the product name of the container presented to the respondents, 81% and 73.3% of the respondents answered “Coca-Cola” in the first and second central location test (a survey in which the respondents are randomly chosen on the streets to complete a questionnaire in a booth) surveys, respectively, and 60.3% in a Web survey.

112  Yoshiyuki Tamura packaged in returnable bottles should not prevent the court from finding acquired distinctiveness in the shape of the trademark (Needless to say, the shape of the trademark cannot be considered to consist solely of a three-dimensional shape that is indispensable to ensure the function of the goods, etc.)16

Legal analysis 1 The two thresholds of Articles 3(1)(iii) and 4(1)(xviii) for the registration of 3D shapes of goods While the 3D shape of goods is not registrable if it “consists solely of a mark indicating, in a common manner, in the case of goods, shape (including the shape of the packaging, . . .)” as provided in Article 3(1)(iii), such a 3D shape becomes registrable if it has acquired distinctiveness through use pursuant to Article 3(2). Yet, if registrability is denied even in cases where a 3D shape has acquired distinctiveness through use and serves to distinguish one’s goods from those of others in actual transactions, it shall run counter to the purpose of the Trademark Act of ensuring the function of trademarks, namely to identify the origin and thereby prevent confusion as to the origin. This would be why the Trademark Act permits registration in such cases. This view is also supported by Article 4(1)(xviii), which separately prohibits trademark registration in cases where the 3D shapes of goods are indispensable for the function of Goods. Based on this Article, such 3D shapes of Goods are not eligible for registration under Article 3(2) even if they have acquired distinctiveness through use. It seems that Article 4(1)(xviii) is intended to prohibit trademark registration in such cases because granting trademark rights is equal to prohibiting competition. Reversely, the Trademark Act does not require the denial of trademark registration in those cases where the shapes of Goods do not fall under Article 4(1)(xviii). The preceding view was adopted by the IP High Court in both the Maglite case and the present Coca-Cola case. The principle properly carved out by these decisions is that trademark registration in accordance with Article 3(2) should be prohibited only if the 3D shapes of goods fall under Article 4(1)(xviii) as being indispensable for ensuring their function.

2 3D shapes of goods or their packaging are registrable under Article 3(2) when they do not fall under Article 4(1)(xviii) Nevertheless, the precedents before the Maglite case and the present Coca-Cola case set quite a high threshold for registering 3D shapes of goods. For example, (1) in the aforementioned Suntory Square Whiskey Bottle case before the

16 Hanrei Jiho, No. 2006, p. 52.

3D shape of Coca-Cola bottles registrable 113 Tokyo High Court, despite the results of the submitted questionnaire survey which showed that 74% of the respondents answered they were able to recognise the trademark applicant when seeing the 3D shape of goods, the court instead focused on 26% of the respondents who did not recognise the trademark holder in the survey, and thereby concluded that the 3D shape of goods had not acquired the required distinctiveness to become registerable. (2) In the aforementioned Hiyoko case, the IP High Court also found that the 3D trademark of a shape of baby bird was not registrable as failing to meet the requirement of Article 3(2). The court’s finding was based on the ground that the shape of baby bird had been used by the trademark applicant in a position close to the word marks in packaging or advertisements or at stores and there was a possibility that consumers recognised the source not by the baby bird shape but by the word or sound marks. However, as the Maglite case and the Coca-Cola case pointed out, the Trademark Act stipulates that the 3D shapes of goods or their packaging are registrable under Article 3(2) when they do not fall under Article 4(1)(xviii). Therefore, the Suntory Square Whiskey Bottle case and Hiyoko case imposed unreasonably heavier burden on registering the 3D shapes of goods as trademarks, as they run counter to the purpose of the Trademark Act to distinguish the 3D shapes of goods from other trademarks and treat them particularly disadvantageously even when they do not fall under Article 4(1)(xviii). The Maglite case and the Coca-Cola case were quite correct in rejecting such high thresholds.

3 The correct interpretation of questionnaire surveys In the surveys, 81% of the respondents in the first central location test, 73.3% in the second central location test and 60.3% in a Web survey recalled the goods as from the “Coca-Cola” brand. When interpreting these results to deny acquired distinctiveness through use, the JPO found that 19% and 27% of the respondents did not recall the goods as from the “Coca-Cola” brand respectively. The JPO’s interpretation of survey results was quite similar to the aforementioned Suntory Square Whiskey Bottle case. However, the interpretation in the Suntory Square Whiskey Bottle case was unreasonable because it treated the 3D shapes falling under Article 3(1)(iii) differently from 2D marks. Accordingly, how many consumers need to recognise the goods’ origin in order to satisfy the requirement of “acquired distinctiveness through use” under Article 3(2)? To answer this question, the previously mentioned (in footnote 10) word trademark “Kakubin” case is instructive. In that case, which involved a 2D word mark, Article 3(2) was found to be satisfied on the ground that 77% of the respondents precisely identified the applicant as the origin. From the view that the 3D shapes of goods should not be treated differently from 2D marks, registration under Article 3(2) should be permitted in the present Coca-Cola case where the percentage of respondents recognising the origin of the goods is almost the same as that in the Suntory Kakubin case. This determination of

114  Yoshiyuki Tamura accepting survey results by the IP High Court in the present Coca Cola case is expected to serve as a precedent for future cases concerning the registration of descriptive indications or 3D trademarks.

Commercial or industrial significance The IP High Court’s judgments in the present Coca-Cola case, as well as the aforementioned Maglite case, were landmark decisions in practice. The approach adopted in these cases was subsequently followed in other cases, and 3D trademark registration was actually permitted in some cases such as the Yakult 3D trademark,17 Y-chair 3D trademark,18 and Jean Paul Gaultier “ClassiQue” 3D trademark.19

17 IP High Court, November 16, 2010, Hanrei Jiho No. 2113, p. 135. 18 IP High Court, June 29, 2011, Hanrei Jiho No. 2122, p. 33. 19 IP High Court, April 21, 2011, Hanrei Jiho No. 2114, p. 9. See also Hiroya Aoki, 1457 Jurist (Case Review), 118–121 (2013).

Part 4

Limitation of trademark rights International exhaustion 10 International exhaustion in Singapore: broad interpretation of “put on the market”, yet offer for sale excluded

117

SUSANNA H.S. LEONG

11 International exhaustion of trademark rights in India

129

ARUL GEORGE SCARIA

12 The exhaustion defence to trademark infringement and parallel importation in Malaysia

142

LIM HENG GEE

13 Justifiability of parallel import and trademark infringement by imports produced in breach of a licensing agreement in Japan

155

MASABUMI SUZUKI

14 Scope of a parallel importer’s permissible use of a trademark in marketing activities in Korea

165

WON BOK LEE AND KYOUNG-SHIN PARK

Fair use 15 Right of a trader in India to use another trader’s mark by way that is reasonably necessary

176

RAMAN MITTAL

16 “Denominative” use of another’s trademark can constitute prima facie “due cause” under Section 29(4) of the Indian Trade Marks Act RENUKA MEDURY

187

17 Establishing a parody defence standard within the framework of Taiwan’s Trademark Act

198

YACHI CHIANG

Compulsory trademark licensing? 18 Finding infringement but refusing to grant permanent injunction under Chinese Trademark Law HUAIWEN HE

208

10 International exhaustion in Singapore Broad interpretation of “put on the market”, yet offer for sale excluded Susanna H.S. Leong

Case information: Singapore High Court Samsonite IP Holdings Sarl v An Sheng Trading Pte Ltd [2017] SGHC 18 (“Samsonite v An Sheng”)

Summary In the present case, the plaintiff, a trademark proprietor sued the defendant, a parallel importer, for infringement of his SAMSONITE registered trademarks in relation to the importation of a shipment of backpacks bearing the said marks into Singapore. In defence, the defendant argued that it did not infringe the SAMSONITE registered trademarks under section 27(1) of the Singapore Trade Marks Act. Furthermore, the defendant raised the defence that the plaintiff’s rights had been exhausted under section 29 of the Singapore Trade Marks Act as the shipment of backpacks were sold and imported into Singapore with the deemed consent of the plaintiff as the registered proprietor. The defendant thus counterclaimed for damages, including loss of profits and costs of importation of the backpacks. The Singapore High Court, in a summary judgment and summary determination on a point of law, ruled that the defence under section 29(1) of the Singapore Trade Marks Act did not apply to the defendant as the backpacks were never “put on the market” and the sale of the backpacks was not done by the trademark proprietor, that is the plaintiff, or with his express or implied consent (conditional or otherwise) within the meaning of provision.

Legal context The protection of registered trademarks in Singapore is governed under the Trade Marks Act 19981 (“Singapore Trade Marks Act”). For the purposes of the 1 Trade Marks Act (Cap. 332, 2005 Revised Edition).

118  Susanna H.S. Leong plaintiff’s trademark infringement suit against the defendant and the defendant’s defence and counterclaim, the relevant provisions in the Singapore Trade Marks Act are sections 27(1), 27(4)(c) and 29(1). To expedite the proceedings, the plaintiff also filed for summary judgment and summary determination on a point of law under O 14 r 12 of the Rules of Court. It is relevant and useful to set out these provisions as follows: Acts amounting to infringement of registered trade mark 27. – (1) A person infringes a registered trade mark if, without the consent of the proprietor of the trade mark, he uses in the course of trade a sign which is identical with the trade mark in relation to goods or services which are identical with those for which it is registered.  . . . (4) For the purposes of this section and sections 28, 29 and 31, a person uses a sign if, in particular, he –  . . . (c) imports or exports goods under sign:  . . . Exhaustion of rights conferred by registered trade mark 29. – (1) Notwithstanding section 27, a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market, whether in Singapore or outside Singapore, under that trade mark by the proprietor of the registered trade mark or with his express or implied consent (conditional or otherwise). (2) Subsection (1) shall not apply where – (a) the condition of the goods has been changed or impaired after they have been put on the market; and (b) the use of the registered trade mark in relation to those goods has caused dilution in an unfair manner of the distinctive character of the registered trade mark. [emphasis added] Determination of questions of law (O.14, r. 12) 12. – (1) The Court may, upon the application of a party or of its own motion, determine any question of law or construction of any document arising in any cause or matter where it appears to the Court that –

International exhaustion in Singapore 119 (a) such question is suitable for determination without a full trial of the action; and (b) such determination will fully determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein. (2) Upon such determination, the Court may dismiss the cause or matter or make such order or judgment as it thinks just.

Facts The trigger factor of the proceedings in this case was the importation of a shipment comprising of 2,328 backpacks bearing the SAMSONITE registered trademarks into Singapore in July 2015. The plaintiff, Samsonite IP Holdings Sarl (a company incorporated in Luxembourg), is the proprietor of the SAMSONITE registered trademarks around the world, including Singapore and China. In Singapore, the SAMSONITE marks have been registered in relation to bags, backpacks, luggage, and travel accessories in classes 9, 16, 18, and 35. The defendant, An Sheng Trading Pte Ltd, is a company incorporated in Singapore. It is the plaintiff’s contention that the said shipment of backpacks bearing the SAMSONITE marks was imported into Singapore without the plaintiff’s consent and thus, constituted trademark infringement under section 27(1) read together with section 27(4)(c) of the Singapore Trade Marks Act. The defendant however pleaded that the shipment of backpacks bearing the SAMSONITE marks were “parallel imports” as they have been manufactured with the consent of the plaintiff under a license given to the plaintiff’s subsidiary located in China, Samsonite International Trade (Ningbo) Co. Ltd (“Samsonite China”); that as such, the defendant is entitled to the defence under section 29(1) of the Singapore Trade Marks Act because the plaintiff’s trademark rights had been exhausted since the backpacks “have been put on the market, whether in Singapore or outside Singapore, under that trademark by the proprietor of the registered trademark or with his express or implied consent (conditional or otherwise)”. By a co-branding agreement between Samsonite China and Lenovo PC HK Ltd (“Lenovo”), Samsonite China was to manufacture and supply specific models of computer cases and backpacks to Lenovo. It was a term in the co-branding agreement that the backpacks supplied were to bear at least one of the SAMSONITE marks whilst the Lenovo trademark was to be subsequently added onto the backpacks. It was further agreed under the co-branding agreement that in consideration of Samsonite China supplying the co-branded backpacks, Lenovo will give away for free the co-branded backpacks together with the sale of certain models of Lenovo laptops exclusively in China. Thus, it was clear that the backpacks were manufactured and supplied by Samsonite China to Lenovo for the exclusive purposes of the co-branding agreement and that at all times, Lenovo and its retailers as well as distributors in China were prohibited from selling or disposing of the co-branded backpacks independently from the sale of a Lenovo

120  Susanna H.S. Leong laptop in China. Furthermore, it was an undisputed fact that neither the plaintiff nor Samsonite China received any remuneration for the manufacture and supply of the co-branded backpacks to Lenovo. The defendant came to acquire the said shipment of backpacks bearing the SAMSONITE marks in the following manner: Samsonite China manufactured and supplied the co-branded backpacks to Lenovo in accordance with the cobranding agreement. In turn, Lenovo handed these backpacks over to its authorised dealers and distributors to be given away for free in conjunction with the sale and purchase of certain models of Lenovo laptops. Unfortunately, some of Lenovo’s authorised dealers and distributors sold the co-branded backpacks independently and unbundled from the Lenovo laptops to other unauthorised dealers. These unauthorised dealers subsequently sold the said backpacks to the defendant who imported them into Singapore.

Grounds of decision 1 Summary determination on a Point of Law under O 14 r 12 of the Rules of Court The first issue which requires determination by the court is whether the present case is one which is appropriate for summary determination pursuant to O 14 r 12 of the Rules of Court. Besides the factors set out in O 14 r 12 (a) and (b) of the Rules of Court, the other necessary requirements for successfully employing a summary determination include: a b c

That the underlying policy and purpose of summary determination is to save time and costs for the parties; That there are no factual disputes requiring findings of fact as these must be determined at a full trial; That complexity in the questions of law is not per se a bar to summary determination. However, the issues of law raised should not involve novel questions of considerable public importance because the need to deal with the ramifications of the decisions of such novel questions greatly outweigh the considerations of efficiency and cost savings.2

The court found that the present case satisfied the necessary requirements for a summary determination on a point of law under O 14 r 12 of the Rules of Court – the case centred on the interpretation of the scope and meaning of section 29(1) of the Singapore Trade Marks Act and is thus a question of law; the pertinent facts in the present case were not disputed; determination of the interpretation of the scope and meaning of section 29(1) of the Singapore Trade

2 See TMT Asia Ltd v BHP Billiton Marketing AG (Singapore Branch) and Another [2015] 2 SLR 540 and ANB v SNF [2011] 2 SLR 1.

International exhaustion in Singapore 121 Marks Act will fully determine whether the defendant could rely on the defence and a summary determination will result in substantial savings of time and costs for the parties.

2 Exhaustion of rights as a defence to trademark infringement The point of law to be summarily determined by the court in the present case relates to the interpretation of the scope and meaning of section 29(1) of the Singapore Trade Marks Act which sets out “exhaustion of rights conferred by registered trade mark” as a defence to trademark infringement.3 According to section 29(1), the exclusive rights of a proprietor of a registered trademark are “exhausted” if the goods bearing the registered trademarks “have been put on the market, whether in Singapore or outside Singapore, under the trademark by the proprietor of the registered trademark or with his express or implied consent (conditional or otherwise).” In the present case, the Singapore High Court was tasked to determine two substantive questions before a defence under section 29(1) of the Singapore Trade Marks Act can be made operative: Whether the goods in question (i.e., the SAMSONITE mark bearing backpacks) were “put on the market” and in this regard, what does “putting on the market” entail and what is the relevant “market”? b If the goods in question were indeed “put on the market”, whether they were done either (1) by the proprietor of the registered trademark, or alternatively (2) with his express or implied consent (conditional or otherwise)? In this regard, who is considered the relevant proprietor and what is the meaning of “consent” of the proprietor?

a

2.1 Whether the goods were “put on the market” and what is the relevant “market” Two possible interpretations of when goods are considered to be “put on the market” were canvassed before the court: (a) the expression “put on the market” involves “a realization of the economic value of the trademark with the accompanying change of ownership of the trade-marked goods” as expounded by the Court of Justice of the European Union (CJEU) in Peak Holding AB v AxolinElinor (Case C-16/03) [2004] ECR I-11313 (“Peak Holding”). According to proponents of this view,4 for the goods to be “put on the market” they must necessarily be “released into the market by an act of sale”; or (b) an alternate and broader interpretation of “put on the market” which includes not only the actual sale of the goods but also the pre-sale acts of marketing (for example advertising

3 See Pan-West (Pte) Ltd v Grand Bigwin Pte Ltd [2003] 4 SLR(R) 733 at [23]. 4 See Kerly’s Law of Trade Marks and Trade Names, Sweet & Maxwell (2011) at para 16–077.

122  Susanna H.S. Leong and promotion), offering for sale and other forms of exposure of the goods for the purpose of sale.5 Having examined the legislative history of the defence of exhaustion of rights in Singapore and armed with the public policy considerations underpinning the doctrine of exhaustion of rights, Justice George Wei set out to construct a conceptual framework for this defence in Singapore law. In the opinion of the learned judge, the interpretation of the expression “put on the market” must centre upon the principle that the proprietor of the registered trademark be allowed to realise the commercial and economic value of the trade mark before his rights can be derogated from under the relevant provision in section 29(1) of the Singapore Trade Marks Act. Essentially, the defence of exhaustion of rights is all about the law achieving a balancing of the interests of the intellectual property rights holders on the one hand and the public at large on the other. Having said this, Justice Wei was of the view that there are many ways in which the commercial and economic value of a trademark may be realised by the proprietor other than by an act of actual sale of the trade-marked product. Examples of these alternative methods include “allowing the good bearing the trade mark to be hired, or even given away for free” as through these methods would “increase the brand awareness of the product, and allow the trade-marked product to penetrate a specific consumer market” which in turn leads to economic and commercial benefits to the proprietor of the registered trademarks. Therefore, to hold that the rights of a proprietor of a registered trademark are exhausted only in the event of an actual sale of the trade-marked product would in the opinion of the Singapore High Court be too narrow. Furthermore, to adopt a more generous interpretation to include a wider range of situations in which the proprietor would be considered to have exhausted his rights by either his own acts or the acts of third parties with his consent accords with the stance of the Singapore Parliament that is generally in favour of parallel imports. However, the Singapore High Court was not prepared to go so far as to embrace fully the broader interpretation that “put on the market” includes the pre-sale acts of marketing (for example advertising and promotion), offering for sale and other forms of exposure of the goods for the purpose of sale. This is the position to be taken by the Court even as it recognises that Singapore has adopted the principle of international exhaustion. In the words of Justice Wei, the expression “put on the market” in section 29(1) of the Singapore Trade Marks Act refers to the situation where: [A]n independent third party has acquired the right of disposal of the goods bearing the trademark. The acquisition by an independent third party of 5 Proponents of this view include academics and members of the judiciary. See Tan Tee Jim, Law of Trade Marks and Passing Off, 3rd Edition, Singapore: Sweet & Maxwell Asia (2014) at paras 13.104 and 13. 106; the Swedish Courts in Peak Holding; the High Court of New Zealand (Auckland Registry) in Leisureworld Ltd v Elite Fitness Equipment Ltd (21 July 2006, HC).

International exhaustion in Singapore 123 the right of disposal must be an act that simultaneously allows the proprietor of the trademark to realise the commercial or economic value of the trade-marked goods, and deprives him of the right to control the subsequent exploitation of the goods. Such an act includes, but is not limited to, a sale of the goods by the proprietor to the third party. It does not, however, include preparatory acts such as offers for sale. [emphasis in the original] As for the relevant market, this is dependent on the economic objective of the proprietor of the registered trademark and the factual matrix of each case. Thus, the precise market may be the broader wholesale, distribution, and retail market or the narrower consumer market as the case may be. Applying the legal principles onto the facts of the present case, the Singapore High Court ruled that: a

The economic objective of the plaintiff is to penetrate the Chinese consumer market and to create awareness of the SAMSONITE brand. The plaintiff has chosen to do so by being associated with the LENOVO brand in the form of a co-branding agreement. b Accordingly, the relevant market is the retail or end-user market in China. c The commercial value of the SAMSONITE marks would only be realised when a consumer received a SAMSONITE backpack as a gift upon the purchase of a LENOVO laptop computer. The unbundling of the SAMSONITE mark bearing backpacks from the LENOVO laptop computers by some of the authorised dealers of LENOVO and the subsequent onward sale of these backpacks to unauthorised dealers who then sold them to the defendant as a parallel importer served to deprive the plaintiff of reaping the economic benefits of his intellectual property right. Seen in this light, the SAMSONITE mark bearing backpacks were therefore never “put on the market” for the purpose of section 29(1) of the Singapore Trade Marks Act. In another words, only those SAMSONITE mark bearing backpacks which entered the Chinese consumer market by the pathway envisioned under the co-branding agreement, that is they were given away for free in conjunction with a sale and purchase of a LENOVO laptop computer, were goods “put on the market”. d Accordingly, the registered trademark proprietor’s exclusive rights were exhausted only in relation to these backpacks under section 29(1) of the Singapore Trade Marks Act.

2.2 Who is the relevant proprietor and what does express or implied consent (conditional or otherwise) mean? The second operative requirement in the defence of exhaustion of rights under section 29(1) of the Singapore Trade Marks Act is that the act of putting the

124  Susanna H.S. Leong goods bearing the registered trademark on the market must have been undertaken personally by the proprietor of the registered trademark himself or by a third party with the express or implied consent of the proprietor, conditional or otherwise. Complex issues of “attributability” are raised when the goods are put on the market by third parties other than the proprietor of the registered trademark himself, and the analysis of this “criterion of attributability” centres upon whether consent has been given. In the present case, there was in fact no necessity for the court to expound on this issue of “attributability” and consent as the learned judge has already found that the goods bearing the relevant SAMSONITE marks were NOT put on the market. Nevertheless, Justice Wei took the opportunity to lay down some of his observations on the issue of consent within section 29(1) of the Singapore Trade Marks Act which were therefore obiter dicta. The following is a summary of Justice Wei’s observations: a Consent could be oral, in writing or by conduct. b Express consent means permission granted that is explicit, clear, and unequivocal. c In contrast, implied consent is permission not expressly granted by the proprietor but instead is to be inferred from the proprietor’s actions or conduct and/or the facts and circumstances of a particular situation. d The circumstances in which consent may be inferred are numerous and varied. However, an overriding consideration must be the presence of evidence before the court that unequivocally demonstrates an intention to renounce rights on the part of the proprietor of the registered trademark. This is supported by case law from the UK and the European Union. e Related entities within the same corporate group and their dealings in the goods bearing the registered trademark in different geographical territories give rise to particular problems on the issue of consent. In general, implied consent may be established if there is a high degree of corporate control by the parent company over its subsidiaries in particular over issues such as qualitative differences in the goods, such that they could be treated as a single corporate entity as seen in the English cases of Revlon Inc v Cripps & Lee Ltd and Others [1980] FSR 85 but distinguished in Colgate-Palmolive Ltd and Another v Markwell Finance Ltd and Another [1989] RPC 497. Elsewhere in New Zealand, the related entities within the same corporate group problem is dealt with under the concept of “an associated person of the owner” under section 97A of the New Zealand Trade Marks Act 2002. f Given that section 29 of the Singapore Trade Marks Act is a derogation from the exclusive rights of the trademark proprietor and that it takes the form of an international exhaustion of rights, the onus is on the defendant to demonstrate consent on the part of the registered trademark proprietor which must be unambiguous. g For the purposes of section 29(1) of the Singapore Trade Marks Act, once consent, either express or implied, is established on the part of the registered

International exhaustion in Singapore 125 trademark proprietor, it is irrelevant whether the consent has been given with conditions or restrictions because of the inclusion of the phrase “conditional or otherwise” that provides a “deeming” effect to the provision.6

Legal analysis 1 The law of exhaustion: national exhaustion, regional exhaustion and international exhaustion The rationale of the doctrine of exhaustion of rights (or first sale doctrine as it is commonly referred to in the United States) is a simple one: when a product protected by an intellectual property right such as a patent, a copyright or a trademark has been commercially exploited by the intellectual property owner most commonly through a sale, the intellectual property owner would therefore have obtained a fair reward through the act of exploitation and consequently, thereby surrenders his exclusive rights in relation to the subsequent dealings in the product post the act of exploitation. The subsequent derogation of the intellectual property owner’s exclusive rights is justified because he has already reaped the economic or commercial benefits of the product through a first act of exploitation of his property right. However, the application of the doctrine of exhaustion in practice is neither simple nor easy, especially in the context of international trade as it involves striking a balance of the interests of various stakeholders. There is also a lack of harmonisation of the rules governing exhaustion of rights across countries as member countries of the World Trade Organization (WTO) failed to reach consensus on this controversial issue. At present, Art. 6 of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) provides the flexibility to Member States to establish and practice their own laws on exhaustion of intellectual property rights.7 Consequently, this has resulted in “different strokes for different IP folks”8 and “a disordered mix of different rules depending on country or region”.9 Exhaustion of intellectual property rights may be categorised into: national exhaustion, regional exhaustion, and international exhaustion. Historically, developing countries (which are net importers of intellectual property) tend

6 See Ng-Loy Wee Loon, Law of Intellectual Property of Singapore, 2nd Edition, Singapore: Sweet & Maxwell (2014) at para 24.8.5 and Tan Tee Jim, Law of Trade Marks and Passing Off, 3rd Edition, Singapore: Sweet & Maxwell Asia (2014) at para 13.110. 7 TRIPS Art. 6 states – “For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of exhaustion of intellectual property rights”. 8 Ng-Loy Wee Loon, The Exhaustion Doctrine in Singapore: Different Strokes for Different IP Folks, Research Handbook on Intellectual Property Exhaustion and Parallel Imports, Edited by Irene Calboli & Edward Lee, Cheltenham, UK: Edward Elgar Publishing, (2016). 9 Christopher Clugston, International Exhaustion, Parallel Imports, and the Conflict between the Patent and Copyright Laws of the United States, Beijing Law Review, 2013 Vol. 4, No. 3, 95–99.

126  Susanna H.S. Leong to be in support of parallel importation and adopt an international exhaustion trade policy whilst developed countries (which are net exporters of intellectual property) generally opposed international exhaustion and parallel importation.10 National exhaustion refers to the situation whereby certain intellectual property rights are “exhausted” when goods are put on the domestic market by the intellectual property rights owner or with his consent. The intellectual property rights owner is accordingly disallowed to interfere with the onward distribution of the goods within the domestic market post the act of putting goods on the domestic market. However, the intellectual property rights owner is still able to oppose the importation of original goods made and sold outside of his country into the domestic market by third parties. Under regional exhaustion, an intellectual property owner’s rights would be exhausted when his goods are put on the market within a region or a particular group of countries by him or with his consent. For example, the European Union practices the doctrine of regional exhaustion that prohibits the importation of original goods sold outside the Union but allows the free flow of goods, including parallel importations, within the Union. The European Union has adopted the system of regional exhaustion so as to encourage market integration and free movements of goods within the European Community.11 Compared to national exhaustion and regional exhaustion, an intellectual property rights owner stands to lose the most when he is subjected to an application of the doctrine of international exhaustion. This is because once the goods covered by the intellectual property right are put on the market anywhere in the world by the owner or with his consent, he loses the right to control the subsequent distribution or movement of the goods. Consequently, the doctrine of international exhaustion, as opposed to the doctrine of national exhaustion, is particularly contentious because of its impact on parallel imports. Parallel imports are sometimes referred to as grey market goods, as they are manufactured or sold with the consent of an intellectual property owner or his licensee in one country but are subsequently imported into another country and sold without permission. They are not counterfeits but are genuine goods as they are made by or with the consent of the intellectual property owner or his licensee. Intellectual property owners or their licensees exercise price discrimination

10 See Vincent Chiappetta, The Desirability of Agreeing to Disagree: The WTO, TRIPS, International IPR Exhaustion and a Few Other Things, Michigan Journal of International Law, 2000 Vol. 21, No. 3, at p. 333. On closer examination, this purported division over the issue of international exhaustion along the lines of developing countries and developed countries may be an oversimplification and the reality is perhaps more complex. Two recent Supreme Court decisions in the United States point to endorsement of the doctrine of international exhaustion beyond the area of trade mark law into the areas of copyright and patents. See Kirtsaeng v John Wiley & Sons, Inc. 133 S.Ct. 1351 (2013) (international exhaustion for copyright) and Impression Products, Inc. v Lexmark International, Inc. 581 U.S. 1523 (2017) (international exhaustion for patents). 11 See Deutsche Grammophon Gesellschaft mbH v Metro-SB-Grossmarkte ECR 487 (1971) and Hoffman La Roche v Centrafarm ECR 1139 (1978).

International exhaustion in Singapore 127 among different countries or regions and parallel importers take advantage of the arbitrage in price differentials across these different countries by buying the goods in a cheaper country for import and resale in another more expensive country. In support of free trade, the Singapore government upholds the policy of allowing parallel importation and adopts the principle of international exhaustion in respect of the intellectual property rights such as copyright,12 patents,13 and trademarks which are often relied upon by authorised dealers to curtail such acts of importation. Proponents of parallel importation argues that parallel imports increase the choice of products available to the consumers and because of the competition created by parallel importers, prices of products are kept competitively low with substantial savings being passed on to consumers. On the other hand, intellectual property right owners and authorised dealers take the view that parallel importation reduces the market share of their products in Singapore. They respond to such a trade policy with countervailing measures such as market segmentation, highlighting the differences in qualities of the products originating from different countries of manufacture, offering after-sale services and extended warranties of the products and in certain cases, taking parallel importers to court for intellectual property rights infringement.

2 Singapore High Court endorsed a broad interpretation of “put on the market”, yet declined to include preparatory acts such as offers for sale In Samsonite v An Sheng, the trademark proprietor was successful in prohibiting the parallel importation of goods bearing the SAMSONITE mark into Singapore, as the parallel importer failed in his attempt to invoke the defence of exhaustion of rights under section 29(1) of the Singapore Trade Marks Act on the ground that the goods have not been “put on the market” and consequently, there was no derogation of the trademark proprietor’s trademark right in the said mark. Samsonite v An Sheng is a decision which trademark proprietors and

12 In the context of secondary infringement of copyright via importation under ss 33 and 105 of the Singapore Copyright Act (Cap 63, 2005 Rev Ed), the imported articles are infringing copies only if they were made without the consent of the copyright owner in the country of manufacture. Singapore adopts a principle of international exhaustion in copyright law. There is however an exception to this rule which is where there is no copyright owner in the country of manufacture. See Ng-Loy Wee Loon, Law of Intellectual Property of Singapore, 2nd Edition, Sweet & Maxwell (2014) at paras [10.3.18] and [10.3.19]. See also George Wei, A Look Back at Public Policy, the Legislature, the Courts and the Development of copyright Law in Singapore – 25 Years On, SAcLJ 2012 Vol. 24, 867 at paras [8] to [16]. 13 See s 66(2)(g) (applies to any patented invention other than a pharmaceutical product), ss 66(2)(i), 66(3) and 66(5A) (apply to pharmaceutical products) of the Singapore Patents Act (Cap 221, 2005 Rev Ed). See further Ng-Loy Wee Loon, Law of Intellectual Property of Singapore, 2nd Edition, Sweet & Maxwell (2014) at paras [34.3.1] to [34.3.23] for an in-depth discussion of parallel imports and the law of patents in Singapore.

128  Susanna H.S. Leong parallel importers should take note of as the Singapore High Court has taken the opportunity in this case to shed light on the scope and operative effect of the defence of exhaustion of rights under section 29(1) of the Singapore Trade Marks Act in the context of parallel imports. After Samsonite v An Sheng, it is clear that the expression “put on the market” in section 29(1) of the Singapore Trade Marks Act is broadly interpreted to cover not only the actual sale of the goods bearing the mark, but also other acts through which the commercial value of the trademark can be realised for example, allowing the good bearing the mark to be hired or given away for free, much like what the trademark proprietor of SAMSONITE in Samsonite v An Sheng has done in their co-branding agreement with Lenovo. The important criterion is the realisation of the economic value of the trademark through such acts. Whilst the Singapore High Court has endorsed a broad interpretation of the expression “put on the market”, it has declined to hold that preparatory acts such as offers for sale are included.

Commercial or industrial significance Parallel importers in Singapore should be aware that after the present decision, it is important for them to ascertain the channels of distribution through which their goods are obtained for importation into Singapore and to make sure that these channels are authorised by the intellectual property right owners or their licensees, if they wish to avail themselves of the defence of exhaustion of rights under section 29(1) of the Singapore Trade Marks Act. Whilst the general position of endorsing parallel importation on the part of the Singapore government has not altered, Samsonite v An Sheng has demonstrated that Singapore courts are prepared in certain factual situations, albeit rarely, to hold that the defence of exhaustion of rights under section 29(1) of the Singapore Trade Marks Act may not be invoked by the parallel importer if they find that the fundamental premise of the doctrine of exhaustion of rights which is to allow the trademark proprietor to receive fair reward for the exploitation of his property right has not been achieved.

11 International exhaustion of trademark rights in India Arul George Scaria

Case information: Kapil Wadhwa and others v. Samsung Electronics Co. Ltd. 2012 Indlaw DEL 2151, Delhi High Court (Division Bench), October 3, 2012

Summary The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has provided flexibility for the member states to decide on the exhaustion principle they want to follow in diverse types of intellectual property rights. While some member states have opted for international exhaustion principle in the area of trademarks, some have opted for national exhaustion principle, taking into consideration their socio-economic requirements. What kind of exhaustion regime is followed by India in the area of trademark law has been a subject of debate among scholars and jurists, as the trademark legislation in India does not explicitly mention the kind of exhaustion principle India follows. In Samsung Electronics Co. Ltd. and another v Kapil Wadhwa and others, a Single Bench of the Delhi High Court had ruled that India follows the national exhaustion regime in the area of trademark law. But on appeal, the Division Bench of the same High Court has overruled the decision of the Single Bench through a more contextual reading of the relevant legal provisions and has held that India follows the international exhaustion regime in the area of trademark law. The decision of Division Bench, which is explored in detail in this chapter, is currently considered as the leading case in this area. Though Samsung Electronics Co. Ltd filed an appeal against this decision before the Supreme Court of India in November 2012, the same is still pending before the Supreme Court of India.1

1 Status as on April 5, 2018. See Samsung Electronics Co. Ltd. and another v. Kapil Wadhwa and others, Diary Number-39557–2012, Supreme Court of India. As per the records available on the website of Supreme Court of India, the matter was last listed on July 22, 2016 and final hearings are pending.

130  Arul George Scaria

Legal context Sec. 29 of the Trade Marks Act, 1999, which deals with infringement of registered trademarks, reads as follows: (1) A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered and in such manner as to render the use of the mark likely to be taken as being used as a trade mark.  . . . (6) For the purposes of this section, a person uses a registered mark, if, in particular, he –  . . . (c)  imports or exports goods under the mark; or  . . . Sec. 30 of the Trade Marks Act, 1999, which deals with the limitations on the rights relating to registered trademarks, reads as follows: (1) Nothing in section 29 shall be construed as preventing the use of a registered trade mark by any person for the purposes of identifying goods or services as those of the proprietor provided the use(a) is in accordance with honest practices in industrial or commercial matters, and (b) is not such as to take unfair advantage of or be detrimental to the distinctive character or repute of the trade mark. (2) A registered trade mark is not infringed where(a) the use in relation to goods or services indicates the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of services or other characteristics of goods or services; (b) a trade mark is registered subject to any conditions or limitations, the use of the trade mark in any manner in relation to goods to be sold or otherwise traded in, in any place, or in relation to goods to be exported to any market or in relation to services for use or available or acceptance in any place or country outside India or in any other circumstances, to which, having regard to those conditions or limitations, the registration does not extend; (c) the use by a person of a trade mark(i) in relation to goods connected in the course of trade with the proprietor or a registered user of the trade mark if, as to

International exhaustion of rights in India 131 those goods or a bulk or which they form part, the registered proprietor or the registered user conforming to the permitted use has applied the trade mark and has not subsequently removed or obliterated it, or has at any time expressly or impliedly consented to the use of the trade mark; or (ii) in relation to services to which the proprietor of such mark or of a registered user conforming to the permitted use has applied the mark, where the purpose and effect of the use of the mark is to indicate, in accordance with the fact, that those services have been performed by the proprietor or a registered user of the mark; (d) the use of a trade mark by a person in relation to goods adapted to form part of, or to be accessory to, other goods or services in relation to which the trade mark has been used without infringement of the right given by registration under this Act or might for the time being be so used, if the use of the trade mark is reasonably necessary in order to indicate that the goods or services are so adapted, and neither the purpose nor the effect of the use of the trade mark is to indicate, otherwise than in accordance with the fact, a connection in the course of trade between any person and the goods or services, as the case may be; (e) the use of a registered trade mark, being one of two or more trade marks registered under this Act which are identical or nearly resemble each other, in exercise of the right to the use of that trade mark given by registration under this Act. (3) Where the goods bearing a registered trade mark are lawfully acquired by a person, the sale of the goods in the market or otherwise dealing in those goods by that person or by a person claiming under or through him is not infringement of a trade by reason only of – (a) the registered trade mark having been assigned by the registered proprietor to some other person, after the acquisition of those goods; or (b) the goods having been put on the market under the registered trade mark by the proprietor or with his consent. (4) Sub-section (3) shall not apply where there exists legitimate reasons for the proprietor to oppose further dealings in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market. The Trade Marks Act, 1999 does not mention explicitly anywhere whether India follows the international exhaustion principle or national exhaustion principle in the area of trademark law. More specifically, as one may observe from the previously mentioned provisions, the statute does not explicitly clarify whether the term “market” means “international market” or “domestic market”. This

132  Arul George Scaria ambiguity has led to considerable debates among academics as well as practitioners on the question of the kind of trademark exhaustion regime India follows.2 In this regard, it needs to be pointed out that the Trade Marks Act, 1999 is not the only intellectual property legislation in India wherein the legislature has not explicitly clarified whether India follows the international or national exhaustion principle. Other statutes like the Copyright Act 1957 and the Patents Act 1970 also suffer from similar lacunae.3

Facts Samsung is a multinational company having presence across many countries. It engages in the manufacture and sale of diverse electronic goods such as televisions, washing machines, microwave ovens, air-conditioners, computers, printers, and cartridges. Samsung Electronics Company Ltd. (“SECL”) is incorporated under the laws of Korea and through a license agreement it has permitted Samsung India Electronics Pvt. Ltd. (“SIEPL”), its subsidiary in India, to use its trademarks (SECL and SIEPL are hereinafter jointly referred to as “Samsung”). More than seven marks have been registered by Samsung in India. The appellants in this case were engaged in the business of selling printers in India. The appellants procured printers manufactured and sold by Samsung in different countries where the prices were relatively lower and started selling them in the Indian market. The appellants also had a website to advertise their products, including the products with the trademarks of Samsung, which used hyperlinks to the website of Samsung for providing information about the products. Samsung initiated a suit against the appellants, alleging violation of their registered trademarks in India. According to Samsung, the printers were imported without the authorisation of Samsung Electronics Company Ltd. or Samsung India Private Ltd., thereby violating their trademark rights. With regard to hyperlinking to information on the Samsung website, Samsung alleged that such acts not only constituted an infringement of registered trademarks, but could also result in injury to the consumers as they might believe that the products they purchase from

2 See, for example, Shamnad Basheer and Mrinalini Kochupillai, “TRIPS, Patents and Parallel Imports: A Proposal for Amendment” (2009) 2 Indian Journal of Intellectual Property Law 63, 69–70; Sneha Jain, “Parallel Imports and Trademark Law” (2009) 14 Journal of Intellectual Property Rights 14, 23–25; and Dinesh Kumar and Gurjinder Singh, “Parallel Import in India: A Study” in Rashmi Aggarwal and Rajinder Kaur (ed.), Patent Law and Intellectual Property in the Medical Field (IGI Global, Hershey, 2017) 84. 3 For an interesting discussion on how the Indian judiciary has often failed to understand the concept of exhaustion in the area of copyright law in India in the absence of clear statutory provisions, see Pranesh Prakash, “Exhaustion: Imports, Exports, and the Doctrine of First Sale in Indian Copyright Law” (2011) 1 Manupatra Intellectual Property Reports 149, 149–160. For a detailed discussion on the diverse interpretations with regard to the exhaustion principle followed in the area of patent law in India, see Yogesh Pai, “The Hermeneutics of Patent Exhaustion Doctrine in India” in Edward Lee and Irene Calboli (ed.), Research Handbook on Intellectual Property Exhaustion and Parallel Imports (Edward Elgar, Cheltenham, 2016) 324.

International exhaustion of rights in India 133 the appellants are the ones sold in India with the permission of Samsung. According to Samsung, the imported printers, which were sold by the appellants, are materially different from the ones sold by Samsung in the Indian market.

Reasoning of the courts 1 Single Bench of Delhi High Court: adoption of the national exhaustion principle The Single Bench of the Delhi High Court, in its order dated February 17, 2012, ruled in favour of Samsung.4 According to the Single Bench, India followed the national exhaustion approach in the area of trademarks and the trademark owner had the right to prevent any unauthorised import of products bearing the registered trademark.5 According to the Single Bench decision, the opening words of Sec. 30(3), i.e., “where the goods bearing a registered trademark are lawfully acquired by a person” make it clear that the acquisition of a product has to happen within the domestic market.6 The judge was of the opinion that if the trademark is registered in another country, then the goods bearing the said registered trademark can be lawfully acquired only from that country.7 In his view, when the goods bearing a registered trademark are acquired from another country, it would be an import of goods having an identical mark, which amounts to use of the mark as well as infringement of the mark.8 According to the Single Bench, the words “in the market” cannot be given a worldwide effect as it may otherwise give a license to anyone to purchase the goods from Indian market and sell anywhere in the world market.9 The Single Bench was of the view that Sec. 30(3) contemplates a particular situation where the goods bearing the registered trademark are lawfully acquired and their consequence thereof which cannot be culminated into infringement due to change of ownership or proprietor’s putting himself goods in the market. The said section operates within one market where the registration of registered trademark extends.10 The Court was of the opinion that any other interpretation would be misreading or ignoring the words like “registered trade mark” and “lawful acquisition”,

 4 Samsung Electronics Co. Ltd. and Another v. Kapil Wadhwa and Others (February 17, 2012, Delhi High Court, Single Bench), https://indiankanoon.org/doc/109397105/.   5 Ibid para 139.   6 Ibid para 68.  7 Ibid.  8 Ibid.  9 Ibid. 10 Ibid para 69.

134  Arul George Scaria thereby making those words in the statute “dead letters or inoperative”.11 The Single Bench also pointed out that Sec. 30 (4) is a very limited kind of exhaustion wherein even the domestic circulation of goods can be controlled, if there are legitimate reasons for the proprietor to object to the further dealings.12 According to the Single Bench, there was a prima facie case of infringement and the balance of convenience was in favour of Samsung.13 As the judge was of the view that there could be irreparable loss in the form of harm to market share and depreciation in the goodwill of Samsung, he restrained the appellants from importing, exporting, and dealing in printers and ink cartridges/toners bearing the trademark of Samsung.14 He also restrained the appellants from using the mark Samsung in any of their promotional activities, including on their website.15

2 Division Bench of the Delhi High Court: adoption of the international exhaustion principle As the Single Bench decision had put restraints on the appellants with regard to import and sale of products bearing the registered trademark of Samsung, they appealed against the decision before the Division Bench of the High Court. The Division Bench of the Delhi High Court, in its decision dated October 3, 2012, overruled the decision of the Single Bench and held that India follows the international exhaustion regime.16

2.1 The need for a more contextual reading of the provisions According to the Division Bench, while a literal reading of Sec. 29 of the Trade Marks Act, 1999 may suggest that even the import of genuine goods under a trademark which is registered in India may constitute an act of infringement, it would be premature to conclude that the legislative intent was to put barriers on importation, as one has to read Sec. 29 along with Sec. 30, which provides certain exceptions to infringement of registered trademarks.17 The Division Bench pointed out that there is no law which stipulates that goods sold under a trademark can be lawfully acquired only in the country where the trademark is registered.18 The Division Bench highlighted that lawful acquisition of goods means lawful acquisition as per the laws pertaining to sale and purchase of goods

11 Ibid. 12 Ibid para 91. 13 Ibid para 142. 14 Ibid para 143. 15 Ibid. 16 Kapil Wadhwa and others v. Samsung Electronics Co. Ltd., 2012 Indlaw DEL 2151 (October 3, 2012, Delhi High Court, Division Bench). 17 Ibid paras 22–23. 18 Ibid para 42.

International exhaustion of rights in India 135 in that country and the objective of trademark law is not to regulate the sale and purchase of goods.19 The Division Bench also looked at legislation in different countries and highlighted that wherever the intent was to confine “the market” to the domestic market, they have expressly indicated it.20 The Division Bench cited the examples of Brazil and Turkey in this regard.21 The Division Bench also highlighted that in the Statement of Objects and Reasons on Clause 30 of the Trade Mark Bill 1999, which later became Section 30 of the Trade Marks Act, 1999, it was specifically mentioned that: sub-cls. (3) and (4) recognize the principle of ‘exhaustion of rights’ by preventing the trade mark owner from prohibiting on ground of trade mark rights, the marketing of goods in any geographical area, once the goods under the registered trade mark are lawfully acquired by a person. However, when the conditions of goods are changed or impaired after they have been put on market, the provision will not apply. According to the Division Bench, the expression “in any geographical area” clearly shows that the legislative intent was to adopt the principle of international exhaustion.22 The Division Bench also observed that during the negotiations relating to the TRIPS Agreement, India was in favour of permitting parallel imports.23

2.2 Exceptions to the international exhaustion principle The Division Bench discussed in detail the circumstances that might act as an exception for the international exhaustion principle. The Division Bench highlighted that principle of international exhaustion will not be applicable where legitimate reasons exist to oppose further dealing and this includes in particular situations wherein the physical condition of the goods has been changed or impaired.24 According to the Division Bench, in such situations, even in the absence of a statutory provision, the registered trademark owner would have the right to oppose further dealing, as the goods cannot be considered as the same goods when the physical condition of the goods are changed.25 But the Division Bench also highlighted that Sec. 30 (4) is not restricted to such situations and can also cover many other legitimate reasons to oppose further

19 Ibid. 20 Ibid para 48. 21 Ibid. 22 Ibid paras 57–58. 23 Ibid para 61. 24 Ibid para 68. 25 Ibid.

136  Arul George Scaria dealings in the goods.26 According to the Division Bench, changing condition or impairment is only a species of the genus legitimate reasons and the genus embraces other species as well.27 By relying on decisions from other jurisdictions, the Division Bench highlighted that some of such instances include differences in services and warranties, differences in advertising and promotional activities, differences in packaging, and differences in language of the literature provided.28 According to the Court, “this can happen only in case where goods have to be imported from a country of manufacture or a country where they are put on the market thereof, and then imported into India,” which was also an indication of India adopting the principle of international exhaustion in the area of trademark law.29 Based on all these grounds the Court reached the conclusion that “the market’ referred to in Sec. 30(3) of the Trade Marks Act, 1999 is the international market and India follows the principle of international exhaustion in the area of trademarks.30

2.3 Application of the international exhaustion principle to the present case The Division Bench noticed that the primary argument of Samsung was that the physical features of the printers sold abroad are different from the features of the printers it sells in India. The Division Bench observed that Samsung had not made any argument that the appellants were impairing or changing the condition of the goods put on the foreign market by Samsung.31 According to the Division Bench, while there may be some merit in the argument that an ordinary consumer, who will be getting only the warranties and after-sales services provided by the appellants, may form a bad impression of Samsung products if they do not receive satisfactory after-sales services, the same can be taken care of by passing suitable directions requiring the appellants to provide the information about warranty and after sale services explicitly and prominently.32 The judges were clearly of the view that once this issue of potential harm to reputation is addressed, there are no legitimate reasons remaining for Samsung to oppose further dealings, in view of the principle of international exhaustion.33 Hence, the Division Bench set aside that part of the judgement of the Single Bench which had restrained the appellants from importing and selling printers bearing the trademarks of Samsung. However, the Division Bench also directed the appellants to prominently

26 Ibid. 27 Ibid. 28 Ibid. 29 Ibid paras 69–70. 30 Ibid para 71. 31 Ibid para 73. 32 Ibid. 33 Ibid para 73.

International exhaustion of rights in India 137 display in their showrooms that the products sold by them have been imported from abroad and that Samsung does not give any warranty with regard to the goods nor provide any after-sales services.34 The appellants were also required to explicitly clarify that the warranty and after-sales services are provided by the appellants personally.35

2.4 Upholding injunction against meta-tagging Another question that had to be addressed by the Division Bench was whether the injunction granted by the Single Bench with regard to meta-tagging was valid. Without going into a detailed analysis, the Division Bench observed that the appellants can design their website without any meta-tagging to display any relevant information and affirmed the injunction granted by the Single Bench in this regard.36

Legal analysis In many ways, the decision of the Division Bench of Delhi High Court is trying to address one of the mistakes made by the Indian parliament, i.e., not clarifying explicitly in the statute that India follows the principle of international exhaustion in the area of trademarks. This has often resulted in unnecessary litigation as well as unpredictable outcomes. As one may notice from the Single Bench decision in the present case, many times the ambiguity leads judges to make many legally untenable interpretations.

1 Harmonious interpretation of Sec. 29 and Sec. 30 The decision of the Division Bench illustrates that a contextual reading of the Indian trademark law is necessary to get a clearer picture of the trademark exhaustion principle followed by India. As one may notice from many of the aspects highlighted by the Division Bench, the contextual reading of the provisions under Indian trademark law makes one incline more in favour of the interpretation that India follows the principle of international exhaustion of trademark rights. While Sec. 29 (6) of the Trade Marks Act, 1999 mentions that import or export of goods bearing a registered trademark constitutes use of the mark and thereby infringement, it is important to read that provision in the context of exceptions provided under Sec. 30 of the Act. The exception section clearly permits certain uses of the trademark without the consent of the registered proprietor. As discussed earlier, one of the important provisions in this regard, Sec. 30(3) 34 Ibid para 75. 35 Ibid. 36 Ibid para 74.

138  Arul George Scaria of Trade Marks Act, talks about the limitations once the goods have been put on the “market” by the trademark owner or with her consent. While it would have been preferable to see the legislature explicitly mention that the term “market” used in the provision refers to “international market”, a contextual reading more or less suggests that the drafters intended “international market” while using the term “market” in the statute. As the Division Bench observes correctly, one has to read this along with the fact that India didn’t explicitly include the word “domestic market”, while drafting the provisions of the Trade Marks Act, 1999. As the Division Bench illustrates through a survey of statutory provisions in different countries, if the intent is to restrict “the market” to the domestic market, countries generally mention it explicitly. If the intention of the Indian Parliament was to follow the national trademark exhaustion principle in the trademark law, it is likely that it would have adopted a position similar to the ones seen in jurisdictions like Turkey and Brazil.37

2 Due consideration for legislative history and position taken by India in multilateral platforms As the Division Bench highlights, it is important to look at the legislative history and the position taken in international forums, while determining the kind of trademark exhaustion principle followed by India. In this regard, one of the most relevant documents relied on by the Court was the bill that introduced the relevant provisions to Indian trademark law. As the Division Bench observes in its judgement, the Statement of Objects and Reasons in a Bill is an important external aid for interpreting any statute.38 The Statement of Objects and Reasons clearly illustrates that the framers of the provisions were intending to recognise the principle of international exhaustion of rights in Indian trademark law.39 Moreover, as the Division Bench shows, the position taken by India during the Uruguay Round negotiations was also in favour of allowing parallel imports.40 It is very doubtful whether a country can argue for one position in a multilateral forum like WTO and take the extreme opposite position domestically.

3 Balancing the interests of importers and trademark owners It is important to note that while allowing the appellants to import and sell goods bearing the registered trademarks of Samsung, the Division Bench also took some specific measures to protect the interests of the trademark owner.41 This includes the explicit direction to the appellants to prominently display in their 37 Ibid para 46. 38 Ibid para 60. 39 Ibid para 60. 40 Ibid para 61. 41 Ibid para 75.

International exhaustion of rights in India 139 showrooms that the products sold by them have been imported from abroad and that Samsung does not give any warranty with regard to the goods nor provide any after-sales services. This attempt to find a fine balance between the interests of importers and those of the trademark owners is remarkable.

4 Clarification on lawful acquisition It is also commendable that the Division Bench corrected one of the glaring mistakes committed by the Single Bench, which held that goods sold under a trademark can be lawfully acquired only in the country where the trademark is registered. As the Division Bench rightly clarifies, there is no law which says that the goods sold under a trademark can be lawfully acquired only in the country where that trademark is registered.42 Whether one can lawfully engage in sale and purchase of any good may depend on legislation in a country. For example, as the Division Bench illustrates, if a country is facing food scarcity, there might be a law which provides that procurement of food items should be done only through a particular agency. Under such circumstances, procurement of those food items from any other channel may not be considered as lawful acquisition.43 But the purpose of trademark law is not to engage in such kinds of regulation on sale/ purchase of goods and trademark law is clearly limited to control how registered trademarks may be used on any goods or services.44 Any argument that lawful acquisition of a product bearing a trademark can happen only in the country where that trademark has been registered runs contrary to basic principles and objectives of trademark law. Hence it is commendable that the Division Bench explicitly clarified the position in this regard.

5 Analysis of economic impacts: a careful approach to avoid policy making One of the arguments raised by Samsung before the Division Bench was that from an economic perspective, national exhaustion would be more beneficial for India as it would encourage more foreign investments in the country.45 The crux of this argument was that in the event of India following international exhaustion principle, there would be no incentives for brand owners to set up manufacturing units in India, as they will be aware of the fact that goods sold by them abroad, at cheaper prices, would be imported and sold in the country by other players in the market.46 Some scholars have also argued that if every country adopts the international exhaustion regime, intellectual property owners may not be able to engage in price discrimination and this may result in intellectual property owners adopting 42 Ibid para 42. 43 Ibid. 44 Ibid. 45 Ibid para 64. 46 Ibid.

140  Arul George Scaria uniform pricing for the goods across the world.47 According to those scholars, such uniform pricing may result in price increase of those goods in developing countries, and may be harmful in many areas including pharmaceuticals.48 However, many of such economic arguments are not empirically proven and are based on several assumptions which may not be true in the contemporary global context. This includes the assumption that all countries will follow an international exhaustion regime. In the contemporary multilateral legal framework, wherein treaties like the TRIPS Agreement have given flexibility to member states to adopt any exhaustion regime, it is highly improbable that all countries will uniformly adopt an international exhaustion regime, and thereby incentivise firms to adopt uniform pricing for products. There is also no empirical evidence supporting the argument that following an international exhaustion regime will result in reduced incentives to set up manufacturing units, as the decision to manufacture in a country depends on a wide array of factors including cost of labour, cost of land, adherence to rule of law, etc. As the Division Bench rightly clarified, the question of which exhaustion regime India should follow is a policy question and it would be inappropriate for the judiciary to engage in such policy making.49 As the legislature is in a much better position to decide on the optimal exhaustion regime by taking into account the broader socio-economic circumstances prevailing in the country, it was highly appropriate on the side of the Division Bench to engage in a contextual reading of the law, than re-writing law on the question of exhaustion based on the economic arguments presented before it.

Commercial or industrial significance The primary significance of the Division Bench decision is that it has brought in considerable clarity with regard to the exhaustion principle India follows in the area of trademarks. By clarifying that India follows the principle of international exhaustion, the decision has allowed parallel imports of goods. The inevitable consequence of this decision is more competition between goods sold by the trademark owner in the Indian market and those imported by traders like the appellants in this case. As one may notice from the facts of the case, the prices of imported goods are very often substantially cheaper than those marketed in India by the trademark owners. For example, the facts of the present case show that printer ML-1666/XIP was sold by Samsung in India at Rs. 6290/-, whereas the corresponding model ML-1660/ XSG was imported and sold by the appellants at Rs. 3300/-.50 It is hoped the decision may help in increasing the competition in the domestic market and lowering the prices of the products. 47 See, for example, Alan O. Sykes, “TRIPS, Pharmaceuticals, Developing Countries, and the Doha ‘Solution’ ” (2002) 3 Chicago Journal of International Law 47, 64. 48 Ibid. 49 Kapil Wadhwa and others v. Samsung Electronics Co. Ltd., supra note 16, para 65. 50 Ibid para 66.

International exhaustion of rights in India 141 However, it needs to be emphasised that litigation like this could have been avoided, if the legislature had explicitly clarified in the statute the trademark exhaustion principle India follows. Hence, it is highly desirable that the Parliament makes necessary amendments in the relevant provisions to make it explicit that India follows the international exhaustion regime.

12 The exhaustion defence to trademark infringement and parallel importation in Malaysia Lim Heng Gee

Case information: Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2011] 2 CLJ 469; [2010] 8 MLJ 550   Civil Suit No: D6-22-1309-03, High Court Malaya, Kuala Lumpur, Malaysia, 7 December 2009, Azahar Mohamed J.

Summary This present case deals with the application of the trademark exhaustion defence. It is important because it deals with the situation where the goods imported and sold in Malaysia are not goods made by the plaintiff or its related companies overseas, but by a third party that is not connected to the plaintiff yet owns the trademark rights in the foreign country. In such a situation could the goods made by the foreign trademark owner be legitimately imported and distributed in Malaysia without infringing the Malaysian registered trademark owner’s rights? In other words, does the exhaustion defence apply to a parallel importation of this type? The court ruled that importation and sale of such goods would infringe the Malaysian registered trademark owner’s rights. This is the final decision of the High Court of Malaysia. There was no appeal against the decision.

Legal context The present case involved the application of sections 35(1),1382 and more particularly, the application of the trademark exhaustion defence provided by 1 Section 35(1) provides: Subject to the provisions of this Act, the registration of a person as registered proprietor of a trade mark (other than a certification trade mark) in respect of any goods or services shall, if valid, give or be deemed to have been given to that person the exclusive right to the use of the trade mark in relation to those goods or services subject to any conditions, amendments, modifications or limitations entered in the Register. 2 Section 38(1) provides: (1) A registered trade mark is infringed by a person who, not being the registered proprietor of the trade mark or registered user of the trade mark using by way of permitted use, uses

The exhaustion defence in Malaysia 143 section 40(1)(d) and (dd) of the Trade Marks Act 1976 (the Act) in relation to parallel imported goods. Section 40(1)(d) and (dd) provide as follows: (1) Notwithstanding anything contained in this Act the following acts do not constitute an infringement of a trademark: (d) in relation to goods connected in the course of trade with the registered proprietor or a registered user3 of the trademark if, as to those goods or bulk of which they form part, the registered proprietor or the registered user in conforming to the permitted use has applied the trademark and has not subsequently removed or obliterated it. (dd) the use by a person of a trademark in relation to goods or services to which the registered proprietor or registered user has at any time expressly or impliedly consented to. Prior to this case, the only other case dealing expressly with parallel importation of trademarked goods is Winthrop Products Inc & Anor v Sun Ocean (M) Sdn Bhd & Anor4 under the Trade Mark Ordinance 1950, which was repealed and replaced by the Act. Winthrop Products decides that the exhaustion defence applied when the goods parallel imported by an independent third party were manufactured and put on the market in a foreign country by an associated or related company of the plaintiff trademark owner in Malaysia. In such a situation, the third-party importer would not be committing a trademark infringement, even if the importation of the goods was carried out without the consent of the registered trademark proprietor.

Facts The plaintiff is the registered proprietor of the trademark SEIZAIKEN under the Act in respect of batteries in class 9. It is in the business of distributing and selling batteries for watches and clocks as well as watches and clock parts. The plaintiff sued the defendant who had had been importing and selling watch batteries in Malaysia under the mark SEIZAIKEN. The plaintiff had never appointed the defendant at any time to be a distributor of the plaintiff’s batteries bearing the trademark SEIZAIKEN. The defendant had obtained its batteries from Star (Far East) Ltd, a company based in Hong Kong, which in turn obtained the batteries from Seiko Instrument Inc in Japan. Seiko Instrument Inc, the owner of the trademark SEIZAIKEN in Japan, however, has no economic or legal relationship with the plaintiff. a mark which is identical with it or so nearly resembling it as is likely to deceive or cause confusion in the course of trade in relation to goods or services in respect of which the trade mark is registered in such a manner as to render the use of the mark likely to be taken either – (a) as being use as a trade mark; [Paragraphs (b) and (c) are omitted as they are not relevant to present discussion]. 3 Essentially, a registered user is a licensee who has been entered on the Register of Trade Marks as a registered user. See sections 3 and 48(1) of the Act. Equivalent provisions are found in sections 28(1) and 68(1) of the Trade Marks Act 1938 of the UK. 4 Winthrop Products Inc & Anor v Sun Ocean (M) Sdn Bhd & Anor [1988] 2 MLJ 317.

144  Lim Heng Gee The defendant denied infringement and argued that as the batteries it imported and sold in Malaysia were manufactured by Seiko Instrument Inc, the lawful owner of the SEIZAIKEN mark in Japan, the goods “were genuine and not imitation or ‘pirated’ products” and “the mode of importing and distributing the SEIZAIKEN batteries as transacted by the defendant falls into the legal description of ‘parallel import’ ”.5 As the purchaser from the lawful manufacturer of the SEIZAIKEN batteries in Japan, the defendant was legally entitled to parallel import them into Malaysia, and therefore its act should not result in infringement of the plaintiff’s trademark. The defendant relied on section 40(1)(d) of the Act. After considering all the facts and the relevant cases, the Court held that the defence of parallel importation failed and held the defendant liable for infringement of the plaintiff’s registered trademark under section 38 of the Act.

Reasoning of the court 1 Not all parallel imports are permitted under the Act The judge adopted the term “parallel imports” as referring to goods which are lawfully manufactured overseas but imported and distributed in Malaysia by a person other than the registered proprietor of the trademark. The judge agreed with the defendant that the Act does not expressly forbid the importation of parallel goods into Malaysia as it is a lawful international business.6 However, he went on to hold that not all parallel imports are permitted under the Act as there is a very important qualification to the right to parallel import. He said, “Not all parallel imports are permitted under the Act for the reason that by virtue of s 35 of the Act the registered proprietor of the trademark has the exclusive right to the use of the trademark in relation to those goods.”7 Relying on the authority of the Court of Appeal case in Lim Yew Sing v Hummel International Sports & Leisure A/S,8 the judge held that Malaysian trademark law is territorial in nature. Therefore, following from section 35, and by virtue of section 38 of the Act, the plaintiff, as registered owner of the trademark SEIZAIKEN in Malaysia, has the exclusive right to use the trademark in Malaysia. Thus, no one has the right to import or sell batteries bearing the trademark SEIZAIKEN in Malaysia without the consent of the plaintiff.9 On the facts as admitted by the defendant, the goods imported and sold by it did not originate from the plaintiff, but from another source which had not been authorised by the plaintiff to import, distribute or sell batteries bearing the SEIZAIKEN in Malaysia.

5 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 554. 6 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 555. 7 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 556. 8 Lim Yew Sing v Hummel International Sports & Leisure A/S [1996] 4 CLJ 784. 9 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 556.

The exhaustion defence in Malaysia 145

2 Two different pieces of legislation relating to the issue of implied consent 2.1  Section 4(3)(a) of the Trade Marks Act 1938, UK The judge then went on to consider whether the defendant had any defences which it could rely on. The judge referred to two main cases decided under similar provisions in two different pieces of legislation relating to the issue of implied consent to the use of the trademark. The first was Revlon Inc. and Others v Cripps & Lee Ltd. and Others,10 a case decided under section 4(3)(a) of the Trade Marks Act 1938, UK. The plaintiffs were members of an international group of companies engaged in the business of making and selling cosmetics and toiletries under, among others, the REVLON FLEX trademark. The first plaintiff, Revlon Inc, a US company, was the parent company of the group and engaged in the manufacture and sale of Revlon products in the US. Products for the UK market were manufactured in the UK by the third plaintiff, Revlon Overseas, also a wholly owned subsidiary of Revlon Inc, and a registered user of the mark REVLON FLEX. The fourth plaintiff, Revlon International, another US company, a wholly owned subsidiary of Revlon Inc. marketed Revlon products, inter alia, in the UK. The second plaintiff Revlon Suisse S.A., a wholly owned subsidiary of Revlon International, was the registered proprietor of the UK trademark REVLON FLEX. The defendants parallel imported and distributed REVLON FLEX shampoo in the UK which they obtained from the first plaintiff. The plaintiffs sued to prevent the defendants from importing or dealing in REVLON FLEX shampoo not made by Revlon Overseas. They contended that the sale of the REVLON FLEX products in the UK infringed their trademark monopoly under section 4(1) of the Trade Marks Act 1938, and was not saved from being an infringement by the provisions of section 4(3)(a) because the American anti-dandruff products were not connected in the course of trade with the registered proprietor Revlon Suisse S.A. or the registered user Revlon Overseas. Furthermore, neither the proprietor nor the registered user had consented to the application of the mark to the goods by Revlon Inc or the importation of goods bearing the mark into the UK.11 The UK Court of Appeal held that the defendants were not liable for infringement of the REVLON FLEX trademark as they were entitled to rely on the section 4(3) (a) defence, which reads: The right to the use of a trade mark given by registration as aforesaid shall not be deemed to be infringed by the use of any such mark as aforesaid by any person (a) in relation to goods connected in the course of trade with the proprietor or a registered user of the trade mark if, as to those goods, or a bulk of which they form part, the proprietor or the registered user 10 Revlon Inc. and Others v Cripps & Lee Ltd. and Others [1980] FSR 85. 11 Revlon Inc. and Others v Cripps & Lee Ltd. and Others [1980] FSR 85, at p. 86.

146  Lim Heng Gee conforming to the permitted use had applied the trade mark and has not subsequently removed or obliterated it, or has at any time expressly or impliedly consented to the use of the trade mark. In essence, the issue before the court was whether a multi-national group of companies could prevent products manufactured, trademarked and sold by a member of the group in one country from being re-sold to the public in another country under the same trademark. The plaintiffs argued that the British REVLON FLEX trademark was held by Revlon Suisse, and the registered users were Revlon Overseas. None of these companies was responsible for the use of the REVLON FLEX trademarks on goods manufactured in the US by Revlon Inc and imported into the UK. Therefore, they contended that the defendants infringed the trademark by selling the imported goods in the UK. The Court of Appeal held that none of the plaintiffs could complain because by virtue of section 4(3)(a) of the Trade Marks Act 1938, there was no infringement where the trademark was applied by the proprietor or with his consent. In the circumstances of the case, Revlon Suisse and Revlon Overseas, the registered proprietor and registered user respectively of the REVLON FLEX trademark in the UK, must be deemed to have impliedly consented to the use of the trademark by the parent company. In coming to this view, the Court laid great emphasis on the fact that the company structure of the Revlon Group is such that Revlon Inc could at any moment, and at its own volition, alter that policy in any way it chose and impose its will upon any company in the Group. In these circumstances it seems to me that every company in the Group must be taken to have concurred in, and consented to, the REVLON FLEX mark being used as a group mark to designate the products upon which it is put as products of the Revlon Group.12 Even though the Court held that the REVLON FLEX mark on the American products could not be said to have been applied to the product by the proprietor or the registered user of the UK, by virtue of the control element of Revlon Inc over the subsidiaries, they were deemed to have implied consented to the application of the mark on the American goods.13

2.2 Section 52(3)(a) of the Trade Marks Ordinance 1950 The second case referred to was Winthrop Products Inc & Sterling Drug (M) Sdn Bhd v Sun Ocean (M) Sdn Bhd & Anor,14 which involved the registered trademark 12 Revlon Inc. and Others v Cripps & Lee Ltd. and Others [1980] FSR 85, at p. 106. 13 Revlon Inc. and Others v Cripps & Lee Ltd. and Others [1980] FSR 85, at pp. 107–108. 14 Winthrop Products Inc & Sterling Drug (M) Sdn Bhd v Sun Ocean (M) Sdn Bhd & Anor [1988] 2 MLJ 317.

The exhaustion defence in Malaysia 147 PANADOL for analgesic owned by the Sterling group of companies. This trademark was owned by Sterling Drug Inc in the US, the parent company of the Sterling group. In the UK, it was owned by Sterling Winthrop Group Ltd. In Malaysia, it is owned by the first plaintiff Winthrop Products Inc, a US company. Winthrop Products Inc also had the registered user rights of the mark in the UK. Sterling Drug (M) Sdn Bhd, the second plaintiff, owned the registered user right in Malaysia. In the UK, Sterling Winthrop Group Ltd manufactured and sold the analgesic in tablet forms and offered them for sale in blue packs under the trademark. The defendants imported and sold in Malaysia the blue pack Panadol produced by Sterling Winthrop Group Ltd, which they had obtained from the British market. The plaintiffs contended that such importation and sale of the blue pack Panadol in Malaysia infringed the first plaintiff’s proprietorship and the second plaintiff’s user rights in the PANADOL trademark. In dismissing the action, VC George J relied heavily on the ratio in Revlon Inc case as section 4(3)(a) of the English Trade Marks Act 1938 is in pari materia with section 52(3)(a) of the Trade Marks Ordinance 1950.15 The judge therefore held that where a parent company (or a group of companies) chooses to manufacture and sell wholly or partly through subsidiary companies in different parts of the world products which bear the same trade mark, neither the parent or any member of the group nor any subsidiary can complain in Malaysia if those products are sold and resold under that trade mark.16 In the present case, both the plaintiffs were regarded to have impliedly consented to the use of the trademark by the manufacturers of the blue pack Panadol in the UK. Therefore, the defendants acquired the absolute ownership of the goods including the right to sell the goods in any part of the world in the same condition in which they were disposed of. The court had earlier in the judgment found as a fact that there was nothing in the packs or boxes that purported to restrict the exportation of the product. There was also no evidence that sales of the product were made conditional and the court drew the inference that they were not. However, the judge in the present case of Tien Ying Hong held that the Winthrop Products case had to be distinguished on its facts. A very important fact that could not be overlooked in the Winthrop Products case was that the same corporate group was manufacturing tablets under the Panadol trademark in the UK and in Malaysia. The defendant imported Panadol branded tablets from the UK subsidiary of that same corporate group. The first plaintiff was the Malaysian subsidiary of the same corporate group. That was why the Malaysian subsidiary was deemed to have impliedly consented to the use of the PANADOL trademark.17 15 Winthrop Products Inc & Sterling Drug (M) Sdn Bhd v Sun Ocean (M) Sdn Bhd & Anor [1988] 2 MLJ 317, at p. 322. 16 Ibid. 17 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 561.

148  Lim Heng Gee In contrast, the plaintiff in the present case was unrelated to Star (Far East) Ltd and to Seiko Instruments Inc of Japan. Hence the ratio in the Winthrop Products case did not apply to the facts of the present case. Azahar Mohamed J further held that it made no difference at all whether the batteries imported, distributed, and sold domestically by the defendant were genuine products made by Seiko Instruments Inc of Japan. Seiko Instruments Inc itself did not have the right to sell batteries under the trademark SEIZAIKEN in Malaysia because the plaintiff is the registered owner of the trademark in Malaysia. Only the plaintiff has the right to import, distribute, and sell in Malaysia batteries bearing the trademark SEIZAIKEN.18 In conclusion, the judge held that the defendant could not rely on the exhaustion defence and hence had infringed under section 38 of the Act.

Legal analysis The author agrees with the final decision of the Court that the parallel importation by the defendant was an infringement of the plaintiff’s trademark. However, it is submitted that there are some weaknesses in the legal reasoning.

1 Exclusive right under section 35 is qualified by exhaustion defence and right to parallel import under section 40(1)(d) and (dd) First, Azahar Mohamed J stated in the present case “that our laws do not expressly forbid the importation of parallel goods into Malaysia.” However, the basis for the existence of such a right was not stated. Next, the judge held that the right to parallel import is qualified by the provision of section 35 which provides that the registered proprietor of the trademark has the exclusive right to the use of the trademark in relation to those goods for which it is registered.19 Therefore, “no one has the right to import or sell batteries bearing the trademark SEIZAIKEN in Malaysia without the consent of the plaintiff.”20 With respect, it is submitted that this is an incorrect application of the statutory provisions. Section 35(1) starts with the proviso, “Subject to the provisions of this Act”. Hence it is clear that the exclusive right provided by section 35 is subject to the provisions of section 40 which provides that certain activities are not to be regarded as infringement of a registered trademark. More importantly for the purpose of this discussion is the exhaustion defence and the right to parallel import as laid down by section 40(1)(d) and (dd). Hence the exclusive right of the registered proprietor

18 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 561. 19 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 556. 20 Tien Ying Hong Enterprise Sdn Bhd v Beenion Sdn Bhd [2010] 8 MLJ 550 at p. 556.

The exhaustion defence in Malaysia 149 under section 35 is qualified by the right to raise the exhaustion defence, not the other way around as stated by the judge. If the statement that “no one has the right to import or sell batteries bearing the trademark SEIZAIKEN in Malaysia without the consent of the plaintiff” is correct, then the section 40(1)(d) or (dd) defence will be rendered nugatory as, in practice, the registered proprietor would be unlikely to grant permission to any third party importer and reseller of its products. A careful analysis of the statutory provisions and the case law shows that a third party can, even without the consent of the registered proprietor, import and sell in Malaysia goods bearing the registered proprietor’s trademark provided the conditions for the application of either section 40(1) (d) or section 40(1)(dd) defences are made out. Section 40(1)(d) and (dd) is meant to be a derogation from the exclusive rights of the trademark proprietor. Third, the judge, while mentioning the defendant’s reliance on the section 40(1)(d) defence, did not at any point in his analysis refer to, or discuss, the scope of this section. The most that can be said is that the judge did indirectly address this section when he discussed the case of Winthrop Products.

2 Section 40(1)(d) and (dd) – when applicable? The present case is clearly distinguishable from the Winthrop Products case in that the Japanese manufacturer and supplier of the imported batteries clearly were not related or associated with the plaintiff company. Hence the issue of implied consent to use the trademark does not arise. Having said that, it is submitted that the decision should have been argued explicitly on section 40(1)(dd) instead of the section 40(1)(d) defence relied upon by the defendant. Section 40(1)(d) presupposes a situation when “the registered proprietor or the registered user in conforming to the permitted use has applied the trademark” (emphasis added) to the goods which were the subject matter of the litigation. From the facts, it is clear that it was never alleged that the goods were manufactured, and the SEIZAIKEN trademark applied by the plaintiff or the registered proprietor. It was Seiko Instrument Inc, the owner of the SEIZAIKEN trademark in Japan, who applied the mark in question. Therefore, section 40(1)(d) is not relevant to resolution of the defendant’s exhaustion defence. On the other hand, the section 40(1)(dd) defence is more relevant to the present case as it refers to a situation where “the registered proprietor or registered user has at any time expressly or impliedly consented” (emphasis added) to the use of the mark by a third party, even though they had not applied the trademark themselves. It would be applicable if the defendant could somehow show that the plaintiff and Seiko Instrument Inc had some kind of economic or legal relationship to enable the court to infer some kind of consent to the use of the trademark. However, as Seiko Instrument Inc, the entity which applied the mark, had no economic or legal relationship with the plaintiff, the plaintiff could not be said to have impliedly consented to the use of the mark. Hence the section 40(1)(dd) exhaustion defence would have also failed on the facts.

150  Lim Heng Gee

3 When the plaintiff is both the owner of the registered trademark in Malaysia and in a foreign country The present case is to be contrasted with the case of Kenwood Electronics (M) Sdn Bhd and Anor v Profile Spec (M) Sdn Bhd and Others (Part 2).21 In the Kenwood case, the first plaintiff imported into Malaysia and sold audio-video equipment manufactured by the second plaintiff in Japan under the KENWOOD trademark. It is the exclusive distributors of KENWOOD car and home audio-video equipment in Malaysia for the second plaintiff and wholly owned by the second plaintiff. The second plaintiff is the registered proprietor of the KENWOOD registered trademark in Malaysia. It is also the registered proprietor of the KENWOOD mark in Japan. The defendant was alleged to have brought in for sale in Malaysia Kenwood audio-video equipment manufactured/assembled in some other country contrary to the wishes of the plaintiffs. The plaintiffs claimed, inter alia, for an injunction to restrain the defendant from importing and selling in Malaysia audio-video equipment bearing the Kenwood brand name without the consent of the plaintiffs. Abdul Wahab Bin Patail J, in dismissing the action, held that the KENWOOD audio-video equipment sold by the defendant were not fakes. They were genuine KENWOOD audio-video equipment that the defendant had obtained and were reselling in Malaysia. In fact, from the evidence the judge concluded “that if the Kenwood audio-video equipment were bought from Taiwan, Thailand or ­Singapore they would be supplied by the subsidiaries of the second plaintiff also.”22 Implicit in this statement is that it is irrelevant where the defendant obtained the goods from, as long as it originated from the second plaintiff, the registered proprietor of the trademark. The complaint of breach of trademark was, therefore, without foundation as the defendants were selling genuine KENWOOD products. It has to be noted that even though the principle applied by the Court was undoubtedly the international exhaustion principle allowing parallel import of genuine products manufactured and sold by the plaintiffs, it is unfortunate that the judge at no point in his judgment referred to the provision of section 40(1)(d) or (dd) of the Act or to the case law on parallel importation. This case would clearly fall under section 40(1)(d) as the registered proprietor of the mark (the second plaintiff) had applied the KENWOOD trademark to the goods.

4 Section 40(1)(d) and (dd) – national v. international exhaustion? It is submitted that various permutations are possible under both subsections (d) and (dd) to accommodate the defence of national or domestic exhaustion as

21 Kenwood Electronics (M) Sdn Bhd and Anor v Profile Spec (M) Sdn Bhd and Others (Part 2) [2007] 2 CLJ 732. 22 Kenwood Electronics (M) Sdn Bhd and Anor v Profile Spec (M) Sdn Bhd and Others (Part 2) [2007] 2 CLJ 732, at p. 740.

The exhaustion defence in Malaysia 151 well as international exhaustion. For example, under section 40(1)(d), domestic exhaustion will apply if the registered proprietor or registered user applied the mark domestically. The same provision will also allow for international exhaustion in the Kenwood type situation discussed earlier. Section 40(1)(dd) allows for the application of the international exhaustion defence in the Winthrop Products type situation. Additionally, it allows for the domestic exhaustion defence in a situation where the person who manufactures and applies the registered trademark to the goods is neither the registered proprietor nor the registered user. For example, the registered proprietor may have contracted with a third party, who is not a registered user, to manufacture the goods and apply the trademark to them.23 In such a situation, the registered proprietor would have expressly consented to the use of the mark. Therefore, domestic exhaustion would apply.

5 Contractual restrictions can deprive a third-party parallel importer of the implied consent defence From the preceding analysis, it is clear that the principle of international exhaustion or first sale doctrine is available to a parallel importer as a defence to registered trademark infringement in Malaysia. When the defence applies, once the particular goods have been put on the market by the registered proprietor of a trademark or his registered user, or when he is deemed to have consented to the use of his trademark on the goods, his trademark rights are said to be exhausted, and henceforth he loses all rights to control subsequent dealings with the goods. However, the international exhaustion defence is available, and parallel importation allowed, only in the following situations:     i When the trademark proprietor was the one who applied the marks to the goods and he has not subsequently removed or obliterated it (as in the Kenwood case);   ii When the registered user, in conforming to the permitted use, has applied the trademark and has not subsequently removed or obliterated it; iii When in the circumstances of the case, it could be said that the trademark proprietor has expressly or impliedly consented to the use of the mark (as in the Winthrop Products case).

23 This is possible as section 48(1) of the Act, which deals with registration of a licensee as a registered user, is permissive and not mandatory – see McLaren International Ltd v Lim Yat Meen [2007] 7 MLJ 581, per Suriyadi JCA at para 25. See also E-Toyo Global Stationery Sdn Bhd v Toyo Ink Sdn Bhd & Ors; The Registrar of Trade Marks (Interested Party) [2005] 1 MLJ 445, per Ramly Ali J, at para 78, The goods need not be manufactured by the registered proprietor or register user. The decision in Bostich case [(1963) RPC 183] clearly indicates that the registered proprietor or registered user may employ another party or sub-contractor to produce or manufacture the goods for them.

152  Lim Heng Gee There is, however, still a grey area in relation to the question whether contractual restrictions can deprive a third-party parallel importer of the exhaustion defence. The uncertainty arises because of several statements made by the judges in the various cases discussed earlier. The judge in the Kenwood case stated, “It is not pleaded that the Defendants are prevented by any purchase agreements of the Kenwood audio-video equipment, from exporting from the country of purchase, or importing into Malaysia, and to resell and provide after sales support.”24 The judge in the Winthrop Products case also alluded to the lack of notification in his judgment and said, “As has been seen, there was nothing in the packs or boxes that purported to restrict the exportation of the product. There was no evidence that sales of the product were made conditional and the inference to be drawn is that they were not.”25 Further down in his judgment, the judge said, There was, and is, nothing in trade mark law to stop them, or for that matter any trader, from exporting Panadol made in the United Kingdom by either Winthrop Products Inc or by the Sterling Winthrop Group Ltd other than any contractual restrictions that there may have been imposed. There were no such contractual restrictions.26 This seems to imply that the exhaustion defence can be prevented by the simple device of notification of restriction against export or resale in other countries. In fact, in Castrol Limited v Automotive Oil Supplies Limited,27 the Court rejected the defendants’ defence under section 4(3)(a) of the Trade Marks Act 1938 on the ground that the plaintiffs had not consented to the use of the Canadian trademarks in the UK as full notice had been given to purchasers of the oil in Canada of the absence of any consent by the plaintiffs to any dealings with it thereafter under the relevant marks outside Canada.

6 To amend section 40(1)(dd) of the Act by adding words “conditional or otherwise” to harmonise international exhaustion defence under both patent and trademarks law It would be unfortunate if the international exhaustion defence could be taken away from the third-party importers merely by the device of inserting a notice of restriction against further dealing with the goods. It should be noted that the defence of exhaustion is clearly distinguishable from the implied license defence.

24 Kenwood Electronics (M) Sdn Bhd and Anor v Profile Spec (M) Sdn Bhd and Others (Part 2) [2007] 2 CLJ 732, at p. 739. In fact, this was also one of the factors relied on by the judge in holding that there are triable issues, and hence dismissing the defendant’s application to strike out the plaintiff’s action in relation to the defendant’s act of parallel importation in Guandong Canary & Anor v Tea Sai Kyau & Ors [2010] MLJU 2089. 25 Winthrop Products Inc & Sterling Drug (M) Sdn Bhd v Sun Ocean (M) Sdn Bhd & Anor [1988] 2 MLJ 317, at p. 320. 26 Winthrop Products Inc & Sterling Drug (M) Sdn Bhd v Sun Ocean (M) Sdn Bhd & Anor [1988] 2 MLJ 317, at p. 321. 27 Castrol Limited v Automotive Oil Supplies Limited [1983] RPC 315, at pp. 323–324.

The exhaustion defence in Malaysia 153 Where a defendant relies on the implied license defence in relation to his importation of intellectual property protected goods, he is entitled to do so until he receives notice of any restrictions in respect of the resale.28 The common law implied license defence is based on the notion that where the plaintiffs by themselves or by their associated company sell their product in one country without giving effective notice of any restrictions in respect of the resale, the law will imply the consent of the plaintiffs and their associated companies to an undisturbed and unrestricted use of the goods that had been sold. This implied consent can be rebutted by express notice of restriction against further dealings. The exhaustion doctrine, in contrast, operates on the basis that the intellectual property owner, by manufacturing and selling the product protected by his intellectual property, or consenting to these acts, without any need to compete with third parties, has already reaped the economic benefits from his intellectual property, and his exclusive rights to prevent further dealings in respect of that product are thereby exhausted, despite any reservation at the time of sale.29 This, in fact, is the situation under section 29(1) of the Singapore Trade Marks Act (Cap 332, 2005 Rev Ed), which states: Exhaustion of rights conferred by registered trade mark 29(1) Notwithstanding section 27, a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market, whether in Singapore or outside Singapore, under that trade mark by the proprietor of the registered trade mark or with his express or implied consent (conditional or otherwise). [Emphasis added] Similar provision is found in the section 58A of Malaysian Patents Act 1983 which provides: Acts deemed to be non-infringement (1) It shall not be an act of infringement to import, offer for sale, sell, or use (a) any patented product; or (b) any product obtained directly by means of the patented process or to which the patented process has been applied,   which is produced by, or with the consent, conditional or otherwise, of the owner of the patent or his licensee. [Emphasis added] 28 See, for example, Smith Kline & French Laboratories Ltd v Salim (Malaysia) Sdn Bhd [1989] 2 MLJ 380, at pp. 412–415. 29 In relation to the first sale doctrine, see, for example, Adams v Burke, 84 US 453, at p. 456 (US Sup. Ct 1873), “when the patentee, or the person having his rights, sells a machine or instrument whose sole value is in its use, he receives the consideration for its use and he parts with the right to restrict that use.” See also Kenwood Electronics (M) Sdn Bhd and Anor v Profile Spec (M) Sdn Bhd and Others (Part 2) [2007] 2 CLJ 732, at p. 739, “The second plaintiff benefited from the sales to whoever sold to the defendants their Kenwood audio-video equipment.”

154  Lim Heng Gee The proviso “conditional or otherwise” means that the owner or proprietor is “deemed to have given consent to the sale of the goods even where he has imposed conditions on the further movement of the goods, for example, by restricting sale of the goods to a particular territory.”30 Could judges in future cases dealing with the exhaustion defence interpret the provisions purposively and hold that notices of restrictions have no place in the exhaustion defence? It is submitted that it is possible when the defence relied upon is under section 40(1)(d) as this defence is expressly premised only on the question of whether the registered proprietor or user has applied the mark to the relevant goods. The question of express or implied consent does not arise. However, it may be difficult to do so for the section 40(1)(dd) defence as the words “expressly or impliedly consented” would also cover qualified consent. It would thus be difficult for the court not to give effect to any express restrictions against further dealings placed on the goods. It would appear that the only way to allow for a less restrictive international exhaustion defence would be to amend section 40(1)(dd) of the Act by adding the words “conditional or otherwise” at the end of the provision. This would harmonise the international exhaustion defence under both the patent and trademarks law in Malaysia.

Commercial or industrial significance Under the present law in Malaysia, a limited form of international exhaustion defence is available to parallel importers of trademarked goods. Enterprises planning to parallel import trademarked goods into Malaysia need to carry out the necessary due diligence and investigate the economic and legal link between the overseas manufacturer of the products and the proprietor of the trademark in Malaysia. If they are regarded to be in the same group of companies as the owner of the trademark, then it is unlikely that the parallel importation and further dealing with the imported goods would lead to a successful infringement action against them. However, it would be unsafe to do so if the foreign manufacturer has no such link to the Malaysian trademark proprietor, even if the foreign manufacture is the registered proprietor of the trademark overseas. They should also ensure that no contractual restrictions on further dealings are imposed. In addition, parallel importers need to ensure that, in selling the parallel imported goods, they do not represent themselves as being affiliated to the plaintiff’s business. There should also not be any representation that they are authorised dealers or that their goods are covered by the plaintiff’s guarantees, to prevent a successful passing off action being instituted against them.31 30 Samsonite IP Holdings Sarl v An Sheng Trading Pte Ltd [2017] 4 SLR 99, at para 140. 31 See the observation of the Judge in Kenwood Electronics (M) Sdn Bhd and Anor v Profile Spec (M) Sdn Bhd and Others (Part 2) [2007] 2 CLJ 732 at pp. 739–740 when dismissing the plaintiff’s action in passing off, There is no false representation. The defendants did not use “Kenwood” as part of their name, but merely sold Kenwood audio-video equipment. They did not use the plaintiffs’ warranties or facilities for service, but provided their own. The fact that their warranties are more limited is irrelevant. That is an issue between the defendants and their customers. There is no evidence of confusion or complaint by consumers.

13 Justifiability of parallel import and trademark infringement by imports produced in breach of a licensing agreement in Japan Masabumi Suzuki

Case information: Japanese Supreme Court, First Petty Bench, 27 February 2003, 2002 (Ju) 1100, Minshu Vol. 57, No. 2, p. 125

Summary This is the first case in which the Supreme Court of Japan decided on the legality of parallel importation in the context of trademark rights. There are two main focal points to this decision. First, in assessing infringement, the Supreme Court adopted the “trademark function theory.” The theory states that if the functions of the trademark in indicating the source of goods and guaranteeing quality are not impaired, the importation of genuine goods would not infringe trademark rights. Second, the Supreme Court addressed the issue of whether the importation of goods produced and affixed with a registered trademark in breach of a licensing agreement can be regarded as parallel importation of genuine goods. Specifically, the licensee in the present case breached the clauses of the license agreement that limit the countries of production and prohibit subcontracted production. The Supreme Court found that the importation of goods produced under such circumstances would impair the trademark’s functions to indicate the source of goods and to guarantee their quality. Therefore, such importation cannot be regarded as parallel importation of genuine goods and should be considered an act of infringement.

Legal context Article 25 of the Japanese Trademark Act provides that “[t]he holder of trademark right shall have an exclusive right to use the registered trademark in connection with the designated goods or designated services.” Article 2(3) of the Act defines the term “use” of a mark as including to “import . . . goods to which a mark is affixed.” Given that there is no provision in the Act concerning

156  Masabumi Suzuki parallel importation of genuine goods, such acts could constitute infringement of trademark rights on the face of it. Lower courts, however, had repeatedly decided that parallel importation of genuine goods would not infringe trademark rights.1

Facts2 Company A, a UK corporation, held trademark rights registered in Japan for the trademarks composed of English letters of “Fred Perry” and the figure of a laurel wreath, which designate clothing and other goods (“Registered Trademark” and the “Trademark Right”). Company A also held trademark rights for a series of “Fred Perry” trademarks, including those substantially identical with the Registered Trademark in 110 countries around the world such as Singapore, Malaysia, Brunei Darussalam, Indonesia, and China. On 29 November 1995, Company B, a UK corporation, which is a 100% subsidiary company of X, acquired by succession the trademark rights held by Company A for “Fred Perry” trademarks registered in all countries except for the rights in Japan. In Japan, X held an exclusive license for the Registered Trademark granted by Company A. On 25 January 1996, X acquired the Trademark Right from Company A, completed the registration of the assignment, and became the trademark right holder of the Registered Trademark on 27 May 1996. From around March to July 1996, Y imported polo shirts made in China (“Goods”), which carried marks (“Mark”) identical with the Registered Trademark and sold them in Japan. The Goods were produced at a factory in China under subcontract with Company D (a Singaporean corporation), and then imported into Japan by Y via Company E (a Singaporean corporation). Company D was granted a license (“Agreement”) by Company A to use the Registered Trademark for three years from April 1, 1994. On 29 November 1995, the licensor’s status under the Agreement was transferred to Company B. The Agreement contains the following clauses (“Granting Clauses”). A Company A shall grant a license to Company D to produce, sell, and distribute the licensed goods in the licensed territory, namely, the Republic of Singapore, Malaysia, the State of Brunei Darussalam, and the Republic of Indonesia, and to use a trademark identical with the Registered Trademark for the licensed goods within the licensed territory. The licensed goods shall

1 The first court decision concerning parallel importation of genuine goods in relation to trademark rights was the decision by Osaka District Court, 1968 (Wa) 7003 (February 27, 1970) (Parker case). For details of the development of court decisions and the practice at the customs offices until the late 1990s, see Shoen Ono, Overview of Japanese Trademark Law (2nd. ed. 1999), Institute of Intellectual Property, Japan, 97ff, available at: www.iip.or.jp/translation/ono/ch7.pdf. 2 The following “Facts” and “Reasoning of the court” are based on the English translation of the Supreme Court’s decision with some edits by the author. The translation can be found at www.courts.go.jp/app/hanrei_en/detail?id=1495.

Parallel import and trademark infringement 157 be sportswear and leisure wear goods carrying said trademark that are produced according to Company A’s specifications (Articles 1 and 2). B Company D shall promise not to make any arrangement for subcontracting production, finishing or packaging of the licensed goods, without prior consent given by Company A in writing. Company A shall not unreasonably reserve its consent as long as Company D provides Company A with the complete information on all relevant facts or matters concerning subcontractors and secures a promise from subcontractors that they agree to offer to Company A a facility that is the same as the facility they offer to Company D so that Company A’s agent can check whether the subcontractors comply with and fulfil the specifications and quality standards prescribed in the Agreement and keep all relevant information confidential (Article 4). Despite agreeing to the Granting Clauses, Company D subcontracted the production of the licensed goods to China, which was outside the licensed territory without obtaining Company A’s consent, thus breaching the Agreement. X placed an advertisement in newspaper Z, claiming that the Goods were counterfeits. In addition, X filed a petition for the procedure of identifying the Goods as import-prohibited articles under the Customs Tariff Act. X also filed a criminal complaint on the ground that the sale of the Goods constitutes infringement of the Trademark Right. Y alleges that the acts of X and Z mentioned earlier interfere with Y’s business or harm its reputation, and seeks damages from X and Z under Article 709 of the Civil Code. In response, X contends that Y’s importation and sale of the Goods infringes the Trademark Right, and seeks damages from Y under Article 709 of the Civil Code. Y rebutted that the importation of the Goods constituted what was generally referred to as parallel importation of genuine goods, which was not illegal. The first and second instances3 established that the Goods could not be considered genuine and found Y liable for trademark infringement. Y then petitioned to the Supreme Court for a final appeal.

Reasoning of the court The appeal was dismissed. The Supreme Court raised two points, which will be explored in turn as follows.

1 Parallel importation of genuine goods is justifiable under three conditions4 If a person other than a holder of a trademark right in Japan imports goods identical with the goods designated for the trademark right, by affixing thereto 3 Osaka District Court, 1991 (Wa) 8480 (December 21, 2000); Osaka High Court, 2001 (Ne) 425 (March 29, 2002). 4 Section 3 of the present decision. The sub-titles in this section are not in the original decision, but have been added by the author.

158  Masabumi Suzuki a trademark identical with the registered trademark, such act of importation infringes the trademark right unless licensed by the trademark right holder (Articles 2(3) and 25 of the Trademark Act). However, it is appropriate to construe that the importation of goods in such manner is deemed to be parallel importation of genuine goods, and it is therefore deemed to be justifiable as not infringing the trademark right under the following conditions: (1) the trademark has been legally affixed to the imported goods by a holder of a trademark right in a foreign country or a person licensed by the trademark right holder; (2) the trademark right holder in the foreign country and the trademark right holder in Japan are the same person or have a relationship wherein they can be regarded as being legally or economically identical with each other, and hence the trademark affixed to the import goods indicates the same source as that indicated by the registered trademark in Japan; and (3) the trademark right holder in Japan is in a position to be able to control the quality of the import goods directly or indirectly, so as to ensure the import goods and the goods carrying the registered trademark held by the trademark right holder in Japan are judged to be not substantially different in terms of the quality guaranteed by the registered trademark. The purpose of the Trademark Act is “to ensure the maintenance of goodwill of persons who use trademarks through the protection of trademarks, and thereby contribute to the development of the industry, and to protect the interests of consumers” (Article 1 of the Act). Parallel importation of genuine goods that satisfies the abovementioned conditions would not impair a trademark’s functions, i.e., the functions of indicating the source of goods and of guaranteeing the quality of goods; nor would it damage the business reputation of the trademark user or the interest of consumers, and thus it can be deemed to be justifiable as legal.

2 However, parallel import beyond limitation on production areas and subcontracted production is illegal5 This reasoning can be applied in this case as follows. According to the facts of the case, the Goods were produced through the process whereby Company D, which was licensed to use a trademark identical with the Registered Trademark in Singapore and three other countries, subcontracted the production to a factory in China, which was outside the licensed territory, without the consent of the trademark right holder. Thus, the Goods were produced in a manner beyond the scope of license defined by the Granting Clauses in the Agreement and then the Mark was affixed to them, hence undermining the Registered Trademark’s function to indicate the source of goods. Furthermore, the limitations on the production areas and subcontracted production under the Granting Clauses are very important for the trademark right holder in controlling the quality of goods carrying the Registered Trademark, and ensuring that the Registered Trademark fully performs its function to guarantee 5 Section 4 of the present decision.

Parallel import and trademark infringement 159 the quality of goods. The Goods produced in breach of these limitations and to which the Mark was affixed would be outside the quality control of the trademark right holder, and could be substantially different from the goods put on the market by X with the Registered Trademark in terms of the quality guaranteed by the Registered Trademark. Hence, the Goods are likely to undermine the Registered Trademark’s function to guarantee the quality of goods. Consequently, if the importation of such goods were allowed, it could undermine the business reputation embodied in the “Fred Perry” brand, which has been established by Company A and X that have used the Registered Trademark. In addition, while consumers have trust in the parallel import goods, believing that they can purchase goods that are identical in terms of source and quality of the goods put on the market by the trademark right holder by affixing the registered trademark to them, if the importation of the Goods conducted in breach of the abovementioned limitations were allowed, it would result in breaching the consumers’ trust. Based on these grounds, the importation of the Goods cannot be regarded as parallel importation of genuine goods and therefore it cannot be deemed to be justifiable. [As for Y’s negligence,] since an importer is required to clarify the production site of the import products upon import declaration (Article 67 of the Customs Act and Article 59(1)(ii) of the Order for Enforcement of the Customs Act), in order to import goods to which a trademark identical with a trademark registered in Japan has been affixed not by a holder of a trademark right in a foreign country but by a person licensed by the trademark right holder in the foreign country, the importer must import the goods after confirming, at least, that the licensee is entitled under the license agreement to produce the goods in the production area and affix said identical trademark to them. Since Y has not proved that it fulfilled the obligation to confirm this before importing the Goods, the presumption of negligence on the part of Y (Article 103 of the Patent Act as applied mutatis mutandis pursuant to Article 39 of the Trademark Act) cannot be reversed.

Legal analysis 1 Significance of the decision This is a landmark decision by the Japanese Supreme Court as its first ruling to address the legality of parallel importation in relation to trademark rights. The Court justified parallel importation of genuine goods based on the trademark function theory, stating that such an act would not undermine the functions of trademarks. Japanese lower courts and the customs offices have long established the practice of allowing parallel importation on similar grounds, but not until the present decision did the Supreme Court clarify the criteria for justification of parallel import by putting forward the three requirements mentioned earlier. The decision is also significant as it denied the legality of importation of genuine goods produced in breach of a trademark licensing agreement, as it undermined

160  Masabumi Suzuki the trademark functions to indicate the source of goods and to guarantee their quality.

2 The functions of a trademark The present decision bases its justification of parallel importation of genuine goods on the function of trademarks, i.e., the functions to indicate the source of goods and to guarantee their quality. There have been many court decisions which denied trademark infringement because the actions at issue did not impair the function of trademarks.6 The analytical framework of the present decision is similar to the precedents concerning trademark infringement in general. It is the conventional view in Japan that trademarks also have the function to advertise goods, in addition to the two functions just mentioned. However, in the context of trademark infringement, the advertising function is rarely mentioned by courts. This does not mean that courts refuse to recognise it as one of the trademark functions, but rather reflects courts’ understanding of this function as supplementary to the other two functions of trademarks.

3 Three requirements for justifying parallel importation of genuine goods The present decision stipulates three requirements for justifying parallel importation of genuine goods due to lack of impairment of the trademark functions: i.e., (1) the genuineness of the import goods; (2) the identity of the right holders in the exporting country and Japan; and (3) the uniformity of the quality of the import goods and the domestic goods. The first two requirements are understood as requirements concerned with the function of indicating the source of goods, whereas the third requirement relates to the function of guaranteeing the quality of goods. The feature of the present decision in comparison with previous court decisions concerning parallel importation lies in its emphasis on the possibility of quality control by trademark right holders when examining the third requirement.

3.1 The first requirement Regarding the first requirement, which relates to the function of trademarks to indicate the source of goods, the present decision states the requirement as a question of legality of affixing the trademark (whether “the trademark has been legally affixed” or not). The statement of the requirement is, however, confusing and imprecise. If a strict interpretation is adopted, all cases where a trademark licensee produces goods and affixes a registered trademark in breach of any condition of the license agreement would fail to satisfy this requirement. 6 See Ono, supra note 1, at 88–89.

Parallel import and trademark infringement 161 As discussed in the following, such a conclusion is far-fetched, and inconsistent with the Supreme Court’s intention. Certain cases in which a licensee conducts in breach of the licensing agreement should still be justified as parallel importation of genuine goods. Another problem of presenting the first requirement as a question of legality is that it would unnecessarily invite an issue of applicable law. The real question should rather be whether it is legally reasonable and justifiable to connect the actual source of the goods distributed overseas with the source indicated by the trademark which has been affixed to the goods from the viewpoint of the Japanese trademark law. As a standard relating to the function of trademarks to indicate the source of goods, the second instance set up a more appropriate and effective standard by asking whether the imported goods has excluded the “quality control authority of the source indicated by the trademark.” By applying this standard, the first requirement can be rephrased as asking whether a trademark right holder in a foreign country or a person licensed by the right holder for the trademark affixed to the import goods actually extended quality control authority over the goods.

3.2 The second requirement The present decision did not explicitly discuss the second requirement.7 However, lower courts have established the practice of examining the second requirement even before the present case. A recent IP High Court decision has also found trademark right infringement, precisely due to the lack of this requirement.8 Some commentators argue that this requirement should be abolished in cases where a globally well-known trademark was registered by a foreign company in foreign countries, and yet is somehow registered in Japan by an unknown company. According to the majority view, if products genuinely produced and marketed by the foreign trademark right holder are imported without consent of the Japanese trademark right holder, such importation may constitute infringement of the trademark right due to lack of the second requirement (and likely the third requirement). The opposing commentators contend that no infringement should be found because the trademark on the imported goods correctly indicates the foreign trademark right holder as the source of the goods, and the trademark functions are not impaired.9 Such a view is, however, questionable as it does not conform with the aim of trademark law to protect the goodwill of the trademark right holder. The problem of the discrepancy between the perception of consumers as to the source of the goods or services indicated by a registered trademark

7 The first and second instances have affirmed that both of the right holders of foreign and Japanese trademarks belonged to the “Fred Perry Group,” and thus the source indicated by the trademark on the Goods and that indicated by Registered Trademark could be considered identical. 8 IP High Court, 2009 (Ne) 10058, 2009 (Ne) 10072 (April 27, 2010) (Converse case). 9 See, e.g., Yoshiyuki Tamura, Outline of Trademark Law (Sho-hyo Hou Gaisetsu) (2nd ed. 2000), Koubundou, Tokyo, 472–477.

162  Masabumi Suzuki and the actual right holder for that trademark should be resolved as a matter of registrability of trademarks.10

3.3 The third requirement With regards to the function of trademarks of guaranteeing the quality of goods, past cases have merely focused on and cited the uniformity of product quality, whereas the present decision took a step further by referring to the possibility of quality control by trademark right holders in relation to the third requirement. This is a welcome development in clarifying the meaning of that function. However, there remain a couple of points which should be clarified. First is the relationship between the two components of the third requirement: (i) the possibility of a trademark right holder in controlling the quality, and (ii) the difference between the quality of the imported goods and that of the goods carrying the registered trademark affixed by the Japanese right holder. One way of interpretation is to take (i) as an essential part of the requirement and (ii) as just a consequence of (i). In other words, as long as (i) is satisfied, (ii) is automatically concluded. When the trademark right holder had carried out quality control over both the imported goods and the goods sold in Japan with the trademark, even if there is a resulting difference in the quality of these two goods, the difference must be within an acceptable scope for the right holder and thus “no substantial differences” in the quality should be recognised.11 Another way of interpretation is to understand that (i) and (ii) are independent elements of the third requirement, and both must be fulfilled to satisfy the third requirement. Under this theory, when the trademark right holder is extending quality control over both the imported goods and the goods sold in Japan with the trademark, the right holder still can stop the importation of the former if there are objective differences in the quality of these two goods.12 Supporters of the second theory would argue that the theory is not only favourable for trademark right holders, but also beneficial for consumers because it would prevent confusion among consumers concerning goods with different quality. This author, however, is of the opinion that the second theory is not desirable as it allows too much power to trademark right holders to segment markets, and ultimately harms the interests of consumers. As to the risk of confusion among consumers, trademark right holders should be responsible for the prevention of the risk by, e.g., putting a disclaimer on the products.

10 For example, Articles 4 (10), (15) and (19) of the Japanese Trademark Act provide grounds for refusal of trademark registration because of the likelihood of confusion as to the source of goods or services indicated by the filed trademark. 11 This way of reasoning for finding parallel importation of genuine goods was adopted by Tokyo District Court, 1979 (Wa) 8489 (December 7, 1984) [LACOSTE case]. 12 See, e.g., Masaharu Miyawaki, “Reflection on the Contents of the Trademark Function Theory” (Shohyo-kinou-ron No Gutaiteki Naiyou Ni Kansuru Ichi-kousatsu), 290 Ritsumeikan Hogaku 877, 901–04 (2003).

Parallel import and trademark infringement 163 The second point that needs clarification is to what extent an “indirect” quality control should be recognised. In order to not overly restrict parallel importation of branded goods of overseas companies, “indirect” quality control should be recognised broadly.

4 Breach of license agreement and the genuineness of goods In the present case, whether the importation of the Goods produced in breach of the license agreement may be considered parallel import of genuine goods constituted the point of contention. With regards to the genuineness of the Goods, the first and second instances denied it for the reason that the Trademark could not be said to have been legally affixed. However, in a separate case involving the same Registered Trademark, right holder and Goods, but a different importer, courts affirmed the genuineness of the Goods and ruled that the breach of the territorial restrictions on production was deemed to be nothing more than “internal affairs between the trademark right holder and the licensee.”13 On the other hand, the Supreme Court in the present decision denied the genuineness of the Goods, as they were found to be impairing the Trademark’s function of indicating the source and also likely of guaranteeing the quality. While the Court indicated that the first and third requirements were not satisfied, it did not explicitly discuss the second requirement. In order to evaluate the legal effects of breaching a license agreement in the context of parallel importation and infringement of trademark rights, it is vital to examine the meaning of the relevant clauses in the license agreement against the functions of trademarks. For trademarks to fulfill their functions of indicating the source and guaranteeing the quality of goods, it is imperative that trademark right holders directly or indirectly control the quality of the goods put on the market with the trademarks affixed on them. The limitations on both the production areas and subcontracted production in the license agreement at issue have significant importance for X, as they help to extend X’s quality control. The Goods, which were produced in breach of these limitations and to which the Trademark were affixed without consent of X, should be regarded as out of the scope of quality control by X. Once put on the market, it is foreseeable that the functions of the Trademark may be impaired. Consequently, the conclusion of this decision is reasonable. A hypothetical question arises, namely what kind of conditions in a trademark license agreement would not affect the finding of parallel importation of genuine goods even if goods are produced in breach of these conditions? Admittedly, those which do not have much relevance to quality control by trademark right holders, e.g., limitations on the area of sales and the way of paying royalties would be such conditions.14 13 Tokyo District Court, 1996 (Wa) 15011, 8625, 12105 (January 28, 1999); Tokyo High Court, 1999 (Ne) 1464 (April 19, 2000). 14 See Tokyo High Court, 2001 (Ne) 5931 (December 24, 2002) (Fred Perry case) (mentioning that a breach of the condition on the payment of royalties would not affect the

164  Masabumi Suzuki

Commercial or industrial significance As stated, the present decision is significant, as it is the first ruling on parallel importation in relation to trademark rights by the Japanese Supreme Court. The decision also demonstrates the fundamental principles embedded within the Japanese trademark law, which recognise indication of the source of goods and guarantee of their quality as main functions of trademarks, and stress the possibility of quality control by the right holder in examining the scope of trademark rights. While there has yet to be any decision by the Japanese Supreme Court concerning trademark disputes involving other complicated issues such as refilling the products, or modifying or transforming the shape or appearance of products, the approach taken by the present decision may shed a light on how similar cases will be decided by Japanese courts in the future.

genuineness of the goods) and Tokyo District Court, 2003 (Wa) 3396 (June 30, 2003) (Body Grove case) (affirming the genuineness of the goods which were sold in breach of limitations on the sales area in a licensing agreement).

14 Scope of a parallel importer’s permissible use of a trademark in marketing activities in Korea Won Bok Lee and Kyoung-Shin Park

Case information: Supreme Court Decision 99Da42322 decided on 24 September 2002

Summary In Korea, parallel import per se does not constitute trademark infringement. However, certain marketing activities carried out by parallel importers while selling imported goods ­such as the use of the trademark on fliers, wrapping papers, shopping bags, store signboards, business cards or other advertising materials­ may conflict with the rights or interests of exclusive domestic importers of genuine goods. The Supreme Court held that the use of the Burberry trademark on the signboards, fliers, wrapping paper, shopping bags, business cards, and other advertising materials did not constitute trademark infringement, on the ground that it did not lead to confusion as to the source and quality of the goods. However, the Court also held that the use of the trademark on signboards outside the parallel importer’s store or on business cards, although not infringing the manufacturer’s trademark right, should be prohibited under unfair competition law to the extent that such use would lead to consumer’s confusion as to the identity of the seller.

Legal context The basic issues in the present case are to what extent a parallel importer should be allowed to carry out advertising and promotional activities using the trademark of imported goods, and what the limiting principles to such activities are. Even if parallel importation itself were to be permitted under various doctrines, a dispute could arise as to whether a parallel importer’s use of the trademark in question in active marketing activities, such as using the trademark on fliers, wrapping papers, shopping bags, store signboards, business cards or other advertising and promotional materials, should be permitted, and, if so, to what extent. That is the question faced by the Supreme Court in the present case brought

166  Won Bok Lee and Kyoung-Shin Park by UK fashion house Burberry and its local agent against a parallel importer of genuine goods of Burberry. The present case involved two sets of Korean laws: (1) trademark law codified under the Korean Trademark Act and (2) unfair competition law codified under the Korean Unfair Competition Prevention and Trade Secret Protection Act. The former applies to registered trademark, and the latter to unregistered trademark or unregistrable trade dress.1 The Korean Trademark Act2 grants a trademark holder or its exclusive licensee an exclusive right to use the registered trademark on the designated goods.3 While Korean trademark law does not explicitly permit or prohibit parallel imports, the exclusive nature of trademark right, at first glance, may appear to foreclose parallel import, as it would necessarily involve domestic sale of the trademarked good.4 However, the prevailing scholarly views, as well as the Supreme Court’s,

1 Korean trademark law does not permit registration of trade dress. 2 Article 1 of the Korean Trademark Act: The purpose of this Act is to contribute to the development of industry and to protect the interests of consumers by maintaining the business reputation of those persons using trademarks through the protection of trademarks. 3 Article 89 of the Korean Trademark Act provides: A trademark right holder shall hold the exclusive right to use the registered trademark in relation to designated goods: Provided, that the foregoing shall not apply to the extent that a person has the exclusive right to use the registered trademark pursuant to Article 95(3) when the exclusive right to use has been established on the trademark rights. Article 95 of the Korean Trademark Act provides: (1) A trademark right holder may grant an exclusive license to others in relation to his/her trademark rights. (2) No exclusive license shall be established in relation to the business emblem right, the collective mark right, or the certification mark right. (3) An exclusive licensee who has obtained establishment of the exclusive license under paragraph (1) shall exclusively possess the license of the registered trademark on designated goods to the extent determined by the establishment of the exclusive license. (4) An exclusive licensee shall indicate his/her own name or title on the goods. (5) Except in cases of inheritance or other general succession, no exclusive licensee shall transfer the exclusive license without the consent of a trademark right holder. (6) No exclusive licensee shall establish a pledge, the object of which is to acquire an exclusive license, or a non-exclusive license without the consent of a trademark right holder. (7) Article 93(2) and (3) shall apply mutatis mutandis to the transfer and joint ownership of the exclusive license. 4 Article 108(1) of the Korean Trademark Act provides: (1) Any act which falls under any of the following subparagraphs shall be deemed to infringe a trademark right (excluding a geographical collective mark right) or exclusive license: 1. Using a trademark identical with a registered trademark of another person on the goods similar to the designated goods, or using a trademark similar to the registered trademark of another person on the goods identical with or similar to the designated goods; 2. Delivering, selling, forging, imitating or possessing a trademark identical with or similar to the registered trademark of another person with intention to use or make another person use it on any goods identical with or similar to the designated goods; 3. Manufacturing, delivering, selling or possessing tools used for making the registered trademark of another person with intention to forge or imitate or to make a third person forge

A parallel importer’s permissible use 167 are that parallel import is allowed after meeting certain conditions, as will be discussed in detail ahead. The Unfair Competition Prevention and Trade Secret Protection Act becomes relevant in the context of parallel import, because a parallel importer may be deemed to be using another entity’s well-known identifier (a) to confuse consumers into misbelieving one’s identity (b), which the Act prohibits.5 In other words, an unfair competition law issue may arise, if a consumer is misled to believe that the parallel importer (b) is an authorised seller of the goods based on the trademark printed on marketing materials (a), provided however that the trademark is not registered by an authorised seller as a service mark for selling goods, as a registered trademark would fall under the trademark law.

Facts Burberry is a UK fashion house that has achieved worldwide fame for their trench coats and check patterns. This fashion house has owned multiple registered trademarks in Korea since 1977 when it registered the word “BURBERRYS” and a combination of the word “BURBERRYS” and a figure of a knight with a spear and a flag on a horse. In 1986, Euro Trading, a Korean firm, entered into an exclusive import and distribution agreement with Burberry and obtained the non-exclusive rights to use Burberry’s company name and trademarks in Korea. According to this agreement, Euro Trading was to be supplied with goods from Burberry and to sell the Burberry goods in department stores and duty-free stores on a national scale. In that capacity, Euro Trading carried out various marketing activities, including advertisements and promotions, for the purpose of establishing a luxury image for Burberry goods. Meanwhile, EMEC, another Korean firm, launched parallel imports of genuine goods manufactured by Burberry in the UK. While selling imported goods, EMEC used a mark that looked similar to Burberry’s registered trademark on the signboards outside its stores for advertisements, as well as on advertising materials and on the walls inside its stores. In addition, EMEC imitated the shop interiors and displays of Euro Trading. Some customers allegedly believed that EMEC was an official Korean distributor of Burberry and sought customer service at Euro Trading for products that they had bought from EMEC. or imitate the registered trademark; 4. Keeping, for a purpose of transfer or delivery, goods identical with or similar to the designated goods on which another person’s registered trademark or any other similar trademark is used. 5 Article 2 of the Unfair Competition Prevention and Trade Secret Protection Act provides: The definitions of terms used in this Act are as follows: (1) “Act of unfair competition” means any of the following acts: (b) an act of causing confusion with another person’s business facilities or activities by using any name, trade name, mark or any other sign identical or similar to another person’s that indicates another person’s business widely known in the Republic of Korea;

168  Won Bok Lee and Kyoung-Shin Park Burberry and Euro Trading filed suit, seeking injunction on all use of Burberry’s trademark by EMEC. They alleged that EMEC’s acts of selling parallel-imported genuine Burberry goods by using Burberry’s trademarks on their signboards, fliers, wrapping papers, shopping bags, business cards, and advertising materials constituted trademark infringement. Furthermore, as Euro Trading had a nonexclusive license to use the trademark and only the trademark holder and exclusive licensee can seek injunctive relief under Korean trademark law, Euro Trading could only seek relief under the Unfair Competition Prevention and Trade Secret Protection Act. Therefore, Euro Trading alleged that EMEC’s acts caused consumers to misbelieve that EMEC was an agency related to Burberry in some way, which violated Article 1(2)(b) of the Korean Unfair Competition Prevention Act. In its defence, EMEC argued that use of a trademark by a parallel importer for advertisements and promotions should be allowed so long as the parallel import itself is not trademark infringement.

Reasoning of the courts 1 The Seoul District Court The Seoul District Court accepted the plaintiff’s argument and granted injunction on use of all materials bearing the Burberry trademark. The District Court held that the defendant’s acts constituted unfair competition under Article 1(2)(b) of the Korean Unfair Competition Prevention Act. The District Court did not adjudicate on the trademark law issue.

2 The Seoul High Court 2.1  Trademark law analysis The Seoul High Court held that parallel import and sale of genuine goods, per se, is not considered trademark infringement. The court further held that a parallel importer’s use of trademark should be permitted to the extent necessary to conduct business, if it is inextricably linked to the sale of genuine goods. However, the court said that such use of trademark is also likely to weaken a trademark holder’s goodwill and customer attraction, or to cause confusion as to the true source of services, exceeding the scope of permissible uses of trademarks. To strike a balance of interests between the parallel importer on the one hand and the original manufacturer and authorised importer and distributor on the other, the court concluded that indoor signboards, fliers, wrapping papers, shopping bags and advertising and promotional materials placed on the walls inside a store or published in various magazines were permissible marketing activities by the parallel importer, denying injunction on use of the trademark on these materials. On the other hand, the court concluded that the use of the trademarks on its outdoor signboards and business card exceeded

A parallel importer’s permissible use 169 permissible use of trademark by a parallel importer and constituted trademark infringement, granting injunctive relief.6

2.2  Unfair competition law analysis As a matter of fact, the Seoul High Court determined Burberry’s trademark to be widely known in Korea, based on various documentary evidence and testimonies which show Burberry’s reputation in Korea. As a matter of law, the Seoul High Court held that using the trademarks on interior signs of the store was permissible when accompanied by sales of genuine goods, because such use rarely functions as an independent business indicator, but rather serves the salutary function of helping customers to locate parallel imported goods. As regards the uses of the trademarks on packaging, shopping bags, and advertising and promotional materials placed on the walls inside a store or published in various magazines, the Seoul High Court held that such uses were permissible too, because they would not lead to customer confusion as to the operator of the business entities. In contrast, the Seoul High Court held that use of the trademarks on signboards outside the store was not permitted, as it would lead to customer confusion as to the operator of the business. In other words, it would likely lead customers to mistake parallel importers’ stores for official local agencies’ stores. The Seoul High Court mentioned that EMEC could have easily used its own trade name, i.e., EMEC, on these signboards. Similarly, the Seoul High Court held that the uses of the trademarks on business cards of the managers or staff of the parallel importer were not permitted, as they would likely lead customers to mistake holders of such business cards for members of the head office or its official local agencies. The court thus granted injunction against the defendant’s use of Burberry’s trademark on outdoor signboards and business cards.

3 The Supreme Court Both the plaintiffs and the defendant appealed the Seoul High Court’s decision to the Supreme Court, which revoked the lower court’s decision on the trademark claim but affirmed the lower court’s decision on the unfair competition claim.

3.1 Trademark law analysis First, the Supreme Court held that, insofar as a parallel import is a lawful act, a parallel importer should be permitted to sell their imported goods by using trademarks of the goods. The Supreme Court considered the purpose of the Korean Trademark Act to be contributing to industry development and protecting

6 Seoul High Court Decision 98Na35466 decided on 22 June 1998.

170  Won Bok Lee and Kyoung-Shin Park consumer interests, and therefore the functions of trademarks to be indicating the sources of goods bearing a trademark and helping customers to trust the quality of the goods. The Supreme Court concluded that a parallel importer could advertise and promote their goods by actively using trademarks of the goods, so long as such use was not likely to harm the functions of trademarks and cause domestic customers to mistake the source or the quality of goods bearing trademarks. Applying this principle, the Supreme Court found that marks that the parallel importer used on their fliers, wrapping papers, shopping bags, indoor signboards, and other advertising materials presented no likelihood of confusion or misleading as to the source of the goods. The Supreme Court also decided that there could hardly be much difference in quality between the goods distributed by the parallel importer and those of the exclusive distributor supplied directly by Burberry, since the parallel-imported goods were produced by Burberry as well. Thus, the Supreme Court held that the parallel importer’s use of Burberry’s trademarks in marketing activities could not be regarded as trademark infringement. As to the Burberry trademarks used on EMEC’s outdoor signboards and business cards, the Supreme Court extended its logic and disagreed with the lower court’s analysis. The Supreme Court held that a parallel importer’s use of the trademark holder’s mark on outdoor signboards and business cards should also be permitted, as neither presented risk of confusing consumers as to the source of the goods or quality of the goods being sold.

3.2  Unfair competition law analysis As to the unfair competition claim, however, the Supreme Court largely upheld the lower court’s decision, holding that the use of trademarks by a parallel importer in certain advertising and promotion activities should be prohibited if it causes confusion with the plaintiff’s business facilities or activities under Article 1(2)(b) of the Unfair Competition Prevention and Trade Secret Protection Act. The Supreme Court decided that using the trademarks on signboards outside the store and business cards as acts of unfair competition was not permitted, as such use serves as the identifier of the seller, adopting the logic of the lower court. On the other hand, the Supreme Court held that using the trademarks on inner signs of the store, fliers, packaging, shopping bags, and advertising and promotion materials placed on the walls inside a store or published on various magazines did not constitute an act of unfair competition, because such an act posed little risk of confusing the consumer.

4 Subsequent cases The holding of the Supreme Court in the present case was reiterated in the Nike case, where the Supreme Court ruled that using Nike’s marks on banners outside

A parallel importer’s permissible use 171 stores was not permissible, as it could cause consumers to mistake these activities by parallel importers for those of an exclusive licensor.7 The bifurcated approach taken by the Supreme Court is being followed by lower courts too. In a recent decision by the Seoul Central District Court, the plaintiff had an exclusive importation and distribution agreement with Portmeirion, and an exclusive license to use the trademark “PORTMEIRION” in Korea. Portmeirion is a UK pottery company, whose “Botanic Garden” is a world-famous tableware series. The defendant, an operator of a large-sized outlet store, sold Portmeirion’s goods that it had parallel imported from outside the UK. In its advertisement for these goods, the defendant claimed that “This is an opportunity to purchase Portmeirion’s Botanic Garden Set directly imported from the UK at a reasonable price.” Based on this advertisement, the plaintiff filed suit, alleging trademark infringement and unfair competition. The Seoul Central District Court held that there was no trademark infringement caused by the sale of imported goods by the defendant.8 The court found that Portmeirion’s goods sold by the defendant were manufactured in the UK and thus had the same quality as the plaintiff’s goods. Furthermore, the court also noted that the defendant had the right to actively advertise goods that it had imported, so long as such advertisements did not weaken the trademark’s function as a source indicator or cause consumer confusion as to the source and quality of the goods. However, the court held that defendant went beyond the permissible marketing activities by using the phrase “directly imported from the UK” in its advertisement, since it would mislead consumers into believing that the defendant was an exclusive agent of the plaintiff.

Legal analysis 1 What are permissible parallel imports? 1.1  Parallel imports are principally legal Korean scholars and courts in general agree that parallel imports are considered permissible, insofar as they do not hinder the purpose of the Trademark Act (i.e., protection of the business reputation of the trademark holder and the interests of consumers) and the functions of trademark (i.e., indication of the source of goods or services and quality assurance). Scholars have generally recognised two theoretical bases for permitting parallel imports: the exhaustion doctrine and the function theory.9 The exhaustion doc7 Supreme Court Decision 2008Do7462 decided on 30 January 2009. 8 Seoul Central District Court Decision 2010Gahap756952010Gahap74695 decided on 17 September 2010. 9 Seungkyoon Kye, A Study on the Theory of Exhaustion in the Trademark Law (in Korean), 31 Chonnam Law Review 3(2011), p. 33; Huang Yi-Qing/Hyun-Sook Cho, A Study on the

172  Won Bok Lee and Kyoung-Shin Park trine holds that, after a trademark holder produces goods and distributes them in markets, the value of the goods’ trademark is exhausted, and the domestic trademark holder can no longer claim his trademark.10 On the other hand, the function theory posits that a court could only find for trademark infringement where one or more of the functions of trademark is adversely affected. Thus, a parallel importer is not infringing on functions of a trademark by indicating the source of the goods or services or quality assurance, insofar as imported goods by a parallel importer are genuine goods. In practice, parallel imports are explicitly legalised to certain extent by the government. For example, the Public Notice on Customs Service Practice for the Protection of IP Rights of the Korea Customs Service provides that parallel import of non-counterfeit goods into Korea does not infringe the trademark if (1) the foreign trademark holder and the domestic trademark holder are identical or are deemed identical due to having an affiliate relationship (i.e., holding 30% or more of the shares and being the largest shareholder of the other) or an import agency relationship, unless the exclusive licensee domestically manufactures the goods by itself, or (2) the foreign trademark holder and the domestic trademark holder are not identical and the domestic trademark holder or an exclusive licensee imports or sells genuine goods manufactured in foreign countries (including genuine goods manufactured with permission of the foreign trademark holder).

1.2 Courts’ criteria for permissible parallel imports The Korean courts have also recognised the legality of parallel imports,11 deferring to the predominant scholarly views that do not find parallel import an infringement of domestic trademark. The courts also seem to have been swayed by the fact that parallel imports can cause a drop in prices of goods through the promotion of competition.12 The Supreme Court laid down the criteria for the permissibility of parallel imports in detail. First, imported goods must be genuine.13 This principle applies regardless of the intent of the party. For example, in the Polo case,14 the defendant imported counterfeit goods through various channels, and argued that he mistakenly thought that the goods were genuine. But the Supreme Court noted that the defendant’s willfulness is irrelevant in deciding whether parallel imports -constiute trademark infringement. Second, a foreign trademark holder and a

Theory of Exhaustion under the Trademark Law – A Comparative Study on Parallel Import Between Korea and China – Focused on Intellectual Property Rights (in Korean), 16 International Commerce and Information Review 4(2014), p. 81. 10 Seungkyoon Kye, supra note 9, pp. 14–15. 11 Supreme Court Decision 96Do2191 decision decided 10 October 1997, 2006Da40423 decided on 13 October 2006, 2010Do790 decided 27 May 2010. 12 Seoul High Court Decision 98Na35466 decided on 22 June 1998. 13 Supreme Court Decision 96Do2191 decision decided 10 October 1997, 2006Da40423 decided on 13 October 2006. 14 Supreme Court Decision 96Do2191 decision decided 10 October 1997.

A parallel importer’s permissible use 173 domestic trademark holder must be the same or have a special relationship.15 Third, imported goods by a parallel importer must be of the same quality as goods distributed by a domestic trademark holder or an exclusive licensee.16 Differences in quality refers to a difference in the performance and durability of the goods. Differences in incidental services, such as customer support or warranty repairs, would not constitute parallel import trademark infringement.17 In the present case, the Supreme Court did not explicitly analyze these three requirements, but there is no dispute that the parallel imports at issue met these. First, the parallel imported goods were genuine goods, because they were legally labeled with the trademark at issue by a foreign trademark holder. Second, the foreign trademark holder and the domestic trademark holder were the same. Third, there were no quality differences between parallel imported goods manufactured by the foreign trademark holder and goods distributed by the exclusive domestic licensee, unlike the Polo case, where there were quality differences between the goods domestically manufactured by the domestic exclusive licensee and parallel imported goods from different source countries. The third prong of the permissible parallel import means that, as in the present case, parallel imports are relatively unrestricted, if a domestic trademark holder or an exclusive licensee depends only on imports of the goods instead of manufacturing them domestically.18 On the other hand, if a domestic trademark holder or exclusive licensee manufactures goods domestically, then the act of selling the imported goods that are inferior in quality by a parallel importer may constitute a trademark infringement.19

2 A parallel importer’s limit on use of trademarks in marketing activities While both leading scholars and the courts view parallel importation itself as legal in principle, it does not automatically follow that a parallel importer has unbridled right to replicate the trademark and use it – for marketing purposes. Indeed, the present case sets the boundaries within which the use of the trademark of imported goods in the context of marketing can remain legal. The Supreme Court holds that there are limits under both the trademark law and the unfair competition law. The trademark law was relevant for the claim made by the trademark holders/manufacturer of the imported goods, while the unfair competition law was relevant for the claim made by the non-exclusive licensee of the trademark. 15 Supreme Court Decision 2006Da40423 decided on 13 October 2006; Supreme Court Decision 2010Do790 decided 27 May 2010. 16 Supreme Court Decision 2010Do790 decided on 27 May 2010; Supreme Court Decision 2006Da40423 decided on 13 October 2006. 17 Supreme Court Decision 2006Da40423 decided on 13 October 2006. 18 Jaisik Kim/Soyean Kim, Limitations of Marketing Activities in Parallel Imports (in Korean), 11 Journal of International Trade & Commerce 4, (2015), p. 103. 19 Jaisik Kim/Soyean Kim, supra note 18, p. 104.

174  Won Bok Lee and Kyoung-Shin Park

2.1 Limitations under trademark law The purpose of the trademark system is to contribute to the development of industry and to protect the interests of consumers by maintaining the business reputation of those persons using their trademarks. In addition, a trademark indicates the source of goods or services and assures quality. Accordingly, from the functional perspective of trademarks, no trademark infringement occurs if there is no likelihood of confusing or misleading domestic consumers as to the source of the goods or services or the quality. The Supreme Court in the present case stays in line with this functional aspect of trademark, as it holds that the importer may replicate the imported goods’ trademark for promotional and advertising activities, if such replication does not result in the customers’ confusion as to the source and the quality of the goods bearing the trademarks. More specifically, the Supreme Court decided that none of the trademarks used by the parallel importer in the present case – on fliers, wrapping papers, shopping bags, both indoor and outdoor signboards, and business cards – could have resulted in the costumer’s confusion as to the source of the goods and the quality of the goods. At first glance, this view may seem very generous. However, as far as the function of a trademark is to identify the source of the good rather than the seller of the good, it is a very logical conclusion.

2.2 Limitations under unfair competition law On the other hand, use of another person’s unregistered trademark in certain advertising and promotional activities by parallel importers could cause consumers to mistake the parallel importers as an official local agency of the original right holder and even damage or dilute the latter’s business goodwill. Especially considering the purpose of the Unfair Competition Prevention and Trade Secret Protection Act, which is to protect one’s effort and investment in marks and achievement of making the mark well known to the public from free-riders that distort competition,20 parallel importers are not allowed to use another person’s marks in their advertising and promotional activities in unrestricted ways. Therefore the Supreme Court correctly distinguished uses of marks in advertisements and promotions that create confusion of business entities from uses that create no such confusion according to Article 2(1)(b) of the Unfair Competition Prevention and Trade Secret Protection Act.

3 Summary As can be seen in this chapter, Korean courts appear to be bifurcating their analysis into trademark law issue and unfair competition issue, in cases where a parallel importer employs the trademark of the imported goods in its marketing activities. 20 Article 1 of the Unfair Competition Prevention and Trade Secret Protection Act.

A parallel importer’s permissible use 175 The following table summarises the approach that the Korean Supreme Court established in the present case. Marketing activities

Trademark law

Unfair competition law

Fliers, wrappers, bags, inside store Outside store, business cards

Permissible Permissible

Permissible Impermissible

The Supreme Court is of the view that no trademark right of the trademark holder, or even of the exclusive licensee, is infringed upon by marketing activities by the parallel importer using the trademark, even if the marketing activities were to take place outside the business place of the parallel importer. As can be read from the language of the Court’s opinion, the Court strongly ties a trademark with the source of the good and the quality of the good. On the other hand, the Court ties the unfair competition law with the business operator using the trademark. Thus, when a trademark is being used outside of the parallel importer’s store or on business cards of the parallel importer, the Court views it as an act of unfair competition that confuses the consumer as to the identity of the business operator (i.e., seller) – more specifically, as parallel importer, or an exclusive agent or licensee of the trademark owner. Under this principle, using a trademark in materials that are distributed and seen once the consumer steps inside the parallel importer’s business premises would not confuse the consumer as to the identity of the business operator, since the consumer already knows the identity of the seller upon stepping in. Thus, the Court permits, maybe generously, use of the trademark on materials used or seen inside the parallel importer’s store.

Commercial or industrial significance This leading case for the Trademark Act, as well as the Unfair Competition Prevention and Trade Secret Protection Act, will serve as a guideline, according to which a parallel importer can design and carry out its active marketing campaign such as advertising and promotion activities. In Korea, the parallel import market is rapidly growing due to parallel importers’ marketing activities and distribution diversification efforts, and changes in consumer behaviors,21 as well as the Korean government’s decision to ease regulations on parallel imports to vitalise parallel imports. The government on the one hand issues customs clearance certificates to authenticate genuine goods and on the other drives counterfeit goods out of the market. Parallel import markets in Korea are expected to continue to grow. 21 The total amount of parallel imports was estimated at about 2 trillion Korean Won (approximately US$1.85 billion) as of 2013, based on data from the Korea Customs Service according to BusinessKorea, “Fake Controversy of Parallel Imports Quashed with Single Punch” (3 September 2014), available at www.businesskorea.co.kr/english/news/lifestyle/6198verification-system-fake-controversy-parallel-imports-quashed-single-punch (last visited on 5 March 2018).

15 Right of a trader in India to use another trader’s mark by way that is reasonably necessary Raman Mittal

Case information: High Court of Delhi Hawkins Cookers Ltd. v. Murugan Enterprises 13 April 2012 RFA(OS) 09/2008

Summary The plaintiff has instituted the present suit for permanent injunction restraining infringement of trademark, passing off, delivery up and rendition of accounts, etc. against the sole defendant. This case was first filed before a single judge of the High Court of Delhi who decided it in 2008.1 Thereafter, against the decision an appeal2 was preferred before the Division Bench of the High Court of Delhi, which decided the matter on April 13, 2012. No appeal was filed thereafter before the Supreme Court of India, therefore the matter was final and settled.3 The decision is important as it interprets the provisions of Trade Marks Act, 1999 as to the right of a trader to use another trader’s mark to sell his own goods. This decision is the first such interpretation of section 30 (2)(d) of the Trade Marks Act by an Indian court and has generated a debate on an extremely important aspect of trademark law which will certainly inform the relevant jurisprudence in times to come.

Legal context This dispute is concerned with the use of a trademark in the course of trade by a person who is not the proprietor thereof. The Trade Marks Act, 1999 relates to the protections available to registered trademarks and thus with the rights 1 Hawkins Cookers Ltd. v Murugan Enterprises, MIPR 2008 (1) 128: 2008 (36) PTC 290 Del; available at: https://indiankanoon.org/doc/136111/. 2 Hawkins Cookers Ltd. v Murugan Enterprises, decided by High Court of Delhi on April 13, 2012; available at: https://indiankanoon.org/doc/58972673/. 3 This report discusses the relevant points of law and critiques the decision of the court of first instance and the appellate court.

Right of trader in India to use another mark 177 available to the proprietor of a registered trademark. The relevant part is reproduced here: Section 29 Infringement of registered trade marks – (1) A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered and in such manner as to render the use of the mark likely to be taken as being used as a trade mark. (2) A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which because of – (a) its identity with the registered trade mark and the similarity of the goods or services covered by such registered trade mark; or (b) its similarity to the registered trade mark and the identity or similarity of the goods or services covered by such registered trade mark; or (c) its identity with the registered trade mark and the identity of the goods or services covered by such registered trade mark, is likely to cause confusion on the part of the public, or which is likely to have an association with the registered trade mark. In short, it prohibits the use of a proprietor’s trademark by another person for selling his own goods or services which are similar to that of the proprietor of the trademark. This principle has been circumscribed by the enactment of certain exceptions which put limits on the effect of registered trademarks. For example, according to section 30(2)(d), Trade Marks Act, 1999 which reads as A registered trade mark is not infringed where the use of a trade mark by a person in relation to goods adapted to form part of, or to be accessory to, other goods or services in relation to which the trade mark has been used without infringement of the right given by registration under this Act or might for the time being be so used, if the use of the trade mark is reasonably necessary in order to indicate that the goods or services are so adapted, and neither the purpose nor the effect of the use of the trade mark is to indicate, otherwise than in accordance with the fact, a connection in the course of trade between any person and the goods or services, as the case may be the manufacturer of goods which form part of or are an accessory to other goods for which a trademark exists is entitled to indicate that the accessory goods are adaptable to some other goods if it is reasonably necessary to so indicate. In such

178  Raman Mittal a situation, reference to the registered trademark by another person would not be actionable.4 The case under discussion answers the question: “When would it be a case of the use of the trademark being reasonably necessary in order to indicate that the goods are so adapted?” This question is part of an extremely important area of trademark law and the jurisprudence thereto is in the nascent stage of development in India. “ [I]nsofar as the Indian courts are concerned, it is an unchartered area”5 are the words in which the judge who decided this case chose to describe the importance of this case.

Facts The plaintiff is the registered proprietor of the trademark “Hawkins” in respect of pressure cookers and parts thereof, including gaskets.6 The plaintiff claims that the trademark “Hawkins” forms a predominant feature of the corporate name and trading style of the plaintiff. The gaskets are one of the most crucial and integral parts of a pressure cooker which prevent the steam from leaking out of the cooker. It is a known fact that the rubber gasket of a pressure cooker needs periodical replacement. Such gaskets are sold as independent items and are generally purchased as such by housewives or servants whenever the old pieces are worn out or need replacement. The market of pressure cookers is standardised in India so that the dimensions of all the lids of cookers which are inward opening are the same. Thus, the gaskets for inward opening lids of various brands of pressure cookers can be interchangeably used. The plaintiff sells its own gaskets in the market as a spare part of the pressure cookers along with other parts, while the defendant sells only the gaskets. In other words, the defendant is a second line manufacturer manufacturing an ancillary product to the pressure cooker. However, the gaskets of the defendant could be used for different types of pressure cookers including the ones manufactured by the plaintiff.7 The defendant is selling his gaskets under the trademark “Mayur” and a device of peacock. The plaintiff in January 2000 came to know that the defendant was using the trademark “Hawkins” in respect of parts of pressure cookers and thus served a cease and desist notice on the defendant. The claim of the plaintiff was disputed

4 Limitation on rights of a proprietor of trademark is, strictly speaking, a defence against infringement. However, conversely viewed, it becomes an entitlement or right of everybody to the extent that the use of the trademark is coterminous with the limitation. 5 See, Hawkins Cookers Limited v Murugan Enterprises, 2008, supra note 1 at para. 54. 6 The gasket is used in the pressure cooker more as a sealing mechanism to prevent leakage of steam, which seals the upper and lower portion of the cooker but it does not lock the metal portion of the cooker. 7 The defendant in the affidavit has emphasized that the gaskets manufactured by them are specifically made for them to be fitted in the Hawkins pressure cookers.

Right of trader in India to use another mark 179 by the defendant on the ground that the gaskets were being sold under their own trademark and the use of the mark “Hawkins” by the defendant on his gaskets was to inform the purchasers that the gaskets being manufactured by the defendant were suitable for plaintiff’s pressure cookers. The trademark “Hawkins” of the plaintiff is also used in the price list of the defendant as “Mayur-Hawkins”. The grievance of the plaintiff relates to the defendant manufacturing and selling gaskets under the trademark “Mayur”; and on the packaging material printing: “Suitable for: Hawkins Pressure Cookers”. Whereas the words “suitable for” and “Pressure Cookers” are printed in black colour, the word “Hawkins” is printed in red colour and thus it is apparent that the intention is that the word “Hawkins” catches the eye. The defendant claims that the gaskets pertaining to pressure cookers are not manufactured by the defendant for any particular brand of pressure cooker, much less the cookers of the plaintiff and that the gaskets of pressure cookers can fit any pressure cooker by any manufacturer, for the reason all pressure cookers have the same dimensions of the mouth and hence the lid size. In other words, the gaskets manufactured by the defendant, as also other manufacturers, are neither designed, nor are capable of being designed, to be used in any particular kind of pressure cooker. The plaintiff alleges that by writing “suitable for Hawkins” on the packaging material, the defendant is infringing upon its registered trademark. Further, the use of the trademark “Hawkins” by the defendant on the packaging of their gasket is likely to cause confusion or deception about a nexus, trade connection or association between the goods and business of the defendant with that of the plaintiff. This is more so since the purchasers of the plaintiff’s products are not so wary customers. Further, the use of the trademark “Hawkins” by the defendant is detrimental to the plaintiff’s reputation since the plaintiff has no control or supervision over the quality of spare parts manufactured by the defendant. The defendant is alleged to be motivated only with the intent to trade upon the goodwill and reputation enjoyed by the trademark of the plaintiff in the market and amongst the customers. Thus, the plaintiff contends that the defendant cannot use the word “Hawkins” in relation to gaskets, for the reason it is not reasonably necessary for the defendant to indicate that the gasket manufactured by it is adaptable to the pressure cookers manufactured by the plaintiff. The plaintiff claims that the use of “Hawkins” to show suitability of the product is stated to be not an honest business practice but an endeavour to cash in on the goodwill and reputation of the brand of “Hawkins”. The principal defence of the defendant is that they have adopted the trademark “Mayur” and only state on the packaging of their gasket that the same is suitable for Hawkins pressure cookers. Thus, there is no chance of deception or infringement of the trademark of the plaintiff since the trademark of the defendant “Mayur” has been used prominently on the packing. The defendant claims that the plaintiff wants to monopolise the sale of gaskets which are used in pressure cookers in the market. The defendant claims that it is a common knowledge that there is always a second line of manufacturers of

180  Raman Mittal spare parts, accessories, and replacement items of machines, articles of everyday use, domestic appliances and even for automobiles for every description, which is known as ancillary industry. It is the well-known custom of usage of the trade of the second line manufacturers to specifically indicate the compatibility of the various accessories, appliances, and spares to the main item for which they supply the ancillary product. This is stated to be essential information to the customers so that they can select articles of a particular specification for the main items used by them. The defendant thus states that the use of a trademark of one person as a referral cannot be termed as infringement of trademark. The object is only to inform the public that “Mayur” gaskets can be used for “Hawkins” pressure cookers and it is only this much information which is set out on the packaging of the defendant. The defendant further claims that the filing of the suit is alleged to be motivated by the oblique objective of the plaintiff to have a monopoly in the market of spare parts/accessories for its pressure cookers including gaskets and the garb of infringement of its trademark is being used for the said purpose.

Reasoning of the courts The decision in a dispute of this nature must involve an analysis of two essential questions. First, has there been an infringement of trademark? And second, if it is found to be a case of infringement, then is the action of the defendant covered within any of the permitted (fair) uses? Therefore, only when the first question is answered in the affirmative do we need to go to the second question. Further, the second question involves a sub-question, i.e., when would it be a case of the “use of the trade mark being reasonably necessary in order to indicate that the goods are so adapted”?

1 Both courts did not address whether there has been an infringement of trademark The court of first instance points out that section 29(2) of the Trade Marks Act shows that the use of a registered trademark by a third party in the course of trade or use of a deceptively similar or identical trademark is not permissible when it renders the use of the mark likely to be taken as being used as a trademark. Accordingly, the provision of the said Act would work in the following manner: (1) The first party has to be owner of the registered trademark; (2) The second party uses a mark in the course of his trade which is identical with or deceptively similar to the trademark of the first party in relation to goods and services in respect of which the trademark is registered; (3) The use is in such a manner as to render the use of the trademark by the second party likely to be taken as being used as a trademark. The first two aspects are beyond any debate or dispute as the plaintiff is the owner of the trademark “Hawkins”. The third aspect is to the effect “use of the mark

Right of trader in India to use another mark 181 likely to be taken as being used as a trade mark”, thus the deception should be such that the purchasing public would assume that the mark is indicative of the same being a trademark of the first party. In this regard, the court of the first instance notes the following contention of the defendant:8 Learned counsel for the defendant has, however, pleaded that the defendant is manufacturing the gasket under the registered trademark ‘Mayur’ with the device of peacock and has large and extensive sale because of its product’s good quality, good market and sales promotion. Thus there was no occasion for the defendant to infringe the trademark of the plaintiff. The defendant’s line of business is one of ancillary nature and the indication given on the packaging is an essential information to the customers so that they can select an accessory of a particular specification which is suitable for the main article. However, both the courts have not decided on this aspect and proceeded to decide the matter on the second question as stated previously.

2 Two courts differed on the application of evidence The court of first instance decided the case in favour of the defendant by holding that the expression “suitable for Hawkins pressure cookers” falls within section 30(2)(d) of the Trade Marks Act, holding that the indication is only to show compatibility of the product of the defendant with that of the plaintiff.9 The appellate court disagreed with the court of first instance in this regard and stated:10 We note that the learned Single Judge has correctly noted the law: that if in the sale it becomes reasonably necessary for the manufacturer of adaptable goods, to refer to the trade mark of the relatable goods, such reference would not amount to an infringement of the trade mark under which the relatable goods are sold, but has misapplied the evidence on record. The error committed is by proceeding upon the premise that the evidence establishes that the respondent manufactures gaskets specifically for the special

 8 See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 1 at para. 51.  9 See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 1 at para. 62: The aforesaid in my considered view leaves no manner of doubt that no reasonable person or purchaser can ever assume a trade connection between MAYUR brand of gaskets and Hawkins. It is not a case where the defendant is seeking to take advantage of the trade mark of the plaintiff or seeking to show any connection therewith. The approach which is apparent from the manner of use of this is only to show the suitability of the product as an ancillary one to be used in the Hawkins pressure cookers. Such a use thus would clearly fall within the exception carved out under section 30 of the said Act. Further the evidence placed on record shows that the object of use of the trade mark is reasonably necessary to indicate the fitness of gasket for the HAWKINS brand of pressure cookers. 10 See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 2 at para. 19.

182  Raman Mittal sizes of pressure cookers manufactured by the appellant, ignoring that the evidence is to the contrary. A gasket of a particular size would fit the lid of all pressure cookers manufactured by different manufacturers of the same relatable size, would mean that it is not reasonably necessary to indicate, for the benefit of the consumer, that the adaptable goods relate to only one particular brand of pressure cookers.

3 “Reasonably necessary” would mean that inherent in the situation it would be just The appellate court stated that the answer to the second question has to be found in the meaning of the two words “reasonably necessary”. Of the various meanings of the word “necessary”, one meaning is “inherent in the situation”. Of the various meanings of the word “reasonable” one meaning is “just”. Thus, the twin word “reasonably necessary” would mean that inherent in the situation it would be just; and in the context it would mean that where the goods which are claimed to be adaptable to some other goods would entitle the manufacturers of the goods which are adaptable to so indicate by reference to the trademark of the other goods provided it is just to so do and this would mean that the goods claimed to be adaptable are specifically manufactured to be used as a part of the other goods alone. This will not apply where the goods are capable of adaptable use to all goods manufactured by different manufacturers to which they are adaptable. In the said circumstance to indicate on the goods that they are adaptable only to the goods of only one manufacturer would be a clear violation of the trademark of the said manufacturer and section 30(2)(d) would not come into aid.11 The appellate court further stated that the defendant’s gasket may mention that it can be used for different brands of pressure cookers and specify the number of such brands including “Hawkins” but the defendant cannot single out “Hawkins” because that would amount to trying to take advantage of the reputation of the plaintiff’s trademark.

Legal analysis 1 Question of fair dealing would arise only in the case where infringement is proved As stated earlier, the case involves an analysis of law at two distinct levels, i.e., the level of infringement and the level of exception to infringement. Only when infringement is proved to have been committed do we need to move to the

11 See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 2 at para. 13.

Right of trader in India to use another mark 183 second level of exception to infringement. The legislative formula for determining infringement can be reduced to: Similar marks + similar goods = Likelihood of confusion The marks and goods are indeed similar; however, both the courts, and especially the appellate court, seem to have not devoted enough attention to the aspect of causation of confusion., more so when the defendant specifically pleaded that there is no possibility of any confusion on multiple counts. The whole attention of the courts and especially the appellate court has been on the aspect of limitation of rights of the proprietor of the trademark or fair dealing; ignoring the fact the question of fair dealing would arise only in the case where infringement is proved and not just assumed. The courts have been rather presumptuous on the aspect of infringement. The relationship between section 29 and section 30 of the Trade Marks Act can be pictured as as shown.

Secon 29

Secon 30

Therefore, bereft of a specific finding of fact that the matter involves an infringement under section 29 there is no occasion and it is indeed impermissible to move on to section 30 of the Trade Marks Act to adjudge on fair dealing.

2 “Hawkins” written in red colour could not be described as unreasonable in the context of the overall scheme of packaging of the gasket Now the second level as to the right of a trader to use other’s trademark is analysed. In modern day commerce it is a position universally accepted that a trader has every right to manufacture and supply accessories and spares of products produced by other traders.12 Therefore, the indication as to the compatibility of the 12 The court of first instance notes: The object of filing of the suit thus appears to be to create a monopoly over such ancillary items so that no third party is able to sell the same in the market. This course of action is not permissible as it is really not in dispute that the defendant can carry out an ancillary industry of manufacturing such gaskets. See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 1 at para. 64.

184  Raman Mittal various accessories and spares to the main item for which the ancillary product is supplied is essential to the customers so that they can select articles of a particular specification for the main items used by them. Thus, a defence is created in Trade Marks Act to such a usage of other’s trademark provided it comes within the ambit of section 30. The whole question here is that whether the conduct of the defendant was “reasonably necessary” in order to indicate that the goods or services are so adapted? First, when section 30 gives a right to the defendant to use the trademark of the plaintiff, the plaintiff cannot be heard to say that his trademark could not be used at all. That means the defendant cannot be restricted to state only the fact that his gasket is fit to be used in all pressure cookers with inward lid. This is because the consuming public may not be aware of the fact that gaskets for all pressure cookers have been standardised.13 Generally, the consumers are ready to buy a spare gasket only when they are convinced that it would fit their brand of cooker. Second, could the defendant then be permitted to use the trademark ”Hawkins” only with a condition that he mentions all the trademarks under which pressure cookers are sold? In the first place, brands of pressure cookers would be in the dozens and it is impossible to mention all on the tiny packaging of a gasket if they are to be presented in a readable manner. Further, if the defendant could be permitted to mention that his gasket is suitable for all brands of pressure cookers then he could be permitted to mention that his gasket is suitable for “Hawkins” pressure cooker. The reason is that the second statement is a perfect sub-set of the first statement. The appellate court noticed that the defendant has used the mark “Hawkins” in red colour so as to make it unduly prominent.14 That is true. However, the appellate court has failed to appreciate that the defendant has its own well-established trademark “Mayur” and the device of a peacock. The defendant has prominently displayed both the trademark and the device on the packaging. The trademark “Mayur” has been put prominently in red on the green coloured packaging, both in the front and the back. At the back of the packaging of the defendant’s product, there is a sticker prominently displaying that the product is manufactured and marketed by Murugan Enterprises.15 Therefore, “Hawkins” written in red colour could not be described as unreasonable in the context of the overall scheme of packaging of the gasket; especially when in the packaging of the defendant’s product “Suitable for: Hawkins Pressure Cookers” is written in a small print.16 Another requirement of using another’s trademark under section 30 is that neither the purpose nor the effect of the use of the trademark is to indicate, otherwise than in accordance with the fact, a connection in the course of trade 13 This is a fact which is not a common knowledge in India. 14 See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 2 at para.3. 15 See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 1 at para.61. 16 See, Ibid.

Right of trader in India to use another mark 185 between any person and the goods or services, as the case may be.17 In the legislative scheme of section 30 this condition is in addition to the foregoing condition of being “reasonably necessary”. The court of first instance has addressed that issue while noting:18 The present case is, thus, one where the condition of ‘honest use’ is satisfied, since one cannot decipher a commercial connection between the plaintiff and the defendant by use of the word ‘Hawkins’ by the defendant. It is, thus, not a case where there is dilution of the value of the trademark of the plaintiff by unfair advantage being taken of its distinctive character or repute by the defendant. The use is more in the nature of the intending purpose of the product marketed by the defendant. It is pertinent to note that the appellate court has not addressed this issue at all, maybe because it came to the finding that the use of plaintiff’s mark by the defendant was not “reasonably necessary” in the first place. In the ultimate analysis it seems that the reasoning of the court of first instance is better in being permissive of the use of the plaintiff’s trademark by the defendant than the reasoning of the appellate court in prohibiting such a usage.

3 Need for a disclaimer by the defendant when using the trademark of the plaintiff Section 30 does not require in such situations of the mention of a disclaimer that the spare part is not manufactured by the original manufacturer. However, if the situation so requires, such a disclaimer may be used. The object should be to ensure that the public knows whether the product purchased emanates from the plaintiff or somewhere else. Both the courts have not decided on this aspect.

Commercial or industrial significance The fair use of trademarks by third-party manufacturers of spare parts which are intended to be ancillary or used as an accessory to the core goods of another party is a much-debated topic. The present decision of Hawkins Cookers Ltd. v. Murugan Enterprises is indeed important as it has a bearing on the right of a trader to use another trader’s trademark which is an extremely significant area of trademark law. The defendant in this case is a small manufacturer of gaskets of pressure cookers and it is difficult to fathom the impact of this judgement on him. However, in the overall commercial scenario its impact is being realised. The decision has both legal implications and commercial ramifications in the manufacturing and service sectors. The use of a trademark by a trader other than the

17 See, s. 30 (2)(d), Trade Marks Act, 1999. 18 See, Hawkins Cookers Ltd. v Murugan Enterprises, supra note 1 at para.63.

186  Raman Mittal owner thereof is necessary to identify the core goods, thereby informing the consumer of the adaptability or compatibility of a part, spare part or accessory with the core goods in question. It is hoped that other courts in India will have occasions to decide on similar matters so that the interpretation of the relevant provisions of law could be made afresh leading to development in the jurisprudence.

16 “Denominative” use of another’s trademark can constitute prima facie “due cause” under Section 29(4) of the Indian Trade Marks Act Renuka Medury

Case information: Tata Sons Limited v. Greenpeace International & Anr., [IA No. 9089/ 2010 in CS(OS) No. 1407/2010] (January 28, 2011)

Summary The suit was the result and aftermath of a protracted battle between the parties on the environmental implications of the construction of a port by TATA in an ecologically protected area. TATA contended that it had obtained the relevant environmental clearances in respect of the construction of the port, while Greenpeace India challenged the basis and contents of the clearances, including the environmental impact assessment report adduced by TATA.1 Eventually, Greenpeace India created a “Pac-Man”-styled video game incorporating the TATA marks, which led to the present suit in the High Court of Delhi, a claim for a decree of permanent injunction, and damages to the extent of Indian Rupees ten crores by TATA. Justice Ravindra Bhat delivered the judgment, and, inter alia, held that use which is non-commercial in nature, and for the purposes of a critical comment, does not result in trademark infringement.

Legal context The case, inter alia, involved a claim of dilution by tarnishment by TATA, which is covered under Section 29(4) of the Trade Marks Act, 1999 (“Act”). Section 29(4) of the Act reads as follows: A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which – 1 Dr. Paul Johnston & Dr. David Santillo, The Dhamra-Chandbali Port Expansion Project, Orissa, India, Critique of the Environmental Impact Assessment, Orissa, Greenpeace Research Laboratories, Greenpeace India (May 2007).

188  Renuka Medury (a) is identical with or similar to the registered trade mark; and (b) is used in relation to goods or services which are not similar to those for which the trade mark is registered; and (c) the registered trade mark has a reputation in India and the use of the mark without due cause takes unfair advantage of or is detrimental to, the distinctive character or repute of the registered trade mark. Greenpeace India’s rebuttal of TATA’s claim of dilution of its trademarks was premised on the basis that the use of the TATA trademarks was undertaken with “due cause”, i.e., for parody, fair comment, and criticism. The use by Greenpeace India hence amounted to a nominative fair use for the purposes of parody and fair comment. Trademark “fair use” is ordinarily classified into two categories: (1) “classic fair use”, and (2) “nominative fair use”, whereby “nominative fair use” differs from “classic fair use” to the extent that it involves a use of a trademark to refer to the trademark owner’s own goods or services. A “classic fair use”, by contrast, entails the use of a trademark by a user to refer to the user’s goods or services.2 The three-factor test famously posited in the New Kids on the Block3 case, is commonly referenced in a discussion on the applicability of the defence of “nominative fair use” in a given case: First, the product or service in question must be one not readily identifiable without use of the trademark; second, only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and third, the user must do nothing that would, in conjunction with the mark, suggest sponsorship and endorsement by the trademark holder. The court in the aforesaid case also clarified that such use of the trademark, without the permission of the owner of the mark, is amenable to protection given that it does not implicate the source identification function of the trademark, or imply any sponsorship or endorsement by the owner of the marks.4 Nominative use of trademarks and parody of marks have not been dealt with previously in India in detail. The present case is the first that does. Subsequently, there have been a few other cases. On November 22nd, 2017, the Delhi High Court ruled that the use of the mark “Barbie” in a song forming part of a Bollywood movie did not tarnish the mark. The court cited the relevant passage from the decision of the United States Court of Appeal, Ninth Circuit, which also dealt with the use of the mark “Barbie” in the popular Let’s go Party song: “ (ii) song that lampooned toy manufacturer’s doll fell under non-commercial use 2 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition (5th ed.), Thomson Reuters, § 23:11. 3 New Kids on the Block v News America Pub., Inc., 971 F.2d 302, 20 Media L. Rep. 1468, 23 U.S.P.Q.2d 1534 (9th Cir. 1992). 4 Ibid.

“Denominative” use of another’s trade mark 189 exemption in Federal Trademark Dilution Act; . . . (iv) trademark owner does not have the right to control public discourse merely because the public imbues his mark with a meaning beyond its source identifying function.”5 Similarly, on February 27th, 2013, the Principal District Court, North Goa, ruled that the use of the “Murphy” trademark in the Bollywood film, Barfi, did not dilute the mark and that the display of the mark in a film did not constitute “trademark use”: “mere display of a trademarked product, device or slogan in the film does not constitute infringement of trademark within the meaning of Section 29 of the Act.”6

Facts The suit was filed by Tata Sons Limited (“TATA”) against Greenpeace International and Greenpeace India (“Greenpeace”) in the High Court of Delhi. The central premise of the suit was the use of the “TATA” trademark and the “T” within a circle device by Greenpeace in association with its “Pac-Man”-styled video game titled “Turtle vs. TATA”. In its plaint, TATA stated that it had continuously and consistently used the “TATA” trademark “which is a rare and distinctive patronymic name possessing the distinctiveness of an invented word, for its own business activities and those of companies promoted by it.”7 With regard to the “T” within a circle device, TATA stated that it owned the said trademark in various classes, and also owned the copyright to its pictorial representation. TATA further averred that “the long and extensive use of the plaintiff’s trademark TATA has resulted in its unparalleled reputation and goodwill and it has therefore acquired the status of a “well-known” trademark.”8 The defendant, Greenpeace is a not-for-profit organisation. Greenpeace International has operations across 40 countries worldwide, while Greenpeace India is an affiliate of Greenpeace International. Greenpeace India, the second defendant and the entity which actually utilised the TATA trademarks in conjunction with the “Pac-Man”-styled video game, stated that as an independent organisation it “acts to change attitudes and behavior, to protect and conserve the environment and to promote peace”.9 The first defendant, Greenpeace International filed a separate written statement, emphasising the independent and autonomous nature of operations and activities conducted by Greenpeace India. Greenpeace

5 Mattel, Inc. & Anr. v Ms. Aman Bijal Mehta & Ors., CS (COMM) 803/2017, IA No. 13724/2017. 6 Murphy Enterprises v UTV Software Communications Limited & Ors., Civil Suit No. 49 of 2012. 7 Tata Sons Limited v Greenpeace International & Anr., IA No. 9089/2010 in CS(OS) No. 1407/2010 (January 28, 2011), paragraph 3, page 2. 8 Ibid at paragraph 5, page 2. 9 Supra note 7, paragraph 16, page 6.

190  Renuka Medury International further submitted that the relationship between the two entities was limited to the permitted use of the “Greenpeace” name by Greenpeace India.10 The contentious issue which engendered the use of the “TATA” trademarks by Greenpeace India and the consequent suit filed by TATA related to the construction of a deep water industrial port, less than 15 kilometers from Gahimatha, one of the world’s largest olive ridley sea turtle nesting beaches, and five kilometers from the Bhitarkanika National Park, India’s second largest mangrove forest and home to the saltwater crocodile. The construction of the port was proposed to be undertaken by the Dhamra Port Company, a joint venture between Larsen & Toubro and Tata Steel Ltd., a subsidiary of TATA. Greenpeace India alleged that the construction of the port would have deleterious repercussions on the life and habitat of the wildlife inhabiting the area, in particular on the olive ridley turtles which constituted a “protected” species under Schedule I of the Indian Wildlife (Protection) Act, 1972.11 The contrarian point alleged by TATA stated that Greenpeace India had persisted in raising concerns over the danger posed to the habitat of wildlife in areas surrounding the port construction site, based on “false, frivolous and misleading facts”,12 despite the procurement of the relevant regulatory clearances by TATA. Greenpeace India created a “Pac-Man”-styled video game which invited the players, in the guise of turtles, to eat as much healthy food as possible while simultaneously evading the “TATA demons”.13 The purpose of the video game was encapsulated by an article appearing in The Wall Street Journal which stated that, “The aim of the colorful and noisy video game is to help the yellow turtles eat as many little white dots as possible without running into Ratty (presumably after Ratan Tata, chairman of the Tata Group), Matty, Natty or Tinku.”14 TATA contended that the use of the TATA trademarks by Greenpeace India as part of the video game amounted to dilution by tarnishment of the “TATA” trademark, and the TATA “T” within a circle device trademark. TATA resorted to the provisions of Section 29(4) of the Act to support its case of tarnishment. TATA further acknowledged that the use of the TATA trademarks by Greenpeace was in a non-commercial context. However, TATA submitted that the “use” of the trademark envisaged under Section 29(4) of the Act was not restricted to commercial uses and encompassed other forms of “speech or representation” which utilised the trademarks and thereby tarnished the reputation signified by the marks. Greenpeace India rebutted TATA’s allegations of dilution on two specific grounds: (1) the use of the TATA trademarks, albeit as an integral part of the

10 Ibid at paragraph 25, page 11. 11 Supra note 7, paragraph 17, page 8. 12 Supra note 7, paragraph 7, page 3. 13 Devin Banerjee, Campaign 2.0: Turtle vs. Tata, the Game, The Wall Street Journal (June 29, 2010), available at https://blogs.wsj.com/indiarealtime/2010/06/29/campaign-20-turtlevs-tata-the-game/. 14 Ibid.

“Denominative” use of another’s trade mark 191 video game, was in a non-commercial context, and was not intended at benefitting from the goodwill symbolised by the TATA trademarks; and, (2) the use of the TATA trademarks constituted criticism, fair comment, and parody, which is a permitted usage of a trademark under Section 29(4) of the Act given that it is encompassed by the term “due cause”. The bulwark of Greenpeace India’s argument was on the use of the trademarks with “due cause”, aimed at exposing the environmental and societal hazards posed by the proposed port construction sought to be undertaken by TATA, The fact that use of a trademark for any of the aforementioned purposes, is justified under the ground of freedom of speech and expression is abundantly clear from the use of the words “without due cause” in Section 29(4) of the Trade Marks Act, 1999. Further, in order to amount to dilution, as alleged in the suit, Section 29(4) mandates that the use (of the mark in question) must be in the course of trade. It is submitted that the acts of Greenpeace India amount to a peaceful, creative and non-violent/nonconfrontationist mechanism of registering protest and concern against the project, which is perceived as an environmental disaster in the making. The use of the TATA marks by the second defendant is in a descriptive context so as to be in a position to criticize and protest. . . . The use of the TATA mark and logo is essentially nominative in nature and cannot amount to infringement of trademark(s).15 In response to TATA’s allegations of trademark dilution, as contemplated under Section 29(4) of the Act, Greenpeace India also separately argued that the use of the TATA trademarks was buttressed on constitutional grounds and was amenable to protection under Article 19(1)(a) of the Constitution of India which guarantees freedom of speech and expression to all citizens of India.

Reasoning of the court 1 Use of trademark as object of critical comment or even attack does not necessarily result in infringement in form of dilution by tarnishment The Court upheld Greenpeace India’s arguments that the use of the ‘TATA’ mark constituted fair comment, parody, and criticism, and ruled that the use of the TATA trademarks by Greenpeace India in association with the video games, did not amount to dilution of the TATA marks. The Court stated as follows: the use of a trademark, as the object of a critical comment, or even attack, does not necessarily result in infringement. Sometimes the same mark may 15 Supra note 7, paragraphs 20–21, pages 8–9.

192  Renuka Medury be used, as in Esso16; sometimes it may be a parody (like it Laugh it Off17 and Louis Vuitton).18 If the user’s intention is to focus on some activity of the trademark owners, and is “denominative”, drawing attention of the reader or viewer to the activity, such use can prima facie constitute “due cause” under Section 29(4), which would entitle the plaintiff to a temporary injunction, as in this case. The use of TATA, and the ‘T’ device or logo, is clearly denominative. Similarly, describing the Tatas as having demonic attributes is hyperbolic and parodic. Through the medium of the game, the defendants seek to convey their concern and criticism of the project and its perceived impact on the turtles’ habitat.19

2 Free speech interests outweighed the harm to the trademark The Court ruled in favour of Greenpeace India, and stated that the harm done by the impugned parody and its challenged use of the TATA trademarks was outweighed by the free speech interests of Greenpeace India implicated in the instant case. The Court further stated that in each case in which the property rights of an owner, and the free speech interests of the defendant are involved, a “balancing of interests”20 must be undertaken, in the context of the significance and the impact of the work constituting a parody of the concerned trademarks, But it would appear once all the relevant facts are established, it should not make any difference in principle whether the case is seen as a property rights

16 This case concerned the use of the ‘Esso’ mark by Association Greenpeace France to criticize Esso’s environmental policies. Association Greenpeace France used ‘Esso’ in its metatags, and also substituted ‘$’ signs for the letter ‘S’ in the content on its website such that the ‘Esso’ mark read as ‘E$$O’. Esso alleged infringement of trademark. The Court of Appeal, Paris, 14th Division, Section A, ruled that the use by Association Greenpeace France did not amount to trademark infringement, 7 In this respect, it does not appear obvious that Esso might usefully and seriously claim the application of Art.L.713–3 of the Intellectual Property Code, since that, by the modification brought to Esso’s trade mark and the writings that comes with it, Greenpeace clearly points out its intention to expose the activities of the company when it criticises the effects on the environment, without misleading the public as to the identity of the author of the communication. 8 Moreover, since it is intended to illustrate the information given and the critical words developed in the campaign carried out by the association, the sign E$$O, even if it makes reference to the trade mark belonging to the company, does not obviously aim to promote the commercialisation of products or services in favour of Greenpeace but is on the contrary, a matter of a controversial use which is irrelevant to the commercial sector. Association Greenpeace France v SA Société ESSO, [2003] E.T.M.R. 66. 17 Laugh it Off Promotions CC v South African Breweries International (Finance) B.V. t/a Sabmark International and Freedom of Expression Institute, 2005 ZAC 7. 18 Louis Vuitton Malletier S.A. v Haute Diggity Dog, LLC, 507 F. 3d 252 (4th Cir. 2007). 19 Supra note 7, paragraph 43, page 28. 20 Supra note 7, paragraph 41, page 25.

“Denominative” use of another’s trade mark 193 limitation on free speech, or a free speech limitation on property rights. At the end of the day, this will be an area where nuanced and proportionate balancing in a context-specific and fact-sensitive character will be decisive, and not formal classification based on bright lines.21 Conversely, the Court elaborated that the presence of a commercial element in the impugned activity which is the subject of scrutiny does not necessarily exclude it from the contours of protection afforded to free speech. In such cases, the challenged activity or use should be evaluated to discern the “primary”22 element, and if the “primary” element is identified to be “communicative” rather than “commercial”, then the activity or use will continue to be amenable to protection as free speech, “some degree of commerce should not in itself exclude the activity from free speech protection. Nor, however, should an element of social criticism on its own save an inherently commercial activity from a charge of unfairly causing detriment.”23

3 That the message could have been conveyed by means other than the parody should not have a significant bearing on the judgement of the parody The Court further enunciated that the fact that the message could have been conveyed by means other than the use of the parody, and concomitantly, the use of the trademarks as part of the parody, should not have a significant bearing on the extension or withdrawal of the protection afforded to the parody, and that a contrary ruling would disentitle all trademark parodies since the message would always be capable of being communicated through alternate means: If this were not so there would be no scope at all for trademark parody, because the message could always be conveyed more directly, if less convincingly, by production of a leaflet or else a letter to the editor. In our consumerist society where branding occupies a prominent space in public culture, one does not have to be a ‘cultural jammer’ to recognize that there is a legitimate place for criticism of a particular trademark, or of the influence of branding in general or of the overzealous use of a trademark law to stifle public debate. In such circumstances the medium could well be the message, and the more the trademark itself is both directly the target and the instrument, the more justifiable will its parodic incorporation be.24

21 Supra note 7, paragraph 41, page 26. 22 Ibid. 23 Ibid. 24 Ibid.

194  Renuka Medury

Legal analysis The present decision is salutary for several reasons, the chief among these being the following: (a1) First, the decision clarified that a claim of dilution is defeated by the use of a mark for “due cause: which includes a use of a mark for parody, criticism, and fair comment; and (2) the decision enunciated principles for balancing the rights of trademark owners with the freedom of speech and expression that is afforded to all citizens of the country. There are however certain aspects of the decision which require further scrutiny and discussion, and these are set forth in the following.

1 The distinction between target and weapon parodies The judgment cites the distinction between “target” and “weapon” parodies enunciated by jurists such as Judge Richard Posner: The closer the object of the parody is to the parody itself, the more intense will the paradox be. ‘Target’ parodies seek to comment upon the text itself or its creator or owner, while ‘weapon’ parodies involve the use of the text to comment on something quite different. Jurists such as Posner and Kennedy J have suggested that weapon parodies involving the hijacking of a well-known image to attack something entirely unrelated, should not enjoy free speech protection. Another view is that whether the parody of a trademark targets the mark directly or uses it to hit at another target should not be decisive in itself, but merely one of the factors to enter the scales when free speech and property rights are balanced against each other. In either event some degree of paradox will exist to trouble the law.25 Judge Posner’s argument delineated in a detailed article on the distinction between “target” and “weapon” parodies, and the appropriateness of affording the defence of “fair use” to the former rather than the latter, was based on the premise that a market transaction between the owner of the mark and the parodist is rendered more possible in the case of “weapon” parodies given that the trademark is not the target of the parody in such situations, and is only used as a weapon in commenting upon an issue. Hence, the defence of fair use should be reserved to cases of “target” parodies, in which cases the trademark owner is less likely to consent to be the “target” of the parody, thereby dissuading the potential parodist from attempting to enter into a market transaction with the owner.26 The parody in the instant case was ostensibly a “target” parody. TATA’s trademarks were the direct subject and concern of Greenpeace India, and the object of the parody was also to protest the alleged environmental and societal hazards posed by the construction of the port. Hence, the question that is engendered is 25 Supra note 7, paragraph 41 page 25. 26 Richard A. Posner, When Is Parody Fair Use, 21 J. Legal Stud. 67, 78 (1992).

“Denominative” use of another’s trade mark 195 if the Court’s decision favouring the safeguarding of the parody and the freedom of speech and expression was actuated by the fact that the parody constituted a “target” parody as opposed to a “weapon” parody? The decision in Laugh it Off Promotions CC v South African Breweries International (Finance) B.V. t/a Sabmark International and Freedom of Expression Institute,27 which was referred to extensively by the Court in the instant case, offers an interesting vantage point for discussion. In the Laugh it Off case, the applicants utilised the respondent’s trademarks on T-shirts sold by them, by substituting the words “Black Label” in the respondent’s registered trademarks with the words “Black Labour”, “Carling Beer” with “White Guilt”, and “America’s lusty lively beer” and “enjoyed by men around the world” with “Africa’s lusty lively exploitation since 1652” and “No regard given worldwide” respectively. The applicant utilised the respondent’s trademarks both as targets, and as a weapon. While constituting the “target” of the parody, the use of the trademarks was also in the context of a larger object of subverting the power and monopoly exerted by brands and branding in general: “To that end the applicant employs what he calls “ideological jujitsu”. The brand is pitted against its own weight and popularity. The technique entails using well-known, registered trade marks of large corporations, slightly altered but still recognizable as an adaptation of the original brand. The purpose, the applicant explains, is to lampoon the brands; to make a statement about the company’s policies or practices; to probe issues bearing on the broader society; to assert free expression and in so doing to challenge the inordinate use of trade mark laws to silence expressions that are unflattering about brands.28 However, it is an interesting point of deliberation that if the applicant in Laugh it Off had not used the mark as a “target”, and merely as a “weapon”, then would the court have reached the same conclusion on an expansive right in favour of the applicant? This is pertinent in the context of trademark parodies since the use of selected trademarks as weapons for commenting on general practices may be more difficult to justify by the parodist, and open to heightened opposition by the owners of the marks. The comment stated by the court in the Laugh it Off case on the demarcation between “target” and “weapon” parodies requires to be underscored here: It might well be that the more closely the parodic point being made is related to the brand itself, the greater the justification for using it. Yet it should always essentially be a matter of degree, not kind.29 27 2005 ZAC 7. 28 2005 ZAC 7, at page 10. 29 Ibid, at page 47 footnote 13.

196  Renuka Medury

2 Genuine parody will be protected irrespective of the medium used and would not necessarily hamper the commercial prospects of the trademark owner The Court’s determination on the use of trademark parody as a form of protest, regardless of the presence of other means of voicing objections, is important, since it establishes that a genuine parody will be protected irrespective of the medium used and that such use would not necessarily hamper the commercial prospects of the trademark owner. In this context, a statement made by the US 4th Circuit Court in the Louis Vuitton30 case is particularly useful, “Indeed, by making the famous mark an object of the parody, a successful parody might actually enhance the famous mark’s distinctiveness by making it an icon. The brunt of the joke becomes yet more famous.” In a similar vein, the Court in the present case also clarified that the mere implication of some form of commercial gain in the activity involving the trademark parody would not exempt the use from protection, if the primary purpose of use is communicative rather than commercial.

3 Context specific analysis In the instant case, the Court, importantly, noted that the balancing between free speech interests and the property interests of the trademark owner should be undertaken in a context-specific manner, and the use of the trademark should not be dislocated from the context of the parody. The Court further elaborated on the contextualisation of the trademark use by underscoring that the mere presence of a commercial element to the activity in question should not disqualify the use from the ambit of protection if the primary element of such activity is communicative.31 Hence, the trademark use must be perceived and evaluated in the context of the whole activity to discern the communicative and commercial elements.

Industrial and commercial significance The decision has important ramifications for both trademark owners and parodists. It is significant for trademark owners because it clarifies that if the dominant aspect of the trademark usage by a third party is commercial rather than communicative, then the usage will not be protected. Hence, trademark owners would continue to be protected against unauthorised uses of their marks by third parties masquerading as communicative uses if the predominant element of such use is commercial. The decision is palpably important for parodists, or critics, given the significance that the decision attaches to free speech. However, it is apposite to mention here that the Court’s decision also appeared to be actuated by the “public 30 Supra note 18. 31 Supra note 22.

“Denominative” use of another’s trade mark 197 concerns” that were implicated by the subject at issue, namely, the construction of the port by the Dhamra Port Company: While the plaintiff has been able to show that the relevant statutory clearances for the port project were available, at the same time, the defendant has placed on record the circumstance that the project’s likely ecological adverse impact on the Olive Ridley turtles has been spoken about by environmental experts, and is also subject matter of an intervention proceeding . . . . If that is the case, the game is an instance where the defendant creatively (or reprehensibly, depending from what is the perspective of the viewer) seeks to highlight the plight of the Olive Ridley turtles. The use of the TATA mark and logo, as demonic, is, in that context, prima facie, exaggerative or hyperbolic, in respect of matters of public concern.32 Hence, it is arguable that the liberal protection afforded by the Court to the parody was heightened on account of the “public concerns” engendered by the construction of the port, and such leeway will be emulated in cases involving matters of “public concern”.

32 Supra note 5 at page 23.

17 Establishing a parody defence standard within the framework of Taiwan’s Trademark Act Yachi Chiang

Case information: 1 Taiwan Intellectual Property Court (2011) Xing-Shang-Su-Zi No. 104 Administrative Decision, decided on 24 Nov. 2011 (“No. 104 administrative decision”)1 2 Taiwan Intellectual Property Court (2014) Xing-Zhi-Shang-Yi No. 63 Criminal Decision, decided on 6 Nov. 2014 (“No. 63 criminal decision”)2

Summary The chapter presents two cases at one time in order to show the evolution of the parody concept under Taiwan’s Trademark Act framework by the Taiwan Intellectual Property Court (Taiwan IP Court). Despite the fact that “No. 104 administrative decision” is an administrative case dealing with registration of trademark and “No. 63 criminal decision” is a criminal case dealing with trademark infringement, these two cases have in common the parody defence argued by the parties, which is not a type of fair use recognised by the Trademark Act. In No. 104 administrative decision, the Taiwan IP Court ruled against the plaintiff without giving any substantial consideration to the parody defence, which was upheld by the Administrative Supreme Court on 23 February 2012. In No. 63 criminal decision, the Taiwan IP Court revoked the Taiwan Shilin District Court Zhi-Yi-Zi No.3 criminal decision,3 subtly admitted parody as a fair use defence, explained the parody test and its standards in detail and found the defendant failed to meet the requirements. No. 63 criminal decision cannot be appealed and became final.4

1 Decided by Division-Chief Judge Jhong-Sing Chen, Judge Sung-Mei Hsiung, and Judge Chii-Mou Tseng. 2 Decided by Division-Chief Judge Hui-Ru Tsai, Judge Hsiu-Yuan Lin, and Judge MingHuang Chang. 3 No. 3 Zhi-Yi – Zi Criminal Decision of Taiwan Shilin District Court on 20 May 2014. 4 According to Article 376 of the Criminal Procedural Act, offenses with a maximum punishment of no more than three years’ imprisonment, detention, or a fine only are not appealable

Establishing a parody defence standard 199 The two decisions reflect the evolution of the attitudes of the Taiwan IP Court towards the parody defence, showing the progress it has made to take up challenges triggered by the parody defence and set up its legal standards under the Trademark Act.

Legal context These two cases involved legal disputes regarding the judgment of similarities between symbols, likelihood of confusion among relevant consumers, and parody defence, which are all intriguing issues of trademark law. However, the present chapter will focus solely on parody defence, which is a concept not mentioned in the Trademark Act. It is necessary to first have a look at Article 36 of the Trademark Act, which specifies the limits on effects of registered trademark:5 A registered trademark shall not entitle the proprietor to prohibit a third party from: (1) indicating his/her own name, or the term, shape, quality, nature, characteristic, intended purpose, place of origin, or any other description in relation to his/her own goods or services, in accordance with honest practices in industrial or commercial matters and not using it as a trademark; (2) using where it is necessary for the goods or services to be functional; or (3) using bona fide, prior to the filing date of the registered trademark, an identical or similar trademark on goods or services identical with or similar to those for which the registered trademark is protected, provided that the use is only on the original goods or services; the proprietor of the registered trademark is entitled to request that the party who use the trademark add an appropriate and distinguishing indication. Where goods have been put on the domestic or foreign market under a registered trademark by the proprietor or with his consent, the proprietor is not entitled to claim trademark rights on such goods, unless such claim is to prevent the condition of the goods from being changed or impaired after they have been put on the market or there exist other legitimate reasons. Although parody is not expressly listed as a fair use defence in Article 36, some legal scholars argue that it is still possible to find support for parody defence. However, some scholars argue that only non-commercial parody can be exempted to the court of third instance. According to Article 95 of the Trademark Act, trademark infringers shall be subject to imprisonment for a period not exceeding three years. 5 The full text of the Trademark Act in English is available at: http://law.moj.gov.tw/Eng/ LawClass/LawAll.aspx?PCode=J0070001.

200  Yachi Chiang from trademark liabilities,6 and some advocate that commercial parody can also constitute fair use.7 Furthermore, from the perspective of well-known trademark owners, Article 70(i)(ii) of the Trademark Act can be used to provide protection against likelihood of diluting the distinctiveness or reputation of registered well-known trademarks: Any of the following acts, without consent of the proprietor of a registered trademark, shall be deemed infringement of the right of such trademark: (1) knowingly using a trademark which is identical with or similar to another person’s well-known registered trademark, and hence there exists a likelihood of dilution of the distinctiveness or reputation of the said well-known trademark; (2) knowingly using words contained in another person’s well-known registered trademark as the name of a company, business, group or domain or any other name that identifies a business entity, and hence there exists a likelihood of confusion for relevant consumers or a likelihood of dilution of the distinctiveness or reputation of the said wellknown trademark;” Accordingly, if there exists a likelihood of diluting the distinctiveness or reputation of a well-known trademark, the act at issue could be deemed an infringement as well.

Facts In No. 104 administrative decision, the plaintiff applied for trademark registration of the words “BANANE TAIPEI” and an affiliated symbol for designated goods from Classes 9 (bags for notebooks, bags for tables, etc.), 18 (wallets, purses, handbags, umbrellas, whips, saddles, belts, etc.), and 35 (retail and wholesale of leather goods, retail and wholesale of purses, retail and wholesale of handbags, and retail and wholesale of leather luggage) in 2010. In the application, the plaintiff stated that the word “TAIPEI” in “BANANE TAIPEI” is not subject to exclusive use. The application was rejected by the Taiwan Intellectual Property Office (TIPO) on the grounds that the word and symbol combined is similar

6 Wang Minchuan/Hu Hsinyi, (2010), “Trademark Infringement and Trademark Usage–No. 2091 Shang-Yi-Zi Decision of Taiwan Higher Court in 2007 and No. 4 Shang-Yi-Zi Decision of Taiwan Intellectual Property Court in 2008” (in Chinese), The Taiwan Law Review, No. 185, pp. 151–169. 7 Wang Weilin, (2015), “Trademark Usage and Freedom of Speech” (in Chinese), in The Present and Future of Trademark Usage Regulations (edited by Huang Mingjeh), published by Yuan Zhou, pp. 344–370.

Establishing a parody defence standard 201 to the registered trademarks of HERMES8 in the same classes of goods, and therefore created a likelihood of confusion for relevant consumers. The plaintiff then filed an administrative law case against the TIPO with the Taiwan IP Court, citing the decision made by the US Fourth Federal Circuit Court in Louis Vuitton Malletier v. Haute Diggity Dog, LLC., and arguing that the trademark at issue was a parody. The Taiwan IP Court ruled in favour of the TIPO and dismissed the parody defence. In No. 63 criminal decision the defendant imported handbags with disputed symbols from China and intended to sell them to unspecified people without authorisation of the trademark proprietor. The defendant was charged with trademark infringement for using a trademark that is similar to the well-known registered trademark Chanel and in relation to goods or services identical with or similar to those for which the registered trademark is designated, and hence causing a likelihood of confusion for relevant consumers. The defendant was found not guilty. The prosecutor appealed the decision to the Taiwan IP Court, in which the defendant raised parody as defence against trademark infringement. The Taiwan IP Court ruled against the defendant and sentenced him to 6 months in prison, which can be converted to a fine of NT$1,000 per day.

Reasoning of the court 1 First implying parody was not adopted or at least its standard in Taiwan would not be the same as the US In No. 104 administrative decision, the plaintiff asserted that the symbol at issue was a parody of its counterpart, which was allowed under the fair use defence. The plaintiff quoted the ruling of Louis Vuitton Malletier v. Haute Diggity Dog, LLC.9 from the US to support this parody argument. From the plaintiff’s point of view,10 a parody use of elements of the original piece in order to criticise or make fun of it should be protected under the fair use defence in light of freedom of expression; particularly, it would be difficult to expect the trademark proprietor to appreciate this parody from a cultural angle as the public would do; in order to encourage the development of cultural creation, it is not necessary for a parody to acquire consent from the trademark proprietor; by accepting a parody defence, it would promote more cultural creation and encourage people’s appreciation of this design from an artistic and humorous perspective. In addition, the plaintiff argued that11 the products of the well-known trademark are priced between hundreds of thousands and millions of New Taiwan

  8 No. 1423330 “LOGO ATTELAGEET H ENCERCL NOIR ET BLANC” No. 500616 “HERMES AND CARRIAGE DEVICE”, No. 581655, No. 500613 “HERMES AND CARRIAGE DEVICE” and No. 640774 “HERMES and Symbol”.   9 507 F.3d 252 (4th Cir. 2007). 10 P. 5 of the decision. 11 P. 4 of the decision.

202  Yachi Chiang (“NT”) dollars, that consumers have to place their orders in advance with HERMES in Paris, and that the leathers of HERMES’ products are pricy genuine leathers such as crocodile leather, ostrich leather, lizard leather, and snake leather. Targeted consumers of these products, positioned as classy, exotic, pricy, extravagant, and rare, are wealthy celebrities boasting of their wealth. In contrast, according to the plaintiff, the products sold by the plaintiff are made with ordinary canvas materials, priced at about NT 1,500 (US 50 dollars approximately), and designed and manufactured in Taiwan, the targeted consumers are people between 10–80 years old, their selling channels are limited to the internet, and consumers can easily tell these two trademarks from each other by their different appearances in terms of the symbols at issue, materials, price range, appearances of products and selling channels. However, the Taiwan IP Court rejected this parody argument with the following grounds: First, trademark regime of Taiwan is different from that of the US.12 For example, Taiwan adopts “first to file” principle; in contrast, the US adopts “first to use” principle. In addition, the facts of Louis Vuitton Malletier v. Haute Diggity Dog, LLC. are different from those of the present case. Therefore, Louis Vuitton Malletier v. Haute Diggity Dog, LLC. is not admissible as evidence in favour of the plaintiff. Moreover, the plaintiff’s emphasis that a parody must be based on a well-known trademark so that the public would understand its humour proves the plaintiff’s intention to create association between the symbol at issue and other’s wellknown trademark and to further cause confusion among relevant consumers.13 The Taiwan IP Court concluded that it is clear that the plaintiff admitted “HERMES SYMBOL” is a “publicly recognized trademark” and passed the design of “BANANE TAIPEI SYMBOL” off as “HERMES SYMBOL,” resulting in consumers continuously linking these two trademarks together.14

2 Then recognising and defining parody Contrary to No. 104 administrative decision, which avoided examining parody defence within the Trademark framework, No. 63 criminal decision took a different approach and established legal standards for parody defence. In No. 63 criminal decision, the Taiwan IP Court15 pointed out that parody is a limitation on trademark rights based on the respect for freedom of speech, freedom of expression and freedom of art. However, it stressed that the Trademark Act is to protect trademark rights, consumer interests, and fair competition in the market and to encourage the development of industry and business according to Article 1 of the Trademark Act.16

12 Pp. 12–13 of the decision. 13 Pp. 11–12 of the decision. 14 P. 12 of the decision. 15 Pp. 6–7 of the decision. 16 Article 1 of the Trademark Act provides: “This Act is enacted for protection of the rights of trademark, certification mark, collective membership mark, collective trademark and the

Establishing a parody defence standard 203 The Taiwan IP Court further pointed out that trademark rights involve the private interests of trademark proprietors and the public interest of consumer protection. As a result, an admissible trademark parody must possess entertaining factors such as humour, sarcasm, or criticism, convey a contradictory message compared to the original symbol, and be balanced against the public interest in avoiding consumer confusion and the public interest in freedom of expression. No. 63 criminal decision concluded that even though the defendant’s symbol, which resembled a paint-dripping trademark of Chanel although with a filled-in centre point, possesses a humorous, entertaining nature, the defendant failed to prove what contrasting image or contradictory message it was trying to convey, and therefore the court failed to see its contribution to culture or societal values, concluding that it was only free-riding on the established commercial value of Chanel, which is a well-known trademark.

Legal analysis 1 Recognising parody as defence against trademark infringement Trademark parody is not only about the freedom of expression, but could also facilitate commercial value, particularly in the entertainment industry.17 In addition, a parody of a well-known trademark might reinforce the image and impression of the parodied trademark among the relevant consumers. In the case of Louis Vuitton Malletier S.A. v. My Other Bag Inc., Judge Jesse Furman stated that the plaintiff should accept the implied compliment in a parody, which would eventually reinforce and enhance the distinctiveness and fame of Louis Vuitton, and not the opposite as Louis Vuitton alleged.18 In other words, parody might have some feedback effect on the parodied mark.

2 A “Two-Step Parody Test” was established According to No. 63 criminal decision, a parody defence against trademark infringement is possible, provided that it should meet the following two requirements: First, the parody must possess humour, sarcastic or critical characteristics and present a contradictory message compared to the original trademark. Second, a parody must be balanced against the public interest of avoiding confusion and the public interest of freedom of expression. In essence, the first requirement is to determine whether the trademark at issue constitutes parody, and the second requirement is to delimit the allowable scope

interests of consumers, maintenance of fair competition, and promotion of development of the industry and commerce.” 17 See generally Patrice Pavis (2017), Parody in K-pop: An Analysis of the Video Nobody, by JYP, with the Wonder Girls. In: Performing Korea. Palgrave Macmillan, London. 18 Daniela Molano Lozano, (dic. 2017), The Parody Defense against Trademark Bullies: Analysis of the Louis Vuitton vs. Mob Case, Revista La Propiedad Inmaterial, 24, pp. 213–221, at p. 218.

204  Yachi Chiang of parody. The two requirements of parody defence can be termed the “TwoStep Parody Test”, which is a good start for filling in the void left behind by the Trademark Act.

3 Features of this “Two-Step Parody Test” 3.1  Does not inquire whether the parody is likely to cause confusion No. 63 criminal decision seems to have drawn inspirations from Louis Vuitton Malletier v. Haute Diggity Dog, LLC., as it follows the two-step structure adopted by the Fourth Federal Circuit Court in the US., which after having found the trademark at issue constituted a successful parody, the Fourth Federal Circuit moved to examine whether the parody is likely to cause confusion among consumers. The Fourth Federal Circuit Court pointed out that Haute Diggity Dog’s parody is successful; however, this does not end the inquiry into whether Haute Diggity Dog’s “Chewy Vuiton” products create a likelihood of confusion. The Fourth Federal Circuit Court quoted Thomas McCarthy’s opinion, namely “There are confusing parodies and non-confusing parodies. All they have in common is an attempt at humour through the use of someone else’s trademark.” However, the Fourth Federal Circuit Court reasoned that an effective parody will actually diminish the likelihood of confusion, while an ineffective parody does not.19 To determine whether the “Chewy Vuiton” product line creates a likelihood of confusion, the Fourth Federal Circuit Court identified the following nonexclusive factors to consider:  (1) the strength or distinctiveness of the plaintiff’s mark;  (2) the similarity of the two marks;  (3) the similarity of the goods or services the marks identify;  (4) the similarity of the facilities the two parties use in their businesses; (5) the similarity of the advertising used by the two parties; (6) the defendant’s intent;  and (7) actual confusion. After analysing the preceding factors, the Circuit Court found that LVM failed to demonstrate that Haute Diggity Dog’s marketing, sale, and distribution of “Chewy Vuiton” caused any likelihood of confusion.20   However, No. 63 criminal decision does not seem to make such distinction between confusing parodies and non-confusing parodies. This might be because the Taiwan IP Court saw that the symbol at issue was not a successful parody, and hence there was no need to move on to examine whether there is a distinction between confusing parodies and non-confusing parodies.

3.2 Reconciling parody with the proportionality principle No. 63 criminal decision did not expressly address the principle of proportionality. However, trademark rights are property rights enshrined by the Constitution, 19 Louis Vuitton Malletier S.A. v Haute Diggity Dog, LLC 507 F.3d 252 (4th Cir. 2007), at 261. 20 Id., at 262–263.

Establishing a parody defence standard 205 and it is therefore important to introduce the principle of proportionality to delimit the scope of parody. Freedom of expression is not unlimited, and we need to apply the proportionality principle to judge whether the expression of parody justifies giving up trademark protection.21 Therefore, parody should pass the examination of proportionality in order not to override the trademark protection.22

3.3 No distinction between commercial and non-commercial parody In Louis Vuitton Malletier v. Haute Diggity Dog, LLC., the Fourth Federal Circuit Court clearly stated that even a parody made for commercial gains can be fair use.23 By contrast, this commercial aspect of parody has not been addressed by the Taiwan IP Court. While the IP Court quoted Article 1 of Trademark Act and implied that a parody should contribute to social or cultural value, it might overlook the other foundation of trademark law, namely to also encourage the development of industry and commerce. It may need to be clarified in the future whether a parody made for commercial gains can still qualify as fair use.

4 Can parody also be a defence against likelihood of dilution? In the event of parody, dilution of the associated well-known trademark is another possible effect. In the US case of Louis Vuitton Malletier v. Haute Diggity Dog, LLC., the Fourth Federal Circuit Court also considered whether the parody was a dilution against the trademark at issue under the Trademark Dilution Revision Act 2006 (TDRA 2006). The Court pointed out that to justify a dilution claim under the TDRA, a plaintiff must satisfy the following points:24 (1)  that the plaintiff owns a famous mark that is distinctive; (2)  that the defendant has commenced using a mark in commerce that allegedly is diluting the famous mark; (3)  that a similarity between the defendant’s mark and the famous mark gives rise to an association between the marks;  and (4)  that the association is likely to impair the distinctiveness of the famous mark or likely to harm the reputation of the famous mark. Despite the fact that under the TDRA a parody used as a trademark would be an exception to fair use defence, the Fourth Federal Circuit Court concluded that LVM failed to prove that the distinctiveness of its famous mark was impaired.25

21 Hsiao-Fen Hsu, (2015), Trademark Parody of from the French Legal Perspective (in Chinese), Taiwan Bar Journal (全國律師), 19 (7), p. 37. 22 Jau-Hua Chen, (2017), The Practice and Strategy of Trademark Infringement and Remedy (in Chinese), by Taiwan Intellectual Property Office, p. 94. 23 507 F.3d 252 (4th Cir. 2007). 24 507 F.3d 252, 265–269 (4th Cir. 2007). 25 507 F.3d 252, 265–268 (4th Cir. 2007).

206  Yachi Chiang Furthermore, to establish its claim of dilution by tarnishment, LVM must show that Haute Diggity Dog’s use of the “Chewy Vuiton” mark on dog toys harms the reputation of the LOUIS VUITTON mark and LVM’s other marks. In this regard, the Fourth Federal Circuit Court again ruled that LVM failed to satisfy the requirement.26 As a conclusion, in order to establish a dilution claim, the wellknown trademark owner needs to prove that the legal requirements are satisfied. No. 63 criminal decision did not address the dilution issue regarding the claimed parody at issue. Nonetheless, No. 104 administrative decision did mention briefly how parodies might cause dilution.27 The IP Court pointed out in the ruling that the design of this trademark at issue is based on the main part of the wellknown trademark which is highly distinctive. Therefore, it is evident that the plaintiff’s intention was to cause the market’s confusion and tarnish the value of this worldwide well-known trademark. In the No. 104 decision, the court considered whether the plaintiff created confusion among consumers and whether the plaintiff had diluted the value of the well-known trademark at issue. Nonetheless, the freedom of expression of the plaintiff to use the mark was not properly evaluated, while the ownership right of the trademark holder was more well judged. Further, in the No. 63 decision, the court provided a definition of parody and introduced the concept of freedom of expression, yet it seems the court did not put a lot of thought into elaborating the doctrine. As previously mentioned, the proportionality principle to balance the conflicts of rights also needs further clarification.

5 Arguing for parody in the present decisions Although the IP Court has recognised parody defence within the trademark framework, both No. 104 administrative decision and No. 63 criminal decision seem to be more inclined to a trademark proprietor’s perspective. Potential conflicting interests such as freedom of expression are ignored in those decisions. However, the mark used by the plaintiff in No. 104 administrative decision was a shape resembling a banana on the carriage with the English word “banana”, with a very prominent French word “BANANE” (which means banana) and a smaller English word of “TAIPEI.” Therefore, it would not be unfair to suggest that the BANANE/banana text and banana image on the mark convey a humorous message by somehow making fun of Hermès. considering the mark at issue was used on a handbag made with much cheaper material, sold at a much lower price, and only transacted via the Internet, the interest of freedom of commercial expression should weigh more than the interest of the trademark owner’s interests in avoiding confusion.

26 507 F.3d 252, 268–269 (4th Cir. 2007). 27 Pp. 11–12 of No. 104 administrative decision.

Establishing a parody defence standard 207 Furthermore, even by running the same two-step test, one might reach an opposite conclusion from the court when looking at the mark used by the defendant in No. 63 decision. From the author’s point of view, it looks as if the colour of the mark is fading, which implies deteriorating quality, ridiculing the conventional high-quality image of the well-known trademark. Certainly, the court might have a different and even higher standard for humor, sarcasm or criticism.

Commercial or industrial significance A successful parody defence should be justified by the freedom of expression and pass the proportionality examination. In addition, a trademark parody is not only about the freedom of expression, but could also facilitate the gaining of commercial value, particularly in the fashion, entertainment, cultural, and media industries28 as a parody of a trademark might reinforce the image and impression of the parodied trademark among the relevant consumers. In the case of Louis Vuitton Malletier S.A. v. My Other Bag Inc. Judge Jesse Furman stated that the plaintiff should accept the implied compliment in a parody, which would eventually reinforce and enhance the distinctiveness and notoriety of Louis Vuitton and not the opposite as they alleged.29 In other words, parody might have some feedback effect on the parodied mark. As observed by Dayoung Chung,30 one of the main purposes of fashion design is for it to be adopted by many people. This adoption process involves communication between consumers and the brands built by fashion houses. While the trademark law is to protect the association between a fashion design and a specific established brand, parodies might help the communication process that would eventually lead to the designs being adopted by the public.

28 See Charles Colman, (2014), Trademark Law and the Prickly Ambivalence of Post-Parodies, New York University Public Law and Legal Theory Working Papers, Paper 480 available at http://lsr.nellco.org/nyu_plltwp/480. P. Pavis, (2017), Parody in K-pop: An Analysis of the Video Nobody, by JYP, with the Wonder Girls. In: Performing Korea, Palgrave Macmillan, London. Kris Erickson, (2013), Evaluating the Impact of Parody on the Exploitation of Copyright Works: An Empirical Study of Music Video Content on YouTube, an independent report commissioned by the UK Intellectual Property Office. Also see Curt Hersey, (2013), Nothing But the Truthiness: A History of Television News Parody and its Entry into the Journalistic Field, Dissertation, Department of Communication, Georgia State University, 2013, available at https://scholarworks.gsu.edu/communication_diss/46. 29 Daniela Molano Lozano, (2017), The Parody Defense against Trademark Bullies: Analysis of the Louis Vuitton vs. Mob Case, Revista La Propiedad Inmaterial, 24, pp. 213–221, at p. 218. 30 Dayoung Chung (2018), Law, Brands, and Innovation: How Trademark Law Helps to Create Fashion Innovation, John Marshall Review of Intellectual Property Law, 17, p. 492.

18 Finding infringement but refusing to grant permanent injunction under Chinese Trademark Law Huaiwen He

Case information: Supreme People’s Court, Civil Judgment (2013) Min-San-Zhong-Zi No. 3 Star River (Guangzhou) Real Property Development Co. Ltd. v. Hongxing (Tianjin) Real Estate Development Ltd. Co.,

Summary The plaintiff, located in Guangzhou City, registered the mark “星河湾” [Star River] for services in Class 36, inter alia, for “real estate agency services”, “real estate brokerage”, “real estate appraisal”, and “real estate management” and for services in Class 37, inter alia, for “construction” and “construction information”. The defendant, seated in Tianjin City, thousands of miles from the plaintiff’s location, unknowingly used “星河湾花苑” [Star River Park] as the name for apartment buildings it constructed after approval by the local government. The apartments were priced under governmental guidance and sold to low-income people according to a governmental housing plan. Three years after the sale, the plaintiff learned of the infringing use when the residents were reselling the apartments online under the name “星河湾花苑” [Star River Park]. The courts of first instance and second instance both found no infringement. The right holder requested that the Supreme People’s Court (SPC) rehear the case. The SPC reversed the decision by the lower courts, finding infringement but refusing to grant permanent injunction. The SPC noted that the residents did not know of the infringing use when they moved in. The name was approved by the local government and conceived by locals as a place name. There is no evidence that the defendant intended to trade on the reputation of the mark. Permanent injunction would disserve the balance of interests among the trademark owner, the residents and the public.

Legal context 1 Only on limited occasions do Chinese IP laws require injunctive relief upon IPR infringement While it is widely accepted that intellectual property rights (IPR) are exclusive rights, it is hotly debated whether IPR infringement must be remedied

Refusing to grant permanent injunction 209 by permanent injunction, not only in the United States in the wake of eBay Inc. v. MercExchange, L.L.C.,1 but also in China. Conventionally, the Chinese academic circle held that IPR were analogous to property and thus should be governed by the same set of rules. IPR infringement, like trespass upon property, must be remedied through injunction, even where the wrongdoer was not at fault and caused no injury.2 It seems illogical to characterise IPR as exclusive rights on the one hand, and to deny the right holder the capability to exclude on the other hand. As corollaries, it was rare in the 1990s and at the beginning of the 21st century for Chinese courts to deny injunctive relief when finding IPR infringement. However, there is little statutory ground for applying rules of property to IPR under Chinese laws. Under the General Principles of Civil Law of the PRC [中华人民共和国民法通则] (“General Principles of Civil Law”), which was promulgated in 1989, IPR is provisioned in Section 3 of Chapter V, independent of Section 1 of the same chapter entitled “Property and Proprietary Rights”. In the newly enacted General Provisions of Civil Law of the PRC [中华人民共和国民法总则] (“General Provisions of Civil Law”), IPR are provided in Article 123, whereas rights in property are in Articles 114–116. It is crystal clear that IPR are not subsumed under rights in property. Equally important, both in the General Provisions of Civil Law and the Property Law of the PRC [中华人民共和国物权法] (“Property Law”), there is no provision that stipulates IPR be deemed real property or personal property. Nor is there any provision in Chinese IPR laws suggesting otherwise. As the Property Law sticks strictly to the principle of numerus clauses,3 it is more than bold to treat IPR as “property”. Only on limited occasions do Chinese laws require injunctive relief upon IPR infringement, which are confined to administrative enforcement of IPR. Specifically, upon finding infringement of trademark,4 trade secret,5 and passing off in terms of trade name and trade dress,6 the industry and commerce administration agencies must order the infringer to desist from infringement. However, when

1 547 U.S. 388, 392 (2006). 2 See, e.g., Handong Wu, “Remedies for Infringement on Intellectual Property Rights with Focus on Article 45 of TRIPS Agreement: The Analogous Right of Claim for Real Thing v. The Right of Claim for Damages”, Studies in Law and Business, 5 (2001), p. 3 [吴汉 东:《试论知识产权的“物上请求权”与侵权赔偿请求权 – 兼论第45条规定 之实质精神》,《法商研究（中南政法学院学报）》2001年第05期, 第3–11页]; Jianyuan Cui, “A Right to Claim the Absolute Right or A Pattern of Tort Liability”, Legal Science Monthly, No. 11 (2002), pp. 40–43[崔建远:《绝对权请求权抑或侵权责任方式》,《法 学》2002年第11期, 第40–43页]; Liming Wang, Property Law, Beijing City: China University of Political Science and Law Press, 1998[王利明:《物权法》, 北京: 中国政法大学出版 社, 1998年]. 3 See Article 5 of Property Law: The types and content of property rights shall be stipulated by laws. See also Article 116 of General Provisions of Civil Law. 4 Art. 60, para. 2, Trademark Law (as amended in 2013). 5 Art. 21 of Anti-Unfair Competition Law (as amended in 2017). 6 Art. 18 of Anti-Unfair Competition Law (as amended in 2017).

210  Huaiwen He it comes to infringement of copyright,7 patent,8 layout-designs,9 and new plant varieties,10 the relevant administrative organs may – rather than must – issue such an order. When it comes to judicial enforcement of IPR, however, Chinese courts are not required to grant injunctive relief for IPR infringements. Art. 118 of General Principles of Civil Law provides generally that IPR holders, upon infringement, may request that the infringer desist from infringement, pay damages, or take corrective measures and so on. The Trademark Law of the PRC [中华人民共和国商 标法] (“Trademark Law”) and the Patent Law of the PRC [中华人民共和专利 法] (“Patent Law”) were enacted in 1982 and 1984 respectively, both before the General Principles of Civil Law. There were – and are – no provisions for injunctive relief for infringement in these two IPR laws, leaving a gap to be filled by Art. 118 of the General Principles of Civil Law. These two laws do define “infringing acts”: Art. 57 of the Trademark Law provides that “The following acts infringe exclusive rights of the trademark owner. . . .” and Art. 11 of the Patent Law prescribes that “Unless otherwise provided in this law, no one shall exploit a patent without consent from the patent holder. . . .” While there are detailed provisions for calculating damages for patent and trademark infringement,11 there is no rule binding courts to grant injunctive relief upon finding infringement.12 It is plausible that the phrase “no one shall exploit a patent without consent from the patent holder” should mean to “desist from infringement”. But it should be noted that upon patent infringement, even the administration is not required to order the wrongdoer to cease infringement immediately. It is anomalous to construe Art. 11 of the Patent Law as requiring courts to do what the administration is not required to do. It is more than safe for courts to rely on Art. 118 of the General Principles of Civil Law, where there is clear language empowering – rather than requiring – courts to grant injunctive relief upon finding patent and trademark infringement. For relief for copyright infringement, the picture is even clearer. The Copyright Law of the PRC [中华人民共和国著作权法] (“Copyright Law”) was

  7 Art. 48 Copyright Law (as amended in 2010).   8 Art. 61 Patent Law (as amended in 2008).   9 Art. 31 Regulation on Protection of Layout-Designs of Integrated Circuits (Order No. 300 of the State Council of PRC as of 2 April 2001). 10 Art. 39, para. 3, Regulations on Protection of New Plant Varieties (Order No. 213 of the State Council of the People’s Republic of China as of 20 March 1997, as amended on 16 Jan. 2013). 11 See Art. 65 of Patent Law as amended in 2008 and Art. 63 of Trademark Law as amended in 2013. 12 There are provisions for preliminary injunction in Trademark Law as amended in 2013 and the Patent Law as amended in 2008, however. Specifically, Art. 65 of Trademark Law stipulates that Where an owner of registered trademarks or the interested party shows that infringement is ongoing or imminent, and would cause irreparable harm if no timely action is taken, he may request, before launching the lawsuit, that the court enter a preliminary injunction and take evidence preservation measures.

There is similar language in Art. 65 of the Patent Law as amended in 2008.

Refusing to grant permanent injunction 211 promulgated in 1991, after the General Principles of Civil Law were enacted. Art. 47 and Art. 48 of this law make it crystal clear that “in light of the circumstances of the case”, those who infringe copyright or neighboring rights should bear the following civil liabilities: desisting from infringing activities, eliminating the prejudicial effects of the infringing act, making public apology, and paying damages. There is no stipulation that injunction is required for each infringement upon copyright and neighboring rights.

2 The SPC stands for the position that permanent injunction is not automatically granted for IPR infringement Furthermore, the SPC stands for the position that permanent injunction is not automatically granted for IPR infringement. Art. 21 of the Judicial Interpretation on Rules for Adjudicating Trademark Disputes promulgated by the SPC in 2002 [最高人民法院关于审理商标民事纠纷案件适用法律若干问题的解释 (  法释〔2002〕32号 )] (“SPC Trademark Law Interpretation”) provides that upon finding trademark infringement, courts “may” order the infringer to desist from infringement, pay damages, take corrective measures, eliminate prejudicial effect and so on. More importantly, the SPC promulgated in 2009 the Opinions on Judicial Adjudication on IPR Disputes in the Grand Scheme of Economy [最高人民法院关于当前经济形势下知识产权审判服务大局若干问题的意见 (法 发〔2009〕23号)] (“SPC Opinions”)， in which it is made clear that courts may deny injunctive relief where injunction will cause serious injustice between the interested parties or disserve public interests, or is de facto enforceable. In denying permanent injunction, courts should order more adequate damages, economic compensation or other appropriate relief in light of all the circumstances to redress the infringement. Since the SPC Opinions, Chinese courts have occasionally refused permanent injunction when finding copyright infringement13 and patent

13 See, e.g., Shanghai Century Metropolitan Architectural Institute Inc. (SCMAI) v Shanghai Textile Architectural Institute (STAI) & Shanghai Yinchun Textile Inc. (SYTI), High Court of Shanghai City, Civil Judgment (2008) Hu-Gao-Min-San (Zhi)-Zhong-Zi No. 150. SYTI first entrusted SCMAI to design a building. When SCMAI submitted a proposal, SYTI turned it down. Thereafter, SYTI contracted with STAI to design the building, and furnished STAI with SCMAI’s proposed design. When the building was built, SCMAI found that it looked somewhat like its proposed structure and thus sued. The High Court of Shanghai City, the court of second instance, held that in IPR infringement, including copyright infringement, the right holder normally had the right to injunctive relief. But when injunction cannot be carried out or would be detrimental to the public interests, the right holder may not request the court to do so. In this event, he may ask for damages instead. The High Court underscored that in the present case, the building had already been built and delivered for actual use, and SCMAI’s architectural work constituted only a part of the whole design. As a result, the High Court concluded that for SCAMI’s input, the damages of 160,000 RMB as assessed by the court of first instance were adequate to remedy the copyright infringement.   See also, Aoya Inc. v Great Wall Inc., Intermediate Court of Shenzhen City, Civil Judgment (2013) Shen-Zhong-Fa-Zhi-Min-Zhong-Zi No. 290. The defendant bought wallpaper

212  Huaiwen He infringement.14 But there had been no case where injunctive relief was denied upon establishing trademark infringement until the present decision.

Facts The two marks in suit were filed by Guangzhou Hongfu Real Estate Co. Ltd. (“Hongfu Company”), one approved for registration on 28th September 2002 (Reg. No. 1946396) for services in Class 36, inter alia, “real estate agency services”, “real estate brokerage”, “real estate appraisal”, and “real estate management”; the other one approved for registration on 21st September 2003 (Reg. No. 1948763) for services in Class 37, inter alia, “construction”,“construction information”, “harbor construction”, and “repair information”. While these two marks were registered in different classes of service, their design were the same, including the Chinese characters “星河湾” and the English words “Star River”. They were first assigned to Star River (Guangzhou) Real Property Development Co. Ltd. (“Star River Company”), the plaintiff of this case, and later licensed back for Hongfu Company to use. The two marks were widely and intensively advertised in Guangzhou City and Taiyuan City, where Hongfu Company developed and sold apartments under the name “星河湾” [Star River]. The defendant, Hongxing (Tianjin) Real Estate Development Ltd. Co. (“Hongxing Company”), seated in Tianjin City, unknowingly used the sign “星 河湾花苑” [Star River Park] as the name for apartment buildings it developed after approval by and investment from the local government. The apartments were priced and sold to low-income residents according to a governmental housing plan. Three years after the sale, the plaintiff learned of this use when the residents were reselling their apartments online under the name “星河湾花苑” [Star River Park].

Reasonings of the courts 1 Courts of first instance and second instance The court of first instance, First Intermediate People’s Court of Tianjin City, found no trademark infringement and no unfair competition mainly for three reasons. First, the defendant used the signs on the goods “commercial housing ornamented by pictures to fit up newly built apartments. The pictures were copyrighted and sold without authorisation. The apartments were for sale and doubtless such sale would infringe the right of distribution in the pictures. The court of second instance found infringement but did not order injunction. The court made clear that injunction would prejudice seriously the interests of the owners of the apartment and cause social waste, and damages can adequately compensate the plaintiff’s loss. 14 See, e.g., Jingyuan (Wuhan) Environmental Engineer Ltd. Co. v Fuji (Japan) Water Industry Co., Supreme People’s Court Civil Judgment (2008) Min-San-Zhong-Zi No. 8. The Supreme Court denied injunctive relief for patent infringement but awarded damages of 50.61 million RMB, the highest amount in SPC’s history.

Refusing to grant permanent injunction 213 property”, which is not “similar” to any of the services designated by the registered marks. In arriving at this decision, the court relied on The Reply on Classifying Commercial Housing Property for the Purposes of Mark Registration promulgated by the Trademark Office under the State Administration for Industry and Commerce in 2003 [国家工商行政管理总局商标局的《关于 “商品房” 如何确定类别 问题的复函》(商标函[2003]32号)]. The Reply provides: (1) “commercial housing property” as such may not be designated as a class of goods for any registered marks; (2) constructing housing properties should be designated as a service in Class 37; and (3) selling housing properties should be in Class 36. Relying on this classification of goods and services for mark registration, the court held that the registered marks in suit only identified the source of constructing and selling service for housing properties, not the source of commercial housing property. As such, the class of the goods “commercial housing property” for which the defendant’s marks were used was not “similar” to any of the services designated by the registered marks. Second, the use of “星河湾花苑” [Star River Park] by the defendant did not constitute trademark use. According to the court, because commercial housing properties are immovable, their names are inherently conceived of as place names. For this reason, “commercial housing property” is not classified as a class of goods for the purpose of mark registration. The defendant used the sign “星河 湾花苑” [Star River Park] to identify a physical place, not to identify a source of goods or service. Therefore, there was no trademark infringement. Third, the use of “星河湾花苑” [Star River Park] by the defendant would not cause confusion among the relevant public. According to the court, commercial housing properties are highly valued, and thus consumers are very cautious in making purchase decisions, paying great attention to the name, reputation, strength, and past performance of the developer and the seller, and by meticulously comparing candidate apartments. While services related to the construction and sale of the commercial housing property had some connection to the property, the court stressed that the immovableness of the property indicated that the relevant public would not easily confuse the source of the property with the developer and the seller. The court noted that marks for services related to commercial housing property were often known locally, and the plaintiff failed to show that its registered marks were known in Tianjin City. The right holder, unsatisfied with the judgment, appealed to the High People’s Court of Tianjin City. The court of second instance affirmed the decision.

2 The SPC After the decision of the court of second instance, the right holder requested that the SPC rehear the case, which the SPC allowed. The SPC found trademark infringement but refused to grant permanent injunction. First, the SPC noted that where goods and services were linked and likely to cause confusion of sources, they were “similar” for the purpose of establishing trademark infringement. In the present case, selling of commercial housing properties was linked

214  Huaiwen He with developing and managing service for commercial housing properties, and “similar” to the latter in the sense of trademark infringement. Second, the sign “星河湾花苑” [Star River Park] used by the defendant comprised the essential part “星河湾” [Star River], which was identical to the distinctive element of the registered marks. There was evidence that the marks were well advertised, and it was not uncommon that commercial housing developers operate nationally from place to place. Hence, the use of the sign “星河湾花苑” [Star River Park] would cause consumers to mistakenly link the apartments to Star River Company and Hongfu Company. Therefore, the use infringed the right holder’s registered marks. The SPC refused to grant permanent injunction, however. The court noted that all rights must be exercised in good faith. Where IPR (i.e., trademark right) conflicts with other proprietary rights such as property, the reach of IPR and the extent to which their right holders must tolerate other’s use should be determined by whether the right holders were acting in good faith, taking into good consideration public interests. In applying this standard to this present case, the court pointed out that the residents did not know of the infringing use when they moved into the apartments named “星河湾花苑” [Star River Park]. The name was approved by the local government as a place name and conceived by locals as the same. There was no evidence that Hongxing Company intended to trade on the reputation of the mark “星河湾” [Star River]. Should permanent injunction be granted, the balance of interests would be disserved among the trademark owner, the residents, and the public. For these reasons, the SPC allowed the apartments to continue to be called “星河湾花苑” [Star River Park] but ordered that Hongxing Company may not use “星河湾” [Star River] on any unsold or future apartments. The SPC assessed damages for the right holder in an amount of RMB 100,000 based on Art. 63 (3) of the Trademark Law. Because the right holder provided no evidence of actual loss or of Hongxing’s gains from the infringing use, the SPC could not assess the damages according to Article 63(1) of the Trademark Law.15 15 See Art. 63 of Trademark Law (as amended in 2013): The amount of damages for infringement on the exclusive right to use a trademark shall be determined based on the actual loss suffered by the right holder as a result of the infringement; if it is difficult to determine the actual loss, the amount of damages may be determined according to the profits gained therefrom by the infringer; if it is difficult to determine both the loss of the right holder and the profits gained by the infringing party, the amount of damages may be reasonably determined in reference to the multiples of the trademark for royalties. Where an infringer maliciously infringes upon another party’s exclusive right to use a trademark and such infringement falls under serious circumstances, the amount of damages may be determined as not less than one time but not more than three times the amount that is determined according to the aforesaid methods. The amount of damages shall cover the reasonable expenses paid by the right holder for stopping the infringing act. Where the right holder has exhausted its efforts in discharging the obligation of burden of proof, but the account books and materials related to the infringing acts are mainly

Refusing to grant permanent injunction 215 In awarding the damages, the SPC considered especially the following factors: (1) Star River Company and Hongfu Company had never entered the market of Tianjin City by developing any projects; (2) Hongxing Company had no intention to trade on the reputation of the mark “星河湾” [Star River]; (3) there was no evidence showing that Hongxing Company used “星河湾花苑” [Star River Park] as a trademark in selling the apartments; and (4) the apartments were priced under governmental guidance and sold to low-income people according to a governmental housing plan.

Legal analysis 1 Permanent injunction is not automatically granted for trademark infringement This is a leading case under the Trademark Law, as it shows that permanent injunction is not automatically granted upon finding trademark infringement, just like in patent or copyright infringement cases. While there are some defects in the reasoning of this case, as will be discussed later, the decision to deny permanent injunction is legally sound. First, the right holder of the registered marks would not have suffered irreparable harm absent permanent injunction. The infringement did not injure any existing interests of the right holder. The infringer did not trade on the marks’ reputation, and the holder of the marks had neither developed any housing in Tianjin City under the disputed marks nor shown any plan to do so in this city, where the infringement occurred. There was no evidence that Hongxing Company profited from the infringing use or that Hongfu Company and Star River Company suffered any loss. Neither would the continued use of the sign “星河湾花苑” [Star River Park] increase the likelihood of confusion. The infringing sign was conceived of as a place name by locals, and the apartments in suit were invested in by local government and sold to low-income residents, a key factor unlikely to be overlooked by any prospective consumers. Second, should the place name of the apartments be ordered to change, the residents, who moved in unknowing of the infringing use, would suffer substantial inconvenience. Third, as will be discussed next, it controlled by the infringer, the people’s court may, for the purpose of determining the amount of damages, order the infringer to submit account books and materials related to the infringing acts. Where the infringer fails to provide such account books or materials or provides false account books or materials, the people’s court may render a judgment on the amount of damages in reference to the claims of the right holder and the evidence furnished thereby. Where it is difficult to determine the actual loss suffered by the right holder as a result of the infringement, the profits gained by the infringer from the infringement or the royalties of the registered trademark concerned, the people’s court shall render a judgment awarding damages in an amount not more than RMB three million yuan based on the circumstances of the infringing acts

216  Huaiwen He is possible to adequately remedy the injuries of the infringement by reliefs other than permanent injunction.

2 Adequate remedy for trademark infringement is required when permanent injunction is denied Denying permanent injunction is not equal to denying remedy for trademark infringement. Rather, when trademark infringement is established, adequate remedy is required. The SPC Opinions makes clear that in denying permanent injunction, courts should order more adequate damages, economic compensation or other appropriate relief in light of all the circumstances to redress the infringement. In the present case, the assessed damages of RMB 100,000 is more than normal. Under Art. 63 of Trademark Law, damages for trademark infringement are to compensate the right holder rather than to punish the infringer except where the infringement was maliciously conducted.16 According to this provision, where actual loss is difficult to determine, courts should assess the damages in terms of profit gained from the infringement or reasonable royalties.17 In this case, the right holder could not prove any actual loss from the infringing use. This does not mean that the damages should be awarded according to the profit gained from the infringing use, however. In Huo LIANG et al. v Cai-Die-Xuan Baking Group Ltd. Co.,18 the SPC made it clear that if a registered mark was not actually used in the city where the infringing mark was used, even if it was well known

16 See Article 63(1) of the Trademark Law. 17 This position is corroborated by Article 64 of Trademark Law, which denies damages when the infringed registered mark is never actually used. The first paragraph provides: Where the holder of the exclusive right to use registered trademarks claims for damages, and the alleged infringer counterclaims that the right holder has never used the registered trademark, the people’s court may require the right holder to provide evidence of its actual use of the registered trademark during the past three years prior to the lawsuit. The alleged infringer shall not be liable for compensation if the right holder is neither able to prove its actual use of the registered trademark during the past three years prior to the lawsuit, nor able to prove other losses suffered from the infringement.

In practice, “evidence of its actual use of the registered trademark during the past three years prior to the lawsuit” does not mean that the infringement must occur three years after the registration of the mark. It is enough for the court to deny damages when there is no evidence of actual use of the infringed registered trademark. See e.g., Gree Electric Appliances, Inc. of Zhuhai v Guangdong Midea Refrigeration Equipment Co., Ltd, Zhuhai Taifeng Electric Industry Co., Ltd., High People’s Court of Guangdong Province Civil Judgment (2015) Yue-Gao-Min-San-Zhong-Zi No.145, listed as one of the 50 typical IPR cases by the Supreme People’s Court [珠海格力电器股份有限公司与广东美的制冷设备有 限公司、珠海市泰锋电业有限公司侵害商标权纠纷上诉案，广东省高级人民法民事判决 书（2015）粤高法民三终字第145号，列为最高人民法院发布2015年中国法院50件典型 知识产权案例之二十一]. 18 SPC Civil Judgment (2015) Min-Ti-Zi No.38 [梁或等与安徽采蝶轩蛋糕集团有限公司等侵 害商标权、不正当竞争纠纷再审案，最高人民法院民事判决书（2015）民提字第38号].

Refusing to grant permanent injunction 217 in another province, the damages should not be assessed according to the profit gained from the infringement, especially by multiplying profit rate with the sales made by the infringer. In the present case, there is no evidence that the mark “星河湾” [Star River] was ever used in Tianjin City. Furthermore, since the apartments were priced under governmental guidance and sold to low-income people according to a governmental housing plan, it would be unfair to say that Hongxing Company made any profit from the infringing use of the sign “星河 湾花苑” [Star River Park]. Without any evidence of actual loss and intentional infringement and absent any justification to assess the damages according to the profit gained from the infringing use, it might well be the case that the SPC assessed the damages RMB 100,000 mainly as royalty for the continued use of the sign “星河湾花苑” [Star River Park] rather than solely for the past infringing use or as a punishment for the infringement. Additionally, it is arguable whether damages alone were adequate to remedy the trademark infringement in the present case absent permanent injunction. To fully redress the infringement, it appears justifiable that Hongxing Company should have been ordered to put on corrective advertisement for a considerable length of time at its own cost to disperse any possible confusion by the public in addition to the damages.

3 Defects in the reasoning of the present case While denying of permanent injunction and awarding of adequate damages is justified, the reasoning of the present case is defective. Relying too much on the good faith of the residents to delimit the rights of the registered marks and mentioning none of the listed grounds of the SPC Opinions for denying permanent injunction, the SPC leaves a strong impression in this case that the rights of the marks in suit should be limited to protect the interests of the innocent residents. The SPC should have followed the established practices of the SPC Opinion in denying permanent injunction in the present case and made it clear that denial of permanent injunction alone does not count as limitation upon the IPR infringed at all. In any event, the SPC does not have the power to create an exception to the rights of a registered mark outside the Trademark Law. The power to make law resides in the National People’s Congress (“NPC”) and the SPC has only the power to apply the law enacted. As limitations upon exclusive rights of a registered mark are already provided in the Art. 59 of the Trademark Law, including only fair use of descriptive term and prior use defence, it is just too bold for the SPC to go beyond its authority to put a limitation upon rights of a registered mark on the ground of good faith of third parties.

Commercial or industrial significance This case is significant for real estate developers around China. They should be cautious in giving names to the properties developed to avoid infringement of registered marks. When a property is developed, the developer must

218  Huaiwen He file an application for its name with a local government. The application will be reviewed according to Place Name Regulation promulgated by the State Council of the PRC in 1986 [地名管理条例（国发（[1986]11号））] and Implementing Rules for Place Name Regulation promulgated by the Ministry of Civil Affairs of the PRC in 1996 [地名管理条例实施细则（民行发［1996］17号）]. The review is focused on whether the proposed name would violate any public order or public interests.19 Neither the Place Name Regulation nor the Implementing Rules mentions registered marks. Even when the local government has approved a place name for a property, there is no guarantee that the place name as approved is free from trademark infringement. Once the right holder of a registered mark establishes that a place name for a property is viewed as a business sign capable of identifying the source of goods or services and likely to cause confusion with his mark, courts will not hesitate to find trademark infringement even where the property is developed according to a governmental housing plan. After all, administrative approval is not a defence against infringement under the Trademark Law. Equally important to bear in mind is that while the SPC refused permanent injunction upon finding trademark infringement in this case, it is exceptional. It is well advised for real estate developers to assess carefully the risk of trademark infringement before formally naming and launching the properties developed.

19 See Article 4 of Place Name Regulation and Article 8 of Implementing Rules for Place Name Regulation.

Part 5

Protection of well-known marks Against likelihood of dilution 19 The protection of well-known marks against dilution via SPC in China

221

WEIJUN ZHANG

20 Dilution of a well-known trademark as ground for refusal of registration of an identical or similar mark for different goods or services in Malaysia

230

TAY PEK SAN

21 Trade mark dilution before and after Section 29(4) of the Indian Trade Marks Act

240

RENUKA MEDURY

22 Taiwan IP Court decisions tend to treat likelihood of confusion and likelihood of dilution as mutually interchangeable

252

KUNG-CHUNG LIU AND FA-CHANG CHENG

Against registration of confusingly similar trademarks 23 Bad-faith registration of marks similar to well-known ones as ground for registration cancellation in Indonesia

266

PRAYUDI SETIADHARMA

Against unfair competition 24 Protection of famous product configuration mark (Viagra trademark for diamond shape and blue colour) in Korea BYUNGIL KIM

278

25 Concurrent trademark infringement and unfair competition in the Philippines

290

ALEX FERDINAND S. FIDER

Against abuse of registered trademarks 26 Unregistered well-known trademark owner accused of infringement in Japan: abuse of right defence after five-year invalidation period

302

19 The protection of well-known marks against dilution via SPC in China Weijun Zhang

Case information: Beijing Higher People’s Court, Jin-Min-Zhong No. 413 of 2017 Deere & Company and its Chinese subsidiary John Deere (China) Investment Co., Ltd. (“Deere China”) v. Agricultural Machinery Co., Ltd. (“John Deere (Beijing)”), John Deere (Dandong) Co., Ltd. and Lanxi Jialian Deere Co., Ltd1 decided on ­December 8, 2017.2

Summary The present decision is a recent trademark infringement case in Beijing which involves one of the largest manufacturers of agricultural machinery in the world, Deere & Company, and its three trademarks, “JOHN DEERE” designated for Class 7 and Class 12, and “约翰.迪尔” (transliteration of “JOHN DEERE” in Chinese characters) for Class 7. The defendant, John Deere (Beijing) Agricultural Machinery Co., Ltd., and other two defendants produced and sold industrial oils in China under trademarks identical with or similar to Deere & Company’s registered trademarks. One defendant registered and used “佳联迪尔” （Chinese characters read as “Jialian Deere”） for industrial oils in Class 4. The plaintiff claimed that its trademarks were infringed by the defendants. The Beijing IP Court determined that agricultural machinery for which the plaintiff’s trademarks were registered, and industrial oil for which the defendant’s trademark “佳联迪尔” was registered were similar goods, that the plaintiff’s registered trademarks were well known, and that the use of the registered trademark “佳联迪尔” by the defendant constituted reproduction, imitation or translation of the plaintiff’s well-known trademarks of “JOHN DEERE” and “约 翰.迪尔.” The court ordered the defendants to cease infringement, make a public

1 The first instance decision of the present case was by Beijing IP Court, Jin-73-Min-Chu No. 93 of 2016 decided on December 30, 2016 by ZHANG Lingling (presiding), HOU Zhanheng, and DENG Zhuo. At a press release for the second anniversary of the Beijing IP Court, the decision was selected as a model for the “strengthening of judicial protection for IPRs”. 2 Decided by TAO Jun (presiding), WANG Xiaoying, and SUN Zhunyong.

222  Weijun Zhang statement to eliminate adverse effects, and to pay RMB 5 million in punitive damages and reasonable expenses of RMB 368,756. The Beijing Higher People’s Court upheld the decision. The present decision reveals that a rule for the protection of well-known trademarks, namely Article 13(3) of the Trademark Law may also apply in cases where the infringing marks were used on identical or similar goods designated by the well-known trademarks.

Legal context 1 Following Article 6bis(1) of Paris Convention and Article 16(3) of TRIPS Agreement China prescribes in Article 13(2) and (3) of 2013 Trademark Law3, previously Article 13(1) and (2) of 2001 Trademark Law, protection for well-known trademarks in the stage of trademark application, following Article 6bis(1) of the Paris Convention4 and Article 16(3) of TRIPS.5 According to Article 13(2), where a mark is a reproduction, imitation or translation of a well-known mark and is used in relation to goods which are identical with or similar to those for which the well-known mark has not yet been registered in China, giving rise to a likelihood of confusion on the part of the public, no registration shall be granted and the use of the mark shall be prohibited. Article 13(2) is intended to guard against likelihood of confusion arising from the registration or use of a well-known unregistered mark for identical or similar goods, which extends the protection for well-known marks from registered to unregistered ones. However, with regards to a registered trademark with reputation, such provision seems to have no additional value, 3 Trademark Law was enacted on August 23, 1982, amended on February 22, 1993, October 27, 2001, and August 30, 2013 respectively. 4 Article 6bis(1) of the Paris Convention (1967) prescribes: The countries of the Union undertake, ex officio if their legislation so permits, or at the request of an interested party, to refuse or to cancel the registration, and to prohibit the use, of a trademark which constitutes a reproduction, an imitation, or a translation, liable to create confusion, of a mark considered by the competent authority of the country of registration or use to be well known in that country as being already the mark of a person entitled to the benefits of this Convention and used for identical or similar goods. These provisions shall also apply when the essential part of the mark constitutes a reproduction of any such well-known mark or an imitation liable to create confusion therewith. 5 Article 16(3) of TRIPS Agreement stipulates: Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to goods or services which are not similar to those in respect of which a trademark is registered, provided that use of that trademark in relation to those goods or services would indicate a connection between those goods or services and the owner of the registered trademark and provided that the interests of the owner of the registered trademark are likely to be damaged by such use.

Well-known marks against dilution in China 223 for the trademark itself can function as a legal instrument against likelihood of confusion. In order to grant stronger protection to registered marks with reputation, Article 13(3) Trademark Law provides that where the trademark of a different or dissimilar kind of goods is a reproduction, imitation or translation of another person’s well-known mark registered in China and its use misleads the public so that the interests of the owner of the registered well-known mark are likely to be impaired, no application for its registration may be granted and its use shall be prohibited.

2 Definition of well-known marks A “well-known mark” is defined in Article 1 of the Interpretation by the Supreme People’s Court (SPC) on Several Issues Concerning the Application of Law to the Trial of Civil Dispute Cases Involving the Protection of Well-known Marks (Well-known Marks Protection Interpretation)6 as “a trademark that is widely known to the relevant public within the territory of China”. The following factors shall be taken into consideration in the recognition of a well-known mark according to Article 14(1) of 2013 Trademark Law: (1) The degree of recognition of the trademark among the relevant public; (2) The duration of use of the trademark; (3) The duration, extent, and geographical scope of all publicity operations carried out for the trademark; (4) The records of protection of a well-known mark provided for the trademark, and (5) Other factors making the trademark well known. Furthermore, Article 10 of the Judicial Interpretation of Well-known Marks Protection provides other criteria for determining well-known marks in the context of use on dissimilar goods: (1) The degree of distinctiveness of the well-known mark; (2) The degree of recognition of the trademark among the public concerned with the infringing goods; (3) The degree of association of the goods using the well-known mark with the infringing goods; (4) Other factors.

6 Fa-Shi (2009) No.3, adopted at the 1467th Meeting of the Judicial Committee of the SPC on 22 April 2009, and enters into force on 1 May 2009, available at: http://zscq. court.gov.cn/sfjs/201004/t20100413_4049.html and www.wipo.int/wipolex/zh/text. jsp?file_id=182139.

224  Weijun Zhang

3 Meaning of “likelihood of confusion” and “misleading the public” in Trademark Law In accordance with Article 9(1) of the Judicial Interpretation of Well-known Marks Protection, likelihood of confusion on the part of the public under Article 13(2) Trademark Law not only refers to likelihood of confusion as to the source of the goods covered by the well-known marks and the allegedly infringing marks, but also includes likelihood of leading the relevant public to think a specific relationship exists between the users of the well-known marks and the allegedly infringing marks, such as a licensing agreement or a relationship of associated enterprises. According to Article 9(2) of the Judicial Interpretation of Well-known Marks Protection, “[misleading] the public so that the interests of the owner of the registered well-known mark are likely to be impaired” under Article 13(3) Trademark Law, includes “the likelihood of leading the relevant public to believe that a substantial degree of relationship exists between the allegedly infringing mark and the well-known mark, so that the distinctiveness of the well-known mark is weakened, or the market reputation of the well-known mark is disparaged or being taken unfair advantages of.”

4 Applicability of Article 13(3) where goods at dispute are identical or similar is uncertain Article 13(3) Trademark Law applies where the use of that registered mark for goods non-identical with or dissimilar to those covered by the wellknown mark gives rise to a likelihood of association and thereby takes unfair advantage of, or is detrimental to, the distinctiveness or the reputation of the well-known mark. Thus arises a question as to whether Article 13(3) applies in cases of use for identical or similar goods. The Trademark Law and the Judicial Interpretation of Well-known Marks Protection do not provide an answer for that question. The present case gives courts an opportunity to solve this question.

Facts Deere & Company commenced the proceedings against John Deere (Beijing) Agricultural Machinery Co., Ltd. for infringement of its trademark on February 5, 2016 in the Beijing IP Court. Founded in 1837, Deere & Company is one of the largest manufacturers of agricultural machinery in the world. It entered the Chinese market in 1976, established its first Chinese subsidiary, John Deere Jialian Harvester Company Ltd. in 1997, and set up a wholly owned company, Deere China, in 2000. Its registered trademarks, “JOHN DEERE”, “约翰.迪尔” and “ ” its leaping deer logo are Deere & Company’s core marks, which have been widely used on agricultural machinery in Class 7, tractors in Class 12, and industrial oil in Class 4. The defendant John Deere (Beijing) Agricultural

Well-known marks against dilution in China 225 Machinery Co., Ltd. and the other two defendants are actually controlled by the same person, who not only set up a number of enterprises with the name of “约翰 迪尔” in China, but also incorporated in Washington State, USA a shell company named “AMERICAN JOHN DEERE PETROLEUM CHEMICAL INDUSTRY GROUP, INC,” which had been forbidden permanently by the US Federal Court to use Deere & Company’s trademarks and trade names.7 The third defendant, Lanxi Jialian Deere Company, applied for the registration of the trademark “佳联迪尔” (Chinese characters read as “Jialian Deere”) in Class 4 on November 12, 2012, which was granted on January 20, 2014, effective from April 21, 2014 to April 20, 2024, to be used on industrial oils, lubricants, wetting agents, gas fuel, fossil fuel, candle cores, dust-removing preparations, electric energy etc. Deere & Company raised an opposition to the Trademark Office regarding the registered trademark “佳联迪尔,” which was supported by the Trademark Office. The defendants appealed to the Beijing Higher People’s Court, which on November 20, 2015 upheld the decision of the Trademark Office. In addition, the plaintiffs brought this civil suit against the defendants for trademark infringement, alleging that their registered trademarks are well known, and that the defendants’ use of the trademark “佳联迪尔” constitutes malicious imitation or translation of their well-known trademarks. On December 30, 2016, the Beijing IP Court supported the infringement claim and found the use of the registered trademark “佳联迪尔” infringing upon the plaintiff’s well-known trademark rights according to Article 13(2) of 2001Trademark Law. The Court also demanded that the three defendants jointly compensate the plaintiff for economic loss of RMB 5,000,000 yuan and reasonable expenses of RMB 368,756 yuan. The Beijing Higher People’s Court upheld the verdict.

Reasoning of the court 1 Recognising “JOHN DEERE” and “约翰.迪尔” as well known According to Article 11 of the Judicial Interpretation of Well-known Marks Protection, at the request of the plaintiff, the defendant shall be prohibited by the People’s Court from using the registered trademark. However, both of the following circumstances are excluded: (1) The five-year time limit (after the registration) for the request for invalidating the defendant’s registered trademark has expired; and (2) The trademark of the plaintiff was not well known when the defendant applied for registration of its trademark. The trademark “佳联迪尔” was registered on April 21, 2014, and Deere & Company and its affiliate commenced the proceedings on Feb 5, 2016, well 7 Deere & Company (plaintiff) v Guohui Zhao and American John Deere Petroleum Chemical Industry Group, Inc. (defendant), United States District Court Western District of Washington at Seattle (6 May 2015), Case No. C14–1831RAJ, available at: www.casemine.com/ judgement/us/5914efd3add7b0493496ec96.

226  Weijun Zhang before the five-year time limit for the request for invalidation of the trademark “佳联迪尔”. Second, the evidence on record, which includes advertising contracts, sales contracts, invoices, financial statements, audit reports, granted honors and awards, photos of non-profit activities, exhibitions, forums, seminars and celebrations, leadership meetings, and other events the plaintiff carried out in China between 2005 and 2012,8 is sufficient to prove that trademarks “JOHN DEERE” and “约翰.迪尔” were well known in agricultural machinery and the trademarks were also well known in tractors at the time when the defendant Lanxi Jialian Deere applied to register the trademark “佳联迪尔”.

2 “佳联迪尔” is a reproduction, imitation or translation of “JOHN DEERE” and “约翰.迪尔” When applying Article13(2) of 2001 Trademark Law, it is necessary first to determine that the use of the registered trademark “佳联迪尔” is a reproduction, imitation or translation of the plaintiff’s well-known trademarks “JOHN DEERE” and “约翰.迪 尔” in order to prohibit the defendants from using the trademark “佳联迪尔”. The Beijing IP Court ruled that: “迪尔” is the distinctive part of the trademark “佳联迪尔,” which is a transliteration of “Deere” and a reproduction of “迪尔,” which is the distinctive element of the plaintiff’s well-known trademarks. Considering the reputation and distinctiveness of trademark “JOHN DEERE” and “约翰.迪尔”, the trademark “佳联迪尔” constitutes a reproduction, imitation or translation of trademarks with reputation. Therefore, the plaintiffs’ claims are reasonable and supported by the court. In affirming the judgment of the first-instance court, the Beijing Higher People’s Court ruled that: “The registered trademark “佳联迪尔” is not a common word in Chinese. The trademark “JOHN DEERE” and “约翰.迪尔” are well known in China. The three trademarks in dispute all include the word “迪尔” which is a transliteration of “DEERE”, therefore the trademark “佳联迪尔” is a transliteration of “JOHN DEERE” and an imitation of “约翰.迪尔.”

3 Confirming the applicability of Article 13(2) when the prior registered well-known trademarks are used for identical or similar goods The core issue of the present case is whether Article 13(2) of 2001 Trademark Law applies when the prior registered well-known trademarks are used for identical or similar goods. The Beijing IP Court ruled affirmatively: 8 In addition, in February 2012, when the then Vice President of the PRC Xi Jinping visited the US, extensive reports were made by the Xinhua News Agency, the well-known national media in China, about Xie riding on an agricultural machine with the trademark “JOHN DEERE” produced by the plaintiff, which also attracted a lot of publicity for it.

Well-known marks against dilution in China 227 Article 13(2) of 2001 Trademark Law is to provide stronger protection for registered trademarks with a reputation. In spite of the fact that the prohibition granted by this article doesn’t expressly extend to the use of registered marks with a reputation for identical or similar goods, it is concluded that, in view of the original legislative intention of the article, there is more need to apply Article 13(2) in cases of the use for identical or similar goods than in cases of the use for non-identical or dissimilar goods. If the court can directly rely on Article 13(2) of 2001 Trademark Law in cases where a registered mark with reputation is used in relation to goods non-identical with or dissimilar to those covering the well-known mark, for the purpose of providing stronger protection for well-known marks, it is more necessary to apply Article 13(2) in cases concerning the use for identical or similar goods. The Beijing Higher Court supports the ruling: Although, based on its wording, Article 13(2) of 2001 Trademark Law as well as Article 13(3) of 2013 Trademark Law can be interpreted as granting protection to registered marks with reputation used for non-identical or dissimilar goods, in view of the legal principle of argumentum a maiore ad minus and their legislative intention, apparently, the protection for the use on identical or similar goods should also be included within the scope of the protection for registered marks with reputation.

Legal analysis 1 Failing to examine the other requirement according to Article 9(2) of the Well-known Marks Interpretation It should be noted that the courts ruled that the use of “佳联迪尔” infringed upon the plaintiff’s well-known trademark right according to Article 13(2) of 2001 Trademark Law or Article 13(3) of 2013 Trademark Law. However, they only took one question into consideration, namely whether “佳联迪尔” was a reproduction, imitation or transliteration of “JOHN DEERE” and “约翰迪尔”, but failed to examine the other requirement of Article 13(3) of 2013 Trademark Law according to Article 9(2) of the Well-known Marks Interpretation, namely the likelihood of leading the relevant public to believe that a substantial degree of relationship exists between the allegedly infringing marks and the well-known marks, so that the distinctiveness of the well-known marks is weakened, or the market reputation of the well-known marks is diminished or taken unfair advantage of.

2 Failing to explain how to distinguish between “a substantial degree of relationship” and “a specific association” The present decisions also failed to explain how to distinguish the requirement that “a substantial degree of relationship exists between the allegedly infringing

228  Weijun Zhang marks and the well-known marks” of Article 13(3) of 2013 Trademark Law from that of “likelihood of leading the relevant public to think a specific relationship exists between the users of the well-known marks and the allegedly infringing marks” demanded by Article 13(2) of 2013 Trademark Law according to Article 9(1) of Well-known Marks Protection Interpretation, as “a substantial degree of relationship” can conceptually be very close to or at least partially overlap with “a specific relationship.”

3 There has been dilution and taking unfair advantage of the well-known marks in the present case This author is of the opinion that although a defendant’s use of a well-known mark is not likely to cause consumer confusion, it may still cause dilution of wellknown marks or unfair advantage being taken of well-known marks, and that there has been dilution and taking unfair advantage of the well-known marks in the present case. Dilution has two forms. One is whittling away the distinctiveness of well-known trademarks, and the other is diminishing the reputation of well-known trademarks, for example by using marks for goods with inferior quality. With regards to taking unfair advantage of well-known trademarks, it means that the appeal or goodwill of well-known marks is being projected onto the similar mark used by an unauthorised party. In the present case the wide-ranging use of “佳联迪尔” by the defendants undoubtedly dilutes the distinctiveness of “JOHN DEERE” and “约翰.迪尔”. In addition, “佳联迪尔” also free-rode on the reputation of “JOHN DEERE” and “约翰.迪尔”, as it will easily spill over to “佳联迪尔” due to the similarity of the marks and goods. Therefore, it is quite appropriate for the Beijing IP Court and Beijing Higher People’s Court to prohibit the use of the infringing mark by the defendant in light of Article 13(3) of 2013 Trademark Law.

Commercial or industrial significance There is no denying that there are still a lot of enterprises in China that take all kinds of improper means to free-ride on well-known marks owned by others. With the strengthening of protection of well-known marks by the Chinese government and courts, blatant use of fake well-known marks is in decline. However, a more “ingenious” encroachment is on the rise. For example, the trademarks used are merely a stylised imitation of well-known marks rather than an exact reproduction of them, which often will not lead to likelihood of confusion, but nevertheless dilutes the distinctiveness or takes unfair advantage of the reputation of the well-known marks. Obviously, the traditional protection of the “essential” trademark function, i.e., the prevention of likelihood of confusion, is not enough to stop free-riders from taking unfair advantage of or acting in a manner detrimental to the reputation of other’s well-known trademarks. Article 13(3) of 2013

Well-known marks against dilution in China 229 Trademark Law, when properly applied, can mitigate such dishonest practices against well-known marks. With the present decisions by the Beijing IP Court and the Beijing High People’s Court, businesses are clearly now not allowed to dilute the distinctiveness or take unfair advantage of the repute of well-known marks, whether on dissimilar or similar goods or services.

20 Dilution of a well-known trademark as ground for refusal of registration of an identical or similar mark for different goods or services in Malaysia Tay Pek San

Case information: Y-Teq Auto Parts (M) Sdn Bhd v X1R Global Holding Sdn Bhd & Anor, Court of Appeal, January 11, 2017, reported in [2017] 2 Malayan Law Journal 609.

Summary The first respondent, who is the proprietor of a registered well-known trademark, applied to expunge the registration of a similar trademark belonging to another proprietor in respect of different goods which are in different classes. A number of trademark law issues were deliberated on by the court but in so far as the issue relates to the dilution of well-known trademarks, the court examined the scope of the prohibition on registration in section 14(1)(e) of the Trade Marks Act 1976 (‘TMA 1976’). One of the provisos in section 14(1)(e) requires the proprietor of the registered well-known trademark to prove that his interests are likely to be damaged by the defendant’s use of an identical or similar trademark. Both the High Court and Court of Appeal took the view that this proviso encompasses damage by way of dilution of well-known trademarks. The case is a judicial recognition that the dilution of well-known trademarks is a ground for the Registrar of Trade Marks to refuse the registration of an identical or similar trademark belonging to a third party for different goods or services.

Legal context In the year 2000, Malaysia amended the TMA 1976 to, inter alia, introduce three new provisions on the protection of well-known trademarks in order to comply with its obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”). These were sections 14(1)(d), 14(1)(e) and 70B. Section 14(1)(d) prohibits the registration of a trademark that conflicts with a well-known trademark in respect of the same goods or services. Section 70B prohibits the use of a trademark that conflicts with a

Dilution of a well-known trademark 231 well-known trademark for the same goods or services. While sections 14(1)(d) and 70B apply when the parties’ goods or services are the same, section 14(1)(e) applies when the parties’ goods or services are different. Section 14(1)(e) ­prohibits the registration of a conflicting trademark in respect of goods or services different from those of the registered proprietor of the well-known trademark. Section 14(1)(e) was passed to comply with Article 16(3) of the TRIPS Agreement.1 Pursuant to section 14(1)(e), a mark shall not be registered as a trademark if it is identical with or so nearly resembles a mark which is well-known and registered in Malaysia for goods or services not the same as those in respect of which registration is applied for. Section 14(1)(e) is subject to two provisos. First, the use of the mark in relation to those goods or services would indicate a connection between those goods or services and the proprietor of the well-known mark. Second, the interests of the proprietor of the well-known mark are likely to be damaged by such use. Section 14(1)(e) can only be invoked where the well-known trademark is registered. The effect of section 14(1)(e) is to confer a broader scope of protection on registered well-known trademarks as compared to that of ordinary trademarks. In the case of ordinary trademarks, the registered trademark proprietor’s exclusive right is the right to the use of the trademark in relation only to those goods or services for which it is registered.2 Section 14(1)(e) extends this exclusive right in the case of registered well-known trademarks by preventing a third party from registering a conflicting trademark that is used in respect of different goods or services. The ambit of section 14(1)(e), particularly the interpretation of both the provisos, has not been subjected to judicial consideration until the present case. With regard to the first proviso, it was unclear what the nature of the connection between the well-known trademark proprietor’s goods and the defendant’s goods had to be. It was uncertain whether the connection required the existence of a likelihood of confusion in the minds of consumers or whether a mere likelihood of association without there being any confusion would suffice. With regard to the second proviso, uncertainties arose as to the meaning of the phrase “the interests of the proprietor of the well-known trademark are likely to be damaged by such use.” More specifically, it was unclear whether the damage is confined to the damage caused as a result of the confusion created in the minds of consumers as to the origin of the goods or services, or whether it encompasses the wider concept of damage to the value of the well-known trademark per se, that is, dilution of the well-known trademark.

1 Article 16(3) of the TRIPS Agreement provides as follows: Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to goods or services which are not similar to those in respect of which a trademark is registered, provided that use of that trademark in relation to those goods or services would indicate a connection between those goods or services and the owner of the registered trademark and provided that the interests of the owner of the registered trademark are likely to be damaged by such use. 2 TMA 1976, section 35(1).

232  Tay Pek San Malaysia does not have specific laws protecting against the dilution of wellknown trademarks nor is the word “dilution” found at all in the TMA 1976. The present case affirms that the provision embodies damage in the form of the dilution of trademarks, in addition to other possible forms of damage that can be caused to the interests of a well-known trademark proprietor. The operation of section 14(1)(e) is premised on the trademark being wellknown in Malaysia. The criteria for determining whether a trademark is wellknown is provided in regulation 13B of the Trade Marks Regulations 1997 (“TMR 1997”). Regulation 13B states that in determining whether a mark is well-known or not, the following criteria may be taken into account: (a) the degree of knowledge or recognition of the mark in the relevant sector of the public; (b) the duration, extent, and geographical area of any use of the mark; (c) the duration, extent, and geographical area of any promotion of the mark, including advertising or publicity and the presentation, at fairs or exhibitions, of the goods or services to which the mark applies; (d) the duration and geographical area of any registrations, or any applications for registration, of the mark to the extent that they reflect use or recognition of the mark; (e) the record of successful enforcement of rights in the mark, in particular, the extent to which the mark was recognized as well-known by competent authorities; and (f) the value associated with the mark Any trademark that is registered contrary to section 14(1)(e) is liable to be expunged under section 45 on an application by the registered proprietor of the well-known trademark. Pursuant to section 45(1)(a), any person aggrieved by any entry made in the register without sufficient cause or by any entry wrongfully remaining in the register may apply to the court to expunge the entry. It follows from this that any trademark that is registered contrary to any of sub-sections (a) to (g) of section 14(1) is liable to be expunged from the register.

Facts The case was heard at first instance by the High Court3 and subsequently, on appeal by the defendant, by the Court of Appeal. In this case report, the respondents, who were the plaintiffs in the High Court, will be referred to as “the plaintiffs”. Similarly, the appellant, who was the defendant, will be referred to as “the defendant”. The first plaintiff was the registered proprietor of the device mark X-1R for goods in Class 4 of the Third Schedule of the Trade Marks Regulations

3 X1R Global Holding Sdn Bhd & Anor v Y-Teq Auto Parts (M) Sdn Bhd [2016] MLJU 1249.

Dilution of a well-known trademark 233 1997.4 The goods were lubricant oil for motorcycle and car parts. The first plaintiff’s device mark is depicted here. The second plaintiff was the registered user of the mark. The defendant was the registered proprietor of another device mark which also bore the letters X1R in respect of goods in Classes 7, 9, 12 and 35.

The plaintiffs alleged that the defendant’s trademark was similar to theirs and this would result in confusion or deception among traders, customers, and the general public. Therefore, the plaintiffs applied under section 45(1)(a) of the TMA 1976 to expunge the defendant’s trademark from the register on the ground that the defendant’s trademark was entered in the register without sufficient cause and was wrongfully remaining in the register. The plaintiffs adduced several pieces of evidence to prove the confusion and deception that had taken place. As a result, the plaintiffs claimed that they had suffered loss and damage. However, the defendant argued it had used its trademark on motorcycle parts and accessories since 2013 and the sale of its goods bearing the trademark was substantial. In addition, the defendant claimed that it had advertised its trademark in various motorcycle magazines and entered into sponsorship agreements. Based on this, the defendant asserted it was the bona fide owner of the trademark. Further, the defendant contended that as its trademark was used in relation to motorcycle parts while the first plaintiff’s trademark was used for lubricant oil, the plaintiffs were not aggrieved persons and, accordingly, could not invoke section 45(1)(a). Section 45(1)(a) of the TMA 1976 requires all applicants to be aggrieved persons in order to have the locus standi to commence legal proceedings to expunge the trademark. The judicial commissioner who presided on the case, Wong JC, found that the first plaintiff’s trademark was a distinctive mark and also a well-known trademark in Malaysia. The court also found that the plaintiffs were aggrieved persons as required by section 45(1)(a). Following from this, the court concluded, based on 4 The Third Schedule of the Trade Marks Regulations 1997 follows the International Classification of Goods and Services for the Purposes of the Registration of Marks established pursuant to the Nice Agreement of June 15, 1957 including amendments made to it from time to time.

234  Tay Pek San the facts, that even though the defendant’s goods were in a class which was different from the plaintiffs’ goods, there was a real likelihood of deception or confusion in the minds of the public that goods bearing the plaintiffs’ trademark originated from the defendant. As such, the court found that pursuant to section 14(1)(a),5 the defendant’s trademark ought not to have been registered in the first place. Further, as the first plaintiff’s trademark was well-known and the parties’ goods were different, the court considered whether the prohibition under section 14(1)(e) applied. The court concluded that section 14(1)(e) applied and the plaintiffs would suffer dilution to their trademark, experience loss in the sale of their goods and be exposed to the risk of litigation from purchasers who had bought the defendant’s inferior goods in the mistaken belief that they originated from the plaintiffs. Having decided that, the court held that it was mandatory under section 45(1)(a) for the court to order that the defendant’s trademark be expunged from the register. On appeal the Court of Appeal affirmed the decision of the trial judge.

Reasoning of the court The trial judge identified the issues as follows: 1 Was the first plaintiff’s trademark well-known? 2 Did the plaintiffs qualify as persons aggrieved by the registration of the defendant’s trademark? Was the use by the defendant of its trademark likely to deceive and/or confuse the public under section 14(1)(a) of the TMA 1976? 3 If the first plaintiff’s mark was well-known, did the use of the defendant’s trademark fall within the provisos in section 14(1)(e), that is: a b

indicate a connection between the defendant’s and the plaintiffs’ goods? damage the interests of the plaintiff?

The reasoning of the trial judge in respect of each issue is discussed in turn.

1 Was the first plaintiff’s trademark well-known? In determining whether the first plaintiff’s trademark was well-known, the court considered whether the criteria laid down in regulation 13B of the TMR 1997 were exhaustive. The court noted the use of the word “may” in the provision and held that it rendered the provision permissive in nature. Accordingly, not all the criteria had to be met for a mark to be well-known. Since the factors were a set of guidelines, the court was free to disregard any or all of the factors as each case required. 5 Pursuant to section 14(1)(a) of the TMA 1976, a mark shall not be registered as a trademark if its use is likely to deceive or cause confusion to the public.

Dilution of a well-known trademark 235 The court also held that other relevant matters not provided in regulation 13B could be considered in determining whether a trademark is well-known. The court cited the case of Dabur India Ltd v Nagasegi Sdn Bhd & Ors6 where the High Court, when determining whether the plaintiff’s trademark was well known, additionally took into account the numerous applications and registrations of the mark in other countries. The court found further support for this from the Singapore case of Novelty Pte Ltd v Amanresorts Ltd & Anor7 where the Court of Appeal held that the factors laid down in section 2(7)(a)– (e) of the Singapore Trade Marks Act, which is in pari materia with regulation 13B of the TMR 1997, were not exhaustive. Instead, the court was obliged to take into account any matter from which it might be inferred that the trademark was well-known. The court found the first plaintiff’s trademark to be well-known for various reasons including its use in more than 30 countries, its registration in many countries in the Asia-Pacific region, its extensive promotion, its advertisements, the value associated with the trademark, and the many certifications obtained from various organisations throughout the world.

2 Did the plaintiffs qualify as persons aggrieved within the meaning of section 45(1)(a) of the TMA 1976? According to the court, the plaintiffs had the legal burden of establishing that they were aggrieved persons within the meaning of section 45(1)(a). The court relied on three Federal Court8 cases which elaborated on the meaning of the term “aggrieved person”. In McLaren International Ltd v Lim Yat Meen,9 the Federal Court stated that an aggrieved person “is a person who has used his mark as a trademark – or who has a genuine and present intention to use his mark as a trademark – in the course of a trade which is the same as or similar to the trade of the owner of the registered trademark that the person wants to have removed from the register.”10 In Yong Teng Hing b/s Hong Kong Trading Co & Anor v Walton International Ltd,11 the Federal Court held that it was possible for the registered proprietor of a trademark in one class of goods to be aggrieved by the registration of another trademark in a different class of goods. In Mesuma Sports Sdn Bhd v Majlis Sukan Negara Malaysia (Pendaftar Cap Dagangan Malaysia, interested party),12 the Federal Court followed the definition laid down in McLaren and, additionally, stated that an aggrieved person must be someone who had some   6 [2011] 7 MLJ 522 at 535–536.   7 [2009] 3 SLR 216 at paras 136–140.   8 The Federal Court is the highest court and final appellate court in Malaysia.   9 [2009] 4 CLJ 749. 10 [2009] 4 CLJ 749 at para [22]. 11 [2012] 6 CLJ 337 at 342. 12 [2015] 6 MLJ 465 at 477 para [28].

236  Tay Pek San element of legal interest, right or legitimate expectation in its own mark which was being substantially affected by the presence of the registered trademark. The court found that the plaintiffs were adversely affected in a financial sense when one of their intended distributors had refused to distribute their goods on the mistaken belief that the goods originated from the defendant, who was a competitor of that distributor. Also, as there was a likelihood of confusion or deception that some business association existed between the plaintiffs and the defendant, any inferiority in the quality of the defendant’s goods might be imputed to the plaintiffs. This could adversely affect the plaintiffs’ right to the use of their trademark.

3 Was the use by the defendant of its trademark likely to deceive and/or cause confusion to the public? The court held that the issue of whether there was a likelihood of deception of the public was one for the court, and not the witnesses, to decide after taking into account all the relevant circumstances. The fact that the defendant’s goods were in a class which was different from the plaintiffs’ goods did not necessarily mean that there was no likelihood of deception or confusion. The court held that the test of likelihood of confusion and deception was whether “a number of persons will be caused to wonder whether it might not be the case that the two products came from the same source.” According to the court, confusion and deception was a question of fact and degree. The more well-known a trademark, the more likely it is that consumers might be confused into believing that a trade connection exists between the goods bearing the same or similar mark. On the facts of the case, the court held that there was a real likelihood of deception or confusion in the public’s mind that the defendant’s goods originated from the plaintiffs. This was because the plaintiffs’ and defendant’s customers were in the same motor vehicle industry, the trade channels for the parties’ goods were the same, both parties’ marks shared the same concept and the marks were visually as well as orally similar. In addition, since the first plaintiff’s trademark was unique and unusual, there was a higher likelihood of confusion in the minds of the public as to the source of goods bearing the marks. Accordingly, the court held that the defendant’s mark should be expunged under section 45(1)(a) as it had been entered in the register without sufficient cause and was wrongfully remaining in the register.

4 Did the use of the defendant’s mark fall within section 14(1)(e)? Section 14(1)(e) would only apply if the plaintiffs could prove the following four conditions:   (i) The trademark is well-known, (ii) The trademark is registered for goods which are not the same as the defendant’s goods,

Dilution of a well-known trademark 237 (iii) The use of the defendant’s trademark on the defendant’s goods would indicate a connection between the defendant’s goods and the plaintiffs’ goods, and  (iv) The plaintiffs’ interests are likely to be damaged by the defendant’s use of the defendant’s trademark The court had no difficulty in finding that the first two conditions were satisfied. With regard to the third condition, the crux of the question was whether the phrase “indicate a connection” required a confusing connection between the plaintiffs’ and the defendant’s goods. The court held that section 14(1)(e) did not require proof of likelihood of confusion. This was because Parliament, in enacting section 14(1)(a), had already provided for prohibition against the registration of a trademark in the case where confusing connection existed. According to the court, if Parliament had intended to require proof of likelihood of confusion in section 14(1)(e) as well, it could have easily inserted such a requirement in that provision, along the lines of section 14(1)(a). The court identified three types of “connection” contemplated by section 14(1)(e). The first is the connection as to the origin of the goods, namely, the use of the defendant’s trademark will indicate that the defendant’s goods emanate from the same source as the plaintiffs’ goods. The second is the connection in respect of the quality of the goods, namely, the use of the defendant’s trademark will indicate that the defendant’s goods have the same quality as the plaintiffs’ goods. The third is the association in the public’s mind that the companies are related or have some kind of business relationship. On the facts of the case, the court found that the public would assume some form of business relationship between the plaintiffs and the defendant. The court held that the plaintiffs’ interests were damaged when they suffered dilution to their trademark, faced losses in the sale of their goods, suffered restrictions in expanding the use of their trademark to goods in classes which had been registered by the defendant, and were exposed to the risk of liability by purchasers who had bought the defendant’s inferior goods in the mistaken belief that they had acquired the plaintiffs’ goods. Accordingly, the court found that the defendant’s trademark had been entered in the register without sufficient cause and/or wrongfully remained in the Register within the meaning of section 45(1)(a) of the TMA 1976. It was mandatory under section 45(1)(a) that the defendant’s mark be expunged from the register. Neither the court nor the registrar had the discretion to allow the registered trademark to remain in the register. On appeal, the Court of Appeal upheld the decision of the trial judge. Importantly, the appellate court stated that section 14(1)(e) should not be read in isolation but be read in conjunction with other relevant sub-sections of section 14. In holding that damage by way of the dilution of a well-known trademark is a ground to reject an application for trademark registration, the court stated that:13 Section 14(1)(a) is framed in a wide manner to encompass marks that are registered in different class of goods. It is further fortified by s14(1)(e). 13 [2017] 3 CLJ 454 at para [21](b).

238  Tay Pek San When both the sub-sections are read together, it will mean that the mark complained of ought not to be registered if the earlier trade mark is a wellknown trade mark in Malaysia and the use of the mark complained of will give rise to unfair advantage or will impinge the distinctive characters or repute of the complainant’s mark.

Legal analysis 1 When determining whether a trade mark is well-known regulation 13B(a) is a crucial factor to be considered by the court and could not be disregarded As the Court of Appeal noted, the determination of whether a trademark is well-known is “ ‘often nefarious”.14 Nevertheless, the court acknowledged that regulation 13B, which is based on WIPO’s Joint Recommendation Concerning Provisions on the Protection of Well-Known Marks, provides good guidance on the factors to be taken into account. Based on the Singapore Court of Appeal decision in Novelty Pte Ltd v Amanresorts Ltd & Anor,15 the court clarified that, in determining whether a trademark is well-known, the court is obliged to take into account any matter from which it may be inferred that the trademark is wellknown and the court is free to disregard any or all of the factors listed in regulation 13B. In Novelty, it was held that the deeming provision in section 2(8) of the Singapore Trade Marks Act that a trademark shall be deemed to be well known in Singapore if it is well known to any relevant sector of the public in Singapore could not be disregarded. The trial judge in the present case took the view that since the TMA 1976 did not have a provision equivalent to section 2(8), this factor which is found in regulation 13B(a) could not be the “most crucial factor” in the determination of whether a trademark was well known.16 With due respect to the trial judge, section 14(2) of the TMA 1976 incorporates the equivalent of the Singapore section 2(8). Section 14(2) provides that Article 16 of the TRIPS Agreement shall apply for the purpose of determining whether a trademark is a well-known trademark. Article 16(2) of TRIPS requires Member States to take into account the knowledge of the relevant sector of the public when determining whether a trademark is well known. It follows therefore that regulation 13B(a) is a crucial factor to be considered by the court and could not be disregarded in the determination of whether a trademark is well known.

2 Section 14(1)(e) encompasses protection against dilution of well-known trademarks As the number of well-known trademarks in Malaysia increases, competitors increasingly use devious trading methods to ride on the reputation of well-known 14 [2017] 3 CLJ 454 at para [14]. 15 [2009] 3 SLR 216 at paras 136–140. 16 [2017] 3 CLJ 454 at para [30].

Dilution of a well-known trademark 239 trademarks. The main thrust of the TMA 1976 is the protection of the origin function of trademarks. However, section 14(1)(e) caters for a different situation, which is that the conflicting trademark is used on different goods or services. Although the use of an identical or similar mark in relation to different goods will often not lead to deception or confusion among consumers, section 14(1)(e) prohibits the registration of such a conflicting trademark. This is a statutory recognition that well-known trademarks stand apart from ordinary trademarks. The distinction lies in the fact that well-known trademarks have the ability to project notions of exclusivity, status, and uniqueness in their products or services over and above that of ordinary trademarks. In opposing an application for the registration of a conflicting trademark under section 14(1)(e), the well-known trademark owner must prove that his interests are likely to be damaged by the use of the conflicting mark. The trial judge and Court of Appeal recognised that the damage could be in the form of dilution of the well-known trademark. As the Court of Appeal puts it, the damage could be in the form of impinging on the distinctive character or repute of the complainant’s mark.

Commercial or industrial significance In deciding that the interests of well-known trademark proprietors may be damaged by way of dilution of the marks even if they are used on non-competing products, the court acknowledges that such marks are not mere source identifiers but possess drawing power which lures and channels consumers towards products and services on which the marks are used. From a commercial perspective, the present case confers judicial protection on the huge investment that wellknown trademark owners have expended in their marks in order for them to attain the high-repute status. The decision curbs the covert practices of traders in the marketplace who unethically ride on the commercial magnetism of wellknown trademarks in order to attract sales. The decision provides guidance on the principles applicable in the protection of well-known trademarks in Malaysia so that traders, in their zest to promote and sell their products and services, are aware of the limits of legally permissible acts. However, it cannot be denied that there will be situations where the permissible boundaries remain grey for many traders because of the uncertainty as to whether a particular trademark is well-known or otherwise.

21 Trade mark dilution before and after Section 29(4) of the Indian Trade Marks Act Renuka Medury

Case information: T.V. Venugopal v. Ushodaya Enterprises Ltd. & Anr., (2011) 4 SCC 85, (March 3rd, 2011)

Summary The present suit relates to an appeal filed by T.V. Venugopal, the appellant, against the decision of the Division Bench of the High Court of Andhra Pradesh, in the Supreme Court. The dispute arose as a consequence of the use of the “Eenadu” mark by the appellant in relation to “agarbathies”, i.e., incense sticks. The “Eenadu” mark is owned by the respondent, Ushodaya Enterprises, an entity forming part of the “Eenadu Margadarshi Group”, a reputed group of companies in Andhra Pradesh. The respondent utilises the mark, inter alia, in relation to its newspaper publication. The Division Bench held that the appellant had infringed the respondent’s copyright in the artistic work “Eenadu”. In response to the appellant’s appeal against the said decision by the Division Bench, the Supreme Court concluded that the use of the mark “Eenadu” by the appellant would cause confusion amongst the consumers and erode the goodwill and reputation amassed by the respondent.1 It is important to note that “dilution” was not specifically pleaded by the respondent.2

Legal context3 The statutory concept of “dilution” under the trademarks law of India did not exist under the Trade and Merchandise Marks Act, 1958, and was introduced in Section 29(4) of the Trade Marks Act, 1999 (“Act”). Hence, prior to the introduction 1 Please see the details pertaining to the rulings of the lower courts under “Facts”. 2 T.V. Venugoapal v Ushodaya Enterprises Ltd. & Anr. (March 3rd, 2011), Paragraph 28, Page 6. 3 The appellant, T.V. Venugopal argued that the Trade and Merchandise Marks Act, 1958 governed the case rather than the Trade Marks Act, 1999. The argument was based on Section 159(4) of the Trade Marks Act, 1999, which states the following: Subject to the provisions of section 100 and notwithstanding anything contained in any other provision of this Act, any legal proceeding pending in any Court at the commencement of this Act may be continued in the court as if this Act had not been passed.

Trade mark dilution before and after 241 of the concept in a statutory form, “dilution”, if any, was identified and determined under the general rubric of “passing off” which relied on the “confusion” test. “Dilution” was only perceived and applied as a species of harm that would result if a defendant were allowed to pass of its goods as those emanating under the plaintiff’s mark4: The plaintiff’s trademark honda, which is of global repute, is used by the defendants for a product like the pressure cooker, to acquire the benefit of its goodwill and reputation so as to create deception for the public who are likely to buy defendant’s product believing the same as coming from the house of honda or associated with the plaintiff in some manner. By doing so, it would dilute the goodwill and reputation of the plaintiff and the wrong committed by the defendants would certainly be an actionable wrong and the plaintiff is within its rights to ask for restraint against the defendants from using its mark honda for their products.5 As far back as in 1965, the Bombay High Court, in Sunder Parmanand Lalwani and Ors. v Caltex (India) Ltd.,6 considered the application of an identical trademark “Caltex” to dissimilar goods, i.e., “watches”, as opposed to “petrol”.7 The court applied the general test of “consumer confusion and deception” to arrive at the conclusion that the use of the mark “Caltex” in relation to “watches” would cause confusion in the minds of the purchasers, In this case, the goods are totally different. There is no trade connection between them. There is no connection in the course of trade nor any common trade channels. . . . But we must consider the factors which tend to show that there is a likelihood of creating deception or confusion. With the passage of the Act, and the incorporation of the statutory concept of “dilution” in Section 29(4), “dilution” was disassociated from its traditional understanding and moorings, namely, as a form of harm caused by consumer deception or confusion. Dilution under Section 29(4) of the Act was intended to operate independent of any consumer confusion. Section 29(4) of the Act conspicuously omitted any references to consumer confusion, and instead posited the following requirements to qualify for protection against dilution: (a) Firstly, the cause of action can be claimed by the proprietor of a registered mark; (b) Secondly, the mark should be used by the defendant in the course of trade, and without permission from the owner of the mark;

4 Dev Gangjee, The Polymorphism of Trademark Dilution in India, 17 Transnat’l L. & Contemp. Probs. 611, 2008. 5 Honda Motors Co. v Charanjit Singh & Ors., 2003 P.T.C. 26 (Del.) on 28 November, 2002. 6 AIR 1969 Bom 24. 7 Sunder Parmanand Lalwani applied to register the mark “Caltex” in respect of Class 14 (jewelry items, i.e., watches). Caltex (India) opposed, based on their registered trademark in relation to Class 4 (fuels, i.e., petrol) and Class 19 (non-metallic building materials).

242  Renuka Medury (c) Thirdly, the mark used by the defendant should be identical with or similar to the registered mark which is claimed to be diluted by such use; (d) Fourthly, the use by the defendant should be in relation to goods or services which are dissimilar from the goods or services marketed or sold by the plaintiff; (e) Fifthly, the mark must have acquired a reputation in India; (f) Lastly, the use of the mark must have been without ‘due cause’ by the defendant, and in a manner which is conducive to take unfair advantage of or is detrimental to, the distinctive character or repute of the registered trade mark.8 Indeed, the difference in applicability of the principle of “dilution” pre and post the passage of the Act manifests in the absence of the need to prove any form of consumer confusion or deception. Under Section 29(4) of the Act, “dilution” will be found to exist if the six previously delineated factors are identified irrespective of the existence or absence of any form of consumer confusion. This distinction has been reiterated by several courts adjudicating upon whether the use of a registered mark by another in relation to dissimilar goods or services is found to “dilute” the registered mark. In Ford Motor Co. v C.R. Borman decided on November 07, 20089, the division bench of the Delhi High Court stated that Section 29(4) is an exception to the scheme of the Act since it does not require consumer confusion to be proved, What should not be lost sight of is the fact that Section 29(4) is palpably an exception to the scheme of the Act and applies only to those trademarks which have earned a reputation in India. If it is, prima facie, clear or it is proved through evidence that the concerned trademark enjoys and commands a reputation in India, the Plaintiffs do not have to prove deception on the part of the Defendants or likelihood of the customer being misled because of the use of the challenged trademark. More recently in Bloomberg Finance LP v Prafull Saklecha,10 the Delhi High Court similarly clarified that consumer confusion or deception is not required to be demonstrated to prove “dilution”. The court stated that: Section 29(4) is also distinct from Section 29(1) to (3) of the TM Act in another important aspect. The element of having to demonstrate the   8 Section 29(4) of the Act stipulates: (4) A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which – (a) is identical with or similar to the registered trade mark; and (b) is used in relation to goods or services which are not similar to those for which the trade mark is registered; and (c) the registered trade mark has a reputation in India and the use of the mark without due cause takes unfair advantage of or is detrimental to, the distinctive character or repute of the registered trade mark.  9 156(2009)DLT1. 10 2013 (56) PTC 243 (Del).

Trade mark dilution before and after 243 likelihood of confusion is absent. Perhaps to balance out this element, the legislature has mandated the necessity of showing that (a) the mark has a reputation in India (b) that the mark has a distinctive character (c) the use by the infringer is without due cause. In other words, the legislative intent is to afford a stronger protection to a mark that has a reputation without the registered proprietor of such mark having to demonstrate the likelihood of confusion arising from the use of an identical or similar mark in relation to dissimilar goods and services. It is pertinent to note that Section 29(4) of the Act does not elaborate on the parameters that should be applied for determining if a mark has acquired the requisite degree of “reputation”. Several commentators have compared the ‘reputation’ requirement under Section 29(4) of the Act to the similarly worded Section 11(2) of the Act which sets out the relative grounds of refusal for the registration of a mark by the Registrar.11 An important distinction between the two provisions is that while Section 29(4) refers to the “reputation” of a mark, Section 11(2) applies to “well-known” marks.12 The Delhi High Court recently clarified in Bloomberg Finance LP v. Prafull Saklecha that ‘reputation’ may be proved to exist even if the mark is not determined to be a ‘well known’ mark, “It may not be necessary for the proprietor of a registered mark to show that it is a ‘well-known trademark’ as defined in Section 2 (zg) although if in fact it is, it makes it easier to satisfy the ‘reputation’ requirement of Section 29 (4) of the TM Act.”13 Hence, it is apparent from the court’s observation that “reputation” under Section 29(4) is distinct from the standard applicable to “well-known” marks under the Act.

Facts The appellant was engaged in the business of the manufacture and sale of “agarbathies” (incense sticks) and operated a sole proprietorship under the name of

11 Section 11(2) of the Act foresees: (2) A trade mark which – (a) is identical with or similar to an earlier trade mark; and (b) is to be registered for goods or services which are not similar to those for which the earlier trade mark is registered in the name of a different proprietor, shall not be registered, if or to the extent, the earlier trade mark is a well-known trade mark in India and the use of the later mark without due cause would take unfair advantage of or be detrimental to the distinctive character or repute of the earlier trade mark. 12 Section 2(zg) of the Act stipulates: “well-known trade mark”, in relation to any goods or services, means a mark which has become so to the substantial segment of the public which uses such goods or receives such services that the use of such mark in relation to other goods or services would be likely to be taken as indicating a connection in the course of trade or rendering of services between those goods or services and a person using the mark in relation to the first-mentioned goods or services. 13 Supra note 10, Paragraph 39, Page 12.

244  Renuka Medury “Ashika Incense Incorporated” in Bangalore, Karnataka. The respondent, Ushodaya Enterprises Ltd., an entity forming part of the “Eenaadu Margadarshi Group”, a reputed and prominent business group in the state of Andhra Pradesh in India, inter alia, circulated a daily newspaper titled “Eenadu” in Andhra Pradesh. The respondent issued a cease and desist letter to the appellant in 1995, directing the appellant to immediately cease use of the mark, “Eenadu” in relation to the incense sticks manufactured, marketed, and sold by the appellant. The respondent contended that, in addition to the use of the mark, “Eenadu”, the appellant also utilised an artistic script, font, and method of writing “Eenadu” which was identical to the script used by the respondent. Thereafter in 1999 the respondent filed a suit against the appellant in the Court of Second Additional Chief Judge, City Civil Court, Hyderabad, alleging infringement of the respondent’s copyright, and passing off of the respondent’s trademarks. The Second Additional Chief Judge, City Civil Court, granted an ex-parte ad interim injunction in November 1999, restraining the appellant from using the mark “Eenadu”. Aggrieved by the order of the Second Additional Chief Judge, City Civil Court, the appellant approached the High Court of Andhra Pradesh, whereby the interim injunction granted by the Second Additional Chief Judge, City Civil Court, was suspended, and the appellant was permitted to dispose of finished products bearing the “Eenadu” mark amounting to a total of Rupees one crore, and to continue the manufacture of products which were already at the stage of manufacture, bearing the said mark, in an amount of Rupees 78 Lakhs. In the interim, in July 2000, the Second Additional Chief Judge, City Civil Court, issued a partial injunction, disallowing the use of the “Eenadu” mark by the appellant in Andhra Pradesh. The appellant filed an appeal against the aforesaid injunction, in the High Court of Andhra Pradesh. The respondent also filed an appeal in the High Court of Andhra Pradesh, against the partial injunction issued by the City Civil Court, praying that the order of injunction against the use of the mark “Eenadu” by the appellant be extended to the rest of the country as well. The Single Judge, High Court of Andhra Pradesh, allowed the appeal filed by the appellant in December 2012, thereby quashing the territorial injunction decreed by the Second Additional Chief Judge, City Civil Court. The respondent filed a Letters Patent Appeal against the order of the Single Judge, High Court of Andhra Pradesh, before the Division Bench, High Court of Andhra Pradesh, which allowed the appeal. The Division Bench’s decision was premised on a copyright infringement by the appellant, and the Court noted as follows: Counsel for the plaintiff contended that when the trial Court has come to the conclusion that the plaintiff is the owner of the copyright of the artistic script Eenadu as reflected under Ex. AS, as provided under Section 13(1) of the Copyright Act, the trial Court ought to have held that the said copyright

Trade mark dilution before and after 245 of the plaintiff subsists throughout India and restricting the relief of grant of injunction in favour of the plaintiff to Andhra Pradesh State is erroneous. . . . We do not find any justifying reasons for the trial Court to restrict the relief of grant of injunction in favour of the plaintiff to the State of Andhra Pradesh only. The plaintiff has successfully proved that there is an infringement of the copyright of the artistic work Eenadu by the defendant. Therefore, as provided under Section 55 of the Copyright Act, the plaintiff is entitled to a permanent injunction against the defendant as prayed for and there is no rationale for restricting the grant of the relief of permanent injunction to the State of Andhra Pradesh only.14

Reasoning of the court The Supreme Court undertook a detailed examination of the factual matrix on the basis of two specific factors.

1 Nature of the mark The Supreme Court formulated the question as follows, “Where the name of the plaintiff is such as to give him exclusivity over the name, which would ipso facto extend to barring any other person from using the same. viz. Benz, Mahindra, Caterpillar, Reliance, Sahara, Diesel etc.”15 The court concluded that the mark, “Eenadu” is a descriptive mark when used in relation to newspapers, but it has acquired secondary meaning such that it is fully identified with the products of the respondent. The court further averred that the mark “Eenadu” has acquired tremendous goodwill and reputation, associated with the respondent, in the state of Andhra Pradesh. The appellant contended that “Eenadu” constituted a descriptive mark, and secondary meaning may accrue in its favour only in relation to newspapers. The appellant stated that the use of the mark “Eenadu” by the respondent was limited to newspapers, and hence the respondent could not avail broad protection in respect of all classes of goods and services: ‘Eenadu’ is not like Volvo or Kirloskar or Harrods or Benz. ‘Eenadu’ would fall in the category of marks like Shell, Safeguard, Flexgrip, Imperial, Skyline and Financial Times, Heat Pillar, One Day Drycleaners, Instea, Kesh Nikhar, Whipp Toppings. All these words have not been granted protection across the board.16 14 Ushodaya Enterprises Limited v T.V. Venugopal and Another, 2001(4) ALD723 (June 15, 2001). 15 Supra note 2, Paragraph 91, Page 27. 16 Supra note 2, Paragraphs 47–48, Page 11.

246  Renuka Medury The respondent countered by stating that “Eenadu” had acquired immense secondary significance, and that the word “Eenadu” was identified with the respondent’s products, the group is known as “Eenady Margadarshi Group” and the meaning of ‘Eenadu’ in various publications is stated to be the respondent company’s group. Furthermore, it also overlooked that in actual fact there are various products which are also being produced and sold by the respondent company under the business name of ‘Eenadu’. It is also relevant to mention that the ‘Eenadu’ TV Channel (also known as ETV) is one of the most popular channels and, therefore, the word ‘Eenadu’ has come to be completely associated with the respondent company group and in fact is a household name.17 The Supreme Court resorted to the “imagination test” to conclude that the word “Eenadu” constituted a descriptive mark when used in relation to newspapers, since it describes a characteristic of the product by conveying to purchasers that the newspaper is delivering “news for today”. The court stated that, The line between suggestive marks and descriptive marks is very thin. Various commentaries including McCarthy have laid down the imagination test to determine as to whether a mark is descriptive or suggestive. When this test is applied to the mark ‘Eenadu’ for a newspaper, it is clear that the same is descriptive in nature inasmuch as it means ‘Today’, i.e. news for today. It does not require any imagination at all. Thus in the imagination test, if the mark describes a characteristic of the product – in the case of ‘Eenadu’ the newspaper, it refers to the characteristic of the newspaper i.e., today’s news. ‘Eenadu’ would therefore, be an expression which immediately describes a newspaper.18 The Supreme Court also agreed with the evidence adduced by the respondent to prove that the mark “Eenadu” had garnered immense recognition and prominence in the state of Andhra Pradesh, on the basis of the popularity and consumer base for its newspapers and television channel. The Supreme Court hence concluded that the mark “Eenadu”, albeit descriptive when used in relation to the respondent’s products, had acquired a secondary meaning in the state of Andhra Pradesh: The respondent company’s mark ‘Eenadu’ has acquired extra-ordinary reputation and goodwill in the State of Andhra Pradesh. ‘Eenadu’ newspaper and TV are extremely well known and almost household words in the State

17 Supra note 2, Paragraph 57, Page 13. 18 Supra note 2, Paragraph 42, Page 8.

Trade mark dilution before and after 247 of Andhra Pradesh. The word ‘Eenadu’ may be a descriptive word but has acquired a secondary or subsidiary meaning and is fully identified with the products and services provided by the respondent company.19

2 Consumer confusion with respect to source The Supreme Court evaluated the potentiality of consumer confusion as to the source of the goods in the following scenario: The plaintiff’s adopted name would be protected if it has acquired a strong enough association with the plaintiff and the defendant has adopted such a name in common field of activity i.e. the purchasers test as to whether in the facts of the case, the manner of sale, surrounding circumstances etc. would lead to an inference that the source of product is the plaintiff.20 The Supreme Court concluded that the use of the mark “Eenadu” by the appellant was likely to cause confusion in the minds of the consumers compelling them to believe that the products supplied by the appellant originate from the respondent. The court’s conclusion was derived from the immense goodwill and reputation that the respondent had purportedly garnered in the state of Andhra Pradesh. Hence, the court also enunciated that the use of the mark “Eenadu” by the appellant would cause erosion to the respondent’s goodwill in the mark. The decision hence adverted to two premises: (1) that the continued use of the mark by the appellant would deceive the consumers as to the source of the appellant’s goods; and, (2) cause detriment to the respondent’s reputation. d) Permitting the appellant to sell his product with the mark ‘Eenadu’ in the State of Andhra Pradesh would definitely create confusion in the minds of the consumers because the appellant is selling Agarbathies marked ‘Eenadu’ as to be designed or calculated to lead purchasers to believe that its product Agarbathies are in fact the products of the respondent company. In other words, the appellant wants to ride on the reputation and goodwill of the respondent company. In such a situation, it is the bounden duty and obligation of the court not only to protect the goodwill and reputation of the respondent company but also to protect the interest of the consumers; f) Permitting the appellant to carry on his business in the name of ‘Eenadu’ in the State of Andhra Pradesh would lead to eroding extraordinary reputation and goodwill acquired by the respondent company over a passage of time; g) Appellant’s deliberate misrepresentation has the potentiality of creating serious confusion and deception for the public at large and the consumers have to be saved from such fraudulent and deceitful conduct of the appellant. 19 Supra note 2, Paragraph 100, Page 31. 20 Supra note 2, Paragraph 91, Page 27.

248  Renuka Medury h) Permitting the appellant to sell his product with the mark ‘Eenadu’ would be encroaching on the reputation and goodwill of the respondent company and this would constitute invasion of proprietary rights vested with the respondent company.21 The Supreme Court also discussed various cases which alluded to the absence of a commonality in the goods and services offered by the parties. The cases were decided under the overarching principle of passing off with an emphasis on dilution, i.e., erosion of the distinctive value of the mark. The Supreme Court, inter alia, discussed the decision of the Delhi High Court in Honda Motors Company Limited v Charanjit Singh & Ors., wherein the Delhi High Court observed that, the concept of passing off is a tort and with the passage of time, with the developing case law it has changed and now the two traders need not necessarily operate in the same field so as to suffer injury on account of the goods of one trader being passed off as those of the other. With the changed concept of passing off action, it is now not material for a passing off action that the plaintiff and the defendant should trade in the same field. I find that some business are truly international in character and the reputation and goodwill attached to them cannot in fact be held being international also.22 Similarly, the Supreme Court also discussed the judgment of the Delhi High Court in the case of Daimler Benz Aktiengesellschaft.23 The said case concerned the use of the “Mercedes Benz” mark by the defendant in relation to undergarments. Despite the absence of similarity in goods, the Supreme Court noted the following, The boxes in which the defendant sells its undergarments for men, and the representation thereon is of a man with his legs separated and hands joined together above his shoulder, all within a circle, indicate, the strong suggestion of the link between the three pointed star of ‘Mercedes Benz’ car and the undergarment’s sold by the defendant.24

Legal analysis The following two aspects of the decision merit further scrutiny and discussion:

1 Niche fame not sufficient to merit protection against dilution At the outset, it is clarified that “niche” fame can relate to “niche” geographic fame, and also to “niche” market fame. While “niche” geographic fame concerns 21 Supra note 2, Paragraph 102, Page 31. 22 Supra note 5. 23 Daimler Benz Aktiengesellschaft and another v Hybo Hindustan AIR 1994 DEL 239. 24 Supra note 2, Paragraph 76, Page 20.

Trade mark dilution before and after 249 reputation or fame garnered in a specific geographical region, “niche” market fame indicates fame acquired in a specific market or industry. As described under the section titled “Reasoning of the court”, the Supreme Court concluded that the mark “Eenadu” possessed enormous reputation and fame in very specific geographical area, i.e., the state of Andhra Pradesh, “The respondent company’s mark ‘Eenadu’ has acquired extra-ordinary reputation and goodwill in the State of Andhra Pradesh. ‘Eenadu’ newspaper and TV are extremely well known and almost household words in the State of Andhra Pradesh.”25 Moreover, the evidence adduced by the respondent was in relation to its newspaper publication and television business, and the manner in which “Eenadu” had begun to be associated exclusively with the respondent company and its esteemed newspaper publications and television channel in Andhra Pradesh. Hence, the case relates to fame acquired in a “niche” geographical area, and arguably a “niche market”. Section 29(4) states that the mark asserting protection against “dilution” should have acquired reputation in “India”. The reach of the reputation required under Section 29(4) has not been adjudicated by a court in India. However, it is pertinent to note that the reputation threshold stated in the provision is not qualified, i.e., permitted to be adduced for specific regions of the country, or for relevant market segments. Recently, the Delhi High Court, disallowed a claim for “dilution” of the “WELCOMGROUP” logo owned by the ITC group, on the basis of, inter alia, the lack of any fame for the logo beyond the hospitality services: “However, though the ‘aura’ of the W-NAMASTE mark may go beyond the niche hospitality services, and could extend to other luxury goods, there is nothing suggesting that such association extends to mid to high priced cigarettes.”26 Hence, arguably, “niche” market fame is not recognised as an adequate measure of the mark’s reputation under Section 29(4) of the Act. While the question of “niche” geographic fame has not been determined by an Indian court, courts in the United States have stated that fame required for “dilution” has to relate to the entire country and fame acquired in one or more states does not fulfill the requirements of the statutory provisions.27 In a case alleging, 25 Supra note 2, Paragraph 100, Page 31. 26 ITC Limited v Philip Morris Products SA and Ors., 2010 (42) PTC 572 (Del.), Paragraph 50, Page 29. The contested use of the logo was in relation to cigarettes by Philip Morris. ”Niche” fame was one of the factors considered by the Delhi High Court to arrive at its conclusion. In relation to the discussion on “niche” fame, the court also noted that the factor gains in importance since ITC was also involved in the sales of cigarettes [Paragraph 50, Page 29]. 27 15 U.S.C. § 1125(c)(2) Definitions (A) For purposes of paragraph (1), a mark is famous if it is widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark’s owner. In determining whether a mark possesses the requisite degree of recognition, the court may consider all relevant factors, including the following: (i) The duration, extent, and geographic reach of advertising and publicity of the mark, whether advertised or publicized by the owner or third parties.

250  Renuka Medury inter alia, dilution of the mark “Marci’s Old Fashioned Kettle Corn”, in relation to kettle corn, the United States District Court for the Western District of Pennsylvania, held that fame acquired in a few states in the country would not suffice for the purposes of proving dilution under the Lanham Act. Plaintiff’s kettle corn sales were limited to New York, Ohio, Indiana, Pennsylvania, and West Virginia. . . . It is unlikely that a mark associated with a product sold in such a limited geographic region would be “widely recognized by the general consuming public of the United States.”28 Similarly, the United States Court of Appeals, Third Circuit, disallowed a claim for dilution of the mark “Tyler Green” since the mark was famous in only one state of the country. The court stated that fame for the purposes of “dilution” of trademarks must extend to the entire country, “This is a rigorous standard, as it extends protection only to highly distinctive marks that are well-known throughout the country.”29 While the instant case was decided under the Trade and Merchandise Marks Act, 1958, it will be interesting to see the approach adopted by the Indian courts for determining the fame requirements under Section 29(4) of the Act. Importantly, the direction taken by the courts to cement the various contours of the “reputation” requirements under Section 29(4), in particular in relation to the geographic extent and market segmentation, will have a significant bearing on the trademark “dilution” jurisprudence in India.

2 Dilution under passing off and dilution per se The decision is also significant for underscoring the difference in applicability of dilution as a species of harm under the theory of “passing off”, and dilution as it is encapsulated in Section 29(4) of the Act. As discussed under “Legal context”, dilution as envisaged and incorporated in Section 29(4) of the Act operates independent of any considerations relating to consumer confusion or deception. Dilution under Section 29(4) of the Act does not require any form of consumer confusion to be proved if the other factors contemplated in the provision are fulfilled.30 On the contrary, when dilution as it exists under the rubric of passing off is applied, consumer confusion is taken into consideration for determining if the

(ii) The amount, volume, and geographic extent of sales of goods or services offered under the mark. (iii) The extent of actual recognition of the mark. (iv) Whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register. 28 Marci’s Fun Food, LLC v Shearer’s Foods, Inc., [No. 10–188, at *8 (W.D. Pa. Nov. 7, 2011]. 29 Green v Fornario, 486 F.3d 100, 105 (3d Cir. 2007). 30 Supra note 8.

Trade mark dilution before and after 251 mark would be diluted pursuant to use by a third party in relation to dissimilar goods and services. As discussed under “Legal context”, prior to the adoption of Section 29(4), dilution was applied as formulated under passing off. Hence, consumer confusion was a factor taken into account for determining the existence of dilution. Given that the suit was pending in the court at the time of the commencement of the Act, the Supreme Court proceeded to evaluate the case on the basis of the Trade and Merchandise Marks Act, 1958. The Supreme Court duly noted the appellant’s submissions in this regard and proceeded to decide the case on the basis of the theory of “passing off”: Thus, none of the concepts of well-known marks, dilution etc. as statutorily applicable under the 1999 Act, have any application in this case. . . . Learned counsel for the appellant also submitted that dilution is a completely different concept, namely, if there is confusion, there is no dilution. The concept of dilution steps in when in fact the consumer is not being confused but the plaintiff’s mark is being diluted in some form or the other.31

Industrial and commercial significance The decision has an ostensible commercial impact. First, it clarifies that if the mark has acquired the requisite degree of reputation, then trademark owners may seek to protect the integrity and distinctiveness of their marks against infringers, even if the infringers use such marks in respect of dissimilar products or services. Second, the case also clarifies that consumer confusion is not required to be proven in the case of a claim for “dilution” under Section 29(4) of the Act. This is a significant distinction from “dilution” related claims raised by trademark owners prior to the passage of the Act. Third, as the Supreme Court pointed out, if there is confusion, there is no dilution. Hence, trademark owners are advised to structure their claims about confusion and dilution in an alternative way, rather than cumulatively. Lastly, it will be interesting to see if the case sets a precedent for “niche geographic fame” cases, i.e., cases in which the trademark owner is afforded protection against dilution based on the mark’s fame in a particular geographic region of India, rather than requiring fame to be acquired in the entire country or a substantial part of it.

31 Supra note 2, Paragraphs 23–25, Page 5.

22 Taiwan IP Court decisions tend to treat likelihood of confusion and likelihood of dilution as mutually interchangeable Kung-Chung Liu and Fa-Chang Cheng

Case information: Taiwan Intellectual Property Court (in its capacity as the second instance court) 2016 Min-Shang-Shang-Zi No. 7 (decided on 11 May 2017)1

Summary The Taiwan Intellectual Property Court (IP Court) ruled in its capacity as the first instance court that the well-known trademark and the alleged infringing trademark at dispute were not the same or similar, and therefore neither likelihood of confusion nor dilution of the plaintiff’s well-known trademark occurred. The IP Court further found that the defendant has not been “knowingly using words contained in another person’s well-known registered trademark as the name of a company”, because the allegedly infringing corporate name was not exactly the same Chinese characters as the well-known trademark. The plaintiff appealed the case to the appellate instance of the IP Court which sustained the appeal and revoked the decision. The case is still pending before the Supreme Court.

Legal context 1 Evolving from the requirement of “actual dilution” in 2003 to that of “likelihood of dilution” in 2010 The 2003 revision of the Trademark Act introduced for the first time the protection against dilution. The then Article 23(1)(xii) (currently Article 30(1)(xi)) prohibited registration of later trademarks that are identical with or similar to another person’s well-known trademark or mark, and hence there exists a likelihood of confusion among the relevant public or a likelihood of dilution of the distinctiveness or reputation of the said

1 Decided by a panel of three judges composed of Zhong-Xing Chen (presiding), Zhou-Fu Lin, and Qi- Mou Zeng.

Likelihood of confusion and dilution 253 well-known trademark or mark, unless the proprietor of the said well-known trademark or mark consents to the application. The then Article 62 protected “registered” well-known trademarks against actual dilution and confusion by a legal construction of “deemed infringement”: Any of the following acts, without consent of the proprietor of a trademark, shall be deemed infringement of the right of such trademark: (1) knowingly using a trademark that is identical with or similar to another person’s registered well-known trademark or using words contained in that well-known registered trademark as the name of a company, business, domain name or any other name that identifies a business entity or its source, and hence diluting the distinctiveness or reputation of the said well-known trademark. (2) knowingly using words contained in another person’s registered trademark as the name of a company, business, domain name or any other name that identifies a business entity or its source, and hence confusing relevant consumers of products or services. The Trademark Act was again amended in 2010 to improve its protection of registered well-known trademarks by lowering the bar from actual to likelihood of confusion or dilution. According to current Article 70(i) and (ii) of the Trademark Act, likely dilution of a registered well-known trademark by another trademark, and likely confusion with or dilution of a registered wellknown trademark by a company name, etc. are deemed to be infringing. The relevant provision of Article 70 of the Trademark Act (deemed infringement) stipulates: Any of the following acts, without consent of the proprietor of a trademark, shall be deemed infringement of the right of such trademark: (1) knowingly using a trademark that is identical with or similar to another person’s registered well-known trademark, and hence there exists a likelihood of dilution of the distinctiveness or reputation of the said well-known trademark; (2) knowingly using words contained in another person’s well-known registered trademark as the name of a company, business, group or domain or any other name that identifies a business entity, and hence there exists a likelihood of confusion for relevant consumers or a likelihood of dilution of the distinctiveness or reputation of the said wellknown trademark.

2 Likelihood of dilution as “deemed infringement” The term “deemed” has not only its conventional meaning that no rebuttal is allowed, it also indicates that the two kinds of trademark infringement just mentioned are not the typical or traditional trademark infringement that targets

254  Kung-Chung Liu and Fa-Chang Cheng exclusively likelihood of confusion between two trademarks, but involve something novel that necessitates legislative intervention to declare their illegality, namely (1) likelihood of dilution of the distinctiveness or reputation of a wellknown trademark by a later trademark; and (2) likelihood of confusion between a well-known trademark and a later business identifier or a likelihood of dilution of the distinctiveness or reputation of a well-known trademark by a later business identifier.

3 Remaining legal issues What remains unclear and needs to be solved by the courts are at least the following questions: 1 2

How to distinguish likelihood of confusion from likelihood of dilution? How to distinguish likelihood of diluting distinctiveness from that of diluting reputation? 3 Should the dilution protection be limited to well-known trademarks of nationwide renown that reaches beyond the designated class(es) of products or services? 4 Should the protection against the likelihood of dilution be limited to the same or similar products or services?

Facts In the present case, the plaintiff started to use the Chinese characters “富蘭克 林” as its trademark in 1990, and its registration of the said Chinese characters as trademark for the Class 36 of services was granted on 1 November 1 2000. The defendant was the owner of the trademark comprising Chinese characters “富蘭德林,” registered for Class 35 products and Class 41 services on 16 May and 1 December 2003, respectively. In addition, the defendant filed “富蘭德林” for company name registration and set up “Taipei富蘭德林Consulting Limited Company,” “富蘭德林Investment Limited Company” and “富蘭德林Securities Limited Company” in 2001 and 2013 respectively. After coexisting for 14 years in peace, the plaintiff brought suit against the defendant around the end of 2014 to stop the latter from using and licensing “富蘭德林” and “富蘭克林” or its similars for the same or similar products or services provided by the plaintiff. Among other things, the plaintiff further demanded that the defendant change the names of the companies to something not “富蘭德林” and not “富蘭克林” and its similars. The first instance of the IP Court rejected all the claims by the plaintiff.2 However, the present decision revoked and granted the previously mentioned claims in its entirety.

2 Taiwan IP Court 2015 Min-Shang-Su-Zi No. 5, decided on 3 February 2016 by a single judge, Jing-Wen Lin.

Likelihood of confusion and dilution 255

Reasoning of the court 1 The plaintiff’s trademark “富蘭克林” is well-known among relevant consumers The appellate instance of IP Court first determined that the “富蘭克林” trademark was arbitrary in nature, as it had nothing to do with the services it was providing, nor did it imply or suggest such services; although as a transliteration of the English surname “Franklin,” “富蘭克林” has gained secondary meaning (acquired distinctiveness) and brand image more than an English surname through long-term advertisement and marketing, so much so that consumers considered “富蘭克林” as indicating a source for consultancy service for investment and wealth management. Once established, “富蘭克林” possessed the second strongest distinctiveness next to the coined trademarks.3 The court further found that“富蘭克林” was a well-known trademark between its first actual use and trademark registration (from 1990 to 31 October 2010), and continued to be one after the registration of the mark. The conclusion was based on the following facts: “富蘭克林” maintained financial columns in major newspapers (between 1999 and 2000), a daily TV program of 3 minutes on Taiwan TV from Monday to Saturday (1997–2001), spent an average annual advertising fee of about NT$ 20 million (between 1998–2000), printed a quarterly journal, DM, and brochures in over 6 million copies in 1999 and 2000 and 3 million copies in 1998 and 2001, and had made a total outreaching of 180 million times. “富蘭克林” had a sales agency relationship with 35 banks (out of 52 banks in Taiwan) for overseas funds (between 1990–2000), had sold a total amount of NT$31.8 billion in funds to date on 31 January 2010, and ranked top 3 in sales of funds in 2001, among others.4 According to the IP Court, the “ 富蘭克林” trademark had already become well known for Class 36 services by 1 November 2000, before the defendant’s registration of “富蘭德林.”

2 The defendant’s use of “富蘭德林” trademark was likely to dilute the distinctiveness and reputation of“富蘭克林” The present decision first generally elaborated on the definition of dilution of distinctiveness: As the result of unauthorized and continuous use of other’s well-known trademark, the relatedness between the said mark and the source of products and services on which the mark was used becomes diluted, namely the distinctiveness of the well-known mark is worn thin, depreciated, diluted or washed away.5 3 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1291–1296, and 1569 (court decisions published on the website of the Judicial Yuan have line numbers at the right end of the page). 4 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1298–1558. 5 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1725–1729.

256  Kung-Chung Liu and Fa-Chang Cheng It then came to the concrete conclusion that the defendant’s use of “富蘭德 林” trademark was likely to dilute the distinctiveness and reputation of “富蘭克 林”based on the following grounds:

2.1 The marks at dispute were highly similar The present decision recognised the strong similarity between the trademarks of the plaintiff and the defendant. Both, unstylised, shared the same first, second, and fourth Chinese characters of “富” “蘭” and ”林”, while the differing third characters “克” and “德” end with the same sound of 「ㄜ」 (sounds like “ə”), therefore were highly similar in sound. Moreover, meaning-wise, both “克” and “德” made the impression of being transliteration of an English word, the result of which was of substantially similar meaning, the only difference being phonetic, and therefore were highly similar in meaning. Based on similarity in sound, meaning, and appearance, the trademarks at issue were highly similar.6

2.2 Likely leading to misconception that the parties come from the same or different but related sources, therefore likely to dilute the distinctiveness of“富蘭克林” Given that “富蘭德林Investment Limited Company” provided financial consultancy service similar to the plaintiff, their investment objects were partially common, the receivers of the service and the venues of servicing overlapped, and the defendant’s service actually extended beyond Classes 35 and 41 to include Class 36 services. As a result, according to the general social common opinions and market transaction situations, the defendant’s use of the “富蘭德林” trademark would lead service receivers to wrongly believe that the plaintiff and the defendant came from the same or different but related sources and that a similar relationship existed between their services. Therefore, the defendant’s undertaking to provide highly similar service for which the well-known marks were designated could have diluted the relatedness between the said marks and the source of services on which the marks were used; consequently, a likelihood of diluting the distinctiveness of the well-known marks should be recognised.7

2.3 Likely to dilute reputation of the well-known trademark 2.3.1  CREATING WRONG BUSINESS ASSOCIATION BETWEEN THE PARTIES

The present decision defines “dilution of reputation” as “using another’s wellknown mark in ways against social ethical norms, or providing inferior quality of

6 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1751–1762. 7 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1800–1818.

Likelihood of confusion and dilution 257 products and services and thereby negatively influencing the social valuation of the genuine products and services of the well-known mark”. It is of the opinion that “Dilution is a matter of fact; whenever there is dilution, regardless of the degree or ratio of dilution, the requirement of dilution is fulfilled. Therefore the theory of likelihood of dilution has been adopted.”8 The present decision continued: The business that the defendant undertook was similar to the products or services on which the trademark of the plaintiff were used, which has already led to confusion among consumers” and further opined that “the ‘富蘭德林’ trademarks used by the defendant had the characteristic and attractiveness of strongly indicating the single source of the product or service provided by the plaintiff or its licensee ‘富蘭克林’ investment consultancy company, which could likely blur the impression among the relevant consumers. Given that slogans such as ‘Standing on China, Banking Business’ were used on the website of the defendant, it was sufficient to prove that the main business of the defendant was using the ‘富蘭德林’ as trademarks and company name to provide banking services. Consequently, the actual business of the defendant and the security consultancy business of the plaintiff on which its well-known trademarks were used were all banking services listed as Class 36 services. The situation in which the defendant used the富蘭德林 marks could lead relevant consumers into the direct association that the security consultancy business provided by the plaintiff was basically for the China market, or that the defendant was an affiliated company set up by the plaintiff and focused on providing banking-related services in China, thus diluting the distinctiveness or reputation of the wellknown marks in question.9

2.3.2 CREATING A NEGATIVE IMPRESSION THAT THE WELL-KNOWN TRADEMARK OWNER WAS ILLEGALLY USING MARKS

The present decision further reasoned that, if the fact that the defendant illegally used the “富蘭德林” trademarks on a service that was not related to the scope of its registration led relevant consumers to believe that such trademarks belonged to the plaintiff, then the ensuing negative impression of unlawful use of trademarks could be detrimental to the professional image and reputation in banking that the plaintiff built up through more than 20 years of operation, thereby diluting the reputation of the plaintiff.10

  8 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1859–1861.   9 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1862–1878. 10 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines 1879–1881.

258  Kung-Chung Liu and Fa-Chang Cheng

3 Likelihood of dilution can coexist with that of confusion in case of using other’s well-known trademark as an entity indicator The present decision first ruled that the defendant conducted the same or similar business as that on which the well-known marks were used, which would likely confuse relevant consumers. It then went on to rule that “富蘭德林” as used by the defendant as a company name was substantially the same as the plaintiff’s well-known mark, which would dilute the relatedness between the plaintiff’s well-known mark and its source-indicating function and should be recognised as causing likelihood of diluting the distinctiveness of the well-known mark. Furthermore, the defendant appropriated the plaintiff’s well-known mark in a way against the social ethical norm when conducting its investment or security business, which affected the social valuation of the plaintiff and should fulfill the requirement for likelihood of dilution. Consequently, the defendant’s use of “富蘭德林” as company name fulfilled the requirement for likelihood of dilution of the distinctiveness or reputation of the plaintiff’s well-known mark.11

Legal analysis 1 US Federal Trademark Dilution Act as model law The introduction of protection against dilution by the Taiwanese Trademark Act was modelled after the US Federal Trademark Dilution Act of 1995, evolving also from the requirement of “actual dilution” in 2003 to that of “likelihood of dilution” in 2010, as the US did with its Trademark Dilution Revision Act of 2006. Section 43(c)(1) of the US Lanham Act12 stipulates the principle of allowability of injunctive relief against likelihood of dilution of a famous mark regardless of the presence or absence of actual or likely confusion: Subject to the principles of equity, the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness, shall be entitled to an injunction against another person who, at any time after the owner’s mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury. In addition, in the legislative history of the US Federal Trademark Dilution Act, marks with household renown throughout the US, such as DUPONT, BUICK, and KODAK were used as examples of the use, which would fall within the new law, implying a high demand on renown.

11 Taiwan IP Court 2016 Min-Shang-Shang-Zi No. 7, lines. 12 15 U.S.C. 1125.

Likelihood of confusion and dilution 259

2 Relationship and distinction between likelihood of dilution and likelihood of confusion Section 3.1.2 of the Examination Guidelines for the Protection of Well-known Trademarks under Article 30(1)(xi) (1 July 2012) issued by the Taiwan Intellectual Property Office (TIPO) summarises the distinction between likelihood of confusion and likelihood of dilution correctly: it can be understood that the provisions regarding trademark dilution are focused on the protection of well-known trademarks and the prevention of any damage to a well-known trademark’s capability to indicate the source of products or services or the reputation identified thereby. It differs from the traditional likelihood of confusion theory, which is focused on the prevention of confusion among relevant consumers as to the source of the products or services. Although at least one decision of the IP Court seems to be of the opinion that the requirement and criteria of “likelihood of dilution” should be distinguished from those of “likelihood of confusion13”, more and more IP Court decisions tend to treat these two terms as mutually interchangeable. Since as early as January 2010,14 decisions saying basically that likelihood of dilution equals likelihood of confusion are on the rise. In 2009 Min (Civil)-Shang-Zi No.9, the appellate instance of the Taiwan IP Court ruled that by adding “Senior” (or “Old”) to the well-known registered mark of “Zhen Ji”, namely “Senior (or ‘Old’) Zhen Ji” to use as its company name, the infringer had confused consumers into believing that “Senior (or ‘Old’) Zhen Ji” was the authentic and traditional one, thereby diluting the distinctiveness of “Zhen Ji.” In 2010 Xing-Shang-Zi No.20, the Taiwan IP Court in its capacity as the second instance court ruled that the use by the defendant of a trademark similar to the well-known trademark would lead to the lessening of the associative ability between the well-known mark and specific commercial source (for products or services), thus to the dilution or whittling away of the distinctiveness of the well-known mark, which according to the general social common opinions and market transaction situations would lead the consumers of average products to wrongly believe that the products came from the same or different but related sources and should be of similar or close relationship.15 13 Taiwan IP Court, 2009 Xing-Shang-Geng(1) No.9 (appellate instance), decided on 14 January 2010 by a panel of three judges composed of Guo-Cheng Chen (presiding), ZhongXing Chen, and Qi-Mou Zeng. 14 Taiwan IP Court, 2009 Min-Shang-Zi No.9 (appellate instance), decided on 28 January 2010 by a panel of three judges composed of Guo-Cheng Chen (presiding), Zhong-Xing Chen, and Song-Mei Xiong. 15 Decided on 30 June 2010 by a panel of three judges composed of De-Zhou Lee (presiding), Han-Qing Wang, and Jun-Xiong Wang.

260  Kung-Chung Liu and Fa-Chang Cheng Unfortunately, the present decision follows the same line of reasoning. However, such equal treatment of the two legal terms neglects the historical fact that the “likelihood of dilution” was developed to cover what “likelihood of confusion” was not able to cover, namely the situation where although there is no “likelihood of confusion” to the source of the trademarked product or service, the distinctiveness or the reputation of a well-known mark is nevertheless being diluted (or as in the European Union Trademark Regulation “taken unfair advantage of”).16 If “likelihood of dilution” and “likelihood of confusion” were identical or interchangeable, there would be no need to create the former at all. Admittedly, “likelihood of dilution” and “likelihood of confusion” both premise on the existence of certain association between the marks at dispute. However, not every association is automatically “likelihood of dilution” or “likelihood of confusion.” If there occurs wrongful association involving the identity or relatedness of businesses represented by the marks or the function of trademark, then there should be likelihood of confusion. However, if association is undesirable, as it hinders the goodwill being rightfully attributed to its legitimate owner or slows down the speed with which the relevant public attribute the mark to its owner, then there is likelihood of dilution. In addition, as likelihood of dilution is only a “deemed” infringement and should be secondary in application, an inquiry into likelihood of dilution is only justified when the inquiry into likelihood of confusion ends with a negative result.17

16 Article 8(5) (Relative grounds for refusal) of the Trademark Regulation of the European Union (latest amendment June 2017) provides: Upon opposition by the proprietor of a registered earlier trade mark within the meaning of paragraph 2, the trade mark applied for shall not be registered where it is identical with, or similar to, an earlier trade mark, irrespective of whether the products or services for which it is applied are identical with, similar to or not similar to those for which the earlier trade mark is registered, where, in the case of an earlier EU trade mark, the trade mark has a reputation in the Union or, in the case of an earlier national trade mark, the trade mark has a reputation in the Member State concerned, and where the use without due cause of the trade mark applied for would take unfair advantage of, or be detrimental to, the distinctive character or the repute of the earlier trade mark.

Article 9(2)(c) (Rights conferred by an EU trade mark) stipulates:

2. Without prejudice to the rights of proprietors acquired before the filing date or the priority date of the EU trade mark, the proprietor of that EU trade mark shall be entitled to prevent all third parties not having his consent from using in the course of trade, in relation to products or services, any sign where: (c) the sign is identical with, or similar to, the EU trade mark irrespective of whether it is used in relation to products or services which are identical with, similar to or not similar to those for which the EU trade mark is registered, where the latter has a reputation in the Union and where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the EU trade mark. 17 Kung-Chung Liu, Trademark Law – A Comparative Treaties (in Chinese), 2014, 336.

Likelihood of confusion and dilution 261

3 The relationship and distinction between likelihood of diluting the distinctiveness and likelihood of diluting the reputation Section 43(c)(2)(B) and (C) of the Lanham Act provide the definitions of two different kinds of likelihood of dilution: “dilution by blurring” is association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark and “dilution by tarnishment” is association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark. In determining whether a mark or trade name is likely to cause dilution by blurring, the court may consider all relevant factors, including the following: (1) the degree of similarity between the mark or trade name and the famous mark; (2) the degree of inherent or acquired distinctiveness of the famous mark; (3) the extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark; (4) the degree of recognition of the famous mark; (5) whether the user of the mark or trade name intended to create an association with the famous mark; and (6) any actual association between the mark or trade name and the famous mark. These understandings are admittedly of high reference value to the interpretation of the Taiwanese Trademark Act. As a matter of fact, the Supreme Administrative Court has already expressed a similar view in 2011: The so-called likelihood of diluting the distinctiveness of well-known trademarks means by applying trademarks that are the same as or similar to wellknown trademarks of others to dissimilar products or services there exists the possibility that the association between such well-known marks and the sources for specific products or services is weakened or dispersed and that the uniqueness of such well-known marks is reduced. The so-called likelihood of diluting the reputation of well-known trademarks means by applying trademarks that are the same as or similar to well-known trademarks of others there exists the possibility that the quality or image signified by the well-known trademarks will be disparaged or negatively associated, so that the reputation of such well-known trademarks is likely to be tarnished.18 Therefore in essence, “dilution of distinctiveness” should be equal to “dilution by blurring,” typically referring to the “whittling away” of distinctiveness by proliferation of use of the well-known mark on products or services, similar or not,19 not provided by the owner of such mark, and is therefore a quantitative reduction of distinctiveness. In contrast, “dilution of reputation” should be equivalent to “dilution by tarnishment” which involves use of a well-known mark that links it to inferior products or services or portrays it in an unwholesome or

18 The Supreme Administrative Court 2011 Pan-Zi No. 519, decided on 14 April 2011. 19 That’s why the five factors numerated by Section 43(c)(2)(B) of the Lanham Act for determining whether a mark or trade name is likely to cause dilution by blurring concentrate

262  Kung-Chung Liu and Fa-Chang Cheng unsavory context likely to reflect adversely upon the mark owner’s products or services, and is therefore qualitative reduction of goodwill. The inquiry into the likelihood of dilution should start with an inquiry into dilution of distinctiveness, as it is more a matter of fact. If the finding is positive, then the process ends there. Only when the finding is negative, namely no likelihood of diluting distinctiveness was found, does the court then proceed to determine whether there was likelihood of diluting reputation, as it is more a matter of subjective assessment or evaluation. The present decision, although it started from a similar conceptual distinction, in actual determination of this couple of terms has blurred the line. At one point, it took dilution of distinctiveness automatically as dilution of reputation, without ascertaining what aspect of the goodwill of the well-known mark was damaged.20 At another, it concluded that the defendant’s illegal use of the “富蘭德林” trademarks on service not related to the scope of its registration would lead relevant consumers to believe that such trademarks belonged to the plaintiff, and then to have a negative impression about the plaintiff due to what was actually the defendant’s unlawful use of such trademarks, which could reduce the professional image and reputation of the plaintiff.21 However, it is illogical to infer that the unlawful use of another’s well-known mark by the diluter would be perceived by relevant consumers as that of the mark owner and therefore would in itself reduce the goodwill of such mark.

4 Dilution protection should be limited to trademarks of nationwide renown that reaches beyond designated class(es) of products or services Article 30(1)(xi) of the Trademark Act prohibits the registration of a trademark identical with or similar to another person’s well-known trademark with a likelihood of confusion among the relevant public or a likelihood of dilution of the distinctiveness or reputation of the well-known trademark. Section 3.2 of the solely on the marks at issue and do not consider the degree of similarity of the products and services at issue. It is therefore incorrect for the present decision to emphasize that Given that ‘富蘭德林Investment Limited Company’ provided similar financial consultancy service as the plaintiff, their investment objects were partially common, the receivers of the service and the venues of servicing overlapped, the defendant’s service actually extended beyond Classes 35 and 41 to include Class 36 services (cited in Reasonings of the Court 2.2.). Similar emphasis can also be found in Reasonings of the Court 2.3.1. 20 The situation in which the defendant used the富蘭德林 marks could lead relevant consumers into the direct association that the security consultancy business provided by the plaintiff was basically for the China market, or that the defendant was an affiliated company set up by the plaintiff and focused on providing banking-related services in China, thus diluting the distinctiveness or reputation of the well-known marks in question (cited in Reasonings of the Court 2.3.1.). 21 Cited in Reasonings of the Court 2.3.2.

Likelihood of confusion and dilution 263 Guidelines rightly distinguishes the required renown for the well-known marks which are likely to be confused from that of those which are likely to be diluted: that trademark dilution protection is a solution to situations where well-known trademarks cannot be effectively protected under the traditional likelihood of confusion theory from third parties’ uses that will injure their distinctiveness or reputation. Therefore, when the products/services of two parties’ trademarks are targeted at different market segments and the conflict of business interest between them is not obvious, consumers will not mistakenly assume that they come from the same, or different but related, sources; but if registration is granted to the trademark at issue, the distinctiveness or reputation of the cited trademark is likely to be injured. This is exactly the issue that the mechanism of dilution protection seeks to resolve. However, since protecting this kind of trademark has crossed over into markets where conflict of interest is not obvious, there will be a huge impact on free competition, which gives rise to the risk of a monopolisation of particular words, devices, or symbols, or any combination thereof. To reduce that harm and risk, the dilution protection should be limited to trademarks that enjoy a higher level of fame. Therefore, the level of fame required for a trademark to be entitled to dilution protection under the latter part of Article 30(1)(xi) should be higher than that required in the forepart of the same Subparagraph. As for the factors used to determine whether a trademark is well known and the evidence that can be submitted for consideration, a greater weight of evidence is required – i.e., when considering either the duration and extent of a trademark’s use on the products or services, or the duration and extent of any advertising and promotion of the trademark, or the amount, figures, or geographical scope of the sale of the products or services bearing the trademark, a longer duration, greater amount, or higher extent or broader scope should be required. Accordingly, where a trademark is well known to the extent that it is widely recognised by the public, the latter part of Article 30(1)(xi) is more likely to be applied. However, the present decision did not mention or discuss the Guidelines at all, nor did it elaborate on what “level of fame” the “trademarks that enjoy higher level of fame” should reach. Does it have to be nationwide and reaching beyond the designated class(es) of products or services or not? The present decision concluded that the plaintiff’s trademark “富蘭克林”is well known among relevant consumers for Class 36 services. This suggests that a lower level of fame, even sector-wide fame within one class of products or services would suffice. However, this would not justify the broad protection affixed to well-known marks and would not be in line with the US Lanham Act, the model for the Taiwanese Trademark Act.

5 The protection against the likelihood of dilution shall not be limited to the same or similar products or services The present decision, based on the plaintiff’s claims, prohibited the defendant from using and licensing “富蘭德林” and “富蘭克林” or its similars for the same

264  Kung-Chung Liu and Fa-Chang Cheng or similar products or services provided by the plaintiff. However, the Supreme Administrative Court has already expressed in 2011 Pan-Zi No. 519 (decided on 14 April 2011) a different view: namely, the likelihood of diluting the distinctiveness of well-known trademarks is meant to be applied to cases where trademarks that are the same as or similar to well-known trademarks of others were used on dissimilar products or services and led to the possibility that the association between such well-known marks and the sources for specific products or services is weakened. (emphasis added by the author) The view expressed by the Supreme Administrative Court should prevail at least for the following grounds: 1 Neither Article 30(1)(xi) nor Article 70(i) and (ii) of the Trademark Act prescribes that the protection against the likelihood of dilution be limited to the same or similar products or services. 2 Section 43(c)(1) of the Lanham Act proclaims that the determination of whether it is likely to cause dilution by blurring or dilution by tarnishment of the famous mark is to be done regardless of the presence or absence of competition. In other words, the products or services at issue do not have to be the same or similar, as “competition” would normally presume. 3 The five factors numerated by Section 43(c)(2)(B) of the Lanham Act for determining whether a mark or trade name is likely to cause dilution by blurring do not consider the degree of similarity of the products and services at issue. The same should also apply to the determination of dilution by tarnishment. 4 The feature of protection of well-known trademarks is that it reaches beyond dissimilar products and services,22 as reflected in 3.2 of the Guidelines. In the present case if the protection were not extended to dissimilar products and services, the defendant could continue to apply his trademark and company name to dissimilar products and services, and the dilution of plaintiff’s wellknown mark would not be put to an end.

6 Some critiques and improvement suggestion To avoid such a zero-sum result for the defendant, the legislature should contemplate the desirability of putting a time bar for well-known trademark owners to resort to the protection against the likelihood of dilution, such as before the renewal of the diluting mark’s registration. On the other hand, courts should preferably ask or even require the defendant to use a trademark and company name that is free from the impression of being a transliteration from an English

22 Kung-Chung Liu, Trademark Law – A Comparative Treaties (in Chinese), 247.

Likelihood of confusion and dilution 265 surname and yet allows the defendant to preserve its business investment, rather than vaguely demanding that the defendant not use the similars of the plaintiff’s trademark. Otherwise, the defendant would face even higher uncertainty in finding a mark that is acceptable to the plaintiff and the court as “dissimilar”.23 It should also be incumbent on courts to avoid unnecessarily embarrassing or even tarnishing the defendant by refraining from inquiring further whether there was likelihood of diluting the reputation after they have concluded that there was likelihood of diluting the distinctiveness of plaintiff’s mark. This is because the defendant might have invested heavily in and used his mark for a long time, in the present case 14 years, and his reputation as an honest businessman would be reduced if he were found to be disparaging the plaintiff’s goodwill in ways contrary to the social ethical norms.

Commercial and industrial significance After coexisting for almost 14 years in peace with “富蘭克林,”the defendant was stopped from using and licensing its registered trademark and company name (“富蘭德林”) despite investing heavily in the branding of the two and his trust in the granted registration of the trademark and its renewal. This is undoubtedly troubling for business certainty in the application and use of trademark.

23 One such mark could for example be the Chinese surname of “傅”, which sounds exactly like “富”, plus “德林.”Such a new word (“傅德林”) would change the sound, meaning and appearance considerably, yet preserving the three Chinese sounds of defendant’s trademark, thus defendant’s investment in“富蘭德林.”

23 Bad-faith registration of marks similar to well-known ones as ground for registration cancellation in Indonesia Prayudi Setiadharma

Case information: Supreme Court of the Republic of Indonesia, Grattiano Deru v. Bayerische Motoren Werke Aktiengesellschaft, 113 K/Pdt.Sus-HKI/2016, 26 May 2016

Summary It was a case of cassation1 from the first instance decision by the Commercial Court of Central Jakarta. Both the cassation and the first instance case were judged and decided under Law no. 15 of 2001 concerning Trademark, which since 28 November 2016 has been replaced by Law no. 20 of 2016 concerning Trademark and Geographic Indications. Proceeding for the present case started when a lawsuit was filed at the Commercial Court of Central Jakarta by Bayerische Motoren Werke (BMW) Aktiengesellschaft (hereinafter “the respondent”), demanding cancellation of registration from the Trademark General Registry of the Directorate General of Intellectual Property (the DGIP – the intellectual property office of Indonesia),2 of the following marks: • number IDM000431333 for the mark “Motorrad” in class 37 for “repair stations for motor vehicles, building construction, rental of construction apparatuses, building demolition, construction services, construction consulting (construction info), installation services, repair, building cleaning work, and workshops” – registration date 21 January 21 2004; and

1 Cassation is the official legal term used for appeals filed and considered at the Supreme Court. The Supreme Court of the Republic of Indonesia is one of the two institutions holding the highest judicative authority in Indonesia, the other being the Constitutional Court, whose jurisdiction is limited only to disputes concerning constitutionality of legislation as well as disputes concerning election results. 2 The plaintiff in this cassation proceeding was in fact the respondent at the first instance, whereas the respondent in this cassation proceeding was the plaintiff.

Bad-faith registration of marks in Indonesia 267 • number IDM000431334 for the mark “Motorrad” in class 35 for “showrooms, distribution services, goods provision services, goods merchandising services (store/grocery), mini markets, department stores, shops including: clothing stores, drug stores, chemists, boutiques, showrooms, galleries, florists, advertising services, accountancy services, commercial information services, services for holding commercial exhibitions, management consulting services, business consulting and information services, commercial information agency services, publicity services, exporting-importing agency services, leveraging services, research services, marketing agencies and analysis, rental services, public relations services, statistical information services, auction services, and workforce placement services” – registration date 21 January 21 2004. Both were registered in the name of the Grattiano Deru (“the plaintiff”). The respondent’s demand was based on the allegation that the plaintiff filed applications to register those marks in bad faith in the first place. The Commercial Court of Central Jakarta decided on 4 November 2015 in the judgment no. 37/Pdt.Sus-Merek/2015/PN.Niaga.Jkt.Pst. in favour of the respondent, concurred with the entire demand of the respondent, and ordered the DGIP as the then co-respondent to remove the plaintiff’s trademarks registration from its Registry. The plaintiff filed cassation to the Supreme Court, which was heard before a panel of three Justices. Eventually, the Supreme Court was unanimous in rejecting the plaintiff’s cassation and accordingly reaffirmed the commercial court’s first decision: That the [Plaintiff’s] above-stated objections cannot be justified as shown by close examination of the cassation memorandum dated 27 November 2015 and the counter-cassation memorandum dated 14 December 2015 in relation to the judgment by Judex Facti; in this case the Commercial Court of Central Jakarta has not erred in implementing the law. . . . Considering that, based upon the aforementioned considerations, evidently the Decision of the Commercial Court of Central Jakarta in the first instance of this present case is not in contradiction of any law and/or legislations, therefore the Plaintiff: Grattiano Deru’s cassation must be dismissed. The Supreme Court’s decision in the instant case confirmed that bad-faith registration is not subject to a time limit for filing a cancellation lawsuit, a position that had been indirectly implied by and yet was unclear under the provision of Article 69 of Law no. 5 of 2001 concerning Trademark. As the Supreme Court and the Commercial Court delivered their decisions on 26 May 2016 and 4 November 2015 respectively, it may be suggested that the two decisions might have influenced the 2016 Law of Trademark and Geographical Indication, which was enacted months later, on 25 November 2016, and which expanded and provided clearer provisions concerning cancellation grounds that are exempted from the time limit for filing a cancellation lawsuit.

268  Prayudi Setiadharma

Legal context Cancellation of a trademark registration is one of the two legal actions that can be launched by a third party against a registered trademark under the Indonesian system of trademark registration, the other being the removal of a registered trademark from the Trademark General Registry.

1 “Bad-faith registration” under the 2001 law Article 68 of Law no. 15 of 2001 concerning Trademark – the Indonesian national legislation on trademark protection that was in effect throughout the case proceedings – provided that any party with legitimate interests may petition for cancellation of another party’s trademark registrations through cancellation lawsuit filed at the commercial court.3 If either the plaintiff, the respondent, or both parties did not reside in Indonesia, the cancellation lawsuit should be filed at the Commercial Court of Central Jakarta.4 Should the petitioning party be an owner of an unregistered mark in Indonesia, the cancellation lawsuit might only be filed after application to register the mark in Indonesia was filed beforehand at the DGIP.5 However, petition for cancellation of trademark registration may only be based upon Articles 4, 5, and 6 of the same law, which concern the registrability of the petitioned mark. While Articles 4 and 5 set out conditions under which a mark cannot be registered, Article 6 sets out conditions under which an application for an otherwise registrable mark shall be refused. Article 4 stated: “A Mark cannot be registered if the Application is filed by the Applicant in bad faith.” Elucidation of Article 4 explains: An applicant in good faith is an Applicant who honestly and deservingly registers the Mark without any intention to pass off, to imitate, or to replicate the fame of another party’s Mark for the Applicant’s own business interests that is damaging to that other party or resulting in unfair competition, confusing or misleading consumers. For instance, Trademark A, which has been widely known by the public in general for many years, is imitated in a way that results in identical or substantial similarity. In that example, bad faith has

3 Article 68(3) – Law no. 15 of 2001 concerning Trademark. 4 Article 68(4) – Law no. 15 of 2001 concerning Trademark. 5 Article 68(2) – Law no. 15 of 2001 concerning Trademark.

Bad-faith registration of marks in Indonesia 269 occurred on the imitator’s side because at least it should be recognized that the widely known Trademark is imitated on purpose. Article 5 stated: A Mark cannot be registered if said Mark is either: a in violation of existing laws and regulations, religious morality, decency, or public order; b not distinctive enough; c already in the public domain; or d descriptive of, or related to, goods or services for which it is applied. Article 6 stated: 1) An application must be refused by the Directorate General if the Mark is: a entirely or substantially similar to a Mark owned by another party that has been previously registered for the same kind of goods and/or services; 2) entirely or substantially similar to a well-known mark owned by another party for the same kind of goods and/or services; or a

entirely or substantially similar to a known geographical indication.

3) The above paragraph (1) letter b is also applicable even if the goods and/or services are not of the same kind, if meeting certain conditions that are to be further provided under government regulation. 4) An application must also be refused by the Directorate General if the mark: a

b

c

Embodies or is similar to the name of a famous person, photograph, or name of a legal entity owned by another person, unless with written consent from the rightful owner; is an imitation from, or is similar to, a name or name abbreviation, flag, emblem, or symbol or emblem of a state or national or international institution, unless with written consent by the rightful owner; or is an imitation from, or is similar to, an official sign or seal or stamp as used by a state or government institution, unless with written consent by the rightful owner

However, Article 69(1) of Law no. 15 of 2001 concerning Trademark set a time limit so that any party may only launch a cancellation lawsuit against a mark registration: within 5 (five) years since the registration date of the Mark.

270  Prayudi Setiadharma However, Article 69(2) also provided that such a time limit is not applicable, and therefore a cancellation lawsuit may be filed anytime, if the mark in question is: conflicting with religious morality, decency and public order. Article 69(2) was explained in the Elucidation section of Law no. 15 of 2001 concerning Trademark, as follows: Conflicting with religious morality, decency or public order shall be defined in the same definition set under the Elucidation of Article 5 letter a.6 Included also in the definition of conflicting with public order is the presence of bad faith. Article 69’s time limit for filing a cancellation lawsuit and exemption thereof was one of the most critical issues in this case. Article 69(2) listed “conflicting with religious morality, decency and public order” as grounds for exempting a cancellation time-limit, whereas “bad-faith” was only referred to in the Elucidation section as one instance of “conflicting with public order”. Such indirect reference was made more complicated by the fact that “bad-faith registration” and “conflicting with religious morality, decency and public order” were clearly separated in Articles 4 and 5, dealing with marks that cannot be registered according to Law no. 15 of 2001 concerning Trademark.7

2 “Bad-faith registration” under the 2016 law One notable legal development under the new Law no. 20 of 2016 concerning Trademark and Geographic Indications, particularly with regards to a time limit for filing a cancellation lawsuit, is that Article 76(2)8 expands the list of grounds for

6 Elucidation of Article 5 letter a – Law no. 15 of 2001 concerning Trademark: Included in the definition of conflicting with religious morality, decency or public order is when use of the sign could offend the feelings, decency, harmony, or religiosity of the general public or a certain group of society. 7 Elucidation is regarded as the binding interpretation of its respective Articles. The Elucidation of Article 69(2) is often regarded as ambiguous, including by the plaintiff/original defendant in this case, since the Elucidation put “bad-faith registration” under the scope of “conflicting with public order,” while the main body of the law clearly separated “bad-faith registration” and “conflicting with public orders” in different articles. This way of law-writing could lead to some degree of ambiguity, especially in a country like Indonesia where interpretation of the law tends to be more textual. There were debates on why the law should separate both issues in the first place, or whether the separation actually meant that the “bad faith” in Article 4 and the “bad faith” covered under the scope of “conflicting with public order” indeed have different contexts and thus shall be interpreted differently. 8 Article 76(2) – Law no. 20 of 2016 concerning Trademark and Geographical Indications: Cancellation lawsuit can be filed without time limitation if there are elements of bad-faith and/or the Mark in question is conflicting with the state ideology, existing laws, morality, religion, decency, or public order.

Bad-faith registration of marks in Indonesia 271 cancellation that are exempted from the time limit for filing a cancellation lawsuit, and clearly lists “bad-faith registration” as one of the grounds. Such an expanded and clearer provision is expected to bring more legal certainty as well as clarity. As a matter of fact, the new trademark law greatly departs from its predecessor when it comes to treating the issue of “bad-faith registration” and “conflicting with public order”. In both the 2001 and 2016 laws, an application to register a trademark can be unsuccessful either due to the mark in question not meeting the objective conditions for registrability,9 or due to the DGIP refusing to register the mark in question – which could have been registered under the objective conditions – for subjective reasons.10 “Bad-faith registration” was one of the objective conditions under the 2001 law provided specifically in Article 4, while the other objective conditions were in Article 5. Interestingly, “bad-faith registration” shifted to become one of the subjective reasons based upon which the DGIP shall refuse to register a mark. Article 21 of the Law no. 20 of 2016 concerning Trademark and Geographical Indication stipulates that: 1) Application shall be refused if the Mark contains identical or substantial similarity with: a

b c d

A Mark that has been registered, or for which application for registration has already been submitted, in the name of another party for the same kinds of goods and/or services; A well-known mark owned by an other party for the same kinds of goods and/or services; A well-known mark owned by another party for different kinds of goods and/or services; Registered Geographical Indications.

2) An application shall be refused if the Mark is: a

b

the same as or similar to the name or abbreviation of the name of a famous person or picture, or the name of a legal entity owned by another person, unless authorized in writing; an imitation of or similar to the name or abbreviation of the name, flag, coat of arms or symbol or emblem of a country, or national or international institution, unless authorized in writing;

  9 Objective conditions of registrability in Law no. 15 of 2001 concerning Trademarks were under Articles 4 and 5, while in Law no. 20 of 2016 concerning Trademarks and Geographical Indication they are under Article 20. 10 Subjective reasons for refusal to register a mark in Law no. 15 of 2001 concerning Trademark were under Article 6, while in Law no. 20 of 2016 concerning Trademark and Geographical Indication they are under Article 21.

272  Prayudi Setiadharma c

an imitation of or similar to the official stamp or seal or signage used by the state or government organization, unless authorized in writing.

3) Application shall be refused if filed by the Applicant in bad faith. The Law no. 20 of 2016 concerning Trademark and Geographical Indication also provides more direct and yet more detailed elucidation of “applicant in bad faith” compared to Law no. 15 of 2001 concerning Trademark. Elucidation of Article 21(3) of Law no. 20 of 2016 concerning Trademark stipulates that: What is meant by “applicant in bad faith” is an applicant who can be fairly assumed to having filed his/her application under the intention to imitate, reproduce, or follow a mark owned by another party for his own business interests and thus incurring unfair business competition as well as misleading or deceiving consumers. An example is Trademark Registration Application in the form of writing, a painting, logo, or color composition that is similar to another party’s Mark or a Mark that has been widely known by the general public for years, which is imitated in a way that results in identicalityl or substantial similarity with the widely known mark. From that example, bad faith of the Applicant is evident because one can fairly assume that the imitation of said widely known Mark was committed intentionally. Nevertheless, as implied in each respective elucidation on “bad faith”, both the 2001 and 2016 laws are consistent in emphasising that trademark registered based on an application filed by an applicant in bad faith would cause unfair business competition due to its misleading and deceptive effect on consumers. While in general unfair business competition in Indonesia is regulated under the Law no. 5 of 1999 on Anti-Monopoly and Unfair Business Competition, and the law expressly excludes IPR-related arrangements from its rules and restrictions11, protection against unfair business competition alongside consumer protection has been the primary consideration of virtually each and every national trademark law that Indonesia has had since the first one was enacted in 1961. Therefore, the present case is also important in the legal context of reaffirming the role of Indonesian trademark laws in protecting against unfair competition, especially when the issue of “bad faith registration” is involved.

Facts The plaintiff is a citizen of the Republic of Indonesia, who filed application to register the disputed marks “Motorrad” in classes 35 and 37 with the DGIP on 5 11 Article 50(a), Law no. 5 of 1999 concerning Anti-Monopoly and Unfair Business Competition: “Exempted from the provisions of this law are: agreements related intellectual property rights, i.e. licensing, patent, trademark, copyright, design of industrial products, integrated electronic circuit, and trade secrets, as well as agreements related to franchises;.”

Bad-faith registration of marks in Indonesia 273 February 2002. Prior to filing the registration application, the plaintiff had marketed BMW Motorrad motorcycles produced by the respondent for some period. The plaintiff was also one of the founders of BMW Motor Cycle Club Indonesia, which was also known as BMW Motorrad Club or Motorrad Indonesia. The plaintiff officially obtained a license from the respondent as the general importer of the respondent’s motorcycle products for Indonesia based upon the BMW Motorcycle Importer Agreement signed by the plaintiff and the respondent on 31 August 2012. The agreement ended in 2015. During his business relationship with the respondent as its motorcycle distributor in Indonesia, the plaintiff played a significant role in the appointment by the respondent of PT Bali Dirt Bike – an Indonesian limited liability company that operates under the trade name “Bali Motorrad” – to take over from the plaintiff as the general importer for Indonesia of the respondent’s motorcycle products, which lasted until June 2015. The plaintiff however initiated a criminal action against PT Bali Dirt Bike on 22 January 2015, alleging that by using “Bali Motorrad” as its trade name PT Bali Dirt Bike had infringed the plaintiff’s registered marks “Motorrad”. The respondent is a German company that has been established since 1918 and is recognised as one of the world’s most prominent automotive manufacturers, with a strong market share in motorcycles. The respondent has used the mark “BMW Motorrad” for its motorcycle products since 1923. The word “Motorrad” itself is the German word for “motorcycle”. The respondent claimed that the mark “BMW Motorrad” had been widely used and well known in more than 130 countries. The respondent’s motorcycle products bearing the mark “BMW Motorrad” had also been imported to and distributed in Indonesia for some time prior to 2002. The respondent has also registered the mark “BMW Motorrad” in 46 countries and jurisdictions. The first registration was done in the European Union on 14 November 2002 under registration number 002932671. As for Indonesia, the respondent has also filed the following applications for registration of the mark “BMW Motorrad” with the DGIP: • Application number D002014021340, filing date 12 May 2014, for goods under class 12; • Application number J002015011645, filing date 23 March 2015, for services under class 35; and • Application number J002015011647, filing date 23 March 2015, for services under class 37.

Reasoning of the courts 1 BMW Motorrad as well-known mark The Commercial Court determined that the respondent’s BMW Motorrad was a well-known mark, which was affirmed by the Supreme Court:

274  Prayudi Setiadharma Considering, that on the other hand in relation to control a mark shall be considered well known if it satisfies the following requirements: public knowledge factor with regards to the mark in question within the related field of business due to the mark reputation that can be known from the existence of intensive as well as massive scale of promotion through modern advertising, investments in various countries in the world, exposure through cable TV, international magazines or through the internet; b broadness of mark use relevant to the volume of sales in various countries within a relatively long and stable sales period; c broadness of mark registration relevant to registration in various countries as well as how long the mark has been used; d the owner of said well-known mark has been successful in preventing registration of marks that imitate the well-known mark.12 a

Considering, that after the Panel analysed the [Respondent]’s presented evidenceas mentioned above with consideration to the criterion of wellknown mark, it can be concluded that the [Plaintiff]’s mark BMW Motorrad has been registered in a number of countries and obtained the reputation as a mark that has already been known, having conducted intensive and massive scale of promotion, having conducted sales in various countries in a relatively long and stable period as well as that the BMW Motorrad mark had been used for a long time by the [Respondent] before being registered and used by the [Plaintiff] in Indonesia, therefore in accordance with the abovementioned reasoning and facts, the Panel is of the opinion that the [Plaintiff]’s BMW Motorrad mark satisfies the criterion of well-known mark, and the [Plaintiff] shall therefore enjoy the reputation as well as obtain special protection of a well-known mark.13

2 Plaintiff registered Motorrad in bad faith The Commercial Court decided that the plaintiff’s registration was filed in bad faith, which was affirmed by the Supreme Court: Considering, that with the aforementioned consideration, the Panel is of the opinion that registration of the mark Motorrad under registration number: IDM00043133 dated 21 January 2004 for goods in Class 37 and the mark MOTORRAD under registration number IDM000431334 dated 21 January 2004 for goods in Class 35, by the [Plaintiff] was based on the intention to confuse the consumers so that products of the [Plaintiff] could perform 12 Commercial Court of Central Jakarta, Decision no. 37/Pdt.Sus-Merek/2015/PN.Niaga. Jkt.Pst., p. 66. 13 Commercial Court of Central Jakarta, Decision no. 37/Pdt.Sus-Merek/2015/PN.Niaga. Jkt.Pst., p. 67.

Bad-faith registration of marks in Indonesia 275 well in the market, which could disadvantage the owner of the mark “BMW Motorrad”, which is the [Respondent], and the general public, therefore in accordance with the provision of Article 4, Article 5 and Article 6 of the Law no. 15 of 2001 the [Plaintiff]’s mark should have not been registered in the General Registry of Marks since the registration was based on bad faith, and thus in accordance with the law, the [Plaintiff]’s Motorrad mark shall be cancelled.14 The Supreme Court cited the following as the basis for its re-affirmation of the Commercial Court decision: That the registered mark ‘Motorrad’ owned by the Plaintiff has substantial similarity with and contains bad faith by free-riding on the fame of ‘BMW Motorrad’ mark as a well-known mark owned by the Respondent in a way that may mislead the public upon the mark a quo and therefore the said mark registrations should be cancelled.

3 Plaintiff’s cancellation lawsuit against bad-faith registration not subject to statutory time limit The Commercial Court established that bad-faith registration shall not be subject to the statutory time limit for filing a cancellation lawsuit: Considering, that in the Panel’s view, the grounds for trademark cancellation as argued by the [Respondent] in their lawsuit are an indication of bad faith by the [Plaintiff] in registering and using the Motorrad Mark; Considering, that Article 69 point (1) of the Law no. 15 of 2001 concerning Mark provides that trademark cancellation lawsuit may only be submitted within 5 (five) years since the date of the mark registration, whereas Article 69 point (2) provides that trademark cancellation lawsuit on the basis of bad faith can be submitted without limitation of time; Considering, that furthermore in the elucidation of Article 69 point (2) of the Law no. 15 of 2001 concerning Mark, it is provided that the issue of bad faith shall be included in the definition of conflicting with public order as intended under Article 5 letter a of the Law no. 15 of 2001 concerning Mark. Considering, that accordingly since the mark registration cancellation lawsuit as submitted by the [Respondent] in the present case is based upon the indication of bad faith, the mark registration cancellation lawsuit can be submitted regardless of having surpassed 5 (five) years since registration of the mark.15 14 Commercial Court of Central Jakarta, Decision no. 37/Pdt.Sus-Merek/2015/PN.Niaga. Jkt.Pst., p. 73. 15 Commercial Court of Central Jakarta, Decision no. 37/Pdt.Sus-Merek/2015/PN.Niaga. Jkt.Pst., pp. 57–58.

276  Prayudi Setiadharma

Legal analysis 1 More clarity to exemption from statutory time limit for filing cancellation lawsuit against bad-faith registration The Commercial Court concurred with the respondent’s argument that specifically cited the Elucidation of Article 69(1) of the 2001 Trademark Law which acknowledges “bad-faith registration” as one definition of “conflicting with public order”. It concluded that there should be no time limit to file cancellation lawsuit against the disputed registered trademarks.16 By disregarding the plaintiff and DGIP’s counter-argument and concurring with the respondent, the Commercial Court has given a certain degree of clarity to the unclear position of Law no. 15 of 2001 concerning Trademark regarding whether the grounds of “bad-faith registration” shall be exempted from time limit for filing cancellation lawsuit. Affirmation of this decision by the Supreme Court indeed confirmed this position as a precedent, which in turn could also be applicable to Law no. 20 of 2016 concerning Trademark and Geographic Indications. Moreover, the Supreme Court decision also ensured Indonesian conformity with the international norm under the Paris Convention, namely Article 6bis(3), which provides that no time limit shall be fixed for requesting the cancellation of registration or the prohibition of the use of marks registered or used in bad faith.

2 Confirming precedents on bad-faith registration and its cancellation The Commercial Court concurred with the respondent’s argument that the plaintiff’s registration of the mark “Motorrad” in classes 35 and 37 was based on bad-faith, due to considerations that – among others – the plaintiff had good familiarity with and knowledge of the respondent’s mark BMW Motorrad along with its fame and significance, since the plaintiff once served as distributor for respondent’s motorcycle products in Indonesia. The Supreme Court’s affirmation of the Commercial Court’s decision, particularly that the plaintiff’s familiarity with the respondent’s marks constituted evidence of the plaintiff’s bad faith in registering his Motorrad marks, is consistent with its own precedents. In decision no. 196K/Pdt.Sus/2011 delivered on 27 September 2012, for instance, the Supreme Court stated that: if the Respondent had worked as an employee or served as licensee or distributor or otherwise for the Owner/Plaintiff, the “bad-faith” element has been established in the case a quo. 16 Supreme Court, Decision No. 113 K/Pdt.Sus-HKI/2016, p. 19. This argument was opposed by both the plaintiff and the DGIP as the co-respondent at the first instance. The DGIP argued that the respondent’s argument was one-sided interpretation of Article 69(2) of Law no. 5 of 2001 concerning Trademark that was self-invented by the respondent, see Supreme Court, Decision No. 113 K/Pdt.Sus-HKI/2016, p. 30.

Bad-faith registration of marks in Indonesia 277 In addition, in decision no. 679K/Pdt.Sus/2011 delivered in 2012 the Supreme Court also stated that: That based upon the above consideration the Respondent was indeed in bad faith when filing the mark absortech+logo with the [DGIP], since the Respondent should have been in the know that the mark absortech was owned by the Plaintiff since the Respondent once served as the Plaintiff’s distributor. Such consistency as displayed by the Supreme Court in its decision to uphold the Commercial Court’s decision in the present case was indeed important to maintain legal certainty on the question of bad-faith registration of marks and their cancellation.

Commercial or industrial significance The present case was one of the many instances in which disputes emerged from situations where distributors, current or former, of imported goods in Indonesia had successfully registered the mark used in the goods they imported without any consent whatsoever from the actual owner of the mark and/or the principal who appointed them as distributors in the first place. In many of those instances actual owners of marks eventually regained their ownership over the marks in Indonesia through successful cancellation lawsuits against the unauthorised mark registration at the Commercial Court and/or Supreme Court. Notwithstanding, there were still instances where the actual owners lost control and possession of their own marks in Indonesia due to court decisions which favoured the distributors’ unauthorised registration. While precedents even in the form of Supreme Court decisions have no absolute binding power upon how judges should decide future cases of similar circumstances, more consistency in Supreme Court rulings could provide more legal certainty and have greater influence on judges at lower levels of the judiciary and even on future Supreme Court justices. Lack of legal certainty could cause harm to Indonesia’s business people, as the outcome of their business decisions would not be trustable by their foreign business partners. In the long run, such uncertainty might negatively impact the Indonesian economy, as the international business community would be discouraged from doing business in Indonesia and with Indonesians.

24 Protection of famous product configuration mark (Viagra trademark for diamond shape and blue colour) in Korea Byungil Kim

Case information: Korean Supreme Court 15 October 2015, 2013 Da84568

Summary Pfizer’s blockbuster drug for erectile dysfunction, Viagra is known worldwide for its blue colour and diamond shape. Right after expiry of a compound patent in Korea, many Korean companies launched generic versions of Viagra in the local market. Among them, Hanmi Pharmaceutical adopted a shape and colour as similar as possible to the original drug Viagra for their products. As a result, Hanmi’s generic pill, Palpal, has almost a carbon-copy design, with blue colour and a diamond shape with rounded edges. Pfizer sought to halt the increasing sales of Hanmi’s Palpal by alleging confusing similarity of trademarks in both shape and colour. The Korean Supreme Court clarified that a three-dimensional trademark should not be utilised as a means for monopolising the shape of a product in a permanent manner.

Legal context 1 Distinctiveness of three-dimensional trademarks and functionality The most important function of a trademark is to distinguish one’s goods from those of another. Article 33(1) of the Trade Mark Act (TMA)1 provides positive requirements for trademark registration. However, Article 33(2) TMA provides exception to unregistrable trademarks under subparagraphs 3 through 6 of 1 Act No. 71 (Sangpyobeob), 28 November 1949, wholly amended by Act No. 4210, on 13 January 1990, last wholly amended by Act No. 14033 of 29 February 2016, last amended by Act No. 15581, on 17 April 2018.

Protection of famous configuration mark 279 Article 33(1) if they are perceived by consumers as trademarks due to the result of their use prior to the application for registration (secondary meaning).

Article 33 (Requirements for Trademark Registration) (1) A trademark registration may be granted, except where the trademark falls under any of the following subparagraphs: 1 A trademark consisting solely of a mark indicating, in a common way, the ordinary name of the goods; 2 A trademark used customarily on the goods; 3 A trademark consisting solely of a mark indicating in a common way the origin, quality, raw materials, efficacy, use, quantity, shape (including shapes of packages), price, production method, processing method, method of use or time of the goods; 4 A trademark consisting solely of a conspicuous geographical name, the abbreviation thereof, or a map; 5 A trademark consisting solely of a mark indicating in a common way a common surname or name; 6 A trademark consisting solely of a simple and ordinary mark; 7 Other than those as referred to in subparagraphs 1 through 6, a trademark which does not enable consumers to recognize whose goods it indicates in connection with a person’s business. (2) Even in a case of paragraph (1) 3 through 6, a trademark which is recognized among consumers as to whose goods it indicates in connection with his/her business as a result of using the trademark before the application for trademark registration may be registered for those goods using the trademark as designated goods. The grounds on which application for registration of a trademark will be denied are set out in Article 34(1) 1–21 TMA. Article 34(1) (Unregistrable Trademark) TMA provides: (1) Notwithstanding Article 33, a trademark falling under any of the following subparagraphs shall be unregistrable: 1–14 . . . 15. Trademarks consisting solely of three-dimensional shapes, colours, the combination of colours, sounds or odors essential (in cases of service business, referring to the cases in which it is essential to the use and purpose of the service business) to secure the function of the goods for which trademark registration is requested, or their packaging;2 2 Former Article 7(1)(xiii)TMA.

280  Byungil Kim

2 Well-known marks are entitled to protection in Korea under both TMA and Unfair Competition Prevention Act The present Korean TMA does not contain conclusive provisions for protecting business indications. Rather, the scope of protection for indications is much broader under the Unfair Competition Prevention Act (UCPA)3 than under TMA. Protection under UCPA is available both for registered and unregistered marks which are widely known, while the TMA protects only registered marks.4 If a product configuration is widely known in consumer circles and is likely to cause confusion, protection can also be obtained under Article 2(1)(i) and (ii) UCPA to the extent that the product configuration can indicate an origin. It is sufficient if this function is only secondary. Accordingly, the two main requirements for protection under the UCPA are that the infringed indication be widely known and the infringing indication cause confusion. The legal basis for the protection of well-known marks in Korea is primarily the TMA and supplementarily UCPA, which is available as a means to protect a well-known unregistered mark from those seeking to misappropriate the goodwill associated with that mark. In 2001, a statutory basis for the prevention of dilution has been introduced into the UCPA and later into the TMA.5 From the legal point of view, there is certainly little difference between the two: both are meant to protect the business reputation of persons using marks. While the TMA does not grant exclusive right over unregistered trademarks, the UCPA has the function of supplementary ­trademark protection, especially for famous unregistered trademark.6 It is

3 The Unfair Competition Prevention Act (Bujeong Gyeongjaeng Bangjibeob): Act. No. 911, 30 December 1961, wholly amended by Act No. 3897, on 31 December 1986. The title of the Act was changed to “The Unfair Competition Prevention and Trade Secret Protection Act” in 1998 by Act No. 15580, of 17 April 2018. See Byung-Il Kim, Protection Against Unfair Competition, in Byung-II Kim & Christopher Heath (ed.), Intellectual Property Law in Korea, Alphen aan denRijn, Wolters Kluwer, 2015, pp. 147–173. An English translation of all major Korean IP laws can be found at the website of the Legislative Center of Korea, Legislation Research Institute, http://elaw.klri.re.kr/eng_service/main.do. 4 Supreme Court, 22 September 1981 (81 Do 649) Italian Towel. 5 Act No. 6421, 3 February 2001. Although Article 2(1)(iii) UCPA does not specifically define the word ‘dilution’, it contains the concepts of blurring (damaging the uniqueness of a mark) and tarnishment (damaging the fame of any other person). According to Article 2(1)(iii) UCPA, only a famous mark in Korea is afforded protection against dilution. No likelihood of confusion is required, and infringing use need not be for identical or similar goods. Noteworthy is that dilution was not a ground for rejection of trademark application or invalidation of registered trademarks until the last TMA amendment (11 June 2014). Applications filed after 11 June 2014 which may potentially dilute the distinctiveness and/or reputation of a famous mark may be rejected for registration and invalidated after registration (Article 34(1) (xi)TMA). 6 Furthermore, the UCPA provides a smaller geographical scope of protection than the TMA, which provides trademark protection throughout Korea (Supreme Court, 10 February 1976 (74 Da 1989)).

Protection of famous configuration mark 281 certainly correct that the TMA concerns registered, and the UCPA unregistered marks. However, the TMA can protect marks only within the scope of identity/similarity of marks and identity/similarity of goods. This protection is considered insufficient in the case of well-known marks (see Article 16(3) TRIPS). Therefore, where a trademark is well-known, protection under the UCPA can also be afforded against the use of the same or a similar mark for dissimilar goods (e.g., snack food using the trademark of Chanel). This type of protection in Korea (and also Japan) is not available under trademark law, but only under the UCPA. Therefore, a registered mark under the UCPA can be afforded a scope of protection that goes beyond the concept of confusion (e.g., against use for dissimilar goods) under the condition that the mark is wellknown. If a mark is “well-known” in Korea, whether domestic or foreign, it is entitled to protection in Korea under both the TMA and the UCPA even if it is not registered in Korea.

3 Article 2(1) UCPA Compared to the German Act Against Unfair Competition (Article 3) and the Paris Convention (Article 10bis(2)), the Korean UCPA contains no general clause. Article 2(1) UCPA has a limited and exhaustive list of acts of unfair competition, regardless of whether such acts were intentional or not:7 • • •

causing confusion with the goods of another person ((a)); causing confusion with another person’s business activities or facilities ((b)); use of a mark likely to impair or dilute the distinctive character or reputation of another person’s mark without reasonable grounds ((c)); • causing misconception as to the place of origin of the goods ((d)); • causing misconception as to the place of manufacture, production or processing of the goods ((e)); • misrepresenting one person’s goods as being those of another or causing misconception as to the quality, content, method of manufacture, usage or quantity of the goods ((f)); • use of a trademark as an agent without the proprietor’s authorisation ((g)); • improper acquisition and use of another’s domain name, Article 2(1)(h); • imitation of the configuration of goods ((i)); • improper use of ideas of economic value or ideas that constitute someone else’s technical or commercial information during business operations or process or transaction of commercial offers, bidding, public offering, etc. ((j)); 7 Until the amendment of 1986, acts of unfair competition had to be committed with intention, a requirement which is almost impossible for plaintiffs to prove. Also in the Japanese UCPA, a similar provision existed until 1953. See Rahn & Heath, What is Japanese About the Japanese Unfair Competition Act, 25 IIC 346 (1994).

282  Byungil Kim • the misappropriation of another’s achievements which were the result of considerable effort and investment, without authorization for one’s business through a method that contravenes fair commercial trade practice or competition order ((k)).8

Facts The plaintiff Pfizer Pharmaceuticals Inc. (“Pfizer Pharmaceuticals”) is a US corporation which develops and sells multiple medical products including Viagra, a medical product for curing impotence. On November 6th, 2003, it filed application for the three-dimensional, coloured trademark with the Korean Patent Office for medicines for curing cardiovascular disease and sexual dysfunction. Pfizer Pharmaceuticals obtained a trademark registration for Viagra’s diamond shape with blue colour on February 17, 2005 (Korean TM Reg. No. 608,773). The Plaintiff Pfizer Pharmaceuticals Korea Ltd. (“Pfizer Korea”) is a subsidiary of Pfizer Pharmaceuticals in the Republic of Korea, and has exclusively been importing and selling medical products produced by Pfizer Pharmaceuticals since around 1998. The defendant Hanmi is engaging in production, sales, and advertisement of “PalPalJung 50mg” and “PalPalJung 100mg”, which are generic versions of Viagra and which have a design which is almost a carbon copy of Viagra’s, i.e., blue colour and diamond shape with round edges. Pfizer sought to halt the increasing sales of Defendant’s products, alleging confusing similarity with its mark in both shape and colour. Pfizer argued that the blue diamond shape of its pill, Viagra, was a registered trademark which had allegedly become well known enough for consumers to potentially confuse it with Hanmi’s Palpal. Pfizer alleged that Hanmi’s manufacture and sale of Palpal constituted trademark infringement and unfair competition due to the negligible differences between the two pills. Hanmi argued that there is no likelihood of confusion between Viagra and Hanmi’s generic drug because (1) the two products have their own trademarks respectively on the product itself as well as its package; (2) the subject drug must be distributed through doctor’s prescription and pharmacist’s delivery; (3) Hanmi used the diamond shape and blue colour as design elements for drug tablets; and (4) such a diamond shape with blue colour has been applied to drug tablets conventionally. Pfizer filed a trademark infringement lawsuit against Hanmi but lost the firstinstance case.9 Pfizer appealed to the Seoul High Court, which reversed the firstinstance decision. Hanmi appealed the decision to the Supreme Court. 8 Article 2(1)(k) was introduced into UCPA in the last amendment, in 2013. The goal of this supplementary clause is to provide parties with appropriate means to take action against the misappropriation of the results of their efforts. All civil remedies regularly available under the Act, including injunctive relief and damages, are available for this new type of claim, while criminal actions are not. Articles. 4–6, 18 UCPA. 9 While infringement of design right was also claimed as a cause of action in the first instance, it was not claimed in the second, as Pfizer Ireland Pharmaceuticals, the owner of the design right, was a co-plaintiff in the first instance, but did not appeal.

Protection of famous configuration mark 283

Reasoning of Courts 1 Lower courts: disagreement about likelihood of confusion10 The Seoul Central District Court agreed with Hanmi’s arguments. The District Court ruled that “Although defendant Hanmi may have intentionally copied the distinctive shape and color to free-ride on Pfizer’s reputation for safety and effectiveness, there was little likelihood of actual confusion. The pills had distinctive packaging and labeling, required a doctor’s prescription, and were sold through pharmacists.”11 However, on October 17, 2013, the Seoul High Court reversed the lower court’s decision and held that Hanmi infringed Viagra’s registered trademark in diamond shape and blue colour.12 The High Court held that the diamond shape with blue colour had become a famous trademark and there is likelihood of confusion about the source of the products, even though there were further trademarks on the surfaces and packages. Although the drugs did require prescriptions, the High Court focused on the actual distribution: “doctors wrote prescriptions liberally at the request of their patients, and pharmacists would repackage individual doses of the pills so end users often would not see the distinctive packaging and labeling. There was also a general lack of control over the prescriptions and pills.” The High Court reasoned that in this loose distribution environment, and with the way that Hanmi had intentionally copied the well-known three-dimensional trademark with blue diamond shape and colour to produce a highly similar pill, there was a possibility of confusion by end users between pills they had intended to ask their doctor for a prescription for, and pills they were actually receiving from their pharmacists. In this regard, the Court noted that Hanmi might have chosen several other shape and colour combinations, but instead specifically chose a blue diamond shape similar to Viagra’s, which was evidence of Hanmi’s bad-faith intent.13

2 The Supreme Court The Korean Supreme Court reversed the decision by the Appellate Court in favour of Pfizer, and struck down claims of trademark infringement and unfair competition. The Supreme Court ruled on (1) intrinsic distinctiveness of a three-dimensional trademark and its acquired distinctiveness; (2) functionality in accordance with Article 34(1)(xv)TMA; (3) whether confusing similarity existed between the two trademarks; and (4) whether using similar trademark is an act of causing confusion with another person’s goods in accordance with the UCPA.14 10 Because there is no page of paragraph number in Korean court decisions, exact page or paragraph numbers cannot be cited. 11 Seoul Central District Court, 29 March 2013 (2012 Gahab 87022). 12 Seoul High Court, 17 October 2013 (2013 Na 26816). 13 Seoul High Court, 17 October 2013 (2013 Na 26816). 14 Intrinsic distinctiveness of a three-dimensional trademark, acquired distinctiveness, and specificity of a medical product will not be discussed in this report.

284  Byungil Kim

2.1 Intrinsic distinctiveness of a three-dimensional trademark and its acquired distinctiveness The Seoul High Court held that The registered trademark per se has no distinctiveness, considering that it is simply a product shape that is regulated by Article 33(1)(iii) TMA; however, in consideration of the sales period and sales quantity of the Plaintiffs’ Viagra products, it is sufficient to acknowledge that the registered trademark at issue has acquired distinctiveness under Article 33(2) TMA, making consumers prominently recognise that the registered trademark refers to the product related to the business of the Plaintiffs.15 The Supreme Court affirmed the applicability of Article 33(1)(iii) and the obtainment of acquired distinctiveness of Article 33(2) TMA.

2.2 Functionality in accordance with Article 34(1)(xv)TMA The Supreme Court especially emphasised technical functionality in accordance with Article 34(1)(xv)TMA and its legislative purposes. The Supreme Court reasoned that,16 As a principle, technical functions of products can be protected as patent right or utility model if they satisfy conditions for patents as regulated by the Patent Act17 or conditions for utility models as per the Utility Model Act.18 The Supreme Court added that, if a three-dimensional shape which is indispensable for acquiring such function is protected as a trademark right for the reason of having distinctiveness, we end up allowing permanent exclusive right for technical function, through renewal of the trademark rights, which is in conflict not only with patent or utility model policy but also with rival companies’ interests in using such a three-dimensional shape needed for their products to compete, causing an unfair result.19 Therefore, the TMA was amended by Act No. 5355 on August 22nd, 1997, which introduces three-dimensional shape as a type of trademark, and at the same time creates Article 34(1)(xvi) to prohibit trademark, etc., that only consists of threedimensional shape that is indispensable for acquiring the functions of a product from being registered, even if it satisfies the distinctiveness requirement

15 Supreme Court, 15 October 2015 (2013 Da 84568). 16 Supreme Court, 15 October 2015 (2013 Da 84568). 17 Act No. 2505 (Teugheobeob), 8 February 1973, wholly amended by Act No. 4207 of 13 January 1990, last amended by Act No. 15582 of 17 April 2018. 18 Act No. 952 (Silyongsinanbeob), 31 December 1961, wholly amended by Act No. 4209 of 13 January 1990, last amended by Act No. 14690 of 21 March 2017. 19 Supreme Court, 15 October 2015 (2013 Da 84568).

Protection of famous configuration mark 285 according to Article 33. The purpose of such amendment is to encourage harmony with patent policies and to ensure free and efficient competition among rivals.20 Considering such legislative purposes, the Supreme Court proclaimed that, In order to determine whether a trademark in three-dimensional shape, such as product, falls under the legislation above, various factors, such as whether there is any alternative shape that is usable or is being distributed in the market where the product is being traded, whether the cost is equivalent or less even if the product is produced with an alternative shape, and whether the three-dimensional shape exerts technical superiority which exceeds the original functions of the product, etc. have to be considered in a comprehensive manner.21

2.3 Similarities between the trademarks and likelihood of consumer confusion Similarity between trademarks ought to be evaluated by observing the trademarks that are being compared in an objective, comprehensive, and detached manner in order to determine whether there are possibilities of causing mistaken recognition or confusion on the source of goods and/or services based on the three aspects of outer appearance, sound, and concept.22 The Supreme Court held that Evaluations on similarity between trademarks should not be done by comparing the two trademarks under mere juxtaposition but at different times and places in order to determine whether consumers who confront the two trademarks would make mistaken recognition or confusion on the source of the products on which the two trademarks were used.23 The Supreme Court affirmed that If the two trademarks have the likelihood of causing mistaken recognition or confusion on the source of the products after considering the impression, memories, associations, etc. that their outer appearances, sound, and concept made for consumers, they can be deemed to be similar to one another. Notably, if trademarks in three-dimensional shapes have the same or similar dominant impression on their outer appearances, and if the two trademarks are used on the same or similar products, and if consumers are likely to make mistakes regarding the source of the products, the two trademarks should be 20 Supreme Court, 15 October 2015 (2013 Da 84568). 21 Supreme Court, 27 October 2000 (2000 Hu 815); 15 October 2015 (2013 Da 84568). 22 Supreme Court, 15 October 2015 (2013 Da 84568). 23 Supreme Court, 14 March 2013 (2010 Do 15512), 23 January 2014 (2013 Hu 1900).

286  Byungil Kim considered similar to each other. If such a scenario is not likely, they cannot be considered similar.24 The Supreme Court found that While the forms of the registered trademark in the present case and the Defendant’s products have some commonalities, it is reasonable to consider the Defendant’s products to be different from the registered trademark at issue, not only due to the differences in their forms, but also due to the appellations written on the packaging and the products themselves, as well as the Defendant’s trademark and company name on the Defendant’ products, and the fact that most of Defendant’s products are being provided by pharmacists under prescriptions by doctors at hospitals as prescription-based medicines.”25 Therefore, the Supreme Court held that “The forms of the registered trademark and the Defendant’s products are not equivalent or similar to each other as it is difficult to acknowledge that they are likely to cause mistaken recognition or confusion by consumers.”26 To sum up, the Supreme Court ruled that it is unlikely consumers will be confused about the source of the products based on the following points: (1) although the shape of the Viagra pill is distinctive and similar to the shape of the Palpal pill, there are differences; (2) both drugs must be distributed by a pharmacist based on a doctor’s careful prescription using the actual name of the drug, i.e., either “Viagra” or “Palpal”; and (3) the outer and inner packaging of both products were clearly identified as “Viagra” and “Palpal” respectively.

2.4 Regarding Acts of unfair competition Based on the reasons stated in 2.3., the Korean Supreme Court ruled that the forms of the Plaintiff’s and the Defendant’s products are not likely to cause mistaken recognition or confusion by consumers, making the act of the Defendant in producing or transferring the Defendant’s products not fall under acts of unfair competition under Article 2(1)(i) UCPA, and that the ruling of the second instance that the act of the Defendant fell under Article 2(1)(i) UCPA has no legitimacy which affected the judgment due to misunderstanding of acts of unfair competition.27

24 Supreme Court, 15 October 2015 (2013 Da 84568). 25 Supreme Court, 15 October 2015 (2013 Da 84568). 26 Supreme Court, 15 October 2015 (2013 Da 84568). 27 Supreme Court, 15 October 2015 (2013 Da 84568).

Protection of famous configuration mark 287

Legal analysis 1 Unregistered trademarks can be protected only under the UCPA The Korean UCPA plays an important role in the prevention of illegitimate imitation in Korea. According to Article 1, the purpose of this Act is to maintain the order of honest commerce by preventing any act of unfair competition such as unfair use of another person’s trademark or trade name widely known in Korea. Initially, the Korean UCPA had the function of supplementary protection for trademarks, especially for famous or unregistered trademarks. It is not relevant anymore whether a trademark is registered or not; protection under the UCPA is available in the same way both for registered and unregistered trademarks which are widely known, while the TMA and the Design Act28 only protect registered trademarks and designs. Thus, unregistered trademarks can be protected only under the UCPA.29 According to Article 2(1)(a) and (b) UCPA, an act of unfair competition exists where confusion can be caused by the use of another’s name, trade name, trademark, container for goods or packaging (the trade dress), etc., widely known in Korea and identical with or similar to the designations showing another’s goods, or by selling, distributing, importing, or exporting goods on which the abovementioned name, trade name, other signs, etc., are used. The purpose of the provisions concerning the designation of goods and business is to prohibit acts causing confusion in order to protect goodwill against infringement of marks widely known in Korea30 and maintain fair competition. The two main requirements for protection under the UCPA are that the infringed indication be widely known and the infringing indication cause confusion. However, the Korean provisions contain additional qualifications that the Paris Convention does not explicitly contain, narrowing the Act’s applicable scope, although the Korean legislature took Articles 10bis(3) and 6septies Paris Convention as a base when ratifying the Stockholm Revision of the Paris Convention:31 identity or similarity of a mark causes confusion with that of a competitor and, the mark in question has to be widely known in Korea. Consequently, imitations which cause confusion with goods or marks not widely known in Korea (but abroad) do not constitute an act of unfair competition according to the UCPA.

2 Product configuration may be exceptionally protected by the UCPA The UCPA also protects unregistered trademarks and product configurations if they are widely known and there is a likelihood of confusion. A product 28 Act No. 951 (Designbohobeob), 31 December 1961, wholly amended by Act No. 11848, of 28 May 2013, last amended by Act No. 15579 of 17 April 2018. 29 Supreme Court, 22 September 1981 (81 Do 649) – Italian Towel. 30 Supreme Court, 9 December 1980 (80 Da 829) – Clairol. 31 G.H.C. Bodenhausen, Guide to the Application of the Paris Convention for the Protection of Industrial Propewrty, BIRPI, 1969, pp. 124–127, 142–146.

288  Byungil Kim configuration on its own can be protected as a designation of goods according to case law. Two Supreme Court decisions32 summarised the following criteria for the protection of product configurations, which generally can only be protected as a utility model or design: If a product configuration has been continuously and exclusively used for a long time and its distinctive features have become well known, then the product configuration may be exceptionally protected under the UCPA to the extent that its distinctive features are recognised by traders or consumers as indications of the origin of the product.33 When determining the degree to which product configurations are well (widely) known, a significantly higher level of recognition is required than for other designations such as names, trade names, trademarks, etc., because protection is offered as an exception only.34 If a product configuration is widely known in consumer circles and is likely to cause confusion, protection can be obtained under the UCPA to the extent that the product configuration can indicate an origin. It is sufficient even if this function is only secondary. However, it has not yet been ascertained in case law as to whether technical or functional forms can be protected as product configurations.35 Accordingly, the two main requirements for protection under the UCPA are that the infringed indication be widely known and the infringing indication be likely to cause confusion.

3 UCPA provision against slavish imitation Since 2003, the UCPA contains a cause of action against the “dead copy” (slavish imitation) of a product configuration. Article 2(1)(i) prohibits the act of assigning, renting, displaying, importing or exporting a product which imitates the appearance of another person’s product (i.e., the product’s shape, pattern, colour, gloss, or a combination of these attributes). However, this provision does not apply where: (a) the imitation product is made after three years have passed from the date on which the original product was made, or (b) the product’ shape or design is a commonly used form for such goods. The legislative amendment of 2013 has broadened this provision against slavish imitation by a broad provision against free-riding (Article 2(1)(j)), that is, protecting another’s achievements against any form of misappropriation. The provision leaves it to the courts to decide which commercial use of another’s product is deemed unfair. As yet, there is no Supreme Court case law on this point, and one can only assume that when interpreting this provision, courts would apply the basic rationale underlying the provision against slavish imitation.

32 Supreme Court, 2 December 1994 (94 Do 1947) – Swing for Children; 10 April 2001 (98 Do 2250) – Clean Wrap. 33 See also, Supreme Court, 26 November 1996 (96 Do 2295); 10 April 2001 (98 Do 2250) – Clean Wrap. 34 Supreme Court, 12 October 2001 (2001 Da 44925); 14 June 2002 (2002 Da 11410). 35 Supreme Court, 13 July 2007 (2006 Do 1157).

Protection of famous configuration mark 289 By introducing the provision that prohibits free-riding,36 one could expect more application of the UCPA by the courts.

Commercial or industrial significance The Korean Supreme Court has set a significant precedent in the present Viagra case, as it clarified that a three-dimensional trademark should not be utilised as a means for monopolising the shape of a product in a permanent manner, and should be recognised as a trademark only if it can be perceived by consumers as an indicator of its source and if there are alternative shapes for rival businesses to choose from.37 It is now possible to register trademarks featuring colour as applied to goods having a specified shape, as the Korean Intellectual Property Office (KIPO) and Korean courts have protected such three-dimensional marks without imposing significant obstacles. In the present Viagra case, the Supreme Court of Korea has ruled that in spite of massive sales, advertising, and reputation, the shape or colour of certain tablets is simply not perceived as an indicator of source. As a result, pharmaceutical companies need to understand that evidence that would otherwise be sufficient to establish distinctiveness in another industry may not be sufficient to establish the distinctiveness of pharmaceutical tablets, pills, etc. To register and/or enforce such marks, it is necessary to establish the trademark significance, namely that patients, doctors, and pharmacists recognise the marks (and the marks alone) as an indicator of source.38 In addition, in Korea, although well-known marks are entitled to protection in Korea under both TMA and UPCA, it is generally recommended that trademarks be registered in Korea to ensure their enforceability, as in practice it may be difficult to establish that a mark is well known. The trademark owner always has to prove recognition.39 According to case law, a trademark will not be considered widely known until it has been marketed for a substantial period of time, the length of which may vary depend on the volume of sales, advertising budget and other factors.40 However, for specialised business or goods with an appeal to a particular circle, recognition only within that specific group is sufficient. For instance, a pharmaceutical company may rely on the UCPA if its products are widely known to people in the pharmaceutical industry, and not well known to the general public. 36 Furthermore, one Supreme Court decision paved the way for an injunction as a general remedy for torts. An injunction against a tortious act may be granted if monetary compensation alone is not deemed an adequate remedy and the balance of harm weighs in favour of the party seeking the injunction. Supreme Court, 25 August 2010 (2008 Ma 1541). 37 Hosan Lee, Acquired Distinctiveness and Functionality of Three-dimensional Trademark, IP Law Journal, Vol. 3, Patent Court of Korea, 2016, p. 192. 38 See, Philip Lapin, New Challenges and Opportunities for Pharmaceutical Trademarks in Canada, www.smart-biggar.ca/en/articles_detail.cfm?news_id=1309(2018.8.23 last visited). 39 Supreme Court, 10 February 1976 (74 Da 1989) – Hangukpiano. 40 See 1994 Trade Mark Yearbook, p. 93.

25 Concurrent trademark infringement and unfair competition in the Philippines Alex Ferdinand S. Fider1

Case information: McDonald’s Corporation vs. L.C. Big Mak Burger, Inc., Supreme Court of the Philippines, G.R. No. 143993, 18 August 2004

Summary The case was decided by the Supreme Court (“Court”) which applied the test of dominancy. It involves the marks “Big Mac” belonging to McDonald’s Corporation USA (“McDonald’s”) and “Big Mak’ belonging to L. C. Big Mak Burger Inc. (“LC Big Mak”). The law precludes use of a mark that is a colourable imitation of a registered mark. The Court reiterated the principle that “the gravamen of trademark infringement” is the likelihood of confusion. To determine likelihood of confusion, the Court applied the test of dominancy in finding LC Big Mak liable for trademark infringement. The Court also found in the same case LC Big Mak liable for unfair competition for passing off its goods and services for that of McDonalds.

Legal context 1 Republic Act No. 8293 [1998] This Act is known as the Intellectual Property Code of the Philippines (“IP Code”).

1.1 Confusing similarity to well-known mark as a ground to refuse registration Section 123 of the IP Code provides that a mark cannot be registered if it, among others:

1 The author acknowledges the invaluable assistance of Mr. Juan Pablo P. Socrates of the University of the Philippines College of Law in the preparation of this chapter.

Concurrent trademark infringement 291 e. Is identical with, or confusingly similar to, or constitutes a translation of a mark which is considered by the competent authority of the Philippines to be well-known internationally and in the Philippines, whether or not it is registered here, as being already the mark of a person other than the applicant for registration, and used for identical or similar goods or services: Provided, That in determining whether a mark is well-known, account shall be taken of the knowledge of the relevant sector of the public, rather than of the public at large, including knowledge in the Philippines which has been obtained as a result of the promotion of the mark; f. Is identical with, or confusingly similar to, or constitutes a translation of a mark considered well-known in accordance with the preceding paragraph, which is registered in the Philippines with respect to goods or services which are not similar to those with respect to which registration is applied for: Provided, That use of the mark in relation to those goods or services would indicate a connection between those goods or services, and the owner of the registered mark: Provided further, That the interests of the owner of the registered mark are likely to be damaged by such use;

1.2 Infringement of a registered trademark by causing likelihood of confusion/mistake/deception Under Section 155 of the IP Code, infringement takes place when any person who shall: without the consent of the owner of the registered mark, use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive;

1.3  Passing off as unfair competition Under Section 168 of the IP Code, unfair competition takes place when any person who shall: employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor.

2 Republic Act No. 166 [1947], as amended The Act is known as the old Trademark Law (“RA 166”), the prevailing law at the time the present case was decided and has now been superseded by the IP Code.

292  Alex Ferdinand S. Fider

2.1 Infringement of a registered trademark or trade name by causing likelihood of confusion/mistake/deception Section 22 of RA 166 defines trademark infringement as follows: Any person who [1] shall use, without the consent of the registrant, any reproduction, counterfeit, copy or colorable imitation of any registered mark or trade-name in connection with the sale, offering for sale, or advertising of any goods, business or services on or in connection with which such use is likely to cause confusion or mistake or to deceive purchasers or others as to the source or origin of such goods or services, or identity of such business; or [2] reproduce, counterfeit, copy, or colorably imitate any such mark or trade-name and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used upon or in connection with such goods, business or services, shall be liable to a civil action by the registrant for any or all of the remedies herein provided.[emphasis added] Section 22 of RA 166 was superseded by Section 155 of the IP Code, without any substantive difference.

2.2 Passing off as unfair competition Section 29 RA 166 defines unfair competition, as follows: Any person who will employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor. Section 29 RA 166 was superseded by Section 168 of the IP Code, without any substantive difference.

Facts McDonald’s is a corporation organised under the laws of Delaware, United States. It operates a global chain of fast food restaurants. McDonald’s and its Philippine franchisee, McGeorge Food Industries, Inc., are the petitioners before the Court. McDonald’s owns a family of marks including the Big Mac mark for its double-decker hamburger sandwich.2 McDonald’s registered this trademark in the United States in 1979 and in the Philippines in 1985. 2 See McDonald’s Corporation v L.C. Big Mak Burger, Inc., G.R. No. 143993, 18 August 2004, 437 SCRA 10, p. 13 footnote 5:

Concurrent trademark infringement 293 LC Big Mak is a domestic corporation which operates fast food outlets and snack vans in the Philippines. LC Big Mak, its incorporators, stockholders, and directors, are the respondents before the Court. In 1988, LC Big Mak applied with the then Bureau of Patents, Trademarks and Technology Transfer Bureau (PBPTT) for the registration of its Big Mak mark for its hamburger sandwiches. McDonald’s opposed the application on the ground that Big Mak was a colourable imitation of its registered Big Mac mark for the same food products. McDonald’s subsequently sued LC Big Mak before the Regional Trial Court (“RTC”) for trademark infringement and unfair competition. The RTC rendered judgment finding LC Big Mak liable for trademark infringement and unfair competition and damages. LC Big Mak filed an appeal against the RTC decision. The Court of Appeals (“CA”) found no infringement and unfair competition and reversed the ruling of the RTC. McDonald’s filed the petition before the Court, claiming that there is confusion of goods since LC Big Mak used a confusingly similar mark Big Mak on hamburgers and confusion of services since both companies are engaged in the same hamburger business. The Court set aside the decision of the CA and reinstated the ruling of the RTC finding LC Big Mak liable for trademark infringement and unfair competition and damages.

Reasoning of the court The Court ruled that the elements of trademark infringement as well as unfair competition have been established.

1 Trademark infringement To establish trademark infringement, the plaintiff must prove these elements: (1) the validity of the plaintiff’s mark; (2) the plaintiff’s ownership of the mark; and (3) the use of the mark or its colourable imitation by the alleged infringer which results in “likelihood of confusion.” Of these, it is the element of likelihood of confusion that is the gravamen of trademark infringement.3 Some of McDonalds registered marks representing food items (f) and services (s) are: McDONALDS HAMBURGERS (s); McDONALDS (f); RONALD McDONALD (s); McDONALDLAND (s); McCHEESE & DESIGN (f); EGG McMUFFIN (s); EGG McMUFFIN (f); McDONALDLAND (f); McDONALDS & ARCHES (s); McFEAST (f); McCHICKEN (f); McDONALDS & ARCHES (f); McDONUTS (f); McPIZZA (f); McPIZZA (s); McHAPPY DAY (s); MINI MAC (s); McDOUBLE (f); TOGETHER-McDONALDS & YOU (s); CHICKEN McNUGGETS (f); McDONALDS & YOU (s); SUPER MAC (f); McSNACK (s); MAC FRIES (f); McRIB (f); MAPLE McCRISP (f); LITE MAC (f); BIG MAC (s); CHICKEN McSWISS (f); McMUFFIN (f); McD.L.T. (f). (McDonalds Corporation v McBagels, Inc., 649 F.Supp. 1268 [1986]). 3 Id., p. 24.

294  Alex Ferdinand S. Fider

1.1 Validity of the registration and ownership of the mark The Court struck down the argument of the respondent LC Big Mak that the trademark is not capable of exclusive appropriation since the word “Big” is generic and descriptive. The Court held that the “Big Mac” mark should be treated in its entirety and not dissected word for word.4 On the contrary, the Court said “Big Mac” falls under the class of fanciful or arbitrary marks as it bears no logical relation to the actual characteristics of the product it represents.5 Big Mac is, thus, highly distinctive, and therefore valid. McDonald’s established its exclusive ownership of the “Big Mac” mark by registration. Although two other entities had registered the “Big Mac” mark ahead of McDonald’s, one of them had already assigned his rights to McDonald’s, while the other registered its trademark only in the Supplemental Register (which has already been abolished by the present IP Code) and therefore has no real protection.

1.2 Using the dominancy test to determine the existence of trademark infringement The Court recognised two tests developed by jurisprudence to determine likelihood of confusion: the dominancy test and the holistic test.6 The dominancy test focuses on the similarity of the prevalent features of the competing trademarks that might cause confusion. On the other hand, the holistic test requires the court to consider the entirety of the marks as applied to the products, including the labels and packaging, in determining confusing similarity. The Court held that the question of infringement of a trademark is to be determined by the test of dominancy. Under this test, “courts give greater weight to the similarity of the appearance of the product arising from the adoption of the dominant features of the registered mark, disregarding minor differences.”7 The courts put more importance on “the aural and visual impressions created by the marks in the public mind, giving little weight to factors like prices, quality, sales outlets and market segments.”8 The Court cited the 2001 case of Societe Des Produits Nestle, S.A. v. Court of Appeals,9 where it explicitly rejected the holistic test in this way: [T]he totality or holistic test is contrary to the elementary postulate of the law on trademarks and unfair competition that confusing similarity is to be determined on the basis of visual, aural, connotative comparisons and overall 4 Id., p. 26. 5 Ibid. 6 Id., 31; citing Societe Des Produits Nestl, S.A. v Court of Appeals, G.R. No. 112012, 4 April 2001, 356 SCRA 207; Emerald Garment Manufacturing Corporation v Court of Appeals, G.R. No. 100098, 29 December 1995, 251 SCRA 600. 7 McDonald’s Corporation v L.C. Big Mak Burger, Inc., G.R. No. 143993, 18 August 2004, 437 SCRA 10, p. 32. 8 Ibid. 9 G.R. No. 112012, 4 April 2001, 356 SCRA 207.

Concurrent trademark infringement 295 impressions engendered by the marks in controversy as they are encountered in the realities of the marketplace. [emphasis added] The Court even emphasised the fact that “the test of dominancy is now explicitly incorporated into law in Section 155.1 of the Intellectual Property Code which defines infringement as the colorable imitation of a registered mark xxx or a dominant feature thereof.’ ” The Court found that, aurally, “Big Mac” and “Big Mak” produce the same sound when spoken. At the same time, the two marks are the same as they appear visually, since they are composed of almost exactly the same letters. The Court even noted the fact that, although the two words end with different letters (“c” and “k”), in the Filipino language, these two letters are often interchanged. The Court thus held that, when applied to the same food product of hamburgers, the two marks will likely result in confusion in the public mind.10

1.3 Two types of confusion: confusion of goods and confusion of business In its analysis of the presence of the “likelihood of confusion” element, the Court mentioned two types of confusion: confusion as to goods (product confusion), and confusion of business (source/origin confusion).11 The first is the confusion of goods in which the ordinarily prudent purchaser would be induced to purchase one product in the belief that he was purchasing the other.”12 The second is when, though the goods of the parties are different, the defendant’s product is such as might reasonably be assumed to originate with the plaintiff, and the public would then be deceived . . . into the belief that there is some connection between the plaintiff and defendant which, in fact, does not exist.13 There is confusion of goods when the products are competing, while, on the other hand, there is confusion of business when the products are non-competing but related enough to produce confusion of affiliation.14 The Court held that both types of confusion are proper issues in this case. LC Big Mak used the “Big Mak” mark on the same goods that McDonald’s used its “Big Mac” mark on (namely, hamburger sandwiches), and even assuming that there was no likelihood of confusion between the goods, the fact that LC Big Mak sold hamburger sandwiches, among other products, gives rise to the likelihood of causing the public to suppose that it was affiliated with McDonald’s.

10 Id., p. 33. 11 Id., p. 27. 12 Ibid.; citing Sterling Products International, Incorporated v Farbenfabriken Bayer Aktiengesellschaft, et al., 27 SCRA 1214 [1969]. 13 Ibid. 14 Id., p. 29.

296  Alex Ferdinand S. Fider That LC Big Mak applied the mark “Big Mak” on non-hamburger products like siopao, noodles, and pizza, does not negate the existence of trademark infringement. The use of the mark on non-hamburger products still has the likelihood of misleading the purchasers into thinking that McDonald’s has expanded its business into selling these non-hamburger products. Moreover, even supposing that the purchasers would not be misled into thinking that it was McDonald’s that sold these non-hamburger products, the Court held that McDonald’s was entitled to protection in the use of its own mark, including the use of the same mark on other products or market areas to which McDonald’s may normally expand its own business. The latter rule is also known as the “normal expansion of business” doctrine; and a violation thereof would constitute trademark infringement.15 The Court found that the similarity in the trademarks of McDonald’s Big Mac and LC Big Mak has the likelihood of causing the public to confuse, not only their products, but also the sources of these products, namely, their businesses.

2 Unfair competition by passing off Having settled the issue of trademark infringement, the Court went on to the issue of unfair competition. The essential elements of an action for unfair competition are (1) confusing similarity in the general appearance of the goods; and (2) intent to deceive the public and defraud a competitor.16 With regard to the first element, the Court found that, although the packaging of the products of McDonald’s and LC Big Mak are different, Section 29(a) of RA 166 expressly states that “the similarity in the general appearance of the goods may be in the ‘devices or words’ used on the wrappings.”17 In this case, LC Big Mak has put the words “Big Mak” on their plastic wrappers and bags, while McDonald’s has put the words “Big Mac” on their styrofoam box. Considering that the words “Big Mak” and “Big Mac” are almost the same, aurally and visually, the Court found “[t]he dissimilarities in the material and other devices to be insignificant compared to the glaring similarity in the words used in the wrappings.”18 The Court also pointed out that LC Big Mak’s goods are the same as the goods of McDonald’s, namely, hamburgers. If the LC Big Mak sold egg sandwiches only instead of hamburger sandwiches, their use of the “Big Mak” mark would not give their goods the general appearance of McDonald’s “Big Mac” hamburgers. In such a case, there is only trademark infringement but no unfair competition. However, since LC Big Mak chose to apply the “Big Mak” mark on hamburgers, just like McDonald’s use of the “Big Mac” mark on hamburgers, LC Big Mak obviously clothed their goods with the general appearance of the goods of McDonald’s.19

15 Id., p. 31. 16 Id., p. 37. 17 Id., p. 38. 18 Ibid. 19 Id., p. 39.

Concurrent trademark infringement 297 With regard to the second element, the Court held that the absence of any label expressly stating that the goods were sold by “L.C. Big Mak” shows its intent to pass off its goods as that of McDonald’s. The Court relied on the fact that, although the overall appearance of the products of both parties are not strictly similar in their presentation, the fact that the words “Big Mac” and “Big Mak” are similar and both appear on the wrappers of the products of either party, is sufficient to satisfy the requirement of “confusing similarity in the general appearance of goods.” At the same time, the Court inferred the intent of LC Big Mak to pass off its goods as that of McDonald’s from the absence of any label on its products that such goods were manufactured by LC Big Mak. In arriving at the conclusion that McDonald’s is entitled to relief from the acts of LC Big Mak, the Court applied Section 29 of RA 166, the then applicable trademark law. Thus, the Court held LC Big Mak liable for trademark infringement and unfair competition.

Legal analysis 1 McDonald’s Big Mac is a famous mark in the Philippines There was no explicit declaration that Big Mac was a “famous mark” since it was not made an issue before the Court. In other words, it was not controverted. L.C. Big Mak focused on distinguishing its mark from McDonald’s “Big Mac”. However, the fact that Big Mac is well known was recognised by the Court in their ruling: Petitioners aggressive promotion of the Big Mac mark, as borne by their advertisement expenses, has built goodwill and reputation for such mark making it one of the easily recognizable marks in the market today. This increases the likelihood that consumers will mistakenly associate petitioners’ hamburgers and business with those of respondents’. Respondents inability to explain sufficiently how and why they came to choose Big Mak for their hamburger sandwiches indicates their intent to imitate petitioners Big Mac mark. . . . Absent proof that respondents adoption of the Big Mak mark was due to honest mistake or was fortuitous, the inescapable conclusion is that respondents adopted the Big Mak mark to ride on the coattails of the more established Big Mac mark. This saves respondents much of the expense in advertising to create market recognition of their mark and hamburgers. [emphasis added]20 The foregoing affirmed the earlier finding of the RTC, which was quoted in the present case: Significantly, the contending parties are both in the business of fast-food chains and restaurants. An average person who is hungry and wants to eat

20 Id., pp. 34–35.

298  Alex Ferdinand S. Fider a hamburger sandwich may not be discriminating enough to look for a McDonalds restaurant and buy a B[ig] M[ac] hamburger. Once he sees a stall selling hamburger sandwich, in all likelihood, he will dip into his pocket and order a B[ig] M[ak] hamburger sandwich. Plaintiff McDonalds fast-food chain has attained wide popularity and acceptance by the consuming public so much so that its air-conditioned food outlets and restaurants will perhaps not be mistaken by many to be the same as defendant corporations mobile snack vans located along busy streets or highways. But the thing is that what is being sold by both contending parties is a food item a hamburger sandwich which is for immediate consumption. . . . Any conduct may be said to constitute unfair competition if the effect is to pass off on the public the goods of one man as the goods of another. The choice of B[ig] M[ak] as tradename by defendant corporation is not merely for sentimental reasons but was clearly made to take advantage of the reputation, popularity and the established goodwill of plaintiff McDonalds.21 [emphasis added]

2 Dominancy test established In determining the likelihood of confusion, the Court appears to have settled the question of which test to rely on. Although in the case of Berris Agricultural Co., Inc. v Norvy Abyadang22(promulgated in 2010), the Court has applied a combination of both the dominancy and the holistic tests in finding the defendant guilty of trademark infringement, it has more recently reiterated its position on the primacy of applying the dominancy test. In the 2017 case of Societe des Produits Nestle, S.A. v Puregold Price Club, Inc.23 the Court ruled that there is no likelihood of confusion between “COFFEE-MATE” and “COFFEE MATCH”. Without regarding the entirety of the marks as they are applied to the products, the Court focused on the common dominant feature of each, which is the word “COFFEE” and held that it cannot be exclusively appropriated since it is a generic mark. At the same time, the words “MATE” and “MATCH” are aurally and visually distinguishable, sufficient to warn the purchasing public that the two products of Nestle and Puregold are not the same.

3 Trademark infringement requires the plaintiff-trademark owner’s marks are registered One crucial element in an action for trademark infringement is that the plaintiff must have ownership of the subject trademark. This requisite effectively removes 21 Id., pp. 16–17. 22 Berris Agricultural Co., Inc. v Norvy Abyadang, G.R. No. 183404, October 13, 2010. 23 Societe des Produits Nestle, S.A. v Puregold Price Club, Inc., G.R. No. 217194, Sept. 6, 2017.

Concurrent trademark infringement 299 from the scope of trademark infringement those cases where the plaintiff-trademark owner’s marks are not registered with the Intellectual Property Office (IPO). No such registration, however, is required in an action for unfair competition. What the latter merely requires is that the mark has an established goodwill. Thus, plaintiffs whose complaints for trademark infringement cannot prosper for lack of registration with IPO may still pursue their claim by basing their action on unfair competition, provided they prove that their mark has established goodwill, that there is a confusing similarity in the general appearance of the defendant’s goods with its own, and that the defendant had an intent to pass off its own goods for that of the plaintiff trademark owner.

4 The relationship between trademark infringement and unfair competition The Court also cited the two requisite elements for an action on unfair competition, which are: (1) confusing similarity in the general appearance of the goods; and (2) intent to deceive the public and defraud a competitor. The Court notes that in actions for unfair competition, the element of “confusing similarity” need not necessarily lie in the trademarks but may likewise appear in the “devices or words used on the wrappings”. In the same manner, the proof of actual fraudulent intent is not necessary, and the intent to deceive and defraud may be inferred from the similarity of the appearance of the goods as offered for sale to the public. The Court summarises the relationship between the two concepts in Societe des Produits Nestle, S.A. v Puregold Price Club, Inc: Unfair competition is broader than trademark infringement and includes passing off goods with or without trademark infringement. Trademark infringement is a form of unfair competition. Trademark infringement constitutes unfair competition when there is not merely likelihood of confusion, but also actual or probable deception on the public because of the general appearance of the goods. There can be trademark infringement without unfair competition as when the infringer discloses on the labels containing the mark that he manufactures the goods, thus preventing the public from being deceived that the goods originate from the trademark owner.24 [emphasis added] In the present case, the Court held L.C. Big Mak guilty for both trademark infringement and unfair competition. For the charge of trademark infringement, the Court based its ruling on the fact that the use of the mark “Big Mak” has likelihood of being confused with McDonald’s’ duly-registered trademark “Big Mac”. Such confusion lies not only with the product, but also with the business affiliation. On the other hand, in ruling on the issue of unfair competition, the court put premium on the fact that L.C. Big Mak made use of the trademark “Big Mak” on hamburgers, 24 Ibid.

300  Alex Ferdinand S. Fider which is the same product as that to which McDonald’s applied Big Mac, as well as the fact that there was no sign in L.C. Big Mak’s products indicating that they are manufactured by L.C. Big Mak, hence indicating an intent to deceive. It is apparent that one point in which the concepts of trademark infringement and unfair competition differ is that, in the former, what is highlighted is the use of a similar or colourable imitation of another’s trademark, without consent of the owner, and in such a way as to cause a likelihood of confusion between the two. The concept of confusion in trademark infringement covers not only confusion as to goods, but also confusion as to business or the source of goods. On the other hand, in unfair competition, what is essential is the act of deceiving the purchasers into thinking that one’s goods were that of another. Absent any showing of intent to deceive the public, there can be no action for unfair competition, although there can be an action for trademark infringement. In this case, confusion as to business becomes irrelevant, because the issue would now be on whether or not the goods of the defendant are made to appear as though they are the same as the goods of the plaintiff. One may draw a Venn Diagram to determine the instances when trademark infringement and unfair competition may coexist in one case, and when only either one of them would be available to a plaintiff. In the space where the two circles in the diagram intersect (representing the cases where there can be both trademark infringement and unfair competition) would be cases in which there is a likelihood of confusion between the marks of both the plaintiff and the defendant, there is general similarity in the appearance of the goods, and there is intent by the defendant to pass off its goods as that of the plaintiff. On the other hand, on the leftmost side of the diagram (representing the cases where there can only be trademark infringement) would be cases where there is likelihood of confusion between the marks but neither a similarity in the general appearance of goods, nor an intent to pass off its goods as that of plaintiff. Finally, on the rightmost side of the diagram (representing cases where there can only be unfair competition) would be cases where there is similarity in the general appearance of goods as well as intent to pass off its goods as that of another, although there is no likelihood of confusion between the trademarks. The space where the two circles intersect is best demonstrated by the case of McDonald’s v. L.C. Big Mak.

Trademark Infringement (TI) - There is likelihood of confusion between the marks - No confusing similarty in the general appearance of the goods - No intent to pass off - The mark must be registered

TI and UC

Unfair Competition (UC)

- There is likelihood of confusion between the marks - There is confusing similarity in the general appearity in of goods - There is intent to pass off - The mark must be registered

- There is confusing similarity in the general appearity in of goods - There is intent to pass off - There is likelihood of confusion between the marks - The mark may be registered or unregistered

Concurrent trademark infringement 301

Commercial or industrial significance The fact that trademark infringement and unfair competition can coexist in one case provides some advantages to the trademark owner. For instance, owners of unregistered marks whose actions for trademark infringement cannot prosper are not completely without remedy. There is also advantage to the trademark owner with respect to the damages that may be awarded. It is worth noting that in the case of McDonald’s v L.C. Big Mak, aside from granting the injunctive writ against L.C. Big Mak and ordering the latter to pay actual damages to McDonald’s, the Court also ordered L.C. Big Mak to pay exemplary damages. In this case the exemplary damage was awarded “by way of correction for the public in view of the finding of unfair competition where intent to deceive the public is essential.”25 A logical conclusion to this ruling would be that, whenever a plaintiff obtains a favourable ruling from the court for a complaint based on unfair competition, he could always pray for an additional award of exemplary damages.

25 Id., 41.

26 Unregistered well-known trademark owner accused of infringement in Japan Abuse of right defence after five-year invalidation period Masaharu Miyawaki

Case information: Supreme Court, 3rd Division, Case No Heisei 27 (Ju) 1876 （February 28, 2017）, Minshu Vol. 71 No. 2, p. 221

Summary The exclusive distributor in Japan of “EEMAX” brand water heaters, which were manufactured by a US company, brought an action against the holder of the registered trademark “EEMAX”, seeking an injunction against importing and distributing “EEMAX” heaters under the Unfair Competition Prevention Act. The trademark holder counterclaimed for trademark infringement under the Trademark Act. The Supreme Court held that: (1) The original instance court’s findings that the distributor’s mark was well known under Article 2(1)(i) of the Unfair Competition Prevention Act are not supported by sufficient evidence, and (2) In a case where a trademark has been registered in violation of Article 4(1)(x) of the Trademark Act, claim for injunction or other claims based on such trademark against the person who had been already recognized as holder of a well-known mark at the time of filing the application for trademark registration constitutes abuse of the trademark right, except in extenuating circumstances.

Legal context In Japan, unregistered well-known trademarks are protected under the Unfair Competition Prevention Act. Article 2(1)(i) of the Unfair Competition Prevention Act considers the following act as “unfair competition”:

Unregistered well-known trademark owner 303 [T]he act of creating confusion with another person’s goods or business by using an indication of goods or business (meaning a name, trade name, trademark, mark, containers or packaging for goods belonging to a business, or any other indication of a person’s goods or business; the same applies hereinafter) that is identical or similar to the said person’s indication of goods or business that is well known among consumers as belonging to that person, or by transferring, delivering, displaying for the purpose of transfer or delivery, exporting, importing or providing through a telecommunications line goods that use the same indication. The holder of a well-known mark whose business interests have been infringed on or are likely to be infringed on due to such “unfair competition” may seek injunction under Article 3(1) of the Act. In addition, the infringer who intentionally or negligently infringed on the business interests of the holder is liable to compensate damages resulting from the unfair competition under Article 4 of the Act. If a person other than the holder of the unregistered well-known mark submits an application to register a trademark identical or similar to the well-known mark, in spite of the fact that the mark is already recognised by consumers as belonging to the holder in some areas, and if the said trademark is registered, the well-known mark holder may file for invalidation trial of the trademark registration under Article 46(1) of the Trademark Act, on the ground that the trademark registration falls under Article 4(1)(x) of that Act which prohibits the registration of the following trademark: [A trademark which] is identical with, or similar to, another person’s trademark which is well known among consumers as that indicating goods or services in connection with the person’s business, if such a trademark is used in connection with such goods or services or goods or services similar thereto. However, if neither the holder nor other third parties have filed request for invalidation trial of such registration within five years after the registration, then no one can file the request unless the trademark has been registered for the purpose of unfair competition. Article 47(1) of the Trademark Act provides: where a trademark registration has been made in violation of Article 4 (1)(x) . . . (excluding the case where a trademark has been registered for the ­purpose of unfair competition), . . . a request for a trial relating to the trademark registration under Article 46(1) may not be filed after a lapse of five years from the date of registration of the establishment of the trademark right. If the trademark holder filed a lawsuit seeking an injunction, damages, or other remedy based on such trademark right against the well-known mark holder, the latter is entitled to prevail pursuant to Article 39 of the Trademark Act on the

304  Masaharu Miyawaki defence under mutatis mutandis application of Article 104–3(1) of the Patent Act (“invalidity defence”), which provides: Where, in litigation concerning the infringement of a patent right or an exclusive license, the said patent is recognized as one that should be invalidated by an invalidation trial, the rights of the patentee or exclusive licensee may not be exercised against the adverse party. The Trademark Act has no provisions other than this mutatis mutandis application provision, i.e., Article 39, relating to the invalidity defence. Under the Patent Act, however, there is no such five-year rule as found in the Trademark Act. Therefore, it is uncertain whether the alleged infringer may have recourse to the invalidity defence on the ground that the trademark registration falls under Article 4(1)(x) of the Trademark Act after the five-year period.

Facts In 1994, the plaintiff Nippon Kenso Kogyo Co., Ltd. and EEMAX, Inc., a manufacturer of water heaters located in Connecticut, US, entered into an agreement which designated the plaintiff as the exclusive distributor of EEMAX’s water heaters in Japan. Since then, the plaintiff has sold the heaters bearing the “Eemax” mark, “EemaX” mark or “エマックス” (“eemax” written in katakana characters) mark in Japan, without however registering them. In 2003, the defendant EMAX-TOKYO Co. became a distributor of EEMAX’s water heaters imported by the plaintiff under a contract between the plaintiff and the defendant. After some dispute arose between them, the parties terminated the contract. Nonetheless, the defendant, without authorisation from the plaintiff, has imported EEMAX’s water heaters and sold them in Japan, and obtained the following trademark rights: Registration number

4895484 (the “’484 trademark”)

5366316 (the “’316 trademark”)

Application date Registration date Class of goods or services Designated goods

January 25, 2005 September 16, 2005 11 Water heaters for home use, other heaters for home use エマックス

March 23, 2010 November 5, 2010 11 Water heaters for home use, other heaters for home use エマックスEemaX

Registered trademark

The plaintiff brought a lawsuit alleging that the defendant’s use of EEMAX marks falls under Article 2(1)(i) of the Unfair Competition Prevention Act, sought an injunction against the use of the defendant’s marks, and demanded payment of damages based on Articles 3 and 4 of the said Act.

Unregistered well-known trademark owner 305 The defendant asserted counterclaims seeking an injunction against the plaintiff’s use of EEMAX marks under the Trademark Act. The plaintiff alleged that exercise of the defendant’s trademark rights would be barred because both the ’484 trademark and the ’316 trademark were registered in violation of Article 4(1)(x) of the Trademark Act. After submitting the allegation, the plaintiff brought an invalidation trial against the ’316 trademark right. As for ’484 trademark right, however, it had become indisputable by expiration of the five-year period provided in Article 47(1) of the Trademark Act. The judgment in the first instance found that the plaintiff’s marks were well known among consumers as belonging to the plaintiff, and that defendant’s use of the marks constituted unfair competition under Article 2(1)(i) of the Unfair Competition Prevention Act, ordered an injunction, and awarded damages. As for the defendant’s counterclaim, the court dismissed it for the reason that the defendant’s trademarks should be invalidated by an invalidation trial because they were registered in violation of Article 4(1)(x) of the Trademark Act and that the defendant’s exercise of such rights was barred under mutatis mutandis application of Article 104–3(1) of the Patent Act pursuant to Article 39 of the Trademark Act.1 The judgment in the second instance dismissed the appeal of the defendant for virtually the same reasons as the first instance.2 The Supreme Court vacated the judgment and remanded the case to the court of the second instance.

Reasoning of the court 1 The evidence submitted by the plaintiff was insufficient to establish that “EEMAX” marks are “well known” under Article 2(1)(i) of the Unfair Competition Prevention Act According to the facts lawfully ascertained by the original instance court, the water heaters bearing the plaintiff’s marks sold by the plaintiff are products whose sales area is not limited to particular areas but covers a broad range in Japan, after considering the nature of the products and the relevant transactional practices. The plaintiff advertised its water heaters in a newspaper only twice, and given that the products are sold in a broad area in Japan, the amount of expenses of the plaintiff on advertising the heaters or on its participation in exhibitions is not large. Besides, the plaintiff failed to show detailed sales of the heaters. Considering these facts, there are no grounds to prove that the plaintiff’s marks are well known among traders and consumers in a broad area of Japan.3 1 First Instance: Oita District Court, September 18, 2014, Minshu Vol. 71 No. 2, p. 256 [Case No. Heisei 24 (Wa) 881, Heisei 25 (Wa) 752]. 2 Second Instance: Fukuoka High Court, June 17, 2015, Minshu Vol. 71 No. 2, p. 285 [Case No. Heisei 26 (Ne) 791]. 3 Minshu Vol. 71 No. 2, pp. 227–228.

306  Masaharu Miyawaki

2 After the five-year period the alleged infringer is principally barred from having recourse to the invalidity defence Article 47(1) of the Trademark Act aims to give registered trademarks against which no requests for invalidation trial have been filed during the five-year period undisputable validity for the protection of the existing stable situation arising from the registration (Supreme Court, 2nd Division, July 11, 2005, Saibansyu Minji No. 217, p. 317 [Case No Heisei 15 (gyo hi) 353]). If an alleged infringer were entitled to prevail on the invalidity defence under Article 104–3(1) of the Patent Act, as applied mutatis mutandis pursuant to Article 39 of the Trademark Act, based on the ground that the registration of the alleged trademark falls under Article 4(1) (x) of that Act after the above-mentioned five-year period, a party holding such trademark would never succeed in any infringement litigation and the aim of Article 47(1) of the Trademark Act to protect the existing stable situation arising from the registration would never be accomplished.4 Therefore, after the five-year period from the registration of a trademark against which no requests for invalidation trial have been filed during the period, the alleged infringer is barred from having recourse to the invalidity defence, which is based on the ground that the registration of the alleged trademark falls under Article 4(1)(x) of that Act, unless the mark has been registered for the purpose of unfair competition.5

3 The alleged infringer is entitled to the abuse of right defence if his mark was “well known” under Article 4(1)(x) of the Trademark Act even though the five-year period has expired The purpose of Article 4(1)(x) of the Trademark Act is to prevent confusion as to source of the products bearing marks which are well known among consumers as well as to balance the interests of the person who is recognized as the holder of a well-known mark against the interests of an applicant of trademark registration. In a case where a trademark has been registered in violation of the said Article, a claim for injunction or other claims based on such trademark against the person who had been already recognized as the holder of a well-known mark, which is identical with, or similar to, the registered trademark at the time of filing of the application for the trademark registration constitutes abuse of the trademark right, except in extenuating circumstances.6 Thus, even though the five-year period from the registration of a trademark expired with no requests for invalidation trial filed during the period, an alleged infringer may have recourse to the abuse of the right defense. . ., irrespective of whether the trademark has been registered for the purpose of unfair competition.7 4 Id. pp. 228–229. 5 Id. p. 229. 6 Id. p. 230. 7 Id. p. 231.

Unregistered well-known trademark owner 307

4 The evidence submitted by the plaintiff was insufficient to establish that “EEMAX” marks are “well known” under Article 4(1)(x) of the Trademark Act We now discuss whether [both the ’484 trademark and the ’316 trademark] were registered in violation of Article 4(1)(x) of the Trademark Act. As stated previously, there are no grounds to prove that the plaintiff’s marks are well-known among traders and consumers in a broad area of Japan. Accordingly, the court of original instance erred in holding that the plaintiff’s marks were “wellknown” under Article 4(1)(x) of the Trademark Act without sufficient inquiry into the fact relating to the detailed sales of the plaintiff’s heaters.8

Legal analysis 1 “Well known” under Article 2(1)(i) of the Unfair Competition Prevention Act does not require nationwide recognition among consumers The purpose of Article 2(1)(i) of the Unfair Competition Prevention Act is to prevent consumer confusion as to the source of goods or business. The “well known” requirement under this Article is a step to determine whether likelihood of confusion exists. This requirement tests whether there are certain interests relating to a mark to be protected against consumer confusion.9 Under such understanding of the requirement, most commentators agree that it does not require nationwide recognition among consumers and that if a mark is recognised as belonging to the plaintiff among consumers in the area of the defendant’s business, the “well known” requirement will be satisfied.10 As for court decisions, numerous lower courts’ decisions have supported non-nationwide renown. For example, in the “Katsuretsu-an” case11, the Yokohama District Court held that the mark “Katsuretsu-an” (written in kanji characters) of the plaintiff’s restaurant located in Yokohama city, Kanagawa prefecture is well known in Kamakura city, Kanagawa prefecture, where the restaurant run by one of the defendants existed, but not in Fuji city, Shizuoka prefecture, where the restaurant run by the other defendant existed. There is one Supreme Court case in which the Court affirmed the original instance court’s judgment which held that consumer recognition in Aichi and other several neighboring prefectures satisfied the “well known”   8 Id. pp. 231–232.   9 See, e.g., Ministry of Economy, Trade and Industry, Intellectual Property Policy Office (ed.), Chikujo Kaisetsu Fuseikyoso Bousihou (Heisei 27 Nen Kaisei ban) [Unfair Competition Prevention Act (as revised in 2015)], pp. 60–61, available at www.meti.go.jp/policy/economy/ chizai/chiteki/unfair-competition.html. 10 See, e.g., Yoshiyuki Tamura, Fuseikyosoho Gaisetsu [Unfair Competition Law], Yûhikaku (2nd edn, 2003), p. 39. 11 Yokohama District Court, December 9, 1883, Mutai reishu Vol. 15 No. 3, p. 802 [Case No. Showa 56 (wa) 2100].

308  Masaharu Miyawaki requirement, although the Court provided no detailed explanation to support that conclusion.12 In the present decision, the Supreme Court held that the plaintiff’s marks were not well known because they were not widely recognised among traders and consumers in Japan. This does not mean, however, that in the Court’s view nationwide recognition among consumers is always required to satisfy the “well known” requirement, for the following reasons: First, the Court did not establish general criteria for deciding whether a mark is “well known” that would have such a requirement. Second, in this case, the plaintiff alleged that its marks were well known nationwide, and the original instance court accepted it. The Supreme Court only held that the finding of the original instance court about the renown of the plaintiff’s marks was not supported by sufficient evidence.

2 No invalidity defence allowed after the five-year period Before the present decision, there were disputes among commentators about whether, in a trademark infringement action, the alleged infringer may have recourse to the invalidity defence on the ground that the trademark registration falls under Article 4(1)(x) of the Trademark Act after the five-year period. The dominant view, with which the author agrees13, is that the defence is barred by the expiration of the period for the following reasons14: First, because the language of Article 104–3(1) of the Patent Act clearly states that where “[a] patent is recognized as one that should be invalidated by an invalidation trial” (emphasis added), the exercise of such patent is prohibited, the invalidity defence requires not only that there exists the ground for invalidation of the trademark registration at issue, but also that such registration is to be invalidated by an invalidation trial on that ground. Once the five-year period has expired, no one can file a request for an invalidation trial on the ground that the trademark registration at issue falls under Article 4(1)(x) of the Trademark Act, unless the trademark has been registered for the purpose of unfair competition. Second, as the Supreme Court pointed out, if the alleged infringers were entitled to prevail on the invalidity defence after the five-year period provided in Article 47(1) of the Trademark Act, the indisputable validity of trademark registration conferred by the provision would become useless, as holders of such trademark right could not exercise their right at all. For these reasons, it is proper that the Supreme Court in the present decision supported the dominant view on this point.

12 Supreme Court, 2nd Division, May 20, 1959, Keishu Vol. 13 No. 5, p. 755 [Case No Showa 34 (a) 78]. 13 Masaharu Miyawaki, Shohyo Ho ni okeru Kilby Koben/ Kenri Koushi Seigen no Koben (Toku 104 jo no 3 Koben) ni kansuru Mondaiten [Kilby Defense and Invalidity Defense under the Trademark Act], Patent Vol. 63 No. 2, p. 246 (2010). 14 Masabumi Suzuki, Hanrei Kenkyu: Eemax Jiken [Case Commentary of this Case], Law & Technology No. 77, pp. 64–65 (2017).

Unregistered well-known trademark owner 309

3 A new abuse of right defence created by the Supreme Court Although the Supreme Court in the present decision denied the invalidity defence, it held that an alleged infringer whose mark had become well known at the time of the application for the trademark registration at issue could establish the abuse of right defence by demonstrating that the registration falls under Article 4(1)(x) of the Trademark Act, irrespective of whether the trademark has been registered for the purpose of unfair competition. Unlike the invalidity defence, this abuse of right defence can be established only if submitted by a holder of a mark which had already become well known at the time of the application for the trademark registration at issue. This abuse of right defence would not render the indisputable validity of the trademark registration conferred by Article 47(1) of the Trademark Act entirely useless, as the trademark right at issue can still be exercised against persons other than the well-known mark holder.15 It is worth pointing out that in the “Popeye muffler” case16, which was cited as a precedent in the present decision, the Supreme Court upheld an abuse of right defence in a trademark infringement action. In that case, the plaintiff owned the trademark right over the “POPEYE” mark, which was registered and transferred to the plaintiff without authorisation from the copyright holder of the cartoon “Popeye,” a US company, whereas the defendant marketed mufflers bearing trademarks consisting of the letters “POPEYE” with authorisation from the copyright holder. The Supreme Court held that the exercise of trademark right against the defendant would constitute an abuse of the right because allowing the exercise of the right of the plaintiff, who free-rode on the publicity of the cartoon character “Popeye”, against the defendant would harm the fair order of competition. However, there are two significant differences between the abuse of right defence in the “Popeye muffler” case and the abuse of right defence in the present decision: First, in the “Popeye muffler” case, although at the time of applying for the registration of the “POPEYE” mark, whose designated goods were “clothes, handkerchiefs, buttons and pins for accessories”, the cartoon “Popeye” was famous in Japan, neither the copyright holder nor its licensee distributed any products bearing marks associated with the cartoon in Japan. This means that, at the time of the application, “Popeye” was not a well-known trademark used in connection with some products, and therefore the application did not fall within the scope of Article 4(1)(x) of the Trademark Act. Second, as the Supreme Court pointed out in the “Popeye muffler” case that the registered “POPEYE” trademark was “used to free-ride on the publicity” of the cartoon character “Popeye”, such free-riding has been viewed as an essential

15 Chieko Shimizu, Toki no Hanrei: Saikousai Heisei 29 Nen 2 Gatsu 28 Nichi Dai 3 Shohotel Hanketsu [Case Commentary of the Present Decision], Jurist No. 1511, p. 104 (2017). 16 Supreme Court, 2nd Division, July 20, 1990, Minshu Vol. 44 No. 5, p. 876 [Case No. Showa 60 (o) 1576].

310  Masaharu Miyawaki factor to establish the abuse of right defence in the “Popeye muffler” case.17 Such free-riding, however, is irrelevant to the inquiry of whether a trademark falls under Article 4(1)(x) of the Trademark Act. Therefore, it is difficult to view the abuse of right defence in the present case as the same defence as that in the “Popeye muffler” case. That is to say, the Supreme Court in this case virtually created a new defence.

4 Such new abuse of right defence seems questionable, as it lacks legal grounds for forcing the prior user to use additional clarifying indications The Trademark Act provides a defence of prior user of a trademark (“prior use defence”), which was totally ignored by the Supreme Court in this case. Article 32 provides: (1) Where a trademark identical with, or similar to, the trademark for which the application is filed by another person has been used in Japan in connection with the designated goods or designated services of the trademark for which the application is filed, or in connection with goods or services similar thereto, without any intention to be engaged in unfair competition, from the time prior to the filing of such other person’s application for the said trademark registration, and as a result, at the time of filing of the application for trademark registration. . ., such trademark has become well known among consumers as that indicating goods or services pertaining to the business of the person, the person shall have the right to use the trademark in connection with such goods or services as far as the said person continuously uses the trademark for the goods or services. The same shall apply to those by whom such business is succeeded. (2) The holder of trademark right or of exclusive right to use said mark may request that the person who has the right to use the trademark pursuant to the preceding paragraph affix an indication that may sufficiently prevent any confusion between the goods or services pertaining to the business of the said person and those of its own. To satisfy the “well known” requirement under Article 4(1)(x) of the Trademark Act, a trademark must be recognised not only in one prefecture but at least also in several neighboring prefectures.18 As for the “well known” requirement under Article 32(1) of the Act, however, according to the dominant view19, narrower

17 See, e.g., Hisao Shiomi, Kenri Ranyo (1): Popeye Muffler Jiken [Case Commentary of “Popeye Muffler” Case], Bessatsu Jurist No. 188, p. 68 (2007). 18 See, e.g., Tokyo High Court, June 16, 1983, Mutai reishu Vol. 15 No. 2, p. 505 [Case No. Showa 57 (gyo ke) 110]. 19 See, e.g., Tokyo High Court, July 22, 1991, Chiteki saishu Vol. 25 No. 2, p. 296 [Case No. heisei 3 (ne) 4601]. See also, Yoshiyuki Tamura, Shohyo Ho Gaisetsu [Trademark Law], Kobundo (2nd edn, 2000), pp. 80–81.

Unregistered well-known trademark owner 311 area of recognition will suffice, because unlike Article 4(1)(x) of the Trademark Act, which might affect the interests of applicants who plan to use, or actually use, trademarks in application outside of the area of the prior user’s business, protection of prior users under Article 32(1) of the Trademark Act does not affect the use of registered trademarks nor the exercise of the right thereof by a trademark holder outside of the pre-existing area of the prior user’s business.20 Thus, if a trademark is “well known” under Article 4(1)(x) of the Act, it is also “well known” under Article 32(1) of the Act. For the holder of such a “well known” trademark, who, as an alleged infringer, is entitled to avail itself of the new abuse of right defence created in the present decision, the prior use defence seems to be unattractive because it requires the prior use to be “without any intention to be engaged in unfair competition”, which seems not to be required under the new defence. If an alleged infringer prevails on the prior use defence, a holder of a registered trademark is still entitled, under Article 32(2) of the Act, to seek the prior user’s use of an additional indication that may sufficiently prevent consumer confusion. If, however, the prior user prevails on the new abuse of right defence, there are no legal grounds for forcing the prior user to use such additional indications. Article 32(2) of the Act is designed for the purpose of preventing consumer confusion as well as of balancing the interests between prior users and holders of registered trademarks. Because there are no persuasive reasons why prior users are exempted from Article 32 when relying on the new abuse of right defence, the Court’s decision to create such a defence is questionable.

Commercial or industrial significance 1 How to establish renown under Article 2(1)(i) of the Unfair Competition Prevention Act The Supreme Court in the present decision did not elaborate on the general criteria for deciding whether a mark is “well known” under either the Unfair Competition Prevention Act or the Trademark Act. Accordingly, the significance of this decision for the Act is limited to the extent that it considered that to establish nationwide renown, sales of the products, expenditure on advertisement and participation in exhibitions cannot be small in scale.

2 The New Abuse of Right Defense under the Trademark Act As discussed earlier, the Supreme Court in the present decision provided prior users with a new defence, which is different from the existing prior use defence. It is uncertain how lower courts will apply the defence, especially how they will interpret the language of “except in extenuating circumstances,” as the Court gave no further explanation of this language.

20 Tamura, supra note 18, pp. 80–81.

312  Masaharu Miyawaki It is submitted that if courts think that the purpose of Article 32 of the Trademark Act is more important than the new defence, they might apply the new defence in a modest manner. For example, the situation in which an alleged infringer has been using its well-known mark for the purpose of unfair competition might be held as “extenuating,” so that the new defence would be denied, otherwise, the purpose of Article 32 of the Trademark Act will be frustrated by the new defence.

Part 6

Infringement and damages Infringement 27 Trademark rights-infringing comparative advertising in India

315

ARPAN BANERJEE

28 Contributory trademark infringement liability of online open market operators based on the civil code in Korea

331

BYUNGIL KIM

29 Exclusive licensee’s rights in Singapore: contractual and not proprietary against owners of marks

340

SUE-ANN LI

Defense against damages: no trademark use 30 The de-linkage and re-linkage between trademark use and damages in China

351

LI CHEN

Defense against damages: non-occurrence of damage 31 Trademark infringement defence based on non-occurrence of damage in Japan

361

ICHIRO NAKAYAMA

Measure of damages 32 Determination of damages for trademark infringement by the separate unit retail prices approach in Taiwan HAO-YUN CHEN

371

33 Measure of damages for infringement in Malaysia: lost profits (~profit margin) times loss of sales

381

AINEE ADAM

34 Damages for trade mark infringement in Singapore: getting what one deserves? BENJAMIN THAM

392

27 Trademark rights-infringing comparative advertising in India Arpan Banerjee

Case Citation: Calcutta High Court Hindustan Unilever v Reckitt Benckiser (2014) 57 PTC 78 (Cal)

Summary Comparative advertising refers to situations where a trader advertises his or her products by comparing them with those of a rival trader, whose products are typically shown to be less favourable. Rival traders often feel aggrieved when untrue and unfair statements are levelled against their products in such advertisements. Historically, under English law, the remedy available in such situations was an action in tort for malicious falsehood (also known as disparagement). However, such actions yielded little success, as courts imposed a high threshold for inferring malicious intent and adopted a permissive attitude towards free speech. The Trade Marks Act, 1994 permits comparative advertising if consistent with honest commercial practices. Thus, parties aggrieved by comparative advertising can combine a malicious falsehood tort action with an action for trademark infringement (where malicious intent is not a requirement). In India, the law has developed differently. The Trade Marks Act, 1999 broadly follows its UK counterpart. However, independent of trademark law, Indian courts have provided an effective remedy to parties aggrieved by comparative advertising by deviating from English law and diluting the malice requirement in tortious disparagement actions. Significantly, Indian courts have even developed a tort of “generic disparagement”, where unnamed traders can bring an action in situations where rival products are generically disparaged, without a particular trader or trademark being named. This has severely limited the possibility of comparative advertising. The origins of this divergence date back to a judgement of the Calcutta High Court in the 1990s, since followed by numerous other High Courts in India. This case report discusses a decision by the Calcutta High Court, nearly 20 years later, where it revisited the issue. The court chose not to disturb the status quo and reiterated the strict judicial limits placed on comparative advertising. However, the court’s decision raises questions on whether Indian judges

316  Arpan Banerjee have placed unreasonable limits on commercial speech, and whether courts are being burdened with vexatious litigation by rival corporations.

Legal context 1 The limits of tortious disparagement in England The Paris Convention for the Protection of Industrial Property requires states to provide “effective protection against unfair competition”.1 “Any act of competition contrary to honest practices in industrial or commercial matters” amounts to unfair competition.2 This includes the act of making “false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor”.3 This corresponds with the legal definition of “disparagement”.4 In English law, disparagement has traditionally fallen in the realm of judge-made tort law. As a tort, disparagement “passes by many names” depending upon “the fancy of the particular judge or writer”,5 and its synonyms include slander of goods, injurious falsehood, and malicious falsehood (the preferred term among most modern English judges).6 In the late 19th century, an English scholar warned against interpreting the tort too liberally, as it “would open a very wide door to litigation, and might expose every man who said his goods were better than another’s to the risk of an action.”7 In the coming years, courts indeed limited the scope of the tort in a series of decisions.8 In a more modern case, Glidewell LJ defined the essential ingredients of the tort as follows:9 1. the defendant must have published words about the plaintiff; 2. the words must be false; 3. the words must be published maliciously (‘[m]alice will be inferred if it be proved that the words were calculated to produce damage and that the 1 Paris Convention for the Protection of Industrial Property 1883 Art 10(1)bis. 2 Ibid Art 10(2)bis. 3 Ibid Art 10(3)(ii)bis. 4 For example, Black’s Law Dictionary defines disparagement as a “false and injurious statement that discredits or detracts from the reputation of another’s property, product, or business” (B Garner [ed.], Black’s Law Dictionary [West Group, Minnesota, 7th edn, 1999]). 5 WL Prosser, “Injurious Falsehood: The Basis of Liability” (1959) 59 Columbia Law Review 425. 6 Colgate-Palmolive v Anchor (2004) 40 PTC 653 para 25 (Madras High Court) (stating: “Thus what started off as an action for mere slander of title to land, by the end of 16th century, assumed different dimensions and different names such as slander of goods, injurious falsehood, trade libel, disparagement or malicious falsehood”). 7 James Paterson, The Liberty of the Press, Speech, and Public Worship: Being Commentaries on the Liberty of the Subject and the Laws of England (Macmillan, London, 1880) 178. 8 Ratcliffe v Evans (1892) 2 QB 524, 527; White v Mellin (1895) AC 154, 160, 167, 170; Hubbuck v Wilkinson (1899) 1 QB 86, 91–2. 9 Kaye v Robertson [1991] FSR 62, 68.

Rights-infringing comparative advertising 317 defendant knew when he published the words that they were false or was reckless as to whether they were false or not’); 4 there must occur special damage (‘it is sufficient if the words published in writing are calculated to cause pecuniary damage to the plaintiff’). In England, plaintiffs in malicious falsehood cases have historically had little success, as judges have been reluctant to infer malice and have given much leeway to puffing and commercial speech.10 To cite some modern examples, in Emaco v Dyson,11 Dyson published a graph showing that their vacuum cleaner was superior to one made by Electrolux, while Electrolux similarly attacked Dyson’s product in a flyer. The court held that “each was a thoroughly misleading document, containing a number of false representations” and further observed that Dyson had “been guilty of making exaggerated and misleading claims” before.12 Yet, the court still held that it was “not sufficient to raise an inference of malice in the publication of the graph.”13 In British Airways v Ryanair,14 the low-cost airline Ryanair compared its airfares with British Airways, and cheekily referred to its rival as “EXPENSIVE BA. . . . DS!” (BA, of course, being a well-known abbreviation of British Airways). However, the court held that “vulgar abuse” on its own could not amount to proof of malice.15 In Kingspan v Rockwool, involving adverse statements about fire-proof construction material manufactured by Kingspan, the court found “false representations . . . calculated to cause Kingspan pecuniary damage”, but no malice16 Thus, malicious falsehood is a “severely restricted” tort.17

2 UK trademark legislation In Yeast-Vite v Horsenail18 the plaintiff sought action against a comparative advertisement by alleging both malicious falsehood (slander of goods) and trademark infringement. The claim for malicious falsehood was dismissed for absence of evidence.19 With respect to the trademark infringement claim, the Trade Marks Act 1905 (the prevailing trademark statute at the time) only recognised “classical”20

10 Cornish and D Llewelyn, Intellectual Property: Patents, Copyrights, Trade Marks and Allied Rights (Sweet & Maxwell, London, 6th edn, 2007) 664–670. 11 (1999) WL 249783 (ChD). 12 Ibid paras 97, 135. 13 Ibid para 97. 14 [2001] FSR 32. 15 Ibid para 25. 16 [2011] EWHC 250 (Ch.). 17 Hazel Carty, An Analysis of the Economic Torts (OUP, Oxford, 2nd edn, 2010) 285. 18 (1933) 50 RPC 139. 19 Ibid 142. 20 This refers to “confusion as to the source or origin of the goods or services”, i.e. where “goods or services bearing the alleged infringer’s mark were likely to be thought to have been derived from or associated with the proprietor of the registered trade mark in issue” (Wagamama v City Centre [1995] FSR 713, 714).

318  Arpan Banerjee trademark infringement. Thus, the court found no infringement as the defendant was “not using the mark in such a way as to indicate the origin of the goods.”21 The Trade Marks Act 1938, like its predecessor, dealt with classical trademark infringement. However, it contained a long-winded provision (criticised as “a masterpiece of obscurity”)22 whose effect was “to alter the law as laid down in the Yeast-Vite case”23 and severely restrict comparative advertising.24 The Trade Marks Act 1994 (“UK Act”), which is now in force, permits comparative advertising under certain circumstances. One of the salient features of the UK Act is to implement European directives and recognise tarnishment (i.e., causing “a negative impact on the image of the mark”)25 and other forms of “non-classical” trademark infringement. The UK Act’s tarnishment provision states: A person infringes a registered trade mark if he uses in the course of trade, in relation to goods or services, a sign which – (a) is identical with or similar to the trade mark (b) where the trade mark has a reputation in the United Kingdom and the use of the sign, being without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark.26 A separate provision in the UK Act exempts “the use of a registered trade mark by any person for the purpose of identifying goods or services as those of the proprietor or a licensee” from amounting to trademark infringement.27 However, this provision adds: But any such use otherwise than in accordance with honest practices in industrial or commercial matters shall be treated as infringing the registered trade mark if the use without due cause takes unfair advantage of, or is detrimental to, the distinctive character or repute of the trade mark.28 Thus, this provision uses language identical to the tarnishment provision, but adds that using a mark to identify the goods of a competitor may amount to

21 (1933) 50 RPC 139, 146. 22 Bismag v Amblins [1940] Ch. 667, 688 (CA) (MacKinnon LJ, discussing the Trade Marks Act 1938 (UK) s 4(1)(b)). 23 Ibid 684 (Wilfrid Greene MR). 24 Apparently, the provision was a result of lobbying from influential brand owners opposed to the practice. See Ilanah Simon Fhima, Trade Mark Dilution in Europe and the United States (OUP, Oxford, 2011) v (foreword by Jacob LJ). 25 L’Oréal v Bellure (2008) ETMR 1 (Case C-487/07, ECJ) para 40. 26 Trade Marks Act 1994 (UK) s 10(3). In L’Oréal v Bellure, the ECJ defined this form of trade mark infringement as tarnishment, in contrast to blurring and free-riding (ibid paras 39–41). 27 Trade Marks Act 1994 (UK) s 10(6). 28 Ibid.

Rights-infringing comparative advertising 319 infringement, if not “in accordance with honest practices in industrial or commercial matters” (language seemingly borrowed from the Paris Convention). In Barclays v Advanta, Laddie J noted the similarities in wording between the two provisions above, but observed that both should be interpreted independently.29 With respect to comparative advertising, Laddie J observed that if an advertisement “is considered honest by members of a reasonable audience”, there is no infringement.30 The public is accustomed to hyperbole and the UK Act does not impose “a more puritanical standard”.31 Hence, advertising which “pokes fun” at competitors or is mere puffing is acceptable.32 Laddie J accordingly refused to restrain Advanta from using “BARCLAYCARD” in advertisements, finding neither trademark infringement nor malicious falsehood (Barclays had contended that Advanta’s claim of offering ‘a better credit card all round’ was not honest). In contrast, in Emaco v Dyson, notwithstanding its findings on malicious falsehood, the court felt that both parties had fallen afoul of Laddie J’s reasonablereader test, and found trademark infringement by both parties.33 In Kingspan v Rockwool, the court similarly found trademark infringement.34 Thus, parties aggrieved by comparative advertising can now circumvent the obstacles posed by the tort of malicious falsehood by alleging trademark infringement, although comparative advertising using unregistered marks would still have to be litigated under a malicious falsehood action.

3 Law in India 3.1 The Trade Marks Act’s comparative advertising provisions are in essence the same as those of the UK In India, the erstwhile Trade and Merchandise Marks Act 1958 only recognised classic trademark infringement and did not contain any provision addressing comparative advertising. The Trade Marks Act, 1999 (“Indian Act”), in force since September 2003, contains a specific provision dealing with comparative advertising, which reads:35 A registered trademark is infringed by any advertising of that trademark if such advertising – (a) Takes unfair advantage of and is contrary to honest practices in industrial or commercial matters; or (b) is detrimental to its distinctive character; or 29 (1996) RPC 307, 314–5. 30 Ibid 315. 31 Ibid. 32 Ibid. 33 (1999) WL 249783 (Ch D). 34 [2011] EWHC 250 paras 212–36. 35 Trade Marks Act 1999 (India) s 29 (8).

320  Arpan Banerjee (c) is against the reputation of the trade mark. A separate provision states:36 Nothing in section 29 shall be construed as preventing the use of a registered trade mark by any person for the purposes of identifying goods or services as those of the proprietor provided the use – (a) is in accordance with honest practices in industrial or commercial matters, and (b) is not such as to take unfair advantage of or be detrimental to the distinctive character or repute of the trade mark. Thus, while structured a little differently, the Indian Act’s comparative advertising provisions are, in essence, the same as the corresponding provisions of the UK Act. A handful of comparative advertising cases, involving the preceding provisions, have been heard by different Indian High Courts. For example, in Paras v Ranbaxy,37 a television commercial showed a person using a pain-relieving ointment with no efficacy. The person was then handed Ranbaxy’s ointment and told: “You need a true pain reliever.” The first ointment’s trade dress resembled that of Paras’ Moov ointment. Paras alleged trademark infringement. Citing Advanta and British Airways, Ranbaxy claimed that the advertisement qualified as commercially honest puffing. However, the Gujarat High Court held that the advertisement was “disparaging and denigrating” towards Moov’s registered trade dress.38 In Reckitt Benckiser v Emami,39 Reckitt Benckiser (the present owners of Moov) were sued over an advertisement proclaiming Moov to be superior to a rival ointment, shown as ineffective. The rival product’s trade dress resembled that of Zandu Balm, a popular ointment made by Emami. The Calcutta High Court observed that “the comparison was not fair and truthful”, and amounted to prima facie trademark infringement.40

3.2 Indian law on tortious disparagement differs from English law While the above precedents are instructive, where Indian law really differs from English law, and where the bulk of comparative advertising litigation has occurred in India, is in the area of tortious disparagement. In Imperial Tobacco v Bonnan,41 decided in British India, the defendants were sued for writing letters claiming that the plaintiffs’ cigarettes were inferior. Applying English precedents, Rankin

36 Trade Marks Act 1999 (India) s 30 (1). 37 (2008) AIR Gujarat 94. 38 Ibid para 42. 39 2015 Indlaw CAL 1416. 40 Ibid paras 34 and 35. 41 (1928) AIR Calcutta 1.

Rights-infringing comparative advertising 321 CJ observed that malice could neither be established nor imputed.42 Ghose J affirmed that an action of disparagement does not lie when a trader simply says that a rival product is inferior, but rather when the trader “goes further and makes an untrue statement of fact . . . that they are rotten or unmerchantable.”43 Additionally, proof of malice and special damages are necessary.44 Almost seven decades later, in Reckitt Colman v Ramachandran,45 the Calcutta High Court took a radically different view, from which emerged a distinct Indian jurisprudence on comparative advertising. In Reckitt Colman v Ramachandran, the defendant compared its “blue” (a type of bleaching dye) with an unnamed blue. The rival product’s get-up resembled that of Robin Blue, manufactured by Reckitt Colman. As the Indian Act was not in force then, the case hinged on a tortious disparagement claim. The defendant cited English cases and sought shelter under a puffing defence. However, the court held that the defendant had prima facie disparaged Robin Blue and granted the plaintiffs an interim injunction. Ghosh J laid down five guiding principles to determine such cases.46 First, a trader could declare his or her goods as the world’s best, even if this was untrue. Second, the goods could be declared as being better than rival products, even if untrue. Third, a comparison between the attributes of rival goods was permissible. Fourth, a trader could not describe rival products as bad – “If he says so, he really slanders the goods of his competitors”.47 Fifth, if a trader slanders a rival product or a competitor, an injunction can be granted to restrain such statements. In Ghosh J’s guiding principles, a crucial point of departure with English law was the suggestion that malice is implicit in a disparaging statement. The defendant, referring to English law, had argued that a prerequisite of tortious disparagement is “spite” on the part of a defendant.48 While Ghosh J did not dispute this, he did not impose any additional burden on plaintiffs to prove malice. The judge suggested that simply saying that someone’s products are rubbish is enough to attract liability. Also noteworthy was the non-imposition of any actual-damages or special-damages criterion. Another significant deviation from English law was the judge’s recognition of a tort of “generic” disparagement. The defendant had argued that it had not specifically referred to Robin Blue but to “the generic class of blues”, which it was “perfectly entitled” to do.49 However, Ghosh J remarked: [I]t is difficult to proceed on the basis that the defendant . . . was not referring to Robin Blue, but assuming in the advertisement insinuations are not

42 Ibid paras 56–58, 74. 43 Ibid para 75. 44 Ibid. 45 (1999) 19 PTC 741. 46 (1999) 19 PTC 741, 746–7. 47 Ibid 746 (emphasis added). 48 Ibid 749. 49 Ibid.

322  Arpan Banerjee made against Robin Blue and the same were directed to all blues . . . can it be said that it was not made against Robin Blue? The answer is a definite ‘no’, because Robin Blue is also a blue.50 The judge thus concluded that if a trader describes all of his or her competitors as “bad”, then “anyone fitting the description of everyone is affected”.51 Ghosh J’s decision has gone on to “set the trend in the direction that the law has taken in India”.52 In a host of cases, High Courts across India have upheld claims for both specific and generic tortious disparagement. For example, soon after Ghosh J’s decision, Reckitt Colman again sued a trade rival over a comparative advertisement. A television commercial had shown a dummy shoe-polish, marked “X”, dripping with wax. The dummy product had a red blob on its bottle. Reckitt Colman alleged disparagement of its Cherry brand shoe-polish. The Delhi High Court, applying Ghosh J’s five principles, ruled that the commercial could be shown only if the red blob was removed.53 In another Delhi High Court case,54 Pepsi sued Coca Cola for tortious disparagement and trademark infringement. Coca Cola’s television commercial (for its drink Thumbs Up) had ridiculed the taste of a fictitious drink called “Pappi”, which clearly resembled Pepsi. Coca Cola’s trademark infringement claim was under the then-existing Trade and Merchandise Marks Act 1958 (which, as mentioned earlier, only recognised classic trademark infringement). Expectedly, the claim, failed. However, the tortious disparagement claim was upheld. In a Calcutta High Court case,55 an advertisement by GlaxoSmithKline claimed that its nutrition drink Complan was more nutritious than “Brand H”. Heinz sued for tortious disparagement, alleging that Brand H was a reference to its rival product Horlicks. GlaxoSmithKline conceded that Brand H was a reference to Horlicks, but put forward a puffing defence. The court, however, observed that the advertisement had prima facie disparaged Horlicks. In another Calcutta High Court case,56 Hindustan Unilever, in a television commercial, claimed that its detergent (Rin) gave more “whiteness” than Procter & Gamble’s rival product (Tide Naturals). Hindustan Unilever’s commercial, in an obviously distorted manner, had shown a shirt supposedly washed with Tide Naturals remaining dull. Hindustan Unilever contended that their advertisement was commercially honest – that laboratory tests had shown that their detergent gave more whiteness than Tide Naturals. The court passed an injunction restraining the commercial

50 Ibid 750–1. 51 Ibid. 52 Colgate-Palmolive v Anchor (2008) 7 MLJ 1119, para 29. 53 Reckitt Colman v Kiwi (1996) 63 DLT 29, para 13. 54 Pepsi v Coca Cola (2003) 27 PTC 305. 55 Heinz v GlaxoSmithKline (2009) 2 CHN 479. 56 Procter & Gamble v Hindustan Unilever Civil Suit 43/2010 (5 March, 2010, single-judge bench), https://indiankanoon.org/doc/101038342, upheld in (2010) 43 PTC 460 (twojudge bench).

Rights-infringing comparative advertising 323 from being aired.57 In Paras v Ranbaxy58 and Reckitt Benckiser v Emami,59 discussed earlier, claims for tortious disparagement and trademark infringement were both addressed and upheld. In the context of generic disparagement, cases have been plentiful, with most faithfully applying Ghosh J’s five principles. For example, in a Delhi High Court case,60 Emami manufactured “Amritprash”, an invented word combining amrit (a Hindu sacramental nectar) with chyawanprash (a traditional Indian herbal tonic). Emami released a television commercial with the tagline: “Forget Chyawanprash . . . Eat Amritprash Instead”. Dabur, Emami’s main competitor and a leading manufacturer of chyawanprash, alleged tortious disparagement. Emami argued that chayawanprash was a common word and that its commercial had not made the “slightest reference” to Dabur.61 However, the court stayed the broadcast of the commercial and stated: “[E]ven if there be no direct reference to the product of the plaintiff and only a reference is made to the entire class . . . in its generic sense . . . disparagement is possible “.62 A few months after the decision, Dabur sued a competitor for boasting that its tooth powder was 16 times less abrasive than others. The Delhi High Court granted an interim injunction in Dabur’s favour, rejecting a puffing defence. The judge, declining to apply English precedents, stated: “The practice of undue obeisance to English jurisprudence . . . should . . . be discouraged. . . . When there is a judgment [in India] . . . directly on the point of generic disparagement, I see no reason why one should travel westwards.”63 The following year, the Delhi High Court once again held that generic disparagement was actionable. The court stayed the broadcast of a commercial which had shown the defendants’ mosquito repellent giving better results than an anonymous rival product.64 Similar decisions have emanated from the High Courts of Karnataka,65 Madras,66 Bombay,67 and Calcutta.68 Some obvious questions that arise from these cases are (1) whether courts have been overly strict in protecting the reputational interests of brand owners; (2) whether, as a result, courts are repeatedly being used by large consumer goods companies to fight proxy business wars (and a bare glance at the litigants 57 Proctor & Gamble had alleged both trademark infringement and tortious disparagement. A single-judge bench of the court sidestepped past the trademark infringement claim (it is submitted erroneously) and focused only on tortious disparagement. On appeal, a two-judge bench focused only on the tortious disparagement claim. 58 (2008) AIR Gujarat 94. 59 2015 Indlaw CAL 1416. 60 (2004) 29 PTC 1. 61 Ibid para 8. 62 Ibid para 9. 63 Ibid para 20 (Sharma J). 64 Karamchand v Adhikari (2005) 31 PTC 1. 65 Eureka Forbes v Pentair (2007) 35 PTC 556. 66 Colgate-Palmolive v Anchor (2009) 40 PTC 653. 67 Hindustan Unilever Limited, Mumbai v Gujarat Co-operative Milk Marketing Federation 2017 Indlaw MUM 842. 68 Eveready v Gillette 2012 Indlaw CAL 1438.

324  Arpan Banerjee in the preceding cases will lend credence to this); and (3) why the right to free speech should not give more leeway to puffing, including exaggeration and ridicule of trade rivals. The case of Hindustan Unilever v Reckitt Benckiser,69 which the remainder of this chapter will focus on, presented the Calcutta High Court the opportunity to consider some of these questions. Prior to the case, Reckitt Benckiser and Hindustan Unilever had been involved in multiple comparative advertising cases against each other, before the Delhi and Calcutta High Courts, involving some of the same products at issue in the present case.70 One of these cases was heard by the same judge who heard the present case. The judge had then described the case as “a battle for pride”.71

Facts The present case comprised four suits being heard together, the first two filed by Reckitt Benckiser against Hindustan Unilever, and vice versa with respect to the other two. The first suit arose from a print advertisement for Reckitt Benckiser’s dishwashing liquid Dettol Healthy Kitchen Gel. The advertisement claimed that Dettol Healthy Kitchen Gel could kill “100X more germs” than a “leading dish wash”. The advertisement had an image of a dish supposedly washed with the leading dish wash, but still full of germs. Hindustan Unilever objected to the use of the term “leading dish wash”, claiming that it targeted its product Vim. The second suit arose for another television commercial for Dettol Healthy Kitchen Gel, where its germ-killing qualities were similarly highlighted. However, this time, a bottle of Vim was specifically shown as an ineffective product. The third suit arose from a print advertisement for Lifebuoy bathing soap, which stated: “It is proven! Lifebuoy gives better germ protection than Dettol antiseptic liquid”. In fine print, the advertisement stated that this was the case “while bathing” – a cheeky disclaimer, considering that the purpose of Dettol antiseptic liquid is to disinfect wounds, floors, clothes, etc, rather than be used as a bathing soap. The advertisement also contained an illustration showing germs being unaffected by Dettol antiseptic liquid. The fourth suit arose from a television commercial by Hindustan Unilever for Vim. The commercial showed a child sitting next to an unnamed bottle filled with brown liquid (the same colour as Dettol antiseptic liquid). The child’s mother, on spotting this, immediately takes away the bottle, saying that children ought to be kept away from antiseptics. The mother then wonders how utensils can be washed with antiseptics that are dangerous for children, and then lauds Vim for possessing “natural” ingredients derived from lemons. Thus, once again, Hindustan Unilever was taking a dig at

69 (2014) 57 PTC 78 (single-judge bench). 70 See, eg, Reckitt Benckiser v Hindustan Unilever (2008) 38 PTC 170 (Del); Hindustan Unilever v Reckitt Benckiser Civil Suit 1292 of 2006, 17 November 2006 (Delhi High Court) (unreported); Hindustan Unilever v Reckitt Benckiser 2012 Indlaw CAL 1959; Reckitt Benckiser v Hindustan Unilever (2013) 55 PTC 156 (Del). 71 2012 Indlaw CAL 1959, para 1 (Mukherji J).

Rights-infringing comparative advertising 325 Dettol’s brand image stemming from an unrelated product like antiseptic liquid, rather than Dettol Healthy Kitchen Gel.

Reasoning of the court 1 Upholding both the parties’ respective claims for tortious disparagement and trademark infringement At first instance, the case was heard by a single-judge bench of the court, comprising Mukherji J. The judge upheld both the parties’ respective claims for tortious disparagement and trademark infringement, and passed an injunction restraining all the advertisements in question. With respect to the first advertisement, the judge held that “the reference to a ‘leading dish wash’ would lead any reasonable person to think that the dish wash being referred to was” Vim, due to its dominant market share.72 The judge felt that the claim that Dettol Healthy Kitchen gel “kills 100X more germs” was permissible as puffing, but Reckitt Benckiser had gone further and denigrated Vim, which was impermissible.73 With respect to the second advertisement, the judge held that it was not puffing but a “very serious” comparative advertisement, which was liable to be restrained for the same reasons as the first.74 With respect to the third advertisement, the judge held it amounted to “inappropriate dilution” and disparagement.75 With respect to the fourth advertisement, the judge held that Dettol had been referred to in a denigrating manner that would deter consumers from it.76 The judge held that the commercial-honesty provision under the Indian Act was inapplicable in all the situations.

2 Imposing strict limits on comparative advertisements Mukherji J proceeded to recount the law on the subject, citing some of the precedents discussed earlier. Referring to two Supreme Court cases, under a now-defunct statute prohibiting monopolies and unfair business practices, the judge observed that a representation, even if “apparently correct in the technical sense”, may amount to disparagement if it misleads a “reasonable” person.77 The judge conceded that “advertisements are taken as a hyperbole by the reasonable people”.78 However, the judge still imposed strict limits on comparative advertisements, stating a “trader is permitted to compare his goods with those 72 Ibid para 80. 73 Ibid. 74 Ibid para 83. 75 Ibid para 84. 76 Ibid para 87. 77 Ibid para 71 (citing Lakhanpal v MRTP Commission (1989) AIR SC 1692; Colgate Palmolive v Hindustan Lever in (1999) 7 SCC 1). 78 Ibid para 58.

326  Arpan Banerjee of another trader”.79 But “[h]e can make this comparison by highlighting the qualities and efficaciousness of his goods without stating or commenting on the qualities and efficaciousness of his rival’s goods.”80 In other words, puffing is permitted but a “serious comparative advertisement should not be made”, because “one may directly or indirectly denigrate another product.”81 In the present case, Reckitt Benckiser could display Dettol and Vim in the same advertisement and laud Dettol, but “without making any comment” on Vim.82 The judge further stated: [A] trader should not be permitted to advertise facts, data, figures, deficiencies etc. of the products of another, especially a rival, directly or indirectly by an innuendo. This is so, because, one must presume a constant bias in the mind of such a trader towards his rival. When one presumes this constant bias, one would expect that the representations that are made, seriously about a rival’s product are bound to be false, misleading, unfair or deceptive. This is more so because one is not in a proper position to make an impartial appraisal of a rival’s product. . . . It follows that the defence of truth or justification in the law of defamation, is not available in actions alleging disparagement of goods and services and arising out of comparative commercial advertisements, in my opinion.83

3 When “commercial speech” immediately becomes unfair The judge then moved on to the question of whether a constitutional free-speech defence could be availed of in such cases. The judge referred to a Supreme Court decision where ”ommercial speech”, including advertisements, were held to be protectable under Article 19(1)(a) of the Indian Constitution. However, the Supreme Court had also referred to Article 19(2) of the Constitution (which permits, inter alia, “reasonable restrictions” on the right to freedom of speech “in the interests of” defamation) and observed that commercial speech “which is deceptive, unfair, misleading and untruthful” can be prohibited.84 Mukherji J thus observed: I find nothing, in the existing law to permit, a serious comparison by a trader of his product with the product of another. This would invariably result in the denigration of the latter product or in the consumer being prejudiced by

79 Ibid para 56. 80 Ibid para 56. 81 Ibid paras 60, 69. 82 Ibid para 56. 83 Ibid paras 61, 68. 84 Ibid paras 74–6 (citing Tata Press v Mahanagar Telephone Nigam (1995) AIR SC 2438, paras 17, 22–24).

Rights-infringing comparative advertising 327 it against the other product, as held earlier. When this happens, immediately the ‘commercial speech’ becomes unfair.85 Mukherji J’s decision was appealed against by both parties and heard by a twojudge bench of the court. The bench summarised the important parts of Mukherji J’s decision and upheld the decision.86 The bench had little to add beyond what the judge had already said.

Legal analysis 1 Have Indian courts been over-protective? English judges have been criticised for their unwillingness to infer malice in tortious disparagement claims, “lagging badly behind the ‘steady trend’ of legislation . . . in favour of increased consumer protection”.87 In contrast, Indian courts have readily allowed tortious disparagement claims by diluting the standard of malice. The Indian approach is certainly more pragmatic. If plaintiffs can succeed in comparative advertising infringement cases under statutory trademark law without proving malice, it makes little sense to impose a very high standard for proving malice in tortious disparagement cases. Moreover, the Paris Convention does not qualify the prohibition of disparagement by imposing a malice criterion. With both the Indian Act and UK Act allowing trademark infringement claims in comparative advertising, a tortious claim for specific disparagement would mainly come in handy in situations where an unregistered (or non-registrable) mark is affected. As Justice Jacob has observed, such a claim does not add anything to a trademark infringement claim except the “burden (and costs) of proof of malice”.88 Thus, the greatest significance of comparative advertising case law in India has been the recognition of a tort of generic disparagement, where statutory trademark law cannot provide a remedy. There is limited authority to suggest that generic disparagement is actionable under English law. In an old English case, cited approvingly by both Mukherji J and the appellate bench, the House of Lords laid down limits for puffing, and then considered the possibility of recognising tortious generic disparagement. However, the court eventually did not do so.89 Herschell LJ warned that entertaining 85 Ibid para 78. 86 2014 Indlaw CAL 154. 87 G Crown, “Malicious Falsehood: Into the 21st Century” (1997) 8 Entertainment Law Review 6, 10. 88 Cable & Wireless v BT [1998] FSR 383, 385. 89 White v Mellin (1895) AC 154. In this case, the defendant affixed a label on the plaintiff ’s rival product. The label stated that the defendant’s baby food was “far more nutritious and healthful than any other preparation yet offered”. Herschell LJ felt that, first, the label was an “anonymous puff” of a “very common description” which could not be said to have disparaged the plaintiff ’s goods. Secondly, even if it was assumed that there was disparagement, there was “an entire absence of any evidence that the statement complained of either

328  Arpan Banerjee such claims would open “a very wide door” to litigation, and courts would “be constantly employed in trying the relative merits of rival productions”.90 In contrast, in a more recent case involving generic disparagement (eventually settled), Rimer LJ observed: “If the case were allowed to go to trial and the claimant were able to prove that such meaning was false, uttered with malice and calculated to damage it, why should it not be entitled to damages for the injury which the falsehood will have caused it?”91 Assuming that generic disparagement is actionable under English law, the odds of a plaintiff succeeding does not seem bright, going by precedents on specific disparagement. Furthermore, very few suits alleging generic disparagements have been brought before English courts. Thus, in practice, Herschell LJ’s words of caution have prevailed among lawyers and judges. Here, Indian courts can learn some lessons. Undoubtedly, lowering the standard of malice in disparagement claims has allowed too many frivolous corporate battles to flood Indian courts, in precisely the manner Herschell LJ had warned of. As an example, in one case, Hindustan Unilever alleged generic disparagement after Procter & Gamble simply claimed that its skin-lightening cream worked from ‘within’, unlike other products. The Calcutta High Court had to spend time considering the question of whether a chemical called niacinamide (which supposedly lightens the skin) penetrates the dermis rather than the epidermis.92 The Madras High Court has stated that English precedents on disparagement should not apply in India, as Indian consumers have much lower literacy levels.93 This is a somewhat paternalistic assumption. Studies have shown that rural Indians rely greatly on word-of-mouth recommendations and do not easily change brand loyalties.94 One survey, for instance, has revealed that only 4% of rural consumers choose a soap based on advertisements.95 It is thus questionable whether lesser educated consumers need any more protection from puffing than their more educated counterparts do. It can even be argued that individuals with limited amounts of money at their disposal make more wary consumers. Furthermore, we now live in an age where brands are commonly discussed and parodied across social media. Is it then really necessary to protect consumers to the extent of prohibiting generic disparagement in the manner Indian courts have? had injured or was calculated to injure the plaintiff”. Watson LJ similarly observed that the label was merely “a highly coloured laudation” of the defendant’s product. It made “no reference to the plaintiff ’s goods beyond what might be implied in the case of every other kind of food which is recommended and sold as being suitable for consumption by infant children”. 90 Ibid 154. 91 Ajinomoto v Asda [2011] Q.B. 497, 509–10. The plaintiff, a manufacturer of aspartame, sued the defendant for stated that the defendant’s products did not contain “hidden nasties” like aspartame. 92 Hindustan Unilever v Proctor & Gamble (2010) 43 PTC 460, 93 Colgate-Palmolive v Anchor (2004) 40 PTC 653 paras 18, 19, 67, 74. 94 MJ Etzel and others, Marketing: Concepts and Cases (Tata McGraw Hill, New Delhi, 13th edn, 2008) 726. 95 S Patro and S Varshney, “Brand awareness and rural markets” (2008), http://dspace.iimk. ac.in/bitstream/2259/458/1/RM168.pdf (accessed 30 March 2010)

Rights-infringing comparative advertising 329

2 A “serious” comparative advertisement is not necessarily biased Another problem arises from Mukherji J’s suggestion that a “serious” comparative advertisement is necessarily biased and should not be permitted. This runs in conflict with the Indian Act’s comparative advertising provision, as well as Ghosh J’s principles in Reckitt v Ramachandran. If we take Mukherji J’s dictum too literally, this would mean that, in a situation involving comparisons of price or ingredients, an advertisement may be protected under the Indian Act’s comparative advertising provision, but still amount to disparagement. Such a situation would especially disadvantage newer traders competing against established rivals on the basis of offering better bargains. Furthermore, Indian trademark law does not contain a specific parody defence. Thus, even a non-factual, humorous dig at a rival trader could be interpreted as a “serious” comparative advertisement and result in litigation. Hence, the court ought to have imposed some sort of condition (such as a higher standard of malice in generic disparagement claims) that would have discouraged traders from frequently approaching the courts. The court should have been mindful of the fact that Indian courts are being flooded by vexatious claims, especially considering the history between the two parties in the case. Hence, it can be argued that the Calcutta High Court’s decision in Reckitt Colman v Ramachandran has triggered a slippery slope, which the court not only failed to arrest in the present case but may have unwittingly made worse.

3 Increased Role for the Advertising Standards Council of India Given the maddening rate at which courts are being confronted with petty comparative advertising disputes, frivolous litigation needs to be curbed to relieve India’s overburdened courts. One option could be for the Indian legislature to intervene and compel comparative advertising disputes to be heard first by the Advertising Standards Council of India (ASCI). The ASCI is a voluntary, selfregulatory body modelled on the UK’s Advertising Standards Authority. The ASCI has framed an advertising code that prohibits statements which, inter alia, “distort facts” or “mislead consumers”. The ASCI’s Consumer Complaints Council (CCC) hears complaints against advertisements allegedly breaching the ASCI’s advertising code. Because the CCC’s orders are not legally binding, the ASCI has been described, by the Madras High Court, as lacking “the necessary teeth”.96 Furthermore, the ASCI only has jurisdiction over member-entities. Nevertheless, a perusal of the CCC’s recent orders shows that it restrained many cases of untrue puffing, and the rate of compliance with ASCI orders reportedly stood at 85% (as of 2017).97 In a recent decision, concerning the competence of the ASCI, a judge of the Delhi High Court had observed: I am of the view that such industry/sector specific self- regulatory bodies should be encouraged. Functioning thereof curtails litigation and allows an 96 Colgate-Palmolive v Anchor (2004) 40 PTC 653 para 53. 97 See Shweta Mulki, “Just how much protection do we need from misleading ads?” afaqs!, 27 November 2017 .

330  Arpan Banerjee opportunity to constituents of the same industry/sector to have their inter se disputes and differences settled amicably.98 Thus, it is submitted that the ASCI can be elevated to the status of a quasi-judicial body and suitably empowered, and that courts be permitted to intervene only if a party appeals against an order of the ASCI. In such a situation, the likes of Reckitt Benckiser or Hindustan Unilever may still continue to flood High Courts with appeals against ASCI orders, given their insatiable appetite for litigation (and seemingly inexhaustible budget for legal fees). Nevertheless, certainly a partial reduction in litigation before High Courts can be expected, if not from these corporations then at least some others.

Commercial or industrial significance Following Mukherji J’s decision, Reckitt Benckiser and Hindustan Unilever have continued to litigate in other courts over comparative advertising disputes.99 Similar obstinate battles, involving other corporations, exist. It is hard to believe that consumer goods manufacturers are not aware of the legal risks likely to emanate from a comparative advertisement, especially of the kind involved in the present case. Therefore, it appears that some traders are willing to risk legal action, given their deep pockets, and persistently instruct their advertising agencies to create comparative advertisements. In some cases, the window between the publication of a disparaging advertisement and a court injunction restraining it, even if small, is perhaps lucrative enough to take such a risk. An example could be an important live sports telecast, or the television premiere of a film. Some corporations perhaps release a contentious advertisement knowing that it will just have a lifespan for a week, before a court restrains it. This, therefore, strengthens the case to stop courts from being used in vexatious corporate battles, and the ASCI to act as the first adjudicatory authority instead. Ultimately, however, the question of whether comparative advertisements will continue to flood the Indian media is probably dependent on consumer behaviour – whether consumers will get tired of constant negative advertising running down rivals and respond to them less and less, and instead gravitate towards brands with a more positive message.

98 Metro Tyres v ASCI 13–14 (Endlaw J). 99 See, eg, Hindustan Unilever v Reckitt Benckiser (2014) 20) DLT 713 (Delhi High Court).

28 Contributory trademark infringement liability of online open market operators based on the civil code in Korea Byungil Kim

Case information: Korean Supreme Court, 2010 Ma 817 (decided on 4 December 2012) – Adidas v. GMarket (eBay Korea)

Summary Some open online markets, such as eBay, GMarket,1 and 11STREET2, are electronic marketplaces, i.e., platforms for people to sell and buy goods through their websites in exchange for a fee from sellers, sometimes even from buyers. However, some unscrupulous sellers attempt to sell counterfeit items via open online markets.3 In light of such increasing infringement activity, the scope and limitation of secondary trademark liability of such operators have become a hot issue in Korea. Discussed here is a leading case on the contributory liability for trademark infringement of online open market (auction sites) operators in Korea. In the present case Adidas brought a suit against GMarket, which operated an internet shopping mall, alleging widespread infringement of its trademark rights on Gmarket’s websites. The Seoul Central District Court denied Gmarket’s liability, which was upheld by the Seoul High Court. The Korean Supreme Court did not find GMarket liable for trademark infringement as an aider and abettor, as GMarket did not have sufficient knowledge of specific acts of infringement on its site, and once it did, it acted appropriately to discontinue the listing.4

1 “GMarket” is a subsidiary of eBay Korea and an open market website. Its name changed from “Interpark GMarket Co., Ltd.” to “eBay Korea Co., Ltd.” during the litigation. 2 http://global.11st.co.kr/html/en/main_en.html 3 Joo Young Moon & Nayoung Kim, Trademark Infringement for Open Market Websites, Kim&Chang IP Newsletter Winter 2012/13, p. 11. 4 Supreme Court, 4 December, 2012 (2010 Ma 817), unpublished.

332  Byungil Kim

Legal context In Korea, in a civil action against trademark infringement, a plaintiff must prove that: (1) the plaintiff is the owner of a registered trademark; (2) the defendant used the mark as a trademark which indicates the source of specific goods or services; (3) the use by the defendant falls within the category of acts specified under Article 2(1)(xi)5 of the Trade Mark Act (TMA)6, the mark used by the defendant is identical with, or similar to, the registered trademark and the mark was used on goods which are identical with, or similar to, the designated goods of the plaintiff. However, the test for trademark infringement in Korea is whether the marks in question are “confusingly similar” in the perception of consumers when used on similar goods.7

Article 107 (Right to Seek Injunction, etc. against Infringement) (1) A trademark right holder or an exclusive licensee may seek an injunction requesting the prohibition or prevention of infringement against a person who infringes or is likely to infringe on his or her right. (2) Where a trademark right holder or an exclusive licensee makes a request under paragraph (1), he or she may request the destruction of infringing goods, the removal of facilities provided for infringement, or other necessary measures. (3) Where a lawsuit requesting the prohibition or prevention of infringement under paragraph (1) is brought, the court may provisionally order an injunction on infringement, confiscation of goods, etc. used for infringement, or other necessary measures at the request of the plaintiff or complainant (limited to where a case is prosecuted pursuant to this Act). In such cases, the court may require the plaintiff or complainant to provide security.

Article 108(1) (Acts Deemed Infringement) (1) The following shall be deemed infringement of trademark rights (excluding the right to collective mark with geographical indication) or an exclusive license: 5 Article 2(1)(xi) of the TMA provides: The term ‘use of a trademark’ means any of the following: (a) Displaying a trademark on goods or packages of goods; (b) Transferring or delivering goods or packages of goods on which a trademark is displayed, or exhibiting, exporting, or importing such goods for the purpose of transfer or delivery; (c) Displaying a trademark on advertisements for goods, price tags, transaction documents, or other means, and exhibiting or giving wide publicity to the trademark. 6 Act No. 71 (Sangpyobeob), 28 November 1949, wholly amended by Act No. 4210, on 13 January 1990, last wholly amended by Act No. 14033 of 29 February 2016, last amended by Act No. 15581, on 17 April 2018. 7 Supreme Court, 11 February 1986 (85 Hu 65).

Liability of online open market operators 333 1

2

3

4

Using a trademark identical to a registered trademark of another person on goods similar to the designated goods, or using a trademark similar to the registered trademark of another person on goods identical or similar to the designated goods; Delivering, selling, forging, imitating, or possessing a trademark identical or similar to a registered trademark of another person for the purpose of using or causing a third party to use such trademark on goods identical or similar to the designated goods; Manufacturing, delivering, selling or possessing equipment for the purpose of forging or imitating a registered trademark of another person or causing a third party to forge or imitate such registered trademark; Possessing goods identical or similar to the designated goods bearing a registered trademark of another person or any other similar trademark for the purpose of transferring or delivering such goods.

As remedies, the holder or the exclusive licensee of a trademark right may request injunctive relief, destruction of infringing goods and production facilities, damages, and restoration of business reputation (Article 107). An act of trademark infringement means not only infringing exclusive rights of a trademark holder by using a trademark holder’s registered trademark without permission, but also all direct and indirect acts facilitating infringement. Claiming damages is a typical remedy for infringement of intellectual property right (IPR) in Korea, which is governed by the basic principles of tort law (Article 750 of the Korean Civil Code).8 Moreover, injunctions in the form of provisional dispositions (or preliminary injunctions) may be granted during litigation under the Korean Civil Execution Act.9 Causes for action for infringement liability for IPR differ. The act of using a trademark which is identical or similar to the registered trademark of another party on goods which are identical or similar to the designated goods of the registered trademark constitutes direct infringement.10 However, there are no statutory causes of action for secondary (or indirect) infringement in

  8 Act No. 471 (Minbeob), 22 February 1958, last amended by Act No. 14965 of 31 October 2017. Article 750 of the Civil Code (Definition of Torts) stipulates: “Any person who causes losses to or inflicts injuries on another person by an unlawful act, intentionally or negligently, shall be bound to make compensation for damages arising therefrom.”   9 Act No. 6627 (Minsa Jibhaingbeob) of 26 January 2002, last amended by Act No. 13952 of 3 February 2016. Article 300 of the Civil Execution Act (Purpose of Provisional Injunction) stipulates: (1) Provisional injunctions on the subject matter in dispute may be ordered in cases where if the status quo is not maintained, the party cannot exercise his right or may have huge difficulty in exercising his right. (2) Provisional injunction on the right in dispute may be ordered in order to fix a temporary status on the right. The above provisional injunction is to be ordered for avoiding significant damage on a continuing right, preventing imminent danger, or other necessary purposes. 10 Jong-Kyun Woo, Trademark, in: Byung-II Kim & Christopher Heath (eds.), Intellectual Property Law in Korea, Alphen aan denRijn, Wolters Kluwer, 2015, pp. 119–120. 

334  Byungil Kim Korean IP law as such, and case law is rather unclear about the doctrine of contributory and vicarious liability.11 Therefore, when judging whether the defendants are secondarily liable for trademark infringement by their users, courts have applied Article 760 of the Korean Civil Code, which is the liability of joint tortfeasors by incitement or abetting. Article 760 of the Korean Civil Code provides: (1) If two or more persons have by their joint unlawful acts caused damages to another, they shall be jointly and severally liable to make compensation for such damages. (2) The provisions of paragraph (1) shall also apply if it is impossible to ascertain which of the participants, albeit not jointly, has caused the damages. (3) Instigators and accessories shall be deemed to act jointly. Adidas filed a complaint seeking a preliminary injunction against Interpark GMarket Co., Ltd. on the grounds that GMarket had not taken appropriate measures to remove listings for products confirmed to be infringements, to establish a mechanism for managing sellers’ personal information and to provide information in response to trademark owners’ requests.12 Adidas alleged that they had continuously requested that GMarket take down the infringing listings, which were still showing up in large numbers on GMarket despite GMarket’s removing the listings upon request, due to the fact that GMarket merely took passive measures and did not take any active measures to fundamentally stop sales of counterfeits. Adidas accused GMarket of aiding and abetting individual sellers’ trademark infringing activities and declared they should be prohibited from offering a platform for the sale of all goods related to Adidas. GMarket argued that only the individual seller should be responsible for trademark infringement, that they do not have a legal duty to monitor each transaction, as they were not directly involved,13 and instead merely offered space and a system for merchandise transactions to take place, that in the open online market, each seller transacted exclusively under his or her own responsibility, and that GMarket could only make its best efforts to stop the distribution of counterfeit items such as taking speedy measures to remove illicit websites. The Seoul Central District Court agreed with Adidas to a certain extent by recognising that “an open online market operator had a duty of care to take appropriate measures to prevent trademark infringement on its website, since the operator earned revenue from the sellers, provided a place for trading, and generally promoted such business.” However, the court also held that the scope of such duty of care should be decided after taking into consideration of the totality of the circumstances, such as the source of infringement,

11 B.I. Kim, Intellectual Property Liability of Consumers, Facilitators and Intermediaries: The Position in Korea, in: Christopher Heath & Anselm Sanders (eds.) Intellectual Property Liability of Consumers, Facilitators and Intermediaries, Kluwer Law, Alphen aan denRijn, Wolters Kluwer, 2012, p. 165. 12 Clark W. Lackert, Counterfeits and Infringements Online – A Global Overview of Liabilities, Online Brand Enforcement 2014, p. 17. 13 Seoul Central District Court, 9 September (2009 GaHap 653).

Liability of online open market operators 335 the difference between online open markets and offline markets, the impact on the operation of open market websites, and the level of current technology available to open online market operators so that they can prevent such infringement. The district court denied Gmarket’s liability, balanced the freedom of the open market operator and the necessity of protecting trademarks,14 and found that “any additional measures by the open online market operator, such as a preinspection of all goods, would impede free trade on the open market or be impossible to implement, and thus exceed the open online market website’s general duty of care.”15 An appeal was filed with the Seoul High Court, which upheld the lower court’s decision and found that the mere existence of counterfeits in an open online market does not mean that its operator willfully or negligently failed to take steps to prevent the sale of counterfeit goods.16 The Seoul High Court found that the open online market operator had a duty of care to take appropriate measures to prevent trademark infringement on its website since it earns revenue from sellers, even though aiding and abetting is not expressly prohibited by the TMA, and that the existence and scope of the duty of care should be determined in consideration of the following as a whole: laws related to transactions, specific method of merchandise distribution, ease of performance of duty, a trademark holder’s profits and duty bearer’s burden from the duty of care, and impact on transaction order of the relevant business and the whole society.17 The Supreme Court confirmed the decisions thus far.

The reasoning of the court The Supreme Court examined the question of whether operators of open market websites have a legal obligation to prevent and stop infringing activities of individual sellers. The Supreme Court pointed out that the tort liability for the postings that infringed on trademark right cannot be imposed on the online market operator, even if the information of goods that infringes on another person’s trademark right is posted on the posting area that the operator provided and the transactions for such goods are made through the electronic commerce system.18

14 Seoul Central District Court, 9 September 2009 (2009 GaHap 653). 15 Seoul Central District Court, 9 September 2009 (2009 GaHap 653). 16 Seoul High Court, 10 May 10 2010 (2009 Ra 1941). 17 Seoul High Court, 10 May 10 2010 (2009 Ra 1941). 18 Supreme Court, 4 December 2012 (2010 Ma 817).

336  Byungil Kim Furthermore, the court held that the online market operator has no duty of censorship, filtering, and monitoring, etc. and that liability is only acknowledged when the online market operator knew or had reason to know of the infringing act and had specific means to prevent or eliminate the infringing activities of individual sellers.19 The Supreme Court reasoned that based on the totality of the circumstances, an online open market operator is required to take appropriate measures, such as removing an infringing product listing or preventing the infringing seller from selling similar products on the open market website in the future, if (1) the listing on the online open market website is clearly infringing, (2) the trademark owner requested that the specific listing be removed or blocked, or it is apparent that the open market operator could have easily recognized the infringement from the appearance of the listing even without notice from the trademark owner, and (3) the online open market operator has the technological and economical means to manage and control the listings.20 Furthermore, the Court held that in a case where the online open market operator neglected its duty, and thus facilitated the individual seller’s infringement, it is jointly liable for abetting the latter’s activities. Lastly, the Court clarified that the online open market operator does not have a duty to provide the trademark owner with the seller’s personal information or other sales information connected with the infringing listing.21 As a result, the Supreme Court ruled that GMarket had not failed to exercise their duty of care, because they imposed a policy against selling infringing goods, and also implemented several programs (e.g., notice and takedown procedure, brand protection program, blacklist monitoring system, etc.) to prevent unlawful sales or violation of IPR and that the mere existence of infringing listings does not mean that GMarket violated its duty of care.22

Legal analysis 1 Article 760(3) of the Korean Civil Code is more suitable for providing the main standard for open market operators’ liability Online market operators might be held liable for indirect trademark infringement, as a result of their involvement in online counterfeit sales. Traditionally 19 Jong-Kyun Woo, Trademark, in: Byung-II Kim & Christopher Heath (eds), Intellectual Property Law in Korea, Wolters Kluwer, 2015, pp. 119–120. 20 Supreme Court, 4 December 2012 (2010 Ma 817). 21 Supreme Court, 4 December 2012 (2010 Ma 817). 22 Supreme Court, 4 December 2012 (2010 Ma 817).

Liability of online open market operators 337 liability for contributory trademark infringement may be imposed where a manufacturer or distributor of products (a) intentionally induces another to infringe a trademark or (b) continues to supply a product to someone who he knows or has reason to know is engaging in trademark infringement. There is no clear consensus whether online market operators operate as innocent intermediaries, merely providing platforms for sales of merchandise, or whether they are contributory infringers which should be responsible for monitoring the nature of transactions conducted on or through their websites.23 Unlike direct infringement, secondary infringement24 is generally referred to as “indirect infringement” under Korean trademark law, which is slightly different from the concept of contributory infringement under the US trademark law.25 In Tiffany v eBay26, the US Second Circuit Court of Appeals applied an analysis to establish the extent to which an online open market operator has actual or constructive knowledge of infringements or is operating under the guise of “wilful blindness”.27 In Korea, the liability of online market operators is determined by the interpretation of the TMA and the tort-related provisions of the Korean Civil Code. Since the SJ KIM case28, which concerned the secondary liability under trademark law, Korean courts have examined whether the defendant is liable for

23 Clark W Lackert, Counterfeits and Infringements Online – A Global Overview of Liabilities, Online Brand Enforcement 2014, p. 17. 24 See generally, Graeme B. Dinwoodie, A Comparative Analysis of the Secondary Liability of Online Service Providers, in: Graeme Dinwoodie (ed.) Secondary Liability of Internet Service Providers, Springer 2017; Oxford Legal Studies Research Paper No. 47/2017, pp. 6–13. Available at SSRN: https://ssrn.com/abstract=2997891 25 Tiffany v eBay 600 F.3d 93 (2nd Cir. 2010) 104–106; Inwood Laboratories, Inc. v Ives Laboratories, Inc., 456 U.S. 844 (1982). 26 Tiffany v eBay 600 F.3d 93 (2nd Cir. 2010) 104–106. 27 A similar approach was taken in Puma v Taobao in China (Guangzhou Intermediate People’s Court, 2006), in which the court decided that online open market Taobao should not be liable for the sale of counterfeit footwear by users of its site. However, the French courts took the opposite approach. In Hermes v eBay Inc. the Tribunal de Grande Instance de Troyes (June 4 2008) held eBay liable for sales of counterfeit Hermes bags and ordered it to pay €20,000 in damages; the Reims Court of Appeal held that eBay could not be considered to be a hosting services provider and was thus liable; and in LVMH v eBay Inc. the Tribunal de Commerce de Paris, 1re chambre B (June 202008) held eBay liable for sales of counterfeit Louis Vuitton and Dior products and ordered it to pay €36.8 million in damages (reduced to €5.7 million on appeal). In addition, the ECJ opinion provided a broad framework for the courts of Member States to determine the liability of online marketplaces for infringing sales on their Web sites (CJEU Case C-324/09, 12 July 2011). See Clark W. Lackert, Counterfeits and Infringements Online – A Global Overview of Liabilities, Online Brand Enforcement 2014, p. 17. 28 Seoul Central District Court, 5 August 2008 (2008 Gahap 1901) – SJ KIM., which found that operators of open online market websites have a legal obligation to prevent and stop infringing activities of individual sellers, and held that the defendants in the case failed to exercise their duty of care because they did not take additional necessary measures to search for, identify, remove, and block access to postings of counterfeit goods. Kyoung Sun Lee & Gavin Healy, Court Clarifies Scope of Open Market Sites’ Liability for Trademark Infringement, Available at: www.internationallawoffice.com/Newsletters/Intellectual-Property/ South-Korea/Kim-Chang/Court-Clarifies-Scope-of-Open-Market-Sites-Liability-forTrademark-Infringement (last visited 11 October 2018).

338  Byungil Kim trademark infringement as an aider and abettor. In the civil law of Korea, there are two provisions concerning third-party liability: the liability of joint tortfeasors by incitement or abetting under Article 760 of the Korean Civil Code, and the liability of employers under Article 756 of the Korean Civil Code.29 It appears that Article 760(3) of the Korean Civil Code is more suitable for providing the main standard for open market operators’ liability.30 The liability depends on the competency and possibility of the online market operators to control the individual sales on the online market.

2 The open market operator has a duty of care to take appropriate measures to prevent trademark infringement on its website The present case of Adidas v G-Market was the first Supreme Court decision to uphold that the owner of an online market (called “Open Market” in Korea) has no liability to prevent the distribution of counterfeit goods. The court came to a number of conclusions in Adidas v GMarket. First, the open market operator has no duty of censorship, filtering, and monitoring, etc. Second, secondary liability is only acknowledged when the open market operator knew or had reason to know of the infringing act and had specific means to prevent or eliminate the infringing activities of individual sellers. Third, the open market operator had a duty of care to take appropriate measures to prevent trademark infringement on its website since the operator earned revenue by providing individual sellers with the opportunity to sell the products at issue. The open market operator should take appropriate measures to remove a product listing once the product has been confirmed as infringing, to establish a system which discourages and reduces trademark infringement, to establish a mechanism for the management and administration of individual sellers’ personal information, and to provide a seller’s personal information when the trademark owner requests such information. Lastly, the scope of such duty of care should be decided after consideration of the totality of the circumstances, such as: • • •

the differences between open markets and offline markets; the impact on the operation of open markets; and the level of technology.31

29 Article 756 (Employer’s Liability for Damages) of the Korean Civil Code provides: (1) A person who employs another to carry out an undertaking shall be bound to make compensation for damages done to a third person by the employee in the course of the execution of the undertaking: Provided, that this shall not be the case, if the employer has exercised due care in the appointment of the employee, and the supervision of the undertaking, or if the damage would have resulted even if due care had been exercised. (2) A person who supervises the undertaking in place of the employer shall also assume the same liability as set forth in paragraph (1). (3) In cases of paragraphs (1) and (2), the employer or the supervisor may exercise the right to obtain reimbursement from the employee. 30 Jun-Seok Park, The Prospect for ISP’s Liability in UGC-Related Cases in Korea, Journal of Korean Law, Vol. 7, No. 1, p. 148 (2007). 31 Jong-Kyun Woo, Trademark, in: Byung-II Kim & Christopher Heath (edited), Intellectual Property Law in Korea, Wolters Kluwer, 2015, p. 120.

Liability of online open market operators 339 With the Adidas v GMarket decision, the Supreme Court clarified that online market operators’ secondary liability is based on previous knowledge of a specific infringement and the possibility of taking preventative measures. Whereas there is no general obligation to monitor content online, once a notice of infringement has been given, the intermediary is under the duty to prevent further listings of the same infringing products.32 Unfortunately, there has been much controversy over whether or at least to what extent the secondary trademark infringement doctrine can apply to online intermediaries.

Commercial or industrial significance In response to the increase in online sales of counterfeit products, trademark owners must take more active measures to monitor online activities more vigilantly and take aggressive anti-counterfeiting measures against individual sellers by utilising the cooperation programs provided by the online intermediaries, as well as any other available legal actions, such as cease and desist letters, and possible litigation. Although the Korean Supreme Court imposed no duty on online intermediaries to filter and monitor counterfeits on e-commerce platforms, the e-commerce platform provider should share the burden of policing counterfeiters with trademark owners to effectively combat trademark infringement.33

32 www.wipo.int/edocs/mdocs/enforcement/en/wipo_ace_12/wipo_ace_12_9.pdf, at p. 4. 33 Esther A. Zuccaro, Gucci v. Alibaba: A Balanced Approach to Secondary Liability for E-Commerce Platforms, 17 North Carolina Journal of Law & Technology pp.144, 184 (2016), available at http://ncjolt.org/wp-content/uploads/2016/01/Zuccaro_Final.pdf.

29 Exclusive licensee’s rights in Singapore Contractual and not proprietary against owners of marks Sue-Ann Li

Case information: Singapore Court of Appeal, Guy Neale and others v Ku De Ta SG Pte Ltd [2015] 4 SLR 283; [2015] SGCA 28 Civil Appeal No. 171 of 2013   Sundaresh Menon CJ, Chao Hick Tin JA and Andrew Phang Boon Leong JA, 26 May 2015

Summary This is a decision from the Singapore Court of Appeal (“the Decision”), which primarily deals with the relationship between exclusive licensees of a trademark and third parties. In particular, the Court of Appeal addressed the issues of (1) whether the nature of trademark rights under an exclusive licensing agreement is contractual or proprietary; and (2) under what circumstances would an exclusive licensee’s interest be able to bind third parties. The Court of Appeal in an earlier decision had ruled that the appellants (plaintiffs) were beneficial owners of the mark in question. The respondent’s (defendant’s) basis for its use of the mark is as an assignee of an exclusive license agreement entered into between the registered owner of the mark and another party. The appellants commenced an action against the respondent, seeking orders enjoining the respondent from using the mark, damages, and an account of profits by the respondent for their use of the mark. The Court of Appeal, after considering the statutory context of the Singapore Trade Marks Act and also the general principles of equity, held that (1) the general position is that the rights of an exclusive licensee is contractual in nature; and (2) whether or not the court will enforce the equity of a beneficial owner of a mark would require a balancing of the parties’ respective equities at the relevant date.

Legal context This decision is unique and deserves attention because it is the first time the Singapore Court of Appeal considered the nature of an exclusive license of a

Exclusive licensee’s rights in Singapore 341 registered trademark and under what circumstances would an exclusive licensing agreement bind third parties. The starting point is that a registered trademark constitutes personal property by virtue of section 36 of the Singapore Trade Marks Act (Cap 336, 2005 Rev Ed) (“TMA”). Like all personal property, a registered trademark can be exploited via various means. Section 38(1) TMA provides that “[a] registered trade mark is assignable and transmissible in the same way as other personal or movable property, and is so assignable or transmissible either in connection with the goodwill of a business or independently”. Therefore, for example, a registered trade mark can be assigned, licensed, sub-licensed, mortgaged or become the subject-matter of a trust.1 Under the TMA, a licensee is capable of possessing quasi-proprietary rights. For example, under section 42(5) TMA, a license to use a registered trade mark is binding on every successor in title to the grantor’s interest except any person who is a bona fide purchaser of the license for valuable consideration without notice (whether actual or constructive), i.e., equity’s darling.2 Exclusive licensees3 are afforded rights and remedies under the TMA that are “considered to be concurrent with those of the proprietor of the trade mark”4 under certain circumstances. For example, if the exclusive license provides that the licensee shall have, to such extent as may be provided by the license, the same rights and remedies in respect of matters occurring after the grant of the license as if the license had been an assignment, the licensee is entitled (subject to the provisions of the license and section 45 TMA) to bring infringement proceedings, against any person other than the proprietor, in his own name.5 However, an exclusive license to use a trademark also simultaneously has its roots in the form of a contractual agreement entered into between the exclusive licensor and the exclusive licensee. As stated by the English Court of Appeal in Ashburn Anstalt v Arnold6 (albeit by way of dicta), contractual licenses generally do not bind third parties. Therefore, prior to the Decision, it was unclear under Singapore law, whether the nature of an exclusive license of a registered trademark is proprietary in nature due to the framework under the TMA or whether it is “simply a contractual

1 W L Ng-Loy, Law of Intellectual Property of Singapore (Sweet & Maxwell, Singapore, 2nd Ed, 2014) at p. 433. 2 K Gray & S F Gray, Elements of Land Law (Oxford University Press, Oxford, 5th Ed, 2009) at p. 83. 3 The definition of an exclusive licence is provided under section 43(1) TMA, where it “means a licence (whether general or limited) authorising the licensee to the exclusion of all other persons, including the person granting the licence, to use a registered trade mark in the manner authorised by the licence, and the expression ‘exclusive licensee’ shall be construed accordingly.” 4 T J Tan, Law of Trade Marks and Passing Off in Singapore (Sweet & Maxwell, Singapore, 3rd Ed, 2014) at p. 571. 5 See section 45(1) TMA read with section 45(2) TMA. 6 [1989] Ch 1.

342  Sue-Ann Li bundle of rights that has, exceptionally, been given some in rem effects by statute, and that this would not warrant the wholesale adoption of property doctrines from the common law or in equity”.7 Further, can an exclusive licensee’s interest, regardless of its nature, affect a third party’s rights? The Decision therefore gives much needed guidance in this regard.

Facts The appellants are members of a partnership (“the Partnership”) in relation to a restaurant, bar, and club in Bali, Indonesia, known as Ku De Ta (“Ku De Ta Bali”). One of the partners in the Partnership, Chondros, incorporated a company known as Nine Squares Pty Ltd (“Nine Squares”) with one David Ellaway (“Ellaway”) in equal shares. Both Chondros and Ellaway were also directors of Nine Squares. Nine Squares then registered various “Ku De Ta” marks in different jurisdictions, including two marks in Singapore (“the Singapore Marks”). One of the marks was registered in Singapore in 2004 in relation to Class 43 (“the first Singapore Mark”), i.e., services for providing food and drink, etc. The other partners of the Partnership, save for Chondros, claimed that they had no knowledge of this registration. Subsequently, the relationship between Chondros and Ellaway broke down. Chondros emailed Ellaway, expressly prohibiting him from entering into any agreements or incurring any expenditure on behalf of Nine Squares without his express written consent. Ellaway disregarded Chrondros’ email and entered into an exclusive license agreement in relation to the first Singapore Mark, on behalf of Nine Squares, with one Chris Au (“the Licence Agreement”). Chris Au subsequently assigned the first Singapore Mark to the Respondent. The Respondent then opened a restaurant named “Ku De Ta” located in Marina Bay Sands, Singapore, in September 2010. This led to two actions commenced by the Partnership. In Suit Number 314 of 2011 (“Suit 314”), the Partnership commenced an action against Nine Squares, seeking, inter alia, a declaration that the Singapore Marks were held by Nine Squares on trust for the Partnership and that the registration of the Singapore Marks should be transferred to the Partnership. In Suit Number 955 of 2010 (“Suit 955”), the Partnership commenced an action against the Respondent, seeking, inter alia, orders enjoining the Respondent from using the first Singapore Mark. The trial judge heard both Suit 314 and Suit 955 together and held, inter alia, as such8: (a) Suit 314: The Singapore Marks were not held by Nine Squares on trust for the Partnership. 7 [41] of the Decision. 8 The judgments given in relation to Suit 314 and Suit 955 are Guy Neale and others v Nine Squares Pty Ltd [2013] SGHC 249 and Guy Neale and others v Ku De Ta SG Pte Ltd [2013] SGHC 250 respectively.

Exclusive licensee’s rights in Singapore 343 (b) Suit 955: Similarly dismissed since the Partnership accepted that if their action in Suit 314 were dismissed, there would be no basis for them to proceed with their action in Suit 955. The Partnership then appealed against both decisions. The Court of Appeal heard the appeal for Suit 314 in Civil Appeal No. 172 of 2013 (“CA 172”).9 The Court of Appeal allowed the appeal and held, inter alia, that the Singapore Marks were, since their respective dates of registration, “held on an express trust by Nine Squares for the Partnership in accordance with each partner’s interest in Ku De Ta Bali, and [that] Nine Squares transfer the registration of these marks to the Partnership and that the necessary rectifications be made with the Registry of Trade Marks.”10 In other words, prior to the transfer and rectification as ordered, the Partnership would be the beneficial owner of the Singapore Marks. The Court of Appeal also ordered Nine Squares to account for the profits derived from the exploitation of the Singapore Marks. This includes any profits that had already accrued or may yet accrue under the Licence Agreement.11 The Court of Appeal’s decision in CA 172 (“the Judgment”) therefore paves the way for the Partnership’s appeal for Suit 955, which was heard by the Court of Appeal in Civil Appeal No. 171. The Partnership sought to, as beneficial owners of the first Singapore Mark, restrain the Respondent from using the “Ku De Ta” name in Singapore. The Respondent argued that the Licence Agreement confers a proprietary interest in the “Ku De Ta” name, and since this proprietary interest was acquired by the Respondent under the assignment bona fide, for value and without notice of the Partnership’s rights at the material time, its interest takes priority over that of the Partnership. The Partnership counterargued that an exclusive license is merely contractual in nature and therefore does not bind any third parties even if the Respondent was indeed equity’s darling.12 The core issue before the Court of Appeal was whether the Respondent can demonstrate that “it has a right to use the ‘Ku De Ta’ mark that is effective against the Partnership” and the relevant legal question herein is “whether and if so, in what circumstances, an exclusive license to use a registered trademark granted by the legal owner of that mark in breach of trust can prevail against the rights and interests of the beneficial owners of the mark”.13 (In addition, an issue was raised in relation to whether the Partnership was entitled to a remedy under the tort of passing off and/or section 55 TMA for infringing a well-known trademark. However, for our current purposes, we are only concerned with the core issue as identified by the Court of Appeal in the preceding paragraph.)

  9 The judgment given in relation to CA 172 is Guy Neale and others v Nine Squares Pty Ltd [2015] 1 SLR 1097. 10 [149] of [2015] 1 SLR 1097. 11 Ibid. 12 [2]–[3] of the Decision. 13 [4] of the Decision.

344  Sue-Ann Li

Reasoning of the court The Court of Appeal held at [36] of the Decision that the relevant issues for determination were, inter alia, “(a) whether the licence granted under the Licence Agreement confers on the licensee a proprietary interest in the first Singapore Mark or whether the rights conferred are only contractual in nature; [and] (b) whether the licensee’s interest (whatever its nature) binds the Partnership”.14

1 Whether an exclusive license to use a registered trademark confers a proprietary interest in the mark As stated previously, the Respondent argued that the statutory framework of the TMA suggests that a license is proprietary in nature whereas the Partnership argued that an exclusive license only confers contractual rights on a licensee. Having firstly noted that there is no local case law, the Court of Appeal proceeded to examine the English case law in this regard and concluded that it was settled law in England that “a licence to exploit a registered trade mark is purely contractual in nature and does not confer any proprietary rights on the licensee”.15 The Court of Appeal observed that the English cases noted a distinction between a trademark and a trademark license, i.e., the rights arising out of them are not similar. In Leofelis SA v Lonsdale Sports16, the English Court of Appeal noted at [14] that: “a trade mark, when registered, is a proprietary right, an item of property, the same is not true, under English law, of a trade mark licence.” Similarly, in VLM Holdings v Ravensworth Digital Services17, the English High Court held (at [57]) that: “[A licence] does not create a lower proprietary right carved out of a superior proprietary right in the same manner as a sub-lease is carved out of a head lease.” The Respondent nevertheless argued that the statutory framework of the TMA supports the finding that “an exclusive licence of a registered trade mark confers a proprietary interest in that trade mark.”18 As noted earlier, a licensee (both an exclusive licensee and a non-exclusive licensee) may have rights and remedies against third parties under specific circumstances as provided for under the TMA. The Respondent argued that “an exclusive licence is as good as an assignment (in a substantive sense)”19, pointing out that section 45 TMA confers a right on an exclusive licensee to sue in his own name. The Court of Appeal noted that the relevant inquiry hereunder is “whether the court should infer from the existence of these specific provisions that a trademark licence is proprietary in nature and has the effect of binding third parties

14 [36] of the Decision. 15 [42] of the Decision. 16 [2008] ETMR 63. 17 [2014] FSR 9. 18 [54] of the Decision. 19 [57] of the Decision.

Exclusive licensee’s rights in Singapore 345 in all circumstances, even those falling outside the scope of these provisions.”20 After considering various academic opinions in this regard, the Court of Appeal preferred the view expressed by Mr. Tan Tee Jim SC21, that “the provisions of section 45 of the TMA are purely procedural, enabling the exclusive licensee to enforce the proprietary rights of the proprietor.”22 In other words, section 45 TMA is not intended to confer a proprietary right on the exclusive licensee because section 45 TMA merely allows an exclusive licensee who sues in his own name to “claim through the registered proprietor”.23 The Court of Appeal considered two factors in reaching this conclusion. First, under the previous version of section 45 TMA, an exclusive licensee was not allowed to sue in his own name unless the registered proprietor was joined as a party to the action. This requirement was later removed in view of time and costs savings, especially in cases where the registered proprietors are based overseas.24 The Court of Appeal noted that the amendment “was intended to be facilitative in nature”25 as there was no Parliamentary intention to change the contractual nature of a license in enacting the amendment to section 45 TMA. Second, the fact that section 45(4) TMA provides that in an action where the exclusive licensee sues in his own name, “a defendant may avail himself of any defence which would have been available to him if the action had been brought by the proprietor of the registered trade mark” further shows that an exclusive licensee merely claims through the registered proprietor under section 45 TMA.26 The Court of Appeal therefore concluded that the correct position to adopt under Singapore law is that the nature of an exclusive license to use a registered trademark is only contractual in nature.

2 Whether the license agreement nevertheless binds the partnership Since the Respondent’s rights under the Licence Agreement are merely contractual in nature, the general position under the common law dictates that the Respondent would only be able to claim a personal remedy against Nine Squares under contract. The Respondent, however, persisted “to enforce its rights under the Licence Agreement against the Partnership, which was not privy to the Licence Agreement but which owned the trade mark in equity.”27 The Respondent attempted to rely on section 42(5) TMA, which provides that a license to use a trademark was binding on every successor in title to the grantor’s interest except a bona fide purchaser of the license for valuable

20 [55] of the Decision. 21 Supra note 4. 22 [62] of the Decision. 23 Ibid. 24 [64] of the Decision. 25 [65] of the Decision. 26 Supra note 22. 27 [83(b)] of the Decision.

346  Sue-Ann Li consideration without notice (whether actual or constructive), to argue that the Court of Appeal had to therefore determine the priority of rights as between parties after examining their respective equities.28 The Court of Appeal rejected this argument, holding that section 42(5) TMA is only operative where a successor in title acquires an interest in the registered trademark subsequent to the grant of the license, i.e., “a successor in title who does not already have a prior interest”.29 Section 42(5) TMA is not applicable where a successor in title already had a prior interest in the registered trademark, such as the Partnership in the current case, where it was earlier held that the Singapore Marks were held on an express trust by Nine Squares for the Partnership since their respective dates of registration and the Respondent entered into the Licence Agreement in breach of the earlier rights of the beneficial owners of the first Singapore Mark. Thus, the Respondent “cannot rely on section 42(5) to enforce its rights against [the Partnership] who subsequently perfect their title by becoming the registered proprietor.”30 The Court of Appeal held that section 40 TMA is the appropriate provision since they have earlier held in CA 172 that the Singapore Marks were held on trust by Nine Squares on behalf of the Partnership.31 In particular, section 40(2) TMA provides that “equities in respect of a registered trade mark may be enforced in like manner as in respect of other personal or movable property”. The Court of Appeal noted that the relevant inquiry hereunder is “whether the Partnership can enforce its interest as the equitable owner of the first Singapore Mark under section 40(2) of the TMA, free of the rights that the Respondent say they obtained in respect of the use of that mark in their position as an exclusive licensee.”32 The Court of Appeal, after considering the statutory context of the TMA and general equitable principles, held that whether “the interest of an equitable owner of a trade mark who seeks to perfect his title will trump the subsequent rights of a licensee of a trade mark whenever the former predates the latter”33 depends very much on the factual matrix. This would involve “an evaluation of each party’s conduct and a comparison of their ‘equities’ and this is inherent in the court considering whether and on what terms it will enforce the equity of a beneficial owner of a trade mark pursuant to section 40(2) of the TMA.”34 On one hand, if a beneficial owner of a trademark had no knowledge that a grantor had granted a license to the licensee in breach of the trust and the licensee had obtained the license with notice of the beneficial owner’s earlier

28 [70] of the Decision. 29 [74] of the Decision. 30 [83(e)] of the Decision. 31 [79] of the Decision. 32 [80] of the Decision. 33 [81] of the Decision. 34 Ibid.

Exclusive licensee’s rights in Singapore 347 equitable interest, the beneficial owner would generally be able to enforce its equitable interest under section 40(2) TMA against the licensee. The licensee would generally be left with rights against the grantor only. On the other hand, if the beneficial owner of a trademark had full knowledge of, and even acquiesced in, the grant of the license by the grantor to a licensee who had no notice (actual or constructive) of any other interest in the trademark save for that of the registered owner’s, and such rights under the license was subsequently registered and significant investments were made in reliance upon such rights under the license, a court would generally allow the licensee’s interest trump that of the beneficial owner’s.35 The aforesaid factual inquiry would firstly require a determination of the relevant date for the examination of the parties’ respective equities. The Court of Appeal held that the relevant date would be “the date on which the Respondent acquired any rights under the Licence Agreement”36 The parties’ respective equities would then be assessed on “[the relevant date] when Nine Squares became bound by the Licence Agreement, as between the Respondent on the one hand who acquired any rights under the Licence Agreement in relation to the registered trade mark on that date, and the Partnership which was then and had all along been the owner in equity of the registered trade mark.”37 One important factor, which the Court would examine on the relevant date, would be the fact whether the Respondent had notice (actual or constructive) of the Partnership’s interest when it acquired its rights as an exclusive licensee under the Licence Agreement.38 On the facts, the Court of Appeal firstly found that Ellaway had no authority (whether actual, usual or apparent) to enter into the Licence Agreement on behalf of Nine Squares with Chris Au.39 Second, the Court of Appeal held that “for the purposes of weighing the equities as contemplated in section 40(2) of the TMA, once a third party has been put on inquiry in respect of such interests by reason of his knowledge of suspicious circumstances, the onus is on him to make inquiries that are reasonable in the circumstances.”40 The Court of Appeal found that the Respondent had not made reasonable, or even genuine, inquiries in light of the evidence.41 The Court of Appeal therefore concluded that the Respondent’s interest in the first Singapore Mark under the Licence Agreement cannot bind the Partnership because it “was acquired with, at the very least, constructive notice of the Partnership’s beneficial interest.”42

35 Ibid. 36 [82] of the Decision. 37 Ibid. 38 [83(f)] of the Decision. 39 [109] of the Decision. 40 [116] of the Decision. 41 [118] of the Decision. 42 [122] of the Decision.

348  Sue-Ann Li

Legal analysis In the absence of local judicial pronouncements in relation to the nature of a trademark license and the rights of a licensee vis-à-vis third parties, the Decision comes as a timely clarification in this area of law. It is submitted that the following points from the Decision ought to be noted. First, since trademarks are a creature of statutory creation, the general principles of common law and equity in relation to trademarks will be interpreted and applied in accordance with the TMA as a backdrop in relation to the nature of a trademark license and the rights of a licensee vis-à-vis third parties. Second, the Court of Appeal rightly noted, after evaluating the line of English authorities in relation to the nature of a trademark license, that “it is not apposite to draw an analogy with the way in which the law deals with similar transactions involving real property.”43 Indeed, even though “the express and implied terms of a contractual licence may at times resemble those contained in a lease”44, the rights arising out of a contractual license and a tenancy are very much different. This is applicable even to contractual licenses that are in relation to real property. For example, a “contractual licensee enjoys no special rights in respect of the removal of fixtures from the realty.”45 This stems from well-settled law that a license merely confers a permission on a licensee to do any act permitted thereunder strictly in relation to the licensed property and therefore a license passes neither title nor proprietary interest to the licensee.46 Third, it is submitted that the Court of Appeal reached the right conclusion with regard to the contractual nature of a trademark license. Had the Court of Appeal held otherwise, the distinction between an assignment and a license would be extremely blurred. As noted previously, the nature of a license is generally contractual. Assignments, however, “confers proprietary interest or rights and [are] generally enforceable against third parties”47 because an assignment “comprises a disposition to the assignee of the assignor’s entire interest in the land, thereby putting the assignee into the shoes of the assignor”.48 This distinction is expressed clearly in the statutory framework of the TMA where there is a separate provision in relation to assignments.49 If it was held instead that a licensee were to have identical rights, interests, and remedies as an assignee, that would render section 38 TMA relating to assignment of registered trademarks “wholly otiose”.50 It is therefore appropriate to heed the caution stated by

43 [51] of the Decision. 44 Supra note 2 at p. 1308. 45 Ibid. 46 T J Tan, “Chapter on Intellectual Property Law”, 16 SAL Ann Rev (2015), 529 at 532. 47 Ibid. 48 Supra note 2 at p. 370. 49 See s38 TMA. 50 Supra note 46 at 533.

Exclusive licensee’s rights in Singapore 349 Lewison J (as he then was) in Ultraframe (UK) v Fielding (No 2)51 (at [1386]): “it is clear that the world of intellectual property operates commercially on the basis that there is a clear distinction between an assignment (proprietary) and a licence (non-proprietary). . . . Where countless transactions have taken place on the basis of settled law, there is a strong presumption against altering the settled understanding.” Fourth, it is suggested that the Court of Appeal may have placed a heavier burden on an equity’s darling in an application of section 40(2) TMA. At [81] of the Decision, the Court of Appeal held, in relation to a hypothetical scenario where a licensee could enforce his license against a beneficial owner of the trademark at one end of the spectrum, would be the case that the beneficial owner of the mark was fully aware of, and even acquiesced in, the grant of the licence by the registered owner to a licensee, who was wholly ignorant of the existence of any interest than that of the registered owner, and the licensee then registered his interest and undertook significant investments in reliance upon the rights it acquired pursuant to the licence agreement.52 (emphasis added) The bona fide purchaser rule, or equitable doctrine of notice53, refers to the “deference of an earlier competing equitable interest to the subsequent bona fide purchaser of a legal interest for value without notice of the earlier equitable interest”.54 Similarly, section 42(5)(a) TMA provides that a successor in title “who does not already have a prior interest”55 would not be bound to the license entered into between the earlier grantor and the licensee if he can show that he “in good faith and without any notice (actual or constructive) of the licence, has given valuable consideration for the interest in the registered trade mark”. Therefore, it seems that the Court of Appeal may have imposed a higher burden on a licensee who would be attempting to establish that he had a better equity over the beneficial owner of the mark pursuant to section 40(2) TMA by requiring some investments (at least) to be made in reliance upon the rights it acquired under the license. It should, however, be noted that ultimately the balancing of equities under section 40(2) TMA requires a detailed examination of the factual matrix, and in particular, parties’ conduct, and therefore, it is submitted that the requirement for investments to be made in reliance upon the rights a licensee had acquired should only be a factor to be considered in this assessment.

51 [2006] FSR 17. 52 [81] of the Decision. 53 Supra note 2 at p. 1150. 54 H W Tang and K FK Low, Tan Sook Yee’s Principles of Singapore Land Law (LexisNexis, Singapore, 2010) at p. 234. 55 [74] of the Decision.

350  Sue-Ann Li

Commercial or industrial significance First, a potential licensee ought to be very cautious prior to entering a licensing agreement should there be suspicious circumstances arising out of the transaction. If a potential licensee is put on inquiry of the possible existence of a prior interest in the trademark due to the circumstances surrounding the transaction, the potential licensee should note that “the onus is on him to make inquiries that are reasonable in the circumstances.”56 It is submitted that sufficient due diligence should be carried out and a potential licensee may not be able to satisfy the reasonableness threshold by simply clarifying his doubts with the potential licensor because the court may deem that “one is not making a genuine enquiry to discover the truth but is simply seeking reassurance from the source of the representations.”57 Second, beneficial owners of a trademark may wish to register their interests pursuant to section 40(1A) TMA. Having their beneficial interests registered would deter persons “acquiring a later interest in the registered trademark (such as under a licence agreement) [from claiming that they] had no knowledge of the beneficial owner’s prior interest.”58 It may be worth noting that since the Decision, Ku De Ta at the Marina Bay Sands, Singapore, had rebranded itself as Ce La Vi, which is derived from the French phrase ‘c’est la vie’, meaning this is life.59

56 [116] of the Decision. 57 C H Ang and W Ong, “Singapore Court of Appeal holds local establishment cannot use ‘Ku De Ta’ name because it had constructive notice of earlier beneficial interest and failed to make necessary enquiries”, Allen & Gledhill Legal Bulletin June 2015 (30 June 2015). 58 Ibid. 59 A Harjani, “Singapore’s iconic Ku De Ta undergoes big makeover”, CNBC (5 June 2015) (accessed 23 October 2017).

30 The de-linkage and re-linkage between trademark use and damages in China Li Chen

Case information: Shanghai Higher People’s Court, 2015 Hu-Gao-Min-San-ZhiZhong-Zi 97 (31 December 2015)

Summary The case discussed here is one of the Typical Cases published by the Supreme People’s Court (SPC) of China in 2016. This case not only confirmed the “no actual use, no damages” principle, but also declared that if a trademark owner without sincere intention to use his trademark filed a series of lawsuits just for making profits from compensation, his expenses for lawsuits should not be compensated as “reasonable expenses for stopping the infringing act” prescribed by the Trademark Law. Considering that the phenomenon of malicious trademark filing is very serious in China, this case will play a very positive role in fighting against bad faith trademark filings. Furthermore, as a Typical Case selected by the SPC, this decision will be an important reference for future similar cases.

Legal context 1 Between 1993 and 2013: silent on the relationship between actual trademark use and damages According to China’s system of trademark protection, exclusive right of using a trademark should be acquired through registration rather than actual use. The Trademark Law of 1993 provides: “Any enterprise, institution, or individual producer or trader, intending to acquire the exclusive right to use a trademark for the goods produced, manufactured, processed, selected or marketed by it or him, shall file an application for the registration of the goods trademark with the Trademark Office.” The Trademark Law of 2001 revised this article as the following: “Any natural person, legal person or other organization that needs to obtain the exclusive right to use a trademark for its goods or services during

352  Li Chen production and business operations shall apply for trademark registration with the Trademark Office.” Obviously, the revised provision made trademark application open to any individuals and organisations whether they are a merchant or not. For filing a trademark registration, actual use of trademark or evidence for sincere intention to use are not required. But a registered trademark may be cancelled if it has ceased to be used for three consecutive years. One of the reasons for extending the scope of the applicants in the Trademark Law of 2001 was to provide convenience for some trademark users, such as farmers who want to sell their produce1 or natural persons who plan to set up a company in the future.2 Before 2013, the Trademark Law was silent on the relationship between actual trademark use and damages. Article 56 of the Trademark Law of 2001 adopted the “infringer’s profit” as the first basis for calculating the amount of damages: The amount of compensation for infringement of the exclusive right to the use of a trademark shall be the amount of the profits that the infringer has earned as a result of the infringement during the period of the infringement, or the amount of the losses that the infringed has suffered as a result of the infringement during the period of the infringement, including any reasonable expenses the infringed has paid in its effort to put an end to the infringement. However, because the market economy and intellectual property protection system were established very late in China, the public and even the judiciary have not clearly understood that the value of trademark comes from the market reputation through actual use of the mark on particular goods or service, not from the registration itself. Therefore, some courts overemphasised the validity of trademark registration and disregarded the value of trademark use. In many cases where even a trademark was registered in bad faith, courts tended to protect the registrants instead of the good faith users. Furthermore, when infringement had been found, some courts calculated the damages simply based on the infringer’s profit without balancing the interests originating from actual uses. According to Article 56 of the Trademark Law of 2001, the infringer’s profit as the basis for calculating damages should be “the profits that the infringer has earned as a result of the infringement during the period of the infringement.” Logically speaking, if a trademark owner has never used his mark, the infringer’s profit can hardly be the result of infringement. Nonetheless courts have often confused the “profits from the infringement” with the “infringer’s whole profits”.3

1 Dong Baolin, Detailed Annotation of Trademark Law (in Chinese), China Industry and Commerce Press, Beijing, 2004, pp. 22–23. 2 Huang Hui, Extending Protection Scope: On the Second Amendment of the Trademark Law (in Chinese), International Trade, Beijing, 2001, Vol.10, pp. 40–43. 3 For example, in the “JIAJIA” case, the defendant is a famous liquor producer and used “JIAJIA” mark on its production. The plaintiff registered “JIAJIA” in bad faith and then filed a lawsuit against the defendant alleging infringement of its “trademark right”. Although the

Trademark use and damages in China 353 Given the fact that it is very easy to register a trademark and highly possible to get a large amount of damages compensation if the trademark was “fortunately” infringed by others even though the registrant has never used this mark, many trademark speculators emerged in China. Those speculators file trademarks for the purpose of reselling rather than using them, and ask for high license fees or compensation in a lawsuit if someone used the identical or similar marks. Some registrants even registered maliciously the marks already used by others and then blackmailed them. In view of this situation, the legislators and courts in China begin to correct gradually the practice distorting the purpose of trademark law.

2 Establishing the “no use, no compensation of damages” principle in 2013 In 2013, the Amendment of the Trademark Law was promulgated. Two important changes were made. First, this law emphasises good faith filing and use of trademark. Article 7 provides: “The principle of good faith shall be upheld in the application for trademark registration and in the use of trademarks.” Second, this law confirms that the value of trademarks originate from actual use. These reforms are reflected in the damages clauses. Article 63(1) provides: The amount of damages for infringement on the exclusive right to use a trademark shall be determined based on the actual loss suffered by the right holder as a result of the infringement; if it is difficult to determine the actual loss, the amount of damages may be determined according to the profits gained therefrom by the infringer, if it is difficult to determine both the loss of the right holder and the profits gained by the infringing party, the amount of damages may be reasonably determined in reference to the multiples of the trademark for royalties. Where an infringer maliciously infringes upon another party’s exclusive right to use a trademark and falls under serious circumstances, the amount of damages may be determined as not less than one time but not more than three times the amount that is determined according to the aforesaid methods. The amount of damages shall cover the reasonable expenses paid by the right holder for stopping the infringing act. This clause adopts the “actual losses” of the right holder instead of “infringer’s profits” as the first basis of calculating the compensation. In particular, it is noteworthy that Article 64(1) of the Trademark Law of 2013 introduced a new rule: Where the holder of the exclusive right to use a registered trademark claims for damages, and the alleged infringer counterclaims that the right holder

plaintiff did not produce any liquor with “JIAJIA” mark, the first-instance court ordered the defendant to compensate RMB8,360,000 on the basis of its profit, see ShanXi LvLiang Intermediate People’s Court, 2002 Lv-Min-ER-Chu-Zi 17 (30 December 2002).

354  Li Chen has never used the registered trademark, the people’s court may require the right holder to provide evidence of its actual use of the registered trademark during the past three years prior to the lawsuit. The alleged infringer shall not be liable for damages if the right holder is neither able to prove its actual use of the registered trademark during the past three years prior to the lawsuit, nor able to prove other losses suffered as a result of the infringement. This is the first time that Chinese Trademark Law establishes the principle of “no use, no compensation of damages”. Besides legislative reform, the judiciary contributes also to fighting against bad faith conduct in filing and use of trademark. Courts have begun to change their approach of overvaluing the registration and ignoring the importance of actual use of trademark and have made pioneering decisions. For example, the SPC held in one case involving the trademark “ELLASSAY” that exercising the exclusive right of a trademark registered in bad faith against the good faith user constituted abuse of right.4 This is a very creative decision in China’s judicial practice. In the past, unless a registration of trademark had been revoked, the registrant had the right to demand other parties to stop using the identical or similar trademarks even though his trademark was maliciously registered. Although the alleged “infringer” could request the trademark office to revoke the bad faith registration, before the revocation the “infringer” often incurred threats or extortion from the trademark owner. Since the “ELLASSAY” case has been selected by the SPC as the Guidance Case in 2017, which shall be referred to in similar cases by other courts, the honest users of trademarks may counterclaim the bad faith registrant for the abusing of right even though the trademark registration is still formally valid before its revocation. The present case is one of the Typical Cases published by the SPC in 2016. Although Typical Cases are less binding than the Guidance Cases,5 they are still important references for future decisions. The significance of this case should be understood in the context of China’s current legal movement to deal with bad faith filing of trademarks.

Facts The plaintiffs, GuangZhou Compass Exhibition Service Co., Ltd. (Compass) and Guangzhou Zhongwei Business Management Consulting Service Co., Ltd. (Zhongwei) are co-owners of the trademark registered for Class 25 goods,

4 The SPC 2014 Min-Ti-Zi 24 (14 August 2014). 5 So far, there is no official document defining the legal force of the Typical Cases. However, as the selection of those cases expressed approving attitude of the SPC, most courts will refer to them in similar cases. Article 10 of the Implementing Regulations of the Rules on the Work of Guidance Through Cases published by the SPC in 2016 expressly provides “If the basic facts and the applicable laws of the cases heard by the People’s courts are similar with that of the Guidance Cases published by the SPC, courts should refer to the key points of the Guidance Cases.”

Trademark use and damages in China 355 including swimsuits, shoes, clothing, etc. Fast Retailing Co., Ltd. (Fast Retailing) also registered for Class 25 goods. is owner of trademarks “UNIQLO” and The defendant Uniqlo Co. (Uniqlo) is a subsidiary of Fast Retailing. In autumn of 2013, Uniqlo launched a collection of down clothes named “Ultra Light Down” marked with . In March 2014, Compass’ lawyer sent a warning letter to Uniqlo alleging the specialty stores of Uniqlo infringed its trademark right by using prominently the mark . Soon thereafter, the plaintiffs filed a series of lawsuits against Uniqlo and its branches in different local courts. The present case is one of those lawsuits. The plaintiffs claimed for damages of RMB150,000 and reasonable expenses of RMB12,598 for stopping infringement. The first-instance court held that the defendants infringed registered trademark and should stop using , but no damages should be compensated. Both parties appealed and the appeal court upheld the first-instance decision.

Reasoning of the court 1 On the constitution of trademark infringement The defendants set out two arguments. First, the mark was used to describe the feature of their commodities, not used as trademark, such description was not the required “trademark use”. Second, the sign would not lead to commercial confusion. This sign is neither identical to nor similar with . Furthermore, the goods involved in this case were sold with the trademark and under the so-called SPA (Specialty Retailer of Private Label Apparel) business model6, so the consumers could identify the source of goods. The two instances rejected these arguments and held that: The right-hand part of the sign (Ultra Light Down) is a descriptive expression, but the left-hand part (UL) functions as a trademark. The courts also rejected the defendants’ argument alleging “UL” represented the acronym “Ultra Light Down”, which should be “ULD”; since “UL” constitutes a stand-alone trademark, it should be compared independently with . By the so-called “separated comparison test”, there did not exist substantial differences between and , so these two are identical marks. The courts ruled that by using identical marks on the same goods (clothing) it must lead to commercial confusion,7 and granted an injunction to prevent the defendants from using the sign .

6 SPA is a model in the fashion business, which integrates planning, production, and sales and thereby encompasses the complete distribution channel and customer service. Created by GAP, this model has been successfully adopted by some famous brands such as Uniqlo and Zara. Under SPA, the producer sells its clothing exclusively, so its trademark must be used prominently by specialty stores. 7 However, some courts ruled that the marks of the parties are neither identical nor similar and consumers would not be confused, no infringement has been found. See Beijing Intellectual Property Court, 2016 Jing-73-Min-Zhong-29 (13 June 2016). Since this case report focuses on the issue of damages, the constitution of infringement will not be discussed here.

356  Li Chen

2 On the determination of damages Considering that the plaintiffs had never actually used the trademark at dispute, the first-instance court ruled that the plaintiffs did not sustain any losses and should not get compensation, as the mark did not produce any commercial value. ­Obviously, the reasoning of the first-instance court is based on the formula of “actual losses”. When upholding the preceding opinion, the second-instance court added that since the trademark owners had not used their mark, the defendants did not take up any market share from them. It seems that the supplementary reasoning made by the appeal court to affirm that the “infringer’s profit” formula was not applicable in this case either, because there was no causation between the defendants’ profits and the plaintiffs’ losses.

3 On the compensation for reasonable expenses According to Article 56 of the Trademark Law of 2001, the amount of damages shall cover the reasonable expenses paid by the right holder for stopping the infringing act. The expenses necessary for litigation are part of the reasonable expenses for stopping infringement. In the present case, in addition to economic losses, the trademark owners claimed RMB12,598 as expenses for litigation. Both courts rejected this claim, with the first-instance court not giving reason for its decision and the appeal court expounding on the determination of “reasonable expenses”. The appeal court held that the trademark owners had registered a large number of marks with intention to make profits by selling off rather than to use them. It further pointed out that the plaintiffs could have just sued either of the defendants or both of them, instead they listed many specialty stores of Uniqlo in different cities as co-defendants and filed a series of lawsuits based on the same facts in various courts. Apparently, the purpose of plaintiffs’ parallel lawsuits was to get repeated compensation of damages. The court ruled that the extra expenses for multiple litigations were unreasonable due to plaintiffs’ dishonest litigation tactic and should not be compensated by the defendants.

Legal analysis 1 No trademark use, no damages In the present case, the courts refused to grant damages as remedy to the plaintiffs on the basis of the fact that the trademark at dispute had not been actually used. It seems to be a simple reasoning, but in consideration of the context of this case, this decision is pioneering. For the application of the Trademark Law of 2013, the SPC promulgated the Interpretation on Issues Concerning the Jurisdiction over Trademark Cases and Application of Law after the Entry into Force of the Trademark Law

Trademark use and damages in China 357 Amendment (Interpretation).8 According to the Interpretation, the Trademark Law of 2013 shall not apply to the infringement conducted before its entry into force. Considering the time when the infringement took place, the law applicable to this case should be the Trademark Law of 2001. As mentioned in the “Legal context” section, the then Trademark Law did not expressly introduce “no use, no damages” principle. However, the present decision absorbed the idea of the Trademark Law of 2013，notwithstanding that the applicable law should be that of 2001.

2 Lax interpretation of the requirement “no actual use during the past three years prior to the lawsuit” It is noteworthy that even under Article 64(1) of the Trademark Law of 2013 (“the alleged infringer shall not be liable for compensation if the right holder is neither able to prove its actual use of the registered trademark during the past three years prior to the lawsuit, nor able to prove other losses suffered as a result of the infringement”), the requirement of “no actual use during the past three years prior to the lawsuit” cannot be met, as the exclusive right of the registered trademark dated from 21 June 2013, while the lawsuit was filed in 2014. Apparently, the court took a lax approach in examining the actual use of the trademark than the Trademark Law of 2013. Actually, the trademark owners in this case alleged in the appeal that even though the infringing use had happened before their actual use, the infringers should nevertheless assume the liability for compensation as long as the plaintiffs could use the trademark during the first three years after registration. Normally, such an assertion is to some extent reasonable, because an infringing use that took place before a trademark registrant with good faith could start to use his trademark after registration could still injure his future interests by preempting his later and actual use of the registered trademark. However, the appeal court stated that having used the trademark during the past three years prior to the lawsuit was just one of the conditions for deciding the cancellation of registration and irrelevant to the compensation of damages. This reasoning is not very pertinent. If the applicable law for the present case is the Trademark Law of 2013, the court has to explain why the trademark owners should not get damages since the fact is not that the right holder was unable to prove his actual use of the registered trademark during the past three years prior to the lawsuit. The court should have explained that reason for its decision not to award damages was that the trademark owners had no sincere intention to use their trademark in the future.

3 The “infringer’s profits” should be “the profits from the infringement” According to the Trademark Law of 2001, the bases for determining damages include the infringer’s profits from infringement and the trademark owner’s

8 SPC Fa-Shi (2014) No.4.

358  Li Chen actual losses. In theory, all the formulas of calculating the damages should adhere to the same principle, namely the compensatory principle. If someone takes the infringer’s profits as the basis of calculating the damages, first and foremost he should prove that there is a causation between his losses and the infringer’s profits. It is merely an unfounded presumption that the infringer’s profits could have belonged to the right holder if the infringing use did not exist. In other words, the infringer’s profits as basis of calculating damages should not include profits that are not derived from the infringement. In many trademark cases, judges ignored the relationship between the formulas of damages calculation and the compensatory principle, and simply presumed the damages based on the infringer’s whole profits regardless of the context of the cases. Consequently, a right holder having never used his trademark may get a huge sum of damages if the infringer made a success in business. The “JIAJIA” case mentioned earlier is a typical example. Even if the right holder has actually used his trademark, the infringer’s profits do not necessarily derive from infringement. For instance, in the “New Balance” case, the court of first instance awarded RMB98,000,000 as damages based on the defendant’s profits, disregarding the difference of commercial reputations between the plaintiff’s mark Xin Bai Lun (Chinese transliteration of New Balance) and the defendant’s New Balance. The appeal court reduced the damages to RMB5,000,000. In its reasoning, the appeal court stated that: “In calculating the damages of trademark infringement, the direct causation between the total amount of profits of the infringer and the infringing act should be taken into account.”9 In the present case, the two courts not only adhered to the “no use, no losses” principle, but also avoided the mistakes of some precedents in equating the “profits from infringement” with “infringer’s profits”.

4 The intention of filing lawsuit and the reasonable expenses for stopping infringement According to Article 63 of the Trademark Law of 2001, the amount of damages shall cover the reasonable expenses paid by the right holder for stopping the infringing act. In normal cases, the expenses for stopping infringement include the costs for lawsuits against the infringer, such as lawyer’s fees, notarisation fees and costs for purchasing the infringing productions as evidences. However, in the present the appeal court took into consideration the intention for filing lawsuit in determining the reasonable expenses. Based on two facts, the appeal court ruled that the trademark owners filed the lawsuit in bad faith. First, the trademark owners have registered 2,600 trademarks, most of which are irrelevant to their business (exhibition and consulting service) and it can be presumed that they have no intention to use their registered marks. Second, even if the defendants wanted to establish their exclusive right of using the trademark at dispute, they

9 Guangdong High People’s Court, 2015 Yue-Gao-Fa-Min-San-Zhong-Zi 444 (16 June 2016).

Trademark use and damages in China 359 need not file so many lawsuits against the specialty stores of Uniqlo in different cities. According to the court, the tactic of the defendants was aimed at getting damages repeatedly, and the extra expenses resulted from such a tactic are thus not reasonable. In obiter dictum, the court stated the significance of its decision for guiding the social values: Given the unjust intention of the plaintiffs and the need to encourage the public to file lawsuits in good faith and to save the judicial resources, we should not order the infringers to assume the expenses for repeated lawsuits lest such a litigation tactic will be induced. Analyzing the reasonableness of expenses for stopping infringement from the aspect of plaintiff’s intention for filing lawsuit is very innovative in China’s legal practice. Admittedly, this approach will contribute to correcting the rampant distortion of trademark protection system.

Commercial or industrial significance The alienation of the function of trademark has become a serious social problem in China. As some scholars pointed out, “trademark registration” has denatured into “enclosure of signs” and the “protection for trademarks” into “protection for signs”.10 On the list of trademark applications of 2017 in China, the top applicant is a natural person who has applied 5,767 trademarks during one year, surpassing the number of applications by big companies like Alibaba and Tencent. From 2002 onwards, this very person has filed 9,087 trademarks in total. The function of the trademark has been distorted from distinguishing the sources of commodities to speculating and extorting. The issue of malicious filings of trademarks has also drawn attention from the international society. In recent years, how to fight against the trademark registrations in bad faith has become an important topic for some international trade dialogues between China and other nations. For instance, the China–US Joint Fact Sheet on the 27th China–US Joint Commission on Commerce and Trade published in 2017 refers to bad faith registration of trademarks: Affirming their long-standing cooperation on administrative and judicial trademark issues, China and the United States agree that trademarks obtained and asserted in bad faith hinder legitimate commerce, mislead consumers, and deter investment in building global brands. The United States appreciates the positive efforts China has made under the new Trademark Law. Building upon this, China will take further efforts to combat bad faith trademark filings. Moreover, China and the United States will continue to prioritize the issue of bad faith trademark filings, and both sides will strengthen exchanges and communication through bilateral and multilateral channels.11 10 LI Chen, Remedy for Trademarks and Signs Enclosure (in Chinese), HeNan Social Society, Volume 1, 2006, pp.65–68. 11 Available at www.commerce.gov/news/fact-sheets/2017/01/us-china-joint-fact-sheet27th-us-china- joint-commission-commerce-and-trade.

360  Li Chen To resolve thoroughly the problem of bad faith trademark filings, it is necessary not only to increase the social awareness of the real function of trademarks, but also to guide the conducts of the public by denying remedies for bad faith trademark registrants in judicial process. The principles of “no use, no damages” and “no compensation for expenses of bad faith litigation” established in the present decision affirm that the value of trademarks come from actual use instead of registration itself, and that the trademark owners should exercise their rights honestly. This is a great progress made in China’s trademark protection system, which will contribute to the creation of a sound market environment for domestic commerce and international trade.

31 Trademark infringement defence based on nonoccurrence of damage in Japan Ichiro Nakayama

Case information: Supreme Court of Japan, 1994(O)1102 (March 11, 1997), Minshu Vol. 51, No. 3 at 1055

Summary When trademark rights are infringed, the right holders may claim compensation for damages based on lost royalties that they would have been entitled to receive for the use of the registered trademarks. The Supreme Court of Japan held that the infringers could avoid liability for such damages when, as a defence, they successfully allege and prove the impossibility of occurrence of damage on the part of the trademark right holders. It should be noted, however, that the Supreme Court allowed the defence under the specific facts unique to this case. Therefore, the thus-created defence may be exceptional rather than widely available. It may also affect, in theory, other IP laws such as patent law, although its practical impact may be limited.

Legal context Trademark right holders may claim compensation for damages against infringers. It may, however, be difficult for the right holders to prove the amount of damages caused by the infringement because unauthorised use of registered trademarks by the infringers does not directly prevent the right holders from using the trademarks, and the right holders do not suffer any actual loss of money or decrease of wealth. Therefore, the Japanese Trademark Act has several provisions to help the right holders prove damages they suffered. One of them is lost royalties which may be analogues to reasonable royalties adopted in many jurisdictions. Article 38(3) of the Trademark Act provides that the right holders “may claim against an infringer compensation for damage . . . by regarding the amount the holder of trademark right . . . would have been entitled to receive for the use of the registered trademark as the amount of damage sustained.”1 1 In 1998 amendment, the former Article 38(2) was moved to the current Article 38(3). The present case in this case report was before the 1998 amendment, and the former Article 38(2)

362  Ichiro Nakayama Article 38(4) further provides that Article 38(3) shall not prevent the right holders from claiming compensation for damage exceeding the amount provided by Article 38(3). Accordingly, it is considered that lost royalties based on Article 38(3) may be almost always compensated as minimum damages once the infringement is established. A question remains, however, as to whether there may be an exception – in particular, whether the infringers would still be liable for compensating damage in the case where trademark right holders suffered no harm at all by the infringement. The present decision addresses this issue.

Facts X had a Japanese trademark right based on registration No. 0505891 (“the Trademark Right”). X’s registered trademark was Chinese character “小僧” (pronounced as “Kozo”) for designated goods in former Class 45 (foodstuff and seasoning not assigned to any other classes) (“the Trademark”). The Trademark was registered in 1957. Y was a company incorporated in 1972 for producing and selling take-out sushi. Y and Kozosushi Honbu Co., LTD., who was not the party to the present case, entered into a franchise agreement which made Y a franchisee. At the same time, Y became the franchisor in the Shikoku region of Japan and also entered into franchise agreements with local franchisees. Thus, Y was one of the master franchisees having the subfranchisees under Y’s auspices. Kozosushi Honbu Co., LTD as the franchisor of the nation, together with the master franchisees, including Y, and the subfranchisees under Y’s auspices formed a single organised business group united by franchise agreements (franchise chain). In the Shikoku region, since 1972, Y had used several marks including the characters “小僧寿し” (pronounced as “Kozozushi”), the character “KOZO”, and a figure that depicts a person working at a shop by indicating them on the signboards and walls of its stores where it produced and sold take-out sushi as well as on its cars, etc. Y also authorised the franchised stores under its auspices to use these marks in the same manner. By 1978 at the latest, the term “小僧寿し” (Kozozushi)2 had been widely recognised as indicating Kozosushi Honbu or the Kozosushi Chain, and in the was applied. Both provisions are substantially the same except one point. The former Article 38(2) provided that right holders might regard the amount they would have been ordinarily entitled to receive as damages. The 1998 amendment removed the term “ordinarily” to enable the court to award damages beyond the ordinary royalties. However, the removal of the term “ordinarily” has little impact on the issue discussed in this case report. Thus, the significance of this case remains unchanged today. 2 Readers might notice that the word “Kozozushi” is spelt also as “Kozosushi.” It is not a typo. In Japanese, “Kozozushi” is the combination of “Kozo” and “Sushi.” When these two words are combined, native Japanese speakers usually pronounce “Kozozushi” by changing “s” into “z”. However, the national franchisor did not follow such a practice and chose to call themselves “Kozosushi Honbu” (“Honbu” means headquarters). Japanese may use both “Kozozushi” and “Kozosushi”, but “Kozozushi” sounds more natural as a Japanese word. So the Supreme Court used “Kozosushi” to mean the name of either the headquarter company

Defence based on non-occurrence of damage 363 trade of take-out sushi, “小僧寿し” (Kozozushi) had become common among general consumers as an abbreviation of the name of Kozosushi Honbu or the Kozosushi Chain. X filed a lawsuit to seek injunctions and damage against Y, alleging that Y infringed the Trademark Right. Kochi District Court, 1983 (Wa) 44 (March 23, 1992) held that Y’s use of mark “KOZO” constituted the infringement of the Trademark Right, and accordingly granted injunction.3 However, the court dismissed claims for damage on the following grounds: A trademark right does not inherently have a proprietary value arising from a trademark, which is no more than a combination of characters or figures but acquires such value when gaining a business reputation. The Trademark had little capability to attract customers and had no proprietary value. Consequently, former Article 38(2) could not be applied. The decision was appealed4, but was affirmed for the same reason by Takamatsu High Court, 1992 (Ne) 120 (March 28, 1994). The Supreme Court of Japan dismissed X’s final appeal.

Reasoning of the court 1 Former Article 38(2) is intended to reduce the infringed party’s burden to prove damage when claiming damages According to the former Article 38(2) of the Trademark Act, it is appropriate to construe that the trademark right holder is not required to allege or prove the occurrence of damage, but only required to allege and prove the fact that her right has been infringed and the amount that she would have been ordinarily entitled to receive, whereas the alleged infringer is allowed to avoid liability for damages by alleging and proving the impossibility of the occurrence of damage on the part of the trademark right holder as a defence. The former Article 38(2) is intended to reduce the infringed party’s burden to allege and prove damage when claiming damages in tort. If the infringer is held to be liable for damages even in the case where it is obvious that no damage has occurred, it should be said that this would go beyond the basic framework of the law of tort. The substance of a trademark right is to protect the business reputation of the trademark right holder by preserving the trademark’s function to identify the source of goods, and to protect general consumers by maintaining the marketing system of goods. Unlike a patent right and a utility model right, a trademark right itself does not have any proprietary value. Therefore, even where a third party other than the trademark right holder uses a mark similar to the registered

or the franchise chain, and used “Kozozushi” to mean its brands or indication of take-out sushi upon findings that general consumers pronounced “Kozozushi.” 3 Among several marks used by Y, only the use of “KOZO” infringed the Trademark Right. The use of other marks did not. 4 X appealed against the judgement that dismissed claims for damages, whereas Y did not appeal against granting injunctions. As a result, injunction was no longer an issue in the upper courts.

364  Ichiro Nakayama trademark as a trademark for the goods produced and sold by such third party, if the registered trademark is found to have no capability to attract customers and it is obvious that the use of the mark similar to the registered trademark makes no contribution to the third party’s sales, it should be concluded that the trademark right holder has not sustained any damage equivalent to the amount of royalties as lost profit that she would have been entitled to receive.

2 X cannot be found to have sustained any damage due to Y’s use of the mark “KOZO” In this case, the court of prior instance found the following facts: (1) X has never sold rice balls, sushi or other items with the Trademark affixed thereto in the Shikoku region where Y’s stores and the franchise stores under its auspices are located; (2) by 1978 at the latest, the term “小僧寿し” (Kozozushi) had become famous not only as an abbreviation of the name of Kozosushi Honbu or the Kozosushi Chain but also as an indication of the goods produced and sold by the Kozosushi Chain nationwide; (3) the Trademark was never used in the Shikoku region, and therefore it had no name recognition among general consumers, had no business reputation embodied therein, and had little capability to attract customers in this region; and (4) Y primarily used other marks such as the characters “小僧寿し” (Kozozushi) and figures that depict a person working at a shop, while using the character mark “KOZO” only secondarily. According to these facts, it should be determined that Y’s sales of the takeout sushi were derived exclusively from such factors as the degree of fame of the Kozosushi Chain, its advertisement and quality of its goods, and the capability of the other marks primarily used by Y to attract customers, whereas the use of the mark “KOZO” made no contribution to its sales, and therefore X cannot be found to have sustained any damage to its sales of goods due to Y’s use of the mark “KOZO.” It should also be held that X has sustained no damage from losing profit that it would have been entitled to receive based on the Trademark Right.

Legal analysis 1 Lost royalties as minimum damages As mentioned earlier, since it is not so easy for trademark right holders to prove the causal relationship between the infringement and the damages, several provisions try to reduce their burden of proof. Lost royalties based on the current Article 38(3) (the former Article 38(2))5 of the Trademark Act is one of the solutions. Similar provisions are introduced in other intellectual property laws such as Article 102(3) of the Patent Act, Article 29(3) of the Utility Model Act, and

5 Hereinafter, I use simply “Article 38(3),” rather than “Article 38(2).” See supra note 1.

Defence based on non-occurrence of damage 365 Article 39(3) of the Design Act.6 In an international context, it may be analogous to reasonable royalties in many jurisdictions. Thus, the necessity of taking lost royalties or similar concepts as minimum damages may be widely accepted in IP communities. As also mentioned earlier, lost royalties based on Article 38(3) is considered to secure minimum damages. It is practically useful when the right holders do not use the registered trademarks in the trade. In such a case, the right holders can hardly prove that they would have increased the sales of their goods or services but for the infringement. Hence, it may be difficult for them to claim damages based on either lost profits that the right holders would have earned by selling their goods or services, or the infringers’ profits brought by their unauthorised use in the trade. Even so, the right holders could still grant licenses and receive royalties, because no other party can use the registered trademarks without their authorisation. Therefore, it is commonly understood that right holders may be able to receive the lost royalties as minimum damages regardless of whether they use the registered trademarks by themselves. Consequently, it may be regarded as a general rule that once infringement is established, the infringers cannot but bear the liability for damages of lost royalties based on Article 38(3) at least.

2 Is the occurrence of damage rebuttable? Are there, however, any exceptions to the above-mentioned general rule? If the trademark right holders sustained no damages by the infringements, would the infringers still have to compensate damages of lost royalties in accordance with the general rule? Or would they be exempted from doing so as an exceptional case? The answer depends on whether Article 38(3) creates the legal fiction about the occurrence of damage. On one hand, one may interpret that it does because the statutory texts of Article 38(3) seem to provide that the right holders “may claim against an infringer compensation for damage” of lost royalties in any case. Then it follows that damages, equal to lost royalties at least, must be deemed to have occurred whenever the trademark right is infringed. Accordingly, the infringers can no longer rebut the occurrence of damage without exception. 6 Article 102(3) of the Patent Act provides that “A patentee . . . may claim against an infringer compensation for damage . . . by regarding the amount the patentee . . . would have been entitled to receive for the working of the patented invention as the amount of damage sustained.” Article 29(3) of the Utility Model Act provides that “A holder of a utility model right . . . may claim against an infringer compensation for damage . . . by regarding the amount the holder of said utility model right . . . would have been entitled to receive for the working of the registered utility model right as the amount of damage sustained.” Article 39(3) of the Design Act provides that “A holder of a design right . . . may claim against an infringer compensation for damage . . . by regarding the amount the holder of the design right . . . would have been entitled to receive for the working of the registered design . . . as the amount of damage sustained.”

366  Ichiro Nakayama On the other hand, one may interpret that Article 38(3) is meant to provide how to calculate the amount of damage, and therefore the occurrence of damage may be regarded not as a legal fiction but as a precondition to apply it. Then, it follows that the infringers should be allowed to assert the lack of the precondition and thereby deny an application of Article 38(3). Conventionally, the former view that regarded the occurrence of damage as a legal fiction was dominant.7 However, the Supreme Court did not agree with it. According to the Supreme Court, the purpose of Article 38(3) is nothing more than reducing right holders’ burden of proof. Therefore, while the trademark right holders are not required to prove the occurrence of damage, the infringers could rebut it as a defence. Otherwise, it held, they would be liable for damages despite no actual damages, which “would go beyond the basic framework” of tort law. In so holding, the Supreme Court attached importance to the basic framework of tort law. It is difficult to deny that the liability for damages in trademark right infringements may be rooted in tort liability in the Civil Code. It is not the Trademark Act but Article 709 of Civil Code8 that lays the legal basis for claiming of damages against trademark right infringers. The Trademark Act has provisions concerning damages, which supplement the Civil Code by reducing the burden to prove damages unique to trademark right infringements. Thus, compensation for damages under the Trademark Act is not allowed to “go beyond the basic framework” of tort law. It should be also noted that “the basic framework” of tort law in Japan is shaped by the principle of compensatory damages under which the amount of damage actually incurred must be compensated. The Supreme Court clarified in the 1993 Mansei Kogyo case9 that “the system of damages based upon tort in Japan assesses the actual loss in a pecuniary manner, forces the culprit to compensate this amount, and thus enables the recovery of the disadvantage suffered by the victim and restores the status quo ante.”10 Consequently, compensation for damages could not exceed the actual damage. It follows that the infringer of the trademark rights should bear no liability for compensating damages when “it is obvious that no damage has occurred”, as the Supreme Court stated. In theory, one can hardly argue that liability for damages without the occurrence of damages might be consistent with the principle of compensatory damages that governs tort law.   7 S. Ono and S. Miyama, eds., Shin Chukai Shouhyouhou Gekan (The second Volume of New Commentary on Trademark Law) 1181 (2016) (N. Matsumura), Seirin Shoin, Tokyo.  8 Article 709 of Civil Code provides that “a person who has intentionally or negligently infringed any right of others, or legally protected interest of others, shall be liable to compensate any damages resulting in consequence.”   9 (O) 1762 (July 11, 1997), Minshu, Vol. 51, No. 6, at 2573. 10 It was not an intellectual property case, but a general civil case in which a party sought an execution judgment for a US judgment which ordered payment of punitive damages. The Supreme Court held that the part of the foreign judgment which ordered punitive damages was invalid due to its being contrary to public policy in Japan.

Defence based on non-occurrence of damage 367 In practice, however, one may wonder under what circumstances “it is obvious that no damage has occurred.” If there existed no such cases, the defence based on non-occurrence of damages might be useless. This issue is discussed in the next section.

3 Under what circumstances is it obvious that no damage has occurred? As explained earlier, the lost royalties based on Article 38(3) may be guaranteed as minimum damages even when the right holders do not use the registered trademarks themselves, as they could still grant licenses and receive royalties, and the infringers paid nothing for using the registered trademarks. It may follow that the act of infringement must inevitably cause damages equal to royalties that the infringers avoid paying, no matter how small they may be. Therefore, some criticise the Supreme Court’s decision for exempting the infringers from liability for damage despite the unauthorized use without any payment.11 From their viewpoint, in no case is it “obvious that no damage has occurred.” To be sure, it may not be so easy to prove damage. This does not mean, however, that it is impossible. In fact, what the Supreme Court had in mind seems to be an exceptional case. It cited the case where the registered trademark has “no capability to attract customers” and the infringing use of the registered trademark “makes no contribution to the third party’s sales”, and held that “the trademark right holder has not sustained any damage equivalent to the amount of royalties . . . that she would have been entitled to receive.” In the Supreme Court’s view, this is an exceptional circumstance under which there is no possibility for the right holders to grant licenses and receive royalties, and it is under such an exceptional circumstance that the infringers could prove that “it is obvious that no damage has occurred.” More specifically, in the present case, X had never used the Trademark in the region where Y’s stores were operated, which led to the finding that the neverused Trademark “had little capability to attract customers.” However, the fact of non-use of the Trademark alone may not be enough to prove non-occurrence of damage. Therefore, the Supreme Court further paid attention to Y’s use of the trademarks. The mark “小僧寿し” (Kozozushi) primarily used by Y became famous and acquired capability to attract customers, whereas Y’s use of the mark “KOZO” similar to the registered trademark was secondary and did not contribute to Y’s sales. Taking these factors into consideration, the Supreme Court reached the conclusion that X had not even sustained damages equal to royalties. It implied that X had lost no opportunities to receive royalties because no one in the region

11 T. Shibuya, Hanpi (Case review), 118(1) Minshoho Zasshi 84 (1998), M. Hirao, Shouhyouhou Dai Niji Kaiteiban (Trademark Law, 2nd edition), Shobo, Tokyo, 342–343 (2015).

368  Ichiro Nakayama would be willing to use the Trademark (“KOZO”) by paying royalties when Y’s famous mark “小僧寿し”(Kozozushi) acquired capability to attract customers.12 Another important factor was the uniqueness of trademark rights. The Supreme Court stated, “a trademark right itself does not have any proprietary value.” This is because a trademark is just a mark that has, by nature, neither commercial nor economic value. However, when a trademark functions as the indication of the source of goods, it embodies business reputation, which produces proprietary or commercial value. The Supreme Court considered it the substance of trademark protection. It follows that damage would occur only if the unauthorised use of the registered trademark harmed the substance of trademark protection. On the contrary, if it did not, no damage would occur, as this case illustrates. Thus, the Supreme Court carefully considered various factors specific to this case to approve the defence based on non-occurrence of damages. Therefore, it is fair to say that the scope of the Supreme Court decision may be narrow, as commentators observed.13 In short, the defence may be a narrowly tailored exception.

4 Are patent rights different from trademark rights in terms of non-occurrence of damages? As mentioned earlier, other IP laws have provisions similar to Article 38(3) of the Trademark Act. Does this mean that the defence based on non-occurrence of damages may be also available in other IP law cases? In theory, such a possibility may not be excluded under the Supreme Court decision. Both Article 38(3) of the Trademark Act and similar provisions in other IP laws adopt the same concept of lost royalties. They all need to be consistent with tort law under the Civil Code. So long as the Supreme Court stresses the basic framework of tort law as a rationale for the defence based on non-occurrence of damages in trademark law, it can hardly prevent, in theory, the same rationale from being available in other IP laws.14 On the other hand, the Supreme Court may not have intended that the defence be applied in the same manner to other IP laws. In fact, it stated, “Unlike a patent right and a utility model right, a trademark right itself does not have any proprietary value”. This statement implies that a patent right itself has proprietary value by assuming that an invention, the subject of the patent right, is “creation of a technical idea” (Article 2(1) of Patent Act) with useful solution and therefore inherently valuable, whereas a trademark is not so without business reputation

12 R. Mimura, Hankai (Commentary on Cases), in Saiko Saibansho Hanrei Kaisetsu Minjihen Heisei 9 Nendo Jyo (The first Volume of Commentary on the Supreme Court Civil Cases of FY 9 of HEISEI Era), Hosokai, Tokyo, 414 (2000). 13 Shibuya, supra note 11, at 84, K. Dohi, Hanpi (Case review), 1135 Jurisuto 261(1998), Y. Tamura, Hanpi (Case review), 116(2) Hogaku Kyokai Zasshi, Nippon Hyoron Sha, Tokyo, 335 (1999). 14 Mimura, supra note 12, at 414.

Defence based on non-occurrence of damage 369 associated with it as discussed earlier. It follows that the infringers of the patent right exploit inherent value of the invention without paying royalties, which is always deemed to cause damages to the right holder. Consequently, the previously mentioned statement by the Supreme Court may suggest that, in practice, the defence based on non-occurrence of damages could not succeed in most patent cases.15 Put another way, the Supreme Court seems to try to minimise the impact of its decision on patent cases, though it cannot completely prevent it from happening in theory. Although an opposing opinion argues that the scope of the Supreme Court decision should not extend to patent law due to difference between patent right and trademark right16, not a few commenters share the same understanding as the Supreme Court and assert that the question is not whether such a difference may deny availability of the defence in patent law, but how the difference may affect the practical application of the defence in patent law.17 It may be true that an invention provides a solution to technical problems and thereby brings something useful and valuable. Such inherent value is, however, primarily a technical one. Technical value is usually associated with commercial and economic value, but not always so. Therefore, it would be exaggeration to contend that every patent right itself has proprietary value inherently and therefore every patent infringement causes damages. On the contrary, a case-by-case analysis rather than a categorical rule may be useful to decide whether the infringer could prove the impossibility of occurrence of damages in patent infringements. Having said so, as a matter of comparison, there is little doubt that the defence is far less likely to succeed in patent cases than in trademark cases.

Commercial or industrial significance Conventionally, it was taken for granted that the infringers were liable for compensation of damages and subject to injunctions. In particular, lost royalties were believed to be guaranteed as minimum damages. However, the Supreme Court made it clear that even lost royalties might not be always compensated. It is theoretically important that no departure from what the Supreme Court considers to be the basic framework of tort law may be allowed in trademark law. In practice, this has had an influence on industries’ strategies in lawsuits. In particular, the alleged infringers gained an additional defence based on non-occurrence of damages. It might help them avoid liability for damages against abusive assertion of the trademark right.

15 Mimura, supra note 12, at 415. 16 Tamura, supra note 13, at 336. 17 Y. Koike, Hanpi (Case review), 188 Bessatu Jurisuto 77 (2007), S. Kozuka, Hanpi (Case review), 209 Bessatu Jurisuto 179 (2012), N. Nakayama and N. Koizumi eds., Shin Chukai Tokkyohou Dai Nihan Chukan (Middle volume of new commentaries on patent law, 2nd version) 1997 (2017) (K. Iida), etc.

370  Ichiro Nakayama On the other hand, the alleged infringers should not expect too much of the judicially created defence. The Supreme Court approved it under the specific facts unique to this case. Since it was narrowly tailored, it could be available only under exceptional circumstances. Therefore, in general, it may be difficult for the infringers to prove non-occurrence of damages, although not impossible. The defence has succeeded in few cases to date.18 The present Supreme Court decision may also have affected other IP disputes. In theory, given that the basic principle of tort law governs all IP laws, it may be difficult to deny the defence based on non-occurrence of damages in patent law. In practice, however, as discussed earlier, the defence is far less likely to succeed in patent cases. In fact, no patent cases have been reported to approve it. Consequently, the practical impact of this decision on patent cases may be small. Lastly, although it may not be an urgent issue, it is worth noting a possibility that TPP (Trans-Pacific Partnership) or CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership, so-called TPP11) may have, in the future, some influence on the defence based on non-occurrence of damages. Article 18.74, para. 7 of TPP demands, as one of the two options, “pre-established damages” against trademark counterfeiting.19 Although TPP is unlikely to enter into force after the US withdrew from it, Article 18.74 of TPP is incorporated into CPTPP, which was signed on March 8, 2018 by the remaining 11 nations.20 It is not clear what “pre-established damages” means. However, if one assumes that “pre-established damages” are equivalent to the so-called statutory damages that need to be compensated without the proof of damages, one may face a question whether “pre-established damages” may allow or deny the defence based on non-occurrence of damages. Since CPTPP has not entered into force, the issue has not drawn much attention, except from a few commentator.21 However, CPRTPP may eventually enter into force. Therefore, the issue deserves further discussion.

18 Nagoya District Court, 2000 (Wa) 366 (November 9, 2001), Kobe District Court, 1996 (Wa) 2094 (February 10, 1999), Osaka District Court, 2012 (Wa) 6892 (January 24, 2013). 19 However, footnote 110 of Article 18.74, para. 3 provides that such a requirement may be exempted when the trademark is not used. 20 Article 1 of CPTPP provides that it incorporates provisions of TPP, except for provisions suspended by Article 2. The Annex enumerates the suspended provisions, which do not include Article 18.74 of TPP. Consequently, it is incorporated into CPTPP. 21 M. Suzuiki, Web Kaisetsu TPP Kyotei, 18.5 Chiteki Zaisan (Kenrikoushi) (Internet Commentary on TPP Agreement, 18.5 Intellectual Property (enforcement)), 4–5 (2016), T. Kaneko, TPP to chosakukenhou shouhyouhou ni okeru “houtei songai baishou” (TPP and “statutory damages” in copyright law and trademark law), in R. Takabayashi et al. eds., Nenpou Chitekizaisanhou 2016–2017 (Annual report of intellectual property law 2016–2017), ­Nippon Hyoron Sha, Tokyo, 40 (2016).

32 Determination of damages for trademark infringement by the separate unit retail prices approach in Taiwan Hao-Yun Chen

Case information: Taiwan Supreme Court 2013 Tai-Shang-Zi No. 974, (29 May 2013)

Summary One of the methods for calculating trademark infringement damages in Taiwan is, according to then Article 63(1)(iii) of the Trademark Act, an amount equivalent to 500 to 1,500 times (to be chosen by the court) of the unit retail price of the infringing goods; in the case where over 1,500 pieces of infringing goods were found, the amount of damages shall be assessed based on the total price of the infringing goods. The question at issue lies in the interpretation of “unit retail price”. This calculation method of unit retail price multiplied by a certain number between 500 and 1500 determined by the court was introduced in the Trademark Act in 1985, despite the fact that there is no similar provision in other jurisdictions.1 In the present case, it was found that multiple kinds of products made and sold by the defendant have infringed the plaintiff’s trademarks. The dispute concerning the interpretation of “unit retail price” in such cases has been long argued but not settled. In the first instance, the Taiwan Taipei District Court held that when multiple kinds of infringing products are involved in a trademark infringement suit, the damages claimed should be the sum of the damages for each kind of product that is calculated by multiplying each product’s retail price per unit by a certain number determined by the court.2 The District Court thus awarded the plaintiff TWD 2,434,000 (1,980 × 500 + 1,190 × 500 + 690 × 500 + 1,008 × 500) in damages. Both parties appealed the decision before the Taiwan Intellectual Property Court (IP Court). The IP Court overturned the District Court’s ruling, stating that the damages should be calculated by multiplying the average unit retail price

1 Fa-Li Lin, Update of Trademark Practice in Taiwan–Calculation of Damage (台灣商標法實務 新訊—損害賠償之計算), 193 Ft Law Review 61 (2014). 2 2010 Zhi-Zi No. 14, Taiwan Taipei District Court (April 28, 2011).

372  Hao-Yun Chen of the found infringing products by a certain number decided by the court, and awarded the plaintiff [(1,980 + 1,190 + 1,008 + 690)／4] × 500 = TWD 608,500 in damages.3 The plaintiff brought the case to the Supreme Court. The Supreme Court overturned the IP Court’s ruling and remanded it back to the IP Court, which followed the Supreme Court’s instruction, namely the separate unit retail prices approach, and awarded the plaintiff TWD 852,400 (1,980 × 250 + 1,190 × 200+ 690 × 100 + 1,008 × 50) in damages.4 The case was finalised. The present decision was the first and only Supreme Court decision dealing with this issue so far. Although the opinion of this decision was not supported by an internal seminar held by the highest judiciary agency,5 the Judicial Yuan, in 2015, the conclusion of the internal seminar is not binding. There is no doubt that the present decision is a leading case, as several court decisions have followed it.6

Legal context Basically, there are three kinds of legal measures to enforce trademark right under Taiwanese law, namely civil measures, criminal measures7 and administrative measures.8 Among civil measures, apart from injunctive relief, monetary relief plays a crucial role. Article 71(1) of the Trademark Act provides four methods for proving and calculating damages. The trademark owner may claim damages 3 2011 Ming-Shang-Shang-Zi No. 3, Taiwan Intellectual Property Court (December 15, 2011). 4 2013 Ming-Shang-Shang-Geng-1-Zi No. 3, Taiwan Intellectual Property Court (November 15, 2013). 5 The Judicial Yuan held an internal seminar in 2015 focusing on whether (A) the average unit retail price of all kinds of infringing goods (hereinafter “average unit retail price approach”), or (B) the different unit retail prices for each kind of infringing goods (hereinafter “separate unit retail prices approach”), should be adopted as the unit retail price under Article 71(1)(iii) when multiple kinds of infringing products are found and the unit retail prices of each kind of products are different.   At the seminar, supporters of the average unit retail price approach argued that the separate unit retail prices approach would allow courts to award the trademark owner damages exceeding the trademark owner’s actual loss and give rise to unjust enrichment. The purpose of the statutory damages is to alleviate the infringed party’s burden of proof, not to overcompensate the infringed party while monetarily punishing the infringing party. In light of the purpose specified by legislators, the average unit retail price approach serves the purpose better than the separate unit retail price approach. In contrast, seminar participants in favour of the separate unit retail prices approach reasoned that each kind of infringing goods constitutes individual trademark infringement and the trademark owner is entitled to file separate damages claims based on each kind of infringing goods. The seminar was concluded in favour of the average unit retail price approach by vote. However, this opinion is not binding on judges and is only advisory. 6 See e.g., 2015 Min-Shang-Shang-Zi 12, Taiwan Intellectual Property Court (March 10, 2016); 2015 Min-Shang-Shang-Zi 13, Taiwan Intellectual Property Court (May 12, 2016). 7 Criminal sanctions for certain types of trademark infringement are stipulated in Articles 95–97 of the Trademark Act. 8 Customs procedures and border measures available to trademark right owners are stipulated in Articles 72–78 of the Trademark Act.

Determination of damages 373 based on any one of the methods. There is no regulation of punitive damages for trademark infringement under the Trademark Act. Article 71(1)(i) of the Trademark Act provides that the method provided in Article 216 of the Civil Code, namely the damage actually suffered and the profits which have been lost, may be regarded as the amount of damages. If no method of proof can be furnished to prove the damage suffered, the trademark owner is entitled to “demand damages based on the amount of the balance derived by subtracting the profit earned through using the trademark after infringement from the profit normally expected through using the same trademark.” Article 71(1)(ii) further provides that “the profit earned by the infringer as a result of trademark infringement” may be regarded as the amount of damages, and “if no proof on costs or necessary expenses can be furnished by the infringer, the total amount of income from selling the infringing goods shall be presumed to be the amount of profit.” Article 71(1)(iii) of the Trademark Act provides that “an amount not more than 1,500 times the unit retail price of the infringing goods found;9 in the case where over 1,500 pieces of infringing goods were found, the amount of damages to be claimed shall be assessed based on the total price of the infringing goods found.” This method is known as statutory damages for trademark infringement,10

  9 When first introduced into the Trademark Act in 1985, then Article 64(1)(iii) provided that: “Damages may be claimed in an amount equivalent to 500 to 1,500 times the unit retail price of the infringing goods.” The provision established the upper and lower limits of the range of statutory damages. The provision did not deviate from the principle of compensating the victim for the actual loss only. However, in the 2009 Hermès Birkin bag case (2008 Zhong-Fu-Min-Zi No. 1 (March 26, 2009)), the IP Court awarded Hermès International, the French fashion luxury goods manufacturer, damages of TWD 256,250,000 (TWD 512,500 × 500) based on the provision, although only four counterfeit bags were found and the infringement duration lasted for only half a year. This amount set a historical record for the damages awarded to one trademark owner in Taiwan, which resulted in media hysteria and also provoked much discussion among scholars and practitioners. The lower limit was criticized for unduly restricting the ability of judges to exercise judicial discretion, and for its possibility of disproportionate overcompensation. In 2011, the provision was amended by abolishing the lower limit, and renumbered to the current Article 71(1)(iii). This amendment did not, however, clarify the meaning of “unit retail price.” 10 The purpose of this calculation method, according to the legislative reasons, includes two aspects. First, a trademark owner’s actual damages are in most cases extremely difficult, if not impossible, to estimate or prove because infringing goods are often marketed and sold through abnormal commercial sales channels, and counterfeiters are prone to conceal their actual sales amounts. Besides, after becoming aware of the investigation, counterfeiters tend to sell the infringing goods off, which might further worsen the damage suffered by the trademark owner. It would thus be unfair, and might encourage trademark infringement, if the infringed party’s actual damages were undercompensated due to the limited number of the infringing goods seized. Second, in some common law jurisdictions courts can award treble punitive damages to the infringed party. However, if the punitive damages system were introduced into the Trademark Act, the infringed party would become a beneficiary of unjust enrichment in the Taiwanese legal context. Moreover, the infringed party would still have the burden of proof to establish actual loss. In comparison to the punitive damages system adopted in common law jurisdictions, the statutory damages system is a better option to alleviate the infringed party’s burden of proof, and provide an incentive for the infringed

374  Hao-Yun Chen and is the main issue of the present case. Article 71(1)(iv) of the Trademark Act, which was introduced into the Trademark Act in 2011, provides that “the equivalent amount of royalty that may be collected from using the trademark under licensing” may be regarded as the amount of damages. The previously mentioned calculation methods can be summarised in a table as follows: Article 71(1)(i)

Article 71(1)(ii) Article 71(1)(iii)

Article 71(1)(iv)

The actual damage and lost profits. Damages = [B (the profit normally expected through using the same trademark) – A (the profit earned through using the trademark after infringement)] Damages = infringer’s profits. Damages = [(the unit retail price of the infringing goods found) × maximum 1500 (the actual number is determined by court)] If over 1,500 pieces of infringing goods were found, damages = the total price of the infringing goods found. Damages = reasonable royalties

Article 71(2) of the Trademark Act gives the court leeway to reduce the amount of damages assessed under Article 71(1) if the resulting amount is apparently unreasonable.11 Article 71(2) was introduced into the Trademark Act in 1993 (then Article 66(2)). It is worth noting that the background of this introduction is that the legislators envisaged that in some cases the amount of damages would be excessive and might result in unjust enrichment if the plaintiff claims damages based on the statutory damages. However, Article 71(2) is applicable to not only the amount of statutory damages assessed under 71(1)(iii) but also the amount of damages calculated under Article 71(1)(i), (ii) and (iv).

Facts Picasso International Development Limited Company (hereinafter “Picasso Ltd.”) filed application for a series of trademarks including “PICASSO” and “畢 卡索PICASSO”, for class 18 goods in 2001, which were registered on June 16, 2001, and July 1, 2001, respectively. The alleged infringer, Quansheng International Company Limited by Shares (hereinafter “QGC”), manufactured and sold wallets, briefcases, suitcases, backpacks. The words “PICASSO” or “Picasso” were embossed on the products or printed on the tags attached to the products. The unit retail prices of the alleged infringing wallets, briefcases, suitcases, and backpack bags were TWD 1,008, 1,190, 1,980, and 690 respectively. Picasso Ltd. filed a suit against QGC to stop the latter from using the trademarks, and claimed damages based on then Article 63(1)(iii) of the Trademark party to pursue infringement claims against counterfeiters, which might otherwise not be undertaken because of the inability to obtain sufficient evidence. 11 However, the judges in the Hermès Birkin bag case did not apply Article 71(2) on their own initiative.

Determination of damages 375 Act.12 The Taiwan Taipei District Court and the IP Court (the appellate court) both found that the QGC had inadvertently infringed the trademark rights of the Picasso Ltd. However, as regards the amount of the damages, the Taiwan Taipei District Court held that when multiple kinds of infringing products are involved in a trademark infringement suit, the damages claimed should be the sum of the damages for each kind of product that is calculated by multiplying each product’s retail price per unit by 500.13 The District Court thus awarded the plaintiff TWD 2,434,000 (1,980 × 500 + 1,190 × 500 + 690 × 500 + 1,008 × 500) in damages. Both parties appealed the decision before the IP Court. The IP Court overturned the District Court’s ruling, stating that the damages should be calculated by multiplying the average unit retail price of the found infringing products by 500 times, and awarded the Picasso Ltd. [(1,980 + 1,190 + 690 + 1,008)／4] × 500 = TWD 608,500 in damages.14 The Picasso Ltd. brought the case to the Supreme Court. The appeal was upheld by the Supreme Court, which remanded the case back to the IP Court.

Reasoning of the courts 1 The Taiwan Taipei District Court The unit retail price under Article 63(1)(iii) of the Trademark Act means the actual price at which the infringing goods are sold. (See 2001 Tai-Shang-Zi 324, Taiwan Supreme Court (23 February 2001); 2002 Tai-Shang-Zi 1411, Taiwan Supreme Court (19 July 2002).) When multiple kinds of infringing products are found, the trademark owner’s amount of damages claimed under then Article 63(1)(iii) should not be calculated by multiplying the average unit retail price of all kinds of products by a certain number (determined by the court). Instead, they should be the sum of the damages for each kind of infringing product that is calculated by multiplying the unit retail price of all kinds of products by a certain number (determined by the court). Typically, the more kinds of the defendant’s infringing goods there are, the higher damages the plaintiff suffers. The defendant’s defence, which argued that the damages should be calculated by multiplying the average unit retail price of all kinds of products by a certain number, is thus not justified and should be rejected. The District Court found that the quantity of the infringing goods found by the plaintiff was small, and that another defendant’s (Picasso International Inc.) trademark is more famous in the market than the plaintiff’s because the plaintiff’s

12 Actually, this case involved another defendant, “Picasso International Inc.”, but both the Taiwan Taipei District Court and the IP Court consistently ruled that Picasso International Inc. did not infringe the plaintiff’s trademark right. As a result, the courts’ finding and reasoning concerning Picasso International Inc. are omitted in this case report. 13 2010 Zhi-Zi No. 14, Taiwan Taipei District Court (April 28, 2011). 14 2011 Ming-Shang-Shang-Zi No. 3, Taiwan Intellectual Property Court (December 15, 2011).

376  Hao-Yun Chen manager once testified in another case that the plaintiff did not advertise or promote its products due to the tiny scale of the plaintiff’s business. Based on these facts, the District court held that the appropriate multiplier in this case is 500 and awarded the plaintiff TWD 2,434,000 (1,980 × 500 + 1,190 × 500 + 690 × 500 + 1,008 × 500) in damages.

2 The IP Court Article 63(1)(iii) of the Trademark Act does not explicitly require that the damages be separately calculated and added based on different kinds of infringing products when multiple kinds of infringing products are found. In the case where less than 1,500 pieces of infringing goods are found, the amount of damages should be calculated by multiplying the average unit retail price of all kinds of product by a certain number (determined by the court), rather than by multiplying the total sum of the unit retail prices of each kind of infringing products by a certain number (determined by the court). The latter method would yield a result that exceeds the range of statutory damages, the maximum of which is 1,500 times the unit retail price, and would violate the principle of compensation. The victim would enjoy unjust enrichment, while the infringing party would be unduly punished. Accordingly, the original ruling involved an error of law because it calculated the amount of damages by multiplying the total sum of the unit retail prices of each kind of infringing products by a certain number (determined by the court). After deliberating on the reasons given by the District Court, the IP Court held that the multiplier of 500 was appropriate, and awarded the plaintiff [(1,980 +  1,190 + 1,008 + 690)／4] × 500 = TWD 608,500 in damages.

3 The Supreme Court Article 63(1)(iii) of the Trademark Act prior to the amendment provided that trademark owners may claim damages in an amount equivalent to 500 to 1,500 times the unit retail price of the infringing goods found, and that, in the case where over 1,500 pieces of infringing goods were found, the amount of damages to be claimed shall be assessed based on the total price of the infringing goods found. In this case, the IP Court has confirmed that the defendant’s infringing goods contained wallets, suitcases, briefcases, and backpacks, the lowest unit retail prices of which were TWD 1,008, 1,190, 1,980 and 690 respectively. In light of the fact that the QGC’s infringing goods contained different kind of products and that each kind of product was separate from one another, the appellant (Picasso Ltd.) was entitled to lodge separate damages claims based on each kind of product. The IP Court’s ruling on the damages, which calculated the damages based on the average unit retail price of the infringing products found, is inconsistent with Article 63(1)(iii) of the Trademark Act and should be revoked accordingly. It was thus appropriate to remand the case to the IP Court for reconsideration on this issue.

Determination of damages 377

Legal analysis Although the statutory damages system was introduced into the Trademark Act more than three decades ago, there has been no consensus among courts as to how to calculate the amount of damages based on current Article 71(1)(iii) – specifically, how to determine the “unit retail price” and the multiplier – when multiple kinds of infringing products are involved. Empirical studies have identified several factors considered by courts in determining the multiplier, including the seriousness of the infringer’s conduct, the extent of the loss suffered by the trademark owner, the duration of infringement, the quantity of infringing goods found, the estimate number of the infringing goods sold by the infringing party, and other case-relevant factors.15 On the other hand, opinions are divided as to the interpretation of “unit retail price”, especially when multiple kinds of products are involved. Courts’ interpretations can be categorised into several patterns: the highest unit retail price of the infringing goods found,16 the lowest unit retail price of the infringing goods found17, the average unit retail price of the infringing goods found18, the sum of the unit retail prices of the infringing goods found,19 and the different unit retail prices for each kind of infringing goods found,20 which was advocated by the Supreme Court in the present decision.

1 Confusing nature of the unit retail price method As mentioned previously, according to the legislative history, the calculation method provided under Article 71(1)(iii) of the Trademark Act (“unit retail price method”) aims to alleviate the infringed party’s burden of proof, so that his/ her actual damages will not be undercompensated due to the limited number of the infringing goods seized. This method is for the purpose of compensating the injured party’s actual damages, which corresponds with the principle of compensation stipulated by Article 216 of the Civil Code. Neither punitive nor deterrent effects were anticipated from this method at the time of its introduction. The framework of the unit retail price method, if carefully examined, is however inconsistent and incoherent, as there seems to be a lack of justifiable connection between its purpose and provision. First, this method may be regarded as a special rule for calculating the infringer’s profits, since it counts the unit retail

15 I-Ping Wang, Remedies for Trademark Infringement – Focused on the Amendment of 2011 (商標侵害之損害賠償計算 – 以民國100年修法為核心), in I-Ping Wang, Essays in Copyright and Trademark, Taipei, 383–85 (2018). 16 See e.g., 2012 Min-Shang-Shang-Zi 18, IP Court (May 30, 2013). 17 See e.g., 2007 Zhi-Zi 40, Taiwan Taipei District Court (August 6, 2007). 18 See e.g., 2008 Min-Shang-Shang-Zi 4, IP Court (April 2, 2009); 2011 Min-Shang-Shang-Zi 3, IP Court (December 15, 2011). 19 In this pattern, courts did not distinguish between the different kinds of infringing goods found, but applied a uniform multiplier to all kinds of infringing goods found. See e.g., 2009 Min-Shang-Su-Zi 3, IP Court (July 13, 2009). 20 In this pattern, courts applied different multipliers to each kind of infringing goods found.

378  Hao-Yun Chen price of the infringing products rather than that of the trademark owner’s products.21 Yet the infringer’s costs and expenses related to the infringing products cannot be deducted from the amount of damages calculated with this method in practice. It is thus questionable that such statutory damages could be justified in view of the principle of compensation and the risk of becoming substantially punitive damages. The difference between this method and the calculation method of infringer’s profit stipulated in the Article 71(1)(ii) seems to need more justification than the relief of the trademark owner’s burden of proof, a purpose that might be achieved by other procedural means. Second, no reasonable explanation or justification has been given for the reason why the unit retail price of the infringing products is a quick but proper indicator for the trademark owner’s actual damages. In addition, it is at the court’s discretion to determine the multiplier, with a maximum of 1500 times. The maximum multiplier, however, lacks empirically justifiable grounds as well. Third, the unit retail price method seems logically incoherent. The proviso of Article 71(1)(iii) provides that “in the case where over 1,500 pieces of infringing goods were found, the amount of damages to be claimed shall be assessed based on the total price of the infringing goods found.” According to the logic stated in the legislative reason, the found infringing goods are in most cases only a small portion of what had been actually manufactured or sold. Based on the same logic, it would be reasonable and consistent to presume that there should be more infringing goods, which have not been found in the case where over 1,500 pieces of infringing goods are found. However, instead of presuming the trademark owner’s damages to be based on a hypothetical estimate exceeding 1,500 times, the proviso of Article 71(1)(iii) stipulates that the amount of damages to be claimed shall be assessed based on the total price of the infringing goods found in this case. There is no legal justification for distinguishing between the cases where 1,500 and 1,501 pieces of infringing goods are found. This method thus seems inconsistent.

2 The interpretation of the “unit retail price” when multiple kinds of infringing products are involved The dispute between the average unit retail price approach and the separate unit retail prices approach is protracted, but it seems distant from the core issue in assessing the actual damages suffered by trademark owners. The parameters in this method, such as the unit retail price, the multiplier, and the judicial discretion over reduction in the amount of damages, are merely nominal factors. Specifically, one of the main reasons why many court decisions are in support of the “average unit retail price approach” is that, if a court awards the damages using the “separate unit retail prices approach”, it is highly possible that

21 Ming-Yan Shieh, Trade Mark Infringement and Calculation of Compensation (商標侵害及 損害賠償之計算), 26 Cross-Strait Law Review 201 (2009).

Determination of damages 379 the trademark owner will be unjustly enriched, especially in the circumstance that the court applies the old provision with the minimum multiplier of 500. However, it is still within the court’s discretion to determine the size of the multiplier and whether to reduce the amount of damages based on Article 71(2) of the Trademark Act. Therefore, the risk of unjust enrichment or overcompensation can be well avoided by the court exerting its discretion to determine an appropriate multiplier, and, if necessary, to reduce the resultant amount of damages. On the other hand, the “separate unit retail prices approach” taken by the Supreme Court in this case seems more persuasive to the author due to the following reasons. First, each kind of infringing goods in theory constitutes individual trademark infringement; and the trademark owner is entitled to file separate damages claims based on each kind of infringing goods under the Trademark Act. For example, if Picasso Ltd. filed suits against QGC for manufacturing and selling infringing wallets, briefcases, suitcases, and backpacks in four separate cases, there is no doubt that in each lawsuit the damages would be calculated by separate unit retail prices. In consequence, the average unit retail price approach would seem unlikely to achieve its objective of preventing the possibility of overcompensating the trademark owners and would instead contribute to redundant lawsuits and the risk of contradictory judgments. What is worse, infringers might deliberately use the trademark on some lowend products and sell them at extremely cheap prices, which would drastically lower the average unit retail price as well as the amount of damages calculated under Article 71(1)(iii). Seeing that the total amount of damages calculated with the average unit retail price approach might not sufficiently compensate for the loss, the infringed party would have no alternative but to claim damages based on other calculation methods. Hence, the average unit retail price approach might result in a failure to fulfill the legislative purpose of relieving the trademark owner’s burden of proof under Article 71(1)(iii). Therefore, the author supports the argument in this case that the damages should be determined by the separate unit retail prices approach, based on the premises of the current statutory damages system; and that the court should use its discretion to determine a proper multiplier after taking into consideration the factors such as seriousness of the infringer’s conduct in the case, and reduce the amount of damages, if necessary, to avoid overcompensation.

3 Recommendations for future amendment As mentioned previously, the framework of the method of unit retail price is incoherent, there seems to be a lack of justifiable connection between its purpose and its provision, and the dispute between the average unit retail price approach and the separate unit retail prices approach is distant from what really matters in accessing the actual damages suffered by trademark owners. The author suggests that the troublesome method of unit retail price stipulated under Article 71(1)(iii) of the Trademark Act should be abolished. It may be more appropriate to introduce a new method authorising the court to determine the appropriate

380  Hao-Yun Chen amount of damages based on the factors which are directly related to the actual damages suffered by the trademark holder, such as seriousness of infringement in the case.22

Commercial or industrial significance Article 71(1)(iii) has been frequently applied in trademark infringement cases in practice, mainly because it reduces the trademark owner’s burden of proof. Nevertheless, the long dispute surrounding the interpretation of “unit retail price” in the case involving multiple kinds of products has posed a great threat to legal certainty and predictability, which is crucial for the commercial world. The amount of trademark damages would considerably differ between different approaches, especially when the difference in prices among different kinds of infringing products is substantial. It would be possible for both trademark owners and infringers to improperly take advantage of the calculation method if courts adopt the average unit retail price approach. The present decision by the Supreme Court basically clarifies the dispute but provides little guidance on how the court should determine the size of the multiplier when the separate unit retail prices approach is applied. Besides, how to simultaneously apply Article 71(1)(iii) and Article 71(2) is still unclear, since both provisions give judges discretion to evaluate caserelevant factors. From a trademark owner’s perspective, admittedly the seriousness of the infringer’s conduct, the extent of the loss suffered by the trademark owner, the duration of infringement, the quantity of infringing goods found, the estimated number of the infringing goods sold by the infringing party, and other case-relevant factors should be comprehensively taken into account, either under Article 71(1)(iii) or Article 71(2), in determining the damages calculated by the unit retail price method.

22 Some scholars share the same opinion; see Ming-Yan Shieh, supra note 22, at 202–03 (2009); I-Ping Wang, supra note 16, at 386.

33 Measure of damages for infringement in Malaysia Lost profits (~profit margin) times loss of sales Ainee Adam

Case information: Federal Court, Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2011] 3 CLJ 837 Civil Appeal No: 02–44–2009(J), 9 February 2011

Summary The respondent was found liable in an action for infringement and passing off of the appellant’s/claimant’s registered trademark “HAITOP” for items including travel and hand luggage, school bags and purses. Accordingly, the claimant was awarded with an order for damages. First assessed by the Senior Assistant Registrar to the High Court,1 the claimant was awarded with a sum representing its loss of sales. The respondent subsequently appealed to the High Court against this sum and submitted that the quantum of damages should be based on loss of net profit and not loss of sales. The High Court (and later affirmed by the Court of Appeal) accepted the respondent’s submission and determined that damages should be limited to loss of net profit. The claimant was also awarded with damages for loss of goodwill at this stage. Dissatisfied, both the claimant and the respondent appealed to the Federal Court,2 which led to the present case. Two questions were posed: (1) whether the correct principle of law to be applied when assessing damages in a trademark infringement and passing off case was to assess the “loss of sales” of the successful claimant and not by way of using the accounting formula of “net profit after deducting tax and charging overheads”, or in other words, “loss of net profit”;

1 Section 10 of the Courts of Judicature Act 1964 (Malaysia) provides that a “ Senior Assistant Registrar has the same jurisdiction, powers and duties as the . . . Clerks of Criminal Courts, Registrars, and like officers in the Supreme Court of Judicature in England and, in addition, such further jurisdiction, powers, and duties as may be prescribed by rules of court.” 2 The Superior Courts in Malaysia consist of the High Courts, Court of Appeal and the Federal Court (representing the apex court in Malaysia). See Ahmad Ibrahim and Ahilemah Joned, The Malaysian Legal System (2nd Ed, Dewan Bahasa dan Pustaka, Malaysia 1995) 229–238.

382  Ainee Adam and (2) whether the damages for loss of goodwill and reputation should be given a fair and temperate sum or merely a nominal sum due to the claimant’s omission to pursue the claim seriously.

Legal context Sections 38 and 39 of the Trade Marks Act 1976 (Malaysia)3 (“the 1976 Act”), the governing Act for the statutory protection of trademarks in Malaysia, provides for circumstances in which a registered trademark is deemed to have been infringed. While these provisions allow trademark owners to institute an action against the alleged infringer, the 1976 Act is silent on the pecuniary remedies that may be awarded to the successful claimant in the event of an infringement. Therefore, recourse to case laws is necessary in order to shed light on the available pecuniary remedies. The courts in Malaysia have generally recognised two mutually exclusive pecuniary remedies in an infringement action: (1) an account of profits; and (2) damages.4 Despite previously holding that the courts have the sole discretion to grant either remedy based on evidence adduced at the trial,5 a review of the recent reported cases shows that the courts are increasingly amenable to giving the claimant the option to elect the remedy.6 Another point worth noting on trademark infringement in Malaysia is that the 1976 Act does not provide protection to unregistered trademark, following which it would not be possible to file an action to prevent or to recover damages from the infringement of unregistered trademark.7 Nevertheless, the claimant is not precluded from instituting an action to recover damages resulting from passing off,8 following which the courts have traditionally allowed the claimant to recover damages or an account of profits arising from the infringement of unregistered trademarks and/or passing off.

3 The Act came into operation on 1 September 1983. 4 Tien Chu Ve-Tsin Chemical Industries (HK) Ltd v Maui-Kong Ve-Tsin Manufacturing (Malaysia) Co Ltd [1967] 1 MLJ 128 (High Court); Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2011] 3 CLJ 837, 845. Cf s. 31(3) of the Trade Marks Act (Chapter 332, Rev Ed 2005) (Singapore) which allows the Court to make an order for an account of profits in addition to an award of damages in circumstances if the profits attributable to the infringement were not taken into account in computing the damages. Note, however, that in all other circumstances, account of profits and damages are mutually exclusive. See s. 31(4) of the Trade Marks Act (Chapter 332, Rev Ed 2005) (Singapore). 5 Tien Chu Ve-Tsin Chemical Industries (HK) Ltd v Maui-Kong Ve-Tsin Manufacturing (Malaysia) Co Ltd [1967] 1 MLJ 128 (High Court). 6 See for example Goodway Retread Sdn Bhd v Goodway Rubber Industries Sdn Bhd [2017] 1 LNS 894 and DJ Auto Components Manufacturing Sdn Bhd v FBK Systems Sdn Bhd [2016] 8 CLJ 650 and Angel Candies Sdn Bhd v Loo Yan Wah & Ors [2015] 5 CLJ 364. 7 See Trade Marks Act 1976 s 82(1). 8 See Trade Marks Act 1976 s 82(2). See also SV Beverages Holdings Sdn Bhd & 3 Ors v Kickapoo (Malaysia) Sdn Bhd [2017] 1 LNS 894 (Court of Appeal).

Measure of damages for infringement in Malaysia 383 While there is a wealth of reported cases on the finding of liability for trademark infringement and/or passing off followed by an order granting an award of damages or an account of profits,9 to-date, there are few reported cases on the actual assessment of damages and an account of profits. This is likely because the quantum of pecuniary remedies is commonly assessed by the Senior Assistant Registrar to the High Court in chambers and are, therefore, unreported.10 Based on the limited cases available, it can be discerned that the courts recognise that “the general object of an award of damages is to compensate the plaintiff for the losses, pecuniary and non-pecuniary, sustained as a result of the defendant’s tort.”11 Following from this, echoing the principle enumerated in AG Spalding Bros v AW Gamage, Ltd,12 a leading decision of the House of Lords on the tort of passing off, the courts iterated that damages should be limited to all loss actually sustained by plaintiffs which was the natural and direct consequence of the unlawful act of defendants including any loss of trade actually suffered by plaintiffs either directly from the acts complained of or properly attributable to injury to plaintiffs’ reputation, business, goodwill and trade and business connection caused by the acts complained of. This principle was strictly applied in the current case, Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors,13 as the Federal Court drew a distinction between loss of sales, loss of net profit and loss of business profit in describing the loss actually sustained by the claimant which was the natural and direct consequence of the respondent’s infringement. This distinction will be examined in detail in a later part of this case report. In relation to damages from loss of goodwill resulting from the tort of passing off, the courts have generally adopted the approach taken by Goddard LJ in

  9 See for example Doretti Resources Sdn Bhd v Fitters Marketing Sdn Bhd & Ors and Another Case [2017] 1 LNS 738; Chanel v Melwani2 International Sdn Bhd & Ors and Another Case [2017] 6 CLJ 567; Portcullis Trustnet (Singapore) Pte Ltd v George Pathmanathan Michael Gandhi Nathan & Ors [2017] 1 LNS 182; Yong Sze Fun & Anor (t/a Perindustrian Makanan & Minuman Layang-Layang) v Syarikat Zamani Hj Tamin Sdn Bhd & Anor [2012] 1 MLJ 585. 10 See for example Doretti Resources Sdn Bhd v Fitters Marketing Sdn Bhd & Ors and Another Case [2017] 1 LNS 738; Chanel v Melwani2 International Sdn Bhd & Ors and Another Case [2017] 6 CLJ 567; Portcullis Trustnet (Singapore) Pte Ltd v George Pathmanathan Michael Gandhi Nathan & Ors [2017] 1 LNS 182; Colliers International Property Consultants Inc v Colliers International Property Consultants Sdn Bhd [2015] 1 LNS 252; Syarikat Wing Heong Meat Product Sdn Bhd v Wing Heong Food Industries Sdn Bhd & Ors [2010] 7 MLJ 504; Compagnie Generale Des Eaux v Compagnie Generale Des Eaux Sdn Bhd [1996] 2 BLJ 519. 11 John Frederic Clerk et al., Clerk & Lindsell on Torts (16th Ed, Sweet &Maxwell, 1989) 254 quoted in Wembley Gypsum Products Sdn Bhd v MST Industrial Systems Sdn Bhd [2007] 6 CLJ 228, 243 (Court of Appeal). 12 (1918) 35 RPC 101. 13 [2011] 3 CLJ 837.

384  Ainee Adam Draper v Trist and Others14 by holding that the claimant is not required to prove actual damage.15 It is common knowledge that “it is impossible in business to put upon the market large quantities of deceptive goods without doing, at any rate, some damage.”16 Therefore, the claimant would still be entitled to damages albeit a lower sum even if the defendant is to show that the claimant has suffered little or no damage.17 This is because [i]n passing off cases. . . [t]he law assumes, or presumes, that if the goodwill of a man’s business has been interfered with by the passing-off of goods, damage results therefrom. He need not wait to show that damage has resulted. He can bring his action as soon as he can prove the passing off, because it is one of the class of cases in which the law presumes that the plaintiff has suffered damage.18 The case studied herein demonstrates the various methods of assessment of damages in identifying the actual loss suffered by the claimant as a result of the respondent’s unlawful acts.

Facts The claimant is the registered owner of a trademark “HAITOP” for items including travel and hand luggage, school bags, and purses whereas the respondent is a partnership involved in the buying and selling of bags of various types. In an action for prohibitory and mandatory injunctions as well as damages, the claimant alleged that the respondent had, without its consent, sold and/or offered to sell bags of various types under a trademark “HIGERTOP” from a date unknown to it. According to the claimant, the trademark “HIGERTOP” was deceptively or confusingly similar to its trademark. The High Court subsequently found the respondent liable for infringing the claimant’s registered trademark and passing off and ordered for an enquiry to assess the amount of damages to be awarded to the claimant. The assessment was first made by the Senior Assistant Registrar. Agreeing with the claimant’s claim, the Senior Assistant Registrar awarded the claimant damages

14 [1939] 3 All ER 513. 15 See for example Compagnie Generale Des Eaux v Compagnie Generale Des Eaux Sdn Bhd [1996] 2 BLJ 519, 540; Yong Sze Fun & Anor (t/a Perindustrian Makanan & Minuman Layang-Layang) v Syarikat Zamani Hj Tamin Sdn Bhd & Anor [2012] 1 MLJ 585, 676 (Court of Appeal). See also the decision by the High Court in Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2004] 6 CLJ 531, 535 and later affirmed by the Court of Appeal in Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2010] 6 CLJ 51, 62. 16 Draper v Trist and Others [1939] 3 All ER 513, 520 (Sir Wilfrid Greene MR). 17 Tee Yih Jia Food Manufacturing Pte Ltd v Seet Chuan Seng & Anor [1993] MLJU 513 (which was later confirmed by the Supreme Court in Seet Chuan Seng & Anor v Tee Yih Jia Food Manufacturing Pte Ltd [1994] 2 MLJ 770). 18 Draper v Trist and Others [1939] 3 All ER 513, 527 (Goddard LJ).

Measure of damages for infringement in Malaysia 385 equivalent to the loss of sales of the HAITOP brand for the years 1995 and 1996. This amounted to the figures of RM1,139,655.14 and RM1,014,771.65 respectively. The respondent then appealed to the High Court against this decision. It claimed that the Senior Assistant Registrar had erred by accepting loss of sales (which includes cost of production, expenditures, and income tax) as loss of profit incurred by the claimant. The respondent contended that the amount of damages to be awarded to the claimant should have been the loss of net profit arising from the infringement of the HAITOP brand and passing off. This means that the cost components, all expenditures and income tax must first be deducted before the sum representing net profit is obtained. Therefore, referring to the audited accounts submitted by the claimant, the respondent submitted that the net profits for the years 1995 and 1996 are RM26,432 and RM150,854 respectively. Recognising that the two figures were not exclusively for the brand HAITOP, the respondent suggested the following formula to arrive at the loss of net profit for the brand HAITOP: loss of sales ×percentage of net profit of turnover = loss of net profit As a result, the respondent submitted that the total loss of net profit for the brand HAITOP for the two years (and the damages that should be awarded to the claimant) is RM14,759. The claimant, however, argued that damages should refer to its loss of sales, or in other words, loss resulting from the diversion of customers from its business to the respondent’s business. This is based on the principle of damages, that is, to restore the claimant into the position he would have been without the infringement and passing off. In response to the respondent’s claim that the cost of production and other expenditures should be excluded from the quantum of damages, the claimant argued that cost of production and overhead costs would have occurred with or without the infringement. Following from this, these costs should not be a factor when determining the amount of damages to be awarded. Even if the cost of production is to be deducted from the amount of damages to be awarded, the claimant submitted that the overhead costs and tax should not be deducted because the overhead costs are constant whereas income tax was paid for the company as a whole and could not possibly be attributed to one particular brand. Therefore, it would not be possible to provide an accurate figure representing the net profit for the HAITOP brand exclusively.

Reasoning of the courts 1 Lower courts 1.1  High court Agreeing with the respondent’s contention, the High Court stated that the loss suffered by the claimant should be limited to the loss of net profit for the

386  Ainee Adam HAITOP bags. The computation of the loss should, therefore, be as submitted by the respondent. Additionally, in relation to loss of goodwill, the High Court accepted the claimant’s submission that proof of damage to goodwill is unnecessary. It further identified two factors to be taken into consideration in determining the damage to goodwill as a result of the passing off: (1) the reputation of the brand; and (2) the length of time of the infringement. In assessing the brand’s reputation, the court determined that the claimant was the primary manufacturer of bags in Malaysia and that it had to rehabilitate its HAITOP brand which consequently incurred some additional costs. Also, considering that the claimant suffered loss and damages from the infringement for three years (1995–1997), the High Court awarded a total sum of RM50,000 as damages for loss of goodwill. Dissatisfied with the High Court decision, the claimant appealed to the Court of Appeal.

1.2  The Court of Appeal The Court of Appeal recognised that the claimant and the respondent had each proposed a method for assessing damages. Therefore, the main concern before the court was deciding which of the methods submitted to the court would compensate or put the claimant in the same position as it would have been in if it had not sustained the wrong. Referring to AG Spalding & Bros v A.W Gamage Ltd., the Court of Appeal stated that the respondent is only liable for all the loss actually sustained by the claimant which is the natural and direct consequence of its unlawful acts. Seeing that the object is to compensate the injured party and not to punish the wrongdoer, the injured party is, therefore, not entitled to damages for sales to persons who have not been misled. This, according to the Court of Appeal, would result in the injured party being over-compensated. It rejected the claimant’s argument that the damages should be its loss of sales and stated that loss of sales merely constitute evidence used as a means or tool to ascertain the damages actually sustained by the injured party. It cannot be equated with the damages actually sustained by the injured party. It is unsafe to rely wholly and exclusively on the loss of sales and then conclude that that is the damages sustained by the injured party, particularly where there is other evidence, such as accrued profits, as in this instant appeal, to show that the loss of sales is not the damages which the injured party had actually sustained.19 19 Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2010] 6 CLJ 51, 62 (Court of Appeal).

Measure of damages for infringement in Malaysia 387 Therefore, the Court of Appeal agreed with the High Court decision of adopting the respondent’s method of determining the amount of damages (that is, by equating the loss of net profit as the quantum of damages due) and maintained the quantum of damages awarded to the claimant. In relation to the amount of damages for loss of goodwill, the claimant argued that the amount of RM50,000 awarded by the High Court judge was insufficient considering its established reputation and the length of time of infringement and passing off committed by the respondent. The Court of Appeal, however, stated that the quantum of award was a matter of discretion depending on the facts of the case. As the High Court judge had taken into account the reputation of the brand as well as the length of time of infringement when deciding the quantum, there was no justification to vary the amount of damages for loss of goodwill.

2 The Federal Court Dissatisfied, both parties appealed to the Federal Court wherein it was decided that damages are assessed on the basis of loss of business profit and not loss of sales or loss of net profit. Therefore, the amount of damages to be awarded to the claimant was increased from RM14,759 to RM32,726.70. The sum of RM50,000 which was awarded for the loss of goodwill, however, was maintained.

2.1 The objective of damages for the infringement of IP rights is to restore the claimant to the position he would have been in had the respondent not infringed The Federal Court first sets out the scope of loss claimable by the claimant by stating that the claimant is entitled to ‘such damages as naturally flow from their unlawful act, and that there is no artificial limitation in the case of a passing off action’ (See: AG Spalding & Bros v AW Gamage Ltd [1915] 32 RPC 273 per Lord Parker of Waddington). It cannot also be presumed that the amount of goods sold by the [respondent] under an infringing trade mark would have been sold by the [claimant] if not for the [respondent’s] unlawful use of the trade mark. (See: Leather Cloth v Hirschfeld [1865] LR 1 Eq 299). Speculative and unproven damage are also excluded. (See: United Horseshoe and Nail Company v Steward (LR 13 PD 191); Pneumatic Tyre Company Ltd v Puncture Proof Pneumatic Tyre Company Ltd (16 RPC 209).20 This, according to the Federal Court, is consistent with the objective of damages for the infringement of intellectual property rights, that is, “to restore the

20 Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2011] 3 CLJ 837, 846.

388  Ainee Adam [claimant] to the position he would have been in had the [respondent] not infringed.”21 Consequently, the Federal Court was of the opinion that when the claimant is in competition with the respondent in the business of manufacturing goods, the measure of damages should then be lost profits. Nevertheless, the Federal Court recognised that there are difficulties in determining the damages actually sustained by the claimant. These are primarily attributed to two factors: (1) the absence of any infallible and universally accepted rule in relation to the assessment of damages; and that (2) the method of determining the quantum of damages is dependent on the facts of each case.

2 Measure of damages should be lost profits which equal profit margin multiplied by loss of sales Bearing in mind these two factors, the Federal Court first examined the Senior Assistant Registrar’s decision. It expressed that the approach of equating the claimant’s loss of sales as damages due would result in overcompensation. This is because the respondent would have, then, compensated the claimant for its overhead cost, production cost as well as income tax payable. These costs are not damages that naturally flow from the unlawful act of the respondent. Consequently, it would be incorrect to refer to loss of sales as representing the quantum of damages that the claimant was entitled to. The Federal Court next examined the approach taken by the High Court which was then affirmed by the Court of Appeal. It noted that the High Court’s computation of damages, that is, to equate the claimant’s loss of net profit as the claimant’s actual loss, failed to consider that the claimant’s net profit included sales of products other than the infringed bags. Therefore, the High Court’s method was similarly rejected. Proceeding to its own method of assessment of damages and referring to McGregor on Damages,22 the Federal Court acknowledged that the common claim for damages is for the loss of business profits caused by the diversion of the claimant’s customers to the respondent resulting from that infringement.23 Therefore, it is the claimant who bears the burden of proving the loss actually sustained due to the respondent’s conduct. In assessing the claimant’s loss of business profit, the Federal Court examined the available evidence and noted that neither party revealed their profit margins per bag. It was, however, revealed that the infringing bag was sold at RM32 per unit whereas the original bag was sold at RM40 per unit. Even so, the Federal Court cautioned against assuming the difference of RM8 being the profit made by the claimant had the respondent not infringed. Differences in the qualities of the bags, the economic environment at material times and the cost of production,

21 Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2011] 3 CLJ 837, 846. 22 Harvey McGregor (ed), (Sweet & Maxwell Ltd, 16th Ed, 1997) 1261–1262. 23 Taiping Poly (M) Sdn Bhd v Wong Fook Toh & Ors [2011] 3 CLJ 837, 845.

Measure of damages for infringement in Malaysia 389 according to the Federal Court, would play a role in determining the claimant’s actual profit. Therefore, in calculating the loss of business profit, the Federal Court adopted the following calculation: profit before taxation = profit mar gin turnover profit mar gin × loss of sales = loss of business profit A calculation of the loss of business profit for the years 1995–1997, therefore, amounted to the sum of RM32,726.70.

3 Claimant’s failure to propose a higher sum was a factor to be taken into account when the court exercises its discretion in determining damages for loss of goodwill In examining the claimant’s appeal and the respondent’s cross-appeal on the matter of damages for loss of goodwill, the Federal Court held that the claimant’s failure to propose a higher sum was a factor to be taken into account when the court exercises its discretion in determining the amount of damages to be awarded for loss of goodwill. The sum of RM50,000 awarded by the High Court should therefore be maintained. While the respondent submitted that the claimant’s omission to seek for damages for loss of goodwill should entail only a nominal sum, the Federal Court was of the opinion that the submission was baseless due to the principle that damages for loss of goodwill is presumed.

Legal analysis The analysis here briefly examines the Federal Court’s method of assessment of damages for trademark infringement as well as loss of goodwill.

1 The Federal Court’s approach in calculating the quantum of damages to the claimant is reasonable It should be noted at the outset that there is no hard and fast rule regarding assessment of damages. Furthermore, the method of assessment of damages is highly dependent on the evidence adduced before the court, following which the method varies from case to case. In the instant case, the Federal Court rejected loss of sales as well as loss of net profit as the basis for computing the claimant’s damages. Instead, based on the available evidence, that is, the claimant’s audited account, the Federal Court was able to derive the claimant’s profit margin and subsequently, its business profit (also known as the gross profit). According to the Federal Court, the claimant’s

390  Ainee Adam loss of business profit accurately represents the loss suffered by the claimant that naturally flows from the respondent’s unlawful act. There are two points that can be made from this case. First, the Federal Court’s rejection of loss of sales as well as loss of net profit in assessing damages for trademark infringement has set a binding precedent in Malaysia.24 This is significant in view of the dearth of reported cases involving the actual assessment of damages. Second, although it could not be said that the formula applied by the Federal Court sets a binding precedent for all assessment of damages cases due to the reasons stated earlier, the formula was applied in the subsequent High Court case of Tan Mei Li & Ors v Golden Regal Restaurant Sdn Bhd.25 The judge in that case clearly referred to the Federal Court decision and extracted the plaintiffs’ loss of business profit from the plaintiffs’ Financial Reports consisting of its Annual Reports and Financial Statements. This is notwithstanding the court’s use of the phrase “loss of profit” as opposed to “loss of business profit” in its calculation of damages. It should, however, be noted that the formula applied by the Federal Court is not new. The Court of Appeal in Wembley Gypsum Products Sdn Bhd v Mst Industrial Systems Sdn Bhd26 in 2007 applied similar formula to obtain the quantum of damages due to the plaintiff as a result of trademark infringement. The Court of Appeal in this case, however, merely referred to the formula as one to arrive at the quantum of damages and did not identify it as a method to compute the loss of business profit.27 In view of the available evidence (as provided in the case reports at the High Court, Court of Appeal and Federal Court levels), it is submitted that the Federal Court’s approach in calculating the quantum of damages to be awarded to the claimant is reasonable.

2 The Federal Court was correct in maintaining the quantum of damages for loss of goodwill The facts are silent as to whether damages for loss of goodwill was part of the remedies prayed for by the claimant, as the award for loss of goodwill appeared to have been made only at the appeal stage at the High Court. The question that arises, then, is whether the High Court (and later affirmed by the Court of Appeal and Federal Court) is able to award the claimant with remedy which

24 See Tan Mei Li & Ors v Golden Regal Restaurant Sdn Bhd [2013] 1 LNS 364. Cf damages for passing off in which courts have commonly awarded damages on the basis of loss of sales. See for example Seet Chuan Seng & Anor v Tee Yih Jia Food Manufacturing Pte Ltd [1994] 2 MLJ 770, 782; Electro Cad Australia Pty Ltd & Ors v Mejati RCS Sdn Bhd & Ors [1998] 3 MLJ 422. 25 [2013] 1 LNS 364. 26 [2007] 6 CLJ 228. 27 The Court of Appeal in this case merely agreed with the trial court’s finding without providing further details on the evidence presented before the court.

Measure of damages for infringement in Malaysia 391 was not pleaded for. Order 92 rule 4 of the Rules of Courts Act 2012 (Malaysia) answers this question by clearly providing the High Court with the inherent powers to make any order as may be necessary to prevent injustice. Therefore, there is no issue concerning the award of damages for loss of goodwill itself. Turning now to the quantum of damages, as examined earlier, the claimant is not required to prove actual damage.28 This is particularly so when the goods were in direct competition with one another.29 In fact, in the event that the respondent was able to show that the claimant has suffered little or no damage, the claimant would still be awarded with a nominal sum.30 In this case, the Federal Court was correct in maintaining the quantum of damages for loss of goodwill as the respondent merely depended on the claimant’s omission to seriously pursue the claim in its submission that only a nominal sum should be awarded to the claimant.

Commercial or industrial significance The Federal Court in the present case has drawn a distinction between loss of sales, loss of net profit as well as loss of business profit. This is of particular significance to the industry as it provides specific guidelines in the matter of assessment of damages in trademark infringement cases. With three cases in Malaysia demonstrating the courts’ apparent preference for equating loss of business profit as damages due to the claimant, this could have the effect of creating some measure of expectation and authority for future cases. Trade mark owners, however, should exercise caution and not overtly rely on this formula as the method of assessment is actually dependent on the evidence adduced in court. The existence of other factors, which could influence the accuracy of the assessment of damages based on loss of profits, has the potential of rendering the formula inapplicable. These factors include the possibility that the claimant’s loss of sales is attributable to third-party competitors and not the respondent as well as the possibility that an unknown percentage of the respondent’s customers could have been diverted to the claimant.31

28 See supra note 15. 29 Seet Chuan Seng & Anor v Tee Yih Jia Foods Manufacturing Pte Ltd [1994] 2 MLJ 770 (Supreme Court). 30 Tee Yih Jia Food Manufacturing Pte Ltd v Seet Chuan Seng & Anor [1993] MLJU 513 (which was then confirmed by the Supreme Court in Seet Chuan Seng & Anor v Tee Yih Jia Foods Manufacturing Pte Ltd [1994] 2 MLJ 770); See also Draper v Trist and Another [1939] 3 All ER 513, 528 (Goddard LJ). 31 See for example Kohler Mira Ltd v Bristan Group Ltd [2014] EWHC 1931 (IPEC), in which the Intellectual Property Enterprise Court held that the losses claimed by the claimant were “too speculative and too open to inaccuracy to provide a useful basis for calculating damages [on the loss of profit basis] . . . [despite] approaching the matter on a rough and ready basis”.

34 Damages for trade mark infringement in Singapore Getting what one deserves? Benjamin Tham

Case information: 1 Singapore High Court, Louis Vuitton Malletier v Cuffz (Singapore) Pte Ltd [2015] SGHCR 15 Suit No. 560 of 2014 (HC/AD 9/2015)     Edwin San AR 20 July 2015 2  Singapore High Court, Cordlife Group Ltd v Cryoviva Singapore Pte Ltd [2016] SGHCR 5 Suit No. 91 of 2014 (Assessment of Damages No. 15 of 2015)     Nicholas Poon AR 15 April 2016

Summary This case report covers two recent decisions from the Singapore High Court, namely, Louis Vuitton Malletier v Cuffz (Singapore) Pte Ltd [2015] SGHCR 15 (“Cuffz”) and Cordlife Group Ltd v Cryoviva Singapore Pte Ltd [2016] SGHCR 5 (“Cryoviva”). In both cases, liability for trade mark infringement was no longer an outstanding issue for determination. Hence, the issue was heard by an Assistant Registrar at an assessment of damages hearing. Under the Singapore Trade Marks Act, once liability for trade mark infringement has been established, a successful claimant can choose from a range of pecuniary remedies, namely, traditional damages, an account of profits and statutory damages. In Cuffz, the claimant elected for statutory damages whereas in Cordlife, the claimant elected for traditional damages and also claimed for exemplary damages. This case report will therefore examine the courts’ approaches in relation to the assessment of damages under each respective category of damages. It will also consider the issue of whether exemplary damages could be awarded in relation to trade mark infringements.

Legal context A successful claimant of a trade mark infringement action in Singapore would have a range of pecuniary and non-pecuniary remedies available to him under the Singapore

Damages for trade mark infringement in Singapore 393 Trade Marks Act1 (“TMA”). Non-pecuniary remedies include an order for erasure, removal, or obliteration of an offending sign from any infringing goods, material or articles2, an order for delivery up of infringing goods, material or articles3, an order as to disposal of infringing goods, material or articles,4 and an injunction.5 s31(2) TMA provides for the pecuniary remedies available to a successful claimant, namely, traditional damages6, an account of profits7 and statutory damages.8 s31(4) TMA provides that these three forms of pecuniary remedies are mutually exclusive, i.e., a successful claimant can only elect for one form of pecuniary remedy. As noted by the Singapore Court of Appeal in Kickapoo v The Monarch Beverage9 (“Kickapoo”) at [56], the power to “elect for the remedy of an account of profits instead of claiming damages. . . [are] not at the discretion of the court but are available as of right”. The rationale behind having a mandatory election is to “prevent double recovery since a plaintiff is not permitted to recover more than he has lost”.10 However, should a successful claimant elect for traditional damages, s31(3) TMA provides that the court may nevertheless make an order for an account of any profits attributable to the infringement that have not been taken into account in computing the damages. It should also be noted that the court has the power to grant an injunction pursuant to s31(2)(a) TMA, in terms that it deems fit, in addition to the pecuniary remedy elected for as a discretionary equitable remedy.11 The starting point with regard to damages for trade mark infringement is that such infringements are “made tortious by statute”.12 Therefore, as reaffirmed by the UK Supreme Court in Morris-Garner v One Step (Support) Ltd13 (“MorrisGarner”), the general principle in relation to damages in this regard is that they are compensatory in nature, i.e., “where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation” (Lord Reed in Morris-Garner at [25], citing Lord

  1 Cap 336, 2005 Rev Ed.   2 s32 TMA.   3 s33 TMA.   4 s34 TMA.   5 s31(2)(a) TMA.   6 s31(2)(b) TMA.   7 s31(2)(c) TMA.   8 s31(2)(d) TMA.   9 [2010] 1 SLR 1212. 10 T J Tan, Law of Trade Marks and Passing Off in Singapore (Sweet & Maxwell, 3rd Ed, 2014) at 14.051. 11 Supra note 10 at 14.011. 12 J Edelman, McGregor on Damages (Sweet & Maxwell, 20th Ed, 2017) at 48–034. 13 [2018] UKSC 20.

394  Benjamin Tham Blackburn’s speech in Livingstone v Rawyards Coal)14. This position is similarly adopted in Singapore where the court in Kickapoo endorsed the oft-cited House of Lords decision in General Tire & Rubber v Firestone Tyre & Rubber15 (“General Tire”) and held at [55] that “the main aim is to compensate the plaintiff and not to punish the defendant”. It should be noted that even though General Tire dealt with a patent infringement case, the general principles laid down in relation to damages are equally applicable to trade mark infringement cases.16 In relation to the valuing or assessment of the damages which the successful claimant is entitled to, Lord Wilberforce in General Tire laid down two essential principles: “first, that the plaintiffs have the burden of proving their loss: second, that, the defendants being wrongdoers, damages should be liberally assessed but that the object is to compensate the plaintiffs and not punish the defendants”.17 Therefore, once an infringement is established, the successful claimant is entitled to at least nominal damages.18 However, to be entitled to substantial damages, the burden of proof is on the successful claimant to show “what loss they have actually sustained by reason of the defendant’s conduct” and courts will not presume “in the absence of evidence, that the amount of goods sold by the defendant under an infringing trade mark would, but for the defendant’s unlawful use of the claimant’s mark, have been sold by the claimant.”19 Statutory damages was introduced via the 2004 amendments to the TMA20 and it is clearly aimed principally at providing trade mark [proprietors] with a more effective form of redress [because the] traditional process of assessing damages in IP infringement cases is too cumbersome and expensive in many cases to provide a meaningful remedy against counterfeiters and pirates who will rarely, if ever, follow the detailed procedures for the submission and exchange of evidence that that process requires.21 s31(5) TMA provides that statutory damages are only applicable “where the infringement involves the use of a counterfeit trade mark”22 and s3(6) TMA defines a sign as a “counterfeit trade mark” if the sign

14 (1880) 5 App Cas 25. 15 [1975] 1 WLR 819. 16 See Kickapoo at [55] and Blayney v Clogau St Davids Gold Mines [2002] EWCA Civ 1007 at [11]. 17 Supra note 15 at 824E. 18 J Miller et al., Kerly’s Law of Trade Marks and Trade Names (Sweet & Maxwell, 16th Ed, 2018) at 22–146. 19 Supra note 18 at 22–149. 20 S Leong, Intellectual Property Law of Singapore (Academy Publishing, 2013) at 29.150. 21 D Llewelyn, “Statutory Damages for Use of a ‘Counterfeit Trade Mark’ and for Copyright Infringement in Singapore” (2016) 28 SAcLJ 61 at [3]. 22 Supra note 10 at 14.053.

Damages for trade mark infringement in Singapore 395 (a) is identical with or so nearly resembling the registered trade mark as to be calculated to deceive; and (b) is applied to goods and services (i) without the express or implied consent (conditional or otherwise) of the proprietor of the registered trade mark; and (ii) to falsely represent the goods or services to be the genuine goods or actual services of the proprietor or a licensee of the registered trade mark. The court has the power to grant statutory damages “not exceeding $100,000 for each type of goods or service in relation to which the counterfeit trade mark has been used; and not exceeding in the aggregate $1 million, unless the plaintiff proves that his actual loss from such infringement exceeds $1 million”.23 When awarding statutory damages, s31(6) TMA provides a list of factors that the court shall have regard to, namely, the flagrancy of the infringement of the registered trade mark,24 any loss that the plaintiff has suffered or is likely to suffer by reason of the infringement,25 any benefit shown to have accrued to the defendant by reason of the infringement,26 the need to deter other similar instances of infringement27 and all other relevant matters.28 Even though Cuffz and Cyroviva are decisions from Assistant Registrars, it is submitted that they are nevertheless instructive in relation to how the courts may approach the issue of assessing damages arising from trade mark infringements because there is relatively little case law in this area. As stated by the Court of Appeal in Lee Chee Wei v Tan Hor Peow Victor29: “As a matter of procedural propriety, any of the parties could have applied prior to the trial for a bifurcation of the hearing on liability and damages pursuant to O 33 r 2 Rules of Court. . . . Such an application will inevitably succeed if the circumstances render it just and convenient to so order”. Therefore, it is not uncommon in Singapore for parties to bifurcate actions for trade mark infringement such that the trial on liability takes place before the quantum of damages is dealt with separately at a later assessment. This allows parties to save both time and costs because a failure by the claimant to succeed on liability would clearly render the need to adduce evidence on damages unnecessary. If and when the claimant succeeds at the liability stage, parties would usually negotiate for a settlement as this is generally more economical for parties as compared to the costs that may be incurred for an assessment of damages. Further, an injunction to prohibit further infringing acts is generally “the most important remedy . . . rather than the often expensive and protracted process of obtaining an award of damages that then has to be enforced”.30

23 s31(5)(c) TMA. 24 s31(6)(a) TMA. 25 s31(6)(b) TMA. 26 s31(6)(c) TMA. 27 s31(6)(d) TMA. 28 s31(6)(e) TMA. 29 [2007] 3 SLR(R) 537 at [64]. 30 D Llewelyn, “Assessment of Damage in Intellectual Property Cases” (2015) 27 SAcLJ 480 at [4].

396  Benjamin Tham

Facts 1 Cuffz The claimant is the owner of the Louis Vuitton brand whereas the defendant operated a shop in a shopping mall selling fashion accessories that included wallets.31 The trade mark in question was a mark that is “characterised by interleaving ridges being of a darker shade and the valleys of a lighter shade, thus giving it an immediately recognisable two-tone effect”, which is applied to Louis Vuitton’s Epi range of products (“the Epi Mark”). Following investigations conducted by the claimant where one wallet was purchased, the Intellectual Property Rights Branch of the Singapore Police Force raided the defendant’s shop and seized two more wallets, “both bearing a mark identical or similar to the Epi Mark”32 (“the Wallets”). The claimant commenced an action against the defendant and applied for summary judgment. The court held that the defendant had infringed the claimant’s Epi Mark under s27(1) TMA “by using in the course of trade a sign which is identical with the Epi Mark (“the Infringing Sign”) in relation to goods which are identical with those for which it is registered” and that the defendant’s Infringing Sign fell within the definition of a counterfeit trade mark by virtue of s3(6) TMA, “thereby entitling the plaintiff to claim statutory damages”.33 The court ordered, inter alia, for an assessment of sums payable by the defendant to the claimant pursuant to ss31(2)(b)–(c) and s31(5) TMA upon the claimant’s election.34 At the assessment of damages hearing, the claimant elected for statutory damages and sought the maximum amount of $100,000 permissible under s31(5)(c) TMA.35 It should be noted that the defendant failed to appear at both hearings for summary judgment and assessment of damages.

2 Cryoviva The claimant is the operator of a private cord blood bank in Singapore whereas the defendant was a company “with the intention of entering the private cord blood banking business in Singapore”36 at the material time. The defendant engaged a third party to design and create websites in preparation for its launch.37 Specifically in relation to the trade mark infringement allegations, the claimant alleged that one of the websites had “infringed the Plaintiff’s registered trade marks which bore its name, ‘Cordlife’ ”.38 31 Cuffz at [1]–[2]. 32 Cuffz at [4]. 33 Cuffz at [6]. 34 Cuffz at [7]. 35 Cuffz at [9]. 36 Cryoviva at [3]. 37 Cryoviva at [4]. 38 Cryoviva at [6].

Damages for trade mark infringement in Singapore 397 Parties then settled the dispute on liability and a consent order was entered into, which provided, inter alia, that the defendant shall pay the claimant damages for trade mark infringement and the extent of the infringement of the claimant’s trade mark and the quantum of damages payable shall be assessed by the court in the absence of parties’ agreement.39 Parties subsequently failed to agree on the extent of infringement and quantum of damages and the claimant then filed a claim for assessment of traditional damages, seeking, inter alia, the following40: (a) General damages: For “loss of profit amounting to $330,471 and loss of business reputation and goodwill amounting to at least $100,000”. (b) Special damages: For costs incurred to “investigate the defendant’s infringements amounting to $12,904.63”. (c) Exemplary damages: For the “flagrancy of the infringements” in addition to the defendant’s “conduct in pursuing the infringements” meriting a further award of at least $100,000.

Reasoning of the courts 1 Cuffz Having had regard to the speeches by the then Minister of Law, Professor S Jayakumar, during the parliamentary debates regarding the introduction of a statutory damages regime under the TMA and the Singapore Copyright Act, the court noted that the rationale is “to allow the proprietor of a trade mark or copyright owner to recover compensation in cases where actual losses arising from the infringement may be difficult to prove or an account of profits equally difficult to obtain” and “the remedy of statutory damages is an alternative option to the traditional reliefs of damages or an account of profits, and is intended to enable trade mark and copyright owners to obtain compensation notwithstanding evidential difficulties”.41 The court then proceeded to lay down principles behind the assessment of statutory damages, namely42: a

Even though the successful claimant “is relieved of his burden to prove his loss on a balance of probabilities as he would have had to do in the usual case”, he “will still have to adduce relevant evidence so as to establish an evidential foundation upon which the [court] can then assess the stipulated guiding factors in order to arrive at the quantum”.

39 Cryoviva at [8]. 40 Cryoviva at [10]. 41 Cuffz at [16]. 42 Cuffz at [17].

398  Benjamin Tham b

c

The court has a wide discretion hereunder and even though the quantum awarded “cannot be arrived at with mathematical precision or exactitude”, it “will reflect the amount which the [court] feels is appropriate and proportional to compensate the proprietor of the trade mark having regard to the stipulated guiding factors and the overall circumstances of the case”. In relation to the guiding factors under s31(6) TMA, “no one particular guiding factor is inherently more important than another, and the [court] will accord the necessary weight to each guiding factor depending on the evidence adduced”.

The court then proceeded to assess each guiding factor under s31(6) TMA. First, flagrancy of infringement under s31(6)(a) TMA. The court held that “the greater the quantity of infringing items, the more flagrant the infringement”.43 In this regard, the court will not draw inferences and make assumptions as the claimant’s submission that “it would not have made commercial sense for the defendant to have manufactured and sold only 3 [Wallets] [and that] the defendant must have sold at least 100 to 150 [Wallets] in Singapore and would have stocked approximately 100 to 250 of such [Wallets]”44 was rejected. The court held that other factors were also relevant, such as, “the profile of the infringer as well as the nature and purpose of the infringer”.45 In particular, the court held that it was an aggravating factor that the defendant had “its own distinctive brand logo”, which was “affixed on the bottom right hand corner of each of the [Wallets], leading to “the inference that the Defendant was not merely a seller or distributor of the [Wallets] but a manufacturer of the same”.46 The court therefore concluded that the defendant’s infringing act was flagrant. Second, loss suffered or likely to be suffered under s31(6)(b) TMA. The court rejected the claimant’s application of the hypothetical licence model as provided for under 32Red v WHG47 as the claimant was unable to prove how many Wallets the defendant could have sold, the claimant had “never granted a licence for the distribution of its products” and there was no evidence “available from the defendant as regards how it would have negotiated such a licence with the plaintiff”.48 Nevertheless, the court held that for the purposes of s31(6)(b) TMA, the court “can have regard to the damage or potential damage to the plaintiff ’s goodwill and reputation caused by the defendant’s infringement”.49 In this regard, the court considered the estimated brand value of Louis Vuitton in 2014, the claimant’s investment in advertising

43 Cuffz at [19]. 44 Cuffz at [20]. 45 Cuffz at [23]. 46 Cuffz at [24]. 47 [2013] EWHC 815 (Ch). 48 Cuffz at [28]. 49 Cuffz at [29].

Damages for trade mark infringement in Singapore 399 its Epi line and the total number of Epi line products and sales revenue figure from 2010 to 2014.50 Third, benefit accrued to the defendant under s31(6)(c) TMA. The court held that this comprised of the defendant’s “free-riding on resources spent by the plaintiff on designing and marketing the Epi Mark” which the defendant “sought to enhance its own commercial reputation and profile and gain brand prestige without investing its own corresponding resources” via the infringing act.51 Fourth, the need to deter other similar infringement under s31(6)(d) TMA. The court took into account the claimant’s “reputation as a leading global luxury company” and that the Epi Mark was “one of its top 5 brands and has been infringed in numerous jurisdictions” and concluded that “the need to deter other similar infringement is highly imperative”.52 Lastly, other relevant matters under s31(6)(e) TMA. The court considered the defendant’s “evasive and uncooperative conduct”53 during the litigation “as demonstrating a lack of respect”54 for the claimant’s rights under the Epi Mark and the legal process. In conclusion, the court awarded $35,000 after “having regard to the guiding factors set out under [s31(6) TMA] as well as the principle of proportionality”.55

2 Cordlife The issues before the court’s consideration were, inter alia, namely56: a

Whether the claimant has managed to prove its losses and whether there was a causal link between the losses and the trade mark infringement b Whether the trade mark infringement warrants an award of exemplary damages

The court first considered whether there was proof of the losses claimed. The court held that unlike under the statutory damages regime, successful claimants will be “put to strict proof of its actual losses”.57 In relation to the alleged loss of business reputation, the court held that this head of loss was not proven. There was insufficient evidence adduced showing that there was a disparity in quality between the parties’ products and services and how this “translates to $100,000 in business reputation and goodwill”.58

50 Cuffz at [30]. 51 Cuffz at [33]. 52 Cuffz at [35]. 53 Cuffz at [37]. 54 Cuffz at [38]. 55 Cuffz at [47]. 56 Cryoviva at [14]. 57 Cryoviva at [22]. 58 Cryoviva at [18].

400  Benjamin Tham Further, mere affidavit evidence that one’s reputation was adversely affected and potential customers were lost due to the infringing act, without more, was held to be insufficient. In relation to the loss of profit, the court disagreed with the claimant’s computation and held that the claimant’s claim hereunder amounts to $110,041 only. With regard to the costs of investigation arising from having seven of the claimant’s employees investigating the infringements instead of carrying out their usual tasks, the court allowed the claim as it was satisfied with “how the claimed sum was derived”.59 Next, the court held that “the standard tort rules on causation and remoteness apply to . . . statutory tort claims such as copyright and trade mark infringements”60 and considered whether the defendant’s infringement had caused the claimant to suffer the loss of profit. In particular, the claimant must prove that the harm incurred is attributable to the defendant’s infringing act and not from “mere lawful competition”.61 On the facts, even though the claimant showed evidence that it had suffered a drop in the number of customers and concomitantly a loss of profit, the court held that this was not attributable to the infringing act. Despite finding that “a reasonable customer would find the references to the Plaintiff’s name peculiar, perhaps even confusing”, the court held that a customer would not “proceed to make the assumption that the Defendant is an associate of the Plaintiff”.62 The court took particular regard of the nature of the service, i.e., cord blood storage, and concluded that customers would carry out some checks as regards the defendant’s background since the service rendered is one that is “relatively expensive, extremely personal, with long-term implications” and “[i]t is therefore difficult to imagine that any responsible parent would be swayed into signing up for the Defendant’s service merely by the ambiguous references to the Plaintiff’s name in the Defendant’s [website]”.63 Since the claimant had not “shown on a balance of probabilities that the [trade mark infringement was] the effective cause of their loss of profit as opposed to, for example, mere lawful competition”,64 nominal damages of $1,000 was awarded. Lastly, the court considered whether exemplary damages may be awarded for trade mark infringements. Citing English academic authorities, the court noted that leading intellectual property rights and torts treatises now suggest that the court has the discretionary power at common law to award exemplary damages in cases involving infringements of statutory intellectual property

59 Cryoviva at [27]. 60 Cryoviva at [41]. 61 Cryoviva at [49]. 62 Cryoviva at [57]. 63 Ibid. 64 Cryoviva at [73].

Damages for trade mark infringement in Singapore 401 rights . . . as long as the case falls within one of the three restricted categories set out in [Rookes v Barnard65 (“Rookes”)]. Nevertheless, the court refused to award exemplary damages for the trade mark infringement as it found that the categories under Rookes did not apply to the factual matrix.

Legal analysis 1 Cuffz 1.1  “Counterfeit trade mark” under s3(6) TMA It is doubtful whether there was even a “counterfeit trade mark” as defined under s3(6) TMA for the statutory damages regime to be engaged. The defendant’s Wallets not only bore the Epi Mark but also the defendant’s own composite mark, “which was affixed on the bottom right hand corner of each of the [Wallets]”.66 It is difficult to see how, when the defendant’s own composite mark was held to be a “distinctive brand logo”,67 the high evidentiary threshold under s3(6) TMA was met. In this regard, there is academic criticism not only doubting whether there was use such as ‘to falsely represent the goods or services to be the genuine goods or actual services of the proprietor or a licensee of the registered trade mark’, as required by the definition of ‘counterfeit trade mark’ in s3(6)(b)(ii)” but also whether there was indeed use by the defendant “of a sign identical to the [Epi Mark] falling within s27(1) of the TMA.68 (emphasis in original)

1.2  Evidential basis for compensation required It is submitted that the court was right to have dismissed the claimant’s submission, that the court ought to have drawn “the inference that the defendant must have sold at least 100 to 150 [Wallets] and would have stocked approximately 100 to 250 [Wallets]”69 despite having only managed to obtain three Wallets during the course of its own and the police’s investigations, as “clearly too speculative”.70 The rationale of the statutory damages regime was to assist claimants who may find it “difficult to prove actual losses or obtain an account of profits”, and ultimately, “the court will assess the quantum of statutory damages

65 [1964] AC 1129. 66 Cuffz at [24] 67 Cuffz at [24]. 68 Supra note 21 at [41]. 69 Cuffz at [20]. 70 Cuffz at [21].

402  Benjamin Tham on compensatory principles”71 (emphasis in original). Even though a successful claimant need not satisfy the burden of proof as required under an assessment of traditional damages or account of profits under the statutory damages regime,72 “it could not have been the intention of the legislature to allow the election of statutory damages to be a back-door avenue for plaintiffs to obtain potentially disproportionate amounts of damages, and without having to adduce any evidence of loss whatsoever”.73 Therefore, courts will not (and ought not to) assist claimants, who are unwilling or unable to carry out detailed investigations evidencing, for example, the number of infringing products sold and/or kept in stock, on the basis of speculative evidence to assess the benefit accrued to the defendant (s31(6)(c) TMA) and/or the loss suffered or likely to be suffered by the successful claimant (s31(6)(b) TMA). The burden of proof lies on a claimant claiming statutory damages to show the court an evidential basis as regards how it ought to be compensated.

1.3  Hypothetical licence model/user damages It is submitted that the court should not have rejected the application of the hypothetical licence model to ascertain the claimant’s losses on the grounds that the claimant had “never granted a licence for the distribution of its products to any person or entity in the world” and even if they did, there was no evidence “available from the defendant as regards to how it would have negotiated such a licence with the plaintiff”.74 Any doubt over the application of a hypothetical licence model, also known as “user principle damages”75 or user damages, in relation to trade mark infringements76 is now clarified with the decision in MorrisGarner. Lord Reed, delivering the leading judgment, made it clear that “[d] amages assessed by reference to the value of the use wrongfully made of property (sometimes termed “user damages”) are readily awarded at common law for the invasion of rights to tangible moveable or immoveable property (by detinue, conversion or trespass) [and damages] are also available on a similar basis for patent infringement and breaches of other intellectual property rights”.77 This point is similarly recognised by the Singapore Court of Appeal in the recent decision of Turf City v Auto Emporium v Yeo Boong Hua (“Turf City”).78

71 Cuffz at [13], citing the then-Minister of Law, Professor S Jayakumar’s speech at the second reading of the Trade Mark (Amendment) Bill 2004 72 Cuffz at [17] 73 Converse Inc v Ramesh Ramchandani [2014] SGHCR 11 at [25]. 74 Cuffz at [28] 75 32Red v WHG (International) [2013] EWHC 815 (Ch), which was cited by the court in Cuffz at [27]–[28]. 76 Reed Executive v Reed Business Information [2004] RPC 40. 77 Supra note 13 at [95(1)]–[95(2)]. 78 [2018] SGCA 44. It is unclear, however, whether the three legal requirements laid down in Turf City in determining whether Wrotham Park damages can be awarded may be extended to determining user damages in a trade mark infringement context. If so, it is submitted that

Damages for trade mark infringement in Singapore 403 Guidance on how such damages can be assessed can be found in Lord Wilberforce’s third category of assessing damages, “which is an application of the user principle”,79 in General Tire.80 First, “it is for the plaintiff to adduce evidence which will guide the court”.81 Second, “evidence may consist of the practice, as regards royalty, in the relevant trade or in analogous trades; perhaps of expert opinion expressed in publications or in the witness box; possibility of the profitability of the invention; and of any other factor on which the judge can decide the measure of loss”.82 Third, even though “evidence of this kind is in its nature general and also probably hypothetical . . . there is no rule of law which prevents the court, even when it has evidence of licensing practice, from taking these more general considerations into account. The ultimate process is one of judicial estimation of the available indications”.83 Therefore, neither the fact that a trade mark “would not have been hired out by its owner”84 nor the absence of any evidence as regards how the claimant would have negotiated a hypothetical licence with the defendant should bar an application of user damages to show the loss suffered or likely to be suffered under s31(6)(b) TMA. The court was, however, right to reject the application of user damages to ascertain the claimant’s loss of profits as the claimant was unable to show the number of Wallets the defendant had sold or could have sold in Singapore, i.e., the number of infringing units, save for the 3 Wallets obtained during investigations. As Fletcher Moulton LJ in Meters Ltd v Metropolitan Gas Meters85 observed in situations “where there is no pattern of granting licences and no going royalty rate”86 (in the context of a patent infringement): [T]he patentee grants permission to make the infringing article at a fixed price – in other words, where he grants licences at a certain figure. Every one of the infringing articles might then have been rendered a non-infringing

the third requirement, i.e. the hypothetical bargain between parties must not be irrational or incredible, may pose an impediment to claimants such as Louis Vuitton in Cuffz, i.e. it is highly unlikely that an agreement would have been entered into between the claimant and defendant. That said, it is apposite to heed the Court of Appeal’s caution that there is a “crucial distinction between a case where the parties would have been unwilling to enter into an agreement. . . (whether reasonably or otherwise) and a situation where such an agreement would have been simply irrational or totally unrealistic, on the particular circumstances, even on a hypothetical basis” (see [236] of Turf City). If the latter scenario does apply, assuming that the legal requirements would be extended as aforesaid, user damages would be unavailable and a claimant may have to resort to restitution or face possible nominal damages. 79 Supra note 75 at [24]. 80 Cited by Lord Sumption in Morris-Garner. 81 Supra note 15 at 826B. 82 Supra note 15 at 826B-C. 83 Supra note 15 at 826C-D. 84 Supra note 12 at 48–051, citing National Guild of Removers v Jones [2011] EWPCC 4. 85 (1911) 28 RPC 157, cited by Lord Wilberforce in General Tire and Lord Sumption in Morris-Garner. 86 Supra note 13 at [117].

404  Benjamin Tham article by applying for and getting that permission. The court then takes the number of infringing articles, and multiplies that by the sum that would have had to be paid in order to make the manufacture of that article lawful, and that is the measure of the damages that has been done by the infringement . . . Indeed, I think that in many cases that would be the safest and best way to arrive at a sound conclusion as to the proper figure. (emphasis added) As pointed out earlier, the onus is on the claimant to adduce evidence to assist the court. Such evidence, it is submitted, should at the very least consist of the number of infringing units for an application of user damages. Having rejected the application of a hypothetical licence model to ascertain the claimant’s loss of profits and the claimant’s (groundless) estimation of the number of infringing goods sold and stocked by the defendant, there is a dearth of evidence for the assessment of statutory damages for trade mark infringement. Hence, it is unclear how the court reached the figure of $35,000 to be awarded as statutory damages. Bearing in mind that case law proffering guidance on the assessment of statutory damages will be few and far between, it has been suggested that “serious consideration should be given to the possibility of adding to the [TMA] something on the lines of the tariff for common types of infringement that was contained in the [US Copyright Act of 1909].”87

2 Cryoviva 2.1  Causal link between infringement and loss suffered The court was correct to hold that a claimant’s right to claim damages for his losses depends on whether or not the claimant is able to satisfy the court, on a balance of probabilities, that the claimant’s losses flow from the defendant’s infringements.88 Having regard to the nature of the claimant’s services only, the court held that there was no causal link between the defendant’s infringement and the claimant’s loss of profits on the basis that a customer would not “proceed to make the assumption that the Defendant is an associate of the Plaintiff”.89 Therefore, only nominal damages of $1,000 was awarded. It is, however, submitted that the court’s conclusion on an absence of causation is puzzling. When assessing damages for loss of profits on a compensatory basis, the role of the court is “to determine what proportion of the defendant’s customers have been confused (as opposed to assessment on a user basis)”.90 Even though it is not clear what evidence parties have adduced to support/ negate a finding of causation (if any to begin with), to conclude that there will be no causal link simply by drawing inferences with reference to the nature of the claimant’s services, without more, implies that no customers would be misled 87 Supra note 21 at [55]. 88 Cryoviva at [41]. 89 Cryoviva at [57]. 90 Supra note 18 at 22–152.

Damages for trade mark infringement in Singapore 405 whatsoever. This not only suggests that perhaps businesses offering such niche medical services should, in future, not register their marks since any likelihood of confusion consequential of an infringing act will unlikely cause damage, it also suggests that the general position, which is trite law, that “all facts in issue and all relevant facts must be substantiated by evidenced and proved”91 may be departed from without much difficulty.

2.2  Exemplary damages In light of subsequent decisions, it is unclear whether or not exemplary damages have a role to play in trade mark infringement cases. The starting point in this analysis is that exemplary damages is not a remedy that can be elected for by a successful claimant in a trade mark infringement action and therefore, the relevant inquiry is whether the court has a discretion to grant such a remedy at common law. In Main-Line v United Overseas Bank92 (“Main-Line”), Tay JA doubted the court’s observation in Cryoviva that exemplary damages apply to all statutory intellectual property rights on the basis that the English position brought by the Intellectual Property (Enforcement, etc) Regulations 2006 “appears more permissive in awarding exemplary damages”,93 and also if Parliament had intended to allow for exemplary damages to be awarded similar to that of additional damages under the Copyright Act,94 “it would have provided so”.95 A similar position was also espoused in General Tire: “damages should be liberally assessed but that the object is to compensate the plaintiffs and not punish the defendants”.96 The position in Main-Line and General Tire is, however, cast into doubt by the subsequent decision of the Court of Appeal in ACB v Thomson Medical97 (“ACB”), where the court considered “the issue of punitive damages in the law of tort”.98 Even though the court rejected Rookes and held that “it should no longer be part of Singapore law”,99 the court nevertheless agreed with Lord Wilberforce in Cassell v Broome100 that “[e]ven if it were accepted that the function of the civil law is primarily compensatory, this does not mean that it is exclusively so”101 (emphasis in original). The court then concluded that “punitive damages may be awarded in tort where the totality of the defendant’s conduct is so outrageous that it warrants punishment, deterrence, and condemnation”.102 It should also be noted that the court made no distinction between common law

 91 Zheng Yu Shan v Lian Beng Construction [2009] 2 SLR(R) 587 at [20].  92 [2017] 3 SLR 901.  93 Main-Line at [90].  94 Cap 63, 2006 Rev Ed.  95 Main-Line at [87].  96 Supra note 15 at 824E.  97 [2017] 1 SLR 918.  98 ACB at [153].  99 ACB at [175]. 100 [1972] 2 WLR 645 at 708H-709C. 101 ACB at [172]. 102 ACB at [176].

406  Benjamin Tham and statutory torts in reaching this conclusion. Therefore, in principle at least, it is submitted that there is nothing that prevents exemplary damages from being awarded in trade mark infringement cases.

Commercial or industrial significance The importance of the ability to be able to assess, as accurately as possible, the likely quantum of damages prior to trial is succinctly explained by Lord Bingham: It is tempting for practitioners, intent on establishing or resisting a claim as the case may be, to focus their attention on the issue of liability, treating the measure of damages recoverable if the claim succeeds as a rather secondary consideration. Yet an accurate judgment of the likely measure of damages may be crucial in deciding whether it is worth pursuing or defending a claim at all, or whether it should be settled (and if so, at what figure), or whether a sum (and if so, what sum) should be tendered to the claimant. A misjudgement on these questions may be costly, since the claimant may win on liability and recover little or nothing and an unsuccessful defendant may end up paying much more (including costs) that he need have done.103 The common problem plaguing the claimants in Cuffz and Cryoviva is one of evidence (or the lack thereof). In Cuffz, the claimant was unable to prove the number of infringing units sold and stocked by the defendant. The claimant in Cuffz was therefore, it is respectfully submitted, quite optimistic to claim for the maximum amount of statutory damages available under s31(5) TMA (i.e., $1 million since it could not prove actual loss exceeding $1 million from the infringement) when only three Wallets were adduced as evidence. In Cryoviva, the claimant failed to satisfy the court that it had indeed suffered loss of business reputation and goodwill and that there was a causal link between the infringement and the loss of profits it had suffered. Thus, the claimant only successfully recovered the costs of investigation incurred and nominal damages of $1000 arising from the trade mark infringement. It is suggested that insofar as the trade mark infringement is concerned, having regard to the quantum of damages awarded and costs, it could very well be a Pyrrhic victory for the claimant in Cryoviva. To this end, potential claimants would be well minded of the importance of the role of evidence in an inquiry for damages. As a general rule, “[n]ot only must the party who asserts the fact adduce evidence; he must adduce sufficient evidence to prove that fact”.104 For parties facing evidential difficulties, i.e., “when it may in practice be difficult to estimate the loss in any other way”,105 the option of user damages should be considered. In conclusion, had these evidential burdens been successfully overcome, the quantum of damages each respective claimant would have been entitled to could have been quite different. 103 T Bingham, Foreword to The Law of Damages (LexisNexis UK, 2003) at p. vii. 104 J Pinsler, Evidence and the Litigation Process (LexisNexis, 5th Ed, 2015) at 12.006. 105 Supra note 13 at [118].

Part 7

Jurisdiction and applicable law in trademark litigation Cross-border litigation 35 Exclusive jurisdiction over registration claim and applicable law to transfers of foreign trademark rights in Japan

409

YASUTO KOMADA

Cross-region litigation 36 Principles for applicable law for trademark infringement in Taiwan applicable to cases involving Hong Kong companies

419

KUNG-CHUNG LIU

37 Private international and inter-regional law rules for trademark infringement in mainland China

429

LIZHOU WEI

Domestic litigation 38 Remedying mischief in deciding jurisdiction favouring the plaintiff in India GARGI CHAKRABARTI AND SAAHIL DAMA

442

35 Exclusive jurisdiction over registration claim and applicable law to transfers of foreign trademark rights in Japan Yasuto Komada

Case information: First Instance: Tokyo District Court, 46th Division, March 4, 2004, unpublished [Case No. Heisei 13 (Wa) 4044] Second Instance: Tokyo High Court, 2nd Division, August 9, 2004, unpublished [Case No. Heisei 16 (Ne) 1627]

Summary First, both the second and first instance courts affirmed the international jurisdiction over the plaintiff’s claims for correction of the registrations of several Jordanian trademark rights based on the assertion that one of the contracts of the rights transfers had been cancelled and that the others did not exist. Second, the courts found that the law governing these contracts should apply to the claims, and the applicable law should be the Japanese law. Third, the courts concluded that all these foreign trademark rights had been validly transferred from the plaintiff to the defendant and that the claims should be rejected. These judgments were issued before the coming into force of the new provisions on international jurisdiction that were introduced into the Japanese Civil Procedure Code in 2011. If those provisions (especially Art. 3–5 (2)) had been applicable to the case, the ruling of the courts on international jurisdiction would have been contrary. The judgments do not separate the contract of the transfer from the transfer itself when choosing the applicable law; they apply the law governing the contracts only. However, this solution is not supported by most Japanese doctrine and cases.

Legal context When the judgments were issued, Japan had no clear provisions on international jurisdiction.1 1 Before the revision of 2011, Japanese courts had relied on ratio legis to determine whether to affirm the international jurisdiction. According to the case law in this period, when a venue

410  Yasuto Komada In 2011, new provisions were introduced into the Minjisoshôhô (Civil Procedure Code), and one of these is Art. 3–5, which provides for the exclusive jurisdiction of a Japanese court. Paragraph 2 of the article provides as follows: “An action related to a registration is under the exclusive jurisdiction of the Japanese courts if the place where the registration is to be implemented is within Japan.” Due to this provision, it is generally thought that a claim concerning a registration to be implemented in a foreign country shall be rejected and such an action should be brought before the court of that country.2 The term “registration” used in this article includes not only the registration of real property but also intellectual property (hereinafter “IP”). The granting or the existence of an IP right is often announced by its registration in many countries, but actions concerning the granting or the validity thereof are subject to paragraph 3 of the same article, which also provides for the exclusive jurisdiction of a Japanese court: “An action about the existence or absence or the validity of an intellectual property right . . . that arises through a registration establishing that intellectual property right is under the exclusive jurisdiction of the Japanese courts if that registration was made in Japan.” Therefore, as regards IP rights, paragraph 2 applies mainly to actions concerning the registration of a transfer of the right. When the relevant facts of this case occurred, the Hôrei (Act on Rules for Application of Law) was in effect as the code of Japanese private international law. It was fully revised in 2006, and the Hô no Tekiyô ni kansuru Tsûsokuhô (Act on General Rules for Application of Law) commenced in 2007. Neither Act contains any special provision concerning the transfer of an IP right, but they both contain a provision concerning the formation and effect of a contract in general. Art. 7 of the Hôrei provides as follows: (1) With respect to the formation and effect of a juridical act, the governing law of the country shall be determined according to the parties’ intent. (2) If the parties’ intent is not clear, the law of the place where the judicial act is done shall apply. Art. 7 of the Tsûsokuhô is equivalent to the above first paragraph but does not contain the provision equivalent to the second one. Instead, the Tsûsokuhô provides for the law of the place having the closest relationship with the judicial act applicable in the absence of the parties’ choice of law. Art. 8 of the Tsûsokuhô for affirming the domestic geographical territorial jurisdiction is found in Japan, the Japanese court, in principle, may compel the defendant to respond to the action brought before it. However, if there is any special circumstance which makes the litigation contrary to the idea that equity between the parties should be secured and prompt, proper and effective dispute resolution should be achieved, such an international jurisdiction of the Japanese court should be denied. See Supreme Court, November 11, 1997, Saikôsaibansho Minji-Hanreishû [Minshû: Supreme Court Reports on Civil Cases], Vol. 51, No. 10, p. 4055. 2 T. Sato/Y. Kobayashi (ed.), Ichimon Itto; Heisei 23 Nen Minjisoshôhôtô Kaisei; Kokusaisaibankankatsuken no Seibi [Answering Question by Question; Revision of Civil Procedure Code et al. in 2011; Legislation on International Jurisdiction], Shôjihômu (2012), p. 108.

Transfers of foreign rights in Japan 411 utilises the theory called “characteristic performance” to determine the place presumed to have the closest relationship with the act:3 (1) In the absence of a choice of law under the preceding article, the formation and effect of a juridical act shall be governed by the law of the place with which the act is most closely connected at the time of the act. (2) In the case referred to in the preceding paragraph, if only one of the parties is to provide a characteristic performance involved in a juridical act, the law of the habitual residence of the party providing said performance (in cases where said party has a place of business connected with the juridical act, the law of the place of business; in cases where said party has two or more such places of business which are connected with the juridical act and which are governed by different laws, the law of the principal place of business) shall be presumed to be the law of the place with which the act is most closely connected.

Facts X is a Japanese natural person and an executive of a company that manufactures products including oil stoves. Y is a Japanese company engaged in the trade of chemicals and medicines. X had been a holder of the rights in three trademarks for oil stoves and oil burners registered in the Hashemite Kingdom of Jordan, and Y completed the registrations of the transfers of those rights (each trademark hereinafter “Trademark 1,” “Trademark 2,” or “Trademark 3,” and all these marks “Trademarks”). X brought an action in Japan and claimed that all these registrations should be cancelled. He asserts that he cancelled the contract of the transfer of the right in Trademark 1 (hereinafter “Contract”) for nonpayment, and that the rights in Trademarks 2 and 3 still belong to him. Y asserts the existence of the contracts of the transfers of all these rights. Incidentally, a third company that obtained an exclusive license for the sale of the oil stoves carrying Trademarks from X requested the Jordanian Trademark Office to delete Y’s titular of the marks. However, this request failed. The company brought an action before the Jordanian Supreme Court alleging the office clerk’s negligence and asserting that all the transfers from X to Y were void. In 1997, the Tokyo District Court held that the transfers and the registrations in question had been made legally and that there had been no negligence of the office clerk.

Reasoning of the courts 1 First Instance The present case is composed of the claims concerning the rights of trademarks registered in Jordan, which implies foreign elements and the necessity 3 The rest (paragraph 3) is omitted, as it concerns judicial acts on real property in particular.

412  Yasuto Komada of determining the applicable law. . . . The dispute arises from the questions of whether the contracts of the rights in Trademarks were formed between X and Y and whether Contract was cancelled by X. The law applicable to these questions shall be the Japanese one under Art. 7 (1) and (2) of Hôrei, for the parties are all Japanese and the place where they concluded Contract is in Japan. Since Y already paid 200 thousand dollars as the cost of the transfer, X’s claim for the deletion of the registration of the transfer of Trademark 1 cannot be justified. Furthermore, since Y obtained the rights in Trademarks 2 and 3 by means of the contracts with X and completed the registrations of these transfers legally, X’s claim for the deletion thereof cannot be justified either.

2 The Second Instance Art. 8 of Contract stipulates, ‘any dispute arising from this contract shall be governed by the law which a Japanese court applies.’ Since the cancelation concerns Contract and the transfers in Trademarks 2 and 3 are based on Art. 5 thereof, the law applicable to the cancelation thereof as well as the formation and effect of the contracts of the transfers shall be the Japanese law under Art. 7 (1) of Hôrei. The decision of the first instance which rejects all X’s claims is justifiable, and this court will reject X’s appeal because it is groundless.

Legal analysis 1 Exclusive jurisdiction over registration claim In the Japanese legal system, judges must decide in the first place whether to affirm the jurisdiction without being constrained by the parties’ assertion (in German legal terms, “Untersuchungsmaxime4”). In the present case, however, both courts did not reject X’s claims on the ground of no jurisdiction, which inevitably means that the courts implicitly affirmed their international jurisdiction over the claims, even though Japan had no clear provisions on international jurisdiction at that time. If Art. 3–5(2) of the Civil Procedure Code had been in force, the courts would have rejected X’s claims. As mentioned earlier, Art. 3–5(2) of the Civil Procedure Code provides for the exclusive jurisdiction over the claim concerning a registration if it is to be implemented in Japan. Thus, it is logical to infer that the claim

4 “Untersuchungsmaxime” as used in a civil action means the position of collecting corroborative data by virtue of a judicatory office without being restrained by discussions of the parties concerned. It is a concept counterposed by “Verhandlungsgrundsatz”, under which collection of trial data shall be the responsibility of the parties concerned.

Transfers of foreign rights in Japan 413 concerning a registration that is to be implemented in a foreign country shall be subject exclusively to the jurisdiction of that country’s court. According to the explanation made by the governmental office that proposed the provision of Art. 3–5(2) of the Civil Procedure Code, the rationale therefor is as follows:5     (i) Since the claim concerning a registration is aimed at announcing the relevant legal status to the public, it is linked inseparably to the system of public notice upon which a high degree of a public interest lies.   (ii) The system of public notice including a registration differs from country to country, and it can be said that, for a claim concerning a certain country’s public notice, the court of that country can examine and judge more precisely and promptly than the court of any other country. (iii) Even if a new rule permits an action in a foreign country while the registration is to be implemented in Japan, the ruling of that foreign country’s court would not be always suitable for implementing the registration in Japan, and even if the ruling of the foreign court is suitable for the implementation, an execution judgment would sometimes be necessary. Such a situation is less convenient for the parties in comparison with the case where the action is brought in Japan from the beginning. However, it should be noted that arguing against this rationale is not very difficult.6     (i) When an action concerns a dispute between private citizens on the attribution of the right, a certain public interest might be relevant thereto, but its degree is not high.7 The true legal status must precede a false publication, and the latter should be corrected to reflect the former.

5 Civil Affairs Bureau, Counselor Office, Ministry of Justice, Kokusaisaibankankatsuhôsei ni kansuru Chûkanshian no Hosokusetsumei [Supplementary Explanation of Tentative of International Jurisdiction Law] (2009) available at , p. 25, 37; Sato/Kobayashi, supra note 2, p. 107. 6 Cf. Y. Furuta, Kokusaiminjisoshôhô Nyûmon: Kokunaisoshô to no Taihi de Kangaeru [Introduction to International Civil Procedure Law: Comparing with Domestic Litigations], Nihonhyôronsha (2012), pp. 46–47. 7 Japan Federation of Bar Associations was in support of the tentative rule on exclusive jurisdiction issued by the government, but its report shows that among members there was also a criticism. The criticism says that the action concerning a registration that is to be implemented in a foreign country shall be rejected under the rule even if the parties agreed on the jurisdiction of a Japanese court. There has never been a high degree of public interest that can justify such a consequence. The report also reveals that there were some cases in which the Japanese Patent Office accepted the application of the registration with the final decision of the foreign court as the evidence of the cause. See, JFBA Opinions on Tentative of International Jurisdiction Law (2009) available at , pp. 9–10.

414  Yasuto Komada (ii) Even though a precise and prompt examination and judgment can be better expected in the country in which the registration is to be implemented, there is no positive reason to exclude a private citizen’s wish to bring an action concerning a registration that is to be implemented in a foreign country before a Japanese court. (iii) Especially in the case of transfers of IP rights vested in plural countries, bringing an action in a single country could be more convenient and practical for the parties. In addition, there could be a case where the defendant does obey the foreign court’s ruling in Japan even without an execution judgment. It should be noted that during the legislative process, a comment was made questioning the necessity of a rule like Art. 3–5(2).8 Unfortunately, this comment was totally ignored, and it is not reflected in the new legislation. This author agrees with the comment. Art. 3–5(2) can cause inconvenience when it also applies to actions brought against private citizens. In order to remove such an inconvenience, it is conceivable to adopt the narrowest reading of the provision to confine its scope to the actions brought against the State (e.g., actions seeking the State’s compensation for damages arising from the negligence of the registrar), for it is barely justifiable to make those actions subject to the exclusive jurisdiction of a court of the State. However, it is unlikely that Japanese courts will adopt such a narrow interpretation in the future.

2 Law applicable to contracts of transfer Japanese private international law adopts the principle of party autonomy for contracts in general, which means that the parties can choose the law applicable to the contract they have concluded (Art. 7 (1) of the Hôrei, Art. 7 of the Tsûsokuhô). The Tokyo High Court invoked Art. 8 of Contract and considered the Japanese law applicable to it. This could mean that the court found in that provision the explicit choice of law made by X and Y. However, Art. 8 of the Contract just stipulates that the governing law shall be the one that a Japanese court applies and does not stipulate directly which country’s law to apply. Thus, it could be more reasonable to assume that the provision in the agreement is not on the choice of law but on the Japanese court’s exclusive jurisdiction. The Tokyo District Court probably embraced this idea, for it assumed, taking their nationalities into consideration, that X and Y had implicitly chosen Japanese law.9

8 Y. Furuta, Kokusaitorihikihô no Genjô to Kadai: Kokusaisaibankankatsuhôsei ni tsuite [Current Situation and Problems of International Business Law: On International Jurisdiction Law] in Gendaiminjihanreikenkyukai [Study Group of Current Cases of Civil Affairs] (ed.), Minjihanrei II – 2010 Nen Kôki [Cases of Civil Affairs II – Second Half of The Year 2010], Nihonhyôronsha (2011), pp. 119–121. 9 The Supreme Court of Japan had already established the interpretation of the Hôrei according to which, even in the absence of a parties’ explicit choice of law, the implicit one should be sought by taking various facts around the contract into consideration. Supreme Court, April 20, 1978, Minshû, Vol. 32, No. 3, p. 616; September 4, 1997, Minshû, Vol. 51, No. 8, p. 3657.

Transfers of foreign rights in Japan 415 The conclusion that the applicable law is the Japanese one seems to be reasonable even though the Trademarks are all Jordanian and the exploitations thereof are subject to that country’s law. In this context, we may refer to an authoritative opinion according to which, in the absence of an explicit choice of law by the parties, a license contract of an intellectual property right should be governed by the law of the country in which the exploitation is made. However, the advocator of this opinion also says that, if there is a country to which both parties belong, that country’s law should precede the law of the country of exploitation.10 As the Tokyo District Court added, even if the parties’ intent on choice of law were not clear in the present case, the applicable law shall be the Japanese one under Art. 7(2) of the Hôrei, because the contracts were concluded in Japan.11 As mentioned previously, the Tsûsokuhô stipulates different rules for determining the law applicable to the contract in the absence of parties’ choice of law: the law should be determined by Art. 8 thereof, namely, under the theory of characteristic performance. Then, in case of a contract concerning a transfer of an IP right, who shall provide the characteristic performance? It is generally thought that the assigner shall do it in principle, which means that the law of the country in which the assigner has his or her habitual residence or principal place of business shall be applicable. However, in the case where the assignee undertakes a special obligation such as the obligation to exploit the IP through the contract, the assignee shall provide such performance, which means that the law of the country in which the assignee has his or her habitual residence or principal place of business shall be applicable.12

3 Law applicable to transfer Which country’s law shall apply to a transfer of an IP right? The prevailing opinion in Japan is that, in private international law a transfer of an IP right should be treated in the same way as a transfer of a real right.13

10 F.-K. Beier, “Das auf international Markenlizenzverträge anwendbare Recht”, GRUR Int. 1981, S. 299, 303 ff. 11 When Hôrei was effective, there was a strongly advocated opinion saying that even if the court can find neither the parties’ explicit choice of law nor the implicit one, it should search the parties’ constructive intent (on choice of law) by taking various facts around the contract into consideration, as the solution of lex loci actus (Art. 7 paragraph 2) is too rigid. Such rigidity was avoided when Tsûsokuhô came into force (Art. 8). 12 E. Ulmer, Intellectual Property Rights and the Conflict of Laws, Kluwer and the Commission of the European Communities (1978), nos. 74–76, 146–147. 13 T. Doi, Kôgyôshoyûken, Chosakuken to Kokusaitorihiki [Industrial Property, Copyright and International Business], Seibundô (1967), p. 48; S. Kidana, Kokusaikôgyôshoyûkenhô no Kenkyû [Studies on International Industrial Property Law], Nihonhyôronsha (1989), pp. 284–285, 287; J. Eguchi/S. Chaen, “Dai 6 Shô Kokusaitorihiki to Chitekizaisanken [Chapter 6 International Business and Intellectual Property]” in H. Matsuoka (ed.), Gendai Kokusaitorihikihô Kôgi [Lecture on Current International Business Law], Hôritsubunkasha (1996), p. 191; R. Yamada, Kokusaishihô [Private International Law], Yûhikaku (2004), pp. 388–389.

416  Yasuto Komada As regards a transfer of a real right, the juridical act (contract) that causes the transfer and the transfer itself shall be separated, and the latter shall be subject to the law governing the right, i.e., lex rei sitae, which is the law of the place where the property is situated. This means that the law governing the contract (in German legal terms, “Vertragsstatut”) shall decide whether the contract is formed (or was cancelled), and lex rei sitae shall decide whether an extra act is necessary for implementing the transfer when the contract exists. Applying the same theory to IP rights would lead to the conclusion that whether the right is automatically transferred when the contract exists shall be decided not by Vertragsstatut but by the law governing the right. Therefore, if following the prevailing opinion, the courts must have applied not only the Japanese law but also the Jordanian law (the law of the country of registration)14 to decide who owns the rights. In Germany, this theory is called Spaltungstheorie (the “division” theory) and is generally adopted for a patent rights transfer.15 Another strongly advocated theory in Germany opines that, in many countries’ substantive laws, the distinction between a contract and a transfer of an IP right is not significant, so that the separate application of different countries’ laws to the contract and to the transfer would not be desirable; and that the questions of such a transfer should be subject to the Vertragsstatut in principle but with a few exceptions such as those concerning the nature of the right (its assignability, licensability, etc.) or the formality of its transfer, which should be subject to the law governing the right.16 This Einheitstheorie (the “unitary” theory) seems to be overwhelmingly applied in recent German court decisions, especially in those concerning the transfers of copyright.17 In the present case, X asserted that he owned all rights in Trademarks, but both of the courts decided that these rights had been validly transferred to and were owned by Y. In order to so decide, the courts seem to have made reference exclusively to the law they considered applicable to the contracts of the transfers, namely the Japanese law. The courts seem to embrace an idea similar to Einheitstheorie, because X and Y disputed the transfer only on the aspect of the existence of the contracts, which does not touch upon the nature of the right or the formality of the transfer.

14 In Japan, it had not been clear which country’s law shall govern an IP right, as such a provision had been absent (and was still absent in Tsûsokuhô). In 2002, the Supreme Court declared under ratio legis that the law of the country in which the registration of the investment is to be implemented shall govern (at least) a patent right. However, to tell the truth, the term “the law of the country of registration” does not function when there are plural countries of registration for the same invention. The term “the law of the country for whose territory the protection (of the invention) is claimed” seems to be much more common and favourable. 15 Cf. Busse/Keukenschrijver, Patentgesetz, 8 Aufl., De Gruyter 2016, §15 PatG, Rdnr 15 (F. Hacker). 16 Ulmer, supra note 12, nos. 67, 133–139. 17 Cf. Fromm/Nordemann, Urheberrecht, 11 Aufl., Kohlhammer 2014, Vor §§120 ff. UrhG, Rdnr 83 (A. Nordemann-Schiffel).

Transfers of foreign rights in Japan 417 However, it is more likely that the courts simply considered the application of the Jordanian law complicated. So far, there seems to be no other trademark case that answers the applicable law question based on the transfer of the right.18 Instead, there are many copyright cases in which the Japanese courts clearly adopted the Spaltungstheorie to justify the separate application of the Vertragsstatut and the law of the country protecting the right (lex loci protectionis).19 However, it should be noted that, in all these cases, the relevant right is only a Japanese one, so the courts did not have to apply multiple countries’ laws.

Commercial or industrial significance The present decisions are not leading cases that will influence the future practice of courts in Japan. Nevertheless, they highlight the rationale for the revision of laws regarding international jurisdiction. The decisions affirm international jurisdiction over the claim for canceling the registrations of the transfers of the foreign trademark rights based on an assertion of cancelation and nonexistence of the contracts, which means they do not take the position that a claim concerning a registration should be subject to exclusive jurisdiction. In addition, the present decisions adopted the unitary approach of interpretation that the law applicable to the contracts shall also decide whether the rights were validly transferred. However, the revision of the Civil Procedure Code in 2011 seems to forbid Japanese courts to affirm international jurisdiction over such a claim. Moreover, the majority of the academic doctrines and judicial cases prefer to divide the legal relationship into the contract causing the transfer and the transfer itself in private 18 At least there is one case which concerns the transfer of the right to be patented in the invention made for hire and clearly adopts Spaltungstheorie. Tokyo District Court, February 24, 2004, H. J., No. 1853, p. 38 (the court held in the end that both Vertragsstatut and the law governing the right are the Japanese law). The Supreme Court said at least in obiter dictum that, thanks to the principle of territoriality, the question of how a right to be patented shall be treated in foreign countries and what kind of effect the right shall have there should be governed by the law of the country in which the registration of the investment is to be implemented under the right. Supreme Court, October 17, 2006, Minshû, Vol. 60, No. 8, p. 2853. 19 Tokyo High Court, May 30, 2001, Hanrei Jihô [=H. J.: Case Report], No. 1797, p. 111; Tokyo High Court, May 30, 2001, H. J., No. 1797, p. 131; Tokyo High Court, May 28, 2003, H. J., No. 1831, p. 135; Tokyo District Court, October 26, 2007, Case No. Heisei 18 (Wa) 7424; Intellectual Property High Court, March 27, 2008, Case No. Heisei 19 (Ne) 10095; Tokyo District Court, April 30, 2009, Case No. Heisei 20 (Wa) 3036; Tokyo District Court, February 10, 2010, Case No. Heisei 16 (Wa) 18443; Tokyo District Court, May 31, 2012, Case No. Heisei 21 (Wa) 28388; Tokyo District Court, December 20, 2013, Case No. Heisei 24 (Wa) 268; Intellectual Property High Court, June 22, 2016, H. J., No. 2318, p. 81. The judges often use the term “the law of the country protecting the copyright”. However, such a term is quite odd because there may be as many countries protecting the copyright in the same work as the member states of the Berne Convention. The term “the law of the country for whose territory the protection is claimed” seems to be much more common and favourable.

418  Yasuto Komada international law and hold that the law of the country that vested the right shall decide the validity of the transfer. However, this author is of the opinion that the Einheitstheorie is more reasonable, because the Vertragsstatut is the law closest to the parties of the contract who are disputing the transfer.20 In addition, such an approach makes it possible for the parties to rely on a single law even when multiple countries’ rights are assigned. However, a third party must be able to know when the transfer occurs and what kind of title is transferred under the law familiar to him or her. As regards trademark rights in particular, in many countries the assignability thereof depends on substantive laws for the prevention of confusion. Therefore, as this theory teaches, questions of the assignability and the formality of the transfer should be subject to the law governing the right.

20 In Japan, the “division” of a judicial act causing a transfer of a real right and the transfer itself in private international law is widely supported, but Prof. Morita doubts the effectiveness of such a division, and contends that the law applicable to the contract shall also cover the transfer when it is disputed only between the contracting parties (not disputed with the third party). H. Morita, Kokusaishihô Ronshû: Kokusaishihô no Shinzui wo Motomete [Essays on Private International Law: Searching for the Essence of Private International Law], Shinzansha (2014), pp. 187–188 (in the article “Kokusaishihô no Giron ni Oite Genninkôi to Bukkenkôi no Kubetsu ga Hontôni Hitsuyônano ka? [Is the Distinction between the Act of Cause and the Act of Real Property Really Necessary in the Context of Applicable Law?]”). He also recommends the same solution for a transfer of copyright. Morita, Case Note Jurisuto [Jurist], No. 1248 (2003), p. 148. See also, S. Kidana (ed.), Kokusaishihô [Private International Law], Seibundô (2016), p. 340 (N. Otomo).

36 Principles for applicable law for trademark infringement in Taiwan applicable to cases involving Hong Kong companies Kung-Chung Liu

Case information: Taiwan Intellectual Property Court (in its capacity as first instance court), 2017 Min-Shang-Su-Zi 7 (decided on 12 December 2017)

Summary The present trademark infringement case involved a defendant which is a Hong Kong company and has a business address in Taiwan. The present first-instance decision rendered by a single judge recognises that Taiwanese courts have jurisdiction and Taiwanese Trademark Act is the applicable law,1 which is in line with the decisions of Taiwan’s IP Court in its capacity as the second instance court. However, it resorted only to Article 25 of the Act Governing the Choice of Law in Civil Matters Involving Foreign Elements (“Act”), which is different from the decisions rendered by Chambers 1 and 2 of the Taiwan IP Court in its capacity as the second instance court. While Chamber 1 is more of the opinion that Articles 25 and 42(1) of the Act both apply to determine the applicable law,2 Chamber 2 has been consistently applying only Article 42(1) of the Act.

Legal context 1 The determination of the court with jurisdiction Before the Act was overhauled in 2011, the Taiwan IP Court in its capacity as the second instance court was of the opinion that the applicable law for torts (including intellectual property rights (IPR) infringement) should be determined by applying

1 The present decision has not been appealed. 2 Admittedly, Chamber 1 has also only applied Article 42(1) of the Act in its earlier decision, such as 2015 Min-Shang-Shang-Yi-Zi 5 (decided on 10 March 2016), 2015 Min-ShangShang-Zi 9 (decided on 23 June 2016), and 2015 Min-Shang-Shang-Zi 104 (decided on 12 May 2016).

420  Kung-Chung Liu accumulatively the principle of applying the law of the place where the tort was committed (lex loci actus) and the principle of applying the law where the court is located (lex fori). With the introduction of the new rules for torts (Article 25) and IPR (Article 42(1)) in the Act, it has been an established law of the Supreme Court that given the absence of any rules on the determination of court with jurisdiction in the Act, the provisions of the Civil Procedure Code (CPC) are to be applied mutatis mutandis to determine the court with jurisdiction.3 Consequently, the Taiwan IP Court in its capacity as the second instance court has consistently held that: “The Act is about determining the applicable law for civil cases with foreign elements in accordance with domestic law (only); as for determining the court with jurisdiction, the Act, whether before or after the 2011 amendment, does not contain any express provision. Therefore whether the suit-receiving court has international jurisdiction over any concrete case should be decided with the help of jurisdiction provisions of the CPC and international norms as the principles of law, and based on the basic principles of international civil procedural law, such as fairness of the process towards the parties, and the legitimacy and swiftness of adjudication”.4

2 The determination of the applicable law The Act was revamped substantially in 2010, effective since 27 May 2011. Article 25 now prescribes the general rule for determining the applicable law for torts: “An obligation arising from a tort is governed by the law of the place where the tort was committed; provided however, if another law is the law most closely connected with the tort, it governs.” Under Chapter 5 of the Act with the title Rights in Things (or “Rights in Rem”) Article 42 foresees special provision for determining the applicable law for IPR as such: “(1) A right in an intellectual property is governed by the law of the place where the protection of that right is sought (lex loci protectionis). (2) Any right in an intellectual property created by an employee in the performance of his/her duties is governed by the law applicable to the contract of employment.” However, Chambers 1 and 2 of Taiwan IP Court in its capacity as the second instance court are divided in their application of these two provisions. Chamber 1 is more of the opinion that Articles 25 and 42(1) of the Act both apply to determine the applicable law, while Chamber 1 has been consistently applying only Article 42(1). 3 Rong-Zhuan Chen, Patent Infringement Civil Cases with Foreign Elements – Focusing on Supreme Court Decisions and the Application of the New Law (in Chinese), Taiwan Law Journal (in Chinese) No. 216 (January 2013), 2 (footnote 34 citing the many decisions made by the Supreme Court). 4 Taiwan IP Court’s decisions on trademark infringement in its capacity as the second instance court: 2015 Min-Shang-Shang-Zi 17 (decided on 26 May 2015 by Chamber 1) and 2015 MinShang-Shang-Zi 16 (decided on 30 August 2015 by Chamber 2), as well as Taiwan IP Court’s decisions on copyright infringement in its capacity as the second instance court: 2010 Min-ZhuShang-Geng-1 (decided on 11 November 2010), 2010 Min-Zhu-Shang-Geng-Zi 6 (decided on 14 March 2013), and 2013 Min- Zhu-Shang-Zi 6 (decided on 29 November 2013).

Law for trademark infringement in Taiwan 421

2.1 Chamber 1 of Taiwan IP Court in its capacity as the second instance court 5 Chamber 1 first determined that Taiwanese courts have jurisdiction over legal disputes arising from trademark infringement that took place in Taiwan: The appellant (also the plaintiff) RIMOWA GmbH sued for infringement of his two registered trademarks (nos. 446263 and 442894) of RIMOWA, and claimed damages and the exclusion of infringement. Based on the claimed facts, the present case should be characterised as a case of trademark infringement, and the trademark infringing act took place in this country, therefore the formal characterisation of the legal dispute in question should be obligation arising from tortious acts. In civil proceedings it is the court at place where the defendant resides or it has its main office as a private juridical person which shall exercise jurisdiction, as “the plaintiff sues where the defendant resides or does business” principle applies. Accordingly, the court with jurisdiction for the present case shall be Taiwanese courts by applying Articles 1(1), 2(2) and 15(1) of the CPC mutatis mutandis.6 Chamber 1 then reasoned that the applicable law for the case should be the law of the place where the tort was committed (lex loci actus), and the law of the place where the protection of the trademark right is sought (lex loci protectionis): (1) lex loci actus: the principle of lex loci actus applies to the obligation derived from tortious act, as Article 25 of the Act expressly provides. The appellant alleged that the appellee’s act constituted trademark infringement and brought the suit, whose legal relationship should be characterised as a dispute over whether the trademark was infringed based on either Taiwanese or international trademark regime. In addition, according to the appellant, the infringing act took place in Taiwan, and the claims raised by the

5 Taiwan IP Court 2015 Min-Shang-Shang-Zi 17 (decided on 26 May 2015 by Chamber 1). 6 Article 1(1) of the CPC provides: A defendant may be sued in the court for the place of the defendant’s domicile or, when that court cannot exercise jurisdiction, in the court for the place of defendant’s residence. A defendant may also be sued in the court for the place of defendant’s residence for a claim arising from transactions or occurrences taking place within the jurisdiction of that court. Article 2(2) provides: A private juridical person or unincorporated association that has the capacity to be a party to an action may be sued in the court for the location of its principal office or principal place of business. Article 15(1) provides: In matters relating to torts, an action may be initiated in the court for the location where the tortious act occurred.

422  Kung-Chung Liu appellant, namely damages and exclusion of infringing act, were recognised by the Taiwanese Trademark Act. Based on the previously mentioned provisions, the applicable law for the present case should be Taiwanese laws. (2) lex loci protectionis: Article 42(1) of the Act expressly stipulates that a right in an intellectual property is to be governed by the law of the place where the protection of that right is sought. The existence and scope of the right that has IP as its object shall be determined by lex loci protectionis asserted by the right claimant, so that the kind, content, duration, acquisition, loss, transfer, etc.of the IP could be based on the same law. Therefore, since the appellant alleged that the appellee infringed the trademark in question and brought suit to exclude the infringement and claim damages, it should naturally involve a dispute related to a right that has IP as its object, and Article 42(1) of the Act applies.

2.2 Chamber 2 of Taiwan IP Court in its capacity as the second instance court7 Chamber 2 first determined that Taiwanese courts have jurisdiction over legal disputes arising from trademark infringement and violation of the Fair Trade Act (FTA) that took place in Taiwan: (1) Given that Louis Vuitton Malletier asserted that the defendant committed in Taiwan trademark-infringing and FTA-violating acts, the present case should be characterized as a trademark infringement and FTA-violation case, and Taiwanese courts should have international jurisdiction by applying Article 15(1) of the Code of Civil Procedures mutatis mutandis. Chamber 2 then very briefly reasoned that (2) Choice of applicable law: As Article 42(1) of the Act expressly stipulates, a right in an intellectual property is to be governed by the law of the place where the protection of that right is sought. In the present case, Louis Vuitton Malletier alleged that its registered trademark in Taiwan was infringed, therefore according to the previously mentioned provision [author note: namely Article 42(1) of the Act], therefore the applicable law should be Taiwanese laws. Article 25 of the Act was not mentioned at all.

Facts The plaintiff has registered the Chinese characters「冰晶」as trademark (since 1996) for cosmetic and care products produced by the Swiss company “CRYOLAB S. A.” 7 Taiwan IP Court 2015 Min-Shang-Shang-Zi 16 (decided on 30 August 2015 by Chamber 2).

Law for trademark infringement in Taiwan 423 under the trademark of “CRYOS”. The defendant, DKSH Hong Kong registered in HK, has imported cosmetic products made by the Swiss company “LA PRAIRIE” to Taiwan. The plaintiff accused the defendant of infringing its registered trademark of 「冰晶」 by using 「冰晶」 in its series of four care products between September 2014 and March 2015. The defendant stopped using 「冰晶」 three months after receiving a warning letter from the plaintiff and replaced it with the Chinese characters 「防禦」. As a procedural pre-condition, the Taiwan IP Court determined that it has jurisdiction, and laws from Taiwan area should be the applicable law.

Reasoning of the court 1 Recognising its jurisdiction 1.1 Based on IP Court Organization Act and the Intellectual Property Case Adjudication Act According to Article 3(i) and (iv) of the Intellectual Property Court Organization Act (‘Jurisdiction of the Intellectual Property Court includes the following: (i) First instance and second instance civil actions for the protection of IPR and interests arising under the Patent Act, Trademark Act, Copyright Act, Optical Disk Act, Trade Secret Act, Regulations Governing the Protection of Integrated Circuits Configuration, Species of Plants and Seedling Act, or Fair Trade Act. (iv) Other cases prescribed by law or determined by the Judicial Yuan to be within the jurisdiction of the Intellectual Property Court.’), and Article 7 of the Intellectual Property Case Adjudication Act, ‘Civil actions specified in Article 3(i) and (iv) of the Intellectual Property Court Act may be submitted to the jurisdiction of the Intellectual Property Court.’ The present case is a first instance civil case derived from the Trademark Act and according to the above-mentioned provisions this court enjoys jurisdiction over it.8

1.2 Based on private international law and its principles: the principles of CPC The present decision continued to justify its jurisdiction via private international law and its principles: While Article 4(1) of Laws and Regulations Regarding Hong Kong & Macao Affairs provides expressly ‘The term “Hong Kong Residents” as used herein refers to persons who qualify for permanent residency in Hong Kong and who do not hold a travel document other than a British (Overseas) passport or a Hong Kong passport,’ the determination of a Hong Kong company

8 Taiwan IP Court, 2017 Min-Shang-Su-Zi 7, lines 20–27 (court decisions published on the website of the Judicial Yuan have line numbers at the right end of the page).

424  Kung-Chung Liu should primarily be based on the recognition of the competent authority, the Ministry of Economic Affairs (MOEA). Now that MOEA has registered the defendant as a “Hong Kong company,” so shall it be a Hong Kong company. Article 38 of Laws and Regulations Regarding Hong Kong & Macao Affairs further provides: ‘The Law Governing the Choice of Law in Civil Cases Involving Foreign Elements shall apply mutatis mutandis to civil cases involving Hong Kong or Macau. For cases not provided for in the Law Governing the Choice of Law in Civil Cases Involving Foreign Elements, laws of the locality having the most significant contact with said civil cases shall apply.’ Therefore, the allocation of jurisdiction between courts in Hong Kong and Taiwan shall apply Article 1 of the Act mutatis mutandis, namely ‘Civil matters involving foreign elements are governed, in the absence of any provisions in this Act, by the provisions of other statutes; in the absence of applicable provisions in other statutes, by the principles of law.’ However, given that there is no provision in the Act on the international jurisdiction of torts cases, the jurisdiction over the present case should be decided by the principles of law.9 The principles of law means the principles of international civil procedural law in specific, namely analogous application of the principles of CPC about determining domestic jurisdiction.10 After citing the Supreme Court’s view reflected under section 1 of “Legal context”, the present decision went on to reason that “both parties have addresses in Taiwan, Taiwan was the place where the infringing act took place, and based on concepts such as substantive fairness for parties to conduct litigation and swift and economic procedure, Taiwanese courts should enjoy the jurisdiction.”11

2 The present case should apply Taiwanese Trademark Act The present decision was very concise in its reasoning why the Taiwanese Trademark Act should be the applicable law: based on the above-mentioned same facts [author note: namely both parties have an address in Taiwan and the place where an infringing act took place was in Taiwan], and in accordance with Article 38 of Laws and Regulations Regarding Hong Kong & Macao Affairs, which requires a mutatis mutandis application of Article 25 of the Act, “An obligation arising from a tort is governed by the law of the place where the tort was committed; provided however, if another law is the law most closely connected with the tort, it   9 Taiwan IP Court, 2017 Min-Shang-Su-Zi 7, lines 28–41. 10 Rong-Zhuan Chen, Patent Infringement Civil Cases with Foreign Elements – Focusing on Supreme Court Decisions and the Application of the New Law (in Chinese), Taiwan Law Journal (in Chinese) No. 216 (January 2013), 2 and supra 1 under “Legal context”. 11 Taiwan IP Court, 2017 Min-Shang-Su-Zi 7, lines 59–63.

Law for trademark infringement in Taiwan 425 governs.” Taiwan area is the place where the tortious act took place and the place most closely connected with the present case, therefore the applicable law for the present case should be lex loci actus and the law of the place with closest connection, namely laws of the Taiwan area.12

Legal analysis 1 Private inter-regional law principles apply to cases involving Taiwan Area and Hong Kong Area Given the “One China Policy” of the Republic of China (ROC, also known as Taiwan), the political relationship between Taiwan, mainland China, Hong Kong and Macau is not one of “state to state”, rather “region to region” within a state. Article 11 of the Additional Articles of the Constitution of the ROC (Additional Articles of the Constitution)13 mandates that “Rights and obligations between the people of the Chinese mainland area and those of the free area, and the disposition of other related affairs may be specified by law.” Therefore, the official and legal way of addressing the four regions should be the Taiwan area, mainland China area, Hong Kong area and Macau area. Based on that constitutional mandate, Taiwan enacted the Act Governing Relations between the People of the Taiwan Area and the Mainland Area, and the Act Governing the Relationship with Hong Kong and Macau.” These Acts also deal with the issues of “inter-regional” jurisdiction and applicable law for cases between the Taiwan area, mainland China area, Hong Kong area, and Macau area. Currently, both Taiwan and mainland China are of the view that the principles for determining jurisdiction and applicable law in private international cases apply mutatis mutandis to inter-regional cases involving the four areas.14

2 Determination of the court with jurisdiction based on the place of habitual residence and of infringement15 The Principles on Conflict of Laws in Intellectual Property proposed by the European Max Planck Group on Conflict of Law in Intellectual Property (CLIP Principles) suggest some rules for the determination of the general and special

12 Taiwan IP Court, 2017 Min-Shang-Su-Zi 7, lines 66–68. 13 The preamble of the Additional Articles of the Constitution states very clearly that the Additional Articles of the Constitution were only meant to last until the “national unification” with mainland China: “To meet the requisites of the nation prior to national unification, the following articles of the ROC Constitution are added or amended to the ROC Constitution in accordance with Article 27, Paragraph 1, Item 3; and Article 174, Item 1.” 14 For the stance of mainland China on this issue, please see Lizhou Wei, 7.3. Private International and Inter-regional Law Rules for Trademark Infringement in Mainland China. 15 However, one Chinese scholar advocates that the uniqueness of trademarks necessitates different theories and rules for the determination of jurisdiction in international trademark disputes, without specifying what those rules should be; see Huanyan Peng, On the Private International Law of Trademarks (in Chinese), Peking University Press 2007, 198.

426  Kung-Chung Liu jurisdiction. The principle for general jurisdiction is that “a person may be sued in the courts of any State in which the person is habitually resident.” (Article 2:101). The CLIP Principles suggest several special jurisdictions, including for IPR infringement (Article 2:202: “In disputes concerned with infringement of an intellectual property right, a person may be sued in the courts of the State where the alleged infringement occurs or may occur, unless the alleged infringer has not acted in that State to initiate or further the infringement and her/his activity cannot reasonably be seen as having been directed to that State.”) and for entitlement and ownership of IPR (Article 2:205: “the State where the right exists or for which an application is pending shall also have the jurisdiction.”). The present decision that Taiwanese courts should enjoy the jurisdiction follows the CLIP Principles by and large: “both parties have address in Taiwan (place of habitual residence)” and “the place where an infringing act took place was in Taiwan (place where the alleged infringement occurs)”, which co-relate to the consideration of substantive fairness for parties to conduct litigation and of swift and economic procedure. However, the present decision did not mention that the trademark at dispute was registered in Taiwan too, which could help further justify the jurisdiction of Taiwanese courts.

3 The determination of the applicable law 3.1 For entitlement and ownership of IPR, lex loci protectionis applies Given the fact that IPR is the creation of national sovereignty (the principle of territoriality of IPR) and subject to many public policy considerations, the issues such as whether domestic examination and registration is the precondition for its validity or not, the types, relinquishment and changes of IPR, and the extent to which the IPR protection is to be enjoyed in any specific country shall be determined by domestic IP law of each individual country (numerus clausus principle of IPR). Therefore, CLIP Principles (Article 3:102 (Lex loci protectionis): “The law applicable to existence, validity, registration, scope and duration of an intellectual property right and all other matters concerning the right as such is the law of the State for which protection is sought.”) and Article 42(1) of the Act adopt lex loci protectionis. In other words, a right in an IPR is governed by the law of the place where the protection of that right is sought.

3.2 Courts failed to distinguish between the “pre-condition question” and the “primary question” Different from the determination of the applicable law that applies lex loci protectionis, in determining the applicable law for IPR infringement cases with foreign elements, courts should clearly distinguish between the “pre-condition question” (or the “accompanying question”) and the “primary question”

Law for trademark infringement in Taiwan 427 (or “question per se”). The former deals with the issues of whether the IPR at issue exists and of its scope and content etc., whereas the latter deals with issue of whether there is infringement of IPR, defence against infringement, scope and method of damages, etc. It is logical to first ensure the extent to which IPR exists, then to examine whether it has been encroached upon, and what damages are needed. The “pre-condition question” should follow the “lex loci protectionis principle” and apply Article 42(1) of the Act. In contrast, the “primary question” should follow the “lex loci actus principle” and apply Article 25 of the Act.16 However, Chamber 1 of Taiwan’s IP Court in its capacity as the second instance court has been consistently applying only Article 42(1), which is unfortunately erroneous. In contrast, when Chamber 2 of Taiwan’s IP Court in its capacity as the second instance court applies both Articles 25 and 42(1) of the Act to determine the applicable law, it does not make the conceptual distinction between Article 25 as dealing with the “pre-condition question” and Article 42(1) of the Act as dealing with the “primary question.”

3.3 “Lex loci protectionis principle” should be the ultimate principle for trademark infringement cases Article 25 of the Act is the general principle for determining applicable law for torts, namely either the lex loci actus or the law with the closest connection, which should of course also apply to torts in IPR, including infringement of trademark right. However, how are we to determine the lex loci actus or the law with the closest connection without causing conflict with the national ­treatment principle enshrined in the TRIPS Agreement and the two fundamental principles of IPR, namely the territoriality principle and the numerus clausus principle? The only plausible solution is to recognise that lex loci protectionis is lex loci actus or the law with the closest connection in IPR infringement cases, which can avoid the conflict of applying different applicable laws as a result of courts having different criteria and conclusions regarding the characterisation of the torts relationship in question.17 Support for this solution can be found in the CLIP Principles, which suggest applying the lex loci protectionis principle: “Unless otherwise

16 Rong-Zhuan Chen, Patent Infringement Civil Cases with Foreign Elements – Focusing on Supreme Court Decisions and the Application of the New Law (in Chinese), Taiwan Law Journal (in Chinese) No. 216 (January 2013), 9–10; Guang-Ping Wu, The Application of Law in Patent Infringement Cases with Foreign Elements (in Chinese), Taiwan Law Review (in Chinese), No. 218 (July 2013), 201–203. 17 Rong-Zhuan Chen, Patent Infringement Civil Cases with Foreign Elements – Focusing on Supreme Court Decisions and the Application of the New Law (in Chinese), Taiwan Law Journal (in Chinese) No. 216 (January 2013), 12–14; Guang-Ping Wu, The Application of Law in Patent Infringement Cases with Foreign Elements (in Chinese), Taiwan Law Review, No. 218 (July 2013), 205–207.

428  Kung-Chung Liu provided in this Section, the law applicable to the infringement is the law of each State for which protection is sought.” (Article 3:601(1)). Although the conclusion of the present decision is correct, that the applicable law for the present case should be laws of the Taiwan area, its reasoning is based solely on the two fundamental principles of IPR, namely the territoriality principle facts that both parties have addresses in Taiwan and the place whether an infringing act took place was in Taiwan. It failed to mention the most important fact, that Taiwan is also the place where protection is sought and to apply the principle of lex loci protectionis.

Commercial or industrial significance Undertakings doing business within the greater China area, namely the Taiwan area, mainland China area, Hong Kong area, and Macau area, are reminded that there are issues of “inter-regional” jurisdiction and applicable law for cases involving these areas, and that currently, Taiwan and mainland China apply the principles for determining jurisdiction and applicable law in private international cases mutatis mutandis to inter-regional cases involving the four areas. Undertakings are advised to keep a watchful eye on the development of these so-called private inter-regional law principles. Businesses are also cautioned against the danger of believing that globalisation makes the IPR world flat and thereby forgetting its two integral pillars: the territoriality principle and the numerus clausus principle.

37 Private international and inter-regional law rules for trademark infringement in mainland China Lizhou Wei

Case information: Tsingtao Shinan District People’s Court, (1998) Nan Fa Wai Jin Chu Zi No. 135 (14 September 1999); Tsingtao Intermediate People’s Court, (1999) Qing Jing Zhong Zi No. 1436 (12 April 2001)

Summary The People’s Republic of China (PRC) has multiple legal systems. Hong Kong and Macau, as Special Administrative Regions (SARs), enjoy a high degree of legislative and judicial independence. To solve disputes due to the conflict of laws among the three regions (mainland China, Hong Kong, and Macau), the Supreme People’s Court (SPC) has specified that the Chinese private international rules, which are designed to regulate cross-border activities, are mutatis mutandis applicable to civil and commercial matters arising from inter-regional activities. The TZEPAO case is the first decision that was concerned with the issues of jurisdiction and applicable law in a case of trademark infringement with trans-regional elements.

Legal context 1 Overview The legal sources of Chinese private international law are manifold. The set of rules regulating international civil procedure, not least international jurisdiction, is entrenched in the Civil Procedural Law (CPL);1 the rules concerning the choice of laws are provided in the Law on the Laws Applicable to Foreign-Related Civil 1 Before the CPL was enacted in 1991, a provisional version of this law had been implemented for almost ten years since 1982. Two significant amendments were made to the CPL in 2007 and 2012 respectively. The English version of the CPL (2012) is available at: www.wipo.int/ wipolex/en/text.jsp?file_id=181423. Most recently (June 2017), a minor revision has been made to the law, with the rules on international civil procedure remaining intact.

430  Lizhou Wei Relations (LAL).2 Parallel to the legislations, judicial interpretations and other judicial instruments released by the SPC are also important legal sources that supplement the statutory rules.3 It should be noted that under the “One Country, Two Systems” principle, the two SARs of Hong Kong and Macau enjoy a high degree of autonomy. After their return to China, they have retained independent legislative and adjudicatory competence for a broad scope of matters. To solve the issues of inter-regional conflict of laws, the SPC has specified that the Chinese private international rules, designed to regulate cross-border activities, are mutatis mutandis applicable to civil and commercial matters arising from inter-regional activities (Art. 5 of the 2002 Rules on International Jurisdiction).4

2 Jurisdiction to adjudicate Regarding the international jurisdiction, the CPL has a unique “dual-track” structure. When determining the jurisdiction of civil proceedings with foreign elements, the international procedural rules on jurisdiction (alternatively, international jurisdictional rules) prescribed in Title IV of the CPL should be applied with priority. If no international jurisdictional rules are available, the domestic procedural rules on jurisdiction prescribed in Title I of the CPL can be applied mutatis mutandis (Art. 259 of the CPL). In the 2012 CPL revision, the international procedural rules on jurisdiction have been scaled down to two provisions, with Art. 265 regulating the special jurisdiction over defendants who have no domicile in China and Art. 266 vesting Chinese courts with the exclusive jurisdiction over three specific forms of contracts concerning international investment.5 Because of the narrow coverage of the international jurisdictional rules, Chinese courts more frequently need to apply domestic procedural rules (Art. 21 et seq., Title I of the CPL) to determine jurisdictional issues for international disputes.

2 The LAL was promulgated in 2010, effective 1 April 2011. The English version is accessible at www.wipo.int/wipolex/en/text.jsp?file_id=206611. 3 As to the field of international jurisdiction, the following two SPC judicial interpretations are of relevance: the Interpretation on the Application of the Civil Procedure Law publicized on 4 February (2015 Interpretation on CPL); the Rules on Some Issues Concerning the Jurisdiction of Civil and Commercial Cases Involving Foreign Elements (2002 Rules on International Jurisdiction). Regarding the choice of law, of great relevance is the Interpretation on Several Issues Concerning the Law on the Laws Applicable to Foreign-Related Civil Relations (I) (Interpretation on LAL). 4 In this case report, Chinese law only refers to the laws effective within mainland China, excluding the laws applicable in Hong Kong and Macau SARs. 5 This ground for exclusive jurisdiction covers contracts for Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and Chinese-foreign cooperative exploration and development of natural resources. For criticism of this ground for exclusive jurisdiction, see Zheng Sophia Tang, Yongping Xiao and Zhengxin Huo, Conflict of Laws in the People’s Republic of China. Cheltenham: Edward Elgar, 2016, para. 3.23.

Private international and inter-regional law rules 431

Exclusive jurisdiction According to Art. 33 of the CPL, the following disputes can only be brought before Chinese courts: (1) disputes about immovable property that is located in China; (2) disputes arising out of harbor operation, if the harbor is in China; and (3) disputes about succession, if the domicile of the deceased or the main property to be inherited is in China. It is worth noting that no exclusive jurisdictional grounds are provided in the CPL as to the IP (including trademarks) issues, although it is common practice that proceedings concerned with registration or validity of a trademark can only be brought to the court of the country where the said trademark has been registered.

General jurisdiction According to Art. 21 of the CPL, general jurisdiction is vested in the court of the domicile of the defendant. For a natural person, domicile is the place he has registered as his home, and in the case where a natural person has not resided in his domicile for long, the place of his habitual residence for more than one year shall prevail as the domicile. As to the corporate defendant, domicile is the place of its central administration or its registration place (Art. 3 of the 2015 Interpretation on CPL).

Special jurisdiction In the case of trademark infringement, apart from the general jurisdiction at the defendant’s domicile, the plaintiff may bring a suit at his choice before the courts of the place where the tortious event occurred (Art. 28/Art. 265 of the CPL). It is further noted that competence is vested both in the court of the venue of causative action and the court at the place where the damage arose (Art. 24 of the 2015 Interpretation on CPL). In the case of online trademark infringement, the venue of causative action refers to the place where the computer and other informational devices used to commit the infringement are located, while the place where the damage arose includes, inter alia, the place where the infringed domiciles (Art. 25 of the 2015 Interpretation on CPL). One who is confronted with a warning letter by the holder of an allegedly infringed trademark right may bring a suit against the right holder before Chinese courts to seek a declaration that the contested conduct is non-infringing. The negative declaratory actions can be brought at the same venue(s) as the corresponding claim(s) for tortious liability.6 In case of a dispute arising from contractual matters, apart from the general jurisdiction, plaintiff may bring a suit at his choice before the courts of the place where the obligation in question is performed (Art. 23 of the CPL). There is a 6 This principle was confirmed by the SPC in a Notice, Document No. (2004) Min San Ta Zi No. 4.

432  Lizhou Wei slight difference between the international jurisdictional rules and the domestic ones. In a dispute involving foreign elements, if the defendant has no domicile in China, jurisdiction in contractual matters is also vested in the court of the place where the contract is concluded (Art. 265 of the CPL). In case the defendant is not domiciled in China, yet the dispute arises out of the operation of a branch in China, or the defendant has detainable property in China, Chinese courts can also have international jurisdiction (Art. 265 of the CPL).

Choice of court Under Art. 34 of the CPL, a court designated in a written agreement between the parties as the competent court has international jurisdiction. However, party autonomy is limited, to the effect that only a forum that has “actual connection” to the dispute can be chosen as the competent court, i.e., the court of the place where the defendant is domiciled, or where the contract is performed or concluded, or where the plaintiff is domiciled, or where the subject matter is located, etc. (Art. 531 of the 2015 Interpretation on CPL). Noteworthily, the choice of court agreement has precedence over general and special jurisdiction; yet, parties cannot contract out the rules of exclusive jurisdiction. Furthermore, Art. 127. 2 of the CPL confers jurisdiction over a defendant on the court before which the defendant enters an appearance without contesting its jurisdiction.

Doctrine of forum non conveniens Subject to the aforementioned rules, a Chinese court seized with a claim is in principle obliged to hear and decide the case. However, the court can decline the jurisdiction and instruct the plaintiff to institute the action in a more convenient foreign court, if the following conditions are cumulatively met: (1) the defendant raises a claim that the case should be subject to the jurisdiction of a more convenient foreign court, or raises an objection to jurisdiction; (2) the parties do not have a choice of court agreement; (3) the case does not fall under the exclusive jurisdiction of a court of China; (4) the case does not involve national interest, or the interest of any citizen, legal person or other organisation of China; (5) the court has great difficulties in the determination of facts and the application of laws since major facts of disputes did not occur within the territory of China, and the laws of China do not apply to the case; and (6) a foreign court has jurisdiction over the case and it is more convenient for it to try the case (Art. 532 of the 2015 Interpretation on CPL).7

3 Conflict of laws The LAL is the first legislation in China that deals systematically with conflict of laws. Prior to 2010, the rules on applicable law were mainly determined by the 7 For details of this doctrine in China, see ZS Tang, Declining Jurisdiction in Chinese Courts by Forum Non Conveniens, Hong Kong Law Journal 2015, 45(1), 351–372.

Private international and inter-regional law rules 433 General Principles on Civil Law (GPCL)8 and the judicial interpretation thereof. The conflict of laws rules of that time were extremely rudimentary, with no specific rules about IP right. With the enactment of the LAL and the issuance of the SPC’s Judicial Interpretation on LAL (I), the conflict of laws rules for matters pertaining to IP rights have been improved.

Initial ownership and content According to Art. 48 LAL, the [initial] ownership and contents of IP rights shall be governed by the law of the country for which protection is claimed (lex loci protectionis). Here, the notion of ‘content’ shall be understood in an extensive way, covering various aspects of IP rights, such as existence, duration, and transferability etc.9

Infringement and remedies Prior to 2010, there were no specific conflict of laws rules concerning the issue of IP infringement, and the rule for general torts, enshrined in Art. 146 of the GPCL, was frequently invoked to decide the applicable law. It stipulated that liability arising out of tort should be governed by the law of the place of tort (lex loci delicti), and if both parties are citizens of the same country or domicile in the same country, the law of the country might also be applied. In the LAL, the rule for general torts is anchored in Art. 44, which, on one side, insists on that lex loci delicti shall be applied to tortious events, and, on the other side, gives leeway to the application of the law of the country where both parties have their habitual residences. Furthermore, party autonomy is also recognised in the tort scenario, i.e., parties can make a choice of the applicable law for the concerned tort after its occurrence. As lex specialis to the rule for general torts, Art. 50 LAL adopts the principle that the law of the country for which the protection is sought (lex loci protectionis) is the governing law applicable to cross-border IP infringement. Besides, parties concerned may also choose lex fori as the governing law for their disputes after the occurrence of the infringement.

Transfer and license of IP rights Art. 49 of the LAL provides that parties concerned can, by agreement, choose the law to be applied for transfer or license of IP rights; if parties did not make a choice, the conflict of laws rule for general contractual issues shall be applicable. This means, in the absence of a choice-of-law agreement, that the governing law

8 The General Principle of Civil Law was promulgated in 1986, effective on 1 January 1987. The English version is accessible at www.wipo.int/wipolex/en/text.jsp?file_id=182628. 9 Wan Erxiang (ed.), Law on the Laws Applicable to Foreign-Related Civil Relations: Understanding and Application (in Chinese). Beijing: China Legal Publishing House, 2011, p. 349.

434  Lizhou Wei shall be the law at the habitual residence of the party whose fulfilment of obligations can best reflect the characteristics of this contract or other laws which have the closest relation with this contract (Art. 41 of the LAL). The applicable law under the ‘closest connection’ test shall be determined on a case-by-case basis.10

Facts TZEPAO SANPIEN liquor is a medicinal liquor produced by CHANG YU Group Co., Ltd. (张裕集团有限公司), a distillery in Shandong, China. Before China’s economic reform in 1980s, there were restrictions on export; only several state-owned companies had the privilege to engage in export trade. Against this background, Shandong Medicines and Health Products Import and Export Co., Ltd. (山东省医药保健品进出口公司, SMHC) acted as the sole agent for exporting TZEPAO SANPIEN liquor to Hong Kong. In 1988, SMHC applied for trademark registration of the Chinese characters “TZEPAO” (至宝) and two other labels used on the packaging of TZEPAO SANPIEN liquor in Hong Kong; as a result, these marks were registered in the name of SMHC in Part B11 of the Hong Kong trademark register in Class 5 for “medicinal liquors”. With the export control in China lifted in August 1992, the exportation market became competitive again and SMHC was no longer the sole agent for exporting the medicinal liquor. Subsequently, China Import and Export Packaging Shandong Co., Ltd. (中国包装进出口山东公司, CIEPS) started to bring the TZEPAO SANPIEN liquor to overseas markets including Hong Kong. Although SMHC had informed CIEPS that it was the proprietor of the registered marks at suit, CIEPS continued to export the medicinal liquor to the Hong Kong market. Since both parties concerned are Chinese companies domiciled in Shandong, SMHC brought a suit against CIEPS directly to the Tsingtao Shinan District People’s Court, claiming that the defendant had infringed its trademark right under Hong Kong law.

Reasoning of Courts 1 Court of the first instance In the first instance, the question of which law should be applied to decide the case was disputed. According to Art. 146 of the GPCL, the governing law of the 10 Ibid, p. 354. 11 The old Hong Kong Trade Mark Ordinance (Cap. 43) divided the register of trademarks into two parts called “Part A” and “Part B”, whereby owners of distinctive marks could seek registration under Part A, while owners of marks with some distinctive character could pursue registration under Part B. Part B registration meant that certain rights were not available to the trademark owner, which were otherwise available to the owner of a Part A registration. Under the new law, the division of the register was abolished, and one standard of registrability was introduced.

Private international and inter-regional law rules 435 cross-border infringement could either be Hong Kong law (the law of the place of tort) or Chinese law (since both parties were domiciled in China). Very briefly, the court determined that “the allegedly infringing act occurred in Hong Kong; because of the territoriality principle of trademark right, Chinese law – as the law of the place where both parties domicile – could not be applied to protect the plaintiff’s trademark right in Hong Kong”. Moreover, the court made a nuanced differentiation between the law of the place where causative action arises (Hong Kong law) and that of the place where the damage arises (Chinese law), and concluded that the law of the place where causative action arises, i.e., Hong Kong law, should be applied in the said case. Although the plaintiff was not the proprietor of the registered marks at suit in China, it was confirmed that it did register the marks at suit in its name in Hong Kong. The defendant was neither the owner of the marks at suit, nor licensed to use the marks at suit in Hong Kong. Therefore, the court ruled that the defendant’s exportation of the TZEPAO SANPIEN liquor to Hong Kong had infringed the plaintiff’s trademark right in Hong Kong.

2 Court of appeal The defendant, CIEPS, lodged an appeal against the decision to Tsingtao Intermediate People’s Court. In the appellate procedure, two core questions were raised by the appellant: first, whether Chinese courts had jurisdiction to adjudicate the dispute; second, whether exporting (reselling) the genuine TZEPAO SANPIEN liquor bought from the original distiller, CHANG YU, to the Hong Kong market constituted trademark infringement. As to the first question, the appellate court upheld the court of first instance’s jurisdiction over the case. It was argued that under Art. 29 of the 1991 CPL (now Art. 21 of the CPL), the general jurisdiction was vested in the court of the place where the defendant was domiciled. The parties were both Chinese corporations and had their central administration in Shinan District, Tsingtao. Therefore, although the subject matter of the case was related to Hong Kong, it was beyond dispute that the court of first instance had jurisdiction over the case. As to the second question – whether trademark infringement was found in the disputed case – the answer was to a large extent dependent upon which law should be applied. The appellate court seemed to have skipped the applicable law issue, and instead directly started to examine the question under the Chinese law and Hong Kong law, respectively. From the perspective of Chinese trademark law, the court held that the medicinal liquor the defendant exported to Hong Kong was authentic TZEPAO SANPIEN liquor bought from CHANG YU, and the plaintiff also admitted that it had no right over the TZEPAO trademark in China; therefore, it was self-evident that the defendant did not infringe any trademark right in China.

436  Lizhou Wei Subsequently, the court continued to examine the dispute under the lens of Hong Kong law, and classified the case as a parallel import issue. Quite abruptly, the appellate court held that “even if the parallel import were illegal, it was the one who imported the infringing goods who should be held liable for the infringing act, rather than the one who undertook the exportation; not to mention that there was no rule in the (then) Hong Kong Trade Mark Ordinance that outlawed parallel importation.” Thus, the decision of the first instance was overruled, and no trademark infringement was established.

Legal analysis 1 The significance of the case: Chinese conflict of laws rules first applied to disputes concerning inter-regional affairs With intellectual assets playing an increasingly important role in globalised trade, more and more issues of private international law have arisen in the field of intellectual property in the last decades. However, the convergence of IP and private international law has for long been a topic “under the radar” of Chinese courts. When confronted with an IP case involving foreign elements, Chinese judges have been used to treating it as a domestic dispute, tacitly accepting lex fori as the applicable law and seldom questioning their competence to adjudicate. TZEPAO is one of the few trademark cases in which private international law issues have been thoroughly discussed. Noteworthily, the TZEPAO decision, delivered in September 1999, was probably the first Chinese trademark decision that covers dispute arising from matters pertaining to Hong Kong after Hong Kong’s return. It was the TZEPAO case which witnessed the moment when the Chinese conflict of laws rules were for the first time applied to disputes concerning inter-regional affairs; meanwhile, this case also foreshadowed the transition from lex loci delicti to lex loci protectionis as governing law in IP infringement. Therefore, although the decision can no longer mirror the latest Chinese private international law in respect of IP dispute, it is still of significant relevance.

2 The features of Chinese inter-regional conflict of laws rules After the return to China, both Hong Kong and Macau SARs have maintained their highly autonomous legal traditions and systems. Given the discrepancy existing among the three regions in respect of private law, it became a pressing task to solve inter-regional conflict of laws. Since harmonising the substantive laws was unrealistic, establishment of a uniform set of conflict of laws rules was proposed.12 However, little progress has been achieved so far, except that several bilateral agreements have been concluded in the field of judicial assistance. As has been observed in TZEPAO, courts were used to applying their respective conflict

12 See Guangjian Tu, Private International Law in China. Berlin: Springer, 2016, para. 29 et seq.

Private international and inter-regional law rules 437 of laws rules for international disputes to inter-regional cases. This practice was officially recognised by the SPC in the 2002 Rules on International Jurisdiction, under which the rules pertaining to Chinese private international law are mutatis mutandis applicable to civil and commercial matters arising from inter-regional activities.

3 Jurisdiction over trademark disputes In the appellate procedure, the defendant objected to the jurisdiction of the Tsingtao Shinan District People’s Court over the case, claiming that Chinese courts had no jurisdiction over a dispute pertaining to Hong Kong trademarks. As the court of appeal correctly noted, this ground of appeal did not stand up to close scrutiny. In a trademark infringement case, the plaintiff may choose between the forum where the defendant is domiciled (general jurisdiction) and the forum where the tortious event occurs (special jurisdiction), unless the dispute at stake is subject to exclusive jurisdiction or parties concerned have reached an agreement otherwise. In the TZEPAO case, the court of first instance, as the court of the place where the defendant was domiciled, was entitled to try the action. Furthermore, although the SPC has recognised the doctrine of forum non conveniens, the court seized with the claim cannot refuse jurisdiction under the excuse that the subject matter of the dispute is an IP right from Hong Kong. VARIATION 1

The Tsingtao Shinan District Court is dealing with a dispute between SMHC and CIEPS concerning an infringement of a trademark registered in Hong Kong. During the infringement proceedings, the defendant CIEPS raises a counterclaim that the trademark should be declared invalid, because SMHC’s trademark registration in Hong Kong was in violation of the Art. 6quater of the Paris Convention. Would the District Court have jurisdiction to decide upon the issues of validity of a Hong Kong trademark registration? It is a universally established principle that proceedings resulting in decision by which the validity of registration of an IP right is affected must be brought exclusively before the courts in the country where the right is registered.13 This principle is built upon the rationale that since the decision of whether to grant or not to grant an exclusive right by registration is an exercise of national sovereignty, the competence to review the validity of the registration should also be attributed to domestic authorities rather than to a foreign court. However, as discussed earlier, this ground of exclusive jurisdiction is not explicitly provided for in the CPL. This statutory gap does not bring about much dispute where the validity or registration issue arises as a principal claim, because it has been widely accepted in practice that

13 Annette Kur, Conflict of Laws in Intellectual Property: the CLIP Principle and Commentary. Oxford: Oxford University Press 2013, 2:401. C01.

438  Lizhou Wei such an action must be brought before the courts of the country of registration. However, of much debate is the scenario illustrated in Variation 1 where the court in the country of the defendant’s domicile is seized with the action in which validity of registration issue is raised as a counterclaim or defence. Should the court decline jurisdiction on its own motion or stay the proceedings until the validity issue has been decided by the competent court in the country of registration? No precedent has been made in this regard. It thus remains a pending issue in China.

1 Choice-of-law issues in trademark dispute (1)  General rule: from lex loci delicti to lex loci protectionis It was debated, not least in the first instance, whether Hong Kong law or Chinese law should be applied in the TZEPAO case. Since the case was tried before the enactment of the LAL, courts were supposed to apply the GPCL to determine the applicable law. Since there was no specific rule of applicable law for IP infringement in the GPCL, the court had to invoke Art. 146 GPCL to decide the trademark infringement case, that is, the law of the tortious place (lex loci delicti) as the governing law. As the SPC clarified, the tortious place could be understood as the place where causative action arises and the place where the damage arises (Art. 187 of the 1988 Interpretation on GPCL). Having realised that the latter criterion would probably direct the court to the application of Chinese law – an outcome that is less desirable in accordance with the territoriality principle – the court of the first instance emphasised that only the law of the place where causative action arises was applicable to IP (including trademark) infringement. It is not the concern of this case report to evaluate whether such a delicate differentiation is necessary. Of more relevance is that the TZEPAO decision revealed that Chinese courts had already imperceptibly accepted the principle of lex loci protectionis as the general rule to determine the law applicable to infringement, although it was not yet codified at that time. In addition, the TZEPAO decision foreshadows the codification of the principle of lex loci protectionis in the subsequent conflict of laws legislation, as it witnessed the moment when the principle of lex loci protectionis was derived from the concept of lex loci delicti in China.14

(2)  Party autonomy in trademark infringement VARIATION 2

To save time and money on investigating Hong Kong law, a choice is made between the parties concerned after the dispute has arisen. Both agree on Chinese law as the law applicable to solve the dispute. Is that allowed under the 14 On the difference between lex loci delicti and lex loci protectionis, see Josef Drexl, ‘Internationales Immaterialgüterrecht’ in Münchener Kommentar zum Bürgerlichen Gesetzbuch, Band 11: Internationales Privatrecht, Rixeker and Säcker (eds), Internationales Wirtschaftsrecht, Einführungsgesetz zum Bürgerlichen Gesetzbuch (Art. 25–248), 5th edn, München: Verlag C.H. Beck, 2010, para 12.

Private international and inter-regional law rules 439 Chinese law? If so, are the parties free to derogate from lex loci protectionis in its entirety or only in the field of remedies? As the lex loci protectionis as the law applicable to IP infringement has already been statutorily recognised in the LAL, the existing law also allows derogation from this basic principle made by party autonomy. Under Art. 44 of the LAL, the parties concerned are permitted to choose the lex fori (i.e., Chinese law) as the applicable law after the dispute has arisen. Therefore, the situation described in Variation 2 is fully possible under the current Chinese law. However, it remains unclear to what extent a choice of lex fori between the parties should be permitted. It is submitted that party autonomy should be granted to the largest extent possible; that is, both the violation of the IP rights and the remedies could be subject to the lex fori by agreement. However, others argue that the LAL only allows for choice of law to the remedies, whereas the issue of whether the right is violated remains subject to lex protectionis.15

2 Mistakes made in applying Hong Kong law The principle of lex protectionis for cross-border infringement may guide the court to the application of foreign law. According to Art. 10 of the LAL, the court concerned shall ascertain the foreign law ex officio, unless the application of the foreign law is a result of the parties’ choice. Since judges are normally unfamiliar with foreign laws, the ascertainment and application of foreign laws frequently create problems in practice, and the TZEPAO case might be one of the negative examples. The appellate court’s holding of the defendant not liable for the medicinal liquor importation was based upon two lines of argument. First, it remained a pending issue back then as to whether Hong Kong should apply national or international exhaustion in trademark law; at least, neither written law nor case law specifically excluded the possibility of applying the principle of international exhaustion in Hong Kong.16 In light of this situation, the court contended that the Hong Kong trademark proprietor might not be entitled to oppose parallel importation of the non-infringing TZEPAO liquors to Hong Kong market, after the liquors having been first sold in mainland China. Second, under the principle of national exhaustion, a trademark proprietor, after it has put its goods on the market anywhere outside Hong Kong, is supposed to have the entitlement to rely upon its Hong Kong registered trademark to oppose third parties from importing goods bearing its trademark to Hong Kong. However, the court asserted

15 Wan Erxiang, supra note 9, p. 357. 16 See information paper on “Parallel Importation of Trade Mark Articles” prepared by the Trade and Industry Bureau for the Bills Committee on the Trade Marks Bill (November 1999) (LC Paper No CB (1) 334/99–00 (01)), para. 3. The principle of international exhaustion, which is now enshrined in section 20 of the existing Hong Kong Trade Mark Ordinance (Cap. 559), was not codified until the 2003 trademark revision. The international exhaustion means that once a trademark proprietor has put his goods on the market anywhere in the world, he can no longer rely on his Hong Kong registered trademarks to prevent the sale of goods bearing his trademarks in Hong Kong.

440  Lizhou Wei quite arbitrarily that even under the “national exhaustion” context, the defendant should not be held to have infringed trademark right, since the trademark proprietor’s exclusive right was not targeted at those who exported the infringing goods from somewhere outside of Hong Kong (i.e., the defendant CIEPS in this case) but only targeted at those who imported and received the goods in Hong Kong (i.e., distributors in Hong Kong). However, the arguments were seriously flawed. It was incorrect to hold the distributors in Hong Kong responsible for the alleged importation, but exempt the defendant, who had sold the liquors to these distributors, from trademark liability. In principle, the primary targeted group of trademark right is always those who offer or expose infringing goods for sale; accordingly, it is the defendant, CIEPS, who should have been responsible for the alleged importation in the TZEBAO case. Furthermore, the principle of “international exhaustion” has now been adopted under section 20 of the Hong Kong Trade Mark Ordinance, which provides that it is not infringement to use a registered trademark in relation to goods which have been put on the market anywhere in the world under that mark by the owner, or with the owner’s consent, be it express or implied, conditional or unconditional. Nevertheless, it does not necessarily mean that the defendant’s parallel imports of the medicinal liquors are always legitimate in Hong Kong. More accurately, to successfully invoke the international exhaustion defence, the defendant must prove that it was the proprietor of a Hong Kong registered trademark who had put the goods under that mark on the market outside of Hong Kong, or the first sale had been carried out with its consent. It implies that the trademark proprietor in Hong Kong should also be the same one who owns the trademark in the jurisdiction where the first sale occurred, or at least the one who is affiliated with it. However, this is not the case in the TZEBAO case. Due to historical reasons, the ownership of the TZEBAO trademark diverges in Hong Kong and mainland China. Therefore, the defendant should still be held to have infringed the plaintiff’s trademark right in Hong Kong for exporting the genuine medicinal liquors from mainland China to Hong Kong market. Without intention to question the competence of any judges, the author here only wants to disclose the complexity of ascertaining and applying foreign law. Given the complex historical background of the TZEPAO trademark, the case at stake is in fact a hard case even for most Hong Kong jurists, let alone an average Chinese judge. Contrary to the situation in common law jurisdictions17, Chinese

17 The common law approach takes foreign law as a matter of fact. The judge takes no judicial notice of foreign law, and it must be pleaded and proved by the party that wishes to rely on it. Therefore, the judge is not under duty to apply the foreign law if none of the parties has pleaded and proved it. In such cases, the law mandates that he would apply the lex fori. (See, Adrian Briggs, “Proof of Foreign Law”, in: Dicey and Morris on The Conflict of Laws, Lawrence Collins (ed.), London: Sweet & Maxwell 2000 221ff.).

Private international and inter-regional law rules 441 judges are usually required to take notice of foreign law ex officio, which, due to judges’ limited knowledge about foreign law, inevitably entails a tremendous risk of misinterpreting it. This helps to explain why the application of the private international law is still rare in the field of intellectual property, and why the lex fori favouritism is still robust in China.

Commercial/industrial significance As the present case is mainly concerned with international jurisdiction and applicable law issues arising from a trademark infringement involving inter-regional elements, some litigation strategies could be drawn therefrom:

1 Advisable to file action before the court of the place where the tortious event occurs The rules on Chinese private international law, especially in the fields of jurisdiction and applicable law, are mutatis mutandis applicable to civil and commercial disputes involving Hong Kong or Macau elements. As a result, in case the alleged infringer is domiciled in mainland China, but the allegedly infringed IP right (including trademark right) is registered in a foreign state or in Hong Kong or Macau, the Chinese court of the defendant’s domicile can have jurisdiction over the dispute. However, the litigant must bear in mind that it is still an undecided issue in China as to how the Chinese court seized with the action should react in a case where the defendant raises a counterclaim or defence in the proceeding as to the validity of the registered IP right (including trademark) in another jurisdiction. Therefore, to avoid the jurisdictional uncertainty, it is advisable to file action directly before the courts of the place where the tortious event occurs, which usually coincides with the forum where the registration is granted.

2 To present courts with detailed information about the foreign law involved Both the principle of lex protectionis and the choice-of-law agreement would result in a Chinese court applying foreign law (or Hong Kong or Macau law). The court seized with the proceeding is usually required to take judicial notice of foreign law ex officio. However, as the ascertainment and application of foreign law requires such sophisticated skill, it is beyond the ability of average judges. It frequently gives rise to mistakes that will negatively influence the judicial decision making, as has been shown in the TZEPAO case. Given this, it is highly recommended that litigants present the court with detailed information about the foreign law involved on their own initiative, thus avoiding wrong application of foreign law and jeopardising their legitimate interests.

38 Remedying mischief in deciding jurisdiction favouring the plaintiff in India Gargi Chakrabarti and Saahil Dama

Case information: Indian Performing Rights Society Ltd. v. Sanjay Dalia and Ors by the Supreme Court of India, (2015) 42 SCD 753 (July 1, 2015)

Summary In the case of Indian Performing Rights Society Ltd. v Sanjay Dalia and Ors. (“IPRS v Sanjay Dalia”), the Supreme Court of India limited the scope of application of section 134(2) of the Trade Marks Act, 1999 (“Trade Marks Act”). The Court held that if the plaintiff actually and voluntarily resides, carries on business, or personally works for gain at a place where the cause of action, wholly or partially, has also arisen, he/she must file a suit at that place. When there is an overlap of the plaintiff’s place of residence or business and the place of the cause of action, then the plaintiff must file the suit at such place.1

Legal context 1 Section 134(2) of the Trade Mark Act creates a third ground for a court to exercise jurisdiction in addition to the ones under the CCP The Trade Mark Act only applies in cases where a trademark has been registered within the territory of India or an application for registration has been filed in India. Its application does not extend to trademarks that have been registered outside India or when trademark infringement occurs outside India. 1 The Supreme Court in the present case also limited the extent of application of section 62(2) of the Copyright Act, 1957. For more analysis of the decision see Gargi Chakrabarti and Saahil Dama, 7.5. Limiting the Extent of Application of Section 62(2) of the Indian Copyright Act in Deciding Jurisdiction in Kung-Chung Liu (ed.), Annotated Laeding Copyright Cases in Major Asian Jurisdictions (forthcoming).

Remedying mischief in deciding jurisdiction 443 The Court’s decision in IPRS v Sanjay Dalia was based on a harmonious interpretation of section 20 of the Code of Civil Procedure (CCP) and section 134(2) of the Trade Marks Act. Section 20 of the CCP reads – Other suits to be instituted where defendants reside or cause of action arises – Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction – (a) The defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or (b) Any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or (c) The cause of action, wholly or in part, arises. Explanation – A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.2 Section 134 of the Trade Marks Act states – Suit for infringement, etc., to be instituted before District Court. – (1) No suit (a) for the infringement of a registered trade mark; or (b) relating to any right in a registered trade mark; or (c) for passing off arising out of the use by the defendant of any trade mark which is identical with or deceptively similar to the plaintiff’s trade mark, whether registered or unregistered, shall be instituted in any court inferior to a District Court having jurisdiction to try the suit. (2) For the purpose of clauses (a) and (b) of sub-section (1), a “District Court having jurisdiction” shall, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908) or any other law for the time being in force, include a District Court within the local

2 This is a legislative explanation.

444  Gargi Chakrabarti and Saahil Dama limits of whose jurisdiction, at the time of the institution of the suit or other proceeding, the person instituting the suit or proceeding, or, where there are more than one such persons any of them, actually and voluntarily resides or carries on business or personally works for gain. Explanation – For the purposes of sub-section (2), “person” includes the registered proprietor and the registered user. The Trade Mark Act defines “registered users” as persons, other than the proprietor of the trademark, who may be registered as the registered user in respect of all the goods or services in respect of which the mark is registered.3 To apply as a registered user, a person and the proprietor must jointly apply to the Registrar.4 Traditionally, section 20 of the CCP provides two grounds under which a court can exercise jurisdiction – (a) The defendant must reside, carry on business, or personally work for gain at the place where the suit is being filed by the plaintiff; or (b) the cause of action must arise within the territorial jurisdiction of the court. Section 134(2) of the Trade Mark Act creates a third ground in addition to the ones under the CCP. Under section 134(2), a court can exercise jurisdiction over a trademark-related dispute if the plaintiff resides, carries on business, or personally works for gain within the territorial limits of the said court. Therefore, as per this section, if trademarked goods or services are being provided by the plaintiff through a business in India and the infringement occurs in India, even if the plaintiff does not reside in India, Indian courts would have the jurisdiction to decide the matter. One of the earliest cases to provide an interpretation of section 134(2) was Intas Pharmaceuticals Ltd. v Allergan Inc. on 24 July, 20065(“Intas”). The Delhi High Court explained that when the Trade Marks Act was enacted, the Legislature was well aware that section 20 of the CCP provided for a forum before which a suit could be filed. However, the inclusion of the non-obstante clause “notwithstanding anything contained in the CCP” in section 134(2) means that the section would have to be read in addition to the provisions of Section 20 of the CCP. Therefore, section 134(2) provides for an additional forum over and above the ones provided for by the CCP. Similarly, in L’Oreal v Dushyant Shah on 28 September, 2011, the Delhi High Court again held that the purpose of section 134(2) is to ensure that the owner of a registered trademark is not made to face inconvenience and loss in suing infringers at the place of their residence or business, as would happen under section 20 of the CCP. Compelling trademark owners to sue infringers at their place of residence or business would discourage legal action against infringement. Therefore, given the purpose behind enacting section 134(2), the court held that the section should be interpreted liberally.

3 Section 48, Trade Mark Act. 4 Section 49, Trade Mark Act. 5 132 (2006) DLT 641.

Remedying mischief in deciding jurisdiction 445

2 Section 62(2) of the Indian Copyright Act is pari materia to section 134(2) of the Trade Marks Act Section 62(2) of the Indian Copyright Act, 1957 (‘Copyright Act’) is pari materia to section 134(2) of the Trade Marks Act. Like section 134(2), section 62 of the Copyright Act allows suits to be instituted before a district court within whose territorial jurisdiction the plaintiff actually and voluntarily resides, carries on business, or personally works for gain at the time of instituting the suit. In Exphar SA v. Eupharma Laboratories Ltd. on 20 February, 2004,6 the Supreme Court explained the legislative intent behind enactment of section 62(2) of the Copyright Act, which would equally apply to section 134(2) – many authors are deterred from instituting infringement proceedings because the court in which such proceedings are to be instituted is situated at a considerable distance from the place of their ordinary residence. The Committee feels that this impediment should be removed and the new sub-clause (2) accordingly provides that infringement proceedings may be instituted in the district court within the local limits of whose jurisdiction the person instituting the proceedings ordinarily resides, carries on business etc. This rationale behind the enactment of section 62(2) of the Copyright Act was referred to by the Delhi High Court in the context of section 134(2) in Lakhan Pal Kumar v Ram Prasad Gupta on 24 May 20127 wherein the court held that the object of enacting section 134 “was to help the plaintiff to enforce [its] rights and take action in case of infringement of its registered trademark and for mitigating the arduousness to sue at the place of residence or business of the defendant.”

3 The liberal interpretation of “carries on business” leads to misuse There has also existed some confusion over the meaning of the conditions contained in section 134(2). While the clauses “actually and personally resides” and “personally works for gain” are clear, courts have had trouble interpreting the meaning of “carries on business,” especially in the context of online businesses. The general interpretation of ‘carries on business’ was given by the Supreme Court in Dhodha House v S. K. Maingi on 15 December, 20058(“Dhodha House”), wherein it was held that business could also be carried without the physical presence of a person. To carry on business, the plaintiff must have an interest in a business at that place, a voice in what is done, a share in the gain or loss, and some control over the business. Three criteria must be satisfied by the plaintiff to show that it was carrying on business at a particular place: (1) The plaintiff must have a special agent that is looking after the business on the plaintiff’s behalf at the 6 (2004) 3 SCC 688. 7 190 (2012) DLT 659. 8 AIR 2006 SC 730.

446  Gargi Chakrabarti and Saahil Dama place; (2) the agent must be an agent in the strict sense of the term; and (3) the essential part of the business must take place at that place. Despite this explanation, courts have failed to uniformly hold what would constitute “carries on business.” In Icon Health and Fitness, Inc. v Sheriff Usman on 12 September, 20179 (“Icon Health”), the Delhi High Court held that the defendant was carrying on business in Delhi by offering their fitness apps and bands through the App Store, Google Play Store, and other e-commerce portals. The court assumed jurisdiction since these platforms could be accessed from all over the country, including Delhi. This holding fails to satisfy all the three conditions laid down in Dhodha House. The decision in Icon Health was arrived at by relying on the case of WWE v Reshma Collections on 4 October, 201310(“WWE”). In WWE, the plaintiff was a company incorporated in Delaware, USA, and the defendant sold merchandise in Delhi which bore the plaintiff’s trademarks and copyrighted characters. The plaintiff relied on sections 134(2) of the Trade Marks Act and 62(2) of the Copyright Act respectively, to argue that the Delhi High Court could exercise jurisdiction since – 1 The plaintiff’s programmes were being broadcast in Delhi; 2 The plaintiff’s merchandise was available within the territorial limits of the Delhi High Court; and, 3 The plaintiff was selling its goods and services to consumers in Delhi, and other parts of the country, through its websites. The Delhi High Court held that it could exercise jurisdiction by relying upon the third Dhodha House criteria, i.e., the essential part of the business was taking place in Delhi. Customers’ offers to buy the plaintiff’s merchandise, the plaintiff’s acceptance through its website, and payment were all made in Delhi. Therefore, it was held that the plaintiff was conducting its business of selling merchandise bearing its trademarks and copyrighted characters virtually in Delhi. The facts in WWE were, however, materially different from Icon Health. In WWE, the plaintiff was directly selling products in Delhi through its website which would satisfy the essential part of the business condition in Dhodha House. But, in Icon Health, there was no direct sale – instead, the defendants’ products and app were made available through intermediary portals such as the Google Play Store. Thus, none of the Dhodha House conditions are satisfied in this case since the intermediaries are not agents of the plaintiff and the essential part of the business is also not taking place in Delhi. What is even more problematic is that the court assumed jurisdiction simply on the basis that the defendant was offering its app and products to consumers in the entire country through various intermediary platforms. This understanding would result in any and every court assuming jurisdiction thereby causing grave

  9 CS(COMM) 216/2016. 10 2014 SCC OnLine Del 2031.

Remedying mischief in deciding jurisdiction 447 injustice to the defendant. This case demonstrates the uncertainty that still exists with regards to choice of jurisdiction under Indian law. IPRS v Sanjay Dalia is a significant case in this regard because it addresses the conflict that arises when section 20 of the CCP and section 134(2) of the Trade Marks Act are read together. The context behind this case was that plaintiffs were misusing section 134(2) to harass defendants by filing suits before courts at distant places. For instance, if the plaintiff had offices at Delhi and Mumbai, and the defendant resided in Delhi, the plaintiff would intentionally file the suit at Mumbai to cause the defendant the inconvenience of having to travel to Mumbai for contesting the suit. In Sanjay Dalia, the Supreme Court addressed the question of where a suit must be filed when the plaintiffis carrying on business through its offices in two or more places and the cause of action arises at one of such places.

Facts The case dealt with two matters that had been clubbed together due to similarity in legal issues. In the suit concerning trademark infringement, the registered head office of the plaintiff was in Mumbai and the branch office was in Delhi. The plaintiff filed a suit before a court in Delhi based on section 134(2) of the Trade Marks Act since it was carrying on business in Delhi. However, the plaintiff failed to clarify that the cause of action had also arisen in Delhi. The single judge of the Delhi High Court refused to allow the plaintiff to amend its pleading and held that even if the pleading had been amended it would not have jurisdiction to decide the case. The plaintiff filed an appeal to the Division Bench which set aside the decision of the single judge. Against this, an appeal was filed before the Supreme Court. The Supreme Court had to decide whether courts in Delhi could exercise jurisdiction in the present matter.

Reasoning of the court 1 The purpose and restrictions of 134(2) of the Trade Marks Act In IPRS v. Sanjay Dalia, the Supreme Court wrote its decision – the provisions of section 62 of the Copyright Act and section 134 of the Trade Marks Act have to be interpreted in the purposive manner. No doubt about it that a suit can be filed by the plaintiff at a place where he is residing or carrying on business or personally works for gain. He need not travel to file a suit to a place where defendant is residing or cause of action wholly or in part arises. However, if the plaintiff is residing or carrying on business etc. at a place where cause of action, wholly or in part, has also arisen, he has to file a suit at that place, as discussed above.11

11 IPRS v Sanjay Dalia, para. 47.

448  Gargi Chakrabarti and Saahil Dama Hence, the plaintiff was not allowed to file the suit before the Delhi High Court and, instead, had to file it where the plaintiff’s head office was located, i.e., before the courts in Mumbai. Section 134(2) of the Trade Marks Act was introduced to ensure that plaintiffs are not deterred from filing infringement suits because the court with appropriate jurisdiction is at a considerable distance away from their place of residence or business. As was stated by Shri Trikamdas in the Parliamentary Debates in the context of section 62(2) of the Copyright Act, “Instead of making the another [sic: author] run all over the country facing the infringer, the right may be given to the injured party – the author – to sue the main in the place where the author resides or where the first copy was published.” Accordingly, the Supreme Court held that the language of sections 134(2) of the Trade Marks Act and 62(2) of the Trade Marks Act makes it clear that an additional forum has been created to the ones contained in section 20 of the CCP. The legislative intent behind introducing these sections was to allow plaintiffs to file a suit at their place of convenience – however, they were not enacted to enable the plaintiff to drag defendants to distant places for contesting the suit. The Court felt the need to remedy this mischief that was being caused by section 134(2). The Court, therefore, read down section 134(2) to hold that if the cause of action arises where the plaintiff is residing, has its principal office or carries on business, or personally works for gain, then the plaintiff must file the suit at such place. In this situation, the plaintiff is barred from filing the suit at another place where it may have a subordinate place of business but where the cause of action does not arise. As per the Court, section 134(2) needs to be read subject to certain restrictions. If the cause of action arises at the same place where the plaintiff resides, carries on business, or works for gain, the jurisdiction of such place cannot be ignored “under the guise that [the plaintiff] is carrying on business at other far flung places also.” Section 134 of the Trade Marks Act was not intended to operate in cases where the is carrying on business at a specific place and the cause of action also arises at such place so as to allow the plaintiff to file a suit where its subordinate office is located even though no cause of action has arisen there.

2 Relying on the Heydon’s mischief rule for statutory interpretation The Supreme Court relies on Heydon’s mischief rule which states that when words in a statute are capable of being construed in two or more ways, then the construction that suppresses the mischief and advances the remedy caused by the provision should be adopted. This was first held in Heydon’s Case in the UK in 1584.

Remedying mischief in deciding jurisdiction 449 The Court uses the mischief rule to prevent harassment of defendants and abuse of section 134(2) by plaintiffs. The Court holds If the interpretation suggested by the appellant is accepted, several mischiefs may result, intention is that the plaintiff should not go to far flung places than that of residence or where he carries on business or works for gain in order to deprive defendant a remedy and harass him by dragging to distant place. It is settled proposition of law that the interpretation of the provisions has to be such which prevents mischief. The said principle was explained in Heydon’s case.12 Therefore, the Court holds that provisions must be interpreted in a manner that would avoid hardship and absurdity. Even though it was argued before the Court that Heydon’s rule would not apply when the wording of the statutory provision is unambiguous and clear, the Court opined that when two or more interpretations are possible, Heydon’s rule must be used to adopt the interpretation that promotes the objective of the statute.

Legal analysis 1 Limits of section 134(2) not clearly defined, leading often to abuse by plaintiffs It is clear that sections 134(2) of the Trade Marks Act and 62(2) of the Copyright Act sought to cause convenience to plaintiffs at the time of filing trademark and copyright suits respectively. This intention can also be gathered from report of the Joint Committee published in 1956 which has been cited by several judgements on the issue. The report notes many authors are deterred from instituting infringement proceedings because the court in which such proceedings are to be instituted is situated at a considerable distance from the place of their ordinary residence. The Committee feels that this impediment should be removed and the new sub-clause (2) accordingly provides that infringement proceedings may be instituted in the District Court within the local limits of whose jurisdiction the person instituting the proceedings ordinarily resides, carries on business, etc. The purpose and interpretation of section 134(2) per se was clear when Sanjay Dalia was decided. The case arose because the limits of section 134(2) were not clearly defined, which often led to abuse by plaintiffs thereby causing hardships to defendants.

12 Id., at para. 22.

450  Gargi Chakrabarti and Saahil Dama The decision in Sanjay Dalia can be understood in the form of the following table which was set out by the Delhi High Court in Ultra Home Construction Pvt. Ltd. v Purshottam Kumar Chaubey on 20 January, 201613 (“Ultra Home”). The table has been modified slightly for ease of understanding. Sr.

Plaintiff’s principal office

Plaintiff’s subordinate office

Cause of action

Where plaintiff can sue

1.

A

C

2. 3. 4.

A A A

No subordinate office B B B

A – as per section 134(2) C – as per section 20(c) A – as per Sanjay Dalia B – as per Sanjay Dalia A – as per section 134(2) C – as per section 20(c)

A B C

In Ultra Home, the court explained that there upon a combined reading of section 20 of the CCP and section 134(2) of the Trade Marks Act, four situations are possible: 1 The plaintiff has a sole office at one place and the cause of action arises in another place – The plaintiff can file a suit either where its office is located or where the cause of action has arisen; 2 The plaintiff has a principal/head office at one place and a subordinate/ branch office at another place, and the cause of action arises at the place of the principal office – The plaintiff must file the suit at the place where it has its head office and the cause of action has arisen. After Sanjay Dalia, the plaintiff can no longer file the suit where it has its branch office since the cause of action has not arisen there. 3 The plaintiff has a principal office at one place and a branch office at another, and the cause of action has arisen at the place of its subordinate office – The plaintiff must file the suit at the place where its subordinate office is located and the cause of action has arisen. It cannot file the suit where its principal office is located as per Sanjay Dalia. 4 The plaintiff has a principal office in one place, subordinate office in another, and the cause of action arises at a third place – The plaintiff would be considered to be carrying on business only at the place of its principal office, as per explanation to section 20 of the CCP. Therefore, it could file a suit at the place of its principal office or where the cause of action has arisen.

2 Balancing the interests of both parties to the suit to ensure parity The decision in Sanjay Dalia was necessary to limit the ambit of section 134(2) which otherwise gave unbridled discretion to plaintiffs in deciding to file 13 (2016) 227 DLT 320 (DB).

Remedying mischief in deciding jurisdiction 451 trademark infringement suits. Sanjay Dalia, therefore, is a significant departure from previous jurisprudence which has largely adopted a pro-plaintiff position in interpreting section 134(2). The Court weighs the interests of both the parties to the suit and plays a balancing act to ensure parity. The result is that while section 134(2) can still be used by plaintiffs to file trademark infringement suits at their place of convenience (residence or business), its scope is limited by the application of section 20 of the CCP. In case of overlap between jurisdiction under section 134(2) and cause of action, the suit must be filed at the place of such overlap, i.e., where the plaintiff is residing, carrying on business, or working for gain and where the cause of action has arisen at one of such places.

3 Absence of such a provision under the Patents Act, 1970 It bears noting such a provision is absent from the Indian Patents Act, 1970, which means that patent disputes can only be filed as per the jurisdiction provided under the CCP.

Commercial or industrial significance Section 134(2) of the Trade Marks Act was introduced keeping in mind the commercial interests of trademark owners. Its objective, as has been stated previously, was to ensure that plaintiffs can file trademark infringement suits conveniently. Courts have also interpreted the section liberally in order to promote this objective. The phrase “carries on business” has been given a broad meaning to facilitate trademark protection. For example, in Citigroup Inc. v Citicorp Business and Finance Pvt. Ltd.,14 the fact that the plaintiffs had ATMs in Delhi and provided services to customers in Delhi through a website was adequate for the plaintiff to prove that it was carrying on business in Delhi. In India TV Independent News Service Pvt. Ltd. v India Broadcast Live LLC,15 the defendant was “carrying on business” in Delhi by the virtue of allowing users to subscribe to its services through a website. Decisions like the ones mentioned here have been rendered after judges have noted the rapid increase in e-commerce and online businesses. Courts have been willing to do away with traditional jurisdictional requirements of the plaintiff/ defendant having to be physically present to conduct business. They have recognised that commercial activities are being conducted over the internet without physical presence of the commercial entity. The jurisdictional requirements under sections 134(2) of the Trade Marks Act and 62(2) of the Copyright Act, and section 20 of the CCP have been interpreted accordingly. However, if such broadening of jurisdiction is not curtailed, it would prove detrimental to industrial interests because defendants, both infringing and

14 CS(OS) No.1789/2013, (24 November 2014). 15 2007 (35) PTC 177 Del.

452  Gargi Chakrabarti and Saahil Dama non-infringing, would be unable to contest suits if plaintiffs file them in faraway locations. Taking cognisance of this reality, the decision in Sanjay Dalia, imposes restrictions upon the manner in which courts can exercise jurisdiction under section 134(2) of the Trade Marks Act. While taking note of this potential mischief, the Court states There may be a case where plaintiff is carrying on the business at Mumbai and cause of action has arisen in Mumbai. Plaintiff is having branch offices at Kanyakumari and also at Port Blair, if interpretation suggested by appellants is acceptable, mischief may be caused by such plaintiff to drag a defendant to Port Blair or Kanyakumari. The provisions cannot be interpreted in the said manner devoid of the object of the Act. This decision would prevent plaintiffs from filing malicious lawsuits with the sole intention of inconveniencing defendants. Trade mark infringement cases would be better contested, as opposed to ex parte injunctions being issued by courts. As the Court notes in paragraph 43, both plaintiffs and defendants would be benefitted from a proper interpretation of the section.

Index

applicable law 409, 412, 415, 417, 419 – 428 association 54, 99, 177, 179, 202, 205, 207, 223, 247, 256, 257, 260 – 264; specific 227 bona fide purchaser rule (equitable doctrine of notice) 349; beneficial owner 15, 340, 343, 346, 347, 349, 350; burden of proof 88, 214, 364, 366, 372, 373, 377 – 380, 394, 402 characteristic performance 411, 415 commercial speech 316, 317, 326, 327 comparative advertising 9, 14, 315, 317 – 321, 324, 327, 329, 330; free speech 10, 192 – 194, 196, 315, 324, 326 compensatory principle 15, 358, 402 Conflict of Law in Intellectual Property (CLIP Principles) 425 – 427 conflict of laws 425, 427, 429, 430, 432, 433, 436 – 438 confusion 55 – 57, 64 – 67, 76, 86, 162, 165, 168 – 171, 174, 177, 179, 202 – 204, 206, 213, 217, 218, 228, 233 – 236, 239 – 242, 247, 250, 251, 258; business 174, 295; initial interest 40; likelihood 61, 63, 67, 79 – 81, 83, 92, 102, 183, 199 – 201, 204, 215, 222 – 224, 228, 231, 236, 237, 243, 252 – 254, 258 – 260, 262, 263; (of) goods 293, 295 cross-region trademark litigation 19 damages: actual loss 214 – 217, 353, 356, 358, 361, 366, 384, 388, 395, 397, 399, 401, 406; calculation method 371, 373, 374, 377 – 380;

causal link 399, 404, 406; exemplary 301, 392, 397, 399 – 401, 405, 406; infringer’s profit 16, 352, 353, 356 – 358, 374, 377, 378; lost profits 16, 364, 365, 374, 381, 388; nonoccurrence 367 – 370; pecuniary 17, 317, 366, 382, 392, 393; punitive 17, 222, 366, 373, 377, 378, 405; reasonable expense 16, 214, 222, 225, 351 – 353, 355, 356, 358; royalty 217, 374, 403; statutory 16, 17, 20, 370, 372 – 374, 376 – 379, 392 – 397, 399, 401, 402, 404, 406; traditional 392, 393, 297, 402 deemed infringement 38, 200, 253, 260, 332 defense 306, 311; abuse of right 13, 14, 26, 302, 306, 309 – 311, 354 (see also fair use); free speech 10, 192 – 194, 196, 316, 324, 326; invalidation period 302; invalidity 304, 306, 308, 309; see also parody dilution 9 – 12, 14, 38, 59, 66, 79, 118, 185, 187 – 191, 194, 200, 205, 206, 221, 228, 230 – 232, 234, 237 – 242, 248 – 264, 280, 325; likelihood 10, 12, 38, 79, 200, 205, 219, 252 – 254, 257 – 264 disparagement 315, 316, 320 – 323, 325 – 329, 315; generic 315, 321, 323, 327 – 329; tortious 315, 316, 320 – 323, 325, 327; see also malicious falsehood distinctiveness 11, 12, 38, 80, 81, 94, 96, 97, 98, 189, 196, 200, 203 – 205, 207, 223, 224, 226 – 229, 251 – 265, 278, 280, 284, 289; acquired 6, 81, 94, 97, 105 – 113, 255, 258, 261, 283, 284; intrinsic 283, 284

454 Index doctrine of forum non conveniens 432, 437 domain name 6, 58 – 67, 253, 281 dominancy test 294, 298 duty of care 15, 334 – 338 Einheitstheorie 416, 418 exception 7 – 9, 18, 45, 72, 127, 134, 135, 137, 177, 181 – 183, 205, 217, 218, 242, 278, 287, 288, 361, 362, 365, 367, 368, 370, 426 exhaustion 7, 118, 121, 122, 123, 125, 127, 128, 132, 134, 135, 137 – 143, 148, 149, 152 – 154, 171; international 4, 6 – 8, 115, 117, 122, 124, 125 – 127, 129, 131, 134 – 141, 150 – 152, 154, 439, 440; national 125, 126, 129, 131, 132, 133, 139, 150, 151, 439, 440; regional 125, 126 express consent 117 – 119, 121, 123, 124, 143, 146, 149, 151, 153, 154, 395, 440 fair use 4, 8 – 10, 20, 180, 185, 188, 194, 198 – 201, 205, 217, 287; see also defense free-riding 42, 44, 203, 275, 288, 289, 309, 310, 318, 399 goodwill 12, 17, 18, 56, 59, 62, 63, 134, 158, 161, 168, 174, 179, 189, 191, 228, 240, 241, 245 – 249, 260, 262, 265, 280, 287, 291, 292, 297 – 299, 341, 381 – 384, 386, 387, 389 – 391, 397 – 400; holistic test 294, 298 identical/similar mark 16, 230, 239, 243, 353 implied consent 7, 117 – 119, 124, 145, 146, 149, 151, 153, 154, 395 infringement, contributory 331, 337 injunction 10, 35, 45, 58, 62, 63, 66, 137, 150, 168, 169, 176, 187, 192, 211, 212, 244, 245, 289, 302 – 306, 321, 325, 330, 332, 333, 355, 363, 369, 384, 393, 395, 452; permanent 176, 187, 208, 209, 211, 213, 214, 215 – 218, 245; preliminary 210, 333, 334 joint tortfeasor 15, 41, 334, 338 jurisdiction: exclusive 18, 409, 410, 412 – 414, 417, 430 – 432, 437; general 426, 431, 435, 437; special 426, 430 – 432, 437

keyword advertisement 35, 37, 39, 41, 42 lexfori 420, 433, 436, 439 – 441 lex loci actus 415, 420, 421, 425, 427 lex loci delicti 433, 436, 438 lex loci protectionis 18, 417, 420, 421, 422, 426 – 428, 433, 436, 438, 439 lex protectionis 439, 441 lex rei sitae 416 lex specialis 433 licensing 10, 15, 27, 75, 155, 159, 161, 164, 224, 254, 263, 265, 350, 374, 403; compulsory 4, 10, 20; exclusive 15, 17, 156, 166, 168, 171 – 173, 175, 304, 332, 333, 340 – 347, 341, 411 malicious falsehood 315 – 317, 319; see also disparagement market survey 4, 6, 30, 31, 32, 33, 69, 71 – 74, 77, 79 – 104; evidential evaluation 88; expert testimony 96; misleading 11, 56, 99, 100, 102, 103, 170, 174, 190, 192, 224, 268, 272, 296, 317, 326; misrepresentation 59, 61, 247; nonuse 25, 27, 31 – 34, 43, 83, 85 – 90, 92, 367; probative evidence 6, 71, 76, 79 – 82; questionnaire 6, 77, 78, 83, 97, 99 – 102, 104, 105, 108, 111, 113 numerus clausus principle 426 – 428 parallel import 7, 8, 117, 119, 122, 123, 126, 436, 439, 440 parody 10, 20, 188, 191 – 207, 329; target 194, 195; two-step test 203, 204, 207; weapon 194, 195; see also defense passing off 6, 12, 44, 55, 56, 58 – 62, 64 – 66, 154, 176, 209, 241, 244, 248, 250, 251, 290 – 292, 296, 299, 343, 381 – 387, 390, 443 petition for cancellation 268 pre-condition question/accompanying question 426, 427 preparatory act 123, 127, 128 primary question/question per se 426, 427 prior right 71, 71, 74 – 76, 78, 79, 81 product configuration 278, 280, 287, 288, 295 proportionality principle 204 – 206

Index  455 registrability 55, 57, 110, 112, 162, 268, 271, 434 registrations: bad-faith 12, 266 – 268, 270, 271, 275 – 277, 283; cancellation 12, 26, 57, 266 – 271, 275 – 277, 357; removal (of) 5, 25 – 27, 31 – 34, 37, 42, 268 reputation 6, 11, 12, 17, 38, 59, 61, 62, 66, 78, 136, 157 – 1 59, 166, 169, 171, 174, 179, 182, 188 –  190, 200, 205, 206, 208, 213 –  215, 222 –   2 24, 226  –   2 28, 238, 240 –  243, 245 –   2 63, 265, 274, 280, 281, 283, 289, 297, 298, 316, 318, 320, 323, 333, 352, 358, 363, 364, 368, 382, 383, 386, 387, 397 –  4 00, 406 search engine 35, 36, 42, 45 secondary infringement 127, 337 similarity: appearance 5, 6, 8, 12, 13, 46 – 50, 53, 54, 164, 256, 265, 285, 288, 294, 296, 297, 299, 300, 336; concept 5, 6, 46 – 56, 236, 285; (of) mark 5, 13, 46, 48, 281; (of) product/goods/services 13, 51, 56, 66, 281; pronunciation 5, 6, 46 – 49, 52 – 54 slavish imitation 288 Spaltungstheorie 416, 417 statutory time limit 275, 276

territoriality principle 427, 428, 435, 438; unfair advantage 11, 12, 130, 185, 188, 224, 227 – 229, 238, 242, 243, 260, 318 – 320; unfair competition law 12, 55, 56, 165 – 167, 169, 170, 173 – 175 unit retail price 17, 20, 371 – 380 unregistered: trademark 12, 13, 50, 72, 166, 268, 174, 280, 281, 287, 300, 301, 319, 327, 382; well-known trademark 13, 50, 222, 302, 303 use: denominative 187, 192; genuine 44, 92, 235; infringing 5, 23, 38, 43 – 45, 208, 214 – 217, 280, 357, 358, 367; nominative 9, 187, 188, 191, 192; permissible 165, 168, 169; right-maintaining 5, 23, 38, 43, 44; in trade 5, 27, 31 Vertragsstatut 416 – 418 well-known (trade) mark 3, 4, 9 – 16, 19, 31, 36, 38, 41, 45, 47, 50, 53, 161, 189, 195, 200 – 203, 205 – 207, 219 – 239, 243, 250 – 264, 266, 269, 271, 273 – 275, 280, 281, 289, 290, 302, 303, 306, 309, 312, 343; nationwide recognition 307, 308 Whitford guideline 83 – 93 wilful blindness 337