A recent decision by the Fujian Higher Court shows that the good faith principle is gaining ground and gives hope to foreign trademark owners who are threatened by trademark hijackers in China.
Merry Food Co., Ltd. sued I Schroeder KG1, a German based leading producer of tinned food and frozen goods, for infringement of its registered trademark "iska" in China.
The sole shareholder of Merry Food is a Chinese individual who was an OEM manufacturer for many years for I Schroeder KG since the 1990s. All products bearing the "iska" mark were exported to overseas markets where I Schroeder had acquired trademark registrations.
However, I Schroeder did not apply for trademark registration for the mark in China. Knowing this, the Chinese individual registered the mark "iska" in China in class 29 covering canned vegetables and the like, through his father's company in 2002, and transferred the mark to his wholly owned company, Merry Food, in 2008.
Merry Food then offered to sell the mark to I Schroeder. Failing in that endeavor, they started to petition China Customs to seize I Schroeder products bearing the “iska” mark at the border and further filed a trademark infringement action before the court.
Outcome of the Case
Merry Food's law suit backfired in that the first instance court, the Xiamen Intermediate People's Court, found that Merry Food had acquired the "iska" mark in bad faith.
In its judgment, the court ruled that good faith is a fundamental principle, which should be observed by all market players when doing business. Any acts which violate this principle shall not be protected by law. Whilst the validity issue is to be determined by the trademark administrative authority, its scope of protection should be restricted even if Merry Food's registration was found valid. In particular, the mark should not be enforced against the prior user.
The court therefore ruled non-infringement and that Merry Food does not have the right to stop I Schroeder from continuing to use its "iska" trademark. 1 We acted for I Schroeder in this case. Merry Food then appealed the judgment. The appeals court, the Fujian Higher Court, upheld the lower court's decision.
Bad News for Trademark Hijackers?
China has adopted the first-to-file system and the law does not provide a prior use defense. This is problematic for companies whose trademarks are hijacked. Although Article 31 of the Trademark Law stipulates that an application for trademark registration must not jeopardize any pre-existing rights of others, the article is most often interpreted to only be applicable in trademark prosecution proceedings.
In addition, under the current PRC Trademark Law, a genuine rights holder will encounter difficulties in cancellation actions if the hijacked mark has been registered for over five years.
Beyond the five-year period, the registration can only be cancelled if it is proven that: (a) the registrant acted in bad faith; and (b) the mark being hijacked was well-known at or before the filing date of the hijacked mark. This results in a high evidential burden and threshold in order to prove bad faith.
Since the current legal environment makes it hard to reclaim hi-jacked trademarks, the Merry Food v. I Schroeder case is encouraging for foreign trademark owners who are threatened by infringement actions or otherwise are either compelled to pay a significant amount of money to purchase back their own mark or are forced to rebrand.