The Beijing Higher People’s Court recently rejected a trademark application for the word mark “Kung Fu Panda”, filed by a trademark squatter, which was opposed by animation studio DreamWorks. Interestingly, the rejection was primarily based on DreamWork’s ‘merchandising right’. This is one of the most recent and strongest recognition of a merchandising right as a prior right to a trademark application.

Background

“Kung Fu Panda” is a well-known animation movie, produced by US-based animation studio DreamWorks. After being released in China in June 2008, Kung Fu Panda quickly became a blockbuster. However, the film’s success also attracted trademark squatters. In December 2008, an application was filed for the word mark “Kung Fu Panda”, covering automotive products such as headrests and car seats. DreamWorks filed an opposition procedure against this trademark application, invoking, inter alia, its merchandising rights. However, DreamWorks initially faced an uphill battle, since both the Trademark Review and Adjudication Board (“TRAB”) and, upon appeal, the Beijing Intermediate People’s Court maintained the grant of the trademark, ruling that there is no such thing as a merchandising right under Chinese law. DreamWorks therefore filed an appeal with the Beijing Higher People’s Court.

Merchandising rights

In its judgment, the Beijing Higher People’s Court considered that names of movies and/or names and images of movie characters may possess distinctive character and commercial value that are distinct from the commercial value arising from box office income alone.

In fact, the Court held that:

  1. consumers may associate the name of the movie or character with a certain company (cf. the essential function of trademarks: indicating origin);
  2. such company may derive additional commercial and marketing value/opportunities from consumer recognition; and
  3. if third parties were allowed to free-ride on the reputation of well-known movie names and/or images of characters, then that would encourage trademark squatting and harm fair competition in the market.

The Court therefore ruled that movie names and images may therefore constitute prior rights under Article 32 of the Trademark Law.

The scope of protection of ‘merchandising rights’

The Court considered the following elements to be essential in determining whether a sign could benefit from ‘merchandising rights’:

  • The reputation and influence of the name: the more famous the movie name or the name of the character is, the broader the scope of protection of the merchandising rights.
  • Likelihood of confusion: the likelihood of confusion should be determined by assessing the following factors:
    • Are the goods or services closely related?
    • Is the later application merely free-riding on the reputation or business value of the movie’s or character’s name?

Given that both the TRAB and the lower court did not consider the scope of protection of “Kung Fu Panda’s” merchandising rights, the Beijing Intermediary Court’s judgment was overturned, and the case was sent back to the TRAB for a new decision. We will monitor further developments in this case closely, and we will post updates on this blog as soon as they become available.

Conclusion

This is a significant development that may even become a landmark case regarding the existence of a merchandising right in China. If this case’s logic is followed in future cases, and the evidentiary bar for reputation and confusion isn’t set too high, the scope of protection for merchandising rights may become nearly as broad as that of well-known marks (i.e. ‘cross-class’ protection).

We will watch for further developments in this area, and will update you as soon as further developments arise.