What is the "inclusive development theory"?
It can be summarized as follows: "When two similar trademarks have been coexisting for some time and are both successful, they should continue to coexist, whether the first trademark owner agrees or not", or in an even shorter version, "status quo is more important than law".
This theory attracted controversy.
The source of the theory can be found in an “Opinion of the Supreme People’s Court Concerning Trial of Administrative Cases in Respect of Trademark Right Granting and Confirmation”, which was released on April 20, 2010. Article 1 of such Opinion reads as follows:
"When hearing administrative cases of granting and confirmation of trademark right, ……..with respect to trademarks in dispute that have long been used, have established a good market reputation and have been popular among certain sectors of the public, the People’s Courts should precisely grasp the legislative spirit of combining the protection of prior trademarks and the safeguarding of market order enshrined in the Trademark Law, fully respect the reality of the market where relevant members of the public objectively distinguish the trademarks concerned, and make efforts to maintain the stability of the established market order".
Later, on December 16, 2011,the SPC promulgated another “Opinion on Giving Full Play to the Functional Role of Intellectual Property Trials in Advancing the Great Development and Prosperity of Socialist Culture and Promoting Independent and Coordinated Economic Development”, which further developed the theory.
Article 19 reads as follows :
"… If both the trademarks concerned have a reputation, or if their co-existence has been formed under special circumstances, the similarity should be determined by considering
comprehensively the situation and the history of the use of the trademarks, the perception of the relevant public, and the subjective attitude of the users etc. When making the judgment, the Court should take into consideration, objectively, the respective market positions established by the operators, so as to allow the development of both and avoid that the similarity of the trademarks be decided only on the similarity of the trademarks’ elements.
After these two opinions, the angle for the examination of the similarity between two trademarks changed completely. When assessing whether two trademarks are similar and whether there is a likelihood of confusion between them, the judges were no longer asked to rely, only, on the traditional method (overall aspect of the trademarks in dispute, average attention of the public not viewing the two trademarks at the same time, reputation of the first registered trademark), they were asked to consider other factors, such as history of use, "special circumstances", subjective attitude of the second trademark user.
The theory raised great concerns among trademark owners because it could be interpreted as an encouragement to trademark infringers to expand their business quickly enough to secure a market foothold, and then obtain a judicial immunity.
Thereafter, many legal disputes between trademark owners and their infringers were adjudicated according to the theory, and ended, without exception, with the failure of the plaintiff.
However, a recent retrial judgment rendered by the SPC, regarding a trademark opposition dispute between a Chinese handmade footwear maker Nei Lian Sheng and its competitor Fu Lian Sheng seems to suggest a change.
Founded in 1853, Nei Lian Sheng Shoe Store is the oldest manufacturer of handmade shoes, known for its handmade thousand-layer cloth shoes in China. The Store bears an auspicious name which means "unstoppable promotions in official ranks" in Chinese. In its name “Nei Lian Sheng”, “Nei” literally means "inside" in the sense of "inside the Imperial Court", “Lian Sheng” hints that once customers wear the boots produced by this store, they can get good fortune in their career and receive continuous promotion.
Beijing Nei Lian Sheng Shoes Co., Ltd. (“Beijing Nei Lian Sheng”) is the owner, since 1983, of the registered trademark No. 125412 “Nei Lian Sheng in Chinese Character” (Cited Mark)
covering the goods of “footwear” in Class 25.
On June 29, 2009, a company called Beijing Fu Lian Sheng Shoes Co., Ltd. (“Beijing Fu Lian Sheng”) applied for the registration of a combination trademark No. 7504400 (device + Chinese Character & Pinyin of Fu Lian Sheng) (Applied Trademark) in Class 25, with the designated goods covering “apparel, underwear, footwear and etc”.
The Applied Trademark, which shares the same Chinese characters “Lian Sheng” with the Cited Mark, was preliminarily approved for registration on July 27, 2010.
On October 19, 2010, Beijing Nei Lian Sheng (the Opponent) filed an opposition against the Applied Trademark (the Opposed Mark).
On May 29, 2012, the CTMO rejected the opposition and approved the registration of the Opposed Mark.
On July 11, 2012, the Opponent appealed before the Trademark Review and Adjudication Board (the “TRAB”) claiming that: 1) the Cited Mark is highly reputable and the Opposed Mark is similar to the Cited Mark, 2) the Cited Mark is well-known and the Opposed Mark is the replication and imitation of the Cited Mark, and 3) the Opposed Mark infringes the trade name right of the Opponent.
On December 2, 2013, the TRAB made a decision overruling the CTMO’s decision.
The TRAB found that the distinctive part “Fu Lian Sheng in Chinese Character” of the Opposed Mark is similar to the Cited Mark in respect of composition, pronunciation and semantic meaning. The TRAB concluded that such similarity is likely to cause
misidentification on the origin of the goods. The TRAB, therefore, cited Article 28 of the “Trademark Law” (2001 version) that prohibits the use of similar trademarks on identical or similar goods, and upheld the opposition. The Opponent’s two other arguments (well-known trademark status and infringement of its trade name right) were overruled.
Fu Lian Sheng appealed to the Beijing No. 1 Intermediate Court.
Fu Lian Sheng adduced evidence to prove that its Opposed Mark had acquired a reputation through long-term and extensive use, and thus that its use would not cause confusion among the relevant public.
The Court of first instance decided that such evidence, although produced after the TRAB's decision, was admissible because it was necessary to ascertain the whole truth of the case including what had happened after the TRAB's decision.
The Court found that the evidence proved that the promotion and use of the Opposed Mark had been lasting throughout the litigation procedure and throughout the country.
The Court then found that the Opposed Mark had certain differences from the Cited Mark.:
1.ThevieftheOpsdMakisfstgriialtyadisalsoaisticteartf the tramak,whie theCtedrk islyardmrk;
2.Thewomaksarevisalyiferent,adF”(firstaracterfteOpsedMark)s siifcatlyifeentfme”fitchrctrfeCitedMak)inciatio, fot tyleandsmaticai; and
3.The smatcmeangfe tomars is ifeent.
The Court finally cited the above mentioned Article 1 of the “S P C ’s Opinions Concer ning Tr ial
of Administrative Cases in Res pect of Trademar k Right Granting and Confirm ation” to back up its finding that the Opposed Mark has established a high market reputation and has formed its own consumer group, which would enable the relevant public to differentiate it from the Cited Mark.
On July 30, 2014, the Court concluded that the coexistence of the two marks would not cause confusion and misidentification among the relevant public, and revoke the TRAB decision.
The TRAB and Beijing Nei Lian Sheng then appealed before the Beijing High Court.
Before the Beijing High Court, Beijing Nei Lian Sheng adduced supplementary evidence to prove the reputation of its Cited Mark and trade name.
On December 8, 2014, the Beijing High Court reversed the first instance judgment and ruled in favor of the TRAB and Beijing Nei Lian Sheng, based on the following:
Since “Lian Sheng” is not a fixed word combination, but rather an original creation of Beijing Nei Lian Sheng, the two marks are somewhat similar.
2.BecausefterepttinaciredytheCitedMrkriorotealcatnatef theOpsedMark,therleatlcslelytoisentifythewomarkssserial marksftesmesieserarrmistaenyssumethattheeisanasciatn etwen thesulersf e crespoigs.
3.The OpsedMark s a siar ak sednidetcalr smiar sfthe Ctdark. BeijigFuianSengapldretrilote See Cot.
The SPC, first, focused on whether the Opposed Mark is similar to the Cited Mark.
It echoed the finding of the Court of Appeal that the relevant public looks at two marks in a similar way and that the shared component “Lian Sheng” is the original creation of Beijing Nei Lian Sheng. The SPC then affirmed that the Cited Mark is a well-known trademark, which makes it eligible for a broader protection than an ordinary trademark, which means that competitors need to have a higher duty of care.
The SPC then addressed the issue whether the Opposed Mark meets the conditions that could justify its coexistence with the Cited Mark.
The SPC acknowledged that the Opposed Mark had been used in stores all over the nation and had formed a certain market size, but considered that this was still insufficient to prove a high reputation and distinctiveness. Taking into account the high reputation and distinctiveness of the Cited Mark and the similarity between the two marks, the SPC found that the Opposed Mark had not created sufficient differentiation in the market. The relevant public, when paying average attention, was still likely to be confused or misidentify the source of the goods or mistakenly assume that there was a specific association between the Opposed Mark and the goods designated by the Cited Mark.
The SPC finally analyzed the bad faith of Beijing Fu Lian Sheng finding that:
1.eijigFuLianSengasitetalymittedejigeiLianSengadsCited Mark inespetf traerk, plcefincorratns wellas bsiessnae.
2.LianSen,whichisthemainitictveatfeCitedMak,wasfitlysedy BeijigeiLianSengnclthshes.eijigFuLanSengcatjstiyitssef LianSen.
3.BeijigFuLianSengrvealedvsadfat,tlyyalyigrthe regstratnftheOpsdMark,taloyalygaentertramrswith the smecment iner classs.
4.EenththeOpsedMarkadredcetainmaretsiethrohse,chse mstlycuredaferthealcatinaeftheOsedMarkwhenthesadmark adnot yt eenaprvedfr regstrti. Bereexensivey usigte Opedark, BeijigFuLianSen,shldaveenflyawaefthetetialegalrissthatits traerkmitterovedregstratnetotssmiarywthteCited Markadthatititfaetramakifrimentchrersigsuchtraeak. BeijigFuLianSengfaledtoflfllitslatnfreasaleareadadtoer the aderseceqences.
The SPC finally concluded that:
Beijing Fu Lian Sheng, as a competitor of Beijing Nei Lian Sheng, knew or should have known about the high reputation and distinctiveness of the Cited Mark. Yet, it still applied and used in bad faith the Opposed Mark similar to the Cited Mark. Under such circumstance, if the Court were to take into account the alleged market
order or reputation established by such use, this would encourage competitors to violate the good faith principle by ignoring the legitimate prior right of others and expanding their business. If the Court allows such act, it would be detrimental to the market environment that needs differentiated and clean trademark registration and use. Finally it would severely prejudice the legitimate rights of prior trademark owners and the interests of the consumers, which is in violation of the good faith principle and the intent of the Trademark Law.
On November 18, 2015, the SPC rendered an administrative judgment dismissing the application for retrial of Beijing Fu Lian Sheng.
This case constitutes a significant progress (from the controversial inclusive development
theory). In the interest of the consumers, the SPC emphasizes the need to maintain a clear differentiation between trademarks, at the Trademark Office registry and in the market place. Therefore the SPC aims to discourage applicant and/or users of a similar trademark, from expanding their business. The Court states that doing so will not save them from the consequences of lawsuits.
This is extremely positive, even if some comments in the SPC judgment still raise some questions.
The first comment is about the size of the Opposed Trademark's business. In this case, it was considered as "not sufficient". Does this mean that, if the size of the business had been sufficient, the decision might have been in favor of the Opposed Trademark? That would contradict the final statement of the Court that aims to discourage the expansion of a business under such circumstances.
The second comment is about the reputation of the Cited Trademark and the bad faith of the Opposed Trademark owner. The Court finds that, in view of the said reputation, the Opposed Trademark owner should have known of the existence of the Cited Trademark and should have refrained from filing its trademark and from using it. This raises concern because it seems to imply that the decision might have been different if the Cited Trademark had not been well known. Firstly, it should be observed that, according to the law, a trademark does not need to be well known in order to be protected against the filing and use of similar trademarks on the same or similar goods. All it needs to be is registered. Secondly, knowing of the existence of a registered trademark is extremely easy: just check the Trademark Registry. And finally, if the trademarks are similar and if the use of the second trademark is likely to cause confusion, good or bad faith is irrelevant.