Background
Proceedings
Comment


Background

Zippo Manufacturing Company owns a registration for the trademark ZIPPO (pictured below) in China, covering lighters and related goods. However, the limited scope of the designated goods was seen by infringers as an opportunity to free-ride on Zippo's significant brand power.

In addition to lighters, Zippo also manufactures hand warmers - the device has the shape of a pebble and can be kept in the pocket. However, Zippo does not own a trademark registration for this kind of product.

Mr Sun Meng Lin, a member of staff at Fuhai Zhentian Plastic Factory (Zhentian Factory) in Zhejiang Province, left the company and established his own company called Cixi Fuhai Tangfeng Plastic Factory (Tangfeng Factory). He then started to manufacture hand warmers, using the ZIPPO mark pictured above on the products.

Zhentian Factory was the supplier of Zippo's subsidiary in Japan, which was using this factory under the original equipment manufacturer system. This explains how Sung Meng Lin knew the mark. On April 21 2006 he filed a trademark application for the ZIPPO mark for hand warmers and, on November 27 2006, Tangfeng Factory filed a design patent (for the same design as the trademark) with respect to packaging boxes.

Zippo was faced with a difficult situation, as it had no registration for hand warmers. Several actions had to be considered:

  • opposing the trademark application filed by Sun Meng Lin;
  • challenging the design patent filed by Tangfeng Factory; and
  • putting a stop to the sale of the hand warmers at issue.

This implied initiating three distinct procedures:

  • a trademark opposition;
  • a civil action based on the infringement of the registered mark (for lighters); and
  • another civil action concerning the use of the design patent on packaging.

Zippo could also have considered filing an invalidation action against the design patent with the Patent Re-examination Board, on the basis that the design patent reproduced its registered trademark.

Proceedings

The reason why Zippo filed a civil action, rather than a patent invalidation action, was that under Article 65 of the Implementing Rules of the Patent Law 2000, a design patent can be invalidated only on the basis of a conflict with another kind of intellectual property, if the plaintiff submits to the Patent Re-examination Board a court decision establishing the reality of such conflict. In other words, it had to be decided by a court that the design constituted, by itself, an act of infringement of the registered ZIPPO mark, which was not obvious because the design was not affixed on the products for which the trademark was registered (lighters).

The Beijing Number 1 Intermediate Court accepted Zippo's argument that the design patent application constituted an "imminent infringement", since a packaging design, as such, does not indicate for which product it is intended to be used (ie, hand warmers or lighters). On March 19 2010 the court ruled in favour of Zippo and ordered Tangfeng Factory to stop using the design. The judgment was confirmed by the Beijing Higher Court on November 9 2010.

This was the first important breakthrough in this case (it is worth noting that since the revision of the Patent Law in 2008, a design patent may no longer consist of a simple two-dimensional design, but must be a three-dimensional shape; therefore, under the new Patent Law, the Zippo design would not have been accepted by the Patent Office).

When Sun Meng Lin's trademark application was published by the Trademark Office in 2009, Zippo filed an opposition. In principle, since Zippo had no trademark registration for hand warmers, and since hand warmers and lighters are not considered to be similar products, Zippo had to prove that:

  • its trademark was well known in China and thus deserved cross-category protection; or
  • pursuant to Article 31 of the Trademark Law, the trademark had been used before the filing date of the opposed trademark and had acquired a "certain influence", and the application had been filed by "improper means".

Zippo knew that obtaining recognition of the well-known status of its mark by the Trademark Office would be extremely difficult and time consuming. A strict quota has been put in place with respect to foreign trademarks (approximately 1% of such applications are granted). Therefore, a claim under Article 31 seemed better adapted. Zippo was able to demonstrate its own use of the mark and its reputation but, above all, it showed to the Trademark Office the personal relationship between Sun Meng Lin and the supplier to Zippo (Japanese).

The Trademark Office found that the application violated the principle of good faith and that use of the mark would be likely to cause confusion among consumers. The application was thus refused on February 7 2012.

Zippo's civil action for trademark infringement also faced difficulties with regard to the recognition of the well-known status of its mark, but for different reasons.

According to statistics issued by the Supreme People's Court, since the system for the recognition of well-known marks has been introduced in China, the recognition of well-known marks has significantly increased, which has caused unexpected problems. For example, lured by the commercial benefits of such a status, a large number of mark owners whose marks had only a relatively local reputation applied for this status and were successful before the local courts, which have discretion to make a decision on a case-by-case basis.

As a result, the Supreme People's Court has significantly limited the number of recognitions of well-known marks by local courts since 2008. One of the measures taken by the Supreme People's Court was to concentrate such cases in the intermediate courts (located in the capitals of major provinces) and prohibit other courts from accepting those cases. In addition, the Supreme People's Court issued a number of judicial interpretations to regulate and control the recognition of well-known marks, so the Chinese courts have become increasingly reluctant to recognise such status.

Nevertheless, Zippo filed a civil action before the Ningbo Intermediate Court on August 14 2009, requesting that the court find that Sun Meng Lin and Tangfeng Factory's use of the mark for hand warmers infringed its registered mark for lighters. This implied that the trademark had to be recognised as well known.

Due to the aforementioned reasons, the Ningbo court hesitated to recognise the well-known status of the mark. In the first instance decision, it stated that hand warmers fall within Class 11, while the plaintiff's mark covers goods in Class 34. The court noted that even though Zippo's mark is very well known, the function, usage, distribution channels and related consumers of the goods were substantially different. Therefore, use of the mark on hand warmers would not confuse consumers, and the scope of protection of Zippo's mark should not be extended to cover hand warmers. Consequently, the issue of whether the mark was well known was not examined.

Zippo appealed to the Zhejiang Higher Court on May 28 2012, providing additional arguments and analysis. The Zhejiang Higher Court ruled that the continuous use of the mark, as well as Zippo's huge investment in and advertisement of the mark, meant that it had acquired a significant reputation and goodwill, and that the value of the brand had been recognised by the relevant public. The mark was highly distinctive and reputed. The court concluded that the unauthorised use of the mark by Sun Meng Lin and Tangfeng Factory caused confusion among consumers, diluted the famous ZIPPO mark and caused substantial harm to Zippo.

The Zhejiang Higher Court ordered the defendants to cease the infringing use, make a public apology to Zippo and pay compensation in the amount of Rmb500,000 - the highest amount available under the statutory compensation system of the Trademark Law.

Comment

The case paved the way for the administrative recognition of the well-known status of the mark: since then, this status has also been recognised by the Beijing Number 1 Intermediate Court in two other administrative cases.

This case reflects the variety of legal means that are available to trademark owners in China when faced with bad-faith applications. It also illustrates the specific issues that recent legislative revisions have addressed, or are addressing. For instance, since the Patent Law revision of 2008, there have been no more design applications for simple drawings. Likewise, the latest draft of the revised Trademark Law addresses the issue of bad-faith applications in a way that would have perfectly fitted the facts of this case. However, the main difficulty remains the concept of a 'well-known trademark', which the administrative and judicial authorities still view within the context of consumer confusion; arguably, it should be examined only in relation to the potential dilution of the distinctive character of the trademark.

For further information on this topic please contact Charles Feng at Wan Hui Da Law Firm & Intellectual Property Agency by telephone (+86 10 6892 1000), fax (+86 10 6894 8030) or email (fengchao@wanhuida.com).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.