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Abuse of Rights and Legal Consequences

Author: Yingying Zhu, Partner at BEIJING MINGDUN LAW FIRM

Email: zhu.yingying@mdlaw.cn

Date: June 15, 2022

 

Introduction

 

Intellectual Property Rights (“IPRs”) empower their owners with a privilege to exclude unauthorized parties from use of the relevant subject matter under protection (for example, trademarks, patents, copyrights). However, exercising IPRs might sometimes generate tensions with other sectors of law, such as the civil code, the anti-unfair competition law, the antitrust law, etc. According to the China Supreme People’s Court’s interpretation of the Civil Code of the People’s Republic of China, where a person exercises any civil right (including IPRs) mainly for the purpose of injuring the national interest, the public interest, or the lawful rights and interests of another person, the people’s court shall determine that there is an abuse of civil rights.[1] In such a situation, IPRs no longer render the owners exclusionary rights against the other users in the market and the owners should also face the legal consequences of their actions.

 

Recently, the Beijing Intellectual Property Court (“Beijing IP Court”) concluded the case of trademark infringement dispute between the appellant Ma and the appellee Shenzhen CHOW TAI FOOK Online Media Co., LTD. (“CHOW TAI FOOK”) and the defendant of first instance Beijing Jingdong E-commerce Co., LTD (“Jingdong”). It was concluded by the Beijing IP Court that the appellant Ma filed a lawsuit of infringement against the legitimate use of CHOW TAI FOOK company based on trademark rights not fairly obtained, which constituted an abuse of rights. Therefore, the appeal was rejected and the original judgment was upheld.[2]

 

As one of the typical cases where a trademark squatter was left empty-handed on account of an abuse of rights, the above case is sending a clear and strong message to trademark holders that do not use a mark in conjunction with the actual sale of goods or services, but generate or attempt to generate the majority of their earnings by enforcing their trademarks through malicious litigation — “For a truly enforceable trademark, you should earn it fair and square”.

 

Basic Facts

 

When the plaintiff Ma filed a lawsuit with the first-instance court, he claimed that he applied for the registration of the trademark 'Jiao Ren (meaning: Proud Person)' on the Class 14 goods related to 'jewelry' on May 6, 2008, and the registration was approved on March 28, 2010. Ma alleged that he had already used the trademark to produce and sell diamonds of the “Jiao Ren” branded series. It was found that CHOW TAI FOOK store was selling at Jingdong’s online platform “Jiao Ren” series of rings and necklaces. Ma thought that CHOW TAI FOOK and Jingdong’s behavior violated its trademark rights, and he requested the court to order CHOW TAI FOOK and Jingdong to cease the infringing acts immediately and to pay him the reasonable expenses and compensation for the economic losses in a total amount of CNY50,000.  

The first-instance court held that CHOW TAI FOOK's use of the “Jiao Ren” logo on the products involved in the case was legitimate and did not infringe Ma's trademark rights of “Jiao Ren” trademark. Therefore, the first-instance court dismissed all the claims of Ma. Ma refused to accept the judgment and appealed to the Beijing IP Court, requesting the revocation of the first-instance court’s decision and the reissuance of a judgment to support all the litigation claims raised.[3]

Beijing IP Court’s Decision

The Beijing IP Court made a judgement in the second instance to uphold the decision of the first-instance court. The judgement in the second instance was based on the following findings[4]:

·         Ma's application for registration of the trademark “Jiao Ren” violates the principle of honesty and credibility; and

·         Ma's infringement lawsuit against CHOW TAI FOOK constitutes an abuse of rights.

Why is an “abuse of rights” found in Ma vs. CHOW TAI FOOK?

 

To explain why Ma’s conduct was characterized as an “abuse of rights”, the Beijing IP Court highlighted the following key elements[5] of “culpability” on the part of the plaintiff Ma:

1.    Trademarks Comparison

The “Jiao Ren” trademark that Ma applied for registration on a later date is similar to the “Jiao Ren” logo previously used by CHOW TAI FOOK in terms of text combination, design and visual effect.

2.    Subjective Intent

CHOW TAI FOOK launched the “Jiao Ren” series of diamond products in 2006. After extensive use and publicity, the “Jiao Ren” series of diamond products and the “Jiao Ren” logo of CHOW TAI FOOK have gained high popularity. Under such circumstances, Ma applied for the registration of “Jiao Ren” trademark in 2008, which is similar to CHOW TAI FOOK’s “Jiao Ren” logo. Judging from the above conduct, it is difficult to say that Ma came up with such idea in good faith.

3.    Trademark Use

The documented evidence submitted by Ma can only prove that he has licensed the trademark after registering the trademark “Jiao Ren” but cannot prove that “Jiao Ren” has been used in the manner recognized by the Trademark Law on the approved goods.

4.    Other Trademarks applied for Registration by Ma

Ma also applied for the registration of more than 30 trademarks including 'Taylor', 'Jinbury', 'Jinshifu', 'Suihao mattress', 'Taylor Burton', 'Gerio Pili', etc. The aforementioned trademarks are including a large span of classes and belong to different industries, including trademarks similar in appearance, the same or similar in category with well-known trademarks such as 'Kimberly' and 'Suibao Mattress' of other brand owners. Neither could Ma prove that he registered the above trademarks with real intention to use nor could he give a reasonable explanation for his need for trademark registration, so the court considered that he had demonstrated an obvious pattern of trademark hoarding behavior.

Accordingly, Beijing IP Court determined that Ma's application for registration of the trademark “Jiao Ren” violated the principle of honesty and credibility, and his claim of trademark rights in this case was considered not justified.[6]

 

Based on the above, it was concluded that,  

 

The plaintiff filed an infringement lawsuit against the defendant for the latter’s proper use of the “Jiao Ren” logo and demanded compensation, which clearly constitutes an abuse of rights.

 

 

What are the Legal Consequences of Plaintiff’s “Abuse of Rights”?

 

Abuse of rights basically is a defense of the defendant for a lawsuit of IPRs infringement. When such defense proves to be justified in a case, the plaintiff would have to bear the legal consequences resulted from the action.

 

1.    Defendant is spared from Liability to Plaintiff

 

Taking a normal trademark infringement case as an example, when the plaintiff’s filing of the litigation constitutes an abuse of rights, the defendant is spared from the following liability to the plaintiff:

 

·         interlocutory and final injunctions;

·         damages, calculated based on the actual losses of the plaintiff, the profits made by the defendant or a simulated royalty;

·         reasonable costs incurred to the plaintiff; and

·         public apologies or declarations for the purpose of offsetting the negative effect of the infringing activities.

 

2.    Plaintiff is liable to pay Damages to Defendant

 

According to the recent official reply[7] made by the China Supreme People's Court to Shanghai High People's Court on June 3, 2021, the plaintiff should be liable to pay damages to the defendant if the following conditions are met:

 

·         plaintiff’s filing the IPRs infringement lawsuit constitutes an abuse of rights and damages the defendant’s lawful rights and interests as prescribed by law;

·         there are attorney's fees, transportation expenses, accommodation expenses or other reasonable expenses incurred to the defendant in the lawsuit; and

·         defendant bears the burden of proof for the above elements.

 

The defendant may request for damages through filing a counterclaim in the same lawsuit initiated by the plaintiff or may bring a separate suit to recover the aforesaid reasonable expenses from the plaintiff.

 

 

Key Takeaways

 

·         To successfully invoke the defense of “abuse of rights”, the defendant should prove that there is no legitimate interest exists for judicial protection on the part of the plaintiff and that the plaintiff’s right is exercised for a purpose other than its intended legal purpose.

·         The defendant may request the payment of attorney's fees, transportation expenses, accommodation expenses and other reasonable expenses incurred in the lawsuit where the plaintiff is considered an abuser of rights.

·         The defendant may request for damages through filing a counterclaim in the same lawsuit initiated by the plaintiff.

·         Every player of the market must, in the exercise of their intellectual property rights and in the performance of their duties related to such rights, act with justice, give other players their due respect and observe honesty and good faith.

·         If your business is falling prey to a trademark squatter, don’t back off easily as squatters are losing enforceability of their marks, day by day.

 

Conclusion

 

Through promoting creations and rewarding creativities, Intellectual Property Rights have so far proved to be beneficial to all walks of life in our society. However, abuse of such rights goes against the purpose of granting them, undermines the very foundation of the intellectual property system, and causes a counterproductive effect to the society. The abusers of such rights must face the legal consequences of their action.

 



[1] See Article 3, Interpretation by the Supreme People's Court of Several Issues Concerning the Application of Book One General Provisions of the Civil Code of the People's Republic of China.

[2] See Liu Yijun & Tian Fen, Case Closure Information: To sue for trademark infringement based on trademark not obtained with good faith, constitutes rights abuse, Public WeChat Account “bjipct” (May 30, 2022).

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] See the Reply of the Supreme People's Court concerning the defendant's claim for compensation for reasonable expenses on the grounds of the plaintiff's abuse of rights in an intellectual property infringement lawsuit, issued on June 3, 2021.


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