Concord Investment (China) Co., Ltd. vs. Darunfa Investment Co., Ltd. over Trademark Infringement and Unfair Competition

 

[Case Brief]

Plaintiff: Concord Investment (China) Co., Ltd.

Defendant: Darunfa Investment Co., Ltd.

The Plaintiff is the trademark owner of well-known supermarket chain “大润发” (Registration No.: 5091186). The Plaintiff opened its first hypermarket in Shanghai in 1998, and had successfully opened 318 comprehensive hypermarkets in the Chinese Mainland till June 2015, having over 100,000 employees and providing services for over 3 million customers every day. The Defendant was established in October 2014 for businesses of general merchandise and so forth. The Defendant has set up Wuhan Branch and Wuning Branch in succession and solicited franchisees. The Defendant has been imposed administrative punishment twice because its conspicuous use of “大润发” in advertising by means of company network, investment documents and brochures has misled the public.

The Plaintiff alleged that its trademark “大润发” has become a well-known trademark. The Defendant was named “大润发投资有限公司(Darunfa Investment Co., Ltd.)” without authorization and used this name in operations, which constituted unfair competition by using the well-known trademark of the Plaintiff in its company name; furthermore, the Defendant conspicuously used the Plaintiff’s trademark “大润发” and the combination of “大润发” and “DRF” on its website and in its actual operations and advertising, with an intent of confusing the consumers and damaging the Plaintiff’s trademark. In view of the malicious act of infringement, punitive damages shall be imposed. Therefore, the Plaintiff requested the court to order that: 1. the Defendant shall immediately stop using the words "大润发” in its company name; 2. the Defendant shall immediately stop using the words “大润发”, “DRF” and so forth in operations; 3. the Defendant shall publish a statement on the home page of Jiefang Daily and IPR Daily to eliminate effects; 4. the Defendant shall pay RMB 5 million to the Plaintiff as compensation for economic losses and RMB 105,000 as reasonable expenses incurred for stopping the infringement.

The Defendant argued that first, it did use the words “大润发” conspicuously at the beginning of establishment, for which the Defendant and its franchise units were imposed administrative punishment and ordered to make rectifications, but since then it had not infringed the Plaintiff’s trademark and there was no need to publish a statement for eliminating effects. As for whether the Defendant constituted unfair competition, it shall be determined by the court. Second, the Plaintiff’s trademark “大润发” was not a well-known trademark. The Plaintiff’s effort, time and fund investments in the advertising did not qualify it for a well-known trademark. Third, the compensation amount claimed by the Plaintiff was groundless. The Defendant’s infringement lasted for a short term and had no severe impact on the Plaintiff. The revenues and profits of the Plaintiff did not see any decrease for this reason. The Defendant’s stores had been in the red and gained no benefits, so the Defendant’s operation revenue shall not be based on that of the Plaintiff. Fourth, there was no objection to the notarial fee claimed by the Plaintiff, but the lawyer’s fee was too high. In conclusion, the Defendant requested the court to reject the claims of the Plaintiff.

 

[Adjudication]

After the trial, Shanghai Intellectual Property Court concluded that the Defendant’s use of the allegedly infringing mark “大润发” and so forth in operations infringed the trademark claimed by the Plaintiff. While fully aware that the Plaintiff had registered and used the involved trademark, the Defendant used the same trade name as the involved trademark, which, even if used in a standardized manner, was sufficient to mislead the public to believe that the company using the trade name “大润发” was related to the Plaintiff; therefore, the Defendant’s use of “大润发” as trade name constituted unfair competition to the Plaintiff. The Defendant’s acts satisfied the requirements of “malicious infringement of trademark and serious circumstances”; however, since it was impossible to determine the compensation amount based on the Plaintiff’s losses, the Defendant’s gains and the royalty of involved trademark, there was no “amount determined with the above method” as the basis of punitive damages, thus it was impossible to determine the amount of punitive damages. As miscellaneous damage calculation, the statutory damages system shall have both compensatory and punitive functions. In determining the amount of statutory damages, the subjective malice may be taken as one of the considerations. In such case, the Plaintiff’s claim of punitive damages shall be considered as appropriate in the determination of statutory damages. Therefore, the court made a judgement to order the Defendant to stop the infringement of the Plaintiff’s trademark, stop using the words “大润发” in the company name, eliminate the effects to the Plaintiff and pay RMB 3 million as compensation for economic losses. After the judgement of first instance, the Defendant refused to accept the judgement and filed an appeal. The court of second instance rejected the appeal and affirmed the original judgment.

 

[Comment]

This case is a typical case of trademark infringement involving the use of a trade mark in a company name. The analysis of and judgement on whether it is necessary to determine if the involved trademark is a well-known trademark and to identify the civil liabilities of infringement in a case of trademark infringement involving the use of a trademark in a company name and unfair competition can be used for reference for trial of similar cases in the future.

1. Necessity of determining whether it is a well-known trademark

In accordance with Article II (II) of the Interpretations of the Supreme People's Court on Certain Issues Concerning the Application of Law in the Trial of Civil Dispute Cases over Infringement of Well-known Trademark, as for an action filed by a party for trademark infringement or unfair competition on the ground that a company name is the same as or similar to its trademark and based on the fact that the trademark is a well-known one, the people’s court shall, when it deems necessary, determine whether the involved trademark is a well-known trademark according to the actual situation of case. In this case, the Plaintiff claimed according to the above provisions that the Defendant registered the Plaintiff’s well-known trademark “大润发” as its company name and constituted unfair competition, and requested the court to determine whether the involved trademark is a well-known trademark.

According to the above provisions, not all cases involving a conflict between a company’s right of name and another company’s trademark necessitate the determination of whether the involved trademark is a well-known trademark; this will onlybe performedwhen it is really necessary. “Really necessary”circumstances refer to those in which the industry of the allegedly infringing company is neitherthe same as nor similar to the business scope as ratified for the involved trademark. In this case, the ratified use for the Plaintiff’s trademark “大润发” covers supermarket business as engaged by the Defendant, and the business field of the Defendant falls in the same scope as the trademark “大润发”; therefore, it is not necessary to determine whether the trademark “大润发” is a well-known trademark.

2. Application of the cessation of infringement

In this case, the court took full consideration of the service time of trademark “大润发” and the scale of operation, sales volume and market ranking of the Plaintiff and other factors, and held that the trademark “大润发” had become a relatively famous one in the industry when the Defendant applied for the registration of this trademark. While fully aware that the Plaintiff had registered and used the involved trademark, the Defendant, as a competitor for the same kind of business, used the trade name that is the same as  “大润发” in its company name, which meant that the Defendant obviouslyintended to take advantage of the high reputation of the trademark “大润发”, which constituted unfair competition. Based on the reputation of the trademark “大润发”, even standardized use of the alleged company name could confuse and mislead the public to believe that there was connection between the company using the trade name “大润发” and the Plaintiff; therefore, the Defendant’s use of “大润发” as trade name constituted unfair competition to the Plaintiff.

In the event of unfair competition, the Defendant shall assume the civil liability of stopping infringement. However, in terms of authorized use of other’s trademark in a company name, practices are divided in how to assume the liability of stopping infringement. We believe that it is easier to implement follow-up activities if the use of the Plaintiff’s trademark as a trade name is stopped. Since the premise of changing a company name is that the Defendant shall provide a new name; if the Defendant refuses to do so, while the Plaintiff requests for forcible execution, we will face a dilemma. Furthermore, the company name does not necessarily have to be changed in order to stop the use of a company name including the Plaintiff’s trademark, and the Defendant may also directly deregister the relevant company. Therefore, the method of stopping infringement as judged in this case is to immediately stop using the company name consisting of the words “大润发”, rather than to request the Defendant to change its company name.

3. Supplementary application of statutory damages to punitive damages

In accordance with Clause 1 under Article 63 of the Trademark Law, the Defendant’s acts fell in the scope of “malicious infringement of trademark and serious circumstances”; however, the punitive damages are based on the Plaintiff’s losses, the Defendant’s gains and the royalty of involved trademark, none of which are applicable to this case, so there was no “amount determined with the above method” as the basis of punitive damages, thus it was impossible to determine the amount of punitive damages. Now that the Trademark Law has provided for punitive damages, indicatingthat the trademark infringement damages system shall serve two purposes, namely making up for losses and punitive infringement; as miscellaneous damage calculation, the statutory damages system shall have both compensatory and punitive functions In determining the amount of statutory damages, the subjective malice may be taken as one of the considerations. Therefore, the court decided to take into account the infringement malice of the Defendant in determining the statutory damages, and given such factors as the high reputation of the Plaintiff’s trademark, the court ordered the Defendant to make a compensation of RMB 3 million.

 

Index

First instance: Shanghai Intellectual Property Court (2015) HZMCZ No. 731

Members of collegiate panel: He Yuan, Ling Zongliang, Fan Jingbo

Second instance: Shanghai High People's Court (2016) HMZ No. 409

Members of collegiate panel: Wang Jing, Tao Ye, Cao Wenjia

 

Prepared by: Ling Zongliang