Published on August 12, 2022
In an anti-unfair competition litigation between Emerson Electric Co. (“Emerson”) and Xiamen Hemeiquan Drinking water Equipment (“Hemeiquan”)/ Xiamen Hainabaichuan Network Co., Ltd (“Hainabaichuan”) /Wang Yiping, Emerson is awarded damages of CNY 1.6 Million (around USD 246,000) as compensation to cover the legal cost it has spent on all previous trademark proceedings against the trademark squatting activities of Hemeiquan and Hainabaichuan. This is a landmark case and it is the first time in which the trademark squatter is ordered to pay damages to the brand owner purely because of its trademark squatting activity.
The American company Emerson, which is a Fortune 500 company and the global manufacturer of garbage disposal, is the owner of the brand “INSINKERATOR” and ”爱适易” (Chinese brand name of INSINKERATOR). It is discovered that Hemeiquan and Hainabaichuan (both are controlled by the same person Wang Yiping) have been filing 48 trademark applications for the marks “INSINKERATOR” , ”爱适易” and their combination in multiple classes from 2010 to 2019. For years, Emerson has started more than 70 legal actions (oppositions, invalidations or administrative litigations) to guard its brand against the trademark squatting activity of the defendants. Emerson files a civil lawsuit against the defendants’ trademark squatting activity based on Anti-Unfair Completion Law and asks for an injunction to stop the infringement.
Fujian Higher People’s Court as the second instance court makes the following final judgement
1. Findings of unfair competition activity
The Court finds that Emerson’s mark “爱适易” (Chinese brand name of INSINKERATOR) has obtained certain influence in garbage disposal industry. Since the defendants are the manufacturers of water purification equipment, there are overlap and potential competition between the business of Emerson and the defendants. The defendants have been filing multiple applications of trademarks identical with or similar to Emerson’s marks without reasonable explanation on the purpose of their trademark filing or idea about how they come up with the trademark wording. The Court believes that the purpose of the defendants’ trademark filing activity is apparently beyond ordinary business operation and such activity has led to Emerson’s subsequent legal actions (such as opposition, invalidation, administrative litigation and civil litigation) to protect its legitimate right. In certain sense, the defendants’ activity has disrupted Emerson’s business operation. According to Article 2 of Ant-Unfair Competition Law of P. R. China, “Businesses shall, in their production and distribution activities, adhere to the free will, equality, fairness, and good faith principles, and abide by laws and business ethics.”, “For the purposes of this Law, ‘act of unfair competition’ means that in its production or distribution activities, a business disrupts the order of market competition and causes damage to the lawful rights and interest of the other businesses or consumers, in violation of this Law”. The defendants’ activity is contradictory to good faith principle, disrupting the order of market competition and damaging Emerson’s right. Therefore, the Court decides that the defendants’ act constitutes unfair competition as set forth in the Anti-Unfair Competition Law and the defendants should stop infringement and be liable to damages and other legal consequences.
2. An injunction on trademark squatting activity
The Court notices that all the related trademark applications / registered marks identical to or similar with Emerson’s trademark filed by the defendants have been rejected/invalidated or withdrawn by the defendants. However, considering that the defendants’ trademark squatting activity has caused disruption on market competition and the cost of infringement is so little compared to the damages caused, the Court believes, if an injunction is not awarded, Emerson may have to continue to resort to various legal proceedings (opposition, invalidation, administrative litigation etc.) to safeguard its right. On the one hand, Emerson would have to spend more resources to stop the infringement. On the other hand, such legal proceedings would also hugely consume public legal resources. Therefore, an injunction is decided to be awarded to stop the defendants’ trademark squatting activity in the future.
3. Trademark Agency is decided to be jointly liable for damages
Xiamen Xinjun IP Co., Ltd. (“Xinjun IP”) represents the defendants in almost all the bad faith trademark filings against Emerson. The Count believes that Xinjun IP fails to exercise due diligence in representing the client when being fully aware of its bad faith in trademark applications not with intention to use. Therefore, The Court decides that Xinjun IP constitutes contributory infringement and should be jointly liable to damages suffered by Emerson.
4. Damage of CNY 1.6 million is awarded
In reaction to the defendants’ trademark squatting activity, Emerson has to take multiple legal actions and spend high amount of legal cost to fight against the infringement. As a result, Emerson suffers damages because of the defendants’ trademark squatting activity. With absence of evidence on the profit of the defendants for their infringement, the damages is determined by the Court based on several factors such as fame of the mark, severity on infringement, enforcement cost etc. The Court especially consider the malicious intention of the defendant as follows: Anjier Shuijingling Co. (“Anjier”), which is another company controlled by Wang Yiping, is the defendant in another three litigations initiated by Emerson. In those cases, Beijing Higher People’s Court have decided that Anjier’s activity of filing large number of trademark applications is contradictory to good faith principle, disrupting trademark administration order and market competition. In spite of the Court decision, Wang Yiping continues to file trademark applications on trademark identical to or similar with Emerson’s trademark with the other entities controlled by him. The trademark applicants have obvious malicious intention and their activity is severe infringement. The Court decides to award damages of CNY 1.6 million, covering the litigation cost of Emerson’s legal actions guarding against infringement. Xinjun IP, which is the trademark agency for almost all the bad faith trademark filings of the defendants, is decided be liable to 40% of the damages awarded, that is CNY 640,000.
Significance of the Case
This case is significant for brand owners who are fighting against trademark squatting. Since a few years ago, China Trademark Office has taken several measures to tackle trademark squatting issue. At the examination phase, China National Intellectual Property Administration (“CNIPA”) establishes blacklisting system. Trademark applicant with bad faith filing record will be blacklisted and any future filing from the blacklisted entity will be examined with extra attention. In addition, at the legislative level, additional provision on bad faith application was introduced into the Amendment of the Trademark Law in 2019. According to the newly added article, any bad faith application not with intention to use shall be rejected. This article can also be a ground for opposition and invalidity proceedings [see more at http://184.108.40.206/en/news/article/301/26/5]. What’s more, in the administrative law, there is also new regulation to sanction trademark squatting. In November 2019, the State Administration for Market Regulation issued the "Several Regulations on Regulating Trademark Application and Registration" (implemented on December 1, 2019), stipulating penalties for malicious trademark squatters: "An applicant who applies for trademark registration in bad faith shall, in accordance with the provisions of Paragraph 4 of Article 68 of the Trademark Law, be given warnings, fines, etc. by the market supervision and administration department at or above the county level where the applicant is located or where the violation occurred … If there is illegal income, a fine of three times the illegal income and no more than CNY 30,000 may be imposed; if there is no illegal income, a fine of less than CNY 10,000 may be imposed.” In spite of the measures above, brand owners are still troubled by trademark squatting. Trademark filing cost is relatively cheap (official fee being around USD 46) while it is time/resource consuming to cancel/invalidate a registered mark. In addition, the settlement fee between parties is usually high, making the business model of trademark squatting quite profitable. What’s more, one of the usual strategies for the trademark squatters is filing trademark applications with multiple entities and brand owners often find themselves in endless rounds of fights against the trademark squatting. Even if they eventually prevail in the opposition or invalidation, it is not uncommon to find trademark squatters continuously file more applications around the brand.
This positive litigation result may change the landscape completely. Brand owner will have one more weapon in their tool box to fight against trademark squatting. By starting a civil litigation based on anti-unfair competition law, brand owners may be able to obtain an injunction to ban the applicant or even the person behind multiple applicants from filing any new application of identical or confusingly similar trademark in the future. What’s more, all the cost spent on previous administrative proceedings such as opposition, invalidity proceedings or administrative litigation may be also recovered through damages awarded by the court. Because of the high damages which is likely to be awarded by the court in the future, trademark squatters may have to think twice before they continue their trademark squatting activities.