August 24, 2016
Westlaw Journal Intellectual Property
Authored by Danny M. Awdeh and Amy Hsiao
New Balance has been enjoined from using a Chinese-language version of its own brand in China.
In April 2015 a Chinese court ordered New Balance to pay $15.8 million in damages resulting from its alleged infringement. An appellate court in China reduced the award to around $1 million this summer.
The century-old shoe company’s cautionary tale raises several important questions for brand owners entering China.
In 2013 New Balance was sued by a Chinese individual for using "New Balance" in Chinese characters. Xin Bai Lun is the phonetic spelling of those characters. Xin means "new" in Chinese; "Bai Lun" are the characters mimicking the sound of the English word "balance." Zhou had significant leverage in his battle with New Balance based on, among things, the fact that:
China is a first-to-file country when it comes to trademarks. Rights in unregistered marks are only recognized under very limited circumstances, such as when the unregistered mark is well-known or has obtained a level of influence among the relevant public in China—both are high hurdles to overcome under the Chinese system. Thus, despite its long use and worldwide reputation, New Balance found itself in a vulnerable position in China ultimately leading to court orders prohibiting it from using its own Chinese brand.
New Balance’s circumstances are a result of the significant differences in the Chinese trademark system relative to that in the United States and other parts of the world.
U.S. trademark law recognizes common law rights, meaning rights derived from use of a mark irrespective of registration. In China, on the other hand, a brand owner would likely find itself without any rights absent registration even with substantial use and promotion of the unregistered mark.
In the New Balance case, even though the Xin Bai Lun characters are closely connected to the New Balance brand and the U.S.-based shoe company has been using these characters for a while, New Balance did not own senior registered rights over those characters in connection with footwear in China. As a result, despite investing heavily in the promotion of that brand in China since 2003, a Chinese court found New Balance had no protectable rights. In effect, its efforts and investments inured to Zhou’s benefit—a result unimaginable in the United States and other parts of the world.
Brand owners who attain fame outside China often find themselves the subject of infringement in China before even entering that market. Absent registrations in China, these brand owners are tempted to fall back on their fame from other jurisdictions when facing infringers in the marketplace and Chinese Trademark Office. However, they should not hold their breath. The Chinese authorities and courts give little weight to a mark’s reputation outside of China. Thus, without prior registered rights in China, brand owners are at a significant disadvantage.
When your brand is taken by a third party, you become exposed to myriad risks:
Western brand owners sometimes enter the Chinese market with an English mark only. However, English is not the language with which the market is most familiar. If the brand owner does not adopt and promote a Chinese-language version of its English brand, over time, especially when the brand becomes popular, the Chinese media and consumers will select their version of the Chinese brand either based on translation, transliteration or simply selecting something entirely unrelated. These marks may be registered by third parties and later used to stop the rightful brand owner from using Chinese-character marks the Chinese public has come to associate with the brand’s products.
In the case of the "Michael Jordan" trademark, for example, the Chinese market came up with a two-character mark for "Jordan." A local Chinese shoe company registered that mark for footwear products before Michael Jordan did. Jordan challenged the local company’s use and registration of the mark, ultimately losing before China’s highest court. The Chinese footwear company has since opened retailers prominently featuring that mark throughout China, selling millions of shoes bearing "Jordan" in Chinese characters.
To make matters even more complex, English brands often do not have a set translation in Chinese characters. There may be countless ways to come up with a Chinese name for an English brand based on translation, transliteration or a combination of both. For example, BMW’s Chinese name is "Bao Ma," which means "treasured horse." Mercedes’ Chinese name means "galloping" or "speed." Viagra’s Chinese name is composed of two characters which literally mean "great little brother." Thus, in some cases, there can be absolutely no correlation between the Chinese characters and English brands they represent. When an exclusive connection between the English brand and Chinese-character brand takes shape, it is crucial for the legitimate brand owner to immediately register the Chinese brand.
In the New Balance case, for example, there are at least five different versions of its name in Chinese characters. (see chart)
Thus, brand owners should be cognizant that they may have multiple "Chinese" identities—all of which may warrant registration for both commercial and defensive reasons.
With the above in mind, let’s revisit the New Balance case. There were at least two significant events that if navigated differently could have significantly altered New Balance’s position in China.
New Balance started to register trademarks in China as early as 1983, before Zhou had any registrations. When New Balance sought trademark registrations in China, however, it only registered the English name "New Balance" and design marks.
Fast forward 30 years to when New Balance was growing its Chinese market share and its brand was becoming increasingly more popular in China. At that time, the Chinese market was eager for a Chinese brand name for the American shoe giant that was recognizable, memorable and easy to pronounce. New Balance then formally announced its licensee-partner in China; the licensee’s Chinese name, however, consisted of the identical characters covered by Zhou’s registration. Had New Balance selected an alternative to Zhou’s characters at the time, it could have potentially avoided its conflict with Zhou and created a link between its own "non-infringing" Chinese-character brand and "New Balance" in the minds of Chinese consumers—a strategy that could have resulted in a far different fate for New Balance.
While Zhou’s conduct may constitute bad faith or willful infringement in other jurisdictions, in this case, the court viewed New Balance as the infringer and wrongdoer. In fact, the court rejected New Balance’s argument that it was acting in good faith.
In the court’s eyes, New Balance could have been selected from myriad Chinese-character names and should have steered clear of Zhou’s registered rights.
Here are five initial questions to ask yourself if you are or soon will be selling or manufacturing products in China.
Following the lessons learned by New Balance, brand owners should not treat China as they would other markets. Identifying and registering your Chinese-character brand is critical to controlling your identity in that market. Failing to do so could have disastrous consequences.
©2016 Thompson Reuters. Originally published by Westlaw Journal Intellectual Property. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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