Trademark Infringement and Unfair Competition Case Study: Toyota Motors vs. Zhejiang Geely

Trademark Infringement

Pursuant to Article 52 of the PRC Trademark Law, trademark infringement occurs if there is "use of a trademark that is the same as or similar to a registered trademark on the same or similar goods without the permission of the trademark registrant".

The focus of the argument in this particular case, as in other trademark cases, is whether the defendant's logo and that of the plaintiff are similar. As a matter of fact, in most trademark infringement cases, the trademarks are rarely exactly the same, and the plaintiff bears the burden to prove that there is a similarity between the trademarks. So what are the criteria to determine similarity between marks as they are seen in judicial practice in China?

The plaintiff in this case claimed that the defendant's logo was similar to its own logo, mainly because the two logos share a similar structure and are the same colour. The plaintiff claimed that relevant customers get a similar impression of both logos when the entire structures or the major parts of the logos are compared. Further, according to the results of a questionnaire survey conducted by a research company employed by the plaintiff, 179 people out of 289 surveyed thought that the products of the defendant were in fact those of the plaintiff. Also, at least another 84 people out of 129 surveyed believed there was a certain relationship between the products of the two parties.

The defendant's main argument in this case rested on the type of goods that the logo refers to. The defendant claimed that automobiles, are a kind of luxury good, and as such are different from other commodities because customers pay much more attention to details when they buy cars. Thus it would be impossible for a customer to buy a car manufactured by the defendant when in fact he or she really meant to buy a car produced by the plaintiff.

In order to implement the Trademark Law, the Supreme People's Court promulgated the Several Questions on the Application of Law in Trial of Trademark Civil Dispute Cases Interpretation on October 12 2002 (the Interpretation, effective October 16 2002). According to the Interpretation, "similarity" between trademarks means that in comparison with the registered trademark of a plaintiff, the defendant's trademark:

1) has similar characters, pronunciation or meaning, or has a similar logo with a similar structure and colours, has a similar composition of individual elements, or has a similar shape in three dimensions and a similar composition of colours; and

2) may easily mislead the relevant sector of the public in respect of the source of the defendant's products or make them believe that there must be a certain relationship between the products of the defendant and those of the plaintiff.

The plaintiff in this case argued that by making the abovementioned claims in their defence, the defendant did not correctly understand the definition of "similarity" as given in the Interpretation. It cannot be necessarily explained that only when customers are unable to distinguish the products of different manufacturers can two trademarks be recognized as similar. On the contrary, as long as customers are confused as to the source of products or are mistaken in believing that there is any relationship between the sources of different products, or even that there is a possibility of such confusion, this is a sufficient foundation to determine the similarity between two trademarks.

Unfair Competition

Another point in this case, as mentioned above, is that the defendant used phrases like "powered by Toyota", "with Toyota 8A-FE Engine manufactured by Toyota", and "with Toyota 8A-FE Engine from Japan" to advertise its products.

The plaintiff insisted that the defendant did not disclose the source of the engines correctly, because the engines used in the defendant's cars were in fact produced by one of the plaintiff's joint ventures in China, Tianjin Toyota Motor Engines Co., Ltd. (TTME), and not by the plaintiff itself. TTME uses its own trademark, "TTME", on its engines, and not "Toyota". The defendant's engines were all labelled as "TTME 8A-FE", and were advertised as "Toyota 8A-FE Engine manufactured by Toyota" or "Toyota 8A-FE Engine from Japan". Apparently, the defendant attempted to mislead customers into believing that the engines were produced by the plaintiff in Japan. By doing so, the defendant unjustifiably used the tremendous value of the trademarks and the reputation of the plaintiff to attract customers. Such misrepresentation of the source of engines violates Article 9 of the PRC Anti-unfair Competition Law(中华人民共和国反不正当竞争法), which requires a manufacturer to provide customers true and complete information about its products when they are sold.

The defendant claimed that when "Toyota" is quoted it refers to "Tianjin Toyota Motor Engines Co., Ltd", the name of the engine manufacturer. Therefore, by the defendant's reasoning, it was reasonable for the defendant to use "Toyota" in its advertisements and product brochures.

To rebut such a defence, the plaintiff further argued that the public knows that "Toyota" usually refers to the plaintiff in general, and not any of its overseas subsidiaries, if no geographic designation is indicated. This association is so obvious that the defendant has sought to mislead customers by simply using "Toyota" in its advertisements, instead of the full name of TTME or at least "Tianjin Toyota".

The Judgment

On November 24 2003, the Beijing No. 2 Intermediate People's Court rendered a judgment rejecting all claims of the plaintiff.

The judgment held that it can be determined that the visual effect of the two trademarks is quite different and the structures of the major parts thereof are also distinct from each other. In the automotive market the relevant sector of the public refers to prospective buyers, owners and distributors of automobiles as well as to the providers of auto-related services, including repair and maintenance. Since automobiles in China are a kind of luxury good, the relevant sector of the public will pay much more attention to brands, functions, prices and the manufacturers of cars, and thus they are more capable of distinguishing different brands of automobiles. In addition, the plaintiff's trademark is well known in China, and the relevant sector of the public is familiar with the trademark and the products of the plaintiff. Therefore, this sector of the public would have no difficulty in distinguishing between the two trademarks, and also they would not be confused as to the source of the defendant's products nor would they think that there is a certain relationship between the products of the defendant and those of the plaintiff. Hence, the plaintiff's claim for trademark infringement was denied.

When using "Toyota" in advertising and product brochures, the defendant was introducing the source of the engines and the technologies used in manufacturing the engines, which usage is in compliance with general business practices. Although phrases like "powered by Toyota", "with Toyota 8A-FE Engine manufactured by Toyota", and "with Toyota 8A-FE Engine from Japan" obviously contain exaggerations and are improper expressions, they do not reach the requisite level of "misrepresentation" as stipulated by Chinese law. Such wording would neither mislead the relevant sector of public into believing that the engines were produced by the plaintiff in Japan, nor would they harm the reputation or legitimate rights of the plaintiff, or disturb the market order of China. Therefore, the plaintiff's claim for unfair competition was also denied.

Comments on the Judgment

We were disappointed with the court's decision on several points.

First, the court rejected the results of the survey conducted by the research company employed by the plaintiff. The reason given was that the targets of the survey did not fall within the scope of the relevant sector of the public. However, in the absence of relevant evidence in this regard, the court determined that the relevant sector of the public would neither be confused between the two trademarks nor be misled that there is a certain relationship between the products of the defendant and those of the plaintiff. In our view, the similarity of two trademarks is not merely a legal matter, but is mainly a matter of fact. Judges may be experts in legal issues, but they are not always the relevant sector of the public on whose opinions the facts of a case should be based. The judgment, in our view, lacks an objective basis as it was made without use of any factual evidence like a survey report.

Second, the Interpretation provided that "similarity" between trademarks means that in comparison with the registered trademark of a plaintiff, the defendant's trademark may easily mislead the relevant sector of public in respect of the source of the defendant's products or make them believe that there must be a certain relationship between the defendant's and the plaintiff's products. We understand that according to such a provision, a certain possibility of being misled would be sufficient to determine the similarity between the two trademarks. However, the court decided that a determination of similarity entails an actual confusion among the relevant sector of the public or their being misled. We believe this is not the correct understanding of this provision of the law.

Lastly, the Interpretation required that a determination of similarity should be made based on the average scrutiny of the relevant sector of the public. The court held that the relevant sector of the public would pay much more attention to brands, functions, prices and manufacturers of cars because automobiles are a kind of luxury good. We understand that this actually imposes an "intensive attention" requirement on these people to determine the similarity and thus is not in line with the Interpretation.

In respect of the claim for unfair competition, the judges held that the wording that the defendant used was an exaggeration, but was not serious enough to constitute "misrepresentation" as stipulated by Chinese law. However, Chinese law does not have any specific requirements as to what constitutes "seriousness" in defining misrepresentation. Thus, as we understand it, the court had no legal basis to impose such a seriousness requirement. In fact, according to Article 9 of the Anti-unfair Competition Law, misrepresentation refers to any misleading or false statements on quality, elements, functions, usage, manufacturer, terms of validity, place of production, etc. of the products. The defendant's use of "Toyota" and "Japan" instead of "TTME" and "Tianjin" in advertising should constitute misrepresentation as to the manufacturer and the place of production pursuant to this Article.

Finally, the court failed to weigh the case by consolidating the defendant's misrepresentation and the similarity of the trademarks as a whole.

The plaintiff is considering whether to appeal the court's judgment in this case. We look forward to being able to comment further on developments in this important test of the strength of intellectual property law in China.

The author is one of the attorneys that represented the plaintiff in this case.