HongFangLaw ~ Chinese IP Law Updates ~ n’ 7
19 October 2016

Trademark infringement lawsuit between CHANEL and Guangzhou Tianma Development Co., Ltd.,et al.

Case background

CHANEL is the trademark owner of No. 793287 trademark. Tianma Company is the operator of Guangzhou Tianma International Clothing Wholesale Centre. ZHAN Chuzhou is the tenant and actual operator of Store F1021 of the Centre. ZHAN did not AIC registration.

CHANEL filed a complaint to Guangzhou AIC Yuexiu Bureau about ZHAN selling infringing products in his Store F1021. The AIC Yuexiu Bureau issued the Administrative Punishment Decision on August 15, 2012, holding ZHAN had constituted trademark infringement. On August 20, 2012, CHANEL sent a Letter to Tianma Company requesting Tianma Company to enhance its supervision in the Wholesale Centre inorder to prevent trademark infringement. On April 12, 2013, CHANEL discovered again some infringing products in Store F1021 run by ZHAN. Based on the above, CHANEL sued both ZHAN Chuzhou and Tianma Company and requested the Court to order ZHAN to stop trademark infringement and to make compensation in the amount of 100,000 RMB while Tianma Company should bear the joint liability for satisfaction.

After examination, Guangzhou Yuexiu People’s Court made its judgment declaring that ZHAN Chuzhou had constituted trademark infringement, and ordered ZHAN Chuzhou to stop trademark infringement and to make compensation in the amount of 30,000 RMB. Despite this, the Court believed that Tianma Company had no right to force the Store to stop its infringing activity because there was no evidence certifying Tianma Company had intentionally facilitate ZHAN’s infringing activity by providing storage, transportation, mailing, concealing, etc. to ZHAN, nor was there any evidence certifying Tianma Company and ZHAN had jointly conducted the infringing act or had any kind of communication. For this reason, it could not be established that Tianma Company was at fault. Therefore, CHANEL requesting Tianma Company to bear the jointly liability for satisfaction was lack of factual and legal basis, and the Court could not support it.

CHANEL was not satisfied with the 1st?Instance Court Decision and filed an appeal. The 2nd?Instance Court held Tianma Company knowing that ZHAN had been selling fake CHANEL products and that it failed to fulfill its supervision duty as well as its duty of care, and to take any effective action to prevent the infringing act from happening. On the contrary, Tianma Company provided both property and property service to ZHAN as convenience. In accordance with Article 50 (2) of the 2002 Regulation for the Implementation of the Trademark Law of the People’s Republic of China, Tianma Company had constituted trademark infringement upon CHANEL’s trademark. With regard to whether Tianma Company should be jointly liable for ZHAN Chuzhou’s compensation liability, although Tianma Company knew about ZHAN’s infringing act, there was lack of evidence certifying that Tianma Company had jointly conducted infringing act or that Tianma Company had intentionally assisted ZHAN’s infringing act. Therefore, Tianma Company and ZHAN Chuzhou conducted different infringing act based on different subjective will and for this reason Tianma Company shall bear the liability based on its own infringing act and not bear the jointly liability for satisfaction based on ZHAN’s act. Since there was lack of evidence indicating the CHANEL’s loss owing to Tianma Company’s infringing act or the profits made by Tianma Company from its infringing act, considering the reputation of CHANEL’s trademark as well as Tianma Company’s fault degree, etc., the 2nd?Instance Court ordered Tianma Company to bear the damage in the amount of 10,000RMB. Based on the above, the 2nd?Instance Court changed the decision of the 1st?Instance Court.

Analysis

  • The relationship between the professional market operator and the actual operator

There’s no legal definition of a professional market operator. To construe it literally, a professional market operator obtains the AIC license for market operation, and it allows it to run certain market in accordance with the laws. In real practice, a market operator is not engaged in sales activity within the market (such as selling cloths, toys, etc.), but it is engaged in renting out properties and providing property services within the market. Its main profits consist in renting and in property service fees. A market operator does not take part in the operation of properties that have been rented out to the actual operator. Both the market operator as well as the actual operator will not share profits or bear joint risks. From an ordinary consumer’s point of view, a market operator is not a seller and the sales activity of the actual operator of the Stores cannot be considered as the market operator’s activity. With regard to whether the actual operator has obtained the business license, this is the issue which ought to be dealt with by the AIC when it comes to the order of market operation, which shall not influence the relationship between the actual operator and the market operator.

Therefore,the role of a market operator is similar to the role of a landlord. And its relationship with the actual operator is mainly leasehold as well as property service relationship. Although a market operator often bears the supervision duty of the market to some extent, such duty is not the same as the market supervision duty of departments of AIC. The effectiveness of the two types of supervision duty is different as well. Such supervision duty of the market operator is not necessarily transferred into civil liability for sure, but shall require certain conditions.

  • Liability of the market operator in judicial practice

Injudicial practice, the tort liability of a market operator is an old problem and it is quite controversial. At present, it is commonly agreed that the market operator does not take part in any specific sales activity and it is not the executor of the infringing act. Consequently, it is commonly agreed that the market operator does not constitute direct infringement. So, liability of the market operator shall be based on indirect liability theory as well as Article 50 (2) of the 2002 Regulation.

Back to this case, the indirect liability borne by the market operator is a statutory liability in accordance with the laws. Such indirect infringement is different from the actual operator’s direct infringement with regard to the way of act, the subjective intent as well as the consequence of the act. To be morespecific, the market operator rented out its property to the actual operator with the subjective intent to make rent instead of providing property to the actual operator for infringing purposes. Meanwhile, the actual operator solely conducted the infringing act operating in its own store, without direct communication with the market operator. Even if the market operator knows that there’s infringing activity inside the market/centre, the subjective intent of the market operator is not to provide its own property as a tool to facilitate the actual operator’s infringing act. Therefore, from the subjective point of view, the market operator does not obtain the intent to conduct joint infringement with the actual operator. Furthermore, the market operator cannot obtain any direct interest from the actual operator’s infringing act because his rent is fixed. Then, although the indirect infringing act of the market operator has certain connection with the actual operator’s infringing act, the indirect act has constituted an independent infringing act which has generated independent liability. To make it equal the liability of indirect infringement and direct infringement does not comply with the equity principle as well as the principle of integration of power and responsibility. From the legal point of view, the indirect infringement clause did not clarify the liability of the indirect infringement. However, based on the above jurisprudential analysis, it is more rational for indirect infringer to solely bear the liability of the indirectly infringement.

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