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Wednesday, 24 August 2011

Apple Stoer Story: now for more legal analysis

The shop was called "Harley Davidson", but the IPKat
still wasn't sure he'd bought a genuine one ...
Recent posts on the Apple Stoer Story have not extinguished interest in the subject of IP protection in China but have stimulated.  The Kats are very grateful to their man in China, Tom Carver (Wragge), for delving a bit further into the legal dimensions of this curious episode.
"The fake Apple stores of Kunming have already been reported on by the IPKat (here, here and here), but they are worth one more look because the law is not as clear-cut as one might imagine. The IPKat himself observed that it was curious that two of the stores had been closed on the ground that they did not have a business licence, rather than for infringing Apple’ rights; it seems that so far Apple has not brought any actions in China, but only in the US (the US actions may be unrelated to the Kunming stores claims that there is a fake Apple store in New York called Apple Story). Why might this be? The first point to note is that the stores have been closed by the local Administration for Industry and Commerce (AIC), rather than a court. AICs are not legal institutions and, while they are extremely effective, they will only take action when the facts and law are clear-cut. Are the facts and law in the case of the fake Apple stores of Kunming clear-cut?

The Kunming stores offer genuine Apple products for sale. This activity does not infringe any rights, assuming the store owners bought the goods in question in China and that Apple’s rights had therefore been exhausted. The stores are therefore partially fake and partially genuine.

Do the stores infringe Apple’s rights by providing consultation on Apple goods, maintenance of Apple goods or display of Apple goods? Apple has registered a series of trade marks in various classes related to services, and so one might assume the answer to be a resounding "yes". However, Chinese trade mark law allows limited use of a third party's trade mark if it is intended as a description. Accordingly, the Kunming stores can argue that their use of "Apple Store" is descriptive because the stores offer genuine Apple products and all the services provided in the stores are inevitably about Apple products. This differs from the Porsche case mentioned in an earlier post because in that case the defendant was not selling Porsches, only offering to modify them; the defendant sold other brands of car and offered services on other brands of car. The court held that, since this caused confusion in the minds of the consumers, Porsche’s trade mark had been infringed. This difference probably meant that trade mark law was not sufficiently clear for the AIC to close stores on that basis.

Unfair competition is another potential cause of action for Apple to invoke, but again it is not clear whether such a claim would succeed. The PRC Anti-Unfair Competition Law prohibits the unauthorised use of the name, packaging or trade dress unique to well-known products or false advertisement of products, thereby causing confusion with the products of another party and causing purchasers to mistake the products for such well-known products (Articles 5 and 9). The wording in the relevant articles is “products”. The PRC Trade Mark Law differentiates between products and services and so it is possible that the Unfair Competition Law might also be interpreted as doing so. If that is the case, then Apple would have no claim, because the products are genuine. If “products” applies also to services then Apple has a good claim. 
Unfortunately, whether “products” includes services is something of a grey area. The Harley-Davidson case mentioned in an earlier post is similar to this case, but not quite the same. In that case, as in Porsche , the defendant had been offering both Harley-Davidson and non-Harley-Davidson products and services; had given an undertaking from the infringer not to continue the infringement after a prior warning; maintained an infringing website (which amazingly included a notice to consumers to beware of infringing goods); and had been engaged in a prior dispute with Harley-Davidson over a domain name. The court held in Harley-Davidson’s favour that consumers would be confused. Again, the difference here is that the fake Apple stores of Kunming do not mislead their customers about the source of their products: all are genuine Apple products. Of course, customers are likely to be confused about the source of the service, but substantial and obvious evidence would be required to convince the local AIC to reach that conclusion and take action.

The curiousness of the stores being closed for not having business licences should now be a little less curious: there was no sufficiently clear guidance in IP law, but it was easy to ascertain whether the stores had business licences. The Kunming AIC therefore took the safest option and closed the stores on that basis.

The latest development is that the AIC has ordered the remaining fake stores to stop using the Apple logo, but has given no reason why and no legal basis for the order. The AIC is conducting further investigations and it will be interesting to see whether Apple takes legal action in Kunming".
The IPKat is delighted to learn a bit more about the way IP protection and the solution of commercial-legal problems are handled in China. Thanks, Tom, for this insight!

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Anonymous said...

In matter IP, it is usually 'what you know' that prevails, in matters China it is very often 'who you know'that counts. Bearing in mind Apple's very extensive sub-contracting manufacture in China, one assumes they know or their sub-contractors know some pretty powerful people!!

Paul Jones said...

There are a number of issues in this post, and unfortunately in some places it is simply wrong.

For starters, it mentions the possibility that the PRC Anti-Unfair Competition Law Articles 5 to 9 may only apply to goods and not services.

Someone forgot to read the third paragraph of Article 2:
“本法所称的经营者,是指从事商品经营或者营利性服务(以下所称商品包括服务)的法人、其他经济组织和个人。” (For the purposes of this Law, the term "business operators" shall refer to legal persons, other economic organizations and individuals that deal in products or are engaged in the provision of services for profit (hereafter, the term "products" shall include services).
Secondly the Chinese word that they focused on is “商品”which they translate as “products.” “商” just means commercial. The word “品” (pronounced “pin”) although often translated as “product “actually can be used in a broader context in Chinese than “product” can in English and easily accommodates intangible items such as services.
Thirdly the PRC is very much a civil law jurisdiction, and properly drafted civil law statutes start with setting out the principles on which the law is based. It is always important to read such sections and to base the interpretation of the following sections on these principles. Here are the first two paragraphs of Article 2:
“第二条 经营者在市场交易中,应当遵循自愿、平等、公平、诚实信用的原则,遵守公认的商业道德。 (Article 2: In the course of market trading, business operators shall observe the principles of voluntariness, equality, fairness, good faith and abide by generally accepted business ethics.)
本法所称的不正当竞争,是指经营者违反本法规定,损害其他经营者的合法权益,扰乱社会经济秩序的行为。 (For the purposes of this Law, the term "unfair competition" shall refer to business operators' acts that violate this Law by injuring the lawful rights and interests of other business operators and disrupting the social and economic order.)
In particular note the use of the words “公平”and “诚实” (fairness and good faith).
In the interpretation of the Porsche and Harley Davidson cases the interpretation provided makes relatively subtle distinctions based on the facts of the cases to limit the application of what the court said. In my view this is an application of common-law principles of interpretation to a civil law case, or possibly a technical reading by a civilian less experienced in the interpretation of court decisions and laws. The overriding principle in the PRC Anti-Unfair Competition Law is that merchants shall not attempt to deceive consumers as to the source of what they are buying. Thus the use of the marks “PORSCHE” and “HARLEY-DAVIDSON” were limited by the court to what was a fair use in the context.
Is there really a feeling that the operators of the fake Apple and Ikea stores adopted their trade dress in good faith and fairness? I think that it is pretty obvious that they intended to confuse consumers.

due to space limitations this comment is in two parts.

Paul Jones said...

Continuing the earlier comment.

For the purpose of making sure that none of the readers make any mistakes in this area, if the US actions are about the fake Apple stores in Kunming, they are a waste of time. Article 266 of the 中华人民共和国民事诉讼法(PRC Civil Procedure Law) makes it quite clear that foreign court judgments are only enforced on the basis of reciprocity (互惠). With one exception (Robinson Helicopters – a clear anomaly) Chinese judgments are not enforced in the US. To my knowledge the same goes for the UK.
Whatever the result in the New York proceedings it will not be recognized in the PRC. I regularly encounter people who thought that they were protecting themselves in their dealings with the PRC by stipulating foreign law and the exclusive venue of a foreign court. Nothing could be further from the truth. Unless their PRC counter-party has extensive overseas operations, they have actually made their contract either un-enforceable or considerably more expensive to enforce against the PRC counter-party.
It is true that the local AIC when the facts and the law are very clear cut. That their standards are not the standards that the courts use. The AIC are after all, civil servants. I do not think that there lack of action at this stage means anything other than their own concerns, which may include not harming the interests of the local merchants too quickly.
Based on some regrettable experiences that we have had relying upon the advice of law firms and lawyers in the PRC we always check the advice received very carefully using our own knowledge of PRC law. I recommend this practice.

Paul Jones

Tom Carver said...

Paul's interpretation of the law is correct insofar as it would be applied by a judge in a court, but he misses the point of the post which was why the AIC took action under business licence law and not IP law. Of course the PRC is a civil law jurisdiction and so precedents are not used in the courts as they are in common law jurisdictions. Judicial precedents are also not binding on the AIC, but the AIC does follow the instructions of its supervisors and those instructions are based on preceding AIC cases in the particular province or on guidance issued by the State AIC. In the Harley Davidson case the AIC never issued a decision confirming trade mark infringement nor unfair competition. We don't know why but the result is that the Kunming AIC had no clear and unambiguous guidance and so took the cautious approach. The Porsche case had no AIC component and the court case was based on trade mark infringement but not unfair competition; again, no clear guidance for the Kunming AIC as to how to act. One possible benefit of the fake Apple store story is that the State AIC might issue guidance to the local AICs and any future fake stores will be dealt with accordingly.

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