Bad faith grounds for invalidating EUTM containing Chinese characters

Kat friend Matej Michalec discusses a decision by EUIPO's Cancellation Division, regarding bad faith in an invalidation action involving Chinese character marks, which merits particular attention.

The famous Chinese writer Lu Xun is said to had expressed the view that "either the Chinese characters are abolished, or China perishes“. Lu Xun had thought that Chinese characters are by nature difficult and thus not particularly helpful when one wishes to modernize the nation and decrease the illiteracy present in China of his day (1920/30’s). One of the measures he had considered viable for this purpose was Latinization of the Chinese script. The suggestion was not adopted, which has resulted in interesting challenges when addressing trademark issues involving Chinese characters. What follows is a notable example under EU trademark law.  

This blogger has previously argued that the EUIPO considers EUTMs containing Chinese characters to be figurative marks, whereby it conducts no aural and genuine visual and conceptual comparison in inter partes proceedings when assessing a likelihood of confusion. As such, the proprietor of a Chinese character EUTM could be left with no effective protection against activities such as trademark squatting, with the (then-theoretical) exception of an application for invalidity on the grounds of bad faith (Art. 59(1)(b) EUTMR). On 14 February 2020, EUIPO’s Cancellation Division rendered a decision in precisely such a case (No. 24 442 C). 

Arguments and Evidence 

The invalidity applicant Inner Mongolia Yili Industrial Group Co., Ltd. (the Invalidity Applicant) is one of the market leaders in dairy production in China, where its trademark 伊利 （yīlì）has attained the status of a well-known mark. The Invalidity Applicant owns several EUTM applications with the word element “Yili” (currently opposed by Mr. Wen Li, a natural person) as well as its Chinese transcription registered as EUTM (eg No. 1097761, see below). These are predominantly registered in respect of goods in classes 29, 30 and 32. 

In 2015, Mr. Wen Li filed EUTM application no. 013714316 for similar goods in classes 29, 30 and 32 (the Contested EUTM) in the form containing both the word element “YILI” as well as the corresponding transcription into Chinese “伊利” (see below). After unsuccessful opposition against this application based on its earlierandEUTMs, the Invalidity Applicant filed for invalidity of the Contested EUTM on the ground of bad faith. 

The Invalidity Applicant’s main line of argument was that Mr. Wen Li was of Chinese nationality at least in 2009, whereupon he became a resident and eventually a national of the UK, which created a presumption of knowledge on Mr. Wen Li’s part of leading Chinese brands. Moreover, the Invalidity Applicant had conducted an investigation into the trading activities of Mr. Wen Li, whereby it identified only online retail of imported magnets, plumbing parts and other low cost hardware via an eBay store, with no past or present activity in the dairy business. 

Furthermore, a 'trap' phone call conversation with a Chinese public notary revealed that Mr. Wen Li was fluent in Chinese and had dealings with members of the public in China. All of the aforesaid, it was argued, created strong presumptions of bad faith registration by Mr. Wen Li. 

Mr. Wen Li countered with a claim of intrusion of privacy, professing little familiarity with dairy manufacturers by the Chinese public, and pointing to a plan to open a self-employed yoghurt business in London. 

Decision of the Cancellation Division 

At the outset, the Cancellation Division noted that there is no precise legal definition of bad faith beyond that, as a general rule, in order to find bad faith there must be a dishonest intention and an objective standard against which such a dishonest action can be measured. 

One situation that may give rise to bad faith is when a party has obtained some degree of legal protection by virtue of the use of a sign on the market, which a competing party subsequently registers with the intent to compete unfairly with the original user. To assess whether this has taken place, the Cancellation Division referred to the non-exhaustive criteria laid down by the CJEU’s judgement in the Lindt Goldhase case (C-529/07), namely: 

• whether the proprietor knows, or must have known, that the invalidity applicant is using an identical or similar sign capable of being confused with the contested EUTM; 
• whether it was the proprietor’s intention to prevent the invalidity applicant from using such a sign; 
• the respective degree of legal protection enjoyed by the invalidity applicant’s sign and the contested EUTM; 
• whether the proprietor, when filing the contested EUTM, was pursuing a legitimate objective. 

Taking all of the aforementioned into consideration, the Cancellation Division found that the Invalidity Applicant had shown that its company, widely known under the short form of Yili, is the leading producer of dairy products in China and holds a position among the most valuable Chinese brands. It also found that for many years before the filing date of the Contested EUTM, the Invalidity Applicant was already identified not only with the Chinese characters 伊利 but also with the Latin word YILI as a comprehensive unitary brand. Consequently, it corresponds with a natural commercial logic or trajectory on the part of the Invalidity Applicant to protect both 伊利 and YILI in Europe. 

On the other hand, the Cancellation Division found no commercial logic in seeking EU-wide protection for a home-made yoghurt business under YILI, together with a standard version of Chinese characters recognized for years as well-known brand(s) of the Invalidity Applicant. As such, the Cancellation Division failed to see any commercial logic-- other than that of a deliberate intention to create an association with the famous (Chinese) trade mark(s) of the Invalidity Applicant in order to take advantage of it, and even to prevent the Invalidity Applicant from pursuing its business activities in the EU market. 

Furthermore, the Cancellation Division found it odd that the Proprietor had chosen the very same Chinese characters when there are many other options of transliterating YILI into Chinese, all the more considering that the Proprietor had at the least a basic knowledge of Chinese. 

The Cancellation Division explained that it is not a necessary condition for the finding of bad faith that the invalidity applicant actually possess enforceable rights in the EU prior to the filing of the contested EUTM. What is important is the invalidity applicant’s legitimate right to the sign. 

In the light of the above, the Cancellation Division concluded that the Contested EUTM should be declared invalid for all of the contested goods. 

Two final points warrant mention. Firstly, the Cancellation Division (rightly) pointed out that the Contested EUTM reproduces the same Chinese characters as the Invalidity Applicant’s figurative mark. This is noteworthy, especially since there was a prior BoA decision where the claim that the Chinese characters featured in both marks were identical was not upheld (R 2395/2016-4). 

Moreover, the concept of a ‘unitary brand’ may be helpful to owners of Chinese character trademarks because each character has a corresponding pinyin transliteration which is based on the Latin alphabet. Thus, the commercial logic in protecting both representations might be easier to argue. Also the fact that it is sufficient to have a legitimate right in the sign, without the need of having a concrete enforceable right in the EU is worth pointing out (albeit will certainly require further interpretation). 

Both pictures are in the public domain.