Free riding phenomenon is not rare in China, and many cases involving free riding were made public in recent year. In the meantime, another phenomenon is getting attention: there are certain enterprises starting business by producing copycat products, and they have made great profits after years of operation and accumulation; however, they have also experienced embarrassing moments on the way of development, and they get used to be defendants. Whether these kinds of enterprises can exist remains a problem. Adivon is one of them.

Adivon’s low end strategy

Founded in 2006, Adivon opened over 3000 stores so far and the profits were growing year by year. When Adivon started business, the overall sporting goods market was overwhelmed by various of famous brands. Adivon set its brand position in tier 3 and tier 4 cities with sports shoes as main products, meanwhile also sold sportswear, the prices of these products were around 100 yuan, which were much cheaper than products of other Chinese native sportswear brands, not to mention the products of international brands price at thousands yuan.

As can be seen from Adivon’s market orientation, the enterprise probably noticed the economic level of lower tier cities and their citizens’ low sensibility over famous brands. Adivon made great achievements by grasping the essentials; but in the meantime, the enterprise’s free riding acts set itself potential danger which finally leads to the current situation.

It is reported that on May 3rd 2013, the dispute between Adidas and Adivon was finally solved with a settlement. Adivon transferred its Chinese trademark “阿迪 王” and the triangle logo to Adidas for free, the trademark and the logo would not be allowed to use in stores after settlement. Therefore, Adivon was exempted from billions of compensation.

On the same day, Adivon delivered A Notice on Trademark and Enterprise Name’s Use (Notice) to its agents and franchises. According to the Notice , the triangle logo, Chinese trademark “阿迪王” and any related trademark combinations cannot be used in the new products, promotional materials, packaging or store decorations starting from May 3rd 2013.

Adivon also required its agents to sell out all products and accessories in stock before April 6th 2017, and the store decoration can be used until the same day based on the contracts signed between Adivon and its agents and franchises.

Case review

On April 21st 2008, Adidas filed a law suit against Adivon, Huazhu Shoes Co., Ltd. and its distributors at Yingkou Intermediate People’s Court of Liaoning Province for trademark infringement and unfair competition.

On July 21st 2009, Adidas filed another law suit against Adivon, Huazhu Shoes Co., Ltd. and its distributors at Wuhan Intermediate People’s Court of Hubei Province for trademark infringement and unfair competition based on the same grounds.

Because the objection of jurisdiction of the court filed by Adivon regard to the suit filed in Liaoning, the case had been transferred to Dalian Intermediate People’s Court of Liaoning Province and was heard on October 20th 2009. The court rejected Adidas’ all appeals in April 2010.

The latest litigation was on March 15th 2013. Adidas sued the Trademark Appeal Board (the TAB) at court, claiming that Adivon’s trademark was similar to Adidas’ trademark, which was against the Trademark Law; Adivon misled the public by imitating Adidas’ trademark and therefore infringed Adidas’ right to trade name. Adidas also held that it has pumped money in trademark promotion in China’s market, including “Adidas” and “阿迪达斯” trademark. Its trademarks were already well-known trademarks and should be protected by the TAB. Therefore the TAB should not grant registration of the disputed trademark, i.e. Adivon’s trademark. The case was heard by Beijing First Intermediate Court, Adivon presented the hearing as a third party defendant.

The TAB argued that it did not violate the Trademark Law since the trademark of Adivon was not similar to the trademark of Adidas, and Adivon did not infringe Adidas’ right to trade name.

Adidas believed that when seeing Adivon’s trademark, consumers naturally assumed there was certain relationship between Adivon and Adidas, or associated it with Adidas’ trademark. The aforesaid association weakened the recognition of Adidas’ trademark as wellknown trademark, and degraded its brand value, moreover caused public confusion.

As the third party defendant, Adivon held that the trademark of Adivon’s was not similar to Adidas’, and “Adidas” was a created word without any specific meaning.

Adidas used all possible legal resources to protect its trademark right, besides the Trademark Law and Anti-unfair Competition Law, it also filed civil infringement lawsuits at court and applied for trademark opposition at administrative offices. The multidimensional actions took by Adidas on its trademark protection were the common strategies used by giant enterprises. Since these enterprises have strong financial supports, they are more likely to take legal actions to solve disputes once they have favorable position in laws.

Adivon transferred its trademark “阿迪王” and the triangle logo to disengage itself from litigation and avoid possible legal risks. The result led by the transfer is apparently better than other enterprises which had to pay a huge amount of compensation because of infringements caused by free riding, and some of the enterprises even faced bankruptcy. Fu Gang, lawyer at Shanghai Co-effort Law Firm, expressed his opinion, “It is admitted that Adivon is different from other free riding enterprises who have clearly violated other’s rights; from the rulings of the litigations, the court held Adivon did not constitute infringement, and the TAB also thought the trademarks of Adivon’s and Adidas’ were not similar; moreover, after years of operation, Adivon already had its own massive markets in Tier 3 and Tier 4 cities, the recognition of Adivon’s trademark is growing. Under such circumstance, only time can tell whether the transfer is too conservative or farsighted.

Solve disputes through business

Doing business for almost 8 years, Adivon gained a lot of profits which can never be achieved by some of the free-riding companies. China’s IP laws and regulations were completed in 2006 when Adivon was first founded, but the IP consciousness, especially for the private enterprises like Adivon, was weak, and the law enforcement environment was still on the initial stage. Adivon cannot expect in 2006 that it would encounter lawsuits only in a few years.

Business never wants lawsuits. Because of the long standing lawsuits between Adivon and Adidas, though the rulings were in favor of Adivon, Adivon may feel tired or had to shoulder huge pressures in facing of the continual lawsuits and strong rival.

Doctor Yuan Zhenfu, Deputy Director of Shanghai Intellectual Property Academy told China IP that though the trademark transfer agreement was signed under proper conditions, it is hard to say whether the transfer will have a happy ending. After all Adivon had devoted a lot during the operation. This provides an approach in solving free riding disputes, i.e. business approach can also be applied instead of the legal actions. By giving other similar examples such as trademark disputes between Jonson & Jonson and STFlora Company over trademark “采乐CAILE”; and trademark disputes over “伟哥” between Pfizer and other Chinese enterprises, Doctor Yuan wanted to state that it is worth trying to use business thought to solve business disputes, that is how business works.

Where should free riding heading for?

Apparently, free riding can get enterprises no where if these enterprises cannot build their own brands. Once they choose free riding, they should always bear the potential risks in mind and find ways out. The growing strength of free riding enterprises proves that their products have potential market, therefore they should have faith in founding their own brands. At first, a free riding company may make profits by free ride well-known brands, but it should establish its own brands after primitive accumulation of capitals. To maintain consumers’ faithfulness, establishing one’s own brand and trademark are essential, which can be conducted from perspective of contents in different phases. For example, its original trademark can be redesigned part by part gradually and finally turns into a new one; or plan new advertising slogans correspond with its own brand and get publicity for enterprise’s culture concepts. Fu Gang believes that enterprises should use various methods to establish new connections with consumers, and refresh consumers with their own brands. When the new conceptions are established, the real success for enterprises is in sight.

Where should the enterprises who have similar conditions with Adivon heading for, Dr. Yuan offered his suggestions. He said, “free riding” is a long existing problem in China, some free riding enterprises are improvident who value short term benefits, they are more likely to encounter lawsuits as their business grow bigger. Different situation needs corresponding strategies. For the enterprise whose trademark is similar with well-known trademark, it can redesign the trademark on the basis of core elements of the original one and enlarge the trademark discrepancy with the well-known trademark. For the enterprise whose trademark is almost identical with the well-known trademark, using new trademark or transfer the trademark to others can save it from litigations.

To be sure, although some trademarks are similar with well-known trademarks, they do not belong to the scope of free riding. For example, because of the popularity of iPhone worldwide, there emerge a lot of trademarks with “i” as initials in different industries; to be lenient, they are more of an act of chasing the fashion rather than free riding.

(Translated by Emily Tan)