How Did “Baijia” Lose its Legal Battle Against “Baixiang”?

Issue 29 By Wang Zhengzhi,[Patent]

Since Baijia began to make instant rice noodles in September 2000, it has always used the “Baijia” trademark in a vertical style for its packaging design. So how did it lose its legal battle and become a trademark infringer for its 10 years old “Baijia” trademark?

I. Baijia’s incomplete intellectual property protection

1. Baijia’s incomplete trademark protection

According to Article 51 of the Trademark Law of China, the right to exclusive use of a registered trademark shall be limited to trademarks that have been approved for registration. What Baijia applied to register was a horizontally printed mark, but what it actually used was a vertical one. This would not only cause the loss of effective protection over its own mark, but could lead to four consequences: 1) unlawful changes to the words, graphs and their combinations of a registered mark; 2) with the registered mark and the altered form are apparently different from the approved mark, then it is a fake claim to registration; 3) it would constitute infringement upon another’s right to exclusive use if the altered mark looks similar to another’s; and 4) the original registered mark might be canceled for non-use in three consecutive years.

2. The flaw in Baijia’s packaging design patent

Article 23 of the Patent Law of China laid down two conditions for the granting of a design patent. First, it must not be identical or similar to any known existing design; second, it must not conflict with any prior rights of others.

Despite its application for package design patent, Baijia used contradictive patents on its product and as a result, its design patent was declared invalid.

II. Lack of overall strategy before going to court

Baijia lodged a lawsuit against Baixiang for infringement upon its package design patent even before its vertical “Baijia” mark received approval for registration. This showed that Baijia did not have an overall plan for their lawsuits, and they did not consider the possibility that Baixiang might charge it with trademark infringement, not to say the huge loss if the vertical “Baijia” was indeed found to be an infringement.

Additionally, Baijia failed to carefully evaluate the validity of its design patent before going to court. In a dispute over the patent right, the first thing that a defendant will do is to try and invalidate the patent. By using a flawed patent to sue another for infringement, Baijia not only lost its ground, but received a blow when its own patent was declared invalid.

Foreign companies are extremely cautious in their intellectual property suits. On July 1, 2005, Netherlands-based Unilin, the Irish Industrial Floor Company and Unilin Flooring, NC, jointly lodged a complaint with the ITC over imported, consolidated composite floor, demanding an ITC general exclusion order on the infringing products and a restraining order on the companies charged. There were 17 Chinese companies on the list of the accused.

The case can be regarded as a classic example of foreign companies’ skills when a lawsuit is involved. Unilin prepared for nearly two years before beginning their litigation, when most of its related techniques had already received patents in China. The accused companies were scattered in Jiangsu, Shanghai, Guangdong, and Fujian, and were of varied sizes. This made it hard for them to coordinate a response. At last, all of them were beaten, except for the one company that possessed its own technology. 
Therefore, when engaged in an intellectual property suit, a Chinese company should ask professionals for a planned strategy. First, check whether the intellectual property right involved is flawed. Second, collect evidence of the other party’s infringement as comprehensively as possible. Third, conduct an in-depth analysis to study the chances of winning the suit. Fourth, make a lawsuit strategy according to the purpose, cost and chance of the case. Finally, fifth, consider possibility of failure and prepare a response in case of such failure.

III. Baijia loses its case

Baijia’s failure chiefly lies in its incorrect cause of action. With a flawed packaging design patent, it would have been better for Baijia to charge Baixiang with unfair competition, instead of patent infringement.
The Anti-Unfair Competition Law of China defined confusion with well-known commodities as a method of unfair competition. It means to use the specific name, package, or decoration of the famous or noted commodities, or to use a similar name, package, decoration of famous or noted commodities that may confuse consumers when distinguishing those commodities. Therefore, a commodity’s package can be protected not only by design in the patent law, but also by restrictions on unfair competition.

For example, in the case of Sanjiu Group and Sanjiu Medical & Pharmaceutical Co., Ltd. vs. Beijing Deweizhi Medical & Pharmaceutical Chain Co., Ltd. (and its Huayuanqiao Drug Store) and Hubei Ketian Pharmaceutical Co., Ltd. for unfair competition, the “999 piyanping” package (Compound Dexamethasone Acetate Cream) was involved. The court decided that the 999 cream was a well-known product with a certain degree of market and consumer popularity, considering factors such as production and sales time, awards, and publicity. Its package also had a distinct and stable style, which enables consumers to identify the manufacturer and distinguish it from other similar products. Consequently, the court ruled that Ketian’s cream package, with decorations highly resembling 999’s, caused confusion among consumers and, therefore, constituted unfair competition.

Sanjiu (999) won the case in the name of unfair competition without applying design patent for its cream. If Baijia could choose unfair competition as the cause of action, it might not only avoid the unfavorable factor of its flawed design patent, but could negotiate with Baixiang in the subsiquent case in which Baixiang sued Baijia for trademark infringement. Even if it cannot get an upper hand, it is still possible for Baijia to talk with Baixiang for mutual withdrawal from the court, and disentangle itself from the actions unharmed. 

About the author:

Wang Zhengzhi is a senior partner with the Globe Law Firm.

(Translated by Li Heng)

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