Starbucks Corporation Wins in a Trademark Infringement and Unfair Competition Case in Shanghai, China
By Jing Li, Shaobin Zhu
On December 20, 2006, the Shanghai Higher Peopleâs Court handed down the final decision in the appeal case Shanghai Xingbake Coffee Shop Ltd., Nanjing Road Branch of Xingbake Coffee Shop Ltd. Â (Defendants) v. Starbucks Co., President Starbucks Coffee Shanghai Co. (Plaintiffs). Â The court rejected the appeal and upheld the trial verdict that Defendants had infringed Plaintiffsâ well-known âSTARBUCKS,â âXingbakeâ and mermaid trademarks and had engaged in unfair competition by using âXingbake,â "Starbuck" and a coffee mug logo in their company names and business activities. Defendants were ordered to cease their infringement and unfair competition practices, change their enterprise names, pay damages RMB 500,000 yuan (US $62,000) to Plaintiffs, and issue an apology in a local newspaper, the Xinmin Evening News.
II.Â CASE BACKGROUND
Starbucks Corporation is the largest world-famous coffee chain corporation which was established in November, 1985 in Seattle, Washington, USA. Â President Starbucks Coffee Shanghai Corporation is a franchised Starbucks operator which was established in March, 2000 in Shanghai.
The word âSTARBUCKSâ was registered by Starbucks U.S. Brands Corporation in the United States Patent and Trademark Office (âUSPTOâ) as a trademark in November, 1985.Â Until March, 2003, the word marks âSTARBUCKSâ and âSTARBUCKS COFFEEâ and graphic marks were registered in the USPTO to cover various goods and service categories.Â Later on, these trademarks were also registered in 120 other countries and regions, including Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan of China.Â In September, 1997, Starbucks U.S. Brands Corporation signed a licensing agreement to grant Starbucks Corporation non-exclusive rights to use and sublicense Starbucks trademarks.Â Starbucks Corporation had become a very successful international company and Starbucks trademarks had become world-famous.Â In October, 1999, the Korean Intellectual Property Office (âKIPOâ) recognized âSTARBUCKS,â a foreign-registered trademark, as a well-known trademark in Korea.
From May, 1996, to March, 2003, Starbucks Corporation registered word marks âSTARBUCKSâ and âSTARBUCKS COFFEEâ and their graphic marks covering various goods and service categories in mainland China. Â In February, 1999, the company registered âXingbake,â the Chinese translation of âSTARBUCKS,â in Taiwan of China. Â In December, 2001, the Taiwan Intellectual Property Office (âTIPOâ) identified âXingbakeâ as a "well-known trademark."Â In December, 1999, the company registered âXingbakeâ in Mainland China. Â In Chinese, "Xing" means "star", and "ba" and "ke" phonetically sound together like "bucks."
In January, 1999, the first Starbucks chain store in mainland China opened in Beijing.Â Starbucks Corporation publicized its trademarks, products and services through printed advertising materials.Â In these promotional materials, word marks âSTARBUCKS,â âSTARBUCKS COFFEEâ and âXingbakeâ and graphic marks were used.Â After its establishment, President Starbucks Coffee Shanghai Corporation opened many other Starbucks chain stores, and used âSTARBUCKS,â âXingbakeâ and graphic marks in business activities.Â The company spent a lot of money on promoting and marketing its trademarks.Â Through the media coverage, the company and its trademarks gained wide publicity.
Shanghai Xingbake Coffee Shop Ltd. (Shanghai Xingbake) is a company that runs businesses covering the retail food and beverages. Â It acquired approval for pre-registration of its name on October 20, 1999, and was formally established on March 9, 2000.Â The company and its Nanjing Road branch used âXingbakeâ, âStarbuckâ, marks and a green logo similar to that of Starbucks Corporation on its menus, cafe windows, receipts and business cards. Â The logo has a picture of a coffee cup in the circle, instead of a mermaid.
On December 23, 2003, Starbucks Corporation and President Starbucks Coffee Shanghai Corporation filed a lawsuit, in Shanghai No.2 Intermediate Peopleâs Court, against the Shanghai Xingbake Cafe and its subsidiary on the Nanjing Road, claiming Shanghai Xingbake had violated the rule of fair competition and infringed upon the trademark of Starbucks by using âXingbake,â âStarbuckâ and logos in its company name and business activities.Â At the request of Plaintiffs, the court took measures against Defendants to preserve evidence.
III.Â Â SHANGHAI NO. 2 INTERMEDIATE PEOPLEâS COURT RULING
A.Â Determination of Well-known Trademarks
Shanghai No.2 Intermediate Peopleâs Court (the trial court) declared that âSTARBUCKSâ and âXingbakeâ are well-known trademarks. Â Under the revised Trademark law of the P.R.C., the recognition of well-known mark in China requires several elements including âreputation of the mark to the relevant public, time for continued use of the mark, consecutive time, extent and geographical area of advertisement of the mark, records of protection of the mark as a well-known mark.â Â Starbucks Corporation is a multinational coffee chain corporation. Â It registered âSTARBUCKSâ and the Starbucks mermaid trademark, and the âXingbakeâ mark in mainland China in 1996 and 1999 respectively. Â The company invested a huge amount of money in long-lasting marketing activities to promote its trademarks, through various medium, promotion and public service activities. Â Because of the broad international fame of the âSTARBUCKSâ series trademarks, and the use and promotion of âXingbakeâ in Chinese-speaking regions, âSTARBUCKSâ and âXingbakeâ had become well-known in China.Â Therefore, these two marks were recognized as well-known trademarks in China.
1. Determination of Trademark Infringement and Unfair Competition by Defendantsâ Enterprise Name Registration
The trial court found that Plaintiffs acquired priority over Defendants on the ownership of the mark âXingbake.â Â The courtâs findings are summarized as followings: (1) The plaintiff Starbucks Corporation used the mark first.Â The plaintiff registered âXingbakeâ in Taiwan of China in February, 1999, while the defendant Shanghai Xingbake pre-registered its enterprise name in October, 1999.Â (2) With respective to the enterprise name and trademark registration in mainland China, the plaintiff registered the trademark in December, 1999, and thus acquired the exclusive rights to the mark at the date of registration; the defendant was formally established in March, 2000, although its enterprise name was pre-registered in October, 1999.Â According to the relevant provisions of the Implementing Measures for Administration of Enterprise Name Registration of P. R. China, the defendant owned its enterprise name at the date of its formal establishment.Â (3) The trial court also found that the defendant Shanghai Xingbake maliciously used âXingbakeâ in its enterprise name registration.Â Â Before the defendantâs enterprise name registration, âSTARBUCKSâ and âXingbakeâ had acquired wide publicity in China.Â As a competitor, the defendant knew or should have known these two famous marks in the industry.Â Moreover, Jiefang Daily reported on Aug 1, 2003 that Mr. Mao, the CEO of Shanghai Xingbake, admitted that they had competitively registered âXingbakeâ because of the good reputation of Starbucks Corporation and âXingbake.â Â The trial court rejected the defendantâs explanation that the defendant conceived the name âXingbakeâ and that it was inspired by the character âSimbaâ in Lion King.Â Thus, the plaintiff acquired priority over the defendant in both the use of the mark âXingbakeâ and the acquisition of exclusive rights to the mark.
Therefore, the trial court concluded that the defendantâs use of âXingbakeâ in its enterprise name registration infringed the plaintiffâs exclusive rights to the well-known trademarks âSTARBUCKSâ and âXingbake.âÂ The defendant knew it did not have legitimate rights to the mark âXingbake,â but still used the mark in its and its subsidiariesâ enterprise name registrations.Â The defendantâs conduct constituted âprejudice to the exclusive right of another person to use a registered trademark,â violated fairness and good faith principle, and infringed the plaintiffâs well-known trademarks.
The trial court also found that the defendantâs use of âXingbakeâ in its enterprise name registration constituted unfair competition.Â A market player should follow voluntary, equality, fairness, and good faith principles, and abide by recognized business ethics.Â The defendant is a competitor of Plaintiffs.Â The defendant used âXingbakeâ as an essential part of its enterpriseâs name, which was completely identical to Plaintiffsâ registered trademark âXingbake.â Â The defendantâs conduct was clearly malicious, and led to confusion or misunderstanding to the public, including source confusion and affiliation confusion, and thus constituted unfair competition to Plaintiffs.
2. Determination of Trademark Infringement and Unfair Competition by Defendantsâ Business Activities
The trial court found that Defendantsâ use of âXingbake,â âStarbuckâ and the coffee mug logo in their business activities infringed Plaintiffâs trademarks and constituted unfair competition.Â Defendants used six marks (trade names or logos) in their business activities.Â The marks used the word âXingbake,â or the coffee mug logo - a green circle graphic containing the word âXingbakeâ and two stars.Â (1) Defendantsâ use of the word âXingbakeâ in their enterprise name registration infringed Plaintiffsâ trademarks, and so did Defendantsâ use of the word âXingbakeâ in their business activities.Â (2) Comparing the word âStarbuckâ in Defendantsâ mark âXingbake Specialty Starbuck Coffeeâ to Plaintiffsâ âSTARBUCKSâ trademark, the trial court found that âStarbuckâ lacked one letter âs,â and the way of capitalization was different.Â
However, the alphabetical order was completely identical, and the pronunciation was also very similar.Â Because "Starbuck" is the core part of the Defendantsâ mark, considering the publicity and reputation of Plaintiffsâ âSTARBUCKSâ trademark, the Defendantsâ mark should be held similar to Plaintiffsâ âSTARBUCKSâ trademark.Â (3) Defendantsâ coffee mug logo was two round nested circles with stars just like Plaintiffsâ mermaid trademark, while it replaced the Starbucks mermaid with a coffee cup and replaced the company name with âShanghai Xingbake Coffee Shopâ in Chinese.Â However, the two marksâ overall structures were similar.Â Considering the publicity and reputation of Plaintiffsâ âSTARBUCKSâ and mermaid trademarks, the Defendantsâ mark should be held similar to that of Plaintiffsâ.Â Therefore, Defendants infringed Plaintiffsâ trademarks and constituted unfair competition.Â
3. The Trial Courtâs Judgment
Based on the above facts and analysis, the trial court ordered Defendants to cease the infringement and unfair competition against Plaintiffs, change their enterprise names to avoid using the word âXingbakeâ, pay damages RMB 500,000 yuan (US $62,000) to Plaintiffs, and issue an apology to Plaintiffs in a local newspaper, the Xinmin Evening News.Â The trial court also ordered Defendants to assume most of the lawsuit fees and property preservation fees.
Defendants appealed to the Shanghai Higher Peopleâs Court.
IV.Â Â SHANGHAI HIGHER PEOPLE'S COURT RULING
After trial, the Shanghai Higher Peopleâs Court (the appeal court) found no error in the trial courtâs factual findings.
A.Â Â Affirming the Trial Courtâs Decision
The appeal court affirmed the trial court ruling on the determination of Plaintiffs well-known trademarks.Â Determining whether a mark is a well-known trademark is a legal evaluation of relevant facts.Â The Supreme Peopleâs Courtâs Judicial Interpretations Concerning the Application of Laws in the Trial of Cases of Civil Disputes Arising from Trademarks, Article 22, Paragraph 1 provides: âIn the hearing of disputes over trademarks, the peopleâs court may, according to the allegations of the parties concerned and the concrete situations of the cases concerned, decide by law whether the registered trademark involved is âwell-known.ââÂ The trial court determined that Plaintiffsâ âSTARBUCKSâ and âXingbakeâ marks were well-known trademarks, based on the trademarksâ registration date and geographical scope, the period of continued use, advertisement, publicity and reputation.Â Â The appeal court affirmed that the trial courtâs decision was in accordance with the facts and the law, and should be upheld.
The appeal court also affirmed the trial courtâs ruling on Defendantsâ trademark infringement and unfair competition by Defendantsâ enterprise name registration.Â Defendants knew âSTARBUCKSâ and âXingbakeâ were otherâs famous trademarks, but still used âXingbakeâ in their enterprise name registration.Â Their conduct violated good faith principles and recognized business ethics, and caused the public to confuse the true trademark owner with Defendants, or to misunderstand that they were affiliated.Â Defendants used improper means to take advantage of Starbucks Corporationâs good business reputation and to enhance their publicity and influence.Â Defendantsâ conducts constituted unfair competition.Â Â The Appeal court ordered that defendants should stop infringement, apologize, eliminate harming effect, and pay damages.
The appeal court further affirmed the trial courtâs ruling on Defendantsâ trademark infringement and unfair competition by Defendantsâ business activities.Â Defendants illegally used the word marks âXingbakeâ and âStarbuckâ and the coffee mug logo in their business activities.Â These marks were similar to Plaintiffsâ âXingbake,â âSTARBUCKSâ and Starbucksâ mermaid trademark.Â Hence, Defendantsâ conduct constituted infringement of Plaintiffs trademark, and also constituted unfair competition.Â The Appeal Court found that defendants should be jointly liable and should cease infringement, apologize, eliminate harming effect, and pay damages.
Because Plaintiffsâ losses and Defendants gains were difficult to determine, the statutory compensation method, provided in the Trademark Law of P. R. China, Article 56, was applied to determine the appropriate amount of damages. Â The trial courtâs damage ruling was based on the nature, period, and consequences of the trademark infringement and unfair competition, the publicity and reputation of the infringed trademarks, and the reasonable cost of stopping infringement by Defendants.Â Considering the overlapping consequences of trademark infringement and unfair competition and avoiding double calculation of the overlapping injuries, the trial court held Defendants jointly liable for damages to Plaintiffs totaling RMB 500,000 yuan.Â The trial court ruling is not improper, and should be upheld.
B.Â Rejecting Defendantâs Appeal Arguments
Defendants requested to vacate the trial verdict.Â The reasons of their appeal were:Â (1) the trial courtâs proceedings were unfair; (2) the trial verdict was clearly unjust and erroneous in determining Plaintiffsâ overseas evidences; (3) the trial verdict was clearly erroneous in determining âXingbakeâ as a well-known trademark; (4) the trial verdict lacked supporting evidence in determining that the defendant Shanghai Xingbakeâs infringement was malicious; (5) the trial verdict lacked supporting evidence in determining that Defendantsâ trademarks were similar to âSTARBUCKSâ and the Starbucks mermaid trademark; (6) the trial verdict was clearly erroneous in assessing RMB 500,000 yuan in damages based up on Plaintiffsâ attorneyâs fees, public notary fees and translation fees; (7) Shanghai Xingbakeâs enterprise name pre-registration was approved by the Industry and Commerce Department and thus it had acquired the exclusive rights to âXingbake,â prior to Starbucks Corporationâs trademark registration of âXingbakeâ in mainland China; the trial verdict was clearly unjust, and was in favor of the large international corporation.Â In addition, at the appeal, Defendants contended that the trial verdict did not clearly determined some facts, such as the original applicant of the âSTARBUCKSâ trademark registration in the USPTO in November, 1985, how Starbucks Corporation acquired the right to use âSTARBUCKSâ trademark outside U.S., how many chain stores Starbucks Corporation opened in 1999 in China and the number of trademarks Plaintiffs were entitled to.
Based on the facts, the law and careful analysis, the appeal court rejected all of the above arguments.
C.Â The Appeal Courtâs Judgment
In summary, the trial verdict was correct in its factual findings and application of the law, the trial proceedings were legal, and therefore the trial verdict should be upheld.Â Defendantsâ appeal request and arguments lacked factual and legal basis, and should be rejected.Â According to the Civil Procedure Law of P. R. China, Article 153 (1), Paragraph 1, the appeal court entered the judgment: reject the appeal and upheld the trial verdict.Â The two defendants should share the appeal cost.Â The judgment was final.
This case may be a sign that intellectual property protection in China is improving for companies that use trademarks, logo and brand names there.Â This is also a seminal case that hitchhiking onto a foreign famous trademark may be prohibited in China under the legal theory of infringing a well-known trademark and conducting unfair competition.Â Under the amended Trademark Laws of the P. R. China, Article 13, Paragraph 1, the registration of a mark that is a reproduction, imitation or translation of another person's well-known trademark is not registered in China and is likely to cause confusion, shall be rejected for registration and prohibited from use.Â This is encouraging to international companies with famous trademarks in that their trademark rights can be successfully defended through legal action in China.
Jing Li is a student in the IP LL.M. program at the University of Washington School Of Law.
 Shaobin Zhu is a J.D. student of class 2008 at the University of Washington School of Law.
 Shanghai firm fined for infringing trademark of Starbucks (Jan. 8, 2007), available at http://english.ipr.gov.cn/ipr/en/info/Article.jsp?a_no=44592&col_no=927&dir=200701.
 Trademark Law of P. R. China, Article 52 (5).