Starbucks Corporation Wins in a Trademark Infringement and Unfair Competition Case in Shanghai, China

By Jing Li[1], Shaobin Zhu[2]

I. INTRODUCTION

On December 20, 2006, the Shanghai Higher People’s Court handed down the final decision in the appeal case Shanghai Xingbake Coffee Shop Ltd., Nanjing Road Branch of Xingbake Coffee Shop Ltd.  (Defendants) v. Starbucks Co., President Starbucks Coffee Shanghai Co. (Plaintiffs).[3]  The court rejected the appeal and upheld the trial verdict that Defendants had infringed Plaintiffs’ well-known “STARBUCKS,” “Xingbake” and mermaid trademarks and had engaged in unfair competition by using “Xingbake,” "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.[4]

II. CASE BACKGROUND

Starbucks Corporation is the largest world-famous coffee chain corporation which was established in November, 1985 in Seattle, Washington, USA.  President Starbucks Coffee Shanghai Corporation is a franchised Starbucks operator which was established in March, 2000 in Shanghai.

The word “STARBUCKS” was registered by Starbucks U.S. Brands Corporation in the United States Patent and Trademark Office (“USPTO”) as a trademark in November, 1985.  Until March, 2003, the word marks “STARBUCKS” and “STARBUCKS COFFEE” and graphic marks were registered in the USPTO to cover various goods and service categories.  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.  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.  Starbucks Corporation had become a very successful international company and Starbucks trademarks had become world-famous.  In October, 1999, the Korean Intellectual Property Office (“KIPO”) recognized “STARBUCKS,” a foreign-registered trademark, as a well-known trademark in Korea.

From May, 1996, to March, 2003, Starbucks Corporation registered word marks “STARBUCKS” and “STARBUCKS COFFEE” and their graphic marks covering various goods and service categories in mainland China.  In February, 1999, the company registered “Xingbake,” the Chinese translation of “STARBUCKS,” in Taiwan of China.  In December, 2001, the Taiwan Intellectual Property Office (“TIPO”) identified “Xingbake” as a "well-known trademark."  In December, 1999, the company registered “Xingbake” in Mainland China.  In Chinese, "Xing" means "star", and "ba" and "ke" phonetically sound together like "bucks."[5]

In January, 1999, the first Starbucks chain store in mainland China opened in Beijing.  Starbucks Corporation publicized its trademarks, products and services through printed advertising materials.  In these promotional materials, word marks “STARBUCKS,” “STARBUCKS COFFEE” and “Xingbake” and graphic marks were used.  After its establishment, President Starbucks Coffee Shanghai Corporation opened many other Starbucks chain stores, and used “STARBUCKS,” “Xingbake” and graphic marks in business activities.  The company spent a lot of money on promoting and marketing its trademarks.  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.  It acquired approval for pre-registration of its name on October 20, 1999, and was formally established on March 9, 2000.  The company and its Nanjing Road branch used “Xingbake”, “Starbuck”, marks and a green logo similar to that of Starbucks Corporation on its menus, cafe windows, receipts and business cards.  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 People’s 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 “Xingbake,” “Starbuck” and logos in its company name and business activities.  At the request of Plaintiffs, the court took measures against Defendants to preserve evidence.

III.   SHANGHAI NO. 2 INTERMEDIATE PEOPLE’S COURT RULING

A.  Determination of Well-known Trademarks

Shanghai No.2 Intermediate People’s Court (the trial court) declared that “STARBUCKS” and “Xingbake” are well-known trademarks.  Under the revised Trademark law of the P.R.C., the recognition of well-known mark in China requires several elements including “reputation 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.”[6]  Starbucks Corporation is a multinational coffee chain corporation.  It registered “STARBUCKS” and the Starbucks mermaid trademark, and the “Xingbake” mark in mainland China in 1996 and 1999 respectively.  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.  Because of the broad international fame of the “STARBUCKS” series trademarks, and the use and promotion of “Xingbake” in Chinese-speaking regions, “STARBUCKS” and “Xingbake” had become well-known in China.  Therefore, these two marks were recognized as well-known trademarks in China.

1. Determination of Trademark Infringement and Unfair Competition by Defendants’ Enterprise Name Registration

The trial court found that Plaintiffs acquired priority over Defendants on the ownership of the mark “Xingbake.”  The court’s findings are summarized as followings: (1) The plaintiff Starbucks Corporation used the mark first.  The plaintiff registered “Xingbake” in Taiwan of China in February, 1999, while the defendant Shanghai Xingbake pre-registered its enterprise name in October, 1999.  (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.  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.  (3) The trial court also found that the defendant Shanghai Xingbake maliciously used “Xingbake” in its enterprise name registration.   Before the defendant’s enterprise name registration, “STARBUCKS” and “Xingbake” had acquired wide publicity in China.  As a competitor, the defendant knew or should have known these two famous marks in the industry.  Moreover, Jiefang Daily reported on Aug 1, 2003 that Mr. Mao, the CEO of Shanghai Xingbake, admitted that they had competitively registered “Xingbake” because of the good reputation of Starbucks Corporation and “Xingbake.”  The trial court rejected the defendant’s explanation that the defendant conceived the name “Xingbake” and that it was inspired by the character “Simba” in Lion King.  Thus, the plaintiff acquired priority over the defendant in both the use of the mark “Xingbake” and the acquisition of exclusive rights to the mark.

Therefore, the trial court concluded that the defendant’s use of “Xingbake” in its enterprise name registration infringed the plaintiff’s exclusive rights to the well-known trademarks “STARBUCKS” and “Xingbake.”  The defendant knew it did not have legitimate rights to the mark “Xingbake,” but still used the mark in its and its subsidiaries’ enterprise name registrations.  The defendant’s conduct constituted “prejudice to the exclusive right of another person to use a registered trademark,”[7] violated fairness and good faith principle, and infringed the plaintiff’s well-known trademarks.

The trial court also found that the defendant’s use of “Xingbake” in its enterprise name registration constituted unfair competition.  A market player should follow voluntary, equality, fairness, and good faith principles, and abide by recognized business ethics.  The defendant is a competitor of Plaintiffs.  The defendant used “Xingbake” as an essential part of its enterprise’s name, which was completely identical to Plaintiffs’ registered trademark “Xingbake.”  The defendant’s 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 Defendants’ Business Activities

The trial court found that Defendants’ use of “Xingbake,” “Starbuck” and the coffee mug logo in their business activities infringed Plaintiff’s trademarks and constituted unfair competition.  Defendants used six marks (trade names or logos) in their business activities.  The marks used the word “Xingbake,” or the coffee mug logo - a green circle graphic containing the word “Xingbake” and two stars.  (1) Defendants’ use of the word “Xingbake” in their enterprise name registration infringed Plaintiffs’ trademarks, and so did Defendants’ use of the word “Xingbake” in their business activities.  (2) Comparing the word “Starbuck” in Defendants’ mark “Xingbake Specialty Starbuck Coffee” to Plaintiffs’ “STARBUCKS” trademark, the trial court found that “Starbuck” lacked one letter “s,” and the way of capitalization was different. 

However, the alphabetical order was completely identical, and the pronunciation was also very similar.  Because "Starbuck" is the core part of the Defendants’ mark, considering the publicity and reputation of Plaintiffs’ “STARBUCKS” trademark, the Defendants’ mark should be held similar to Plaintiffs’ “STARBUCKS” trademark.  (3) Defendants’ coffee mug logo was two round nested circles with stars just like Plaintiffs’ mermaid trademark, while it replaced the Starbucks mermaid with a coffee cup and replaced the company name with “Shanghai Xingbake Coffee Shop” in Chinese.  However, the two marks’ overall structures were similar.  Considering the publicity and reputation of Plaintiffs’ “STARBUCKS” and mermaid trademarks, the Defendants’ mark should be held similar to that of Plaintiffs’.  Therefore, Defendants infringed Plaintiffs’ trademarks and constituted unfair competition. 

3. The Trial Court’s 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 “Xingbake”, 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.  The trial court also ordered Defendants to assume most of the lawsuit fees and property preservation fees.

Defendants appealed to the Shanghai Higher People’s Court.

IV.   SHANGHAI HIGHER PEOPLE'S COURT RULING

After trial, the Shanghai Higher People’s Court (the appeal court) found no error in the trial court’s factual findings.

A.  Affirming the Trial Court’s Decision

The appeal court affirmed the trial court ruling on the determination of Plaintiffs well-known trademarks.  Determining whether a mark is a well-known trademark is a legal evaluation of relevant facts.  The Supreme People’s Court’s Judicial Interpretations Concerning the Application of Laws in the Trial of Cases of Civil Disputes Arising from Trademarks, Article 22, Paragraph 1 provides: “In the hearing of disputes over trademarks, the people’s 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 ‘well-known.’”  The trial court determined that Plaintiffs’ “STARBUCKS” and “Xingbake” marks were well-known trademarks, based on the trademarks’ registration date and geographical scope, the period of continued use, advertisement, publicity and reputation.   The appeal court affirmed that the trial court’s decision was in accordance with the facts and the law, and should be upheld.

The appeal court also affirmed the trial court’s ruling on Defendants’ trademark infringement and unfair competition by Defendants’ enterprise name registration.  Defendants knew “STARBUCKS” and “Xingbake” were other’s famous trademarks, but still used “Xingbake” in their enterprise name registration.  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.  Defendants used improper means to take advantage of Starbucks Corporation’s good business reputation and to enhance their publicity and influence.  Defendants’ conducts constituted unfair competition.   The Appeal court ordered that defendants should stop infringement, apologize, eliminate harming effect, and pay damages.

The appeal court further affirmed the trial court’s ruling on Defendants’ trademark infringement and unfair competition by Defendants’ business activities.  Defendants illegally used the word marks “Xingbake” and “Starbuck” and the coffee mug logo in their business activities.  These marks were similar to Plaintiffs’ “Xingbake,” “STARBUCKS” and Starbucks’ mermaid trademark.  Hence, Defendants’ conduct constituted infringement of Plaintiffs trademark, and also constituted unfair competition.  The Appeal Court found that defendants should be jointly liable and should cease infringement, apologize, eliminate harming effect, and pay damages.

Because Plaintiffs’ 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.  The trial court’s 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.  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.  The trial court ruling is not improper, and should be upheld.

B. Rejecting Defendant’s Appeal Arguments

Defendants requested to vacate the trial verdict.  The reasons of their appeal were:  (1) the trial court’s proceedings were unfair; (2) the trial verdict was clearly unjust and erroneous in determining Plaintiffs’ overseas evidences; (3) the trial verdict was clearly erroneous in determining “Xingbake” as a well-known trademark; (4) the trial verdict lacked supporting evidence in determining that the defendant Shanghai Xingbake’s infringement was malicious; (5) the trial verdict lacked supporting evidence in determining that Defendants’ trademarks were similar to “STARBUCKS” and the Starbucks mermaid trademark; (6) the trial verdict was clearly erroneous in assessing RMB 500,000 yuan in damages based up on Plaintiffs’ attorney’s fees, public notary fees and translation fees; (7) Shanghai Xingbake’s enterprise name pre-registration was approved by the Industry and Commerce Department and thus it had acquired the exclusive rights to “Xingbake,” prior to Starbucks Corporation’s trademark registration of “Xingbake” in mainland China; the trial verdict was clearly unjust, and was in favor of the large international corporation.  In addition, at the appeal, Defendants contended that the trial verdict did not clearly determined some facts, such as the original applicant of the “STARBUCKS” trademark registration in the USPTO in November, 1985, how Starbucks Corporation acquired the right to use “STARBUCKS” 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. The Appeal Court’s 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.  Defendants’ appeal request and arguments lacked factual and legal basis, and should be rejected.  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.  The two defendants should share the appeal cost.  The judgment was final.

V. CONCLUSION

This case may be a sign that intellectual property protection in China is improving for companies that use trademarks, logo and brand names there.[8]  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.  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.  This is encouraging to international companies with famous trademarks in that their trademark rights can be successfully defended through legal action in China.