Elusive but effective: merchandising rights in fighting back against trademark squatting in China

Elusive but effective: merchandising rights in fighting back against trademark squatting in China

Elusive but effective: merchandising rights in fighting back against trademark squatting in China

The Supreme People’s Court of the PRC (“SPC”) has issued a landmark ruling holding that a unique word developed in a fictional work can be protected as a prior right to invalidate a same later trademark registration if it fits specific criteria.

Since 2015, two parties have been embroiled in a long-running trademark invalidation dispute. The trademark registrant, Shanghai You Qi Limited, wanted to register the term “Kui Hua Bao Dian” in standard Chinese characters as a mark for services such as  “game services provided on-line from a computer network”.

The truth is, “Kui Hua Bao Dian” is the title of a martial art guidebook created by Louise Cha in one of his classic wuxia novels, not any random name. Louise Cha, better known as JIN Yong, is one of the most important wuxia novelists in modern China, whose wuxia novel Xiao Ao Jiang Hu has been translated into seven television series and four films and has a huge readership throughout all Chinese-speaking territories. In that novel, the swordsman who learns the ultimate kung fu from the guidebook “Kui Hua Bao Dian” can be unstoppable and rule the fictional world, so the reader and audience are left with a lingering impression of this strange guidebook. “Kui Hua Bao Dian” is a household term in China.

The merchandising rights, though quite elusive in definition, can be an effective claim as “prior interests” in fighting back against malicious trademark registration

Perfect World Limited was granted permission by JIN Yong to adapt its novel Xiao Ao Jiang Hu for online video games, making Perfect World Limited a legally related party with the authority to prevent third parties from commercially exploiting the novel and its essential elements in video game development. Perfect World Limited, a video game developer and publisher, filed an invalidation action against Shanghai You Qi Limited’s ill-registered trademark “Kui Hua Bao Dian,” claiming that the registration infringed on its previous right under Article 31 of the Chinese Trademark Law of 2001.

Article 31 states that the registration of a trademark shall not infringe on others’ previous rights. The trademark law, on the other hand, is silent on the nature or scope of the previous rights. Copyright, patent rights, tradename rights, and name rights are all examples of previous rights that are unquestioned.

The SPC went even farther in its Judicial Interpretation in 2017, stating that the title of a work and the name of a well-known fictional character can both be protected as “prior interests” to prevent the registration of the same or similar trademark. However, things are a little different in this case. In the novel Xiao Ao Jiang Hu, “Kui Hua Bao Dian” is a unique and well-known element. Can it be protected in the same way as the novel’s title or the name of a fictional character in the novel?

Perfect World Limited’s claim was supported by the Trademark Review and Adjudication Board (TRAB), which later became the China National Intellectual Property Administration(CNIPA), which invalidated the registration on the grounds that “Kui Hua Bao Dian” could be a protectable object of merchandising rights, and that merchandising rights should be read into the “prior right” clause of trademark law. Shanghai You Qi Limited took the case to court after being dissatisfied with the decision.

Both the Beijing Intellectual Property Court and the Beijing Higher People’s Court approached the subject of merchandising rights with caution, eventually siding with Shanghai You Qi Limited. Recognizing the phrase’s widespread popularity, the BIPC investigated to discover that the link between the term and its founder had been severed, as evidence in the record revealed that the term’s meaning had gradually developed into “high-end strategy for achieving a certain goal.” As a result, the phrase should not be preserved for the purpose of public freedom of expression.

In the absence of explicit statutory language in the Chinese Civil Code, Copyright Law, and SPC’s Judicial Interpretation in 2017, the BHPC held that “Kui Hua Bao Dian” could not be protected in the form of merchandising rights as a made-up book name in the novel Xiao Ao Jiang Hu, as opposed to the novel’s title or characters’ names. The Court then vacated the TRAB’s ruling and remanded the case for further proceedings in accordance with its findings.

The TRAB and Perfect World Limited both maintained that the famous “Kui Hua Bao Dian” is unquestionably qualified for protection, and thus retried the matter at the Supreme People’s Court. In a potentially significant ruling, the SPC identified three considerations in evaluating merchandising rights protection under Article 31 of the trademark legislation from Article 22.2 of its Judicial Interpretation in 2017.

Article 22.2 sets forth that for works within the term of copyright protection, if the copyright holder claims prior rights and interests based on the title of the work, the name of the character, and the like, the People’s Court shall support such claim when the title of the work, the name of the character, and the like in the work are highly known to the public and the use of them as a trademark on the relevant goods is likely to cause the relevant public to mistakenly believe that the mark has been authorized by the copyright holder or has a specific connection with the copyright holder. Following this article, the SPC declared that three considerations should be examined when determining whether the title of the work, the name of the character, and other similar items are protectable as “prior rights and interests”:

  1. The work in question is within the term of copyright protection;
  2. The title of the work, the name of the character, and the like enjoy high fame;
  3. It is likely to cause public confusion when the title of the work, the name of the character, and the like are unauthorizedly used as trademarks on related goods.

The SPC determined that the phrase “Kui Hua Bao Dian” should be protected using this three-factor test, finding that it fits all three requirements. To begin with, the novel Xiao Ao Jiang Hu, from which the phrase “Kui Hua Bao Dian” is derived, was published in 1969 and is still protected by copyright.

Second, there is no disagreement about the term “Kui Hua Bao Dian’s” high fame and reputation prior to the filing date of the same trademark. Shanghai You Qi Limited failed to establish a link between the term and its creator by a preponderance of the evidence that the term is perceived as generic by the general public. The purported definition of “high-end strategy for obtaining a specific goal” is drawn mostly from the term’s nature as a superior martial art manual. According to a recently published market survey report, there is still a significant link between the phrase and the writer and his novel among the general public. As a result, the SPC confirmed that both the BIPC and the BHPC were mistaken in concluding that the stable link had been severed.

Third, a video game is a common spin-off product from a popular wuxia novel, as it is a well-established business technique. Early in 2008, the author JIN Yong gave permission to Perfect World Limited to adapt his wuxia novel Xiao Ao Jiang Hu for video games. The challenged mark “Kui Hua Bao Dian” is for “game services offered online from a computer network; entertainment services; and other services,” which come within the generally accepted scope of wuxia novel spin-off services.

Shanghai You Qi Limited has filed multiple marks “Xiao Ao Jiang Hu” for game services, according to the SPC, which could be secondary evidence that the registrant intends to profit from the profitable novel Xiao Ao Jiang Hu. As a result, the SPC determined that using “Kui Hua Bao Dian” as a trademark for the specified services would lead the relevant public to believe that the services supplied under the mark were somehow linked to the famous novelist and his work Xiao Ao Jiang Hu.

The SPC upheld the TRAB’s conclusion in light of the aforesaid. As a reaction, the SPC stresses that simply because there is no idea of merchandising rights in all existing Chinese regulations, one cannot conclude that merchandising rights will not be safeguarded. This case demonstrates that, despite their ambiguous meaning, merchandising rights can be a successful argument as “prior interests” in combating fraudulent trademark registration. Copyright protection does not apply to the title of a work, the name of a character, or other unique characteristics in a fictional work, but merchandising rights allow the right holder to acquire limited protection if these aspects pass the three-factor test.

***Other Articles***

– You could see How To Register Trademark in China here.

– You could visit here to see Procedure of Trademark in China.

– You could visit here to check Required documents of filing trademark in China.

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