In July 2017 the Supreme People's Court reversed a December 2014 Guangdong High Court judgment and held that the trademark and packaging used on a product may constitute separate IP rights.
In 1828 Guangdong doctor Wong Chat Bong created the Chinese herbal tea brand Wong Lo Kat (Wanglaoji in Mandarin). Initially popular in southern China, the tea is a concoction of Chinese herbs brewed to create the effect of clearing away excessive internal heat, removing damp qi in the body and avoiding inflammatory or other lesions.
In 1956 the government nationalised all of Wong's assets relating to the tea and transferred these to the Guangdong government-owned company Yangcheng Tonic Factory.
In 1991 Yangcheng Tonic Factory began to produce and sell the drink in green packaging with a label depicting traditional Chinese calligraphy (Figure 1).
(Figure 1)
On January 18 1992 Yangcheng Tonic Factory applied for registration of the trademark ??? (WANG LAO JI) (626155) in Class 32, which covers "non-alcoholic beverages and powdered drinks". The trademark was registered on January 20 1993.
In March 1995 and February 1997 Yangcheng Tonic Factory signed trademark licence agreements with Hong Kong-based company Hung To (Holdings) Company Ltd. Between signing the agreements, owner Chan Hung To had applied for the design patents "soda can label" and "can label", both of which required colour protection (Figure 2). The State Intellectual Property Office approved the design patents in 1997.
(Figure 2)
According to the licence agreement, Hung To was granted the exclusive right to use the WANG LAO JI mark in relation to the manufacture and sale of herbal teas when packaged in the red can design. However, both parties were to use different patterns and colours for their respective product packaging.
In August 1997 Yangcheng assigned the WONG LO KAT trademark to Guangzhou Pharmaceutical Holding (GPH) (Figure 3).
(Figure 3)
In 1998 Hung To set up a wholly owned subsidiary, Dongguan Jiaduobao Drink & Food Co Ltd (renamed Guangdong Jiaduobao Drink & Food Co Ltd (JDB) in 2000), to produce and market Wong Lo Kat products under the red can design.
The licence agreement between GPH and Hung To was renewed from 2000 until May 2 2010.
In 2003 Hung To invested in a 10-year advertising campaign to broadcast Wang Lao Ji advertisements during peak times on the CCTV television channels.
The same year, JDB brought claims against a local infringer. In this case, the Foshan Intermediate Court and the Guangdong High Court recognised Wang Lao Ji herbal tea as a famous commodity and its packaging as the "peculiar packaging of a famous commodity" pursuant to Article 5 of the Anti-unfair Competition Law.
In 2005 the general manager of GPH, Yiming Li, was found to have received a bribe of HK$3 million from Hung To as an incentive to renew the licence agreement in 2000. Nevertheless, JDB continued to promote Wong Lo Kat products and the company became the top selling canned drink in China.
However, in April 2011 (six years after the discovery of the bribe) GPH decided to terminate the licence agreement. Since JDB did not agree to the termination, GPH filed an arbitration complaint with the China International Economic and Trade Arbitration Commission (CIETAC). It argued that the renewed contracts signed by Li had been influenced by bribes and were therefore invalid.
In December 2011 JDB began to produce the tea in a red can bearing the Mandarin phrases "Jiaduobao" and "Wang Lao Ji" (Figure 4). Further, in May 2012 it launched a red can bearing only the JIADUOBAO mark.
(Figure 4)
On May 9 2012 the CIETAC held that the two additional trademark licence agreements were invalid. Therefore, the valid trademark agreement had expired on May 2 2010 and Hung To and its subsidiary JDB had no right to use the WONG LO KAT Chinese trademark after that date.
GPH immediately licensed exclusive use of the WANG LAO JI mark on a red can to its subsidiary Guangdon Wanglaoji Grand Health Co Ltd.
The issue at stake was the red can.
In July 2012 JDB filed claims against GPH before the Beijing No. 1 Intermediate Court, requesting an injunction to stop the use of the red can design and claiming damages of Rmb3.096 million.
Arguing that the design was inseparable from the trademark, GPH filed separate claims against JDB before the Guangzhou Intermediate Court, requesting an injunction to stop the use of the red can design and claiming damages of Rmb150 million.
The Guangzhou Intermediate Court, aware of the separate case in Beijing, sought guidance from the Guangdong High Court, which referred the case to the Supreme People's Court, proposing that the Guangzhou Intermediate Court hear the two cases in combination.
The Supreme People's Court appointed the Guangdong High Court to hear both cases and in December 2014 the court ruled in favour of GPH in both cases. It held that the red can packaging could not be separated from the WANG LAO JI trademark. Therefore, the packaging belonged to the trademark owner.
The court dismissed JDB's claims and ordered it to stop using the red can packaging and to pay damages of Rmb150 million.
Supreme People's Court decision
JDB appealed to the Supreme People's Court, which heard the case on June 16 2015 and rendered its 70-page judgment on July 27 2017.
The court reversed the Guangdong High Court decision and declared that both parties were entitled to use the red can packaging.
It agreed with the Guangdong court that the packaging, comprising the combination of the "Wang Lao Ji" characters in yellow font and the red background of the can, fell under the category of peculiar packaging and was protected as such under the Anti-unfair Competition Law.
It also echoed the Guangdong court's view that the main reason for the dispute was that the trademark licence agreement between GPH and Hung To did not specify ownership of the packaging. The parties had not foreseen the situation or provided for which would own the packaging rights generated during the lifecycle of the agreement.
The court described the contributions made by both parties to the value of the packaging as follows:
- GPH had been using the "Wang Lao Ji" Chinese characters in a consistent, stable and continuous manner. As a result, the characters had been integrated into the packaging, which had become a source identifier of the product. Therefore, the "Wang Lao Ji" characters were a vital component of the packaging.
- JDB had made a significant contribution through years of consistent and extensive promotion to ensure that the packaging was clearly identified by consumers as a JDB product.
The court affirmed that the identifying function of a trademark and famous packaging may work independently for different rights holders. Therefore, the disputed packaging had generated rights independent from the trademark due to its reputation and uniqueness. The court held that consumers would not differentiate from a legal perspective (ie, trademark rights from packaging rights) and would associate the herbal tea product with GPH and JDB simultaneously. The court concluded that the packaging combined brand awareness of Wang Lao Ji with the reputation and distinctive features acquired by JDB.
Based on these findings, the court held that it would be unfair and detrimental to the public interest for the packaging to be awarded to either side. It therefore ruled that both parties were entitled to use the packaging and dismissed both claims.
The Supreme People's Court faced a situation which could have been anticipated but was not. The product had been available through two distinct types of packaging: a green carton by the trademark owner and a red can created by the licensee. The question was what happens when, for any reason, the licence agreement is terminated?
The Guangzhou High Court held that if packaging has become famous (ie, a source identifier of the product that it contains) and is known under the trademark, it is inseparable from the mark. In this case, the licensee should not be able to use the trademark or the packaging after termination of the agreement.
However, if the packaging is registered for protection under the licensee's name, it can be argued that the trademark owner has no right to continue using it without the authorisation of the licensee. In this case, no one can use the packaging.
Instead, the Supreme People's Court preferred to hold that both parties could continue to use the packaging.
The case reminds trademark owners that where products are sold by a licensee in packaging which differs from that of the licensor, the licensee can claim independent IP rights. The licence agreement should therefore provide that on termination any packaging rights will remain attached to the trademark and the licensee will discontinue its use of the packaging.
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