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GPHL V. JDB COMPANY ET AL. (2015) MSZZ No. 2 & (2015) MSZZ No. 3, SPC

Cause of action: Disputes over the unauthorized use of special packaging and decoration of a well-known product

Collegial panel members: Song Xiaoming | Xia Junli | Zhou Xiang | Qian Xiaohong | Tong Shu

Keywords: ownership of rights and interests, special packaging and decoration, unfair competition, well-known product

Relevant legal provisions: Law of the People’s Republic of China against Unfair Competition (as published in 1993), article 5(2)

Basic facts: On July 6, 2012, Guangzhou Pharmaceutical Holdings Limited (hereinafter “GPHL”) and Guangdong Jiaduobao Beverage and Food Co., Ltd. (hereinafter “JDB Company”) respectively instituted legal proceedings in a court on the same day, each asserting its rights and interests of the special packaging and decoration of a well-known product, “Red-Canned Wanglaoji Herbal Tea”, and alleging on this basis that the packaging and decoration of the red-canned herbal tea produced and sold by the other party constituted infringement.

Specifically, GPHL, as holder of the registered trademark “Wanglaoji”, asserted that since “Wanglaoji” is an inseparable part of the packaging and decoration, and distinctively indicates the source of the commodity, consumers would take it for granted that the product “Red-Canned Wanglaoji Herbal Tea” originated from the holder of the “Wanglaoji” trademark, and that recipe and taste would not affect the consumers’ identification and judgment of the commodity. JDB Company, as the former actual supplier of “Red-Canned Wanglaoji Herbal Tea”, asserted that the rights and interests in the packaging and decoration and the ownership of the rights in the “Wanglaoji” trademark were independent from, and did not affect, each other. What consumers love is JDB Company’s “Red-Canned Wanglaoji Herbal Tea”, produced using a particular recipe, and packaged and decorated in a way that is both used by JDB Company and closely associated with the commodity; hence, JDB Company asserted its ownership of the rights and interests relating to the packaging and decoration.

Held: At first instance, Guangdong Higher People’s Court held that the rights and interests of the packaging and decoration of “Red-Canned Wanglaoji Herbal Tea” should belong to GPHL, and that the production and sale of red-canned herbal tea by Guangzhou Wanglaoji Health Industry Co., Ltd. (hereinafter “Health Company”), as authorized by GPHL, did not constitute infringement. Since JDB Company did not own the rights and interests in the packaging and decoration concerned, its production and sale of both red-canned herbal tea labeled 王老吉 (“Wanglaoji”) and 加多宝 (“JDB”) on either side, and that labeled 加多宝 (“JDB”) on both sides, constituted infringement. The court therefore ordered JDB Company to cease the infringement, to publish a statement to mitigate its effect, and to compensate GPHL RMB150 million for economic losses and more than RMB260,000 for reasonable enforcement costs.

JDB Company appealed the first instance judgment to the Supreme People’s Court. The Supreme People’s Court delivered its judgment on July 7, 2017, dismissing all of the claims of both GPHL and JDB Company.

Reasoning: The Court held, in its effective judgment, that the distinctive nature of features of packaging and decoration and their application to fairly well-known products are the two conditions that must be met if rights and interests connected with the packaging and decoration of commercial brands are to be protected under the Law of the People’s Republic of China against Unfair Competition. The application of article 5(2) of the Law defines the relationship between “special packaging and decoration” and “well known products” as being mutually interdependent and inseparable. Only a commodity that uses special packaging and decoration can be assessed under the Law against Unfair Competition. In contrast, abstract commodity names or commodity concepts without definitive connotations are detached from the concrete commodities that the packaging and decoration envelop, absent any evaluable conducts of actual usage, and thus cannot be assessed under article 5(2).

The dispute arose between the two parties because “Wanglaoji Herbal Tea”, as a kind of commodity name, could refer to various packaged and decorated herbal tea products, including the green boxed one produced by GPHL and the red-canned one produced by JDB Company. The purpose of defining “well known product” is to inform assessment of whether the special packaging and decoration attached to that commodity meet the conditions under which the rights and interests in commercial branding are to be protected under the Law against Unfair Competition; hence, such a “well-known product” shall be clearly indicated on the packaging and decoration concerned. The court of first instance had disregarded the required interdependence of packaging and decoration and the commodity, and had found the commodity name “Wanglaoji Herbal Tea”, which has non-specific references, to be the “well-known product” in this case. This decision had no basis in fact or law and so was corrected.

This dispute over the special packaging and decoration of the well-known product arose from the failure of both parties to clearly define, when entering into and performing a trademark license contract, how to allocate the derivative benefits accruable during the term of license. Usually, once a trademark license terminates, the licensee shall immediately stop using the trademark and the goodwill accumulated in the licensed trademark shall be simultaneously returned to the licensor. The dispute in this case occurred in an unusual way in the sense that the special packaging and decoration introduced during the licensed use not only closely related to the licensed trademark, but also created features of goodwill that extended beyond trademark rights because of their status as independent rights and interests under the Law against Unfair Competition. Both parties’ claims entailed the general application of law on the protection of rights and interests in branding, and reflected the  complex historical and practical factors involved in forming the rights and interests in the special packaging and decoration in this case. The registered trademark system and the system of protection for the rights and interests in the special packaging and decoration of well-known products draw on different sources, even though they both belong to a legal system that aims to protect the rights and interests in commercial branding. Registered trademarks and packaging and decoration can each play an independent role in brand recognition, and respectively belong to different right holders.

After “Red-Canned Wanglaoji Herbal Tea” was launched into the market and marketed effectively by JDB Company and its affiliates, its packaging and decoration generated independent rights and interests relating to its commercial branding because of its popularity and specificity. This case is exceptional because, in the course of design, use and promotion, JDB Company, as the actual operator of the packaging and decoration concerned, always highlighted the word “Wanglaoji”, a registered trademark held by GPHL, on its packaging and decoration, and never intended to break and clearly distinguish the relationship between the packaging and decoration and the registered trademark contained therein, which objectively caused the packaging and decoration to simultaneously refer to JDB Company and GPHL. Consumers would not deliberately differentiate, in the legal sense, the trademark rights and the rights and interests of the special packaging and decoration of well-known products, but would naturally relate “Red-Canned Wanglaoji Herbal Tea” to GPHL and JDB Company at the same time.

In fact, on the one hand, the packaging and decoration at issue did bear the influence of GPHL’s brand “Wanglaoji” and, on the other hand, the popularity of the commodity and the remarkable brand recognition of the packaging and decoration was the result of JDB Company’s efforts in producing, operating and promoting the product for more than 10 years. In considering these factors as a whole, as well as the evolution of “Red-canned Wanglaoji Herbal Tea”, the background of cooperation between the parties, consumers’ brand recognition and the principle of equity, given the positive role of GPHL and its predecessor and that of  JDB Company and its affiliates in forming and developing rights and interests in the packaging and decoration concerned and establishing the goodwill attached to it, it would result in obvious unfairness and might harm public interests if the rights and interests in the packaging and decoration were to be wholly awarded to either party. Therefore, on the premise of compliance with the principle of good faith and respect for consumers’ brand recognition, and without prejudicing the lawful rights and interests of others, the rights and interests in the special packaging and decoration of the well-known product concerned were found to be jointly owned by GPHL and JDB Company.