China: Blocking rose-shaped chocolate monopoly in a complex trademark & OEM dispute

Background

Wawi Xiamen, a chocolate manufacturer based in China, regularly receives orders from one of its US clients to manufacture rose-shaped chocolates, bearing the US client’s word mark, produced exclusively for export to the US market (i.e. Original Equipment Manufacturing, or “OEM”). A local chocolate company (“the Plaintiff”) owning a PRC 3D trademark registration for a rose shape, covering, inter alia, chocolates, alleged that the production of the chocolates in the PRC by Wawi Xiamen infringed its 3D rose shape trademark. It therefore requested China Customs to seize Wawi Xiamen’s shipments to its US client. Subsequently, the Plaintiff also brought a trademark infringement case against Wawi before the Xiamen Intermediate People’s Court (“the Court”).

Key issues

The key issues involved in this civil case are (1) whether the 3D rose shape applied on chocolates can serve as a source identifier; and (2) the applicability of the non-infringement defence for OEM production, when some elements for a clear-cut application of such defence are lacking.

In its very recent judgement the Court essentially followed our argumentation, holding that:

1. Low distinctiveness shape mark: The inherent-distinctive character of the 3D rose shape mark is low on chocolates, since it simply reflects the shape of the products. The Plaintiff uses the 3D rose shape mark in practice always in combination with its word marks, and these indicate their origin to consumers. In addition, the Plaintiff did not submit sufficient evidence showing the acquired distinctiveness of the 3D rose shape mark through extensive use and promotion.
2. US shape mark rejected and other IP rights expired: the team also raised the following arguments for the court’s consideration: (i) the USPTO had previously rejected a similar 3D trademark application for a rose shape on chocolates by a third party, holding that the relevant consumers would not see the rose shape as an indicator of origin; and (ii) the Plaintiff had previously protected, among others, the rose shape through its utility model and design patents, but these had expired in the meantime. The Court pointed out that these other IP rights have a different essential function, and that the Plaintiff’s 3D mark did not fulfil the essential function of source indicator. This point is significant as it deals with this attempt to “evergreen” IP rights in a shape by registering it as a trademark, after the other IP rights protecting it expired;
3. Valid OEM defence: the court also held that Wawi’s acts constitute OEM production, despite that the mark in dispute (i.e. the 3D Rose shape mark) is not registered in the US. The Court recognized that Wawi had fulfilled its duty of care, and therefore allowed the OEM defence.

This is a significant victory for the WAWI Group, especially considering the highly contentious nature of OEM in trademark procedures in China and the many divergent opinions in Chinese legal practice on these issues.  The Court’s judgment is encouraging, and sends a clear message about the improving clarity and efficiency of intellectual property litigation in China.

Authored by Helen Xia