China Law Blog

By:  Steve Dickinson

In part I of this post, I blogged about Starbucks' trademark history in China and about the recent Qingdao court decision finding a Qingdao coffee shop had violated various of Starbucks' Chinese trademarks.  In this post, I discuss my own on the ground observations of the Qingdao coffee shop and my own views regarding the Qingdao court's decision.  Lastly, I discuss what foreign companies doing business in China should take from the Qingdao decision regarding protecting their trademarks in China.

The Qingdao decision was based on the facts and the law and nothing indicates Starbucks was shown any favoritism as a large multinational.  The Qingdao defendant was clearly operating a business openly infringing on Starbucks' trademarks.  All of Starbucks trademarks were properly registered before the infringing business even incorporated.  Defendant's only plausible argument was that it was using the Chinese name as a company name, not as a trademark.  However, as a factual matter, this was simply not true. The Qingdao Starbucks was an open rip off of Starbucks, and the xingbake name was openly used to identify the business to customers.  Starbucks' success in the case was in complete accord with Chinese law and it shows no favoritism towards Starbucks at all.

It is important to note that the defendant in this case is also a foreign owned company.  The owner of the Qingdao defendant is an overseas Chinese who only recently returned to Qingdao to open the Starbucks caf'.  Accordingly, this case was a dispute between two foreign entities, not a dispute between a U.S. company and a local Chinese company. This actually is quite typical in China.  The Chinese themselves are not very sophisticated about what products to copy.  Much copying in China is organized and carried out by overseas Chinese based in Taiwan, Hong Kong, Canada, or the United States.  This increases the complexity of dealing with intellectual property (IP) infringement in China.

Starbuck's victory in this case is not complete. The defendant has appealed on the issue of using the xingbake name, using the name Star Sbuck and using its logo.  The defendant has conceded on the use of the Starbucks English language trademarks.  The appeal will go to the Shandong High Court and may take another year to resolve.  This is a major case and the court will no doubt take a very careful approach to the appeal.

Since I live in Qingdao, I went to visit the defendant's shop to evaluate this case on the ground.  Here is what I found.  The defendant's business is a traditional Chinese style coffee shop.  It does not resemble a typical Starbucks cafe.  The shop is located in a somewhat seedy hotel on a busy street in Qingdao.  The offerings are typical of a Chinese style coffee shop: the place is really a combination coffee shop, tea parlor, ice cream parlor, restaurant and  bar all rolled into one.  This lack of focus, "do it all" approach is typical in China. Personally, I had a beer and peanuts and avoided the coffee.  The other customers were drinking tea, eating fruit and ice cream or enjoying a beer. There was a great U.S. country and western singer on the stereo.  I stayed about an hour and had a good time.  I never once saw anyone order a coffee or drinking a coffee.

The defendant has removed all reference to the Starbucks English language trademarks.  However, the old references to Yukon Blend, Frappucino and the rest are clearly visible between the white outs on the menu.  The defendant has not changed anything, however, on the use of the xingbake name, the Star Sbuck name, or the design and shape of its logo. This will be resolved pending appeal.

Nobody familiar with Starbucks would ever confuse this this shop with a real Starbucks outlet.  In fact, there is a real Starbucks outlet located about ten blocks up the street from the defendant. The real Starbucks is an absolutely perfect clone of a Starbucks from the United States and it bears no resemblance whatsoever to defendant's establishment.  Of course, this is the reason Starbucks is concerned about coffee shops such as that of the defendant. The sloppy service, shabby d'cor and mixed message on the product served all are damaging to the Starbucks image and brand identity. This is particularly important in China, where Starbucks is working to create its image.

The message from this case to foreign companies involved with China is clear:
            
             '  Register your trademarks early.
            
             '  Register your Chinese name even if you do not plan to use it right away. This is especially important if your Chinese name is different from your company name, as was the case with Starbucks.

             ' Registering your trademarks in China is a necessary start towards protecting them, but it may not be enough. The Chinese government will not protect your trademark for you. You must enforce the trademark yourself. 

              ' If you properly register your trademarks in China you will probably succeed in an enforcement action.  However, you must be prepared to incur the legal costs of enforcement.  China is a huge and complex country.  If your product is successful, there is a good chance it will be copied. You will need to vigorously defend your rights from the very start in order to prevent this.

The good news we can take from the Starbucks case in Qingdao is that that China's legal system has developed to the point where intellectual property rights can be successfully defended through legal action.