China IP litigation

Starbucks Corporation has been in a long running dispute with coffee shops in Shanghai and Qingdao over the use of the Starbucks trademark in China. Starbucks has prevailed in both actions. On November 16, 2005, the Qingdao court ruled in favor of Starbucks and it recently published that decision (in Chinese only) on its intellectual property law website. [link no longer exists]

On January 4, 2006, a Shanghai court also ruled in Starbucks’ favor, but because that decision is not yet up on that court’s website, I will be focusing only on the Qingdao decision in this post.  I will summarize the Qingdao decision, discuss my on the scene observations of the offending Qingdao coffee shop and then give trademark advice to companies doing business in China.

The Qingdao court decision sets forth Starbuck’s history in China.  Starbucks began doing business in China in 1999.  By 2003, Starbucks had registered all its major trademarks in China, including its Chinese name, xingbake.

The defendant coffee shop started business in Qingdao on October 23, 2003 under the name Qingdao xingbake kafei canting youxian gong si, which means Qingdao Xingbake Coffee Shop Company Limited.  It thus made use of the Starbucks’ registered name, xingbake, in its company name. The defendant Qingdao company also used the English name, “Qingdao Star Sbuck Coffee,” on its napkins, menus and business cards.  Within its shop, the defendant used Starbucks trademarks such as “frappucino” and “Yukon blend,” and it sold coffee beans clearly labeled as Starbucks Coffee.  The beans were packaged in bags identical to those used by Starbucks in its legitimate shops. The Qingdao company’s logo is a round circle with stars just like Starbucks, but it replaced the Starbucks mermaid with a coffee cup and eliminated the company name.

Starbucks filed suit against the Qingdao company, claiming it was infringing on its xingbake and English language trademarks. The Qingdao defendant asserted the following defenses:

  • A trademark that has been registered but never used cannot be enforced.  Though Starbucks registered xingbake as its trademark in China, it never actually used the term. It uses only its English language trademarks. Accordingly, defendant is free to use the term xingbake as its business name.
  • There is a difference between a business name and a trademark. A company is free to use its legal business name in conducting its business activities, so long as it does not infringe on someone else’s trademark. The relevant Chinese authorities approved the Qingdao company using the xingbake business name and since Starbucks does not actually use that name, defendant has the right to use it in its normal business activities.

The Qingdao company’s only defense for using the English language Starbucks trademarks was the clearly unsupportable argument that the plaintiff did not actually own the marks in question.

The Qingdao court quite properly summarily rejected the argument that Starbucks does not own its own English language marks. It also rejected both defenses regarding the xingbake name.

The court found that Starbucks had in fact used the Chinese term xingbake in identifying its business in China. Second, and more importantly, the court held that the Qingdao defendant was not using xingbake as a business name; it was using xingbake as a trademark to identify its business as a coffee shop. The xingbake name was prominently displayed throughout the shop and on the sign identifying the shop from the street. This confused customers as to the identity of the ownership of the coffee shop.

The court was clearly influenced by defendant’s having used the English language Starbucks trademarks to identify its products.  The defendant also copied the Starbucks color scheme and decorations in its interior and exterior design. The defendant even went so far as to copy the green color Starbucks uses in its signage and logo. All of this convinced the court that this defendant had not simply innocently taken on the name xingbake, but rather, had deliberately copied Starbucks’ entire trademark system, along with Starbucks’ look and feel.  The defendant’s English name of Star Sbuck was used to copy the Starbucks name.

The court therefore held in favor of Starbucks, and  issued the following order:

  1. Defendant must remove the term xingbake from its legal name;
  2. Defendant  must cease using any Starbucks trademarks, including the Chinese term xingbake;
  3. Defendant must cease using the green circle logo as it is confusingly similar to Starbucks’ logo;
  4. Defendant must pay Starbucks 500,000 RMB (~$62,000) in economic damages.

This case reinforces the need to register your brand name and your logos as trademarks in China and also that it is possible for a foreign company to prevail in a China IP litigation matter.