On August 14, 2019, Pudong New District Court in Shanghai rendered a judgment, ruling in favor of a local business, Shanghai Ant’s Power Investment Ltd., who had filed a petition for declaration of non-infringement against the hotel chain Marriott Worldwide Corporation (Marriott). The Court affirmed that Shanghai Ant’s Power Investment did not commit trademark infringement and ordered Marriott to pay RMB 150,000 to indemnify for its legal costs. This case is selected as one of the Top 10 IP cases of Pudong New District in 2019.

Facts:

This declaratory lawsuit was triggered by a cease & desist letter that Marriott sent to Shanghai Ant’s Power on December 5, 2017.

In the letter, Marriott claimed that the trademarks “” (acoffee & ant device) actually used and “” applied by Shanghai Ant’s Power in respect of “cafeteria & restaurant” services in class 43 infringed its prior trademarks “” and “” (AC HOTELS MARRIOTTS & Device) registered in class 43. Marriott demanded Shanghai Ant’s Power to withdraw the trademark application and stop using trademarks incorporating the “AC” element which was the distinctive part of Marriott’s trademarks. Before sending the letter, Marriott also filed an opposition against Shanghai Ant’s Power’s trademark application.

In its written response, Shanghai Ant’s Power disagreed with Marriott's claim and requested Marriott to either withdraw the cease & desist letter or file a civil action before the court.

Marriott did none of the above and chose to merely rely on its opposition procedure.

Therefore, Shanghai Ant’s Power filed this lawsuit before Pudong New District Court, asking for an affirmation of non-infringement and a compensation of legal costs.

Marriott argued that court should not even accept this case, because it had filed an opposition against the Plaintiff’s trademark application to solve the dispute and furthermore, argued that the letter to the Plaintiff was merely a business correspondence, rather than a cease & desist letter.

Court Holds:

Court held that Marriott’s claims in the letter were clear and specific, which constitute an infringement warning to the Plaintiff. And the claims were twofold: withdrawal of trademark application and cessation of trademark use. The opposition action initiated by Marriott was to solve the trademark application issue. Yet Marriott failed to take action against the alleged trademark use. Therefore, it should be concluded that Marriott failed to initiate a dispute resolution procedure for its claim against the Plaintiff’s act of trademark use, which cast uncertainty over the Plaintiff’s business operation. For this sake, the Plaintiff was entitled to file this lawsuit requesting a declaration of non-infringement.

The court further ascertained that the trademarks of the two parties were not similar, thus no infringement is constituted, and Marriott should also indemnify the Plaintiff’s legal costs incurred to defend against Marriott’s infringement charge.

Comments:

The China Supreme People's Court provides in Article 18 of its “Interpretation on Certain Issues Concerning Application of Law in Adjudicating Cases Involving Patent Infringement Disputes” (December 21, 2009) 3 prerequisites for filing a non-infringement lawsuit: 1) the Plaintiff receives warning of infringement from the right owner; 2) the Plaintiff urged the right-owner to exercise his litigation rights in writing; and 3) the right-owner neither withdrew the warning nor initiated a dispute resolution procedure within one month since the date of receipt of the plaintiff’s written response or within two month since the date when the written response is sent.

There is no similar provision in the trademark law. Still, courts tend to refer to this rule in trademark civil proceeding where a petition for affirmation of non-infringement is filed.

Following the aforesaid reasoning, a non-infringement lawsuit will be deemed without merit if the right owner has initiated an infringement lawsuit based on the same facts. The question is, however, whether a simple opposition would be considered sufficient. The Pudong Court apparently does not think so. Even though cases involving the granting and affirmation of trademark rights (which includes oppositions often entangle with trademark infringement cases, they are, ultimately, legal proceedings of different natures, solving different issues. In this case, even if the trademark in question had been disapproved for registration, as a result of the opposition filed by Marriott, such trademark would not necessarily have been prohibited from use: a civil or administrative action would still have been necessary to stop the use. This means the recipient of the cease & desist letter was entitled to initiate the non-infringement action.

Sending a cease & desist letter is a double edge sword. In certain cases, it can bring an amicable solution and avoid the expenses of litigation. However, right owners should not abuse their rights. Declaration of non-infringement lawsuit is an important judicial remedy which reminds right owners to take deliberate consideration before sending a cease & desist letter.

Contributed by: Huan Xia