I. A Jurisprudential Analysis of Fair Use Defense

The most essential function of a trademark is to indicate the source or origin of goods in order to prevent confusion and to establish goodwill so that consumers can distinguish and select goods. A trademark represents to consumers that the goods originated from a certain producer and have the same quality. A trademark can also be a powerful tool for advertising and a carrier of the goodwill for a manufacturer established by the producer through providing quality goods and launching many advertising campaigns. The Trademark Law also prohibits passing off to guarantee the trademark holders obtain corresponding remuneration for their goods and goodwill. Only when the trademark holders receive legal protection can they commit themselves to the research and development of high quality goods, thus promoting the prosperity of the goods.

However, just like every other limited right, a trademark right is subject to certain restrictions. A trademark does not make use by others taboo. A trademark does grant to its owner a power to exclude others from any use of it in any way; it only forbids use likely to cause confusion. Most trademarks come from indicia in the public domain. Being granted a trademark does not give the owner a monopoly over the mark. The trademark right is protected only to the extent that it serves to indicate the source of a product. Free competition depends on competition among the brands of businesses.

The trademark law is designed to spur business and encourage businesses to improve their products or public image. It promotes competition by guaranteeing consumers’ access to accurate information about the goods, especially with “descriptive” marks. Descriptive marks do not inherently have the distinctiveness required for trademarks. However, on account of the mark holder’s use, the nexus between the mark and the particular subject is established, i.e., the descriptive mark acquires a “secondary meaning.” It is at this point that the descriptive mark acquires the function of indicating the source of the goods and that the Trademark Law endows it with the status of registration as a trademark. However, the inherent meaning of the mark, i.e., the “primary meaning,” still remains and the trademark holder has no right to enjoin others from describing the characteristics of their own goods based on the primary meaning of the mark. This is precisely the jurisprudential foundation for trademark “fair use.”

II. The Elements of Fair Use

This analysis is consistent with international views on the fair use doctrine. Article 17 of the TRIPS provides: “Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.” Section 1115(b)(4) of Lanham Act of 1946 completely adopted the common law doctrine of fair use whereby, good faith and reasonable use of the name, term, or device of others by any third party to describe the products or services of such party does not constitute trademark infringement, provided the use is used descriptively otherwise than as a mark.

This analysis is also consistent with the fair use doctrine of specific countries. U.S. courts have defined three fair use exceptions: (i) Non-trademark use. This is use where the alleged infringer does not use the plaintiff ’s descriptive trademark as a trademark. Fair use states that a trademark can be used if the purpose in using this mark is to describe the features of goods rather than to indicate the source of its goods. If the use of another’s trademark is to indicate the trademark holder or its goods, for example, using the original mark on the repackaged goods or using another’s trademark in comparative advertising, then the fair use doctrine does not apply. (ii) Only to describe its goods or services. Use is permitted if the use of another’s trademark is not as a trademark but only to describe the characteristics of its goods. (iii) Use that is fair and in good faith. This is a more complex exception. Fair use states that a competitor’s right to describe its products fairly shall not be jeopardized by another’s registration of a descriptive mark as a trademark. This exception requires that the use be out of necessity, that it be reasonable and used in good faith. Fairness and good faith are subjective terms inferred on a case by case basis. Courts consider many factors, such the degree of correlation between the descriptive meaning of the mark and the goods being described or whether there are any alternative descriptions. Knowledge that a mark is a registered trademark does not necessarily mean that the use is in bad faith. Knowledge can play a role though. If the user changes a descriptive term after another party registers the trademark or if the descriptive use involves features which are irrelevant to the descriptive meaning, for example, font, style, or color, bad faith or unfair use may be presumed.

Within China, the Implementation Regulations of the Trademark Law mainly relates to the description of such features as the name and the main raw materials of a product. Under these circumstances can the use of another’s trademark be fair and immune from infringement liabilities? The answer is affirmative. There are judicial precedents. One example is Hagaoke Suileng Second Plastics Co., Ltd. (“Hagaoke”) v. Beijing Ligao Waterproofing Work Co., Ltd. and Others, which was tried to the Xi’an Intermediate People’s Court. On July 7, 2002, a Helongjiang company registered the trademark of “SBC” device (in stylistic script), covering waterproof coiled materials in class 19. On June 7, 2004, the mark was assigned to Hagaoke. In November 2004, Hagaoke discovered that Wang Jing yu sold waterproof materials manufactured by Ligao. Ligao used “SBC” in its product qualification certificate, promotional materials and product name. However, the style of the letters used by Ligao was different from Hagaoke’s registered trademark. Meanwhile, Ligao used in its products its own registered trademark “Ligao.” In its National Industrial Product Manufacture Licensing Certificate, Ligao identified the name of its products as: other waterproof building materials (SBC Polyethylene polypropylene fiber composite waterproof coiled materials). The Certificate of Key Science and Technology Achievements Promotion Program of Shannxi and the Certificate of Identification for Scientific and Technological Achievements of Shaanxi specified that “The project name of Ligao: ‘Ligao’ SBC macromolecule composite waterproof coiled material.” Hagaoke brought an action in court claiming that the three defendants infringed its registered trademark rights. The court found that Ligao did not use “SBC” as a trademark in its waterproofing materials and further, the “SBC” used by Ligao was different from Hagaoke’s registered trademark in style. Ligao used its own registered trademark “Ligao” in front of “SBC” in promoting its products. Such use neither resulted in confusion among the public as to the source of its products nor did it mislead the public into believing that the products had a specific relationship with the goods bearing the plaintiff ’s registered trademark. Ligao’s use of the litigated mark was fair use and would not cause damage to Hagaoke’s registered trademark. The author believes that Ligao’s use of the “SBC” was not the act of using a trademark, which satisfies the elements of fair use, and thus did not constitute trademark infringement.