III. The Nature of the Fair Use Defense

It is interesting to note whether the fair use defense is a non-infringement defense or an exception defense to infringement, and whether the fair use defense is correlated with the likelihood of confusion. Different views existed even in the judicial opinions of the U.S. In some cases, the courts held that fair use was merely related to the determination of the likelihood of confusion. The fair use principle shall not apply if the courts found that there was a likelihood of confusion. In other cases, fair use was deemed an independent defense. Even if it is likely to cause public confusion, the defendant may still be free from infringement liabilities, provided the requirements for fair use are met. The two views are diametrically opposed to each other.

The clash of the two opposing views is best illustrated in the case of KP Permanent Make-up Inc. v. Lasting Impression Inc, which has drawn much attention. In this case, KP (Defendant) and Lasting (Plaintiff) were direct competitors in the business of permanent makeup. Both KP and Lasting had a separate line of pigments for use in the permanent makeup process. The plaintiff used “Micro Colors” as a trademark on its pigment products. The defendant also used the term “micro color” on its pigment bottles as well as in its advertising brochures to describe the degree of pigment and color variety of its products and do the relevant marketing pitch. In response to the plaintiff’s claims of trademark infringement, the defendant raised the counterargument of statutory defense of fair use.

Though Plaintiff has made a prima facie case of likelihood of confusion, U.S. Federal District Court upheld Defendant’s fair use argument, and granted summary judgment for Defendant. However, the Ninth Circuit on appeal rejected Defendant’s fair use argument, as it ignored the likelihood of confusion issue. On December 8, 2004, the U.S. Supreme Court delivered its decision on this case. A unanimous Supreme Court opinion of all nine justices held that in a trademark infringement case, the fair use Defendant has no independent burden of showing confusion is unlikely. The defendant carries no burden to rebut likelihood of confusion when relying on the statutory fair use defense. Logically, the significance of fair use, which exists as a defense, is that “if the defense is valid, there is no infringement; otherwise, infringement results.” However, the premise for the finding of infringement lies in the existence of a likelihood of confusion. If the plaintiff cannot prove likelihood of confusion, no infringement can be established and thus there is no need for the defendant to rely on fair use as a defense. If fair use could not coexist with the likelihood of confusion, there would be no need for the existence of fair use defense.

The theoretical basis of fair use lies in our perception that in some situations the trademark owner’s rights are outweighed by public’s interest for a bona fide description of its goods despite the likelihood of confusion. In other words, the existence of the “likelihood of confusion” originated from the initial selection of a descriptive indicium as a trademark. Such confusion may be prevented by other more distinctive measures, e.g., by using one’s own mark in a salient manner, or by clearly distinguishing one’s own mark from that of the trademark holders. It can be said that in the event of fair use, the defendant’s use of a mark for the purpose of describing the features of its goods rather than as a trademark means in itself that no confusion would occur generally. However, fair use should not, logically or theoretically, be premised on the absence of likelihood of confusion. Of course, in case of a likelihood of confusion, more cautious attitude should be adopted in determining whether the alleged use constitutes fair use. Actual situations should be taken into account in determining whether a trademark owner’s interests should be truncated by another’s rights to fairly describe its goods.

IV. Application of the Fair Use Principle to Some Cases in China’s Judicial Practice

1. The use of another’s trademark for the purpose of designating the content of its own goods is fair use. In the case of (U.S.) Educational Testing Service (“ETS”) v. Beijing New Oriental Language School for copyright and trademark infringement, ETS, the plaintiff, was the sponsor and developer of TOEFL and had the copyright to TOEFL tests. ETS had registered TOEFL was its trademark in China, which was approved to be used in such classes as cassettes, testing services and publications. The New Oriental School marked in its publications of TOEFL tests “TOEFL” with eye-catching fonts and thereby was sued for infringement. The court of first instance found that the typeface “TOEFL” used by the New Oriental School was identical with the ETS’s registered trademark and both were used in the same classes of goods, and therefore the New Oriental School infringed ETS’s trademark. The court of second instance ruled differently, holding that “In China’s current social conditions, publication and distribution are a special industry regulated by the State. Publications are special goods and identification of the source of publications is generally realized through the authors and the publishing houses of the publications. In this case, though ETS lawfully registered the trademark ‘TOEFL’ in publications and audiotapes and the New Oriental School used in a prominent manner the typeface ‘TOEFL’ on its ‘TOEFL series teaching materials’ and ‘TOEFL listening tapes’, the alleged use by the New Oriental School is descriptive or narrative for the purposes of demonstrating and stressing that the contents of the publications are relevant to the TOEFL test and informing the readers of the contents thereof and rather than for the purpose of indicating the source of the publications, which will not cause mistake and confusion in the readers as to the source of the goods.” Based on the above analysis, the court of second instance ruled that the New Oriental School’s foregoing acts of use did not infringe on ETS’s exclusive rights to the trademark TOEFL.