Historic ruling for Starbucks in China IPR case
Intellectual property protection in China has long been high on the list of concerns for innovative foreign companies looking to do business there. The little legal framework that existed around intellectual property rights (IPR) has been difficult and slow to enforce. However, there are signs that the situation may be improving for companies using trademarks, logos and brands in the People’s Republic.
In a recent case, China’s recently amended trademark law was put to the test when US specialty coffee retailer Starbucks accused a local Shanghai company of copying its trade name and logo.
Starbucks opened its first Shanghai store on Huaihai Road on May 4, 2000, building on the success of its dozens of stores in Taiwan and the rest of mainland China. Shortly before this opening, a local company had registered its own trade name – Xingbake Coffee Co. Ltd. – with the Shanghai authorities. In 2003, the Chinese company had opened two outlets in Shanghai under the trade name ‘Xingbake’.
The legal dispute between Starbucks and its local competitor arose because ‘xing’ translates from Mandarin as ‘star’ and ‘ba-ke’ is a rough phonetic interpretation of ‘bucks’. Although Starbucks does not officially use this rough translation in China, the word ‘Xingbake’ has become synonymous with the American company’s outlets among the public.
Starbucks considered that, by trading under a similar name and using a very similar green and white logo, Shanghai Xingbake was competing unfairly. On this basis, Starbucks filed a lawsuit against Xingbake in Shanghai on December 23, 2003, alleging trademark infringement.
In response to the accusation, Mao Yibo, General Manager of Xingbake, said that his company registered its trade name with the Shanghai authorities in March 2000, before Starbucks established itself in the region. By using the name ‘Xingbake’, he claimed that his company was simply using his legitimate title instead of a trademark.
Mao denied that his company name and logo were influenced by his Seattle-based rival. “We invented ‘Xingbake’ as our brand when we were planning to start a coffee business in Shanghai and it’s just a coincidence that our name is the same as the Chinese version of Starbuck [sic]” he said. “The logo was designed by our own staff. To be honest, I hadn’t heard of Starbucks at the time, so how could I mimic their brand or logo?”
Chen Naiwei, director of the Intellectual Property Research Center at Shanghai Jiaotong University, disagrees with this, explaining that ‘Xingbake’ has been used as the only translation of ‘Starbucks’ in Taiwan since 1998. This predates the name’s registration. of Xingbake company in Shanghai. by two years.
Despite Mao Yibo’s claims and his additional assertions that Xingbake’s service style and target market differ substantially from those of Starbucks, the Shanghai No. 2 Intermediate People’s Court ruled in favor of the US giant on December 31. 2005, two years after the lawsuit was filed. .
Shanghai Xingbake was ordered to stop using his name, issue an apology in a local newspaper, and pay 500,000 yuan (US$62,000) in compensation to Starbucks.
The basis for the Court’s decision was the relatively recently amended Trademark Laws of the People’s Republic of China, which came into force on October 27, 2001. The amendments are part of a series of revised laws introduced to protect trademark owners. of intellectual property in China. . Under the new laws, the Court found that the name ‘Starbucks’, whether written in Chinese or English, was sufficiently well-known to be considered a famous trademark and therefore entitled to protection.
This ruling is the first of its kind under the new legislation and may be an indication that China is responding to pressure from the European Union and the United States to crack down on IPR infringement and counterfeiting. China is believed to be the source of about 70% of the world’s pirated goods at a cost of about $250 billion each year to US companies alone.
In a statement issued on January 18, Jiang Zian, Shanghai Xingbake’s lawyer, confirmed that the company had already launched an appeal against the sentence in the Shanghai High People’s Court. Jiang explained that Xingbake does not use the English translation ‘Starbucks’ and had no plans to counter the lawsuit against its competitor for using the same Chinese name. “The problem is that they use Xingbake as a Chinese brand name and we use it as our company name. We just want to keep our company name and run our own business,” Jiang said. A Starbucks spokesman later confirmed that he would defend the appeal.
Starbucks now has 156 outlets in mainland China and has a presence near some of the country’s most iconic landmarks, including the Great Wall and the Forbidden City. At up to $6 a cup, the company’s coffee costs more than the average Chinese worker earns in a day. Despite this, Starbucks coffee is increasingly popular with China’s emerging urban middle class.