MERCURY sues former franchisee for trademark infringement

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Shanghai MERCURY Home Textiles Co., Ltd (“MERCURY”) is a famous home textile manufacturer in China. It registered a series of MERCURY trademarks, including no. 4861666, which has been recognized as a “famous” mark by the former Trademark Office of the State Administration for Industry and Commerce since December 2013.

In 2020, MERCURY discovered that its former franchisee TengBin continued to use the MERCURY brand despite the termination of its franchise agreement. MERCURY filed a lawsuit demanding that TengBin cease its illicit use and seeking compensation of 250,000 RMB (approximately $37,000).

Even though its franchise agreement was terminated in 2019, the defendant, TengBin, asserted that it had the right to dispose of the existing inventory and that its use of the appellant’s trademark constituted use on authentic products. Based on this argument, the court decided that the defendant’s use of the plaintiff’s mark did not constitute trademark infringement and that the plaintiff’s claim for compensation should be dismissed. MERCURY, dissatisfied with this decision, appealed to the Superior People’s Court.

On appeal, the Court noted that Tengbin appeared to be using the MERCURY mark and logo on store door signage, posters and purchase receipts beginning on September 7, 2020. On its face, Tengbin’s use of the trademark registered on its store after the termination of the franchise agreement constituted an infringement of MERCURY’s trademark rights, but other factors also had to be considered. For example, Tengbin, as a former franchisee, was required to purchase a certain amount of merchandise to fulfill its obligations to MERCURY under the franchise agreement, resulting in the accumulation of remaining inventory at Tengbin after the termination. of the contract. Tengbin has used the MERCURY trademarks when disposing of this inventory for the purpose of indicating that the merchandise for sale is genuine MERCURY merchandise. Such use should not, under the circumstances, be considered bad faith use. Additionally, Tengbin had divested the store to a third party on December 29, 2020, and ceased using MERCURY brands at the end of 2020. In 2020, normal business operations were halted as a result of the COVID pandemic. Thus, the damage caused by the infringement alleged by the defendant was minor. While MERCURY was the rightful owner of the marks and its legitimate interests should be protected by law, MERCURY also had to show tolerance towards its former franchisee in disposing of its inventory of genuine goods within a reasonable time. Balancing the competing interests and in the interests of fairness, the High Court ultimately ruled that Tengbin should pay MERCURY compensation of only RMB 20,000 (approximately US$3,000), including court costs.

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