Originally posted 2015-06-11 09:15:28.
By Sindy Ding-Voorhees|www.amdlawgroup.com
News about Zara is all over the press lately. Zara’s founder, Amancio Ortega, recently surpassed Warren Buffet as the world’s second-richest man; several days later, the billionaire was also accused of being one of the most racist. Now, a $40 million discrimination lawsuit claiming he favors hiring employees who are “straight, Spanish and Christian”, has been filed against him. This lawsuit absolutely adds fuel to the flames for Zara, because remotely in China, Zara’s “backyard” is “on fire”.
Zara, a Spanish clothing, and accessories retailer brand, gained massive success in China among young fashion-forward Chinese shoppers for its edgy, European style. It entered China in 2006 and now operates 146 stores there. Fuzhou, the provincial capital of Fujian, a southeastern Chinese Province, is one of the popular locations and has quite a few Zara stores.
Soon after Zara’s establishment in China, it secured a series of trademark registrations for the Latin letter word “Zara” in the class of apparel and accessories but failed to apply for any Chinese equivalent. In 2011, Mr. Zhou, the owner of a hair salon in Fuzhou, submitted a trademark application to SAIC (State Administration for Industry and Commerce of the People’s Republic of China) to register “飒拉” (Pinyin: Sa La), a transcription of the word “Zara” in Chinese characters in Class 44, which is used for hygienic and beauty care for human beings. While such application was still pending, Mr. Zhou received a cease and desist letter issued by a lawyer from Zara China, demanding him to withdraw the application in the face of a potential cause of action for trademark infringement. Despite the pressure from Zara, in the last month Mr. Zhou’s application was surprisingly approved by SAIC, and he, therefore, successfully registered “Zara” and its Chinese equivalent as a trademark in Class 44. (A screenshot from the system of SAIC is as below.)
Theoretically, based on the first-to-file principle in China, due to the fact that Zara has not registered its Latin letters and the Chinese equivalent brand in Class 44, it seems totally reasonable for a third party to “exploit” an advantage and fill in this gap. Most people will not classify Mr. Zhou as a trademark hijacker because Zara, the clothing brand that everyone knows, simply does not do any business in the industry of hair and beauty salon. However, if we think carefully about the intention behind this registration, the popularity of Zara among Chinese customers, and the notorious local protection from SAIC and other related institutes, is this really fair to Zara? Especially after Zara’s parent company, industria de diseno textil,s.a(inditex, s.a.), diligently registered over a hundred of word trademarks and styled forms trademarks for “Zara”, “Zara Kids”, “Zara Home”, etc. in different territories?
We still remember the last trademark battle between an individual third party and a multinational brand and the big guy’s resulting great failure. New Balance was recently ordered to pay RMB 98 million in damages for an alleged trademark hijack when a Chinese local shoemaker registered New Balance’s Chinese trademark first and then sued New Balance for trademark infringement. New Balance paid a sky-high price for failing to adequately protect its Chinese brands. After reading the whole decision, it actually seems that the high price is a kind of punishment for New Balance for the fact that New Balance knew of the pre-existence of the Xin Bai Lun (新百伦) mark (which was successfully registered by the trademark hijacker with ‘Xin’ meaning ‘new’, and ‘bai lun’ being a transcription of the English word ‘balance’), and nevertheless kept on operating under that name. Regardless, the owner of “Xin Bai Lun” said the infringement has made most people believe that the “Xin Bai Lun” mark belongs to New Balance, adding that many of his customers have asked him whether his products were part of the New Balance brand. This is a ridiculous and counter-intuitive outcome. It is a bad, sad and ironic example of “reverse confusion” where the party infringing upon another’s mark actually enjoys much higher visibility and awareness in the market than the actual mark holder.
There are lessons to be learned from the New Balance case. Since Zara now is aware of the existence of another “Zara” and “飒拉” in Class 44 under the trademark law in China, it needs to focus on proving any potential malicious intention of the third party registrar to free-ride Zara’s goodwill for its own business, even though the third party is out of the scope of Zara’s operating business in apparel and accessories. Zara, as the owner of a famous trademark, still can within 5 years request the Trademark Review and Adjudication Board to declare the registered trademark invalid. Any mark registered in bad faith, once the malicious intention is verified, is subject to voidability at the request of a famous trademark’s owner, without such 5-year time limitation.
Now pressures are on foreign brands that have already or are about to launch a business in China. The reality shows that, even though they believe they are being considerate in diligently protecting their IP rights by filing adequate registrations to cover every class possible, there is just no 100% perfect way to keep the Chinese trademark hijackers from making trademark troubles for them. On one hand, it is not creative or meaningful at all to register a highly similar mark (such as with the same spelling, but different font from Zara) in an area that the original brand doesn’t cover. It is unlikely that a “Zara” hair salon, an “H&M” grocery store, or a “Forever 21” bakery will easily convince those brands’ loyal customers to actually go there and expect they come from the same source of goods or services. On the other hand, it is very important for foreign brands to have a Chinese equivalent brand name, get it registered before introducing and marketing it in China, and keep using it cohesively to reinforce the strength of the Chinese name. To gain these initiatives in China from the beginning can be a successful strategy for avoiding the awkward possibility of a “reverse confusion”, or paying a heavy price in order to remedy some expensive “surprises”.
Fashion Industry By Stefania Saviolo, “Zara in China, the ‘zaratization’ of the Chinese apparel market”.