Knobbe/Martens: Intellectual Property Law

Which Supreme Will Reign Supreme: "Legal Counterfeits" in China

By Alexander D. Zeng and Jonathan Hyman April 24, 2019

 

Supreme, the popular New York-based American streetwear brand, known by its iconic  logo, was created by founder/CEO James Jebbia.  Despite its highly successful brand recognition, the company (which operates under the corporate entity Chapter 4 Corp.), has encountered difficulties in establishing its trademark rights overseas.  As Chapter 4 Corp. began to file applications to register its SUPREME trademark overseas, an unrelated company doing business as Supreme Italia, which was launched in 2015 by International Brand Firm (“IBF”), also began filing applications to register the SUPREME trademark in multiple countries.  IBF is a limited company in the UK which operates as a holding company that licenses the rights in the SUPREME trademark for use on garments and accessories sold in countries across the globe.

Chapter 4 Corp. has characterized Supreme Italia as a counterfeit business that produces “legit fakes” of the genuine SUPREME products sold by Chapter 4 Corp.  As of March 2019, Supreme Italia had even opened physical stores in Spain.  Chapter 4 Corp. and Supreme Italia are currently engaged in global disputes regarding their respective trademark rights.

Recently, Supreme Italia held events in China where it tried to capitalize on Chapter 4 Corp.’s success.  In late 2018, Samsung announced a collaboration with “Supreme.”  The announcement was made during the launch of Samsung's Galaxy A8s smartphone in Beijing.  Logos of the Korean tech giant and the red SUPREME box logo were shown together.  Samsung introduced two men as “Supreme” executives and unveiled plans for the collaborations between the brands.  These plans included a launch event at Shanghai's Mercedes-Benz Arena and a seven-story flagship store in the Beijing.  However, as it turned out, the company Samsung collaborated with was not the American based Supreme owned by Chapter 4 Corp., but was instead Supreme Italia.  Chapter 4 Corp. immediately denounced Supreme Italia as a “counterfeit organization,” and Samsung eventually cancelled the collaboration. Although the collaboration ended, Supreme Italia still has plans to expand into China to take advantage of the huge popularity of the SUPREME brand there.

In early March 2019, Supreme Italia “opened” a retail location on the popular Shanghai shopping strip Huai Hai Zhong Lu (淮海路) among other major international brand stores including Nike, Ray Ban, Theory, Adidas, Swatch, and Uniqlo. According to Hypebeast, Chapter 4 Corp.’s legal counsel communicated that the “counterfeit organization’s” store had not officially opened and that “footage of the people queuing outside” were actors who were paid to look like customers.

These bold moves by IBF and Supreme Italia are not new - IBF and Supreme Italia have already hosted a “counterfeit” fashion show in China, had employees impersonate Supreme executives, and have duplicated Supreme’s invoices, shopping bags and signage.  These situations illustrate the difficulties that Chapter 4 Corp. has faced in attempting to protect its intellectual property rights overseas and especially in the large Chinese market.  This is particularly troublesome as a recent survey found that 76% of consumers would be less likely to buy from brands that are regularly associated with fake goods.

 

How can Another Company Use and Own “SUPREME” and other related marks?

How have IBF and Supreme Italia been able to get away with this?  Trademarks are jurisdictional and rights generally do not extend over borders.  Moreover, trademark laws in countries differ as to what is required to obtain rights in a trademark.  Unlike the United States, where trademark rights can be obtained by the party that is the first to use the trademark, in countries such as China trademark rights typically are awarded to the entity or individual who filed the trademark application first.  In addition, China does not have a use requirement to secure a registration and evidence of use is not required to renew a registration.  Thus, a Chinese trademark registration can be secured and maintained without ever using the mark.

Some “enterprising” Chinese entities and/or individuals have been able to build businesses based on their ability to file trademark applications before their Western counterparts. These Chinese entities and/or individuals  file applications for brands that are popular in other countries, and then attempt to extract payments from the legitimate trademark owners, or they sell products and take advantage of the goodwill the legitimate owner has invested millions of dollars to establish.  For example, Kanye West’s YEEZY brand recently experienced a similar incident in China.  Unfortunately, sometimes the most efficient way to deal with this problem may be to simply negotiate with the “enterprising” entities.  However, in this case, Supreme Italia has offered to sell its Chinese trademark registrations to Chapter 4 Corp, but, so far, Chapter 4 Corp. does not “consider payoffs as a way to solve its trademark issues.” 

To be fair, this situation is not unique to China, and even countries like Australia have had trademark freeloaders.  In one of the more famous examples, an enterprising company registered BURGER KING in Australia before the real Burger King could.  Rather than pay to get the mark back, Burger King launched under the name HUNGRY JACK’S.

 

Insights from the Past: Revisiting Jordan and New Balance’s Trademark Enforcement in China

Although Chapter 4 Corp. faces an expensive and time consuming legal battle to wrestle back its rights in the SUPREME mark, Chapter 4 Corp. can take some comfort that courts in China have recently begun ruling in favor of non-Chinese big-name brands in trademark disputes.  Whether Chapter 4 Corp. will benefit from this trend remains to be seen. 

 

Jordan v. Fujian Qiaodan Sports, Co., Ltd.

Michael Jordan and his JORDAN brand have been immensely popular with Nike’s shoe and apparel business, which uses the JORDAN mark and the Jumpman logo.  Yet Jordan had difficulties in China because a Chinese sportswear company called Fujian Qiaodan Sports, Co., Ltd. owned a registration for the JORDAN mark in the Chinese characters 乔丹.  In Chinese, Qiaodan (乔丹), pronounced “chee-ow-dan,” is the transliteration phonetic equivalent of “jordan.”  Jordan filed lawsuits against Qiaodan in 2012, to seek cancellation of Qiaodan’s Chinese character trademarks and to enjoin use of those marks in China.  For companies without trademark registrations, trademark enforcement in China was difficult, if not impossible, unless the company could show its mark was well-recognized in China.  Jordan’s initial lawsuits did not go his way. 

However, in late 2016, China’s Supreme People’s Court overturned a Beijing court’s decision and ruled in favor of Jordan. According to INTA, the decisions showed that the court recognized that the Chinese characters that were used to transliterate Jordan’s name were famous due to Jordan, and that Jordan should own the rights in the transliteration characters.  However, the Court stated that the Jordan did not have any right to claim the pinyin version (i.e. Qiáo Dān) of his famous name due to the nature of homophones in the Chinese language.

Although only three of the sixty-eight separate trademark invalidations Jordan filed against registrations owned by Qiaodan were granted in Jordan’s favor (well below his career 49.7% Field Goal Percentage), many see his efforts as successful in limiting the growth of the counterfeits.  According to Quartz, in 2012 Qiaodan Sports “had more than 5,700 outlets, brought in $276 million in revenue, and was preparing to raise $175 million (paywall) in a public listing in the Shanghai Stock Exchange. But the IPO has been hampered by Jordan’s suit for three years, and now Qiaodan Sports is now commonly known, both in home and abroad, as a knockoff.”

 

New Balance v. New Boom, New Barlun, and New Bunren

In another example involving shoes, New Balance recently had success against trademark counterfeits in China.  Similar to the situations mentioned above, the American company faced challenges from New Boom, New Barlun, and New Bunren, all of which were registered under China’s trademark law.  In August 2017, a Chinese court ordered the three domestic shoemakers pay New Balance $1.5 million in damages and legal costs for infringing the American sportswear company’s “N” trademark.  Although the damage award may have been relatively insignificant from a U.S. perspective, it was huge compared to previous damage awards in China, and a product of recently enacted legislation in China.  Previous damage awards from trademark infringement claims were significantly less than the maximum statutory amount of roughly $75,000.

According to the New York Times, the Suzhou Intermediate People’s Court ruled that three defendants that made shoes under the brand New Boom “seized market share from New Balance and drastically damaged the business reputation of New Balance.”  In April 2017, a court in Hangzhou awarded New Balance $500,000 in damages after ruling that a company that made New Bunren shoes infringed the American company’s trademark. That same month, the Suzhou court fined five companies for breaching an injunction prohibiting them from selling shoes with the “N” logo.

The new laws increasing damages in trademark infringement actions reflect a policy shift by the Chinese government in enforcing intellectual property.  This may be because Chinese companies have begun to create their own intellectual property.  Additionally, “Chinese consumers are earning much more money and are spending that money on a wider variety of higher-quality and pricier goods," as global consulting firm  McKinsey reported in 2017According to the Nikkei Asia Review, many Chinese consumers are highly sophisticated and are becoming particularly conscious of quality. In light of the country's counterfeit culture, these consumers are now often driven to purchase products outside of China.

 

Best Practices

One can glean valuable lessons from these trademark wrestling matches in order to avoid extraneous costs and hurdles when planning to brand a product or service.  Given the “first to file” nature of rights under Chinese trademark law, companies should strongly consider filing trademark applications in China as soon as possible,  and certainly before announcing plans to enter China or negotiating with Chinese partners.  These Chinese filings can be used as defensive registrations. When used in conjunction with watching services that notify the trademark owner of any applications for similar marks filed by third parties, companies may be able to minimize the risk of costly trademark battles down the road.

Companies should not only consider filing applications to register the English version of their marks or the literal Chinese translations of marks, but should also consider registering the phonetic transliterations of marks in Chinese characters (e.g., the Jordan and Qiaodan dispute).  For more established brands, companies may want to research whether the brand has already developed a de facto Chinese “nickname.”  For newer brands, a company may wish to consult with Chinese trademark counsel to develop the Chinese phonetic transliteration “nicknames” that will most likely be used by the public, and to help guide the public to use these “nicknames.”  A company may want to consider adopting a mark which is a hybrid of transliteration and literal translation, i.e. the Chinese language trademark is created by referencing both the sound of the Roman character name, and also a trait of the brand.  An example of a hybrid mark is Coca Cola, which is known as “Ke Kou Ke Le” (可口可乐).  Coca-Cola’s phonetic translation not only sounds like Coca-Cola, but also means tasty and joyful/fun which has a positive connotation.  These nuances are often important for the success of a brand in China.

Although the front-end costs of filing Chinese trademark applications may appear to be high, the trademark owner willing to make this investment may save untold amounts of legal and marketing costs in the long run, and be much more successful in its ability to stop others from using infringing marks. 

Editor: Catherine Holland

Meet the Knobbe Martens Attorneys

Which Supreme Will Reign Supreme: "Legal Counterfeits" in China
Alexander D. Zeng practices intellectual property law, with a focus on patent prosecution and litigation in medical device technologies.  Alexander also practices trademark...
Which Supreme Will Reign Supreme: "Legal Counterfeits" in China
Jonathan A. Hyman is a partner in our Los Angeles office.  Mr. Hyman’s practice includes domestic and foreign trademark prosecution, enforcement and clearance, ex parte and...
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