In a recent trademark opposition case involving the famous film Kung Fu Panda , the Beijing  Higher  People’s Court  has confirmed that DreamWorks Animation SKG Inc had prior “merchandising rights”  in the name  of the film and refused to register  the trademark KUNG  FU PANDA.  DreamWorks’ success highlighted the possibility of using merchandising rights to block bad-faith trademark applications in China.

This case is a typical example of pirated trademarks and the facts were simple. A Chinese individual applied for the registration of the trademark KUNG FU PANDA for “car steering wheel covers” in Class 12. DreamWorks filed an opposition against the application as producer of the film Kung Fu Panda. The main ground for the opposition was that the trademark infringed its prior “merchandising rights”.

DreamWorks’ success did not come easily. In the opposition and following appeals, the China Trademark Office, the Trademark Review and Adjudication Board and the Beijing Number 1 Intermediate People’s Court all decided that “merchandising rights” were not among the “legitimate rights” pursuant to the Chinese laws and did not uphold the opposition.

However the Beijing Higher People’s Court disagreed. The court held that the name of a movie or movie character with a high reputation shall benefit from “merchandising rights” if the following conditions are met:

1. the relevant public identifies the name of the movie or character with a particular business entity;  and

2.   the business entity may derive  additional commercial value  or business opportunities from such identification/affiliation.

The judgment also specified essential factors when determining the scope of protection of Merchandising rights: fame and the likelihood of confusion. It was suggested that the courts should evaluate whether the registration and use of the pirated trademark on the designated goods  or services may cause damage  to the real rights owner by taking away trading opportunities.

The judgment is significant as it is the first time that “merchandising rights” have officially been recognized as a type of “prior rights” that can be used to block bad-faith trademark applications. Article 32 of China’s Trademark Law stipulates that a trademark should not infringe any prior rights owned by a third party. The current practice recognizes that “prior rights” include trade names copyright, design patents and the names of famous persons, but merchandising rights had never been  included – until now.

In fact, the Kung Fu Panda case is not the first case in which an IP rights owner has fought for the recognition of merchandising rights.  In an earlier similar opposition case against the trademark 驯龙高手 (‘how to train your dragon’ in Chinese) the Beijing Number 1 Intermediate People’s Court  upheld the opposition by confirming that DreamWorks had “legal interests” in the movie  name, but insisted that “merchandising rights” were not “prior rights” for the purpose of Article  32. In 2011, in a cancellation action against the trademark CRAYON SHIN-CHAN, the Beijing Higher People’s Court confirmed the cancellation of the mark on the grounds of bad faith, without any comments on merchandising rights.  In other earlier cases, the Chinese courts had ruled against infringers who had copied the name of a movie or movie character on the grounds of “unfair competition”.

There is no doubt that the present case is a welcome development in the battle against pirated trademarks. The judgment means that rights owners have an additional weapon to crack down on trademarks that copy or imitate the names of famous movies, characters, actors or songs.

What is interesting, though, is that the case itself is still being debated in China.  After the judgment was published, some scholars questioned whether judges were in fact “making” the law, because “merchandising rights” have not been  recognized by the Chinese  laws. The debate is likely to continue for a while, and IP owners should  keep monitoring the issue.