Fair Use Defense in Trademark Infringement Denied on the Ground of Non-descriptive Use

CMP is a commercial group whose business ranges from realty development to retail shopping malls. Green energy, environmental sustainability and lifestyle considerations have been prominent features of many of its building projects. CMP owns two trademarks: “Qing-mei-lv-yuan-dao”, phonetically sounded in Chinese to mean “Parklane by CMP”, and “Qing-mei-tian-di”, meaning “CMP World.”

It was found that Apex group, another realty developer, was using phrases associated with “CMP”—such as “Parklane by CMP”, “CMP on Gongyi Road” and “CMP X Gongyi”— in conjunction with its Facebook ads for a real estate project named “Omotesando.” Apex argued that the activities in question—the use of CMP’s trademarks— were fair uses of phrases. Instead of indicating the source of a service, the phrases did no more than making reference to a famous landmark—The “Park Lane by CMP”, a huge shopping plaza complex housing fashion stores, restaurants and other outlets (hereinafter “Shopping Center”)—as an “eye-catcher” to emphasize the proximity between Omotesando’s project site and the Shopping Center.

Accepting the standpoint of the defendant, the trial court rejected CMP’s claims of trademark infringement;[1] CMP then appealed.

Less than six months later, the appellate court made the 2^nd instance judgment to reverse the trial decision, with a finding of trademark infringement as a result of failed fair use defense.[2]

Whether a fair use clause was established was the most critical question in the case. A third party is not prohibited from using a registered mark when the user “indicates his/her own name, …, or any other description in relation to his/her own goods or services, in accordance with honest practices in industrial or commercial matters and not using it as a trademark”, as the Trademark Act provides. The court found that the CMP-related terms were used far more prominently in Apex’s advertising materials than were the Apex terms themselves. “Parklane by CMP”, “CMP on Gongyi Road” and “CMP X Gongyi” appeared repetitively on each page of a sales brochure, while the terms “Omotesando” and “Apex” were much smaller and more inconspicuously placed, in one corner of the front page. On the Facebook page for the Omotesando project, the term “Apex” was never shown, whereas a word combination reading “Omotesando + CMP on Gongyi Road + 2 or 3 rooms per unit” was shown. The court determined that the phrase “The Parklane by CMP” was used to promote Apex’s own Omotesando project.

Although “CMP on Gongyi Road” and “CMP X Gongyi” might serve a descriptive function in explaining the relative location of Omotesando since Gongyi Road is a place on the map. However, the accused uses did not turn justifiable since they additionally employ the word element “CMP” together with “Gongyi” repeatedly. As the court cited, trademark right does not restrain a third party if a trademark is employed primarily as a descriptor of, for example, the name, exterior, quality or function of a product or service rather than as an indicator of the source of goods/services.[3] CMP was conceptually irrelevant to Omotesando; neither did “Parklane by CMP” serve to describe Omotesando’s qualities. The use of a trademark specifically bearing “CMP” was not deemed to be an act of necessity; indeed, such use might have wrongfully implied some level of endorsement.

Apex’s argument that the use of “Parklane by CMP” served only to denote the proximity of Omotesando to the Shopping Center was similarly untenable; Omotesando is in fact closer to another famous street market. The distance between Omotesando and the Shopping Center is greater, letting along a running creek separating them apart spatially. In contrast to Apex’s argument, using the label “Parklane by CMP” did little to provide a particular geographical reference to serve as a guide for interested property buyers to find the location of Omotesando.

Good faith was another essential element for establishing fair use yet found absent in the case. A user acts in good faith when such a person has no knowledge that the mark being used is a registered trademark. “Parklane by CMP” was a registered trademark available to the public domain. Apex, being in direct competition with CMP in the real estate industry, knew or should have known the trademark registration. CMP subsequently sent Apex a cautionary notice advising them of the fact of the trademark registration and Apex’s use thereof. Apex’s continued use of “Parklane by CMP” after this point clearly manifested a bad faith intention.

Finally, the court analyzed the damages. Based on the projected minimum price of each flat, the number of units sold, and the average profit margin for the construction industry set by the National Taxation Bureau, it was estimated that the total profit of Omotesando might have amounted to TWD 142 million in a modest calculation. CMP then claimed for only TWD one million (around USD 32,700) as a token of damages. The court awarded it accordingly.

The support of damage calculations by virtue of preliminary evidence was one of the main features of the dispute. It was almost impossible to accurately come up with a concrete figure to represent the contribution of the plaintiff’s trademark to Apex’s total profits its future sales of properties. Tsai, Lee & Chen proposed to the court a novel combination of factors that resulted in the average gross from the sale of a property unit, the total number of property units to be sold, and a peer-comparable profit margin according to the tax authority. Indeed, no one would argue that the defendant’s property sale originated primarily from the infringing use of the plaintiff’s trademark; however, neither was it irrational to exclude any credit attributable to the trademark. To avoid either extreme, the rationale of equity comes into play. Taiwan IPC Court accepted a claim for a symbolic figure that accounted for less than 0.8% of the plaintiff’s lowest possible loss. This case—in which the demanded figure was extremely small even in the view of average people—seems to indicate that courts are inclined to take this conservative approach.

Tsai, Lee & Chen represented CMP in both the trial and the appeal for the case. Before the time of publication of this article, Apex again filed for an appeal to the Supreme Court.

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