Famous Luxury Hotel Brand Won Again in Retrial for Interior Design Dispute

LDC Hotels & Resorts (“LDC”) is one of the largest locally founded hotel chains. LDC—short for “Luxury, Dreams and Culture”—owns a series of distinguished high-end hotels across Taiwan. It sued Queena Plaza for copyright infringement and competition law violations due to its use of similar interior designs in some guest rooms of Queena Plaza’s Taitung branch; there followed a breakdown in licensing negotiations.

As a result of the trial, the IPC Court as the court of first instance found LDC’s copyright of architectural works not infringed. However, the court upheld LDC’s unfair competition claims in which LDC complained Queena Plaza of plagiarism by reproducing LDC’s guest room interior designs, spatial arrangements, lighting setups and furniture planning, among other things. To make matters worse, in the appeal, Queena Plaza’s defensive arguments and rebuttals were all turned down. In addition to the anti-competitive violations, the IPC Court as the appellate court reversed the trial court’s decision, determining that LDC’s copyright for architectural works was indeed infringed.

Supreme Court for the 3^rd instance

Unwavering, Queena Plaza brought the case to the Supreme Court. In January 2021, the Supreme Court ruled in a decision to partially vacate the appellate decision, finding that a number of questions of facts were unresolved or, at least, not clearly resolved.[1] The case was then remanded back to the appellate court.

First of all, the Supreme Court found that the lower court had erred by failing to sufficiently explain why it recognized LDC’s interior designs as being original, whereas originality is one of the necessary elements entitling a disputed work to copyright protection.

Furthermore, as the Supreme Court added, the interior design in dispute was completed by an LDC’s contractor. Arguably, the contractor is the only proper entity who may initiate an action when a dispute arises. LDC did not modify their contract to include a license clause until acknowledging the Queena Plaza’s activities of plagiarism as accused. The question of whether the standing to sue Queena Plaza was thereby retroactively entitled to LDC was left unanswered by the lower court.

Moreover, the question of anti-competitive practices—whether Queena Plaza’s activities amounted to the creation of an unjustifiable barrier to an effective competition to the extent that it undermined trading order—was not fully addressed. In Queena Plaza’s counterarguments, it alleged that the relationship between the two parties were in a weak tie of competition since their geographical locations, target consumers and business operation schemes were sufficiently different that neither of them is replacing or competing with the other. The Supreme Court stressed, however, that the lower court had turned a blind eye to this pro-Queena Plaza evidence. Seemingly, the lower court had carelessly determined Queena Plaza to have violated the Fair Trade Act by swiftly concluding that, since the island of Taiwan was small enough to form one single market with no differentiation between north and south in terms of target tourist consumers, the two parties were therefore highly competitive.

Remanding back to the IPC Court for the 2^nd instance retrial

The case was remanded to the IPC Court. After once again hearing the complaints and arguments from both parties, the IPC Court made a retrial judgment in October 2022, affirming that Queena Plaza had not infringed copyright but had nevertheless committed anti-competition violations.[2]

On the question of the element of originality of an architectural work, the retrial court again denied LDC’s claims of originality in the interior design in dispute. An interior design refers to the integrative planning of any household objects inside the building, including walls, windows, curtains, doors, surface finishes, paint materials, lighting, air conditioning, water and electricity. If an interior design attached to a building becomes an inalienable part of the interior space of the same building—generating uniqueness and personal traits—it is considered a copyrightable architectural work. In the present case, although the selection, design and placing of “furniture” might be uniquely original, the same could not necessarily be said of the planning of the entire room, including the furniture. Viewing the interior space as a whole, the furniture was structurally detached from the structure of the building, and the aesthetics of the removable furniture items bore no relation to an architectural work. Since the selected furniture and decorations were not indispensable parts of an architectural work, the rooms did not attain originality simply through the addition of novel and exotic furniture pieces.

In a further attempt to support its originality argument, LDC explained the overall planning and layout of guest rooms by presenting a number of construction drawings. Regrettably, the retrial court found them to be similarly unhelpful for supporting such arguments. The floor plans, elevation drawings, section drawings and expansion drawings etc. presented at best the sizes and configurations of furniture and decorations, and they bore little relation to the original expression of the artistic demonstration. More importantly, due to government safety restrictions and the general practices by which the hotel industry must abide, freedom of creative design for hotel room layouts was generally limited. For example, a bathroom must have separated wet and dry facilities and must be near the door, there must be a clear passage running through the entire room, a TV is placed opposite the bed, there is a floor-to-ceiling window, and a lower cabinet with a lamp stand is placed next to the bed. The configuration and placement of tables, sofas, writing desks, mini bars, refrigerators and mirrors, for example, were all essential home furnishing elements that followed the hotels’ customary norms as well as meeting the government-promulgated Evaluation Standard of Hotel Rating. Therefore, the interior designs in dispute—encompassing the planning of the overall space, choices of furniture size, and the creation of “flow” in a room—were judged not to be significantly different from those of other rooms used by consumers.

Hence, on the grounds of lack of originality, the interior design of LDC’s guest rooms was not deemed to be a copyrightable architectural work.

Despite the failure to establish a copyright claim, however, LDC successfully convinced the court to accept another of their claims on anti-competitive grounds.

The Fair Trade Act forbids “fraudulent or manifestly unfair conduct that is capable of affecting trading order” carried out by an enterprise. A particular activity is deemed to be “manifestly unfair” when the “competitor engages in apparently inequitable conduct including exploiting another’s results of assiduous efforts, etc.… [that is] sufficiently considered to impact market order”. Two factors in particular must be considered: (1) the underlying object being unfairly exploited or copied is one in which the owning entity has invested considerable effort and has ultimately obtained an economic benefit therefrom; and (2) consumers are led to mistakenly believe that the copying/exploiting and copied/exploited objects are from the same source, from the same series of products, or from related producers.

In the present case, LDC created its guest rooms through dedicated construction investments, enjoying widespread fame and popularity as a result of media coverage and customer reviews. These designs indeed presented uniqueness and brought economic benefits.

Secondly, there was no doubt that Queena Plaza engaged in a comprehensive reproduction of LDC’s guest rooms. As relevant evidence explicitly revealed, individuals closely associated with Queena Plaza rigorously took pictures and measured the sizes of furniture pieces and room spaces. A witness report from a third-party investigative agent unveiled that LDC’s and Queena Plaza’s rooms were highly similar to each other in terms of the arrangement, location and relative position of in-room items; even the wallpaper patterns were found to be the same. Although Queena Plaza argued that such similarities were commonplace in the hotel industry, the witness report defended its credibility by stressing that the conventional style of furnishing was of no part in its analysis to come to the conclusion of similarity.

Lastly, the IPC Court supplemented its reasoning to answer the Supreme Court’s question of whether Queena Plaza’s accused activities amounted to “fraudulent or manifestly unfair conduct capable of affecting trading order”. Needless to say, LDC and Queena Plaza were direct competitors in the hotel industry. In light of consumer behavior in the hospitality industry, room style and furnishing are key factors in choosing a hotel to stay in, according to a study. They are also crucial for obtaining a high score in hotel standard ratings. Use of the same or highly similar styles and/or designs could lead consumers to mistakenly acknowledge that the two hotels are correlated, for example, in terms of franchising or licensing. Queena Plaza posted its room design highly similar to those of LDC on various third-party’s reservation websites; this practice escalated the risk of consumers wrongly perceiving Queena Plaza hotels to be one of the brands controlled by LDC group. Essentially, an activity becomes unfair—and ultimately reprehensible—once it brings about an “abstract risk”, potentially compromising the market order, instead of having to produce an actual impact. Even when competitors differ in terms of geographical location, customer tiers or business operating schemes, such a risk of a correlation likely influencing potential customers’ decision-making is present.

To briefly conclude, Queena Plaza’s reproduction of LDC’s rooms jumpstarted its business with less effort than would otherwise have been necessary. Such acts undoubtedly saved Queena Plaza huge costs in elegant interior designs and expedited its preparations prior to its grand opening. Queena Plaza benefited from a “free ride” by using these unique designs to attract more admiring consumers while potentially misleading them to believe that Queena Plaza was related to LDC. This practice, aimed at gaining financial benefits and enhancing its market reputation by undermining the particular competitive advantage of a forerunner, was indeed deceptive and clearly unfair. It was also severe enough to impact the normal course of operation in the industry.

The IPC Court affirmed an award of TWD 5 million together with an injunction to remove certain furniture items from Queena Plaza’s guest rooms in dispute. The court also ordered Queena Plaza to delete its listings on hotel reservation websites and imposed Queena Plaza an obligation to publish the judgment in newspapers at its own expense.

The case remained appealable once again to the Supreme Court.

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