Facts of the Case

In January 1996, the US FMC Corporation filed, through its Chinese Agent, an complaint with the Administration for Industry and Commerce of Zhabei District, Shanghai, accusing the Shanghai Agricultural Production Materials Company (SAPMC) of infringement of its exclusive right to use the "Funandan" trademark which FMC has registered in China according to law by selling pesticide bearing the passing-off "Funandan" trademark.

The investigation by the Administration for Industry and Commerce of Zhabei District revealed that SAPMC launched a large scale sale of the "Funandan" 3% pesticide from 21 March 1989 to 31 December 1995, with its sale totaling 2427.68 metric tons and turnover reaching RMB 8,588,413.94 yuan. Together with the 150-ton pesticide in stock with the amount of RMB 622,500 yuan paid therefore, the total turnover reaches RMB 9,210,913.94 yuan. It was also found that FMC Shanghai Office visited SAPM on 18 July 1995 to inform the latter that "Funandan" was a registered trademark of FMC and to give it the related press statement for its managerial staff to read. Moreover, on 4 December 1995, FMC wrote to SAPMC, requesting it to desist from using the pesticide bearing the "Funandan" trademark. Paying no attention to the warning from FMC, SAPMC went so far as to have sold, without authorization, 202 more metric tons of "Funandan" 3% pesticide, infringing the exclusive right of the registered "Funandan" trademark from 19 July 1995 to 31 December the same year when it clearly knew that "Funandan" was the registered trademark of FMC, achieving its unlawful turnover of RMB 847,075 yuan.

Upon its analysis of the case, the Administration for Industry and Commerce of Zhabei District, Shanghai held that according to the provisions of No. (1994) 329 Document on Trademark entitled the Notice on Several Issues Relating to the Implementation of the Trademark Law and its Implementing Regulations, SAPM's act is one that is committed when it "clear knows" and "should know" the actual situation as set forth in the Notice. Determining that SAPMC's act of selling 202 tons of the pesticide in question from 19 July 1995 to 31 December the same year was a trademark infringement under Article 38(4) of the Trademark Law and Rule 41(1) of its Implementing Regulations, it decided to (1) order SAPMC to immediately desist from infringement; (2) confiscate and destroy the signs infringing the "Funandan" trademark on the 150 tons of pesticide; (3) impose a fine of RMB 200,000 yuan, 24% of the unlawful turnover of RMB 847,075 yuan; and (4) order the infringer to compensate RMB 50,000 yuan for the economic losses suffered by the infringee.

Analysis

This is a typical case of infringement by a sales enterprise of an exclusive trademark right of another person. A difficulty in handling cases of this nature lies in how to determine infringing acts committed by such sales agent. As far as this case is concerned, the following are the issues in its adjudication:

1. The Fault Doctrine Is Important to the Determination of Infringement by Sales Agents
Within the scope of IP protection, trademark right is different from other civil rights in characteristics, and acts of infringement thereof are constituted per se. In general, such act does not take an actor's subjective fault (intention or negligence) as one of the essential elements. That is, even if the actor does not have any subjective fault, as long as there is an infringement, it should be liable therefor. The main purpose is to more effectively protect the exclusive right to use trademarks. Being exclusive, the right is used by its registrant exclusively. Anyone who uses, without its authorization, a trademark identical with or similar to another person's registered trademark for identical or similar goods commits an infringement. But, in the field of distribution of goods, a dealer is not a direct user of a trademark for goods and it is unable to predict the infringing act committed by a supplier. Therefore, to protect the interests of a lawful operator, it is provided in the law that for its act to constitute an infringement, a dealer should have subjective intention or fault. That is to say, the fault doctrine of the civil law applies to the determination of whether a dealer's act of sale constitutes a trademark infringement. Article 38(2) of the Trademark Law provides that it shall be an infringement to sell goods that it knows bear a counterfeited registered trademark. It is added in Rule 41(1) of its Implementing Regulations that it shall be an infringement of the exclusive right to use a registered trademark to deal in the goods that he clearly knows or he should know have been involved in an infringement of the exclusive right of another person to use a registered trademark. According to the provisions, only when a dealer clearly knows or should know it sells infringing goods can its act constitute trademark infringement. Therefor, that the dealer "clearly knows" or "should know" is the key to determining infringement of a trademark.

The fault doctrine also applies to acts as defined in Rule 41(3) of the Implementing Regulations of the Trademark Law. In handling cases of this category, the administrative authority for industry and commerce should first and foremost determine whether an actor has its own subjective fault. If its act objectively causes damages, but it has no subjective fault, the act should not be deemed an infringement of a trademark.

2. Determination of "Clearly Know" or "Should Know"
In practice, it is somewhat difficult to determine that a dealer clearly knows or should know. To overcome this difficulty, in 1994, SAIC established the criteria and principle in this connection in the form of document, which is very conductive to the operation of the local administration for industry and commerce.

In determining whether a dealer clearly knows or should know, attention should be exercised to differentiate the two. "Clearly know" is an intentional act an actor does when it clearly knows that its act would cause damages to the rightholder. Acts like this are easy to determine. In the case under this discussion , SAPMC, after the warning by the registrant of the "Funandan" trademark, still sold the infringing goods in large quantities, which is an act it has done when it clearly knows about the infringing goods. "Should know" is a negligent fault. It means that a dealer should have noted that the goods it deals in are infringing goods, but fails to do so out of negligence, thus causing the infringement. Then, how to determine whether a dealer has its subjective fault or not? It is mainly based on whether it has fulfilled its obligation of attention. As for this case, SAPMC is a professional company, which should know the goods it deals in and the suppliers it deals with. Furthermore, "Funandan" is a relatively well-known trademark for which its registrant has done such extensive advertisement that SAPMC should have known it dealt in an infringing goods if it had paid slight attention. Accordingly, the Administration for Industry and Commerce of Zhabei District, Shanghai concluded that it had its subjective fault.

3. How to Apply Laws
In the circulation of goods, it is rather difficult to determine acts of trademark infringement. The Administration for Industry and Commerce of Zhabei District, Shanghai has done a lot of in-depth work in its handling of the case. It has been highly praised by the registrant of the "Funandan" trademark for its prompt and firm adjudication of the infringing act. What is worth mentioning is that it calls for special attention to the application of laws and regulations to this case. First, attention should be paid to the relationship between acts of passing off others' registered trademark and those of trademark infringement. The former are acts of serious infringement. Article 38(2) of the Trademark Law defines one of the acts. As for a sales enterprise, if both Article 38(2) of the Trademark Law and Rule 41(1) of its Implementing Regulations apply to such act, the provisions of greater legal effect apply according to the doctrine of legal effect. Second, Rule 41(1) of the Implementing Regulations of the Trademark Law should be correctly understood. In fact, this provision is an extension of Article 38(1) of the Trademark Law, namely extending subjective awareness from "clear know" to "should know". Hence, the two are in a relationship of selection. With either selected, infringement can be determined. In this case, according to the related facts and Article 6(6) of the above-mentioned Notice on Several Issues Relating to the Implementation of the Trademark Law and Its Implementing Regulations, i.e. where large professional companies sell goods passing off registered trademarks or goods infringing trademarks, the Administration for Industry and Commerce of Zhabei District, Shanghai determines that SAPMC has committed an act of "clear know" and "should know".