Apple Stoer Story: now for more legal analysis

The shop was called "Harley Davidson", but the IPKat
still wasn't sure he'd bought a genuine one ...
Recent posts on the Apple Stoer Story have not extinguished interest in the subject of IP protection in China but have stimulated.  The Kats are very grateful to their man in China, Tom Carver (Wragge), for delving a bit further into the legal dimensions of this curious episode.
"The fake Apple stores of Kunming have already been reported on by the IPKat (here, here and here), but they are worth one more look because the law is not as clear-cut as one might imagine. The IPKat himself observed that it was curious that two of the stores had been closed on the ground that they did not have a business licence, rather than for infringing Apple’ rights; it seems that so far Apple has not brought any actions in China, but only in the US (the US actions may be unrelated to the Kunming stores claims that there is a fake Apple store in New York called Apple Story). Why might this be? The first point to note is that the stores have been closed by the local Administration for Industry and Commerce (AIC), rather than a court. AICs are not legal institutions and, while they are extremely effective, they will only take action when the facts and law are clear-cut. Are the facts and law in the case of the fake Apple stores of Kunming clear-cut?

The Kunming stores offer genuine Apple products for sale. This activity does not infringe any rights, assuming the store owners bought the goods in question in China and that Apple’s rights had therefore been exhausted. The stores are therefore partially fake and partially genuine.

Do the stores infringe Apple’s rights by providing consultation on Apple goods, maintenance of Apple goods or display of Apple goods? Apple has registered a series of trade marks in various classes related to services, and so one might assume the answer to be a resounding "yes". However, Chinese trade mark law allows limited use of a third party's trade mark if it is intended as a description. Accordingly, the Kunming stores can argue that their use of "Apple Store" is descriptive because the stores offer genuine Apple products and all the services provided in the stores are inevitably about Apple products. This differs from the Porsche case mentioned in an earlier post because in that case the defendant was not selling Porsches, only offering to modify them; the defendant sold other brands of car and offered services on other brands of car. The court held that, since this caused confusion in the minds of the consumers, Porsche’s trade mark had been infringed. This difference probably meant that trade mark law was not sufficiently clear for the AIC to close stores on that basis.

Unfair competition is another potential cause of action for Apple to invoke, but again it is not clear whether such a claim would succeed. The PRC Anti-Unfair Competition Law prohibits the unauthorised use of the name, packaging or trade dress unique to well-known products or false advertisement of products, thereby causing confusion with the products of another party and causing purchasers to mistake the products for such well-known products (Articles 5 and 9). The wording in the relevant articles is “products”. The PRC Trade Mark Law differentiates between products and services and so it is possible that the Unfair Competition Law might also be interpreted as doing so. If that is the case, then Apple would have no claim, because the products are genuine. If “products” applies also to services then Apple has a good claim. 
Unfortunately, whether “products” includes services is something of a grey area. The Harley-Davidson case mentioned in an earlier post is similar to this case, but not quite the same. In that case, as in Porsche , the defendant had been offering both Harley-Davidson and non-Harley-Davidson products and services; had given an undertaking from the infringer not to continue the infringement after a prior warning; maintained an infringing website (which amazingly included a notice to consumers to beware of infringing goods); and had been engaged in a prior dispute with Harley-Davidson over a domain name. The court held in Harley-Davidson’s favour that consumers would be confused. Again, the difference here is that the fake Apple stores of Kunming do not mislead their customers about the source of their products: all are genuine Apple products. Of course, customers are likely to be confused about the source of the service, but substantial and obvious evidence would be required to convince the local AIC to reach that conclusion and take action.

The curiousness of the stores being closed for not having business licences should now be a little less curious: there was no sufficiently clear guidance in IP law, but it was easy to ascertain whether the stores had business licences. The Kunming AIC therefore took the safest option and closed the stores on that basis.

The latest development is that the AIC has ordered the remaining fake stores to stop using the Apple logo, but has given no reason why and no legal basis for the order. The AIC is conducting further investigations and it will be interesting to see whether Apple takes legal action in Kunming".
The IPKat is delighted to learn a bit more about the way IP protection and the solution of commercial-legal problems are handled in China. Thanks, Tom, for this insight!

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