Chinese district court rules in favour of TESLA against second-hand car dealer – Commentary

TESLA was the licensee of US-based TESLA, Inc, which owned trademarks including:

• the word “TESLA”;
• the iconic “T” device;
• “特斯拉” (“Te”, “Si” and “La”, a Pinyin transliteration of “TESLA”); and
• the combination of the T device and the word TESLA.

These were all registered in class 12 (motor vehicle for land, aviation, waterway or railway use, electric vehicle) or 37 (vehicle maintenance and repair).

Figure 1: word “TESLA”

Figure 2: iconic “T” device

Figure 3: “特斯拉” (“Te” “Si” and “La”, Pinyin transliteration of “TESLA”)

Figure 4: combination of “T” device and word “TESLA”

TESILA was a car dealer selling second-hand TESLA cars. TESILA prominently used the very same device as TESLA and the same three characters (“Te” “Si” and “La”) as its trade name, on its signboard and on its promotional material and interior decoration. Furthermore, TESILA claimed to be “the only nationwide chain franchise of TESLA second-hand cars”.

Figure 5: allegedly infringing device

Figures 6, 7 and 8: “Te”, “Si” and “La” characters and the Pinyin used separately or in combination with “used car” (Chinese or English)

TESLA sued TESILA for trademark infringement, copyright infringement and unfair competition, requesting cessation of use and damages of 500,000 Chinese yuan (approximately £56,000) (inclusive of reasonable costs), among others.

Trademark infringement
The defendant unsurprisingly responded with a defence based on the general principle of “exhaustion of rights” and “fair use”. It argued that it had the right, and it was even necessary to, use the TESLA mark since it was providing services in relation to the sale of authentic (second-hand) products. The Court did not accept such arguments.

First, the Court noted that the affiliated company of the defendant’s parent company had filed for scores of trademarks that were either the slavish copy or the imitation of the plaintiff’s registered trademarks, which substantiated its bad faith. The fact that TESILA was a company in the same field, with evident awareness of TESLA’s reputation, made bad faith even more obvious. The Court thus ascertained that the use of the trademarks was intended to directly promote the services provided by the defendant, rather than to indicate the relation to which products the services were provided. Had the defendant used the trademarks to identify the relation, the trademark use as defined by the Trademark Law could not have been established.

Second, the Court affirmed that the defendant’s service was similar to the plaintiff’s designated goods and services, given:

• the very high reputation and intrinsic distinctiveness of the plaintiff’s trademarks;
• the almost identical consumer group, sales method and channel, and their close association; and
• the high likelihood of confusion.

Third, the Court added comments to the matter of trademark fair use, enumerating three parameters in assessing trademark fair use:

1. the use is justified and out of good faith;
2. the use is absolutely necessary to indicate the source of the goods or services; and
3. the use will not cause confusion, which includes the likelihood of confusion over the identity of the business operator.

The Court affirmed that the defendant’s prominent and extensive use of identical or similar signs was likely to lead the relevant public to:

• associate the defendant with TESLA; or
• misconstrue that the defendant, with the authorisation or licence of the plaintiff, was an accredited dealer of TESLA second-hand cars or a dealer with other close association with TESLA.

The Court therefore found that trademark infringement could be established.

Copyright infringement
The defendant challenged the originality and copyrightability of TESLA’s device. This defence was dismissed by the Court.

The Court found that the work was a device consisting of a stylised letter “T”, lines and colours. The combination was of artistic aesthetic value, which was original and should have been deemed as a copyrightable work of fine arts.

The Court further held that the defendant’s unauthorised use of the work prejudiced the plaintiff’s copyright.

Unfair competition
The Court found that the TESLA brand had generated a “certain influence” as provided by article 6 of the Anti-Unfair Competition Law. The defendant’s use of the litigious trade name (ie, the transliteration characters “Te” “Si” and “La”), which was identical to the plaintiff’s registered trademark and trade name, was likely to lead consumers to misconstrue that the defendant was an affiliate to TESLA or had other association with TESLA, thus causing confusion. The Court therefore found that unfair competition could be established.

As to the statement “The only nationwide chain franchise of TESLA second-hand cars”, which the defendant had used in business promotion, the Court opined that the use of “only”, a word of an absolute nature, intended to underline an association with TESLA. The ordinary consumers, with normal level of cognition and logic, would have inferred from such a statement that the defendant was a store either directly operated by TESLA or was somehow associated with TESLA. Such misunderstanding would help the defendant gain a competitive edge, which constituted unfair competition.

The Court ruled in favour of the plaintiff in almost all the claims, affirming trademark and copyright infringement, as well as unfair competition. It therefore awarded damages of 300,000 Chinese yuan (approximately £33,000).

The expected defence argument was, of course, that the defendant had been selling authentic second-hand cars. So, why would Tesla complain about the use of its name, in relation with the sale of its own cars?

In rejecting this defence, the Court made a thorough analysis of all the circumstances revealing the bad faith of the defendant, and this analysis enabled the Court to assert that the defendant was not in a situation of fair use.

This attention paid to faith by the courts is becoming a clear trend which is worth noting.