• Guess Confusion Isn’t Such a Big Deal

    by  • April 13, 2011 • trademark

    Gosh, such a juicy fact pattern; I read it with baited breath waiting to find out who owns the trademark. You can’t help but love a story that has stuff like this in it: “You have just 48 [hours] to decide…. After this deadline, Chen, Shenda, and I will have only one goal in our lives, kill your company by fair competition and replace you in the United States market.”

    How did such a battle come about? In 1983, two cousins, Paul Allen and Huang HongSheng, incorporated defendant JoLida, Inc. to sell China-manufactured vacuum tubes. It adopted its “X marks the spot” design used with the JoLida name below:

    The business expanded into designing tube amplifiers. It outsourced the manufacture to China but the amplifiers were of questionable quality, so JoLida contracted with plaintiff Chattery International to do repairs. JoLida and Chattery also formed a company, Shenda Sound Electronic Co., Ltd., to manufacture amplifiers in China. Shenda was a subsidiary of JoLida but was managed by Jing Guo Chen, the CEO of Chattery. The parties entered into an agreement (the 1997 Agreement) which said:

    [Chattery] authorizes [JoLida] to be the sole distributor for the U[nited] S[tates] and Europe for the audio product series manufactured by Shenda. Shenda shall distribute its products by itself in China and Asia.

    The trademarks used by the audio products manufactured by Shenda belong to Shenda, and shall be registered in China by Shenda. Should JoLida wish to register the [subject] trademark for the audio products in the US and other countries and areas, [JoLida] must obtain authorization from Shenda.

    Sometime after the agreement was signed, Shenda became a wholly-owned subsidiary of Chattery. Shenda registered the JoLida word and “X marks the spot” design in China. It worked at a loss for several years while Chen funded the loss, but it improved the product and ultimately began working at a profit.

    At the same time, Shenda’s factory manager Qin Zhong (“Loyal Qin”) was, according to Shenda, “secretly conspiring with JoLida to build a competing factory.” He signed some documents on behalf of Shenda. The first said:

    The second said:

    JoLida then opened its own factory in China, took over the manufacturing of the amplifiers, and not-so-Loyal Qin jumped ship to got to JoLida.

    JoLida filed an application to register the JOLIDA trademark in the U.S. in 2005 without Shenda’s permission and the mark ultimately registered. In 2007 JoLida also obtained an International Registration for the mark, designating some European countries.

    In 2008 Shenda sued JoLida in China and both claimed victory over use of the JoLida mark. In late 2009 and January, 2010, Shenda’s marketing and overseas manager launched the websites www.jolida.fr and www.jolida.net. The French site was for French sales, but people in the U.S. and Canada could buy from the dot-net site.

    Thereafter, Shenda filed a lawsuit in Maryland state court that was ultimately removed to federal court. JoLida counterclaimed and moved for a preliminary injunction, which is the subject of the decision. The parties continued to bicker over the mark, including the “kill your company” comment.

    The court focused on the 1997 Agreement. JoLida claimed that the document was faked – it had no record of the document, the JoLida stockholders had never considered transferring JoLida’s ownership of the trademark; the signatory was never authorized to make such a transfer; JoLida has never had equipment capable of printing Chinese characters; and JoLida’s letterhead has not included a telex number since 1995. JoLida’s expert also opined that the document “appeared to be fabricated from other documents” but he would need to see the original to know for sure. Shenda retorted that the document is authentic, although never produced the original. The parties also argued over whether there was consideration for the agreement, the intent of the agreement, whether the Loyal Qin documents confirmed JoLida’s ownership of the trademark, and whether JoLida’s failure to register the trademark for many years was proof that Shenda owned the mark.

    But after all the excitement, a bit of a fizzle. To my disappointment, on a a motion for preliminary injunction where a court is allowed to weigh facts, and there were great facts on either side to be weighed, the court punted on the whole thing:

    Although JoLida asserts that the Shenda Parties have offered no evidence of the Joint Venture Agreement, JoLida has not denied the existence of the agreement. The remaining issues–whether Hong-Sheng, who has died, was authorized to enter into the alleged 1997 Agreement with Chen; what they intended; what typewriter and letterhead HongSheng may have had access to; and whether Loyal Qin was authorized to sign legal documents on behalf of Shenda–are significant factual questions that are unable to be resolved on this incomplete record.

    In light of the alleged 1997 Agreement assigning ownership of the JoLida Trademark to Shenda, JoLida’s apparent compliance with the agreement for eight years, and the remaining factual questions, JoLida has not clearly shown that it is likely to succeed on its trademark infringement claim. Accordingly, JoLida cannot obtain preliminary relief on its trademark infringement claim.

    The court could get away with a non-decision because, despite Shenda’s counterclaim, it never moved for its own preliminary injunction. As a result, the two companies can continue to sell identical goods with the identical mark. I’m not sure why Shenda didn’t; perhaps Shenda didn’t really have sales in the U.S. despite the dot-net web site, or perhaps it doesn’t have very good penetration into the U.S. market and is perfectly happy to have JoLida continue to keep the market alive. But apparently confusion is not a problem.

    Chattery International, Inc. v. JoLida Inc., No. WDQ-10-2236 (D. Md. March 28, 2011)

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