Cartier vs. Manufacturer and Seller of Infringing products

Key Findings: If the franchisor and the franchisee appear to be unified, and the franchising parties have a close relationship of interest, and the franchise contract stipulates the franchisor’s right to supervise and manage the franchisee’s business activities, then the franchisor shall be jointly and severally liable for any damage and further damages caused by the franchisee’s activities due to franchisor’s negligence in supervision and management.

Case Background and Decision

Cartier International Limited (hereinafter referred to as Cartier) is the owner of the trademarks No. 202386 for “Cartier” and No. G892848 for “Logo” covering jewelry and other goods in Class 14.

Cartier’s “L0VE” series of jewelry includes bracelets, rings, earrings, necklaces, etc. The jewelry rings are narrow rectangles in cross-section, flat on all sides, evenly spaced with circular studs and decorated with diamonds or precious stones depending on the series (hereinafter referred to as the decoration in question). The decoration in question has been protected as an influential trade dress.

Cartier believes that the Manufacturer’ production and sale of goods imitating the decoration in question constituted unfair competition, and the Sellers whose sale of the infringing goods constituted trademark infringement and unfair competition.

The Tianjin First Intermediate People’s Court found that Sellers are liable for trademark infringement, and Manufacturers are liable for trademark infringement and unfair competition. The court further found that although there is a franchise relationship between Manufacturer and Sellers, and some of the infringing products are marked with Manufacturer’s logo on the packaging and sales documents, but the use of Manufacturer’s logo and packaging by Sellers in the process of product sales cannot prove that the products sold were provided by Manufacturer. Therefore, Cartier’s request for Manufacturer to bear joint and several liability is not supported.

Cartier and Manufacturers all appealed to the Tianjin High People’s Court (hereinafter referred to as Appeal Court).

The Appeal Court found that Manufacturers and seller has a franchise relationship, and the franchise model is “shop-in-shop”, which tends to make consumers perceive that Manufacturers and Sellers are the same business entity providing products and services. Manufacturers neglected to fulfill the obligations of supervision and management, after Cartier repeatedly sent letters of notice of infringement to Manufacturer about Seller’s infringement, but Manufacturer still did not take effective measures, to a certain extent led to the occurrence of infringement and caused further expansion of the damage to Cartier, therefore Manufacturers should bear responsibility of the Sellers’ infringement. Accordingly, the Tianjin High Court found Manufacturer to be jointly and severally liable.