In patent infringement cases, there is a widely accepted rule: the damage awarded to a plaintiff shall be reduced by the contribution rate of the patent in issue to the value of the alleged infringing products. The basic idea of patent contribution rate is simple—alleged infringing products may contain thousands of patents, while only few involve in the cause of action. But how about trademark infringement cases? Is the rule also applicable to trademark infringement cases?
In light of §71 I (2) of Taiwan Trademark Law, damages awarded may be calculated by “the profit earned by the infringer as a result of trademark infringement.” The “profit” here means total revenue minus total direct cost, and this opinion has been long held by courts. Here comes a question: does the sale price of products or services contain ONLY the direct cost of the products plus the value of the trademark? If the answer is no, how do we ascertain what proportion of the profit is due to the trademark? How to avoid unjust enrichment to the trademark owner? In response to the question, the Intellectual Property and Commercial Court (thereafter referred to as “the court”) applies “trademark contribution rate” to calculate the damages awarded in several cases.
In TutorABC Inc. v. Overseas Radio and Television, Inc. (case number: 智慧財產法院107年度民商上字第1號民事判決), TutorABC Inc. asserted that the Overseas Radio and Television, Inc (thereafter referred to as “ORT”) used a “Tutor4U” trademark, which was designated on online English-teaching service, and thus infringed its trademark “TutorABC”, which was designated on an identical service. The court subsequently found the following facts: i) Tutor4U is similar to TutorABC; ii) these trademarks were used in an identical service; iii) customers were actually confused; iv) the ORT earned about 13 million USD dollars due to the sales; and v) the gross margin rate of ORT was 62%. Therefore, TutorABC Inc. sought 8 million USD dollars for its damage.
However, to the plaintiff’s surprise, the court awarded only 1 hundred thousand USD dollars for its damage on the ground of low trademark contribution rate. The main reason was as follows: sales of goods and services were different in nature. Trademarks might be the only symbol customers could find to determine the quality of the goods, but it was not the case in sales of online English-teaching services. Customers determined the quality of online English-teaching service by, and so the profit was mainly derived from, learning materials, teachers, and customer services, not just by trademarks. Even though customers actually confused Tutor4U with TutorABC and thus purchased Tutor4U’s service, they would require a refund when they found the truth. Furthermore, customers would not renew the service contracts if they were not satisfied with Tutor4U’s service. Therefore, the court decided that due to the nature of online English-teaching services, trademarks accounted for an extremely low percentage of customers’ motivation to purchase, and so the contribution to the profit earned. TutorABC Inc. failed to prove that the contribution of its trademark to ORT’s profit was 100%, so its demand shall be denied.
The Supreme Court overruled the judgment by a simple reason: goods and services are equally protected by the Trademark Law and sales of online-services share the same trial-period and refund mechanisms with online sales of goods. There is no reason to treat them differently. If the court finds that the amount of damages is unequal, it may, at its discretion, reduce it in light of §71 II of the Taiwan Trademark Law. However, whether there is a“trademark contribution rate” rule? The Supreme Court kept silence to this question.
The problem of“trademark contribution rate” is obvious—the standard to decide the rate, if any, is just arbitrary. In TutorABC’s case, the trademark contribution rate was about 1.2%. In the other case, of which a tortfeasor used an identical trademark “吳岳國文” in an identical service—teaching Chinese, the trademark contribution rate was 50%. The contribution of “TutorABC” is substantially lower than“吳岳國文”. Ironically, “TutorABC” is a well-known trademark in Taiwan, while“吳岳國文”is not.
Since Taiwan Trademark Law was borrowed from Lanham Act, we may learn a lesson from WMS Gaming Inc. v. WPC Productions Ltd.( 542 F.3d 601, 7th Cir. 2008), which indicated that “while it is often difficult to ascertain what proportion of the profit is due to the trademark, and what to the intrinsic value of the commodity” — such that the proper proportional often cannot be ascertained with any reasonable certainty — the Court decided that it is more consonant with reason and justice that the owner of the trademark should have the whole profit than that he should be deprived of any part of it by the fraudulent act of the defendant. It is the same principle which is applicable to a confusion of goods. If one wrongfully mixes his own goods with those of another, so that they cannot be distinguished and separated, he shall lose the whole, for the reason that the fault is his; and it is but just that he should suffer the loss rather than an innocent party, who in no degree contributed to the wrong…There may well be a windfall to the trademark owner where it is impossible to isolate the profits which are attributable to the use of the infringing mark. But to hold otherwise would give the windfall to the wrongdoer.”In short, if the risk of unjust enrichment to the victim and the risk of over-compensation to the tortfeasor are either inevitable, we should choose the victim, instead of the tortfeasor, to pick up the windfall.
As mentioned above, the judgment using“trademark contribution rate” has been overruled, but the concept itself is still lingering in the court’s mind, rearing its ugly head again by inciting §71 II of the Trademark Law. If there must be a windfall, who shall be favored? It’s not just a question of application of laws; it’s a question of equity. The courts in America choose to favor victims, while the courts in Taiwan choose otherwise. One day the courts in Taiwan might realize the problem and change their mind. On that day, we may proceed one more step toward the purpose of the Trademark Law: for protection of the rights of trademark, the interests of consumers, maintenance of fair competition, and promotion of development of the industry and commerce.