The Supreme Court rendered a decision on July 9, 2020 that manufacture and sale of bags having designs similar to those of Hermes’s KELLY and BIRKIN bags by a third party violates the catch-all provision of the Unfair Competition Prevention and Trade Secret Protection Act (“UCPA”). The catch-all provision was introduced to the UCPA in 2013 to address violative activities that do not fit squarly into any of the categories of unfair competition activities defined in the UCPA.

▶Background of the Case

The defendants manufactured and sold handbags with shapes similar to the famed KELLY and BIRKIN bags of Hermes International. Although there was an undeniable similarity in the shape of the bags, the defendants’ bags were made with a material giving lustrous texture to the bags and had additional “expressive eye” designs of their own ( , , ) attached to the front of their bags. The defendants’ bags were sold at much lower prices, approximately 1/100 of the prices of the KELLY and BIRKIN bags.

        (From left: KELLY Bag, BIRKIN Bag, Defendants’ EYEBALL Bag)
 

The defendants’ bags sold under the brand, “PLAY NO MORE,” and the advertising slogan, “FAKE FOR FUN,” gained instant popularity among young women. Due to the conspicuous eye designs, the defendants’ bags became better known by the nickname “EYEBALL BAG” and were sold through multi-brand shops and online shopping malls.  

Asserting the fame and well-known status of the KELLY and BIRKIN bag designs, Hermes filed a civil action seeking permanent injunction and damages against the defendants for unfair competition, specifically on the grounds of causing confusion with another person’s goods or dilution, and that the defendants’ activities fell under the dead-copy provision and the catch-all provision of the UCPA.

▶Decision of the Seoul District Court

The Seoul Central District Court ordered a permanent injunction to enjoin the manufacture and sale of the infringing products, and awarded damages of KRW 100 million (equivalent to about US$ 90,000), jointly assessed against the defendants, but only on the basis of the catch-all provision, which reads:

“Unfair competition activities not categorized in other provisions shall still be prohibited if another person’s economic interests are infringed by use of any output resulting from such another person’s substantial investment or efforts, without permission, in a manner contrary to fair trade practice or competition order.” 

In applying the test, the court took note of the importance of the Hermes bags’ shapes as the main point of attraction for the successful marketing of the bags, and found that the defendants acted with intent to free-ride on the popularity or fame of the plaintiff’s BIRKIN and KELLY bags, the unique shapes thereof being entitled for legal protection.

▶Decision of the Seoul High Court

On appeal, the Seoul High Court agreed with the lower court that the case was subjected only to the catch-all provision of the UCPA. It also acknowledged that the shapes of the KELLY and BIRKIN bags were the result of the plaintiff’s considerable investment and efforts, and there existed a certain degree of similarity between the EYEBALL bags and the plaintiff’s bags.

However, the High Court reversed the lower court’s decision for the following reasons:

・Consumer confusion was quite unlikely to result because the plaintiff’s luxury bags and the defendants’ bags had different aesthetic impressions and were completely different in their price bracket, channel of distribution and respective consumer groups. 

・The defendants were in pursuit of their own creative ideas and design philosophy, characterized by bringing a convergence between “classical design and pop art” and “luxury and wit.” The defendants’ bags were called EYEBALL bags rather than KELLY-style bags or BIRKIN-style bags, luring numerous knock-offs of their own products featuring only the eyeball designs.  

・The defendants had never mentioned HERMES, the KELLY bag or the BIRKIN bag in the course of their marketing of EYEBALL bags. The expressive eye designs per se, apart from the bag shapes, were used and promoted in the defendants’ collaborated exhibitions.

▶​Supreme Court Decision

The Supreme Court, in determining the breadth of the catch-all provision of the UCPA, which had been inconsistent, disagreed with the High Court and concluded that the defendants’ acts were infringing and constituted a violation of the catch-all provision. The Court accordingly reversed and remanded the case to the Seoul High Court.

As the catch-all provision does not specify the type of infringing activities as violative of the provision, various factors such as reputation, economic value and goodwill attached to the plaintiff’s marks, etc. were taken into consideration in the Supreme Court’s determination on whether the plaintiff’s economic interest being infringed was in the public domain.  

In determining whether the defendants acted in a manner contrary to fair trade practice or orderly competition, the Supreme Court considered the competitive relations between the parties, potential substitutability of the plaintiff’s products with the defendants’, the degree of the well-known status of the plaintiff’s products and likelihood of consumer confusion, and the fair trade practice of the relevant industry. 

The Supreme Court ruled that the defendants’ acts violated the catch-all provision for the following reasons:

・The plaintiff’s BIRKIN and KELLY bags, respectively launched in the 1980s and 1950s, have enjoyed global fame largely attributable to the unique designs of the bags. The plaintiff’s BIRKIN and KELLY bags are in the highest price bracket of all luxury bags and record significant domestic sales each year.  

・The unique design features of the BIRKIN and KELLY bags in the overall shape from the front and side views, handles, flaps, straps and fixtures, etc. have gained discriminating qualities that function as source indicators of the plaintiff’s products. The economic interest of the plaintiff at stake is not in the public domain but is still worthy of legal protection.

・Among the various characteristics of the defendants’ bags, the design elements similar to those of the plaintiff’s bags substantially contributed to the commercial success of the defendants’ bags.  

・The plaintiff has maintained the exclusivity and scarcity of the BIRKIN and KELLY bags as one of its important marketing strategies. The continued manufacture and sales of the defendants’ products in Korea may result in the reduced demand for the plaintiff’s bags or impairment of the exclusivity or scarcity of the plaintiff’s bags. 

・The defendants’ intention to free-ride on the fame of the plaintiff’s products could be inferred from its adoption of the slogan, “FAKE FOR FUN”. The act of attaching a design of one’s own creation to another person’s famous source indicator for the purpose of commercial distribution does not comply with the trade practice for fair competition.

▶Conclusion

The Supreme Court’s decision, together with other recent decisions on the catch-all provision of the UCPA, is expected to provide clearer guidance on the criteria on how the provision will redress the right holders who need to cope with new types of infringement as they emerge, particularly in areas where conventional remedies have been considered unavailable.