Sharp Corporation has initiated an unfair competition lawsuit against Chinese brand licensee Hisense, which produces and markets Sharp branded televisions in the Americas. A rare instance of a brand, rather than patents, taking centre stage in a tussle between tech giants, the dispute also highlights the delicate balancing act that must be walked when initiating action that could harm brand reputation.
In 2014, Chinese manufacturer Hisense was named the world’s fourth largest television brand by volume sold, according to a report by DisplaySearch. Just over a year later, the company unveiled plans to deepen its presence in the Americas markets when it announced an intention to acquire Sharp America’s TV business in a deal reportedly worth $23 million. Commentators noted that the move highlighted the weakness of Japan-based TV makers when competing with both Korean brands such as LG and Samsung, as well as the continuing influx of China-based TV makers. Strategically, the move by Sharp to grant Hisense a license to exclusively use certain trademarks through 2020 therefore made sense – the company having signalled its intention to pull back from international markets.
As the Wall Street Journal’s Takashi Mochizuki notes, things changed in 2016, when Taiwan’s Foxconn Technology Group took a controlling stake in Sharp for ¥388.8 billion ($3.52 billion). In the time since, Foxconn has sought to put the Japanese company back on a growth track, with television technology a key plank of its efforts. As such, Foxconn has directed its focus on further penetration in the Chinese market. It has also initiated a lawsuit for unfair competition in the San Francisco County Superior Court, asking the court to prevent its marks from “losing value”.
The lawsuit focuses on allegation that Hisense has “displayed a complete disregard for certain safety standards and regulations, and has taken other actions to harm California consumers who have purchased products under the Sharp trademarks”. Amongst the allegations levelled at the Chinese company, Sharp contends that a number of tested products did not comply with Federal Communications Commission (FCC) emissions standards, violated Federal Trade Commission (FTC) rules on picture size labelling, falsely advertised the brightness levels of at least one product, did not conform with UL safety standards and falsely advertised some products as having ‘4K’ resolution.
Hisense has denied the allegations, telling the Wall Street Journal: “Hisense is in full compliance with the trademark license agreement and Sharp’s attempt to terminate the agreement is of no effect. Hisense will continue to manufacture and sell quality televisions under the Sharp licensed brands.”
The battle lines have been drawn and this dispute will play out in the Californian venue. From a trademarks perspective, what makes this dispute of note is that it is the brand – rather than patent rights – at the centre of a tug of war between two tech giants.
In September 2016 we reported that, following Foxconn’s $3.5 billion acquisition of a majority stake in Sharp, the latter’s CEO – Tai Jeng-Wu – had announced that trademarks will play an important part in his plans for restructuring the electronics company. Specifically, Tai suggested that the cancellation of trademark licences and buybacks of branding rights that had been sold to other manufacturers was on the cards in a bid to exert greater in-house control over the use and management of the Sharp brand: “We want to polish Sharp’s brand value by ourselves and make it shine globally.”
This latest lawsuit, then, appears to align itself with the company’s vision of ‘polishing’ the Sharp brand itself but it faces a battle to do so. Additionally, the latest legal bit to reclaim use of the Sharp brand in the US is also not without risks. On the IAM blog, Jacob Schindler notes that Sharp has publicly described products bearing its own name as inferior goods made by a Chinese company that are flouting safety rules. This could itself have a negative impact on the Sharp brand in the country, with the headline from today’s Wall Street Journal article proclaiming: “Sharp to Americans: You Don’t Want to Buy a Sharp-Brand TV”. That is a message that the company will want to quickly turn around should it be successful in its legal move. Should Hisense prevail, Sharp will be dealt a blow in its efforts to exert greater in-house control over the use and management of the brand. For both parties, then, the lawsuit is not without risk to the reputation of the brand with respect its TV products in the American market.
As we noted previously, while the monetisation of trademarks and other brand assets, though licensing, can be a lucrative option, it is not without risk and a shift in corporate strategy can quickly place counsel in a challenging position. In this instance, the balancing act for Sharp is to ensure that efforts to reclaim the valuable brand do not then cause further damage to its reputation. For Hisense, the suit means that there will also need to craft careful messaging around its product standards should it prevail and continue to produce and market Sharp products.