CMS, China | Compensation Claims due to Trademark Infringements - Case study: New Balance vs. Zhou Lelun





CMS, China

Compensation Claims due to Trademark Infringements -
Case study: New Balance vs. Zhou Lelun

Dear Sir or Madam,

Please find below our update on the latest developments in intellectual property protection in China.

Kind regards,
CMS, China

In trademark infringement cases, how to claim damages is always an important question for trademark owners. The Chinese courts recently rendered judgments in the case of New Balance’s Chinese affiliate i.e. New Balance Trade (China) Co., Ltd (collectively as “New Balance”) v.s. Zhou Lelun. This case can give some guidance for claiming compensation for trademark infringements in the judicial practice in China.

1. Case Introduction

New Balance is the legitimate owner of the trademarks “NB” and “New Balance” in China. In addition to trademarks in Latin, many multinational companies which are active in China also use Chinese trademarks to promote their products so that Chinese consumers can easily recognise their brands. New Balance uses the Chinese characters “新百伦” as its Chinese trademark and trade name. “新” means new, “百伦” is the transliteration of “Balance”.

However, the Chinese trademark “新百伦” is actually owned by a Chinese individual Zhou Lelun. Mr. Zhou applied for registration of the trademark “新百伦” in 2004 and the trademark was granted registration by the PRC State Trademark Office in 2008. Mr. Zhou owns an established brand of men’s shoes using the brand “新百伦”, which are sold in local Chinese department stores.

New Balance combined the trademarks “NB” and “New Balance” together with the Chinese trademark “新百伦” and continued to use the combination (“Combination”) for business promotion. This lead Mr. Zhou to file trademark infringement claims.

On April 21, 2015, the Guangzhou Intermediate Court (“Intermediate Court”) rendered its judgment regarding the trademark disputes between Mr. Zhou and New Balance. The court held that Mr. Zhou’s infringement claims were justified and awarded him damages of up to 50% of New Balance’s profits of the last years, i.e. RMB 99.8 million (approximately EUR 13,150,000) as compensation for the trademark infringement. These are the highest damages ever granted by the Intermediate Court in an intellectual property infringement case.

Subsequently, New Balance appealed to the Guangdong High Court (“High Court”) which recently made the final judgment in this case. The High Court ordered compensation in an amount of RMB 5 million (approximately EUR 671,000), which greatly reduced the amount of damages that had initially been granted.
   
2. Factors considered in awarding damages

According to the PRC Trademark Law, the amount of actual damages for trademark infringement can be determined by either the benefits gained by the infringer (“Illegal Benefits”) or by the losses suffered by the right's holder (“Actual Losses”) during the period of infringement. If both the Illegal Benefits and the Actual Losses are difficult to calculate, the court may determine the amount of the damages based on the multiple of the trademark license fees. If the latter are also difficult to calculate, the court may, at its discretion, award statutory damages in an amount of up to RMB 3,000,000 (approximately EUR 400,000). In the case of New Balance v.s. Zhou Lelun, when determining the damages, the High Court considered the following factors:
   
  (1) The bad faith intention in the trademark infringement

In this case the High Court held that New Balance knew of the pre-existence of the trademark “新百伦”, since it had filed an unsuccessful opposition against it. Furthermore, New Balance continuously kept using the Combination in promotion of its products. The court therefore concluded that New Balance committed a malicious trademark infringement.
     
  (2) The Actual Losses suffered by the right's holder

In practice, it is difficult for the trademark owner to prove the “Actual Losses” arising from the infringement. In the case reviewed here, the High Court held that Mr. Zhou did not provide sufficient evidence proving the Actual Losses.
     
  (3) The manner in which the infringer makes use of the trademark

The High Court found that New Balance used the Combination “新百伦; NB” and “新百伦; New Balance” on its official website, invoices, promotional materials and video advertisements etc. Since the trademarks “NB” and “New Balance” are registered trademarks of New Balance, the court held that only a part of the profits gained by New Balance during the period of the infringement were Illegal Benefits.
     
  (4) The reputation of the infringer’s trademark as well as the right's holder’s trademark

On the one hand, the High Court expressed its opinion that New Balance’s registered trademarks had already obtained a reputation on the Chinese market. The Chinese consumers distinguish different products by recognizing “NB” and “New Balance” rather than New Balance’s Chinese trademark “新百伦”. On the other hand, the court held that Mr. Zhou’s trademark “新百伦” was less popular in China.
     
  (5) The scale of the trademark infringement

New Balance established a large number of stores and franchised counters and operated two large online shops on China’s largest B2C platforms. The High Court therefore concluded that the trademark infringement of New Balance was of a large scale.
     
  (6) The duration of the trademark infringement

In this case, the trademark infringement lasted from July 2011 to February 2014.
     
  (7) Reasonable expenses to cease the trademark infringement

The reasonable expenses here refer to the costs for notarisation, lawyers’ fees as well as the costs for evidence preservation etc.

On the basis of the factors and findings which have been stated above, the High Court finally determined to reduce the compensation of New Balance to RMB 5 million. Although it is still controversial in legal scholars whether the damages awarded by the High Court are appropriate, this case illustrates some major issues in determining the amount of damages in trademark disputes in China. I.e. in addition to prove the Illegal Benefits or Actual Losses etc. as stipulated in laws, other factors such as the bad faith intention, manner in which the trademark is used as well as the reputation of the trademarks must also be taken into account. When raising damage claims for trademark infringements, right's holders should take all these factors into consideration and collect and prepare suitable evidence.

In case you have questions or for further information, please contact the author of this newsletter:

CMS, China Emily Xu, LL.M.
Senior Associate

CMS, China
T + 86 21 6289 6363

E emily.xu@cmslegal.cn
   

 


This information is provided for general information purposes only and does not constitute legal or professional advice. Copyright by CMS, China.

CMS, China
“CMS, China” should be understood to mean the representative offices in Mainland China of CMS Bureau Francis Lefebvre, CMS Cameron McKenna LLP and CMS Hasche Sigle, working together. CMS, China is a member of CMS Legal Services EEIG, a European Economic Interest Grouping that coordinates an organization of independent member firms. CMS Legal Services EEIG provides no client services. Such services are solely provided by the member firms in their respective jurisdictions.

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