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China’s new punitive damages system bolsters protection against trademark infringement
Recently, BEIJING EAST IP LTD assisted a Chinese sports equipment company to successfully solve the problem that its products sold on Amazon in Japan were complained by competitors for infringing Japanese design patent, and quickly lifted the delisting punishment.
Recently, Yongyu Zhang and Kaiyuan Song, agents of BEIJING EAST IP LTD., represented Daio Paper Corporation in the case of invalidation of “packaging bag” design patent, and successfully maintained the validity of the design patent.
Weekly China Trademark News Updates
February 22, 2024
1. Schneider Electric sued Schneider Elevator and won RMB 40 million in compensation
On February 7, 2024, the Jiangsu High Court issued a second-instance judgment in the case of Schneider Electric v. Schneider Elevator, upholding the first-instance judgment of the Suzhou Intermediate Court that found Schneider Elevator infringed Schneider Electric’s trademark and unfairly competed and awarded compensation of RMB 40 million (USD5.5 million).
The Suzhou Intermediate Court found that the “” and “Schneider in Chinese” trademarks registered by Schneider Electric for use on Class 9 circuit breakers, switches, contactors and other commodities constituted well-known marks. Schneider Elevator prominently used the “Schneider in Chinese” and “SCHNEiDER” logos constituted trademark infringement. Schneider Elevator used “Schneider in Chinese” in its corporate name and used “www.schneider-elevator.cn” and “www.schneider-elevator.com” domain names constituted unfair competition. Based on the operating income of Schneider Elevator, the profit margin of the elevator industry, taking into account the brand contribution, and applying punitive damages based on Schneider Elevator’s bad faith in taking advantage of Schneider Electric, the court decided that the amount of compensation that Schneider Elevator should pay was RMB 40 million.
Both parties appealed to the Jiangsu High Court.
The Jiangsu High Court found that considering the market share of Schneider Electric’s products, relevant publicity reports, companies established in China with the brand name “Schneider in Chinese,” operating income and tax payments, industry rankings, trademark protection records, etc., there were sound factual and legal basis in recognizing the “” and “Schneider in Chinese” marks as well-known marks.
Before the establishment of Schneider Elevator in 2010, Schneider Electric had invested in and established a number of companies with the name “Schneider in Chinese” across China. The audit reports, tax-related certificates, invoices and other evidence submitted by Schneider Electric can prove its large sales scale from its business and the high operating income. And the continuous and large-scale publicity of the company in newspapers and magazines were enough to show that its corporate name “Schneider in Chinese” has a high reputation. Although Schneider Electric does not directly produce elevator products, it produces components for elevator products which are all electromechanical products. The first instance judgment correctly found that Schneider Electric had a certain relationship and market competition with Schneider Elevator. Schneider Elevator should have known about the popularity and influence of Schneider Electric’s corporate name “Schneider in Chinese,” but instead of taking any steps to avoid the word, Schneider Elevator used “Schneider in Chinese” as its corporate name without authorization. Its subjectivity cannot be described as good faith, and the corresponding behavior constituted unfair competition.
Regarding the amount of compensation, Schneider Electric, when filing the lawsuit, clearly requested that the amount of compensation be determined based on the benefits obtained by the infringement, and it did not make a request for punitive damages before the conclusion of the debate before the first-instance court. Therefore, the first-instance court’s application of punitive damages was incorrect. However, given Schneider Elevator’s main business income, elevator industry gross profit margin, profit margin and other evidence, it can be proved that Schneider Elevator’s infringement profits exceed the maximum statutory compensation of RMB5 million. If statutory compensation is simply used to determine the amount of compensation in this case, it will undoubtedly be too low and the right holder will not be able to obtain sufficient compensation. This will not only be extremely unfair to the right holder, but will also objectively indulge the infringement. Therefore, the court found that the discretionary compensation method could be used to determine the amount of compensation in this case. Therefore, after comprehensively considering factors such as the popularity and market value of the rights and trademarks involved, the subjective bad faith of Schneider Elevator, the time and scale of the infringement, and brand contribution, the first instance judgment’s determination of RMB40 million in compensation not was correct.
2. Shenzhen Intermediate Court determined that sales of goods after scratching the codes did not constitute unfair competition
Opple, a well-known lighting manufacturer, purchased several products from Dingfeng through an agent. It was found that the barcodes on the outer packaging boxes of the products had been torn off, but the barcodes on the inner packaging boxes were not. The product packaging used “OPPLE, Opple Lighting in Chinese, OPPLE Opple Electric in Chinese,” and other words. On the bathroom heater product, the “Opple” product label was pasted on the side, but the QR code on the product label was scratched off. The QR code on the back of the ceiling lamp and the QR code on the flat lamp have all been scratched off, and the three codes on the packaging box were scratched off.
Opple filed an unfair competition lawsuit against Dingfeng for scrapping codes to sell goods. The first instance court found that:
As a seller, Dingfeng should know that any alteration or scratching on the product packaging will affect the integrity of the product outer packaging, even affect the traceability and quality assurance functions of the goods sold, and also destroy the order of fair competition among all dealers that sell the brand’s goods, increase the cost of communication between consumers and brands when they encounter quality problems, harm consumer’s rights and interests, and may also cause derogation of the brand value of the right holder. Dingfeng’s sales of code-scratch products undermined the rights holder’s product management system, disrupted the normal order of market competition, harmed the legitimate rights and interests of other operators and consumers, and constituted unfair competition.
Regarding the amount of compensation, since Opple did not provide evidence to prove the benefits gained by Dingfeng from the infringement or the losses it suffered due to the infringement, the first instance court comprehensively considered the popularity of Opple’s brand and trademark, Dingfeng’s subjective fault and the nature and consequences of its infringement behavior, as well as Opple’s reasonable expenses to stop the infringement, and determined that Dingfeng should compensate in the amount of RMB 60,000 (USD8,346).
Dingfeng Company appealed. After the trial, the court of second instance found:
Regarding the products sold by Dingfeng, the logistics outer packaging and the QR codes on the products were scratched, but the QR codes on the outer packaging of the products, as well as all packaging, instructions, trademarks and manufacturer information on the products were completely retained. And according to Opple’s statement, the products involved are indeed products manufactured and sold by Opple. Consumers can also verify the authenticity and apply for after-sales service through the QR code on the product packaging. Therefore, Dingfeng’s sales behavior will not cause consumers to confuse or misunderstand the origin of the products involved.
(1) Regarding consumer interests. What consumers buy are genuine products produced and sold by Opple. They can verify the authenticity and apply for after-sales service by scanning the QR code on the packaging box of the product involved. Although Dingfeng did not inform consumers in advance about the code scratching, consumers were able to determine the source of the products involved by relying on trademarks and authenticity verification, and could still enjoy the product quality and after-sales services provided by Opple, and their interests were not harmed. Moreover, ordinary consumers can freely choose and determine goods or services through information such as trademarks, manufacturers, and after-sales services. The distribution management system within the manufacturer will not have an impact on the free decision-making of ordinary consumers. The source of the goods is authentic, and the after-sales service is guaranteed. Under the circumstances, Dingfeng’s scratching will not affect consumers’ rational judgment on free decision-making.
(2) Regarding the interests of operators. Dingfeng sold genuine products produced and sold by Opple at normal market prices. This behavior had no adverse impact on Opple’s product market share, product sales profits, products and corporate reputation. Dingfeng’s code scratching behavior made it impossible for Opple to internally trace the information of authorized dealers, but it only damaged Opple’s internal management system to a certain extent. Opple’s external operations, external trading opportunities, and external market competitive advantages were all undamaged.
(3) Regarding social and public interests. In this case, the goods trading behavior was open and free, and the transaction price was fair. There was no behavior that restricted competition or harmed the interests of other competitors of Opple. It did not have a negative impact on the legitimate and orderly market competition order, and social and public interests were not harmed.
In summary, this court believes that although Dingfeng’s code scratching hindered Opple’s internal management and caused certain damage its interests, according to the principle of proportionality and the principle of interest measurement, this behavior did not harm consumers. The interests have not reached the level of adversely affecting the competitive environment and order of competition, and there is no need to apply the Anti-Unfair Competition Law. The first instance court made an error in its determination, resulting in an erroneous judgment. This court corrected it and ruled that the original judgment should be revoked and all of Opple’s claims should be dismissed.
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Weekly China Trademark News Updates
February 6, 2024
1. RMB 22.14 million damages was ordered against the defendant taking advantage of “Belle in Chinese” and “BELLE” without authorization
Recently, the Zhejiang High Court concluded a trademark infringement and anti-unfair competition lawsuit against the appellant Baoyang Liu for his involvement with the appellees New Belle Shoes (Shenzhen) Co., Ltd. (“New Belle”), Lirong Shoes (Shenzhen) Co., Ltd. (“Lirong”), the defendant in the first instance, Wenzhou Guangyuan E-Commerce Co., Ltd. (“Guangyuan”). The court held that Liu is liable for trademark infringement and should stop the infringement and compensation to Lirong for economic losses and reasonable rights protection expenses of RMB22.14 million (USD3.11 million).
The court found that the Cited Marks have accumulated high goodwill nationwide through its continuous use and publicity by the trademark owner and its authorized parties. The “Belle in Chinese” and “BELLE” marks were once recognized as well-known marks and have been widely used in footwear products. They enjoy a high level of fame and popularity. Liu used the Disputed Mark in his Chinese TikTok store name, account, product links, product labels, hangtags, video promotions, and product introductions, which could be used to identify the source of the goods and constituted trademark use. The Disputed Marks “Australia Belle in Chinese” and “Australia Belle in Chinese + AOZHOUBELLE” completely include the Cited Marks. Although “Australia in Chinese” and the pinyin “AOZHOU” are included, they are only used to refer to the location in the minds of the general public. The identifying part of the Disputed Mark is still “Belle in Chinese” and “BELLE.” The Disputed Mark and the Cited Marks are used in the same class of goods, which is enough to confuse the relevant public as to the source of the goods. The two marks constituted similar marks. Liu used trademarks similar to the Cited marks on similar goods, which could easily cause confusion and misunderstanding among the relevant public and constituted trademark infringement.
To apply punitive damages, the test is “intentional infringement” and “serious circumstances.” First, the Cited Marks should have high distinctiveness and fame through continuous use and publicity. Lirong has opened a number of “Belle in Chinese/BELLE” brand TikTok accounts and stores. As a footwear business operator, Liu should have known that and make reasonable avoidance. Liu, however, actively sought to acquire the “” trademark that was similar to the Cited Marks in order to use it illegally. His use highlighted “Australia Belle in Chinese,” and replaced “AOZHOUBAILI” with “AOZHOUBELLE,” which fully included the Cited Marks in seeking of confusion. Liu actively used the Disputed Marks in TikTok stores, accounts, product tags, product links, video promotions to confuse consumers. Its intention to take advantage of the Cited Marks was obvious. Liu registered and established “Wenzhou Lucheng District Huibu Shoes Store” and opened a TikTok store “Australia Belle Shoes in Chinese” store that corresponds with his TikTok account “Australia Belle Official Flagship Store in Chinese.” Subsequently, Liu registered four individual companies and opened four TikTok stores respectively. Liu began to use the Disputed Marks on infringing goods and selling them on a large scale. The series of infringements carried out by Liu showed his strong intention, planning and organization, which met the first test of “intentional infringements.”
Second, Liu mainly sold infringing products through TikTok live broadcasts and TikTok stores that was not limited by time and place and can quickly accumulate a large number of customer groups in a short period of time, thereby achieving sales conversion. According to the facts found, its TikTok store “Australia Belle Shoes in Chinese” was opened on February 25, 2021, and by May 7, 2022 the number of fans has reached 936,000, and 519,000+ products have been sold. As of June 10, 2022, the number of fans has increased to 1.02 million, and 550,000+ products have been sold. The number of followers of his other TikTok accounts and online stores “Abao Selected Women’s Shoes in Chinese” and “Oucai Women’s Shoes Store in Chinese” also reached 315,000 and 69,000 respectively. Judging from the sales volume, the total transaction volume of only the five TikTok stores involved in the case has reached RMB 44.08 million. It was also found on Pinduoduo and Taobao that Liu was selling shoes using the Disputed Mark during the same period. It can be seen that compared with the traditional sales model, infringement in this case was carried out through online live broadcasting and other methods. The scope of infringement was wider and the profits from infringement were higher. At the same time, it also caused greater losses of trademark goodwill and losses to New Belle and Lirong. Economic losses are considered “serious infringement.” Therefore, Liu’s infringement met the statutory requirements for punitive damages, and the first instance court did not err in applying punitive damages.
Regarding the calculation of punitive damages, New Belle and Lirong agreed to calculate Liu’s infringement profits based on the total transaction volume of RMB 44.08 million of the five TikTok stores involved in the case obtained by the first instance court. Lirong issued the “Special Audit Report on Belle Brand Sales and Operations” stating that the net profit margin of Belle brand sales was 30.73%, of which the net profit margin of offline physical stores was 28.97% and the net profit margin of online e-commerce stores was 35.42%. This court found that the first instance court referred to the profit rate data provided by Lirong, combined with the time when Liu’s online stores stopped infringing, the damage caused, the possible existence of some non-infringing product sales links, the commission of live broadcast sales on TikTok, and Taobao, Pinduoduo and other platforms that infringing shoes were being sold. It was reasonable to determine that the profit margin of the online store involved in selling infringing goods was 25%. Based on this, this court determined that Liu’s infringement profits were RMB 11.02 million and applied one-time punitive damages based on this calculation base. It also determined that the reasonable expenses of New Belle and Lirong were RMB 100,000. The final amount of compensation is RMB 22. 14 million.
2. The decoration of “Crocs” has lost its distinctive features and cannot protected under the Anti-Unfair Competition Law
The Fujian High Court concluded a trademark infringement lawsuit between the appellant Crocs Trading (Shanghai) Co., Ltd. (“Crocs Company”) and the appellants Pan Zhiming, Quanzhou Fengze District Zhongkuo Trading Co., Ltd. (“Zhongkuo”), Quanzhou Fengze Chaoyi E-Commerce Co., Ltd. (“Chaoyi”), Quanzhou Jixuan Trading Co., Ltd. (“Jixuan”), and an individual Huang. The defendants were ordered to immediately stop the trademark infringement and compensate Crocs Company for economic losses and reasonable expenses of RMB 1 million (USD140,480).
Here, Crocs Company is the owner of the “CROCS” mark (“Cited Mark”). Through Crocs Company and its affiliated companies’ continuous use and publicity, the Cited Mark has obtained relatively high fame in its approved class. The Disputed Mark is “CROSS,” which was used on the same class of goods as the Cited Mark. The Disputed Mark was used on the shoe product itself, product packaging boxes, and the sales page of the e-commerce platform. Such uses were clearly trademark uses. Using the general attention of the relevant public as the standard, when comparing the Disputed Mark and the Cited Mark in isolation, the distinctive part of the two marks constituted similar. Under the circumstances that the Cited Mark is relatively famous, the Disputed Mark is likely to cause confusion. The first instance court did not err in finding that the Disputed Mark constituted an infringement of the Cited Mark.
In this case, Crocs Company claimed that the product decoration of its CROCS brand “Classic Crocs in Chinese,” “Crocband Kaluoban in Chinese,” and “Bayaband Clog Beiyakaluobankelulu in Chinese” series of shoes falls within the scope of the Anti-Unfair Competition Law because of its decoration has a certain influence. Judging from the evidence provided by Crocs Company, although the “CROCS” brand series of shoes have gained a certain degree of popularity through continued use and publicity, there is no sufficient evidence to prove that the relevant public has regarded the construction upholstery of this series of shoes to be associated with Crocs Company. Although there was a previous judgment that protected the decoration claimed by Crocs Company, that judgment was in 2015, which was a long time before the litigation in this case occurred. The uniqueness of a mark’s decoration should be combined with the public perception at the time of the dispute. Knowledge and whether the decorative mark also have distinctive features that distinguish the source of the goods shall be used as the criterion for judgment. Whether the decorative log has been protected is only one of the factors to be considered. Judging from the supplementary evidence submitted by the defendants, “crocs design shoes” products are relatively common in the market and have different functions. Third parties outside of this case have successfully registered for design patents based on improvements to such features. Even if the decoration claimed by Crocs Company had certain uniqueness in the early stage, there is no evidence to prove that Crocs Company actively defended its rights when a large number of footwear products with the same or similar features appeared on the market, which made such decoration more general and losing its inherent distinctiveness. Based on the above analysis, the decoration claimed by Crocs Company does not meet the requirements for decoration with certain influence stipulated in the Anti-Unfair Competition Law and should not be protected.
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Appointed Translators: Jason WANG / Austin CHANG, Beijing East IP Law Firm Author: Baoqing ZANG, Trademark Review and Adjudication Board (TRAB) Original Chinese text: China Industry and Commerce Newspaper June 21, 2016
Securing well-known mark (WKM) recognitions in China can give a broader protection to brand owners in both administrative and judicial disputes.
China has three types of patents, i.e., invention, utility model, and design. The utility model patent does not have the counterpart in some other jurisdictions such as the USA, so some essential aspects of the utility model patent will be introduced below for better understanding of it.
On December 20, 2017, in the Patent Reexamination Board of SIPO (PRB) v. Beijing Winsunny Harmony Science & Technology Co., Ltd. ((2016)最高法行再41号), the Supreme Court held that a Markush claim, when drawn to a class of chemical compounds, should be interpreted as a set of Markush elements rather than a set of independent specific compounds. The present case is a petition for retrial filed by the PRB, requesting the Supreme Court to review the second-instance decision made by the Beijing High People’s Court (“High Court”). In reversing the PRB’s decision in the invalidation proceedings instituted by Beijing Winsunny Harmony Science & Technology Co., Ltd. (“Winsunny”), the High Court recognized a Markush claim as claiming a set of parallel technical solutions.