Weekly China Trademark News Updates

January 19, 2022

1. The Guangdong High Court released its first typical cases of intellectual property punitive damages – Part I

Recently, the Guangdong High Court released 6 typical cases of intellectual property punitive damages for the first time, involving disputes in many fields such as well-known marks, financial products, and e-commerce. These 6 cases include the determination of infringement, the judgment criteria of subjective malice and serious circumstances in the application of punitive damages, the determination of the base and multiple in the amount of compensation, the relationship between criminal fines and punitive damages, and the application of punitive damages in criminal-civilian cases. We will share 3 out of the 6 cases today.

1. Opple v. Huasheng Company in a trademark infringement dispute – clarifying the applicable standards for punitive damages and the refined calculation of damages
   

   Cited Mark 1	Cited Mark 2
   Disputed Mark 1	Disputed Mark 2

   Opple is the right holder of the Cited Marks in Class 11 for “lamps and fluorescent tubes” and Cited Mark 1 had been recognized as a famous trademark in Guangdong Province for many times and was recognized as a well-known mark in 2007. Huasheng Company is the owner of Disputed Mark 1 approved for use in Class 21 including “mosquito repellents, fly swatters, housework gloves,” etc. Huasheng Company used the Disputed Marks on its production, sales, and offer to sell lamps, as well as on related promotional pages. The accused products are sold in major physical supermarkets and on e-commerce websites. The lamp products produced by Huasheng Company were punished by administrative organs for their unqualified quality. Opple filed a lawsuit with the People’s Court of Nansha District, Guangzhou, Guangdong Province, petitioned the court to find that Huasheng Company’s actions constituted trademark infringement, and requested the court to apply punitive damages and order Huasheng Company to compensate its economic losses and reasonable legal expenses of RMB 3 million (USD472,000).

   The court found that the Cited Marks had strong distinctiveness and had reached well-known status. Huasheng Company did not use the trademark within the scope of its approved trademarks, and its cross-class use of the trademark on lamp products constituted as a similar mark to Opple’s Cited Marks, which was likely to cause confusion, and constituted as trademark infringement according to the law.

   The court reasoned that, first, Huasheng Company, as a business operator in the same industry as Opple, knowing Opple’s Cited Marks that enjoy a high reputation and goodwill, and knowing that the Disputed Mark 1’s application in Class 11 for lamps and lanterns was rejected, still deliberately filed the Disputed Mark 1 in Class 21, using it on lamps in Class 11 by mass-producing and selling infringing products, and the quality of the products were not up to standard, the subjective malicious intention of infringing Opple’s trademark rights was obvious. Second, Huasheng Company produced and sold the accused infringing products on multiple e-commerce websites for a long period of time. Huasheng Company’s infringement not only caused market confusion, but also violated administrative regulation for producing inferior products, which harmed the interests of consumers and affected social and public safety. Huasheng Company’s infringement had a great impact and serious consequences, which was enough to be considered as a serious circumstance.

   Accordingly, the court held that Huasheng Company’s subjective malice was obvious and the infringement was serious, and treble punitive damages should be applied. In calculating the punitive damages base, the court concluded the base as RMB 1,277,500 (USD197,000) based on the Cited Marks’ license fee, Huasheng Company’s infringement duration, comprehensively considering the subjective bad faith, the nature, circumstances and consequences of the infringement, and other factors. Huasheng Company was ordered to compensate for economic losses and reasonable legal expenses of RMB 3 million (USD472,000).

2. Guosen Securities v. Guoxin Equity Investment Fund for trademark infringement and unfair competition disputes – Punitive damages calculated based on the logic of the private equity fund industry
   
   Since 1997, Guosen Securities has used “Guoxin in Chinese” as its corporate name. Guosen Securities and its subsidiaries have a large scale of assets under management, ranking among the top in the financial industry, and have won many honors and awards. Guoxin Equity Investment Fund (“Guoxin Fund”) was established in 2013. It used “Guoxin People”, “Guoxin Fund”, “GUOXIN FUND”, “+ Guosen Fund” and “+ Guosen Wealth” on its official websites, magazines, Weibo, Wechat, and promotional materials. Guosen Securities filed a lawsuit alleging that the aforementioned acts of Guoxin Fund infringed its registered “Guoxin” trademark, as well as the use of the “Guoxin” in its corporate name, and its false promotions that it was a state-controlled enterprise constituted unfair competition, and requested a compensation of RMB 10 million (USD1.57 million).

   The Guangdong High Court found that Guoxin Fund’s infringements were in line with “bad faith infringement” and “serious circumstances” and punitive damages should be applied. When determining the base of the punitive damages, the court analyzed the profit model of the private equity fund industry, the annual fund management fee charged by Guoxin Fund, and the total scale of funds raised by Guoxin Fund, fund management rate, and profit rate. It was found that Guoxin Fund made at least RMB 8.54 million (USD1.34 million) while it was infringing Guosen Securities. Considering the market reputation and popularity of the “Guoxin” trademark owned by Guosen Securities, the nature and circumstances of Guoxin Fund’s infringement, and the characteristics of the private equity fund industry, the court carefully quantified the contribution rate of the involved trademarks to 30% and determined that the amount of compensation was more than RMB 7.69 million. On this basis, after cumulating the unfair competition compensation and Guosen Securities’ reasonable legal expenses, the total amount has exceeded RMB 10 million (USD1.57 million) as claimed by Guosen Securities. Therefore, the court fully supported Guosen Securities’ claim of RMB 10 million (USD1.57 million).

3. Xiaomi Technology Company v. Shenzhen Xiaomi Company, etc. for trademark infringement and unfair competition disputes – Specific considerations for punitive damages for trademark infringement in e-commerce

   Xiaomi Technology Co., Ltd. (“Xiaomi Tech.”) owns the No. 8228211 “” trademark on mobile phones and other goods, and carried out various publicity and extensively used its trademark and trade name. Shenzhen Xiaomi Company (“Shenzhen Xiaomi”) was established later than Xiaomi Tech. and opened a store on the Tmall platform which sold labeled products produced by others. Shenzhen Xiaomi was selling 182 accused products such as chargers, mobile power supplies, fans, and massagers on its Tmall store. The sales pages of the products were marked with “Xiaomi Digital Store,” and 114 of the accused products links were marked with “Xiaomi Digital Franchised Store,” “Xiaomi Franchised Store,” and “Xiaomi.” Shenzhen Xiaomi sold its products for RMB 154 million (USD24.2 million) in the past three years on its Tmall store. Xiaomi Tech. requested the court to order Shenzhen Xiaomi to compensate its economic losses and reasonable legal costs of RMB 30 million (USD4.7 million).

   The Shenzhen Intermediate Court found that Shenzhen Xiaomi’s use of Xiaomi Digital Franchised Store,” “Xiaomi Franchised Store,” and “Xiaomi” in the sales titles of the 114 products involved in the case constituted trademark infringement, and the total sales amount was RMB 135 million (USD21.2 million). The court ordered Shenzhen Xiaomi to produce evidence of its transaction, but Shenzhen Xiaomi refused to provide it without justifiable reasons. The court then supported Xiaomi Tech.’s claims and used the profit rate of 30.78% as found in their industry. According to the popularity of the trademark involved, the way of use and operation of Shenzhen Xiaomi, the court determined that the contribution rate of the trademark involved to the defendant’s profits was 30%. Shenzhen Xiaomi’s infringement was long-term, wide-ranging, large-scale, and profitable. It also committed multiple infringements at the same time. The circumstances were serious. Therefore, considering the above factors, the court applied triple punitive damages. Accordingly, the amount of compensation was calculated to be more than RMB 37.4 million (USD5.8 million). On this basis, the court fully supported Xiaomi Tech’s RMB 30 million (USD4.7 million) infringement claim.

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