Weekly China Trademark News Updates

January 25, 2022

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

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. Following last week’s post, we will share the rest 3 cases today.

1. Ulthera v. Ke Pai – enforcement of criminal fines cannot be cited to reduce punitive damages for trademark infringement
   Ulthera has registered the trademark “ULTHERA.” In October 2016, Ke Pai Company (“Ke Pai”) was administratively punished by the Administration for Market Regulation (“AMR”) for selling an ultrasonic imaging therapy device that violated Ulthera’s trademark right of “ULTHERA.” In August 2017, Ulthera and Ke Pai settled on Ke Pai’s trademark infringement. However, Ke Pai continued to produce and sell the said ultrasound therapeutic device labeled with “ULTHERA” trademark. Ke Pai was sentenced and fined for the crime of counterfeiting registered trademark in September 2019. Ulthera sued Ke Pai for trademark infringement based on Ke Pai’s unauthorized use of the “ULTHERA” trademark on the said ultrasound therapeutic device. Ulthera claimed that Ke Pai had subjective malice and requested the Guangzhou IP Court to order Ke Pai to stop the infringement and compensate Ulthera economic losses and reasonable expenses of RMB 1 million (USD158,000).The Guangzhou IP Court found that after receiving administrative punishment and reaching a settlement with Ulthera, Ke Pai continued to infringe on Ulthera’s trademark. Ke Pai’s sales amount was enormous, the infringement was done in bad faith, and the circumstances were serious, thus punitive damages should be applied in accordance with the law. Ke Pai raised its defense based on the execution of said criminal fines but the court held that such defense cannot be used to reduce its punitive damages and would not be supported. Considering Ke Pai’s subjective bad faith, severe infringements, the court access a doubled punitive damage based, which had exceeded Ulthera’s damage claims, thus the court fully supported Ulthera’s damage claim of RMB 1 million (USD158,000).
2. Lanyan Company v. Bai Fen Bai Company and Ke Wei Company – The defendant’s continued use of the mark after it had been invalidated should be deemed as intentional infringement
   

   Cited Mark	Disputed Mark 1	Disputed Mark 2

   Lanyan Company (“Lanyan”) owned the Cited Mark in Class 3 for cosmetics and facial cleansers, which obtained certain fame after Lanyan’s promotions and uses. Bai Fen Bai Company (“Bai Fen Bai”) entrusted Ke Wei Company (“Ke Wei”) to process and produce cosmetics and skin care products labeled with the Disputed Marks, and sold them through the “Lanyan Mei” app. The accused products’ sales amount reached RMB12.69 million (USD2 million). Bai Fen Bai later acquired the Disputed Mark 1 in Class 3 for cosmetics. Lanyan subsequently filed an invalidation against the Disputed Mark 1 and succeeded. However, during the invalidation proceeding, Bai Fen Bai refiled the Disputed Mark 1 and continued to use it after it was invalidated. Lanyan then sued Bai Fen Bai and requested the court to order Bai Fen Bai and Ke Wei to immediately stop their infringements and compensate Lanyan’s economic loss and reasonable legal costs of RMB 1 million (USD158,000).

   The Shenzhen Qianhai Cooperation Zone Court found that Bai Fen Bai knew the existence of Lanyan Company’s Cited Mark but still deliberately applied for registration and used the Cited Mark 1 that was similar to Lanyan’s Cited Mark, which showed obvious subjective bad faith. Bai Fen Bai’s infringement lasted for a long time, the sales amount was huge, and it was the source of the infringement. Bai Fen Bai’s infringement should be considered as serious and punitive damages should be applied. The sales amount of the alleged infringing goods was RMB 12.69 million (USD 2 million) and when the said amount factored in average profit margin of the four listed companies in the same industry submitted by Lanyan, Bai Fen Bai’s profit can be calculated to RMB 450,000 (USD71,120). According to the degree of subjective fault of Bai Fen Bai and the seriousness of the infringement, the court determined that the compensation should be trippled. The amount of compensation determined on this basis had far exceeded Lanyan’s claim of RMB 1 million (USD158,000), the court fully supported it. Regarding Ke Wei, the existing evidence was not sufficient to prove Ke Wei’s subjective bad faith and punitive damages were not applicable. The court, however, held that Ke Wei should be jointly liable for RMB 100,000 (USD15,800) of Bai Fen Bai’s damages.

3. Huawei v. Liu – Application of punitive damages in criminal-civilian cases
   

   Cited Mark 1	Cited Mark 2

   Huawei owned the Cited Marks which obtained relatively high fame through promotions and uses. An individual Liu who, without Huawei’s authorization, purchased materials such as liquid crystal displays and glass outer screens labeled with the Cited Marks to assemble and process them into monitors for sale since May 2018. In May 2020, the Shenzhen Municipal Public Security Bureau arrested Liu and seized the monitors labeled with the Cited Marks. In October 2020, the procuratorate instituted a public prosecution and the court found out that Liu sold 14,139 counterfeits labeled with the Cited Marks and the total sales amount of RMB 2.16 million (USD341,400). The court found Liu liable for the crime of counterfeiting registered trademarks and sentenced Liu to three years and six months in prison and a fine of 1.2 million (USD190,000). Huawei subsequently filed a civil lawsuit which requested Liu to be ordered to stop the infringement and compensate Huawei for economic losses of RMB 500,000 (USD79, 000).

   The Longhua District Court of Shenzhen found that Liu had been infringing Huawei’s Cited Marks by manufacturing and selling counterfeit screen assemblies since May 2018. Liu’s subjective intention was obvious and the circumstances were serious, which met the factors for applying punitive damages. Liu’s gross profit from infringement should be used as the basis of the punitive damages. The court used the said basis with the annual report of the listed company in the same industry to calculate that Liu’s actual profit is RMB 283,000 (USD 44,730). After considering factors such as the nature of Liu’s infringement, circumstances, and obvious subjective intention, the court doubled the compensation amount to RMB 565,560 (USD 90,000), which exceeds Huawei’s damages claim, so the court fully supported it.

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