Why Does China Court Order New Balance a High Amount Compensation of RMB 98 Million for Trademark Infringement?

(By Luo Yanjie) Recently, Guangzhou Intermediate People’s Court ordered New Balance Trading (China) Co., Ltd, an affiliate of US-based Sports footwear manufacturer New Balance, to compensate a Chinese shoes owner, Zhou Yuelun, with a rarely high amount of RMB 98 million for infringing his Chinese “新百伦” trademark, a Chinese transliteration from English word New Balance, in the first instance. Such high amount of compensation is unusual in China intellectual property infringement. It is for this reason that this case attracted extensive attention. Upon the public records, from the legal view, we will briefly introduce and analyze this case in today’s post.

Introduction to the Case:

Plaintiff: Zhou Yuelun

1st Defendant: Guangzhou Sheng Shi Chang Yun Trading Co., Ltd (the “SSCY”)

2nd Defendant: New Balance Trading (China) Co., Ltd (the “NEW BALANCE”)

Court of first instance: Guangzhou Intermediate People’s Court

No.: (2013)穗中法知民初字第547号

Plaintiff Zhou Yuelun claimed that he holds the Chinese character trademark “百伦” and “新百伦” under Class 25 for clothing, shoes and hats. However, the plaintiff found the defendant had been using his mark “新百伦” on shoes for a long-term without his authorization, infringing the exclusive rights to the trademarks of “百伦” and “新百伦” upon willful intention, so the plaintiff filed a lawsuit to Guangzhou Intermediate People’s Court for ceasing infringement, eliminating negative influence and respective compensating RMB 0.3 million and RMB 98 million and reasonable expense.

Defendant NEW BALANCE responded that its prior use of “新百伦” was in good faith and constituted fair use as the “新百伦” was the direct Chinese transliteration of New Balance and be used as a company name. Dependent on the above-response, the NEW BALANCE claimed as trademark non-infringement against the plaintiff.

The other Defendant SSCY, the distributor of NEW BALANCE, provided reasonable sources for defense, claiming that the disputed goods and their brochures were acquired in accordance with contracts.

At the trial, the court concluded the following controversies and made explanations:

1  In this case, the NEW BALANCE used the “新百伦” in marking and introducing the its goods over internet marketing, invoices, advertisements and promotion, regarding as trademark use. However, even though the “新百伦” is also short for its Chinese name of NEW BALANCE, its direct use of “新百伦” as its company name on its official website and Weibo is not a de-normalized version, thus belonging to the behavior of trademark use pursuant to the trademark law. Therefore, it should constitute trademark infringement that the NEW BALANCE used the trademark of “新百伦” without authorization of the right holder of trademarks “百伦” and “新百伦”.

2  The NEW BALANCE obtained the total profits of RMB 195.8 million in the alleged period that the plaintiff claimed for infringement. In comprehensive consideration of that the “新百伦” had not been used in NEW BALANCE’s sales but just been used in the advertisements and promotion, the NEW BALANCE should constitute trademark infringement resulting from selling. The court decided that the defendant NEW BALANCE should compensate half of the total profits, RMB 98 million (including reasonable expenses that the plaintiff costs in this case), at its own discretion.

3  The defendant SSCY’s use of “新百伦” on goods, its invoices, advertisements and promotions also be regarded as trademark use, constituting trademark infringement. However, in favor of reasonable sources from contracts entered by and between SSCY and NEW BALANCE, the court determined that the defendant SSCY shall not make compensation (excluding reasonable expenses) but shall be liable for halting infringement.

Based on the above explanations, the court ordered the DB to halt infringement, compensate RMB 98 million, and publicize announcement on its official website so as to eliminate negative influence, and also ordered the SSCY to halt infringement and compensate RMB 5000 for Zhou Yuelun’s reasonable expenses in this case.

Lawyer’s Comment:

1     Does the NEW BALANCE constitute infringement?

In this case, the major debates of NEW BALANCE’s defense are in the following: 1. Its prior use for “新百伦” trademark; 2. The use of “新百伦” be a normal version of company name. However, taken into full consideration, NEW BALANCE’s defenses cannot establish through the following reasons.

(1)   The NEW BALANCE should not be entitled to prior use of trademark.

Pursuant to Article 59 of the Trademark Law, where an identical or similar trademark has been used in connection with the same goods or similar goods by others before the registrant’s application, the exclusive right holder of said registered trademark shall have no right to prohibit other people from using the aforesaid trademark from continuous use of such trademark within the original scope, but may request its users to add proper marks for distinction.

However, the “新百伦” trademark was registered by the plaintiff in June 2004, later than the time when the NEW BALANCE began using the “新百伦” in 2003. Such as it is, the “新百伦” trademark came from the “百伦” trademark registered in 1996. Apparently the “新百伦” is similar to the “百伦” trademark, the others cannot succeed in registering the “新百伦” trademark in 2004, except the plaintiff.

Therefore, the NEW BALANCE cannot claim for trademark prior use unless the NEW BALANCE can prove the “新百伦” was used and to some extent had already won awareness and popularities in China before 1996. In fact, the NEW BALANCE did not use the “新百伦” trademark in China before 1996.

(2) The NB’s use of “新百伦” shall constitute trademark use.

The NEW BALANCE claimed not using the “新百伦” trademark on its goods, other than on advertisements and promotion, and responded that it had been using “新百伦” as part of its company name. Honestly as the NEW BALANCE claimed, company name is differentiated from trademark, not in conflict with each other as a general rule. However, pursuant to Article 48 of the Trademark Law, the use of trademarks as stipulated in this Law refers to the affixation of trademarks to commodities, commodity packaging or containers, as well as commodity exchange documents or the use of trademarks in advertisements, exhibitions, and for other commercial activities, in order to identify the source of the goods. Therefore, the NEW BALANCE’s claim of reasonable use on company name is emphatically not in accordance with laws and regulations.

2 How does the court determine the NEW BALANCE’s liability for compensation?

The reason why this case attracts attention is the high amount of compensation which the court determined. Upon the reasoning in the judgment, the court first decided that the NEW BALANCE got the total profit of RMB 195.8 million, and then calculated half of the total profit, RMB 98 million, shall be paid. However, pursuant to Article 63 of the Trademark Law, the amount of damages for infringing the exclusive right to use a trademark shall be actual losses that the right owner has suffered as a result of the infringement during the period of the infringement; where the losses suffered by the right owner cannot be determined, the amount of damages for trademark infringement shall be the profits that the infringer has earned as a result of the infringement during the period of the infringement.

Back this case, the “新百伦” trademark by the plaintiff is not well-known but the defendant NEW BALANCE is famous in China. Taken this into consideration, the actual losses of the plaintiff certainly would be no great loss, and even be accused of free-riding the profits of the NEW BALANCE. Seen from the benefits for infringing the trademark, criteria for judgement shall be calculated on the benefits which the defendant NEW BALANCE earned from the use of the “新百伦” trademark. From the facts, the awareness and popularities of the defendant NEW BALANCE relies on more the “New Balance” trademark than the Chinese “新百伦” trademark, which Chinese “新百伦” trademark made fewer influences. Cause-and-effects relationship shall be the mainly determined by the court in this case. Therefore, with regard to the reasoning of the court determination upon half of total profits, RMB 9800 for compensation, in my opinion, this lack of factual grounds. When the defendant NEW BALANCE could make further statements and evidences on this, second instance will determine to decrease the amount of compensation.

Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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