(By You Yunting and Gao Tianyi) In a recently decided trademark infringement case brought by Huawei Technology Ltd. (“Huawei”) against Shenzhen Shangpai Technology Ltd. (“Shangpai”), the court awarded Huawei all punitive damages based on its claims and ordered Shangpai to pay Huawei RMB 5 million. In this case the court found 80% contribution rate of the trademark “Huawei”, which was much higher than the 30% contribution rate of the trademark “mi” in a precedent similar case. So let’s discuss whether the contribution rate of Huawei trademark decided by the court was rational and how punitive damages in the trademark infringement case were calculated.
Huawei has registered trademarks “HUAWEI” and “华为” under class 9. Shangpai had a store on T-mall that sold cloud platforms used as cellphone stabilizers, the product website of which showed “Huawei authorized T-mall store”, “Huawei cloud platforms”, “Huawei”, “HUAMEI” and other marks and an online sale license granted by Huawei. Huawei claimed that Shangpai committed trademark infringement by using the mark “HUAMEI” similar to Huawei’s trademark “HUAWEI” and the word “华为” as a trademark in several places when selling the products and should pay punitive damages.
The court found that the word “华为” used by Shangpai on the T-mall store to sell the cloud platforms and the registered trademark “华为” were the same trademarks used on the same products and that the mark “HUAMEI” used by Shangpai for promotional purpose and on the products and the registered trademark “HUAWEI” were similar trademarks used on similar products, which would easily confuse the public and should be deemed as trademark infringement.
To decide the amount of damages Shangpai should pay, considering Huawei’s claims, the court decided the amount of profits Shangpai obtained from the infringement by considering the sales amount and the profit margins of the infringing products and contribution of Huawei’s registered trademark to profits obtained by Shangpai from the products in dispute, found that Shangpai should pay punitive damages for the trademark infringement on the ground that in subjective terms it had malicious intention to commit the infringement and in objective terms the circumstances were serious, calculated punitive damages of over RMB 6.2 million on the basis of the above amount of profits multiplied by two and finally awarded Huawei RMB 5 million by supporting the full amount of Huawei’s claims. For details please see the full text of the judgement.
In this case the amount of punitive damages was decided on the basis of Article 63 of the Trademark Law providing that the court can calculate the amount of damages on the basis of profits obtained from the infringement in dispute multiplied by a number between one and five.
The amount stated in the judgement is multiplied by two. The formula for calculating profits in dispute is the sales amount of Shangpai’s products in dispute x the profit margin of the products in dispute x the contribution rate of Huawei’s registered trademark to Shangpai’s profits. (In this case the total amount of damages 2069593. 63+2069593. 63 x 2=6208780.90 was calculated on the basis of 9173730. 64×28. 20% X 80%=2069593.63.) The sales amount came from T-mall’s data collected by the court. The profit margin is calculated on the basis of the gross profit margin of a similar third party company. The contribution rate is decided by the court considering the market value of Huawei’s trademark, the severity of Shangpai’s acts of infringement and other factors.
The most disputed issue is the contribution rate of the trademark. There is currently no Chinese law that defines or includes criteria for deciding the contribution rate. Based on my search results, in similar cases the court generally decides the trademark contribution rate between 30% and 50%. For instance, in the Baidu v JBaidu the contribution rate is 35%, in the MI Technology Company v Shenzhen MI Company, etc. re. trademark infringement and unfair competition, the contribution rate is 30%. But in this case the contribution rate is 80%, which is much higher. In this case, if the trademark contribution rate were 30%, the amount of damages would be RMB 2.33 million, or if 50%, about RMB 3.88 million, either of which would be lower than RMB 5 million as stated in Huawei’s claims.
However, considering the above two factors, 80% decided by the court is not too high. First, based on our findings, in some lists the brand value of Huawei is indeed nearly double than that of MI. This means the effect of “Huawei” trademark on high-end users’ purchase decision making is much greater than that of “mi” trademark.
Second, according to 2021 financial reports of Huawei and MI, Huawei had much more revenue, net profits and R&D expenses. Customers purchase products with “mi” perhaps because of their competitive price, while customers who purchase products with “Huawei” may think they are more technologically advanced. Therefore, profits obtained by infringing “Huawei” in this case are higher than those by infringing “MI” in the similar case. By increasing damages, the infringers can bear fuller responsibility for their infringement. Only in this way can we effectively prevent infringement acts and protect interests of the whole society.
Finally, in cases where punitive damages are awarded, the sales amount of infringing products gives more weight to deciding the amount of damages. In this case the court awarded RMB five million, which is actually not so high as the damages in other cases over recent years. In some cases the court awarded punitive damages of over ten million yuan. For instance, in the MI and Zhongshan Benteng, etc. re. trademark infringement, the defendant’s sales amount was over RMB sixty million and the court found that the actual amount of damages was over RMB sixty million and finally awarded RMB fifty million based on MI’s claims.