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Paying for infringement

25-05-2016

Lanny Lee

Paying for infringement

Ufuk ZIVANA / SHUTTERSTOCK.COM

Judges in China can use several factors to assess damages in trademark infringement cases, including bad faith use. Lanny Lee of HFG reports.

After the third amendment to China’s trademark law was implemented in 2014, several infringement cases dealing with compensation have had a profound effect in the Chinese intellectual property world. For instance, the Beijing Intellectual Property Court granted RMB 3 million ($460,000) in damages to apparel company Moncler in 2015. In a separate case, Louis Vuitton filed a lawsuit against the sales department of a four-star hotel and was awarded RMB 960,000 in compensation.

Amid such a trend of high compensation in litigation cases, an administrative case was concluded with a remarkable fine for the trademark infringer. The case concerns a company that counterfeited the three-dimensional trademark owned by confectionery brand Ferrero; it was fined RMB 1.94 million by the Shanghai Administration for Industry and Commerce. The above mentioned cases, from 2015, are recognised as ground-breaking since the implementation of the current trademark law.

According to industry research and the author’s experience, in more than a decade of trademark infringement litigation involving damages, Chinese courts like to use the statutory damage calculation in most cases. That means judges use their discretion in deciding the amount of damages, which could avoid the decision being remanded for a rehearing or being overruled on the ground of not being calculated properly.

The current trademark law increased the statutory damages from RMB 500,000 to RMB 3 million because of China’s rapid economic development, plans to build an IP court meeting international standards, and the need to create a fair and just IP judicial environment.

Noticeable trends

From the recent decisions in cases dealing with trademark compensation, it’s not hard for us to see the courts’ basic approach to making a decision on damages. They typically assess: (1) the actual losses that the right owner has suffered as a result of the infringement during the period of the infringement; (2) the profits that the infringer has earned as a result of the infringement during the infringement period; (3) a reasonable amount that would be paid for a licensing fee to use the trademark right; and (4) when the losses suffered by the right owner, profits earned by the infringer or licensing fees cannot be determined, a court can award damages of up to RMB 3 million, depending on the facts of the case.

China is known for its dual-track IP rights protection system. Besides litigation handled by the courts at all levels, administrative actions launched by local governments are the main and prevailing approach for IP protection in China due to cost-savings and efficiency. Further, all evidence and data which are collected and fixed by the administrative authorities can mostly be accepted by the courts directly.

Punitive damages, which supplement compensatory damages, are a flexible way to determine extra damages.

However, even though the profits of the accused infringing products will have been determined before the lawsuit, ie, by the administrative actions launched by the different Chinese governments, the court might not directly use these figures to determine the amount of damages. It might assess the following factors: 1) the history of the disputed trademark; 2) the awareness of the trademark by both parties; and 3) the purpose of the defendant in performing the infringing activities.

Two important factors that the court usually takes into consideration when determining the amount of damages are: (1) whether the defendant used the infringing trademark in bad faith, namely whether the infringing trademark is identical or substantially similar to the cited famous trademark, the defendant used the infringing trademark in connection with identical or similar goods to the designated goods of the cited famous trademark, and the use of the infringing trademark would cause customer confusion about the source of the goods; and (2) whether the activities of the infringement reveal the bad faith of the defendant, namely whether in the marketing or promotional activities, the defendant intentionally led customers to believe the source of the infringing goods had some relationship with the trademark owner, and it tried to obtain an unfair interest from this misunderstanding. Furthermore, the reputation of the plaintiff’s trademark is a significant factor that would be taken into consideration when determining the amount of damages.

Therefore, in accordance with the trend of intensifying IP judicial protection, the biggest change in determining the amount of damages is whether a judge, when considering statutory damages, would comprehensively consider the defendant’s objective infringement activities and subjective bad faith to protect the legal rights of the trademark owner.

Punitive damages, which supplement compensatory damages, are a flexible way to determine extra damages. They can be up to three times the amount of the determined damages in malicious infringement cases. Several judges in the IP courts confirmed that punitive damages haven’t been used in any trademark infringement cases in China since the implementation of the current trademark law.

Regarding the first case of punitive damages being granted, it may happen with infringement against one of the world’s top brands, especially one which has become recognised as a well-known trademark in China. There probably will be ground-breaking cases on punitive damages in 2016. When the time comes, the amount of damages in trademark infringement cases might increase further.

Lanny Lee is a founding partner of HFG and has been practising law in China for 16 years. She has extensive experience in intellectual property rights including trademark, patent, copyright, and unfair competition. Lee mainly provides IP legal services to foreign companies and Japanese enterprises. She can be contacted at: lli@hfgip.com

Lanny Lee, HFG, trademark, infringement,

WIPR

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