Fair play for trademark owners

Bin Zhang and Lei Fu of CCPIT Patent and Trademark Law Office advise trademark owners on what evidence they should collect to persuade the Chinese courts to grant higher rates of compensation.

Chinese trademark law currently provides that compensation shall be assessed based on the losses the rights owner has suffered, the profits the infringer has earned, or the trademark licence fees. 

If the infringement is in bad faith and severe, the court could impose punitive compensation, but this can’t be more than five times the amount determined in the aforesaid method. 

Statutory compensation is also covered in this law—it was raised from RMB 3 million ($422,750) to RMB 5 million in the latest amendment, which came into effect last year.  

In practice, trademark proprietors may run into difficulties while collecting evidence proving the losses they suffered, the profit infringers gained or the trademark licence fees, but trademark proprietors can still expect the court to grant statutory compensation. 

Claiming damages

Claiming for statutory compensation isn’t burden-free. On the contrary, it is necessary to submit evidence to influence the judges in a decision on statutory compensation. 

Based on the interpretation of China’s Supreme People’s Court, when determining statutory compensation, the court should take into consideration the nature, duration and consequences of the infringing act; the reputation of the trademark; the amount of the trademark licence fee and the type, time and scope of the trademark licence; as well as reasonable expenses for stopping the infringing acts. 

In light of this guidance and in order to obtain comparatively high compensation, we recommend that trademark owners submit evidence relating to the long duration of the infringement, the different types of infringing products, and the large production scale to prove that the infringement is severe. 

For additional compensation, the following stages on evidence collection should be followed. 

Evidence proving the infringer’s profits 

The more profits are gained by the infringer, the more compensation they will need to pay. 

Although trademark owners might not be able to obtain direct evidence proving the exact amount of the infringer’s profits, they can submit to the court an estimated amount of profits gained by the infringer through the manufacture and sale of infringing products. 

We recommend that trademark owners submit evidence relating to the long duration of the infringement, the different types of infringing products, and the large production scale to prove that the infringement is severe.

Estimated profits can be calculated based on the sales volume of the infringing products, the unit price and the profit rate. The data collected from reliable sources could influence the judge’s determination of the amount of statutory compensation.  

If the infringing products are distributed and sold through online platforms, the trademark owners could use the sales volume and amount of comments on the website as the basis to calculate the infringer’s profits. 

If the infringer denies the sales volume shown online, they can submit counter-evidence proving the numbers are incorrect. 

In one judgment, although the defendant submitted evidence proving that the sales volume on the online platform was not real, the court ruled that the sales volume included “false trading” that should not be counted into infringer’s profits, but the plaintiff’s “indirect losses”—including the lost sales and possible credit decline due to the “false trading”—should be counted and included in the compensation. 

To submit to the court a reasonable calculation of the infringer’s profits, trademark owners should try to collect useful data from the information available on the infringer’s website and recognised online stores, or through some government websites. 

The annual production amount, product types and sales volume found in these websites could be regarded as reliable sources for evaluation of the infringer’s profits.

If the trademark owner and the infringer have been engaged in a trademark invalidation dispute or other administrative litigation, the trademark use evidence submitted in these cases by the infringer and information relating to the sales status of the infringing products could be used by the trademark proprietor to evaluate the infringer’s profit. 

However, it might be difficult to find the profit rate. Trademark owners may refer to the profit rate of the industry, released by an industry association or credible third parties. The profit rate indicated in annual reports released by listed companies in the same industry could also be used as a reference when deciding the infringer’s profit rate. 

Evidence proving the infringer’s bad faith 

The act of infringement would be regarded as in bad faith if it is repeated infringement or conducted with full awareness of the trademark owner and the trademark concerned. 

To prove bad faith, the trademark owners could collect evidence proving the infringement is conducted under the following scenarios: 

• The trademark owners delivered cease-and-desist letters to the infringer for trademark infringement or initiated an administrative complaint, or engaged in civil/administrative litigation against the infringer; 
• The trademark owners and the infringer have a business relationship; 
• The infringer filed an application to register trademarks that are similar to or identical with the trademark owner’s registered trademarks;
• The infringer used more than one of the trademark owner’s trademarks; and
• The trademark proprietor has other IP disputes (patent or copyright) with the infringer.

Evidence proving the trademark owner’s use and the reputation of the trademark

According to trademark law, if the trademark owner cannot prove actual use of the registered trademarks in the past three years (from the date of filing the litigation) and also fails to prove the losses caused by the infringement, the accused infringer would not bear the liabilities for compensation. 

Therefore, we suggest that when filing the infringement litigation, trademark owners should collect and submit evidence proving trademark use and trademark reputation.

The evidence can be used not only to fight the non-use defence, but also to prove the bad faith of the infringer, as infringement is intentionally conducted by infringers who know the good reputation of the trademarks. 

Evidence that could prove the reputation of a trademark includes the continuous use of the trademark; the trademark’s reputation in the market; its market share; the sales area of the goods bearing the trademark; and the promotional activities for this trademark, among others. 

Bin Zhang is deputy director of the legal department at CCPIT Patent and Trademark Law Office. He has successfully handled IP cases covering trademark, copyright, licensing, and unfair competition disputes. He can be contacted at: zhangb@ccpit-patent.com.cn

Lei Fu joined CCPIT in 2006 and passed the national judicial examination in 2009. She focuses her practice on trademark infringement and unfair competition cases, including online infringement cases. She can be contacted at: ful@ccpit-patent.com.cn