New Balance payout offers warning for China’s copycats

As China continues to expand its international business ventures and collaborations, it has undertaken the heavy task of completely reforming its IP protection rights.

President Xi Jinping has called for the strengthening of protections both at home and abroad. Among the most recent of these changes are the higher damages awards for IP owners, aimed at tackling the large number of copycat trademarks prevalent across the country.

At a baseline, total damages payouts for trademark infringement has been raised en masse from RMB 3 million ($460,000) to RMB 5million, with the potential to go higher if bad faith can be proved. And in those bad faith cases, the top-end fines are increasing.

On March 20, the government released ‘typical case’ guidance for punitive damages in IP infringement cases. The Supreme People’s Court highlighted six individual cases of infringement, including cases bought by Xiaomi and Adidas, to act as guidance for similar cases going forward.

Last month, the market got a taste of what that looks like. A case between New Balance and Chinese copycat brand New Barlun resulted in a RMB 25 million award for damages, one of the highest ever issued by a Chinese court.

This figure is more than double what New Barlun was ordered to pay the US sportswear brand in a similar dispute in 2019. In that case, Shanghai Pudong District Court ordered the Chinese company to pay RMB 10.8 million.

Over the past 40 years, China has established and incrementally improved its own IP system. By contrast, its trademark activity has exploded and in 2020 the country accounted for 70% of global trademark applications.

But overhanging this figure is a substantial amount of junk filings, with copycat trademark filings being one of the most obvious examples. The core question is whether these increased damages will deter serial ‘junk’ trademark filers.

“I think these larger damages will make a big difference,” said Carol Wang, principal, head of Shanghai Litigation Group.

“The prior damages corresponded to the economic status of China at the time. But nowadays with the improved market, we are seeing higher and higher damages payouts in courts and that can prove to be an active deterrence.”

Confidence for foreign brands

New Balance v New Barlun represented a landmark payout for infringers, and the hope remains that this, and cases like it will not only represent an important message of deterrence to infringers but also a message to foreign companies that China values IP rights.

Robert Reading, director of government and content strategy, IP Group at Clarivate said: “This New Balance decision is important in a number of ways: it sends the message that China values IP rights and is serious about tackling infringement; it gives confidence to foreign brand owners that investments in China will be protected by the legal system; and it serves notice to potential counterfeiters and infringers that there are serious financial penalties that could make the practice of infringement unviable.”

With the focus on better protecting IP rights both at home and abroad, China could be moving to a more quantity over quality approach.

Now damage payouts are higher, Chinese companies looking to file copycat marks face a greater disincentive. And given the scale of infringing in the country, we may see many more foreign companies win large awards. 

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