On 23rd June 2016, the Guangdong Higher People's Court made a final judgment, concurring the judgment of first instance on trade mark infringement of the Chinese marks 
(BAI-LUN) and 
(XIN-BAI-LUN), but reducing the compensation from RMB98 million (US$15 million) to RMB5 Million (US$750,000).
The facts of the case
This was a lawsuit relating to the infringement of the Chinese trade marks (BAI-LUN) (XIN-BAI-LUN). The Chinese characters pronounced BAI-LUN with no specific meaning in Chinese; the other trade mark pronounced XIN-BAI-LUN which is added a prefix of Chinese Character 
(pronounced XIN meaning "new") to (BAI-LUN). The plaintiff ZHOU is a PRC individual while the defendant is the Chinese affiliation of New Balance Athletic Shoe, Inc.
In 2004, the plaintiff was assigned the Chinese trade mark (BAI-LUN) which was registered in 1996 covering "shoes; clothing; hats; hosiery". In June 2006, the plaintiff filed a new application for the mark (XIN-BAI-LUN) with the PRC Trademark Office. The defendant filed an opposition against the application in December 2007, but failed in 2011. Shortly thereafter, the plaintiff's mark (XIN-BAI-LUN) was successfully registered on the goods "footwear, etc" in class 25 in July 2011.
In July 2013, the plaintiff instituted a lawsuit against the defendant for infringement of its trade marks (BAI-LUN) and (XIN-BAI-LUN) with the Guangzhou Intermediate People's Court of Guangdong Province. After the trial, the Intermediate Court found the following facts: the defendant had used the mark (XIN-BAI-LUN) on its Chinese official website, on the name of the official store and the introduction of the products on the famous online shopping websites, on the sales receipts of its physical retail stores, and on its official promotional weibo (Microblog, popular in China), brochure, and videos. New Balance Athletic Shoe, Inc. has held registration for the marks N, NB, and NEW BALANCE covering the goods "shoes" in China since 1983 and licensing the defendant since 2007. The defendant had been frequently using the marks NB and NEW BALANCE combined with the Chinese mark (XIN-BAI-LUN) in these situations.
Court rulings
The Intermediate Court ruled: the defendant had been using the Chinese characters (XIN-BAI-LUN) as a trade mark; the Chinese characters (XIN-BAI-LUN) are not the direct translation or transliteration of the mark NEW BALANCE but coined words; since the defendant filed an opposition against the trade mark (XIN-BAI-LUN) in 2007, the defendant should be aware that the Chinese mark (XIN-BAI-LUN) was owned by the plaintiff and had been continually using the mark intentionally. Therefore, the acts of the defendant constituted infringement of the trade marks (BAI-LUN) and (XIN-BAI-LUN) owned by the plaintiff. The defendant must compensate the plaintiff by a payment of RMB98 million, calculated based on the total amount of the profit obtained during the infringement period.
The compensation of RMB98 million was the largest amount in a trade mark infringement case since the Trade Mark Law came into force in China.
Dissatisfied with the judgment made by the court of the first instance, the defendant filed an appeal to the Guangdong Higher People's Court. The Higher Court concurred in the judgment of the Intermediate Court that the defendant had infringed the plaintiff’s trade mark, but reduced the compensation from RMB98 million to RMB5 million. The main reason given by the Higher Court was that when the consumers buy the products from the defendant, they mostly consider the quality and fame of the brands N, NB, and NEW BALANCE, in other words not all of the profit obtained was contributed by using the Chinese trade mark (XIN-BAI-LUN).
Calculation of damages
This case is in the spotlight for the largest amount of compensation made in the first instance and the great reduction afterwards in the second instance. The difference lay in the basis of calculating the compensation. The Intermediate Court calculated the amount based on the total profit obtained, while the Higher Court focused on the direct causation between the infringement acts and the contribution of the Chinese trade mark (XIN-BAI-LUN) to the total profit. To consider an amount of compensation, the Higher Court referred to an Asset Assessment Report made by a third party and submitted by the defendant. The report assessed the Chinese trade mark (XIN-BAI-LUN) contributed 0.76% to the total profit. After the comprehensive consideration by the Higher Court, the amount of RMB5 million was decided to compensate the plaintiff.
It makes sense that the Higher Court separated the contribution of the Chinese mark (XIN-BAI-LUN) from the total profit in the Chinese market. However, the Higher Court did not further explain how to calculate the compensation in the amount of RMB5 million. It remains to be seen whether this case will become a precedent for similar cases in the future.
By Charles Yuchao Wang of Lee and Li – Leaven IPR Agency Ltd in Beijing, China. This article was reviewed by members of the MARQUES China Team
Issue 068
Do you file International Registrations? Do you have problems with US designations? If so, then consider attending MARQUES seminars in Amsterdam, Munich and London in October
