Trademark infringement cases on the increase?
Trademark infringement in China can have a high cost. This is a relatively new development. The New Balance case set the high water mark and it seems very likely that others will be inspired by the award in that case.
The emerging high cost of China trademark infringement also seems likely to change the behavior of trademark owners – at least some are likely to allow infringement to run for longer so that they can seek higher provable damages.
It is really early days, but already there are cases emerging with plaintiffs seeking substantial damages. If successful they will, in turn, inspire others. Anyone doing businessin China, Chinese or foreign, needs to be aware of the potential high cost of China trademark infringement.
According to local media, a case seeking substantial damages from OPPLE Illumination (“OPPLE”), a leading illumination manufacturer in China, has been filed at and accepted by the Chaoyang court.
OPPLE has been sued for trademark infringement by three Chinese individuals for infringing their trademark “欧普 (The Chinese characters for OPPLE) and device” in Class 9 (wire, plug, socket etc.) with the registration number 1423367. The plaintiffs claim damages of RMB 50 million (Approximately USD 7.7 million).
An OPPLE distributor in Beijing is also being sued by the plaintiffs in the same case for selling the infringing products in Beijing.
OPPLE applied to register the Chinese characters for OPPLE (欧普) in all 45 classes in China and has successfully registered in most classes.
However, for reasons unknown, OPPLE only registered this mark on very limited products in Class 9 (i.e. battery, flash light etc.) in 2002, but did not register it on plugs and sockets in Class 9 apparently because it was previously registered by another Chinese company in 2000 (“Prior Trademark”).
The plaintiffs bought the Prior Trademark from its original owner in 2010 and now claim that OPPLE has infringed their trademark rights by selling plugs and sockets using a trademark similar to the Prior Trademark.
An Internet search of OPPLE products indicates that OPPLE did not directly apply the Chinese character OPPLE trademark on its plugs and sockets. However, the package for these items does show the Chinese characters trademark for OPPLE. This appears to be the basis for the trademark infringement case.
Calculation of damages for trademark infringement
OPPLE is a listed company in China and it has to publicly disclose its financial reports annually.
OPPLE’s 2013 financial report shows its business revenue generated from “illumination controllers and others” was RMB 492 million, of which, “electric device” accounts for 45.85% with a gross profit ratio of 52.02%.
OPPLE’s 2014 financial report shows its business revenue generated from “illumination controllers and others” was RMB 677 million, of which “electric device” accounts for 37.86% with a gross profit ratio of 50.66%.
Relying on these public accounts, the plaintiffs say that the RMB 50 million damages they claim for trademark infringement is less than the profits unlawfully obtained by OPPLE from the sale of the products that are the subject of their trademark infringement case (plugs and sockets, classified within “electric device” in the financial reports).
The case has not yet been decided, and we will update this report in due course.
It must be noted that this case is yet to be heard and the information here summarizes the plaintiff’s case only. As with any case it is the outcome that is important and often claims made in pleadings are not made out in court.
The case is significant, however, on a number of grounds. All parties are Chinese, confirming that IP rights are taking their place generally in China commerce, not just foreign related trade; the damages sought are large; and the method for calculating the damages claimed is interesting because it may be difficult for OPPLE to argue against their own accounts.
The status of the plaintiffs, beyond the fact that they own the relevant trademark is not yet known. Similarly the nature of their business, if any is not known to us.
Take away points
- Trademarks are becoming even more important in China.
- It is not enough to “just register” a China trademark. Registration needs to be done in the context of a well thought out trademark strategy that takes account of on the ground reality, including the categories of goods covered and the descriptions used in China.
- Thorough searching is important in the registration process – the cost is money well spent in risk management. A cheap China trademark is likely to be anything but cheap in the long run.
- You ignore previously registered trademarks at your peril. The cost of China trademark infringement is high. If you become aware of a relevant prior China trademark do not proceed further with use in China until the issues are resolved.
- A distributor can be held liable for China trademark infringement. A prudent distributor in China should ensure that their principal holds relevant, valid and comprehensive China trademark registrations.
© 2016 Graham Brown And Wei Xin. All rights reserved. The assistance of Peng Wei in preparing this article is acknowledged.