4 June, 2015
New Balance was recently ordered to pay RMB 98m in damages to an alleged trademark hijacker who registered New Balance's Chinese trademark first, and then sued it for trademark infringement. New Balance now joins the ranks of many other multinationals in China that paid a sky-high price for omitting to adequately protect their Chinese brands. The case is currently being appealed and we will keep you posted of developments.
Introduction
On April 21, 2015, the Guangzhou Intermediate People's Court handed down its judgment in what is already seen as the newest episode in a series of successful lawsuits brought by alleged trademark hijackers against multinational companies in China. In the case at hand, Zhou Lelun, a local shoe manufacturer from Guangdong, Southern China, successfully sued New Balance's Chinese affiliate, and obtained the highest damages ever granted by the Guangzhou Intermediate Court in an IPR-related case. The case is currently being appealed. The damages are widely criticized as excessive, and questions were raised as to how an award of damages of up to 50% of New Balance's profits over the last years can be justified.
The facts
New Balance's Chinese subsidiary was set up in Shanghai in 2006, with a mission to conquer the Chinese shoe market.
Soon after its establishment, it secured a trademark registration for the Latin letter word "NEWBALANCE", but omitted to apply for any Chinese equivalent. In practice, the Chinese customers and New Balance itself referred to its brand as Xin Bai Lun ('xin' meaning 'new', and 'bai lun' being a transcription for the English word 'balance').
Mr Zhou obtained registrations for Bailun ("百论") in 1996 and for Xinbailun ("新百伦") in 2008. New Balance filed an opposition procedure against that latter registration. However, New Balance's claims were rejected in 2011, and Mr. Zhou was officially registered as the owner of the Xinbailun trademark. In 2013, he brought a trademark infringement procedure on the basis of that Xinbailun mark.
The Decision
In its decision, the court considered that the Xinbailun mark was validly owned by Zhou, and that there was (a risk of) confusion as to the origin of the goods publicized under the mark. In fact, the evidence showed that e-commerce websites such as Taobao only provided links to New Balance products, and that consumers identified the mark with New Balance, instead of with its actual owner (i.e. 'reverse confusion').
This finding was even reinforced by the fact that New Balance knew of the pre-existence of the Xinbailun mark, since it had filed an unsuccessful opposition against it, and nevertheless kept on operating under that name. The court therefore concluded that New Balance committed malicious trademark infringement. The issue was New Balance did not take continuous steps against Zhou's mark.
New Balance's defense, namely that it only used a necessary translation of its own western name, was brushed aside. The court held that Xinbailun was neither a translation nor a transliteration of New Balance.
The Court therefore declared that New Balance committed trademark infringement, and set the damages at RMB 98 million (i.e. half of New Balance's profits since July 2011), issued an injunction forbidding further use of the Xinbailun mark, and ordered it to publish a clarification on its Chinese websites.
Conclusion
The decision, unreasonable as it may seem, is highly reminiscent of the recent Penfolds and Castel cases, where foreign brand owners also had to face the harsh consequences of omitting to secure appropriate registrations for their Chinese brands.
The core message that these cases present, is that it is indispensable to devise a comprehensive IP strategy before even entering the Chinese market. Since prior use is of very little significance in China, a thorough China IP strategy should at least comprise securing marks for all western and Chinese trade marks, for all relevant classes.
