The Chongqing First Intermediate Court recently applied Article 63.2 of the Trademark Law 2013 in its determination of damages for trademark infringement.

Background

Article 63.2 of the Trademark Law 2013 provides that:

"where the right owner has presented as much proof of its claims as is practically possible, while the account books and information related to the infringement are mostly in the control of the infringer, a People's Court may order the infringer to submit such account books and information. If the infringer refuses to submit such account books and information, or submits false information, the People's Court may determine the amount of damages with reference to the claim and evidence provided by the right owner."

Facts

Chindex International Inc is a premier healthcare company in Asia, providing healthcare services in China and Mongolia through a chain of hospitals operating under the name 'United Family'.

Beijing Chindex Hospital Management Consulting Co, Ltd ('Chindex') is the wholly owned subsidiary of Chindex International Inc and the owner of three registered trademarks covering designated medical care, healthcare and medical consultancy services in Class 44 (Figures 1 and 2), including the trademark HE MEI JIA in Chinese characters (Figure 3).

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Figure 1

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Figure 2

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Figure 3

Chindex licenses 16 associated hospitals and clinics across Shanghai, Beijing, Tianjin, Qingdao and Guangzhou to use the trademarks.

In 2015 Chindex discovered that Beibei He Mei Jia (HMJ) hospital was using the trademarks on its website and in its business operations without authorisation.

Chindex filed a civil litigation against HMJ before the Chongqing First Intermediate Court on the ground of trademark infringement, requesting compensation of Rmb3.02 million and a public apology.

During the court proceedings, Chindex simultaneously filed two applications with the court to obtain HMJ's tax payment records, balance sheets and bank account records for the past two years (pursuant to Article 63.2 of the Trademark Law 2013) and to preserve such evidence.

On August 20 2015 the court ordered HMJ to provide the information requested by Chindex.

HMJ submitted unaudited financial reports and statements showing a turnover of Rmb9 million in 2013 and Rmb14 million in 2014, but claimed that it had made losses in both years.

Chindex challenged such evidence and adduced audit reports of its licensees and financial reports published by several listed companies in the healthcare industry, to prove that the average profit margin in this area was around 12% to 15%.

Decision

On December 17 2015 the court ordered HMJ to:

  • immediately stop using Chindex's registered trademarks;
  • indemnify Chindex Rmb1 million for its financial loss and Rmb100,000 to cover its reasonable costs; and
  • publish a statement of apology in a local newspaper.

The court found that in view of the circumstances, it was impossible to ascertain the actual loss suffered by Chindex. Further, given that the trademark licences granted by Chindex to its affiliated medical institutions were royalty free, it was also impossible to base the damages calculation on the amount of royalties that HMJ would have had to pay had it been authorised. Therefore, the calculation had to be based on HMJ's illegal gains. In this respect, the court declared that it could not endorse the unaudited financial statements supplied by HMJ, whose credibility was unverifiable due to the lack of corroborative evidence.

The court therefore considered the following factors:

  • the esteemed reputation and extensive use of Chindex's registered trademarks;
  • the duration and profitability of the infringement (based on the evidence supplied by Chindex for similar types of company);
  • HMJ's bad faith; and
  • HMJ's breach of the court order in submitting incomplete financial records.

Comment

This is another exemplary case of a court applying Article 63.2 of the Trademark Law 2013 and ordering the defendant to produce evidence showing the scope of its activities. It confirms that when defendants refuse to produce accounts or produce accounts that cannot be verified, the consequences can be serious.

For further information on this topic please contact Yongming Fan or Xingnan Ming at Wan Hui Da Law Firm & Intellectual Property Agency by telephone (+86 10 6892 1000) or email (fanyongming@wanhuida.com or jiangnan@wanhuida.com). The Wan Hui Da Intellectual Property Agency website can be accessed at www.wanhuida.com.

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