The Chongqing No. 1 Intermediate Court applied Article 63.2 of the 2013 Trademark Law in the determination of damages for trademark infringement.

Legal and Regulatory Background:

Article 63.2 of the China Trademark Law (2013 version) 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".

Case Summary

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: Click here to view images (Chinese character of “HE MEI JIA”) designating services covering “medical care, healthcare, and medical consultancy” etc. in Class 44.

Chindex licenses 16 associated hospitals or clinics in 5 cities of Shanghai, Beijing, Tianjin, Qingdao and Guangzhou to use the said trademarks.

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

Upon Chindex’s instruction, WAN HUI DA had the webpage of HMJ Hospital’s website notarized in May 2015. In June 2015, WAN HUI DA conducted a field investigation to collect evidence on HMJ Hospital’s activities. The investigation process and evidence collected during the process were notarized by the accompanying notary.

Chindex lodged a civil litigation against HMJ Hospital before Chongqing No. 1 Intermediate Court on the ground of trademark infringement, requesting an amount of compensation of RMB 3.02 million and a public apology.

During the court proceeding, Chindex simultaneously filed two applications with court in order to obtain communication of the defendant’s tax payment records, balance sheets, bank account records in the past two years (pursuant to article 63.2 of the trademark law) and to preserve such evidence.

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

The defendant submitted unaudited financial reports and statements, showing a turnover of RMB 9 million in 2013 and 14 million 2014, but claiming that both years, the company had made losses.

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

On December 17, 2015, the Court ordered the defendant to:

  • immediately stop using the plaintiff’s registered trademarks,
  • indemnify the plaintiff RMB 1 million for its financial loss and another RMB100,000 to cover the plaintiff’s 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 the plaintiff. Furthermore, given the fact that the trademark licenses granted by the Plaintiff to its affiliated medical institutions were royalty free, it was also impossible to base the calculation of the damages on the amount of royalties that the Defendant would have had to pay, if it had been authorised. Therefore, the calculation of the damages needed to be based on the illegal gains collected by the Defendant. In this respect, the Court declared that it could not endorse the unaudited financial statements supplied by the Defendant, the credibility of which was unverifiable due to the lack of corroborative evidence.

The court therefore, took into consideration the following factors:

  1. High reputation and extensive use of the plaintiff’s registered trademarks;
  2. The duration and profitability of the infringement (based on the evidence supplied by the Plaintiff, for similar type of business);
  3. The defendant’s bad faith and
  4. The defendant’s disobedience against the court order in submitting complete financial records.

Comments:

This is another exemplary case where the Court applied Article 63.2 of the 2013 Trademark Law, and ordered the defendant to produce evidence showing the scope of its activities: it confirms that when defendants refuse to do so, or produce accounts that cannot be verified, the consequences can be serious. A lesson to remember in similar cases.