Introduction

In a recent trademark infringement case, the Zhejiang High Court rejected the infringing company's defence based on its business success, penalised it for refusing to disclose its accounts and awarded damages to the plaintiffs which far exceeded the statutory limit.

The court held that the defendant company's market share and consumer base derived from its continuous trademark infringement activities; admitting its defence would thus undoubtedly encourage trademark infringers to circumvent liabilities by expanding the scale of infringement, in clear contradiction of the Trademark Law. Further, the court found that the defendant should bear the adverse consequences of its refusal to accept the burden of proof and awarded the plaintiffs Rmb3.5 million – far exceeding the statutory limit provided under the 2001 version of the Trademark Law.

Facts

3M owns two registered 3M trademarks (884963 (October 21 1996) and 5966501 (March 7 2010)) in Class 17, used respectively on "thin sheets or strips made from retro-reflective materials" and "retro-reflective plastic film, other than for packing (to improve and boost visibility and safety)". 3M China Limited, a subsidiary of 3M, is licensed by 3M to use the 3M trademarks in China and has been manufacturing and distributing vehicle retro-reflective marking products since 2004.

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On December 16 2005 Changzhou Hua Wei Advanced Material Co, Ltd (Hua Wei) filed the 3N trademark in Class19 for designated goods covering luminescent sheet and paving. The trademark application was preliminarily approved by the China Trademark Office (CTMO) on December 23 2008.

On May 27 2009 3M Company filed an opposition against the 3N mark. On August 3 2011 the CTMO approved the registration of the opposed mark, but only for certain goods.

Hua Wei appealed before the Trademark Review and Adjudication Board (TRAB). On July 29 2013 the TRAB rejected the registration of the 3N mark, citing the prior registered trademark 3M in Class 19. Hua Wei did not appeal.

On November 27 2013 3M and 3M China filed suit against Hua Wei and its local distributor before the Hangzhou Intermediate Court on the grounds of trademark infringement, seeking:

  • a court injunction to cease production and sale;
  • damages of Rmb5.1 million (which 3M and 3M China later raised to Rmb13 million); and
  • another Rmb200,000 to cover the reasonable costs of ceasing the infringing activities.

In its defence, Hua Wei claimed that:

  • its 3N mark was not similar to the 3M mark;
  • in view of the duration and extent of its use of the 3N mark, as well as of the price difference between the two companies' products, a stable market order had materialised and the relevant public could easily distinguish between the two marks; and
  • it had no deliberate intention to take advantage of the reputation of the 3M mark, as its 3N mark comprised the initials of its corporate philosophy – "New Concept, New Technologies, New Products".

Therefore, there had been no foul play on Hua Wei's part.

Decisions

The intermediate court issued its decision on June 30 2015, affirming trademark infringement, ordering the distributor to immediately cease sale (production having already ceased) and ordering Hua Wei to pay Rmb3.5 million to the plaintiffs.

The court dismissed Hua Wei's defence, finding that the 3M trademark had a high level of distinctiveness and reputation. It also found the 3M mark to be visually similar to the 3N mark, and that consumers were likely to confuse Hua Wei's 3N products with those of the plaintiffs (or at least to assume a certain association between them). Further, the court found that Hua Wei's acts were obviously intentional, noting that Hua Wei had never promoted the alleged slogan "New Concept, New Technologies, New Products" for its 3N trademark.

In assessing damages, the court considered the long duration and large scale of the infringing activities and, more importantly, Hua Wei's refusal to submit its financial records proving the quantity of the infringing products and the financial gains obtained from the infringement. Although the statutory limit of damages provided under the Trademark Law (the 2001 version applying in this case) was only Rmb500,000, the court awarded Rmb3.5 million in damages. Hua Wei appealed to the Zhejiang High Court.

On September 9 2015 the Zhejiang High Court upheld the first-instance decision. The court opined that if Hua Wei's market share and existing consumer base – built on its trademark infringement activities – were to be recognised as a valid defence against an infringement claim, this would undoubtedly "encourage trademark infringers to circumvent liabilities through enlarging infringing scales, which clearly contradicts the legislative purpose and undermines the intent of the Chinese Trademark Law".

In calculating damages, the court adopted the same reasoning as that of the first-instance court and ordered Hua Wei to indemnify the plaintiffs for Rmb3.5 million.

Comment

The Zhejiang courts' explicit denial of a defence based on market share built by continuous infringing activities seems to indicate that the so-called 'inclusive development theory' proposed by the Supreme People's Court in its opinions of 2010 and 2011 has less influence than previously thought. According to this theory, when two similar trademarks have both become significantly well known in the market, they should continue to coexist in order to preserve market stability. The case also shows that refusing to cooperate in fact finding, once infringement has been established, may have very negative consequences.

For further information on this topic please contact Aileen Wu or Sisi Liang at Wan Hui Da Intellectual Property Agency by telephone (+86 10 6892 1000) or email (aileen_wu@wanhuida.com or liangsisi@wanhuida.com). The Wan Hui Da Intellectual Property Agency website can be accessed at www.wanhuida.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.