The court rejected the argument of Hua Wei based on its business success, sanctioned the refusal of Hua Wei to disclose its accounts and awarded an amount of damages far exceeding the statutory limit.

The Court held that "the market share and existing consumer group of Hua Wei built from its continuous trademark infringement activities, if being recognised by the Court, will undoubtedly encourage trademark infringers to circumvent liabilities through enlarging infringing scales, which clearly contradicts the legislative purpose and undermines the intrinsic value of the Chinese Trademark Law". Furthermore, the Court found that Hua Wei should bear the adverse consequences of its obstruction to the burden of proof and awarded an amount of RMB 3.5 Million, far exceeding the statutory limit provided in the 2001 version of the law.

Case Summary

The 3M Company (3M), formerly known as the Minnesota Mining and Manufacturing Company (1902–2002), is an American multinational conglomerate corporation based in Minnesota, USA.

3M is the owner of two registered trademarks “3M” (No. 884963 of 21/10/96 and No. 5966501 of 07/03/10) (the “3M Trademarks”) in class 17, which are 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 (“3M China”) is a subsidiary of 3M in China, licensed by 3M to use the 3M Trademarks in China and has been manufacturing and distributing vehicle retro-reflective marking products since 2004 ("the products").

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On December 16, 2005, Changzhou Hua Wei Advanced Material Co., Ltd. (Hua Wei) filed the “3N” trademark in Class 19, with the designated goods covering luminescent sheet and paving. The trademark application was preliminarily approved by the CTMO on December 23, 2008.

On May 27, 2009, 3M Company filed an opposition against the applied mark. The CTMO decided on August 3, 2011 to approve the registration of the opposed mark, but only for certain goods.

Hua Wei appealed before the TRAB. On July 29, 2013, the TRAB ruled not to approve 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 a lawsuit against Hua Wei and its local  distributor before the Hangzhou Intermediate Court on the ground of trademark infringement, seeking a court injunction not to produce and sell, damages of RMB 5.1 million (which was later raised to RMB 13 million by 3M and 3M China on January 15, 2015) and another RMB 200,000 to cover the reasonable cost for ceasing the infringing activities.

Before the Court, Hua Wei claimed that: 1) its 3N mark was not similar to the 3M Mark, 2) and in view of the duration and extent of its use, as well as of the price difference, a stable market order had been formed and the relevant public could differentiate the two marks; 3) Hua Wei had no deliberate intention to take advantage of the reputation of the 3M mark and that its 3N mark was the initials of its corporate philosophy of “New Concept, New Technologies, New Products”. Therefore, there was no foul play with Hua Wei’s act.

The Intermediate Court made a decision on June 30, 2015, affirming the trademark infringement, ordering the distributor to immediately cease selling (the production activity had already ceased) and ordering Hua Wei to pay RMB 3.5 million to the plaintiffs.

The Court dismissed Hua Wei’s defence, and held that the 3M trademark had a high distinctiveness and reputation, that it was visually similar to the 3N mark, and that the consumers were likely to confuse Hua Wei’s 3N products with those of the plaintiffs, or at least to assume there was certain association between them. Furthermore, the Court found that Hua Wei's acts were obviously intentional, and noted that Hua Wei had never promoted the alleged meaning of “New Concept, New Technologies, New Products” for its 3N trademark.

Finally, when assessing the amount of damages, the Court considered the long duration and large scale of the infringement activity, and more importantly, the fact that Hua Wei had deliberately refused to furnish its financial records proving the quantity of the infringing products and the financial gains obtained from the infringement. So, even though the limit of the statutory damages provided in the trademark law (the 2001 version applicable to this case) was only RMB 500,000, the Court awarded an amount of RMB 3,500,000.

Hua Wei appealed to the Zhejiang High Court.

On September 9, 2015, at the very end of the hearing, the Zhejiang High Court made its decision upholding the judgment of the first instance.

The Court expressed the opinion that if the market share and existing consumer group of Hua Wei built from its continuous trademark infringement activities, were to be recognised by the Court as a valid defence against an infringement claim, it 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 the calculation of the damages, the Court followed the same reasoning as the first instance court and ordered Hua Wei to indemnify the plaintiffs for an amount of RMB 3.5 million.

WAN HUI DA represented 3M Company and 3M China in this case.

Comments:

The Zhejiang Courts' explicit denial of the argument 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.  According to such theory, when two similar trademarks have reached a significant  size in the market, they should continue to coexist in order to preserve market stability. The case also shows that refusing to cooperate in the finding of the fact, when the infringing is established, may have very negative consequences.