After initiating a criminal action against an individual trademark counterfeiter, Andreas Stihl AG & Co KG filed a follow-up civil lawsuit against the counterfeiter and his company on the grounds of trademark counterfeiting and trade dress infringement. Through this civil lawsuit, Stihl stopped the trade dress infringement and put greater pressure on the counterfeiter.
In March 2014 Stihl requested the police of Baiyun District, Guangzhou City to raid the Guangzhou Rui Song Machinery Co, Ltd factory. The police seized a significant number of fake Stihl chainsaws and some sales records. The chainsaws displayed the registered STIHL trademark and the brand's characteristic orange and grey colour combination, which was the "special trade dress of a reputed product", as provided for by the Anti-unfair Competition Law. Huang Zhurong was the sole shareholder of Rui Song. The police arrested Huang and, after further investigation, the public prosecutor brought the case to the Baiyun District Court on the grounds of trademark counterfeiting.
The court found that Huang's production and sale of fake Stihl chainsaws constituted the crime of counterfeiting a registered trademark and:
- sentenced him to three years' imprisonment;
- imposed a fine of Rmb650,000; and
- confiscated the seized counterfeit products for destruction.
Huang appealed on the basis that not all of the chainsaws sold had borne the STIHL trademark, as the business records did not specifically mention this and there was no supporting evidence to prove that this was the case. In September 2015 the Guangzhou Intermediate People's Court reduced the criminal fine to Rmb100,000.
After the criminal prosecution, Stihl filed a civil lawsuit with the Baiyun District Court against both Huang and his company Rui Song claiming trademark counterfeiting and trade dress infringement. Stihl asked the court to affirm that the Rmb100,000 fine, which was part of the criminal sentence, should be prioritised over the damages awarded in the civil case should the defendant's assets prove to be insufficient. The Baiyun District Court ruled in Stihl's favour on both accounts and ordered the defendants to pay jointly Rmb300,000 in damages, specifying that the part of the criminal fine that the defendants had already paid was to be allotted to the payment of the civil damages. The defendants appealed. In November 2016 the Guangzhou IP Court upheld the Baiyun District Court's decision.
This follow-up civil lawsuit provides guidance for similar cases. First, it shows that an IP owner can get a court to affirm that the damages owed to it will prevail over a criminal fine so as to facilitate the enforcement of a civil judgment. In filing the lawsuit at hand, Stihl requested the court to affirm that if the defendant's assets were insufficient to pay the civil compensation, the court should use the criminal fine already paid by the defendant to enforce the civil judgment. The court agreed.
This procedure is expressly provided for in Article 4 of the Torts Law, which states that:
"Where a tortfeasor bears administrative liability or criminal liability, it shall not prejudice the civil liability that the tortfeasor shall bear for the same conduct. Where the assets of a tortfeasor are not sufficient to cover the civil liability, administrative liability or criminal liability for the same conduct, the tortfeasor shall firstly bear the civil liability."
The Chinese courts do not normally permit a trademark owner to file a civil claim in the context of a criminal prosecution, because only the victim suffering from loss of tangible property is entitled to file such a claim. However, a trademark owner may file an independent civil lawsuit, in which it is advisable that it specifically request the court to confirm its entitlement to the criminal fine if the defendant's assets are insufficient to pay the damages. This is so that, in a future enforcement procedure, the judge may directly allot the criminal fine paid by the defendant for the recovery of the damages.
Further, this case shows that an IP owner may use the relevant evidence obtained by the police and the facts affirmed by the court in a criminal action to solve infringement other than trademark counterfeiting (ie, patent or trade dress infringement). According to the police investigation, Huang's chainsaw sales amounted to Rmb1.27 million. However, the Guangzhou Intermediate Court could not ascertain if all of the chainsaws sold by Huang had borne the STIHL trademark, because many business records did not specifically mention the trademark. The court could determine only that:
- the value of the counterfeit chainsaws and chainsaw parts seized by the police had amounted to more than Rmb100,000; and
- the counterfeit Stihl chainsaws sold by Huang had been worth more than Rmb180,000.
In its criminal judgment, apart from issuing the criminal sentence, the court only ordered Huang to stop its trademark counterfeiting activity. However, according to the evidence collected by Stihl (eg, the notarised copy of the counterfeiter's website) it was clear that all of the chainsaws produced and sold by Huang had borne the orange and grey colours. In the follow-up civil lawsuit, Stihl had provided such evidence and proved that, through extensive use and advertisement, the relevant public had made a definite association between this colour combination and its chainsaws. The court accepted Stihl's claim of unfair competition and calculated the damages based on the defendants' production and sale of all chainsaws.
Finally, this case shows that an IP owner can ensure that infringers be held jointly liable by proving their "mixture of legal personalities". In this case, Huang argued that the company Rui Song that should bear the liability for compensation because it had engaged in the illegal business. Stihl proved that, according to Huang's bank account records obtained by the police, he had received the money from Rui Song's sales of the fake chainsaws directly and paid Rui Song's rent from his personal bank account every month. As such, Huang's behaviour had been 'mixed' with that of Rui Song. Article 63 of the Company Law stipulates that:
"If the shareholder of a single-person limited liability company is unable to prove that the property of the single-person limited liability company is independent from his own property, he shall bear joint liabilities for the debts of the company."
Thus, the court held Huang and Rui Song jointly liable, which means that the court could seize both Huang's personal property and any property under the name of Rui Song in enforcing the damages judgment.
For further information on this topic please contact Shuhua Zhang at WAN HUI DA - PEKSUNG IP Group by telephone (+86 10 6892 1000) or email ([email protected]). The WAN HUI DA - PEKSUNG IP Group website can be accessed at www.wanhuida.com and www.peksung.com.