Moncler, a Franco-Italian fashion brand famous for its shiny, fluffy winter coats, has recently achieved a significant victory before the Beijing IP Court. Moncler is in fact the first claimant to obtain the increased maximum statutory damages of RMB 3 million (approximately US$ 470,000) since the new Trademark Law came into force in May 2014 (the former maximum was RMB 500,000). This win can be seen as groundbreaking in China, where damages for trademark infringement are generally perceived to be relatively low.
Moncler entered the Chinese market in 2008, and quickly became a successful brand in China through intensive marketing campaigns. However, as happens every so often to successful brands in China, Moncler’s success soon drew the attention of counterfeiters. One of them was Royalcat, a Chinese company producing down-filled coats, bearing either Moncler’s own or similar trademarks.
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In order to gather evidence of the infringement, Moncler made notarized purchases at Royalcat’s premises. Those samples only bore the Mockner sign above, and did not show any information concerning the manufacturer Royalcat. Moncler therefore brought an infringement lawsuit against Royalcat, requesting a permanent injunction and RMB 3 million in compensatory damages.
Key issue: the determination of the damages
One of the classical hurdles in managing infringement procedures in China is establishing the concrete damages suffered by the infringement. In order to assist claimants in proving damages, the trademark law contains a cascade system for the determination of damages:
- In principle, damages must be set at the level of actual losses incurred by the rightholder as a result of the infringement.
- Where this is difficult to determine, the damages may be set at the level of benefits derived from the infringement by the infringer.
- Where this also proves too difficult, the damages may be set at a multiple of the royalty fee paid for the use of the trademark.
- If all of the above methods fail, then the courts may award discretionary damages (up to 3 million RMB under the new Trademark Law), depending on the circumstances of each case. (i.e. “statutory damages”)
However, the Chinese courts generally set the evidential bar at a very high level: direct evidence of the above elements is almost always required, the forced production of evidence is rarely granted and lacks teeth, and foreign evidence is subject to several time-consuming formalities (i.e. legalization and notarization). Therefore, as in the case at hand, many claimants are effectively forced to rely on statutory damages.
In the Moncler case, the IP Court applied the new Trademark Law, which became effective on 1 May 2014, since Royalcat’s infringements continued until after May 2014. This meant that Moncler could not only rely on increased statutory damages, but also on the new provision stipulating that when a trademark owner produces prima facie evidence showing that financial statements and documents related to infringement are kept by the infringer, the court can order the infringer to produce them. If the infringer fails to do so, the court can then determine the damages by referring to the trademark owner’s claim and evidence on damages.
The Beijing IP Court therefore based its decision to grant the maximum amount of statutory damages on the following elements:
- The “MONCLER” trademark enjoyed a high reputation on the Chinese market.
- Royalcat failed to provide its financial statements and documents related to the infringement.
- Royalcat conducted willful infringement as it displayed products bearing identical “MONCLER” mark on its website http://www.mockner.com/ and did not display the name of the manufacturer on its products on purpose.
- Royalcat sold the infringing products at high prices.
- Royalcat was a long-term and large-scaled infringer, and was even in the process of setting up a commercial network including franchising stores and distributors.
This case clearly shows that the Beijing IP Court won’t recoil anymore from using the new and stricter sanctions provided by the Trademark Law, even when involving a foreign claimant who traditionally used to face obstacles in winning substantial damages. The case is particularly useful in demonstrating the elements that justify an award of maximum statutory damages.