On August 29, 2022, Beijing Intellectual Property Court (“Beijing IP Court”) rendered its judgment on an unfair competition dispute between Christian Louboutin S.A.S. (“Christian Louboutin”) and Guangdong Wanlima Industrial Co., Ltd. (“Wanlima”) . The court rules in favor of Christian Louboutin, by granting injunctive orders enjoining Wanlima from using red color on outsoles of woman high-heel shoes and using “Hong Di Xie” – the Chinese characters of “shoes with red outsole”, which is commonly used by relevant public in China to indicate the Red Sole – to indicate its offerings of high-heel shoes with red outsole. A discretionary damages award in an amount of RMB 5,000,000 is also granted, plus a recovery of enforcement costs in an amount of RMB 450,000. In addition, Wanlima is ordered to post a statement on its primary promotional platforms to eliminate its negative impacts caused by the unfair competition conducts.
Although the case is subject to appellate review and the first-instance judgment has not been public-accessible at this time, Beijing IP Court’s case note posted on its WeChat account had attracted attention from the industry. This is the first time that Mr. Christian Louboutin’s iconic “Red Sole” as an unregistered trademark received judicial protection in China while its international application for registered trademark is still pending before National Intellectual Property Administration of the People’s Republic of China (“CNIPA”) after Supreme People’s Court of the People’s Republic of China (“SPC”) confirmed its Registrability as a “single-color trademark applied to a specific position” under the PRC Trademark Law in 2019 leaving the distinctiveness of Red Sole as the only remaining issue subject to CNIPA’s re-examination. Beijing IP Court finds that the Red Sole has achieved the degree of distinctiveness for a protectable trade dress by ruling that a solid and exclusive connection between Christian Louboutin and the Red Sole had been established in view of the relevant public in China.
In April 2020, Christian Louboutin filed the civil complaint with Beijing IP Court against Wanlima’s unauthorized uses of red color on more than 50 models of Wanlima and Saint Jack-branded woman high-heel shoes which outsoles are in red. Moreover, on Wanlima’s flagship store, Wanlima used “Hong Di Xie” as a category name for its offerings with red outsole. Christian Louboutin raised unfair competition claims under the theories of trade dress and product name infringements under Article 6(1) of the PRC Anti-Unfair Competition Law (“AUCL”), seeking reliefs including injunctive orders, damages and an order for eliminating negative impacts. CL Shanghai Trading Co., Ltd., the general distributor and a subsidiary of Christian Louboutin jointed the lawsuit as a co-plaintiff, and the operator of a shopping mall which rented its booth to Wanlima was also named as a co-defendant. After the jurisdictional challenge raised by Wanlima was resolved, Beijing IP Court held the hearing for case merits on March 24, 2022.
Issues and Rulings
Red Sole Protectable as Trade Dress and Product Name?
The primary issue in this case is – whether the Red Sole is protectable as a trade dress and “Hong Di Xie” is protectable as a product name under Article 6(1) of the AUCL. While this two claims are literally separate, a two-element analysis – 1) whether the trade dress and product name had achieved certain degree of fame in China at the time of alleged unfair competition acts and 2) whether a solid and exclusive connection had been connected with Christian Louboutin – is applied for both claims by Beijing IP Court.
For the first element – degree of fame, Beijing IP Court considers evidence regarding duration, geography regions and scale of sales of the Red Sole, and the enforcement efforts of Christian Louboutin regarding its registered Latin-character marks in China since 2003. Moreover, the court also considers the protection records of the Red Sole in foreign jurisdictions. The court states that most of the contents and images showed “Hong Di Xie”, “Christian Louboutin” and the Red Sole. The court concludes that the evidence leads to the conclusion that the Red Sole is a trade dress with certain degree of fame and “Hong Di Xie” is a product name with certain degree of fame.
The second element – distinctiveness – is actually the most critical part in this case. Distinctiveness is a subjective test without clear criteria on examining the evidence, and courts generally have broad discretion in determining whether a trade dress or product name has achieved the degree of distinctiveness to distinguish the goods bearing these marks from others. The court pays its attention on one particular facts – most of the media coverage, which included primary online and traditional media across China, unanimously used “Hong Di Xie” – an easy-to-call version of “shoes with red outsole” in Chinese characters which was generated as a distinctive product name by relevant public in China but had never been officially used by Christian Louboutin – to indicate the Red Sole. This is deemed as a critical evidence to prove the exclusive connection between Christian Louboutin and the trade dress and product name by the court, which is an objective reflection of which part of Christian Louboutin’s shoes is deemed as the source identifier.
In the second element analysis, the court also rejects Wanlima’s rebuttal arguments, ruling that Wanlima’s rebuttal evidence cannot “cut off” the solid and exclusive connection that had been established. In this case, Wanlima produced a few examples of historic shoes, including Louis XIV’s red-sole high-heel shoes, the red dance shoes used by Dorothy Gale in the 1939 film The Wizard of OZ, Nike’s Air Force One, and some high-heel shoes which overall appearance are in red color, to show that the red outsole design was not first introduced by Christian Louboutin, and it is common design in woman shoes. Beijing IP Court rejects these arguments, ruling that those man shoes should be excluded and the remaining neither distinctively show the red outsole or has low degree of fame that are not sufficient to cut of the connection.
Wanlima’s Unauthorized Uses Likely to Cause Confusion?
Another important issue is whether Wanlima’s unauthorized uses will likely cause confusion among the relevant public. Wanlima’s primary arguments are: 1) Wanlima is a famous brand in China and all of infringing offerings were sold under Wanlima’s name; and 2) the targeted consumers are completely different in terms of prices. The court first reiterates that the unfair competition law focus on likelihood of confusion rather than actual confusion, and price difference is not a part of the analysis even it might have impact on decision-making of consumers. In this case, the red outsole design used by Wanlima is also identical with the Red Sole which is very likely to cause confusion among the public, and the factors mentioned by Wanlima, even it should be considered, were still not enough to negate the finding of likelihood of confusion.
Proper Damages Amount that Wanlima Should Undertake?
Christian Louboutin chose to use illegal profits obtained by Wanlima through sale of the infringing shoes as the basis to calculate the damages, which was built by notarized downloads of Wanlima’s two stores on Tmall.com, including retail prices and quantities, and Wanlima’s annual reports that include its market segments and gross profit margin during the time period that the infringing models were sold. Wanlima produced its self-made sales records to show that the claimed amount was unreasonably high. As the parties could not agree on the numbers shown in evidence, Beijing IP Court uses the discretionary damages approach – considering all evidence on losses, illegal profits, licensing revenue and other relevant factors to determine a damages amount. This is different from the traditional statutory damages, which has maximum amount – RMB 5,000,000 after the 2019 amendment to the PRC Trademark Law. The court primarily considers the degree of fame of Christian Louboutin, the sales records of the infringing goods based on the plaintiff’s evidence, and Wanlima’s duration of infringement and bad faith in this case. The court concludes that RMB 5,000,000 is proper in light of the evidence on records.
It is very encouraging to see that Chinese courts have become more active in protecting unregistered marks in unfair competition cases in recent years. While the court opinions still seem to be a step-by-step approach, courts in practice tend to apply the totality-of-all-of-the-circumstances approach by putting all relevant factors into consideration to protect goodwill and competitive interests of genuine brand owners. In addition to the innovative approach, meaningful amount of damages become common when plaintiffs produce sufficient evidence, which become more effective in defeating infringer’s financial incentives to freeride other’s goodwill.
This case is one of these examples showing Chinese courts’ efforts in protecting foreign genuine brand owners and a good competitive market. Unfair competition has become a more effective option to protect those non-traditional marks that could not be registered timely from passing-off. Solid evidence on degree of fame, most likely still in the traditional format, are always important, and brand owners are encouraged to look for evidence showing distinctiveness – solid and exclusive connection – innovatively, in light of court’s more open attitude in individual cases. Evidence on damages are important as always, and one of the key take-aways from this case would be to secure evidence on sales on e-commerce platforms that have higher probative value and credibility, such as notarized downloads or timestamps, or ask the court to investigate the facts (order for producing evidence or investigation orders) to defeat rebuttal evidence.