New Balance successful on appeal
New Balance was successful in its appeal. The Guangdong High Court of China (“Guangdong HC”) published its judgment regarding the appeal arising from the first instance New Balance case on June 23, 2016. The case was about their use of a Chinese transliteration of New Balance “新百伦” trademarked in China by others. The lower court previously awarded damages of RMB 98 million to the owner of the Chinese trademark, Mr ZHOU. Our report on the original case is here. Although the Guangdong HC reduced the damages to RMB 5 million, all other findings in the first instance judgement remain unchanged.
Guangdong HC
In deciding to reduce the damages the Guangdong HC Court held that:
- New Balance had extensively used “新百伦”in advertising and business. The relevant public already thought that “新百伦” belonged to New Balance or is related to New Balance’s products. This had cut the connection between the “新百伦” trademark and its actual owner ZHOU Yuelun (“Mr ZHOU”), reduced his market scope, and caused him economic damage.
- Mr ZHOU did not submit any evidence to prove the actual loss he had suffered from New Balance’s use of “新百伦”. Because of this the Court refused to determine the damage amount on the basis of ZHOU’s economic loss.
- New Balance had registered “N”, “NB” and “New Balance” trademarks in China and had been using them on the packages of shoes sold in China. They never used “新百伦”on those packages.
- New Balance used “新百伦” in the product introduction at Tmall and JD e-shops, on the sales slips of authorized stores, in advertisements at its official website, at Sina Weibo, in brochures, and in video advertisements. However, every use of “新百伦” was in conjunction with “N”, “NB” or “New Balance”.
- Considering the business size, market share and high reputation of New Balance, it is fair to say that the relevant public distinguished New Balance products by the marks “N”, “NB” or “New Balance” and they purchased New Balance products because of the high quality these marks stand for.
- Mr ZHOU proved he had used the “百伦” and “新百伦” trademarks in business in China but failed to prove that those trademarks are famous in China.
- To determine the damage amount on the basis of the infringing party’s profits, there should be a direct connection between the infringement activity and the relevant profits. Applying this rule, it is not justified to base the damage amount on the full amount of profits of New Balance in China during the relevant period.
- New Balance submitted a brand evaluation report suggesting that the contribution of “新百伦”to its profits from China market is 0.76%. This means that this Chinese character trademark contributed RMB 1,487,907.97 to New Balance’s overall profits from the China market in years 2011 to 2013 and RMB 1,458,149.81 to New Balance’s profits from shoes in China for the same period.
- It is also necessary to consider the following factors in determining the exact damages amount:
- bad faith of New Balance in using “新百伦”with knowledge of Mr ZHOU’s trademarks;
- actual damages caused to Mr ZHOU by New Balance; and
- the costs Mr ZHOU spent in the case.
- The total court filing fees are RMB 1,066,855. They should be apportioned as RMB 213,380 to Mr ZHOU and RMB 853,525 to New Balance.
Commentary
Overall, the outcome of this appeal is as expected. It remains to be seen whether either party will seek a review by the China Supreme Court and if it is sought whether the Court will accept the case. The judgment itself is more than 100 pages, unusual for China and mostly reviewing the details of the case. The findings regarding damages are an important contribution to China jurisprudence and they are consistent with other recent cases.
Choosing and owning the transliteration of a foreign trademark is a very important first step in engaging with China. New Balance decided to persist with using a transliteration of New Balance already registered as a trademark by others. Another transliteration could have been used, and will presumably be used from now on, if an accommodation cannot be reached with Mr ZHOU.
The court held that New Balance’s commercial use of the pre-existing Chinese trademark with actual knowledge was in bad faith. A clear caution to anyone else facing a similar situation.
There is an emerging China jurisprudence regarding the connection between awarded damages and the infringing use. This case is consistent with that and other recent cases.
If the time, energy, and actual cost of pursuing these cases is taken into account, it has been a costly exercise for New Balance, despite their win.
Take away points
- It is always less expensive to register a trademark than it is too try to recover it from others.
- A Chinese language version of a foreign trademark is an integral part of doing business in China. The Chinese language is as flexible and creative as any other – there is always another possible transliteration if a first choice is not available.
- A consistent association between the use of the foreign trademark and the Chinese transliteration is important if the foreign brand is to retain its full value.
- Infringing a Chinese trademark is proving to be a time consuming and costly exercise.
© Graham Brown 2016. All rights reserved.
The assistance of Peng Wei in the preparation of this article is gratefully acknowledged.