Liuming International China Business Lawyers

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:

1. 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.
2.  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.
3. 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.
4. 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”.
5. 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.
6. 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.
7. 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.
8.  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.
9. It is also necessary to consider the following factors in determining the exact damages amount:
   1. bad faith of New Balance in using  “新百伦”with knowledge of Mr ZHOU’s trademarks;
   2. actual damages caused to Mr ZHOU by New Balance; and
   3. the costs Mr ZHOU spent in the case.
10. 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.

Chateau Lafite Rothschild China trademark

Chateau Lafite Rothschild is one of the world’s iconic wine brands, famous for its history and high quality wines.  It is one of the world’s prestigious and well known brands. So far it has not been successful in establishing the power of its brand in an ongoing China trademark dispute.

Chateau Lafite Rothschild (“Chateau Lafite”) and Nanjing Golden Hope Wine Co Ltd (“Golden Hope”) have now been in legal dispute for more than 5 years over sound alike Chinese language trademarks.

Background

In 1996, Chateau Lafite registered the word mark “LAFITE” in Class 33 on “alcoholic beverages, except beer” (Chateau Lafite TM). In 2007, Golden Hope registered “拉菲庄园” (拉菲pronounced as ‘la fei’ in Chinese, 庄园 means “manor”) in Class 33 on goods including “wine”, “alcohol (beverages)” and “fruit extracts, alcoholic” etc. (Golden Hope TM).

In 2011, Chateau Lafite filed a cancellation application against the Golden Hope TM with the Trademark Review and Adjudication Board.

Trademark Review and Adjudication Board (“TRAB”)

Both Chateau Lafite and Golden Hope submitted evidence to support their arguments.

Chateau Lafite’s arguments included:

• Chateau Lafite is a world famous prestigious wine supplier and it has been operating in China for many years. Both the Chateau Lafite TM and its Chinese translation “拉菲” (‘la fei’) should be recognized as well-known trademarks in China;
• The Golden Hope TM is the translation of the Chateau Lafite TM, and copies and plagiarises “拉菲” (‘la fei’);
• The Golden Hope TM, the Chateau Lafite TM and “拉菲” (‘la fei’) are similar trademarks on similar goods;
• The registration of the Golden Hope TM has infringed Chateau Lafite’s prior name rights on “LAFITE” and “拉菲” (‘la fei’); and
• Golden Hope registered the Golden Hope TM in bad faith.

Golden Hope defended as follows:

• The Chinese translation of “LAFITE” is “拉斐” (‘la fei’) or “拉斐堡” (‘la fei bao’, 堡 (bao) means “castle”);
• The Golden Hope TM is not similar to either of them; and
• Chateau Lafite has no prior rights over “拉菲” (‘la fei’).

The TRAB ruled in favor of Chateau Lafite and canceled the registration of the Golden Hope TM.

Golden Hope appealed the TRAB decision at the Beijing No.1 Intermediate People’s Court (Intermediate Court).

Trial at first instance

Golden Hope and Chateau Lafite submitted more evidence.

The Intermediate Court held that:

1. The prominent part of the Golden Hope TM “拉菲庄园” is “拉菲” (‘la fei’) because “庄园” (the Chinese for “manor”) is of little distinctiveness when used on wine.
2. According to evidence furnished by Chateau Lafite, the products affixed with the Chateau Lafite TM have been sold in China since 1999.
3. Before the registration of the Golden Hope TM, articles about Chateau Lafite and its products have been published on specialized journals in China. In these articles, “LAFITE” was translated into “拉斐” (‘la fei’), “拉斐特” (‘la fei te’) or “拉菲” (‘la fei’) which are all transliterations of “LAFITE” in Chinese.  (特 (te) here is presumably used for sound, the closing syllable in Lafite, although it does mean “special” in Chinese). Chateau Lafite itself also used “拉菲” (‘la fei’), the substance of the Golden Hope TM, in its marketing and promotion.
4. The relevant public in China recognize that “LAFITE” may be referred to as “拉斐” (‘la fei’), “拉斐特” (‘la fei te’) or “拉菲” (‘la fei’) in Chinese.
5. Golden Hope extensively used the Golden Hope TM in conjunction with “LAFEIMANOR” and indicated that its products were from France, which made it even harder for the relevant public to distinguish its products from those of Chateau Lafite.
6. Golden Hope is a competitor of Chateau Lafite, and should know about the Chateau Lafite TM and the transliterations of “LAFITE”. Therefore, it should not have registered the Golden Hope TM in the first place. In addition, the evidence submitted by Golden Hope is insufficient to prove that the relevant public are able to distinguish the Golden Hope TM from the Chateau Lafite TM despite its use of the Golden Hope TM.

Accordingly, the Intermediate Court held that the registration of the Golden Hope TM misled and confused the relevant public regarding the source of the goods, and upheld the TRAB’s decision.

Appeal to Beijing High People’s Court (High Court)

Golden Hope further appealed to the Beijing High People’s Court (High Court). During the appeal, further evidence was submitted.

The High Court overruled the Intermediate Court’s judgment and restored the registration of the Golden Hope TM. The detailed reasons given by the High Court can be summarized as follows:

1. When determining whether two marks are similar, in addition to judging only from the composition and the overall similarity, we also need to take into account the distinctiveness and popularity of the two marks, the relevance of the marks and the designated goods, and whether the co-existence of the two marks may mislead the relevant public.
2. When determining whether a Chinese trademark and a foreign language trademark are similar, we need to take into account the recognition of the relevant public in China and whether the Chinese and the foreign words correspond with each other. To determine this, the registration date of the Golden Hope trademark is the key.
3. The Golden Hope trademark is reputable in the market and recognized by the relevant public after being used for a long time, so we need to understand the spirit of the trademark law: coordinating the protection of prior trademark rights and the maintenance of the market order; fully respect the fact that the relevant public is able to distinguish the concerned trademarks; and maintain the existing and stable market order.
4. In this case, the prominent part of the Golden Hope TM is “拉菲” (‘la fei’), and it is different from the Chateau Lafite TM in terms of font and pronunciation.
5. Before the registration date of the Golden Hope TM, the Chateau Lafite TM and “拉菲” (‘la fei’) were only introduced on some specialized journals that have limited readers. Hence, it cannot be concluded that the Chateau Lafite TM was popular in China before the registration of the Golden Hope TM or that the relevant public recognized that “LAFITE” and “拉菲” (‘la fei’) correspond to each other.
6. The Golden Hope TM has been registered and used for 10 years. A stable market order is already in place.

Application for review by the Supreme People’s Court of the PRC (China SC)

Chateau Lafite applied to the China SC for review. The China SC agreed to accept the case and the judgment issued by the High Court is suspended pending the review.

Commentary

It is difficult to reconcile the reasoning in the TRAB and the Intermediate court with the findings of the High Court and we look forward the resolution by the China SC.

This case is yet another example of how lack of attention to detail in entering the China market can have expensive consequences that may be difficult or impossible to rectify. Every product and service will be known by a Chinese name in China.  The only prudent and practical approach is to decide what it is going to be and to register it as a first step in engaging with China.

When a Chinese transliteration of a brand is used, it should be used consistently in all commercial endeavors. It may actually require more effort to achieve this than it does to manage the foreign brand in China. Many foreign trademarks can be transliterated into multiple Chinese versions, as seen in this case, and staff may not be fully aware of the ramifications of using the “wrong” transliteration. The only sound approach is to decide on the transliteration to be used and be vigilant in using it consistently in all commercial and marketing efforts. Unfortunately the evidence in this case revealed that Chateau Lafite had not been totally consistent in its use of Chinese transliterations of its brand.

The clarity of hindsight confirms that it would have been prudent for Chateau Lafite to register a Chinese language transliteration of its word mark at the same time it registered its foreign mark.  It should have registered “拉菲” (‘la fei’) or “拉斐” (‘la fei’) in the first place. If it had registered either one it would have been in a a better position to challenging any application for registration of a similar mark by Golden Hope.

Establishing the reputation of an unregistered mark in China is not easy. The rules for trademark review in China refer to the following as possible evidence to prove reputation: sales contracts; bills of lading; promotional materials; and exhibition brochures etc. In this case, Chateau Lafite furnished a lot of evidence, including an official letter issued by the economic director at the French Embassy in China. The evidence was not sufficient to persuade the High Court.

Take away points

• China is a very aggressive trademark environment.
• Foreign brands are attractive in China but every product and service gets known by a Chinese name.
• Failure to register a Chinese version of a foreign brand is a very costly mistake as this case confirms.
• This is not an isolated case and China trademarks are very important. If you need convincing, more articles here, here, here, and here!
• Registration of your China trademarks is the only cost effective option.

© 2016 Graham Brown. All rights reserved.  The assistance of Zhao Wei in the preparation of this article is gratefully acknowledged.