Trademark infringement cases on the increase?

Trademark infringement in China can have a high cost.  This is a relatively new development. The New Balance case set the high water mark and it seems very likely that others will be inspired by the award in that case.

The emerging high cost of China trademark infringement also seems likely to change the behavior of trademark owners – at least some are likely to allow infringement to run for longer so that they can seek higher provable damages.

It is really early days, but already there are cases emerging with plaintiffs seeking substantial damages. If successful they will, in turn, inspire others.  Anyone doing businessin China, Chinese or foreign, needs to be aware of the potential high cost of China trademark infringement.

According to local media, a case seeking substantial damages from OPPLE Illumination (“OPPLE”), a leading illumination manufacturer in China, has been filed at and accepted by the Chaoyang court.

OPPLE has been sued for trademark infringement by three Chinese individuals for infringing their trademark  “欧普 (The Chinese characters for OPPLE) and device” in Class 9 (wire, plug, socket etc.) with the registration number 1423367. The plaintiffs claim damages of RMB 50 million (Approximately USD 7.7 million).

An OPPLE distributor in Beijing is also being sued by the plaintiffs in the same case for selling the infringing products in Beijing.

Background

OPPLE applied to register the Chinese characters for OPPLE (欧普) in all 45 classes in China and has successfully registered in most classes.

However, for reasons unknown, OPPLE only registered this mark on very limited products in Class 9 (i.e. battery, flash light etc.) in 2002, but did not register it on plugs and sockets in Class 9 apparently because it was previously registered by another Chinese company in 2000 (“Prior Trademark”).

The plaintiffs bought the Prior Trademark from its original owner in 2010 and now claim that OPPLE has infringed their trademark rights by selling plugs and sockets using a trademark similar to the Prior Trademark.

An Internet search of OPPLE products indicates that OPPLE did not directly apply the Chinese character OPPLE trademark on its plugs and sockets. However, the package for these items  does show the Chinese characters trademark for OPPLE. This appears to be the basis for the trademark infringement case.

Calculation of damages for trademark infringement

OPPLE is a listed company in China and  it has to publicly disclose its financial reports annually.

OPPLE’s 2013 financial report shows its business revenue generated from “illumination controllers and others” was RMB 492 million, of which, “electric device” accounts for 45.85% with a gross profit ratio of 52.02%.

OPPLE’s 2014 financial report shows its business revenue generated from “illumination controllers and others” was RMB 677 million, of which “electric device” accounts for 37.86% with a gross profit ratio of 50.66%.

Relying on these public accounts, the plaintiffs say that the RMB 50 million damages they claim for trademark infringement is less than the profits unlawfully obtained by OPPLE from the sale of the products that are the subject of their trademark infringement case (plugs and sockets, classified within “electric device” in the financial reports).

The case has not yet been decided, and we will update this report in due course.

Commentary

It must be noted that this case is yet to be heard and the information here summarizes the plaintiff’s case only.  As with any case it is the outcome that is important and often claims made in pleadings are not made out in court.

The case is significant, however, on a number of grounds.  All parties are Chinese, confirming that IP rights are taking their place generally in China commerce, not just foreign related trade; the damages sought are large; and the method for calculating the damages claimed is interesting because it may be difficult for OPPLE to argue against their own accounts.

The status of the plaintiffs, beyond the fact that they own the relevant trademark is not yet known. Similarly the nature of their business, if any is not known to us.

Take away points

  • Trademarks are becoming even more important in China.
  • It is not enough to “just register” a China trademark. Registration needs to be done in the context of a well thought out trademark strategy that takes account of on the ground reality, including the categories of goods covered and the descriptions used in China.
  • Thorough searching is important in the registration process – the cost is money well spent in risk management. A cheap China trademark is likely to be anything but cheap in the long run.
  • You ignore previously registered trademarks at your peril.  The cost of China trademark infringement is high. If you become aware of a relevant prior China trademark do not proceed further with use in China until the issues are resolved.
  • A distributor can be held liable for China trademark infringement.  A prudent distributor in China should ensure that their principal holds relevant, valid and comprehensive China trademark registrations.

© 2016 Graham Brown And Wei Xin. All rights reserved. The assistance of Peng Wei in preparing this article is acknowledged.

 

Chinese media reports that on April 24, 2015, the Guangzhou Intermediate Peoples Court ordered New Balance Trading (China) Co Ltd to compensate a Chinese individual, ZHOU Yuelun, with RMB 98 million (USD 16,029,572 approx at publication) because of trademark infringement. The trademark involved in this case is “新百伦” – a Chinese transliteration of “New Balance”.

ZHOU Yuelun (“Plaintiff”) is the owner in China of the Chinese character mark “新百伦”in Class 25 on “clothes, leather clothes, sport shirts. T-shirt, sandals, boots, shoes, socks, ties and belts” in China. He also owns in China the Chinese character mark “百伦”which was registered on “clothes, hats, socks and shoes” in Class 25 in China.

According to China Trademark Office (“CTO”) records, registration of “新百伦”was applied for on June 4, 2004 and it was registered on January 7, 2008. Registration of “百伦”was applied for on August 25, 1994 and it was registered on August 21, 1996. Both trademarks are still valid.

New Balance Trading (China) Co., Ltd. (“Defendant”) was registered in Shanghai on December 27, 2006 by New Balance International Limited for import and export, wholesale and retail of shoes, clothes and bags, including sport products and leisure clothes.

Plaintiff found the Defendant had been using “新百伦”on shoes without his authorization, so he filed a lawsuit to Guangzhou Intermediate Peoples Court (“Trial Court”) for infringement of his trademark.

Defendant responded that it had been using “新百伦”in good faith as a part of its company name and “新百伦”is the direct transliteration of “New Balance”. It also accused the Plaintiff of squatting the Chinese character mark “新百伦”.

Findings of fact

The Trial Court held in favour of the Plaintiff based on the following findings of fact:

  1. Plaintiff has been using the trademarks “百伦”and “新百伦”on men’s shoes in its business;
  2. Defendant has used “新百伦New Balance” as a trademark in online and offline advertisement and promotion, on invoices to customers etc. for the sale of its New Balance brand shoes.
  3. Defendant is fully aware of the Plaintiff and his registered trademarks “新百伦”and “百伦”because one of Defendant’s affiliates objected to the registration of “新百伦”in Class 25 by the Plaintiff in 2007 but the objection was not upheld.

Verdict

Trial Court ordered the Defendant to publicly apologize for the harm caused to the Plaintiff, pay court costs and compensate Plaintiff with RMB 98 million (USD 16,029,572 approx at publication) .

The total profits of the Defendant from Year 2011 to 2013 were RMB 195.8 million. The Trial Court decided that half of the total profit, RMB 98 million (USD 16,029,572 approx at publication) should be paid to the Plaintiff as compensation.

The case is still within the appeal period and an appeal is expected.

Take away points:

  • Trademarks are very important in China.
  • Every product and service becomes known by a Chinese name – it is best to control this by registering and promoting a Chinese version of the trademark.
  • If someone else owns the Chinese version of “your” trademark the consequences can be really serious.
  • Registering both versions of a trademark is the only sensible option.

© 2015 Graham Brown And Wei Xin. All rights reserved.

 

Foreign investment now permitted in health care in China

Health care in China is a business opportunity that has been recently opened up to foreign investment. Circulars jointly issued by the National Health and Family Planning Commission of China (NHFPC) and the Ministry of Commerce (MOFCOM)  – The Circular on Carrying Out the Pilot Program Establishing Wholly Foreign Owned Hospitals (“Circular”) confirms that opportunities exist for private hospitals and experienced hospital managers to participate in the growing needs of health care in China.

The Circular states that foreign investors may establish wholly foreign owned hospitals in Beijing, Tianjin, Shanghai, Jiangsu, Fujian, Guangdong and Hainan by way of new establishment or M&A. However foreign investors from outside Hong Kong, Macau and Taiwan are not allowed to establish Traditional Chinese Medicine hospitals.

The Circular focuses on the conditions required to be met by foreign investors to establish wholly foreign owned hospitals in China:

  1. the foreign investor applying to establish a wholly foreign owned hospital shall be an independent legal person with direct or indirect experiences of investment in and management of health care; and
  2. be capable of providing international level advanced hospital management and services; or
  3. have world class medical technology and equipment; or
  4. can supplement or improve deficiencies in medical services, technology, funding and facilities.

According to the Circular, the power to examine and approve the establishment of wholly foreign owned hospitals has been delegated to the provincial provincial level.

Existing health care in China

Existing Chinese hospitals, primary providers of health care in China, are inexpensive by developed world standards, but are crowded, lack privacy and frequently require patients to pay well above set rates for “extras”. Overall, their performance does not meet the aspirations of the emerging middle class.

China’s developing middle class have sufficient income to pay for a higher and more patient friendly standard of health care in China. Some go to private hospitals in China established by Chinese investors or the VIP section of existing hospitals. Others, if they cannot get what they want from health care in China, are prepared to go offshore. VIP sections of existing hospitals are typically less crowded and much more expensive, but offer the standard level of expertise.

Increasing numbers of health care tourists from China

An article in the Shanghai Daily about Chinese going to Malaysia for health care illustrates the growing need for improved health care in China. The article states that 22,000 Chinese sought health care in Malaysia in 2013, a big increase from the 8,000 in 2010, and is an example of the unmet demand for superior health care in China.

Medical tourists from China to Malaysia were identified in the article as the middle-aged, seniors, and couples seeking help in fertility treatment. Popular medical services sought were said to include cardiology, cardiothoracic surgery, oncology, infertility, orthopaedics and plastic surgery. Routine but comprehensive health checks are also likely to become important.

Why go outside existing health care in China?

There are probably many factors that influence a decision to seek medical help outside the available health care in China, but quality of service and outcomes are likely to be important. A recent article from Caixin suggests that China’s cancer survival rates are significantly below those in more developed societies.

Other factors that are likely to influence the decision to go outside health care in China include the availability of highly trained foreign qualified medical staff and advanced medical technology.

Another driver influencing development of health care in China is the ageing population coupled with filial obligations to look after parents. China has changed – the filial obligations remain but highly paid younger Chinese are in positions where they cannot take the time off to personally provide care for their ageing parents. Paying for better quality health care in China is one way that filial obligations can be at least partially met. This is likely to be a growing, and profitable trend for health care in China.

Take away points

  • Investing in health care in China is a recent opportunity previously closed to foreign investors.
  • The Chinese middle class are demonstrating their willingness to pay for superior health care in China, and are also willing to seek health care offshore.
  • The number of Chinese willing to pay for perceived superior health care has increased rapidly (for example, from 8,000 visitors to Malaysia in 2010 to 22,000 in 2013). The numbers in China that can afford superior health care are likely to vastly larger than the number accessing offshore health care. Many would prefer to access superior health care in China and have the means to pay for it.
  • Filial obligations to ageing parents will be a strong growth driver for superior health care in China.

GB

© 2014 Graham Brown. All rights reserved.

Translation of a China contract is very important.  I was reminded of this recently when I was reading an article written by another lawyer.  His basic point was that language in contract is very important, and where two languages are involved, it was important that the “language” provision in each version should correctly state the same governing language. To be frank, anything else is just incompetence.

Good translation is difficult to get

Unfortunately the article said nothing relevant about the really key point in China contracts – translation of a China contract. Good translation of a China contract is important, but it is difficult to get. That is one of the reasons why we do all translation of a China contract in-house – to ensure accuracy.  The other reasons is confidentiality, but that topic is for another time.

Why is it so difficult to get good translation of a China contract?  There are a number of reasons:

  • Legal translation requires particular skills – of course a high level proficiency in both languages is necessary, but so is an excellent understanding of legal terms in both the base language and the target language.  Both are required for good translation of a China contract.  Language alone is not enough – it is quite a different skill set from that required to translate poetry or a novel where the reader is sympathetic to the writer and trying to find the intended meaning.
  • When the language of a contract comes under scrutiny, it is likely to be in an aggressive context where one party is trying to establish a particular meaning from the words used and the other is trying to deny it.  Very often in a court or at arbitration. That is quite a different test for translation and the one that is really relevant for a China contract.
  • Translation is a skill that is generally not highly regarded in China.  There is a view that anyone can do it, which is another way of saying that it is unimportant work.  A glance at the instruction book supplied with a Chinese made appliance, or local signs, will, confirm this.  Very often translation is contracted out to language students at the nearest university for a pittance.  The result is what you would expect.
  • Good translation of a China contract is hard to do. It takes the skills previously mentioned, a lot of experience, and great attention to detail if an accurate translation is to result.  Some expressions in English (or Chinese) are very difficult to accurately translate into the other language.  Sometimes we have to amend the English (or Chinese) to facilitate accurate translation.  Good translation of a China contract is not something that comes at bargain rates, but the price is well worth paying if it helps get a successful outcome.

Questions you might ask about translation of a China contract.

  1. What is the process followed for translation?
  2. Who does the translation?
  3. What legal experience and training does he/she have?
  4. Who checks the translation?

Each of these questions is important, but those regarding who does the translation and checking are particularly so.  If translation is being contracted out, or being done by the other party, it is something to be concerned about. Translation should be done by someone able to talk directly with the person that drafted the contract so any ambiguities can be resolved and accurate translation obtained.

Checking is actually very important for good China contract translation because translators sometimes make mistakes that they cannot “see” because they created it. It requires fresh eyes.  Checking translation is a bit like proof reading a document, but goes further because a good checker will pick up ambiguities in the translation itself.  Perhaps needless to say, the person checking a translation should have superior skills to the original translator.

It is quite common in law firms operating in China for the person that drafts a contract, although a very competent lawyer,  to have very limited language skills in another language.  In these circumstances the drafter cannot check the translation so there must either be total reliance on the translator, or there has to be a competent checker.

Responses to the questions like “our translator is very experienced” or  “we have been doing this for many years and never had a problem”, or “all of our lawyers are bilingual” simply do not cut it.

Your contractual rights and obligations deserve more than a “trust me” response and there should be a proper process for legal translation.

Some advocate that one language should prevail.  Technically this is quite sound, but some practical realities need to be considered.  Very few people are equally fluent in more than one language. A  Chinese person  will typically be more comfortable with Chinese, an English speaker, with English.

If the governing law and dispute resolution is Chinese law and courts,  it is safe to assume that the Chinese language version is important, and will prevail.  But that is not the end of it.  Contracts have to be performed and it is important that both parties have accurate and authentic versions of the contract to guide their behaviour.

The only really sensible approach is to have good translation of a China contract so that both versions are equally authentic.  The contract can state that one prevails, but that is not a substitute for good translation, and both versions actually being the same.

Take away points

Good translation of a China contract is essential if it is to be legally and practically effective.

  • Good translation is not easy to get, and not every law firm can deliver it, but it is essential.
  • Be prepared to ask questions about the process: who will translate your China contract, who will check it for accuracy, and their qualifications and experience.
  • If you are not satisfied with the answers received it is probably time to seek an alternative source of contract expertise.

WX

© 2014 Graham Brown and Wei Xin. All rights reserved.