Recently, China Business Law Journal released its list of “Deals of the Year 2024”. The case in which Lusheng Law Firm represented New Balance in handling unfair competition disputes with Tianjin Qi Mou Footwear Co., Ltd. and Jiangxi Han Mou Apparel Co., Ltd., among others, was honored as one of the selected deals.
Brief Case Summary
Xin Mou Lun Trading (China) Co., Ltd. (hereinafter referred to as “Xin Mou Lun Company”) was authorized to use, on a non-exclusive basis in China, the intellectual property rights related to New Balance branded products, including the New Balance 327 series of sports shoes, which enjoy a high degree of recognition under the brand. Xin Mou Lun Company is entitled to independently bring lawsuits against any acts infringing upon the trade dress and other rights of goods with a certain market influence. Jiangxi Han Mou Apparel Co., Ltd. (hereinafter referred to as “Han Mou Company”) is the operator of a certain brand’s flagship store on the Tmall platform. A pair of sports shoes sold in that store adopted a trade dress similar to that of the New Balance 327 series sports shoes. The packaging box and product certificate of conformity of those sports shoes indicated that the manufacturer was Tianjin Qi Mou Footwear Co., Ltd. (hereinafter referred to as “Qi Mou Company”). Xin Mou Lun Company considered that Han Mou Company and Qi Mou Company, among others, had engaged in unfair competition by imitating the trade dress of another’s goods with a certain market influence. Xin Mou Lun Company sent a lawyer’s letter to Qi Mou Company and others demanding that they cease the infringing and imitative acts, but Qi Mou Company and others refused to cease the infringement after receipt of the lawyer’s letter and continued to manufacture and sell the accused infringing products, thereby constituting intentional repeated infringement with serious circumstances, for which they should bear punitive damages. Accordingly, Xin Mou Lun Company requested the court to order Han Mou Company and Qi Mou Company, among others, to cease the infringement and to compensate for economic losses and reasonable expenses for rights protection in a total amount of RMB 3 million.
The court, upon trial, held that Qi Mou Company had imitated the trade dress of the New Balance 327 series sports shoes of Xin Mou Lun Company, which had a certain market influence, thereby constituting unfair competition and should bear civil liability for ceasing the infringement and compensating for losses. With respect to the amount of compensation, the actual losses suffered by Xin Mou Lun Company due to the infringing acts could be determined by multiplying the sales volume of the infringing products by the right holder’s reasonable profit per product. According to the notarial certificate and the backend data provided by the Tmall platform, the sales volume of the accused infringing products was 4,924 pairs on the Pinduoduo platform and 13,668 pairs on the Tmall platform, totaling 18,592 pairs. Xin Mou Lun Company did not provide the profit margin of the New Balance 327 series sports shoes, but only submitted audit reports asserting that its operating profit margin was approximately 13.54% for 2021 and 16.89% for 2022. The court, at its discretion, determined the reasonable profit margin during the sales period of the accused infringing products to be 15%. In view of the contribution of the trade dress of the New Balance 327 series sports shoes to the sales volume and profit margin of the shoes as compared with trademarks, quality, raw materials, and other factors, and taking into account the differences in potential consumer groups caused by the different brands and pricing of the New Balance 327 series sports shoes and the accused infringing sports shoes, the court, at its discretion, determined the contribution rate of the distinctive trade dress of the well-known goods to be approximately 10%. The sales prices of the New Balance 327 series sports shoes included different price points such as RMB 579, RMB 719, and RMB 799. Considering discounts, promotions, and other factors, the court, at its discretion, determined the actual selling price to be RMB 600. In summary, the actual losses suffered by Xin Mou Lun Company due to the infringing acts amounted to RMB 167,328 (18,592 pairs × RMB 600/pair × 15% × 10%). As a manufacturer, Qi Mou Company should bear a higher duty of care. Although it claimed to have conducted sufficient market research and patent searches prior to research and development and production, it failed to provide any evidence to substantiate such claim, and it arbitrarily manufactured and sold the accused infringing products, thereby demonstrating subjective intent to infringe. The accused infringing products were sold in large quantities and for substantial amounts on the Tmall and Pinduoduo platforms, and the circumstances were serious, satisfying the constituent elements for punitive damages. Therefore, using the actual losses of Xin Mou Lun Company as the base for calculating punitive damages and applying punitive damages at one time the amount of actual losses, the court determined that Qi Mou Company should bear punitive damages and reasonable expenses incurred by the right holder to stop the infringement in a total amount of RMB 380,000. As a seller, Han Mou Company successfully raised the defense of lawful source and thus did not bear liability for compensation, but it was ordered to cease the infringement and to pay Xin Mou Lun Company reasonable expenses of RMB 20,000.
The court of first instance rendered a judgment ordering Qi Mou Company and Han Mou Company to cease the infringement; Qi Mou Company to compensate Xin Mou Lun Company for economic losses and reasonable expenses for rights protection in a total amount of RMB 380,000; and Han Mou Company to pay Xin Mou Lun Company reasonable expenses for rights protection in an amount of RMB 20,000. After the first-instance judgment was rendered, none of the parties filed an appeal.
Typical Significance
This case is a typical example of distinguishing between the different liabilities to be borne by manufacturers and sellers and the different levels of duty of care to be imposed upon them. In this case, a higher duty of care was imposed on the manufacturer, and its assertion that it had conducted market research and patent searches prior to research and development and production was not accepted. The court upheld the right holder’s claim that the manufacturer should bear punitive damages, thereby severely cracking down on infringers at the source, curbing unfair competition practices involving malicious “free-riding” on famous brands, highlighting the judicial orientation of strict protection of intellectual property rights, effectively safeguarding the lawful rights and interests of right holders, maintaining a market order of fair competition, and contributing to the creation of a market-oriented, law-based, and internationalized business environment.
This case was also selected as one of the Top Ten Typical Cases of Intellectual Property Protection of Jiangxi Courts in 2023.
