Recently, China Business Law Journal released its list of “CBLJ Deals of the year 2024 (IP)”. Lusheng Law Firm’s representation of New Balance in handling unfair competition disputes with Tianjin Qi某 Footwear Co., Ltd., Jiangxi Han某 Apparel Co., Ltd. and others was honored on the list.
Case Brief
Xin某lun Trading (China) Co., Ltd. (hereinafter referred to as “Xin某lun Company”), as an authorized entity, enjoys a non-exclusive right in China to use the intellectual property rights related to New Balance-branded products, including the New Balance 327 series of sports shoes, which enjoys a high degree of recognition, and is entitled to independently bring lawsuits against any acts infringing upon the trade dress and other rights of the above products that have attained a certain influence. Jiangxi Han某 Apparel Co., Ltd. (hereinafter referred to as “Han某 Company”) is the operating entity of a certain brand’s flagship store on the Tmall platform. A pair of sports shoes sold in this store used product trade dress similar to that of the New Balance 327 series sports shoes. The packaging box and product certificate of conformity of such sports shoes indicated that the manufacturer was Tianjin Qi某 Footwear Co., Ltd. (hereinafter referred to as “Qi某 Company”). Xin某lun Company held that Han某 Company and Qi某 Company, among others, had engaged in unfair competition by imitating the trade dress of another’s product with certain influence, and that Xin某lun Company had sent a lawyer’s letter to Qi某 Company and others demanding that they cease the infringing and imitative acts, but Qi某 Company and others refused to cease the infringement after receiving the lawyer’s letter and continued to manufacture and sell the accused infringing products, thereby constituting intentional repeated infringement with serious circumstances, and should therefore bear liability for punitive damages. Accordingly, Xin某lun Company requested the court to order Han某 Company and Qi某 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.
Upon trial, the court held that Qi某 Company had imitated the trade dress of the New Balance 327 series sports shoes of Xin某lun Company, which had attained a certain influence, thereby constituting unfair competition, and should bear civil liability to cease the infringement and compensate for losses. With respect to the amount of compensation, the actual losses suffered by Xin某lun Company due to the infringing acts could be determined based on the sales volume of the infringing products multiplied by the right holder’s reasonable profit per product. According to the notarial certificate and the background 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某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 in 2021 was approximately 13.54% and in 2022 was approximately 16.89%. 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 such shoes as compared with trademarks, quality, raw materials, and other factors, and taking into account the differences in potential consumer groups between the New Balance 327 series sports shoes and the accused infringing sports shoes due to differences in brand and pricing, the court, at its discretion, determined the contribution rate of the distinctive trade dress of the well-known product 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. Taking into account 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某lun Company due to the infringing acts amounted to RMB 167,328 (18,592 pairs × RMB 600/pair × 15% × 10%). As the manufacturer, Qi某 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 prove such claim, and it manufactured and sold the accused infringing products without authorization, thereby subjectively demonstrating intent to infringe. The sales volume and sales amount of the accused infringing products on the Tmall and Pinduoduo platforms were enormous, and the circumstances were serious, satisfying the constituent elements for punitive damages. Therefore, taking the actual losses of Xin某lun Company as the base for calculating punitive damages and applying one-time punitive damages, the court determined that Qi某 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 Han某 Company, in its capacity as a seller, successfully established the defense of lawful source, it did not bear liability for compensation, but it was required to cease the infringement and pay Xin某lun Company reasonable expenses of RMB 20,000.
In the first-instance judgment, the court ordered Qi某 Company and Han某 Company to cease the infringement; Qi某 Company to compensate Xin某lun Company for economic losses and reasonable expenses for rights protection in a total amount of RMB 380,000; and Han某 Company to pay Xin某lun Company reasonable expenses for rights protection 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 on 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 request that the manufacturer bear liability for punitive damages, thereby severely cracking down on infringers at the source, curbing unfair competition involving malicious “free-riding” on famous brands, highlighting the judicial orientation of strict protection of intellectual property rights, effectively safeguarding the legitimate 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.
————Case-handling Team————
Wang Shan
Director of the Shanghai Office, Co-head of Dispute Resolution Practice
Lusheng Law Firm
Ms. Wang Shan is currently the Director of Lusheng’s Shanghai Office and Co-head of the Dispute Resolution Practice, and is based in Shanghai. Ms. Wang is a distinguished expert in the field of intellectual property protection, with a practice covering trademarks, copyrights, patents, trade secrets, trade names, and unfair competition, and has accumulated over 20 years of practical experience.She serves numerous world-renowned enterprises, many of which are from the media and entertainment, sports, fashion and luxury goods, automotive, technology, chemical, and restaurant chain industries. She has successfully represented many dispute cases with extensive social impact and cases involving damages in the tens of millions of renminbi. Many of these cases have repeatedly been selected as “Top 10 Intellectual Property Cases of Chinese Courts” released by the Supreme People’s Court and as annual typical cases by courts at various levels, and have been included in lists such as “QBPC: Top Ten Cases of Intellectual Property Protection of the Year” and “China Business Law Journal: Deals of the Year”.Ms. Wang has been widely recognized by many international legal ranking institutions and authoritative media, including Managing IP, Benchmark Litigation, World Trademark Review, and IAM (Intellectual Asset Management), and has been listed in rankings such as “Managing IP: Top 250 Women in IP”.
Email: cwang@lushenglawyers.com
Yu Yisi
Head of Shanghai Litigation Team
Lusheng Law Firm
Ms. Yu Yisi is a senior intellectual property lawyer with nearly 20 years of practice. She provides litigation and non-litigation legal services relating to intellectual property to well-known multinational companies, covering trademarks, copyrights, patents, trade secrets, trade dress, trade names, domain names, and other fields. She has long served numerous leading multinational companies, many of which are from the fashion, technology, manufacturing and engineering, entertainment, sports, toy, hotel, alcoholic beverage, and consumer goods industries. With her extensive litigation experience, she has successfully represented many challenging and complex litigation cases, several of which involved securing, for the first time in China, protection of clients’ core intellectual property rights and obtaining high damages.Many of the cases she has handled are of landmark significance in the field of domestic judicial practice and have been repeatedly selected as typical cases by courts at various levels and professional institutions, including “Top 10 IP Cases of Chinese Courts of the Year” selected by the Supreme People’s Court and “QBPC: Top Ten Cases of Intellectual Property Protection of the Year”.
Email: ayu2@lushenglawyers.com
Xu Liping
Senior Lawyer
Lusheng Law Firm
Ms. Xu Liping provides advisory and representation services on intellectual property strategies, intellectual property portfolios, and intellectual property-related disputes, including various matters involving trademarks, copyrights, patents, trade secrets, trade names, domain names, and unfair competition. Ms. Xu advises clients from a wide range of industries, including the technology industry, telecommunications industry, digital internet industry, manufacturing and engineering industry, personal care industry, entertainment industry, and luxury goods industry. Ms. Xu has handled many significant cases in China and has received awards from courts and industry organizations.
Email: lxu@lushenglawyers.com
Feng Guimei
Senior Lawyer
Lusheng Law Firm
Ms. Feng Guimei joined Lusheng in 2008 and has worked in the field of intellectual property for more than ten years, with extensive practice experience. She is skilled in the design and management of intellectual property enforcement projects. As a senior intellectual property lawyer, Ms. Feng provides overall intellectual property protection strategies, brand protection advice, and litigation legal services to many world-leading enterprises in industries such as toys, sports brands, and luxury goods. Ms. Feng also represents and has prevailed in various types of litigation cases involving trademark infringement, unfair competition, and copyright infringement.
Email: hfeng@lushenglawyers.com
