What are some of the important changes that the Trademark Law bring to litigation proceedings?
Celia Y. Li: Comparing with the previous Trademark Law, the new Trademark Law of PRC makes significant effort to provide trademark right holders with more comprehensive legal protection and enhance legal sanctions against bad-faith infringers, by modifying and/or adding provisions referring to recognition of infringement subject and activities, calculation method of compensation, burden of proof, etc. For details, please refer to our further discussion below.
1) ‑Article 48 – Concept of ‘Use of Trademark’: specifying that “use of a trademark” means using a trademark on goods, on the packages or containers of goods, in the trade documents of goods, or for advertisements, exhibitions, and other commercial activities for the purpose of identifying the origin of goods.
2) ‑Article 57(2) – Modification of infringement elements over certain particular infringing activities: in the infringing activities that ‘Using a trademark similar to a registered trademark on identical goods or using a trademark identical with or similar to a registered trademark on similar goods’, adding ‘cause confusion among relevant customers’ as a new element.
3) ‑Article 57(6) – Specifying that anyone who intentionally ‘provides facilitation for infringement upon others’ trademark right or aids others in committing such infringement’ can be pursued as a joint defendant.
4) ‑Article 58 – Specifying that the Anti-Unfair Competition Law of PRC will be applied in the event that any entity uses a registered trademark or an unregistered well-known trademark of others as a trade name in its business name to mislead the public, which constitutes unfair competition.
5) ‑Article 63(1) – In Determination of Compensation, Adding New Standard and explicating Statutory Order
a) ‑Apart from ‘actual loss’ and ‘benefit acquired from infringement’ which has been specified in the previous law, adding ‘reasonable royalties’ as a new standard.
b) ‑Specifying the calculation order as i. ‘actual loss’, ii. ‘benefit acquired by infringer’ or iii. ‘reasonable royalties’.
6) ‑Article 63(3) – Increasing the ceiling of statutory compensation
‑Where it is difficult to determine the actual losses suffered by the right holder from the infringement, the profits acquired by the infringer from the infringement, or the royalties of the registered trademark, the court may award damages of not more than CNY 3 million according to the circumstances of the infringement.
7) ‑Article 63(1) – Adding punitive damages provision
‑If the infringement is committed in bad faith with serious circumstances, the amount of damages shall be the amount, but not more than three times the amount, determined by the methods under Article 63(1).
8) ‑Article 63(2) – Rearrangement of burden of proof
‑Where the right holder has made its best efforts to adduce evidence but the account books and materials related to infringement are mainly in the possession of the infringer, in order to determine the amount of damages, the court may order the infringer to provide such account books and materials; and if the infringer refuses to provide the same or provides any false ones, the court may determine the amount of damages by reference to the claims of and the evidence provided by the right holder.
9) ‑Article 64 – Adding ‘non-use for last three years’ defense
‑If the trademark right holder is neither able to prove its actual use of the registered trademark in the last three years nor able to prove that it has suffered other losses from the infringement, the alleged infringer shall not be liable for damages.
Many rights holders complain about the relatively low damage awards in China. What has the new Trademark Law done to address this?
Li: The maximum statutory compensation is RMB 500,000 ($80,300) under the old law. For the purposes of improving the protection of trademark rights and further cracking down on trademark infringement, the maximum statutory compensation is increased to RMB 3 million under Article 63(3) of the new Trademark Law.
In addition, because the old law did not provide for punitive damages, courts did not have a legal basis to suitably punish certain bad faith infringers. In response to this, Article 63 of the new Trademark Law imposes punitive damages against willful infringement and stipulates that the amount of punitive damage could be triple the amount of the potential registered trademark-licensing fee, right holders’ actual loss or infringer’s gains.
Brandy Baker: Keep in mind that in addition to increased damages, fines in administrative enforcement cases have also been increased. Where revenue exceeds RMB 50,000, fines may be up to five times the profits made. If revenue is less, the fine may be as much as RMB 250,000. Fines have also been increased for repeat offenders.
How can rights holders take advantage of these increased damages?
Li: In order to obtain more compensation in an infringement lawsuit, the rights holder should pay attention to collecting the day-to-day profits records, which can be valuable proof of actual loss due to the infringement. Proof of the infringer’s profit obtained through infringing activities is also important, which could be revealed through a well-organized investigation, even it can be extremely difficult sometimes.
In addition, because to the new Trademark Law adds non-use for three consecutive years as a defense against compensation claims, it is crucial to collect and retain proof of use of your mark in the Chinese market.
Furthermore, in trademark proceedings, the warning letter will be very important in the determination of bad faith, which could provide the rights holder significant help in claiming punitive damages pursuant to Article 63.
Does the trademark law make it easier to get evidence to support damages claims? If so, what are they and how can rights holders use these provisions?
Li: No law can make it easier to get supporting evidence in any proceedings in China. Instead, Article 63(3) of the new Trademark Law rearranges the burden of proof when determining compensation, which lessens the burden on the plaintiff and transfer them partially to the defendant’s side if certain specified requirements are satisfied.
The Chinese civil law system does not have a discovery process. Therefore, it can be difficult for claimants to obtain proof of the extent or scope of the defendant’s sales, the amount of its profit and the plaintiff’s loss.
This issue is addressed to a certain extent in the new Trademark Law by allowing for the courts to order infringers to produce books of account and records in situations where the claimants are unable to obtain sufficient evidence by its own efforts under Article 63(2). In addition, if the defendant refuses to provide books of account or provides falsified records, the court may make a decision in reference to the evidence submitted by the Plaintiff.
In these situations, pre-litigation investigations will be much more important in proving both the defendant’s profit and the plaintiff’s efforts at obtaining such evidence.
Baker: Getting evidence can be incredibly difficult given that the burden of proof is largely placed on the plaintiff. However, with the new amendments, the court will be able to play a larger role in requiring production of evidence by the defendant in order to determine damages. Where a defendant refuses to comply, the courts can even the playing field by giving more weight to the plaintiff’s claimed damages. Further, the courts will continue to assist in pre-litigation evidence preservation, which also helps relieve the extreme difficulties plaintiffs often face in evidence production.
Are there any provisions in the new Trademark Law that deal with repeat offenders? How can rights holders take advantage of these provisions?
Li: Under the old trademark law, the Administration of Industry and Commerce (AIC) could only impose fines of no more than three times the illegal operation amount. In cases where the amount cannot be determined, the fine could not be over RMB100,000 ($16,000).
The new Trademark Law grants the AIC a right to issue a more severe punishment against infringers. Article 60 stipulates that the AIC has the right to impose fines of no more than five times the illegal operation amount where the amount is over RMB50,000. In cases where the amount is less than RMB50,000 or cannot be determined, the fine is capped at RMB250,000.
More significantly, an infringer who has been punished by the relevant AIC twice within 5 years will receive heavier punishment.
Even though the right holder cannot obtain any compensation from an AIC action, the favorable administrative decision issued by AIC will be considered as very solid evidence in the related judicial proceedings. Furthermore, decisions against repeat offenders may act as a nuclear weapon in proving the infringer’s bad faith, which may lead to a punitive damages judgement.
