China: Imposing Greater Pressure Upon IP Infringers Through Multiple Legal Actions

After initiating a criminal action against an individual trademark counterfeiter, STIHL filed a follow-up civil lawsuit against the trademark counterfeiter and his company, on the ground of both trademark counterfeiting and trade dress infringement. By this civil lawsuit, STIHL solved the trade dress infringement problem and imposed greater pressure upon the counterfeiter.

Case Brief

In March 2014, ANDREAS STIHL AG & CO. KG (hereinafter "STIHL") requested the police of Baiyun District, Guangzhou City to raid a factory named "Guangzhou Rui Song Machinery Co., Ltd." (hereinafter "RUI SONG"). The police seized a lot of fake STIHL chain saws as well as some sales records. The chain saws displayed the STIHL registered trademark logo and the characteristic orange and grey color combination, which was the "special trade dress of a reputed product" as provided by the Anti-unfair Competition Law. HUANG Zhurong (hereinafter "HUANG") was the sole shareholder of RUI SONG. The police arrested HUANG and, after further investigation, the public prosecutor brought the case to Baiyun District Court for the crime of trademark counterfeiting. The court found that HUANG's production and sale of fake STIHL chain saws constituted the crime of counterfeiting registered trademark, sentenced HUANG to three years' imprisonment, imposed a fine of RMB 650,000, and confiscated the seized counterfeit products for destruction. HUANG appealed on ground that not all the chain saws already sold bore the STIHL trademark logo, as the business records did not specifically mention so, and there was no supporting evidence to prove that all the chain saws sold by him bore the STIHL trademark. In September 2015, the Guangzhou Intermediate People's Court lowered the criminal fine to RMB 100,000.

After the criminal prosecution, STIHL filed a civil lawsuit with the Baiyun District Court against both HUANG and his company RUI SONG, on the ground of trademark counterfeiting and trade dress infringement. STIHL requested the court to affirm that the criminal fine (RMB 100,000) which was part of the criminal sentence, should be used in priority to pay for the damages awarded in the civil case, should the defendant's assets prove to be insufficient. The Baiyun District Court ruled in favor of STIHL on both accounts (trademark counterfeiting and trade dress infringement) and ordered the defendants to jointly pay RMB300,000 as damages, specifying that part of the criminal fine already paid by the defendants was to be affected to the payment of the civil damages. The defendants appealed. In November 2016, Guangzhou Intellectual Property Court maintained the decision of Baiyun District Court.

Comments:

This "follow-up civil lawsuit" provides guidance for similar cases in the following aspects:

  1. The IP owner may have the court affirm that the damages to be paid to the plaintiff shall prevail over the criminal fine so as to facilitate enforcement of civil judgment.

In filing the lawsuit, STIHL requested the court to affirm that in case the property of the defendants was not enough to pay the civil compensation, the court should use the criminal fine already paid by the defendant to enforce the civil judgment. The court agreed.

This is expressly provided for in Article 4 of the Torts Law: "Where a tortfeasor bears administrative liability or criminal liability, it shall not prejudice the civil liability that the tortfeasor shall bear for the same conduct. Where the assets of a tortfeasor are not sufficient to cover the civil liability, administrative liability or criminal liability for the same conduct, the tortfeasor shall firstly bear the civil liability."

In China, the court normally will not permit the trademark owner to file a civil claim in the context of a criminal prosecution because only the victim suffering from loss of tangible property is entitled to file such a claim. But the trademark owner may file an independent civil lawsuit. In this civil lawsuit, it is advisable that the plaintiff specifically request the court to confirm the plaintiff's entitlement to the criminal fine in case the defendant's property is not sufficient to pay the damages, so that in the future enforcement procedure the judge may directly allot the criminal fine paid by the defendant for recovery of the damages.

  1. The IP owner may use the relevant evidence obtained by the police and the facts affirmed by the court in the criminal action to solve infringement other than trademark counterfeiting (patent, trade dress).

In the subject case, according to the police investigation, HUANG's sales record of chain saws amounted to RMB 1.27 million. However, the Guangzhou Intermediate Court could not ascertain if all the chain saws sold by HUANG bore the STIHL trademark logo because many business records did not specifically mention the STIHL trademark. The court only found the value of the counterfeit STIHL chain saws and chain saw parts seized by the police as amounting to more than RMB 100,000, and the counterfeit STIHL chain saws sold by HUANG to be worth RMB 180,000. In the criminal judgment, apart from the criminal sentence, the Court only ordered HUANG to stop the trademark counterfeiting business.

Yet, according to the evidence collected by STIHL itself such as notarization of the counterfeiter's website, it was clear that all the chain saws produced and sold by HUANG bore the orange and grey colors. In the follow-up civil lawsuit, STIHL provided such evidence. STIHL proved that, through extensive use and advertisement, the relevant public was making a stable association between this color combination and STIHL's chain saws. The court supported STIHL's claim of unfair competition and calculated the damages based on the defendants' production and sale of all chain saws.

  1. The IP owner may have the infringers bear joint liabilities by proving their "mixture of legal personalities".

In this case, the defendant HUANG argued that it was the company RUI SONG that should bear the liability for compensation because it was the company that was engaged in the illegal business. STIHL proved that, according to HUANG's bank account records obtained by the police, HUANG received the money directly for RUI SONG's sale of the fake chain saws, and paid the rent of RUI SONG from his personal bank account every month. HUANG's behavior was mixed with that of RUI SONG. Article 63 of the Company Law stipulates that, "if the shareholder of a single-person limited liability company is unable to prove that the property of the single-person limited liability company is independent from his own property, he shall bear joint liabilities for the debts of the company." Thus, the court ordered HUANG and RUI SONG to bear the joint liability, which means the court may seize both the personal property of HUANG and any property under the name of RUI SONG in enforcing the judgment on damages.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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