China: What The New Balance Case Means For Those Doing Business In China

Last Updated: 1 September 2017
Article by Sophia Liu and Jamie Rowlands

In a landmark judgment in China, the global sports apparel brand, New Balance, has been awarded £1.2 million in damages and legal costs after successfully suing a Chinese shoemaker, New Boom, for infringing its registered "N" logo.

Background

For some years, New Balance has been locked in legal disputes with a number of copycat Chinese shoemakers. This includes brands such as New Bailun, New Bunren and New Boom. New Boom's shoes use an "N" logo on both sides and New Boom's logo is a slanted "N" similar to New Balance's famous "N" logo.

New Balance has had its fair share of problems in China but, recently, has been on a winning streak. In May 2017, New Balance was granted a favourable judgment against the makers of New Bailun shoes for trade mark infringement and was awarded $500,000 in damages. In the same month, the Suzhou Intermediate People's Court (located in Jiangsu Province, near Shanghai) ruled against five Chinese companies (one of which was the owners of the New Boom brand, which is the subject of this article) for breaching an interim injunction order preventing them from using New Balance's registered "N" logo. In that case, the owners of New Boom were ordered to pay RMB 1 million to the court as a penalty (approximately £117,000), the maximum amount permissible by law.

The dispute with New Boom

This latest dispute arises from May's interim injunction finding and is the first instance judgment against New Boom's owners, Zheng Chaozhong, Xin Ping Heng Sporting Goods Limited Company and Bo Si Da Ke Trading Limited.

New Balance claimed for both trade mark infringement and a breach of China's Anti-Unfair Competition Law, which prevents companies from taking unfair advantage of another company's well-known product decoration. New Balance filed evidence to show that Chinese courts had previously recognised the use of the "N" logo on both sides of the shoe as "decoration unique to well-known products" as provided by Article 5(2) of the Anti-Unfair Competition Law.

In the first instance judgment issued on 17 August 2017, the Suzhou court found that the slanted "N" logo used in New Boom's logo and trade dress of their products led to "confusion by a large number of consumers" in respect of whether the infringing goods were genuine New Balance products. Finding in favour of New Balance's claims, the judgment went on to say that the defendants had "drastically damaged the business reputation of New Balance" and their infringement of New Balance's trade mark had caused New Balance's market share to drop in China (based on New Balance's supporting evidence).

Upholding New Balance's claims, the Suzhou Intermediate People's Court ordered the defendants to pay RMB 10 million in damages (approximately £1.2 million) and to immediately cease producing and selling shoes which incorporate the logo (or variations thereof).

Why is this case important for companies doing business in China?

It is very rare for a Chinese court to award damages of this size in intellectual property cases. However, we are beginning to see a trend of courts awarding damages that exceed the statutory damages caps within which the courts usually work.

While China continues to introduce measures to improve its IP regime, foreign companies have struggled to obtain large damages awards. The usual approach is for courts to award statutory damages in circumstances where the claimant is unable to prove either its loss or the defendant's gain in China (the latter often being blamed on the lack of disclosure available in China). For trade marks the statutory damages maximum is only RMB 3 million (approximately £350,000) and for patents it is only RMB 1 million (approximately £117,000) and often damages awards do not even reach these caps.

The judgment should be welcomed by foreign brand owners operating in China and represents a victory for aggressive IP protection in China. However, while it is hoped this decision will continue the early stage trend of higher damages being awarded for IP infringement in China, it is certainly not the "norm". To secure this damages award, New Balance had to file sensitive financial data to court which some foreign parties are unwilling to do given confidentiality concerns. In addition, the defendant in this case was clearly persistent at infringing and had ignored previous judgments against it. These two factors are likely to have contributed to the court awarding such a high damages sum.

Coming within 12 months of the generally positive Michael Jordan trade mark decision in which the former basketball player managed to secure the transfer of a trade mark for the Chinese translation of his name from a third party Chinese company, this case is a reminder of the positive steps being taken by China in the IP field. It serves as another clear message that companies that wish to do business in China should register their IP as soon as possible and that it is certainly possible to succeed in the Chinese courts.

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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