Planning to trade with China? Plan to protect your trade marks!

Take home message

• If you are planning to trade with China, acting early to register your marks, including Chinese language versions, is essential
• If you do not provide a Chinese language versions of your marks, the Chinese public will undoubtedly create these for you, which may not appropriately reflect your image
• Consider having the creation of your Chinese language marks and Chinese language versions of your company name and address by competent Mandarin/English speakers, so the versions adopted reflect your corporate brand and image
• Use of your trade mark and/or the Chinese language version without registration can have dire consequences, as illustrated by the New Balance litigation in China – do not follow this path!

Why Chinese language versions of your marks?

Searching and registration is needed in China, not only for your English language marks, but also for the Mandarin characters versions. In addition to creation of Chinese character version of your marks, it is useful to develop Chinese character version of your company name and address, as these are often needed for use on official documents. If a Chinese character version is not developed and consistently used, variations will occur which can cause difficulties over time, for example when you wish to assign or transfer ownership of trade mark registrations. Our associates in China can assist with developing appropriate Chinese character trade marks or company names which are finely tuned to your corporate brand and image, or there are specialists to do this.

Depending on the importance of any trade mark, registration may be appropriate for the English version, both literal and phonetic translations in roman characters as well as transliteration into Chinese characters version. This may sound excessive, but it is important to remember that Chinese law does not recognise or protect a trade mark unless it is registered in China. It is always cheaper to register than to litigate, and broader registration rights, reduces risk of piracy or loss of rights. As many western companies have found, litigation to displace registered rights obtained by pirates is a costly and often an ineffective process.

The lessons of the decision of Zhou Yuelun and New Balance Shoe Inc

The decision handed down in April 2015 by the Guangzhou Intermediate People’s Court provides a lesson about use of Chinese character marks and the importance of the first to file date, irrespective of use of a trade mark in China. The parties were Chinese trade mark owner Mr Zhou Yuelun and New Balance Shoe Inc together with its Chinese distributor.

New Balance had used both 新百倫 pronounced Xin Bai Lun (since 2003) and 紐巴倫 pronounced Niu Ba Lun, as Chinese character versions of its New Balance mark, but had not registered these, possibly because of Mr Zhou’s registration 百倫 pronounced Bai Lun, registered since 1996. Mr Zhou also registered 新百倫 pronounced Xin Bai Lun in 2004,which proceeded to registration notwithstanding New Balance’s opposition claiming use of the identical mark since 2003. New Balance was not able to establish that its mark 新百倫 Xin Bai Lun was a famous mark in China prior to Mr Zhou’s filing in 2004. Both Zhou registrations are in class 25 for clothing, shoes and hats and Mr Zhou brought infringement proceedings against New Balance for sale of footwear.

New Balance argued that its use of 新百倫 Xin Bai Lun was fair and good faith use, as the Chinese characters were a direct transliteration of the New Balance mark and company name and so did not infringe. The court did not accept these arguments. It determined:

• Use of the Chinese characters was infringing trade mark use
• New Balance had acted in bad faith, as it was aware of Mr Zhou’s 新百倫 Xin Bai Lun application, opposed it and was unsuccessful in the opposition
• During the opposition, New Balance continued to use the infringing trade mark
• 新百倫 Xin Bai Lun was not a direct translation of New Balance, and closer or more appropriate transliterations such as 新平衡 pronounced Xin Pin Heng, could be used, and that New Balance itself had used an alternative 紐巴倫 Niu Ba Lun on occasion
• Mr Zhou demonstrated confusion between his trading activities and those of New Balance.

The highest damages award in China to date

The quantum of the award to Mr Zhou ensured the decision was widely published in both the Chinese and foreign press. New Balance was ordered to cease infringing, and pay approximately AU$16million in damages, which is the highest damages award made in China to date. This amount was reached on the basis that it represented 50% of the profit of New Balance during the infringement period, plus costs. New Balance was also ordered to make public announcements on its official website and in appropriate media, to reduce confusion in the Chinese market. This decision reflects the strength of registered trade mark rights in China, notwithstanding that New Balance is now a famous trade mark in China, and Mr Zhou has not suffered any significant loss.

It is likely that the damages award was high because the Court determined that the activities of New Balance, in continuing to trade after it had become aware of Mr Zhou’s application for 新百倫 Xin Bai Lun in 2007, was in bad faith. It is also possible that the Court wished to send a message that it will protect the registered rights of a smaller trader against bullying market behaviour of a larger trader. An appeal against the decision or the damages award is possible.