Supreme People’s Court links damages to trademark fame in “very positive” Michelin decision

China’s highest court has ruled that the fame of an infringed trademark should come into consideration when determining damages, with lower courts expected to follow suit. The decision looks to be a positive one for brand owners seeking higher damages in cases where it seems likely that flagrant copying has taken place.

French tire manufacturer Michelin initially filed suit for trademark infringement and unfair competition in the Chongqing Fifth People’s Court in March 2011 after discovering that its formerly licensed distributor Sentaida had been using a number of marks that were allegedly confusingly similar to its own. In addition to its Roman character marks MICHELIN and its renowned Bibendum mascot (otherwise known as the Michelin Man), the company’s phonetic name MI QI LIN in Chinese characters (‘米其林’) is also widely recognised in China. Sentaida had begun marketing products under the marks SEN QI LIN and CENCHELYN and had registered the ‘www.cenchelyn.com’ domain name. Moreover, Li Daowei, a local Chongqing tire dealer, was selling Sentaida tires using Michelin’s ‘米其林’trademark.

The Chongqing Fifth People's Court and, at second instance, the Chongqing High People's Court found that one of Sentaida’s trademarks was similar to Michelin’s and ordered it to pay Rmb10,000 in damages. The courts additionally found that Li Daowei's use of ‘米其林’ constituted trademark infringement and awarded Michelin Rmb50,000 in damages. However, they rejected the claim of similarity between another of Sentaida's trademarks and the MICHELIN mark. This led to the French company’s eventual appeal to the Supreme People’s Court (SPC), which in March this year (and recently reported) repealed the lower courts’ judgments and raised the amount of damages to Rmb500,000 – the maximum amount of discretional compensation allowed under China’s 2001 Trademark Law, which was the applicable legislation in this particular case.

“Knock-offs and free-riders are common headaches for trademark owners doing business in China,” says Zhang Hui, partner at ZY Partners in Beijing. “The Michelin case is a typical example, where the pirated mark is quite well-known and the infringers had obvious bad faith.”

Chinese courts have often been criticised for a conservative approach to remedying trademark infringements, and for handing out what have typically been seen as inadequate damages. But the SPC decision in Michelin is the latest in a number of judgments that are bucking this trend. “The Michelin case has set up a good precedent for local courts in two aspects,” Zhang explains. “First, marks of high fame shall be granted broader protection scope to cover pirating marks of less similarity. Second, sufficient damages shall be awarded even there is no evidence of actual damages. We believe this decision is very positive for foreign trademark owners doing business in China.”

In November last year, the Beijing IP Court awarded statutory damages of Rmb3 million – the maximum available under the country’s 2014 Trademark Law – to Italian luxury fashion brand Moncler after ruling that its trademarks had been infringed by a local company. “Michelin and Moncler share similar merits in terms of the high fame of the asserted marks and bad faith of the infringers,” says Zhang, who explains: “The amount of damages granted in the Moncler case is bolder and out of expectation, though Rmb3 million is the ceiling of statutory damages under the 2014 Trademark Law, the applicable law of the Moncler case. Statutory damages are under a judge’s discretion because the plaintiff is unable to prove actual losses or illegal profits. It had become common that nominal damages would be awarded in cases applying statutory damages, as in the lower court decisions for the Michelin case.”

However, this status quo appears to be changing, as Chinese courts increasingly consider the ‘fame’ or renown of particular trademarks in the domestic market as a factor in determining remedies. “The fame of the Michelin marks, together with the bad faith of the infringers, influenced the court evaluation of trademark infringement, and in this case caused the SPC to substantially increase the amount of damages from that of the original judgments,” she says. “The lower courts judgments did not recognise the marks as being similar enough to constitute a trademark infringement.”

Fame being taken into account in the course of such determinations is in line with the trademark law and international practice, and should encourage healthy competition as SMEs with less recognisable trademarks focus further efforts on brand promotion and protection, Zhang adds. As always, rights holders should ensure they are in a position to present evidence of both their use of their marks, and their fame in China, should they suspect infringement. “Evidence is critical to secure a successful legal action,” she concludes. “We recommend trademark owners maintain good trademark fame and use evidence.”