The recent ruling by a Chinese court in a trademark infringement dispute concerning New Balance’s logo marks a watershed moment in China’s Intellectual Property regime. The Court awarded a landmark decision in favor of New Balance against Chinese competitors deemed to have infringed the company’s IPR, reflecting China’s recent effort to improve IPR protection. While foreign firms doing business in China may breathe a sigh of releif at this decision, they must also recognise the implication of the decision against backdrop of the Chinese Trademark regime.
New Balance has been involved in several disputes involving trademark infringement after entering China against counterfeit Chinese shoemakers. This case involved the infringement of NBs well known slanting ‘N’logo on its footwear by five Chinese shoemaker. The Case involved the infringement of NBs well known slanting ‘N’ logo on its footwear by five Chinese shoemaker. The court observed that by infringing the distinctive logo’s, the defendant had drastically damaged NB’s business reputation and market share in china. The court ordered the defendant to pay an unprecedented compensation amounting to RMB 10 million to NB and to immediately cease producing and selling shoe that infringe NB’s logo. Prior to the decision in favor of NB and to immediately cease producing and selling shoe that infringe NB’s logo.
In 2015, a court in the southern city of Guangzhou ordered NB to pay US$15.8 million to a man named Zhou Lelun, who had owned the trademark to NB’s Chinese name since 1994. The court ruled that NB had infringed on Zhou’s trademark ownership as he acquired the Chinese trademark before NB under country’s first to file system.
How should Foreign Firms intrepret the decision?
Many foreign firms have encountered IPR protection challenges in China due to the Country’s first to file system and the problem trademark squatting. The First to file system is not unique in china, it is used in many jurisdiction around the world, inlcuding majority of European countries. However, the system can prove problematic for US firm and those from other countries that do not use first to file, as they are often under under the impression that China recognises trademark registered under other jurisdiction. Unlike common law jurisdiction such as United States, where leagla precendent have binding values China follows the civil law system and courts are not bound to follow decision laid down in prior cases. Therefore, it is uncertain whether this judgement will have any significant impact on future trademark infringement disputes.
Trademark and other IP infringement litigation is an expensive and lengthy process and foreign firms often incur huge expenses in legal fees in such cases. Moreover, most cases do not result in favorable award for foreign firms often incur huge expenses in legal fees in such cases.
What strategies should foreign firm adopt to protect their trademark in China?
In order to successfully use their trademark while doing business in China and prevent trademark squatting, it is vital for foreign firms to adopt the following precautionary strategies;
- Registering the trademark in China as early as possible, Registration in China may take as long as 18 month, and it is advisable to file registration as early as possible before entering the Chinese market, or even before making concrete plans to enter China.
- Register the trademark in Chinese character transliteration in addition to original forms, in order to create the right brand image and avoid confusion, it is advisable to use Chinese character that make a positive reference to descriptive characteristics of the brand and are also phonetically similar to trademark. Enlisting the service of local consultants to help choose the appropriate transliteration is recommended.
- Registering trademark under categories and sub-categories of goods and services. In order to prevent the trademark squatter from registering under similar sub categories of goods and service, it is advisable to file for registration under all categories and sub-categories.
How does the decision relate to larger IP picture?
Although China has made important international commitments to promote IPR protection within its jurisdiction since 1980, the Chinese government has adopted a lackadaisical attitude over the years fostering an industry thriving on IPR infringement and counterfeit goods. Recently, amidst international criticism of China’s business environment and extensive IP theft the government has brought about slew of reforms aimed at improving IPR protection in China. The court have also adopted a similar line of approach as evidence from recent awards passed in favor of foreign firms. Yet, international businesses remain highly critical of IPR protection in China due to the country’s spotty track record, and although the recent reforms indicate a step towards enhanced protection, it is uncertain how far the situation will actually improve.