In 2016, the Tianhe District Court of Guangzhou delivered a criminal Judgment on a trademark counterfeiting case ([2015] STFZXCZ No.50, December 9, 2016). The brand owner thereupon initiated a civil litigation against the counterfeiters before the civil tribunal of the same court. The court rendered a civil Judgment ([2016] Y 0106 MC No.20467, May 30, 2019) affirming that the acts, which had not been qualified as a crime, constituted trademark infringement and awarded damages of RMB 3 million.

Background

A world-famous printing press manufacturer (“H Company”) is the owner of the trademark “H & device” for printing press and related consumables. In 2016, three individuals were found to be engaged in a large business involving the manufacturing and selling of printing presses bearing the trademark "H & device", and various consumables such as ink and ink supply units. They were convicted by the Criminal Tribunal of the Tianhe District Court of Guangzhou for the crime of attempting to sell a stock of ink, valued at 1.6 million Rmb. All the other acts concerning the making of the presses, of the ink and of supply units, were discarded by the criminal court, who considered that the evidence was insufficient to prove that a crime had been committed.

H Company brought a civil lawsuit and submitted to the same evidence to the Civil Tribunal. H Company claimed for monetary damages based on the illegal sales revenue.

The Civil Tribunal ruled in favor of H Company and awarded the highest statutory damages of RMB 3 million as prescribed in the 2013 version of Trademark Law (TML).

Civil and criminal proceedings are separate procedures employing different evidence and qualification standards. In a criminal proceeding, the level of evidence required should be "beyond reasonable doubt" which is significantly higher than the level of evidence required by a civil court to prove a fact. Besides, an act, which may not be considered as criminal by a criminal court, could still be qualified by a civil court, as trademark infringement, with civil liability consequences. This case is a good example to illustrate this distinction.

a) Acts not leading to a conviction in criminal proceedings could constitute infringement in civil proceedings

There was evidence that ink had been sold online by the defendants. There was also evidence that the defendants had consumed ink for their own use. However, the criminal court found this evidence insufficient to establish the crime of making and selling counterfeit ink. The judge only considered the existing unsold stock as an attempted crime of selling counterfeit products. With regards to the making of the press, the defendants argued that they merely imported second-hand printing presses in bulk from overseas and provided maintenance services for resale in China.

They invoked the exhaustion of the trademark right of the original manufacturer H company.

Based on these facts, the criminal court refused to qualify the defendant's handling of the presses as a crime. However, the civil court had a different view. The judge found that the defendants assembled components and/or parts collected from malfunctioning second-hand printing press, in order to refurbish and recreate functional ones for sale.  The Court held that making substantive changes to the core part of the second-hand printing press went way beyond the range of maintenance and severed the association between the trademark “H & device” and the products. The unauthorized refurbished product was no longer an original product manufactured by H Company, but rather an infringing product, even though the trademark affixed on the product had not been removed.

Exhaustion of trademark right was inapplicable in this case.

Furthermore, concerning the ink and the private use alleged by the defendant, the civil court examined the quantities involved and found that they were far higher than the quantities actually used by the defendant. Therefore, sales – and infringement - had taken place. This kind of reasoning and deduction could be made by the civil court, but was beyond the principle of "beyond reasonable doubt" required for a criminal sanction.

b) Illegal sales revenue in connection with the acts not leading to a conviction in criminal proceedings can be recognized in civil proceedings

The value of the counterfeit printing ink (1.6 million) recognized in the criminal proceedings was to ascertain the Defendants’ criminal liability. This amount was not to be deemed as a limitation for determining the damages in the civil proceedings. The Civil Tribunal examined all the evidence regarding the profits gained by the defendants and losses suffered by H Company

H Company submitted the sales record and judicial appraisal in the criminal proceedings to corroborate the calculation of the defendants’ illegal profits. The prime culprit admitted in his confession that profit margin of the infringing printing press is 15%. Profit margin on printing consumables, in practice, is usually higher than that of printing press. The Court found that whereas the Defendants failed to rebut the sales record and judicial appraisal, it would be reasonable for H Company to refer to 15% as the profit margin in the calculation of the illegal profits for printing press as well as printing consumables. The illegal profits in total was estimated to exceed the statutory damages of RMB 3 million.

Pursuant to TML Article 63, the Court took into account the reputation of trademark “H & device”, the duration and scale of the infringement, the Defendants’ mala fide, the executed imprisonment and the monetary penalty in the criminal proceedings and awarded the highest statutory damage of RMB 3 million to H Company.

Comments

This is an exemplary case where brand owner leverages both civil and criminal proceedings to maximise the deterrence against the counterfeiters/infringers.

Contributors: Eric Chen and Liz Chen