First published by WTR

Authored by Jiang Nan & Qin Huimin

On 24^th April 2022, the Guangdong High Court in China rendered a decision in Guangdong Yongquan Valve Technology Co., Ltd. v. Dongguan Yongquan Valve Ltd et al, reversing the first-instance decision of the Dongguan Intermediate Court. On top of awarding damages RMB 10 million, the court of appeal ordered cessation of trademark infringement and unfair competition, recall and destruction of the infringing products from the market and releasing statement to eliminate adverse effects.

In essence, the case per se is quite straightforward. The Plaintiff registered in 1998 its first “Yongquan” trademark in class 7 and changed in August 2011 its trade name to align with its sizable trademark portfolio centering “Yongquan”. In December 2011, the predecessor of one of the defendants also took the same trade name and later registered confusingly similar domain name to piggyback the plaintiff’s goodwill. Since 2013, the defendants had been blatantly engaged in manufacturing, distribution and offering for sale infringing valves bearing trademarks that are either identical with or similar to the plaintiff’s prior registered trademarks in respect of same or similar goods.

The trial court found trademark infringement and unfair competition and granted the plaintiff damages of RMB 700,000. Both parties appealed.

The court of appeal confirmed the finding of trademark infringement and unfair competition. The tricky part is the calculation of damages, as usual.

The plaintiff adduced prima facie evidence including the online sales prices of the infringing products, profit margin of the valve industry and other evidence outlining the rough size of the defendants’ nationwide business operation. Since the account books are under the control of the defendants, the court ordered the defendants to submit those associated with the infringement. Unsurprisingly, the account books adduced were found to be incomplete and did not tally with the genuine business transaction records of the defendants. The court held the defendants liable for obstructive practice and concluded that the furnished evidence did not suffice to attest either the losses the plaintiff suffered or the profits the defendants yielded from the infringement. In light of the above and in absence of the trademark royalties which may serve as a framework of reference in calculation of damages, statutory damages should apply.

The court opined it would be reasonable to penalize aggravated IP infringement act with a view to punishing and stemming infringement and maintaining market competition order. In case the infringer exhibits obvious bad faith, and the circumstance of infringement is serious, yet the right holder did not explicitly advocate for the application of the punitive damage regime or it is practically impossible to apply the same, the court may factor into the willfulness of the infringer and the severity of the infringement act and award a hefty damages up to the ceiling of the statutory damages.

First and foremost, the court acknowledged the plaintiff’s industry leader status and the high brand awareness of its trademarks in the valve industry. It enumerated the defendants’ rampant infringement act victimizing ten registered trademarks of the plaintiff, in tandem with its multifaceted and calculated unfair competition acts, its massive business operation scale and the decade-long infringement act, leading to the creation of confusion and misidentification among the relevant public and substantial erosion of the market share of the plaintiff. The court therefore found the glaringly obvious bad faith and the severity of the infringement merit hefty damages and awarded a total of 10 million damages, equally split among the defendants’ trademark infringement and unfair competition acts.

Considering that trademark infringement and unfair competition acts are often closely intertwined in tortious act, allegations are usually raised and affirmed simultaneously in one single civil proceeding and the judiciary tends to assess the tort liability of both acts in their entirety. But it is not a mandatory approach. The court may opt to assess the acts severally and award separate monetary damages on their own merits, as long as the acts are relatively independent. China’s Trademark Law and the Anti-Unfair Competition Law each set the maximum statutory damages for trademark infringement and unfair competition at RMB 5 million, which means court may award statutory damages up to RMB 10 million in one single civil proceeding involving both torts.