Damages in Trademark Infringement Cases

One is the profit that the infringer has earned through the infringement during the period of the infringement (the profits earned by the infringer � commonly referred to as an �account of profits�); the other is the losses that the infringee has suffered through the infringement during the period of the infringement (the losses suffered by the plaintiff). In accordance with Article 13 of Interpretation of the Supreme People's Court Concerning the Application of Laws in the Trial of Cases of Civil Disputes Arising from Trademarks (the Interpretation), the plaintiff trademark owner is entitled to choose either of these two methods.
The profits earned by the infringer can be determined by multiplying sales of the infringing goods by the unit profit for the goods, or similar goods as determined by evidence of experts. If the unit profit cannot be identified, it can be replaced by the unit profit of the registered trademark products according to Article 14 of the Interpretation.
In the case of Mei John Chao v North Face [(2010) Hu Gao Min San (Zhi) Zhong Zi No. 14] in 2010, the Hunan Higher People's Court ruled that: North Face explicitly requested to calculate the amount of compensation in accordance with the profit of the defendants, thus the Court of First Instance confirmed the amount correspondingly. Evidences found by the court included: two Purchase and Sales contracts involving 11,000 and 6,600 units of down jackets respectively, an airway bill recording 10,000 units of cotton dresses, an outbound order involving 8,094 units of down jackets and 1,080 and 5,300 units of down jackets seized by Luwan Administration for Industry & Commerce (AIC) and Huzhou AIC respectively. No evidence found had proved any of the defendants had got any profit from these goods except for these 8,094 units of down jackets disclosed in the outbound order. It was proved that these 8,094 units of down jackets had been delivered and the defendant had confessed on the court that these down jackets had been shipped; therefore, the court believed the number of the infringement goods sold by the defendant was at least 8,904. Although no evidence proving the unit profit of the infringement clothes sold by the defendant or the clothes with the relevant trademarks sold by the North Face, the total profit of these 8,094 units of down jackets is over the ceiling of the statutory minimum compensation, namely ￥500,000, based on the general unit profit of the sale of such goods. Therefore, the court confirmed the compensations of the 4 defendants were ￥600,000 and ￥200,000 respectively on the basis of factors including the fault of these defendants, the reputation of the relevant trademarks, the nature of the infringement and the reasonable costs of the North Fact for stopping the infringements.
The losses of a plaintiff trademark owner can be the goods sale decrease caused by the infringement or the result of the unit profit of the goods with registered trademark multiplying by sales of the infringing goods according to Article 15 of the Interpretation. The losses include any reasonable expenses incurred to stop the infringement. Article 17 of the Interpretation further clarifies the reasonable expenses consist of the reasonable fees for the infringement investigation, searching for evidence and the attorneys' fees.
In the case of Henan Dr. King Seed Industry Co., Ltd. (Dr. King) v Shenzhen Montnets Technology Development Co., Ltd., Cangnan Shuntai Plastic Co., Ltd, Wenzhou Mengning Printing Co., Ltd, Cangnan Chuangfa Security Science and Technology Co., Ltd and Wang Qisheng [(2009) Min Shen Zi No. 1771] ruled by the Supreme People's Court in 2009, Dr. King claimed that its economic loss was ￥1,650,000 on the basis that: in 2006, its purchase corn price was ￥5-5.4 per kilogram, the sale price was ￥8.4-9.6 per kilogram, thus the calculated profit was about ￥3.3 per kilogram. The defendants had printed 100,000 pieces of trademarks and pasted them on the seed packaging bags which capacity was 5 kilograms each. Neither the Court of second instance nor the retrial court upholds the claim of Dr. King as they thought such a calculated result was not objective. The retrial court deemed that the evidence provided by Dr. King was not sufficient to prove those 100,000 pieces of trademarks had been used on 100,000 seed packaging bags containing fake corn seeds and they had been in the market. In addition, the claimed profit of each kilogram corn seed was not only the profit of the trademark involved in this case. It thought that it was not wrong that the court of second instance held that each defendant compensates Dr. King ￥100,000 according to the nature, duration and consequence of the defendant, the reputation of the trademark and reasonable expenses of Dr. King.
In the case DIAGEO BRANDS B. V. and Diageo (Shanghai) Wine Co., Ltd v Lanzun (Shanghai) Wine Co., Ltd [(2008) Hu Er Zhong Min Wu (Zhi) Chu Zi No. 18] ruled by the Intermediate People's Court in Shanghai in 2008, using of the decoration similar to that of �Black Label� by the defendant (please see the photo below) is considered as having consisted of an unfair competition by the Court. As determining the compensation, the Court upholds the defendant�s calculation method by multiplying sales of the �Baolu� whiskey by the unit profit for �Black Label� whiskey. However, the Court determined the amount of the compensation in this case finally based on the proved sales of the �Baolu� whiskey combined with the average profit on sales in the wine industry due to the plaintiff cannot provide the unit profit of its �Black Label� whiskey. The amount of economic losses is ￥1,250,000.
Where neither the profit nor the losses can be determined, Article 56 provides �the people's court shall decide an amount of damages not more than 500,000 Yuan RMB, depending on the circumstances of the infringing acts.� The factors considered by the people�s court are the nature, duration and consequences of the infringement, the trademark reputation, the amount of the trademark license fees, type, time and scope of trademark license, reasonable expenses to stop the infringement and others according to Article 16 of the Interpretation. Meanwhile, any agreement concluded by the parties on the damages is acceptable to the people�s court.
In a case a distribution company in Shenzhen (A) appeals a Cosmetics Co., Ltd in Fujian [(2010) Shen Zhong Fa Min San Zhong Zi No. 228] ruled by the Intermediate People's Court in Shenzhen in 2010, the Court of Appeal hold that those 24 seized infringement products sold by A indicated only A�s infringement behaviors, it doesn�t mean all the details including the number of these infringing products sold by A have been identified. Therefore, it agrees with the judgment of the trial court which determined the amount of compensation was ￥30,000 considering comprehensively the nature, circumstances, scope, consequences of A�s infringement behaviors, the reputation of the infringed trademark and reasonable expenses for stopping the infringement. Because RMB500,000 is the maximum compensation ruled by the court as neither the profit earned by the infringer nor the losses suffered by the plaintiff can be determined in accordance with Article 56 in the Trademark Law, the amount of compensation in this case must be determined within the limitation of RMB500,000.
Meanwhile, Article 56 also sets up an exception clause. According to it, the seller will not bear any liability if he or she doesn�t know the goods sold are infringing ones and is able to prove that the goods have been obtained lawfully and to identify the supplier.
A trademark owner may enforce damage award through consultation between the interested parties, instituting legal proceedings in the People's Court or requesting the administrative authority for industry and commerce for actions according to Article 53 of the Trademark Law.
Article 52 of Regulation for the Implementation of the Trademark Law (Article 52) provides that the AIC may impose a fine to an act infringing the exclusive right to use a registered trademark. The amount of such a fine imposed shall be not more than three times of the volume of the illegal business. If it is impossible to calculate the volume of the illegal business, the amount of the fine shall be no more than 100,000 Yuan.
In practice, local governments in some area have formulated more detailed provisions. On 24 December 2009, Loudi Municipal People's Government released a notice of Interim Provisions on the Discretion of Administrative Penalty in Loudi. According to it, the administrative penalty shall be 50% to 100% of the amount of illegal business turnover to the infringement of registered trademark which was happened for no more than a month or its business turnover is under ￥10,000, where the business turnover cannot be calculated, it shall be under ￥30,000; where the infringement has been happened for 1 to 6 months or the business turnover is between ￥10,000 to ￥300,000, the penalty shall be 1 to 2 times of business turnover, or ￥30,000 to ￥70,000 when the business turnover cannot be calculated; Where the infringement has been over 6 months, the business turnover is over ￥300,000 already, the damage to oblige is over ￥30,000, or caused serious consequences or baneful influence, the penalty shall be 2 to 3 times of the illegal business turnover or ￥70,000 to ￥100,000 when the business turnover cannot be calculated.
In 2005, Hangzhou Administration for Industry and Commerce issued of 6 regulations including Trademark Infringement Penalties. Based on it, penalty is calculated as: the basic standard fine + aggravating fine (i.e.: basic standard � increased fine ratio) - reduced or mitigated punishment (i.e.: basic standard � reduction ratio). Meanwhile, it lists which acts are going to be fined 2 times of the amount of illegal business turnover, or 100% of the sales or 50% of the value of the stock. In addition, it provides that the fines for the infringements in commodity trading, advertising, exhibitions and other commercial activities shall be from ￥1000 to ￥60,000 in accordance with the behavior of the infringer or the following result. What�s more, it specified the situations where the punishments are more serious, light or even being exempted.
In conclusion, the current Trademark Law regulates three criteria on how to calculate trademark infringement damages. They are: the losses suffered by the plaintiff, the profit earned by the infringer and the amount of statutory compensation. It looks like a complete system, but the plaintiff still think that it not easy to get compensation in reality for the many reasons including it lacks of regulations to specify the scope of �damage� and on how to calculate each damage, and the burden of proof is inverted to the plaintiff.
ABOUT THE AUTHOR: Xia Yu
Xia Yu is an Associate in the MMLC Group.