CBL’s Introduction

Trademark infringement lawsuits in China can be extremely confusing, so much that Siemen’s team of elite China lawyers argued its case wrong in a multi-million-dollar lawsuit. The difficulty stems from the huge array of business evidence you need to collect and categorize when suing an infringing business, and those two different statutes, the Trademark Act and the Competition Act apply with parallel jurisdiction. You need to collect and categorize facts in unintuitive ways, for example a logo on a box goes in “unfair competition” and a logo on a washing machine goes in “trademark infringement”, putting the washing machine in the box doubles your claim. Sadly, even highly respected trademark lawyers in China often don’t know how to do this right, will bungle the investigation, and could cost you millions of dollars.

So says the Supreme Court of China, in this article provided in 2024 as guidance to trademark owners and lawyers alike, centering on the facts of the Siemens case, which CBL has translated into English for you using the user-centered translation approach.

Contents

Trademark Infringement Claims and Find Damages

Trademark and Competition Claims Overlap

Parallel legal theory application

Imposition of liability for trademark infringement

How to Adjudicate Trademark Infringement Claims and Find Damages

Source: Supreme Court of China

In a trademark infringement case involving sales of products in China, the court must apply both trademark and unfair competition law to the facts of the case. When applying the law, any facts involving confusing the source of the products are a violation of trademark law, whereas misappropriation of a business or trade name used significantly by another party is unfair competition. Both causes of action apply simultaneously to the same course of conduct.

China’s courts must provide sufficient, equitable relief for trademark infringement, even if that amount is higher than that authorized by the statute and possibly beyond that established by the evidence. Specifically, the judge must look at the case as a whole and determine the equitable amounts; if sufficient evidence is unavailable due to lack of cooperation by the defendant, then the judge must draw an adverse inference to assume damages.

Siemens Corporation v. Qishuai LLC (China Supreme Court, 2022)

Qishuai along with a distributor and several individuals without authorization used the name Siemens on its own washing machines, packaging, and in advertisements in China, despite Siemens being the owner of the registered trademark and being a famous mark. In its suit against Qishuai et. al, Siemens brought unfair competition claims and demanded that defendants cease and desist and to disgorge profits totaling CNY100 million, and sought personal liability.

Qishuai registered a business entity for Shanghai Siemens Electronic Appliances Ltd. in Seychelles, which it argued gave a right to use the entity’s name on its products.  Defendants failed to comply with a court discovery order to produce their accounting statements and receipts, manufacturing data, and distribution contracts without a legitimate reason.

Court Judgments

The trial court in Jiangsu held in Siemen’s favor, that Qishuai’s actions constituted unfair competition, and granted all of its demands, including cease and desist and CNY100 million in damages, and extensive personal liability against its shareholders. In a crucial part, the Jiangsu Upper Appeals Court, sitting as trial court, held that Qishuai’s actions did not constitute trademark infringement.

On appeal by Qishuai to the Supreme Court, all of Siemen’s claims for damages were upheld in full. However, the Supreme Court overturned the lower court’s holding, and stated Qishuai’s practices simultaneously constitute trademark infringement and unfair competition. In this case, the Supreme Court announced a standard that dual, simultaneous liability for the same facts must be found for both trademark and competition claims.

The Siemens appeal focuses not on the high amount of damages, but on the legal reasoning: in a brand infringement case such as this, the lower court should have applied trademark infringement simultaneously with unfair competition as a cause of action, thus doubling the avenues of relief.

Trademark and competition claims are closely related and may overlap

Chinese law has two statutes with the purpose to protect consumers from fraud and ensuring market integrity by prohibiting misappropriation of another’s business logos: the Trademark Act and the Competition Act.

Protection covers registered trademarks, trade names, and business entity distinctive elements. Major businesses use their business name as a brand to effectively market their products and scale up operations, for example Huawei is both a company and a brand. Brand infringement plaintiffs should bring claims in parallel under the Trademark Act and the Competition Act to maximize their chances of winning the suit. Infringers in general should defend that claims can be brought forward under only a single theory. A judge must rule based on how the alleged infringement occurred and what brand was targeted, and some practices will simultaneously constitute a competition and trademark claim.

The law protects trademarks from infringement by granting exclusive rights to a mark. (see China Trademark Act §57); the China Competition Act is much more subjective in that it prohibits unfair or deceptive trade practices but without very specific definition, except for the fact pattern proscribed by §6. In this specific kind of case, one party has trademarked the distinctive element of its business entity name, and a perpetrator then uses the same name to brand its goods, which constitutes double infringement of both the trademark and business entity name rights. “Double” means courts must make two separate holdings against the defendant, even though the brand infringement is for the same exact actions, because the right to the trademark and business entity name respectively are separate rights entitled to separate protection. In the above case, “Siemens” was used as the distinctive element in the name of each business entity and also trademarked; Siemens pursued liability against Qishuai for both competition and trademark claims, and the China Supreme Court granted those claims on appeal.

Judges have difficulty issuing sound judgments these cases because the causes of action for trademarks and competition when taken together are amorphous. We believe the China Supreme Court Trademark Dispute Interpretations govern; under §1(a) thereof, the court should find there is trademark infringement if the infringer’s business name prominently uses business logos of an owner. Otherwise, the Supreme Court Competition Act Interpretations §13 applies, and the court should hold the conduct constitutes unfair competition.

If the infringer’s business name does not prominently use the logo content, the judge will need to weigh the acts, intent, and manner of infringement to reach a conclusion. Where an infringer uses the logo in order to identify the source of the goods or services in the same manner that a trademark is typically used, the court should generally hold that these facts constitute a trademark infringement. However, judges should not rigidly apply Chinese law to deny trademark infringement occurred if the logo is not prominently used. This sort of legal reasoning will muddle the facts of the case and enable infringers to escape liability.

Applying trademark and unfair competition law to infringement in parallel

Chinese trademark law does not protect a brand in itself, instead it protects brands as a means to indicate the source of goods or services. Therefore, trademark infringement is harmful because it severs the link between the brand and the goods/services, which it achieves by confusing the consuming public.

The China Competition Act is by contrast broader, if using another party’s brand in any way that causes confusion among the consuming public will constitute unfair competition. The chief exception to this is where the infringer has trademarked a confusingly similar mark, therefore determining whether to hold the conduct constitutes trademark infringement or unfair competition is essential.

In the above case, infringement mainly occurred by using the name “Shanghai Siemens Electric Appliances LLC” on washing machines actually made by Qishuai. Plaintiff argued that this conduct simultaneously constitutes trademark infringement and unfair competition, whereas Qishuai argued that its use of the mark could not simultaneously be two kinds of infringement, rather its authorized use of the logo at most constituted trademark infringement but not unfair competition. The China Supreme Court held that the infringement should be characterized independently under each cause of action.

Firstly, placing “Shanghai Siemens Electric Appliances LLC” on the products is trademark infringement because it was done in a way that in the eyes of the consuming public shows who made the product. Qishuai claimed that “Shanghai Siemens Electric Appliances LLC” is a business entity registered lawfully in a foreign jurisdiction, however, Qishuai itself was producing the washing machines. However, the evidence at trial showed that businesses typically do not use another business’s name to identify their own goods, but rather that using the Siemens name was part of Qishuai’s “diverse branding strategy.” This is a trademark usage, not business name usage. Other facts establishing trademark use in the case are how the kind of goods the machine use also fell under Siemens China’s trademarked goods and services classification, and how the name “Siemens” is highly distinctive.

China Trademark Act §58 is also applicable because of how the Siemens name was used; this section provides that Competition Act penalties apply where another party’s trademark is used as the distinctive element of a business entity name to confuse the consuming public. Using the Siemens brand pm Qishuai products and advertisements in the distinctive element of the business name, confused the consuming public into believing the products were made by Siemens or that Qishuai has a relationship with Siemens, and therefore violate Competition Act §§6(b) and (d).

The Supreme Court therefore concluded that using the Siemens name on the product infringed on the trademark, and using it on the trade dress and advertising is unfair competition.

Imposition of liability for trademark infringement

Liability under trademark and unfair competition claims include cease and desist, damages, apology, and taking action to undo harm, for Siemens, this involved a cease and desist and order for damages not only against the Qishuai, but also personal liability against shareholders.

Identifying the business entities in individuals to hold liable for trademark infringement

In the above case, the Supreme Court held defendant liable simultaneously for trademark and unfair competition damages on grounds of violating China Trademark Act §64 with simultaneous liability for unfair competition. The trial court found that Qishuai LLC was controlled by two shareholders who are husband and wife, who participated in the trademark infringement, and the Supreme Court affirmed their joint and several liable with the business entity.

The distributor Weichuang LLC participated in the infringement knowingly, and had only a single shareholder Wu, and Chinese competition law also provides for personal liability in this case because he controlled the company.

How damages could be calculated for brand infringement

The China Trademark Act §63 and Competition Act §17 provide the same approach for fixing damages. The court starts by looking at evidence of actual losses incurred, unjust enrichment, and then the value of the trademark license. The Trademark Dispute Interpretations §13 provides the trademark owner is entitled to select which method to apply and has the burden of proof as to the amount of damages.

Punitive damages for severe cases are available under Trademark Act §63(a) and Competition Act §17(c) for at least doubled and up to six times the amount of damages, determined under the IP Infringement Punitive Damages Interpretations.

Under judicial precedent, if plaintiff cannot prove the amount of losses but can provide evidence establishing that the amount of damages is higher than the statutory limit and therefore relief under the statute would be inadequate, the judge has discretion to equitably weigh the facts of the case and give an award higher than provided by the statutes.

If the defendant withholds evidence of infringement, Trademark Act 63(b) provides that an adverse inference should be made in support of the plaintiff’s claim for damages. While the Competition Act doesn’t include this rule, judicial precedent requires imposing it.

This principle was applied when Siemens China demanded Qishuai disgorge all of its unjust enrichment from the trademark infringement, because both Qishuai and Weichuang refused to produce key evidence, including accounting documents, manufacturing records, and distribution contract materials. Instead, qualitative evidence such as media reports were used to infer the sales and sales volume, considering factors such as Siemen’s fame, Qishuai’s bad faith, and the vastness of the infringement enterprise. Siemen’s internal profit margins were used to infer the infringer’s.

Overall, this supported 100 million Yuan in damages. The Supreme Court in its opinion also wrote to warn future plaintiffs about misconceptions judges and attorneys alike have about intellectual property law. Claims against product sellers for trademark infringement should be brought under both the Trademark Act and Competition Act simultaneously, thus to enhance the amount of damages that can be recovered.

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Sources

This guidance was translated from a publication by justices of the Supreme Court of China. The User Centered Translation approach has the same meaning as the original, but makes changes to grammar, word order, and semantics to be understandable. Several paragraphs were omitted to help save the reader time, generally where the guidance repeats itself several times. You can use machine translation on the original sources below to see a word-for-word version.

https://www.chinacourt.org/article/detail/2024/04/id/7914908.shtml