Recently， under the ruling of the Guangzhou Municipal Intermediate People’s Court， Xinbailun Trading （China） Co Ltd， an affiliate of U.S. sneaker maker New Balance， was ordered to compensate Chinese businessman named Zhou Lelun 98 million yuan for infringing his“Xinbailun” trademark rights.
In addition to coughing up such a huge amount of money for the compensation， Xinbailun Trading was required to stop sell-ing products in the Chinese market under the trademark of “Xinbailun” and publicly apologize for the harm caused to Zhou.
Chinese character “Xin”means “New” in English while“Bailun” is pronounced similarly to “Balance”.
The Eight-year-long Battle
Established in Boston in 1906， New Balance has a history of one hundred years and is billed as one of the world’s top four sneaker brands.
The sportswear giant prides itself on its brand value. But in China， the giant was forced to stop using the name of “Xinbailun” to promote its products. By far， on New Balance’s Chi- nese official website， as well as online stores in Tmall.com and JD.com， two leading ecommerce providers， the name of “Xinbailun” had been eliminated.
In China， it is common to see companies aiming at getting huge compensation to squat the Chinese character mark of foreign brands before the latter made their first foray into the market.
Four years ago， Apple lost the legal battle with Hong Kong-based Proview Technology Co Ltd over the iPad trademark in China. Proview registered the trademark back in 2000.
However， the case is differ-ent. In June 2004 when Zhou applied to register the trademark of“Xinbailun” in Class 25 for his sportswear company， the brand of New Balance was little known in the country. In fact， as early as in 1996， Zhou registered the trademark of “Bailun”.
According to records on the website of the China Trademark Office， among four applications for “Xinbailun” trademark， only the one submitted by Zhou had got approval from trademark authority and it is still valid now.
As the owner of “Bailun”and “Xinbailun” trademarks， Zhou set up a sportswear company which produces men’s shoes under the two trademarks and sell shoes at large-sized shopping plazas.
The legal battle over the trademark between Zhou and New Balance began in December 2007 when US-based New Balance Athletic Shoe Inc filed an objection against Zhou’s application for the registration of“Xinbailun”， arguing that the trademark copied and imitated“New Balance”. The Massachusetts-based company also submitted the application for the “Xinbailun”trademark to Chinese trademark authority back in September 2006.
However， after failing to block Zhou’s registration of the trademark， New Balance continued allow Zhou Xinbailun Trading， which was set up in 2006 for the sales and marketing of New Balance’s shoes in China， to use the trademark. Official data also show that the US company’s“Xinbailun” trademark application is still in an invalid state.
Therefore， Zhou filed a lawsuit to Guangzhou Intermediate People’s Court against Xinbailun Trading for the infringement of his trademark rights. According to Zhou， the affiliate of New Balance uses “Xinbailun” as its trademark and sells products under “Xinbailun New Balance” in its online shops， which misled consumers.
Xinbailun Trading rebutted that New Balance began to sell shoes with the name of “Xinbailun” in China as early as in 2003 when the trademark “Bailun” was not yet used commercially.
The Shanghai-based company also added that “Xinbailun” was used as the name of the company and did not infringe on Zhou’s trademark rights. It even accused Zhou of squatting the Chinese trademark “Xinbailun”.
Why New Balance lost the China trademark case？ Li Zhenghong， a lawyor at Shanghai Dacheng Law Office， explained，“China adopts the registration system to protect the trademark rights， which means the one who is first to register the trademark owns it. However， in the United State， the one who is first to use the trademark owns it.”
Obviously， Xinbailun Trading made a huge mistake in dealing with the trademark issue， as the trademark law in China is different from that in the US.
According to Chen Ruojian， a partner of Duanheduan Law Office， New Balance’s infringe-ment was obvious in this case， as it used the name of “Xinbailun”to promote its products after knowing that the name had been trademarked.
98-Million-yuan Compensation
Some said the compensation is too high. According to the Trademark Law of China， if the actual losses are difficult to confirm， the compensation is half of the profit from infringing the trademark rights.
The best way to confirm the losses is to calculate the losses caused by the infringement， according to Huang Wushuang， professor at the Intellectual Property Institute of the East China University of Political Science and Law. Huang is also research at the Intellectual Property Judicial Protection Research Center of the Supreme People’s Court.
“The losses not only include the decline or no growth in market share， but also include the reputational damage，” added Wang.
In view that Xinbailun Trading’s behaviors of marketing products with the name of Xinbailun misled consumers， the influence can be eliminated through the corrective advertising.
In America， the corrective advertising is often used to restore brand reputation and the compensation only accounts for 25% of the tort-feasor’s total advertising fees. In China， the court often ordered the tort-feasor to issue a public apology which has little help to restore the business reputation.
The trademark often rep- resents a company or a brand， which is an essential part of the company’s intangible assets. Every company should pay attention to protect the intangible asset.
Huang said that many foreign companies ignored the issues related to the trademark rights before expanding into the Chinese market. He suggested that before entering into the country， foreign companies should entrust an agent familiar with China market to conduct the trademark search and apply for trademark registration as soon as possible.