An analysis on the New Balance Inc court case in China

The lawsuits regarding the disputed trademarks bai lun and xin bai lun between Zhou Lelun and the company Xin Bai Lun Trading (China) Co Ltd, the affiliated company of New Balance Athletics Inc, garnered a lot of attention in China. Safeguarding intellectual property (IP) has often been a complicated endeavour, resulting in foreign businesses being forced into surrendering their profits. Commonly referred to as ‘the New Balance Case’, Jenny Chen and Charlotte Zhu from D’Andrea & Partners, discuss the case and provide their opinion on what this court decision means for foreign enterprises and their IP decisions in China.

Background information
In July 2013, the plaintiff Zhou Lelun sued the defendant Xin Bai Lun Trading (China) Co Ltd (New Balance Athletics, Inc) for infringing his registered trademarks bai lun and xin bai lun in China. Initially the Guangzhou Intermediate People’s Court held that New Balance Athletics, Inc committed trademark infringement and held that the company should pay renminbi-yuan (CNY) 98 million as indemnity to the plaintiff. The defendant subsequently filed an appeal with the Guangdong Higher People’s Court.

After the appeal, the Guangdong Higher People’s Court significantly reduced the amount of damages granted by the court, but still concluded that intentional infringement on the disputed trademarks had taken place and that the defendant should pay a reduced sum of CNY 5 million.

This ruling in favour of Zhou Lelun may seem strange as New Balance is considered a famous United States (US) brand with their shoes being widely distributed internationally. In contrast to the well-known shoe company, the plaintiff ’s shoe with the name xin bai lun is relatively unknown.

The facts
To better understand the court case, the following facts must be considered:

1. The defendant New Balance Athletics, Inc neglected to check for registered trademarks in China after entering the marketplace.
Xin Bai Lun Trading (China) Co Ltd was established in China in December 2006, with New Balance Athletics Inc registering the relevant trademarks in English on 1^st November 2007. Meanwhile, the Chinese characters xin bai lun were being used frequently on New Balance Athletics, Inc’s official website and on e-commerce sites like Tmall.com. Despite the trademarks New Balance and NB being registered quite early in the US and in China, the Chinese trademarks xin bai lun and bai lun were never registered by the US company.

2. The plaintiff Zhou Lelun owned the rights to xin bai lun and bai lun in China.
A company called Chao Yang Shoes and Hats registered the trademark bai lun in August 1996, and the registered trademark was transferred to Zhou Lelun in April 2004. That same year, Zhou Lelun also registered xin bai lun in the Class 25 IP category, which includes shoes, clothes, hats and socks. In the hearing, Zhou Lelun successfully showed evidence to prove he owned the relevant trademarks and they were being used in good faith.

3. The defendant was ruled against under the reasoning that the use of the trademark was made in bad faith.
The first court hearing ruled that the plaintiff ’s trademark bai lun was well-known enough that the defendant should have been aware of it, especially since the trademark was registered in 1996. New Balance Athletics, Inc filed an opposition with the court against the trademarking of xin bai lun in 2007, which was ultimately not accepted by China’s Trademark Office. Available information led the court to believe the defendant was advertising their products by using the trademarked bai lun and xin bai lun, and were fully aware that these trademarks were registered by another party. Even after the defendant became aware of the disputed trademarks, they insisted on using the disputed trademarks for advertisement and promotional purposes.

4. The main point of contention in this case was the use of the disputed trademarks and whether it ended up confusing the average consumer and lead them to mistake the actual source of the provided goods.
As previously mentioned, the court held that the defendant should pay CNY 98 million to the plaintiff as indemnity. In the first hearing, the defendant’s attorney failed to point out their use of bai lun and xin bai lun would create confusion for an average consumer on who the actual manufacturer of the product was. Since the plaintiff could not prove the defendant misled consumers with their trademark infringement the indemnity amount, based on the profits accrued from using the trademark, was unreasonable.

The outcome
After revisiting the case, the Guangdong Higher People’s Court held that any profit earned by the defendant during the alleged period of trademark infringement was not solely due to the infringement on the plaintiff ’s trademarks. Since the indemnity was no longer calculated based on the total amount of profit made during the span of time the trademark was used, the amount of money the court asked from the defendant was reduced from CNY 98 million to CNY 5 million.

The main takeaway
Foreign enterprises that are considering entering the Chinese market should do well to examine this court case. A foreign business should not ignore the registration of a Chinese trademark and rely solely on its own country’s intellectual property rights. Trademarks registered by others should not be used without the owner’s consent. For the registration of a trademark in Chinese, it is suggested to register both the transliterated version of the Chinese trademark as well as the translation in order to prevent potential infringement.

Finally, any evidence that can prove a business has a well-established “good reputation” in the Chinese market should be collected and preserved in case a foreign enterprise must go to court in order to safeguard its IPR.

D’Andrea & Partners is an international law firm and point of reference for companies that want to enter the global market and be successful. Established by its founding partner, Carlo Diego D’Andrea, attorney at law and pioneer in Italian and European law in China, today the firm is made up of professionals coming from different countries around the world. Besides the main operational headquarters in Shanghai, D’Andrea & Partners has a number of branches in China and outside the country in Italy, India, Vietnam and Russia. The firm’s clients include large industrial groups, plus medium-sized Italian, European, Chinese and global enterprises.