NEW BALANCE ATHLETIC SHOE INC., a world famous U.S. sports company, was ruled to pay damages of CNY 98,000,000 (aprox. USD 15 million) to a Chinese individual, ZHOU Lelun, for trademark infringement, which is the highest compensation amount ruled by the Intermediate Court of Guangzhou city among infringement cases.

Before ZHOU sued NEW BALANCE, ZHOU owned registration of Chinese characters No. 865609 “百伦” and No. 4100879 “新百伦” (one of Chinesetransliterations of NEW BALANCE) designating on sports shoes in China, of which NEW BALANCE had filed opposition against the latter but failed the opposition finally. However, NEW BALANCE did not stop using the Chinese characters “新百伦” on shoes products after losing the opposition and registration of the attacked mark by ZHOU. Till ZHOU sued NEW BALANCE for trademark infringement, NEW BALANCE had obtained net profit around CNY 195,800,000 by sales of infringing products from registration date of the attacked mark.

During the first instance heard by the Intermediate Court of Guangzhou City, the judge holds that NEW BALANCE did not fulfill itsobligation of avoiding using prior identical or similar marks by other party, NEW BALANCE’s using of the mark identical to ZHOU’s prior registered mark in bad faith caused market confusion. Therefore, NEW BALANCE was ruled to stop the infringement but also take a liability for paying damages of CNY 98,000,000 (98 million) to ZHOU based on its net profit by sales of infringing products.

Due to the high price of compensation (around USD 15 million), this case drew unprecedented attention of legal professionals even the whole society.  According to the comments by the Intermediate Court of Guangzhou city at First Instance, this case emphasizes/ furtherexemplifies three focus issues:

1. Good faith in registration/ using of trademark

Through this case, one’s latter using of a mark would be considered as using in bad faith if the using party has known that the mark has been registered by other party.

2. Market confusion

One’s extensive using of a trademark registered by other party without the registrant’s license would cause split of the one-to-one corresponding relationship between the registrant and the products bearing the registered mark and market confusion, in whichthe public would misunderstand that products of the prior registrant come from the latter user.

1. How to calculate the tort compensation.

Article 56 of the Chinese Trademark Law (old version) says “The amount of damages for infringing the exclusive right to use a trademark shall be the profits that the infringer has earned as a result of the infringement during period of the infringement, or shall be actual losses that the right owner has suffered as a result of the infringement during period of the infringement. The amount of damages will also include reasonable expenses the right owner has suffered to prevent the infringement”.  Through this case, one would be ruled to pay huge damages based on its high profits for its infringement.

Unsatisfied with decision made by the Intermediate Court of Guangzhou City, NEW BALANCE appealed at the Second Instance before the Higher Court of Guangdong province. During the court hearing held by the Higher Court, both parties argued on good faith in trademark registration and use, and whether the compensation amount of CNY 98 million was ruled on facts and legal basis. Since both parties failed to reach a conciliation solution in the court hearing, the Higher Court will issue further notice on the case.