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China: “3M” wins a trademark infringement retrial case against “3N” in China

by Aileen Wu, Sisi Liang (WAN HUI DA Law Firm & Intellectual Property AgencyChina)

3M v. Hua Wei, Supreme People’s Court of China, (2016) Zui Gao Fa Min Shen No. 187 (in Chinese)

The court rejected the defendant’s argument based on its business success, sanctioned its refusal to disclose accounts and awarded an amount of damages far exceeding the statutory limit.

Case Summary

The 3M Company is an American multinational conglomerate and the owner of two registered trademarks “3M” in class 17 in China. 3M has been licensing its subsidiary 3M China to manufacture and distribute 3M products since 2004.

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On December 16, 2005, Changzhou Hua Wei Advanced Material Co., Ltd. (Hua Wei) filed for “3N” as a trademark in Class 19. The trademark application was firstly preliminarily approved by the China Trademark Office, but then rejected for registration by the Trademark Review and Adjudication Board in the opposition review procedure.

On November 27, 2013, 3M and 3M China filed a lawsuit against Hua Wei and its local distributor before the Hangzhou Intermediate Court based on trademark infringement, seeking a court injunction not to produce and sell, damages of RMB 5.1 million (which was later raised to RMB 13 million) and another RMB 200,000 to cover the reasonable cost for ceasing the infringing activities.

On June 30, 2015, the Court affirmed the trademark infringement, ordering the distributor to immediately cease selling (production activity had already ceased) and ordering Hua Wei to pay RMB 3.5 million to the plaintiffs.

The Court held that the 3M trademark had high distinctiveness and reputation, that it was visually similar to the 3N mark, and that the consumers were likely to confuse Hua Wei’s 3N products with those of the plaintiffs, or at least to assume there was a certain association between them.

When assessing the amount of damages, the Court considered the long duration and large scale of the infringement activity, and more importantly, the fact that Hua Wei had deliberately refused to furnish its financial records proving the quantity of the infringing products and the financial gains obtained from the infringement. The Court held that Hua Wei should bear the adverse consequences of its obstruction to the burden of proof and awarded an amount of RMB 3.5 Million, far exceeding the statutory limit (RMB 500,000) provided in the 2001 version of the Trademark Law, which was applicable in this case.

Hua Wei appealed.

On September 9, 2015, the Zhejiang High Court made its decision upholding the judgment of first instance, finding that “the market share and existing consumer group of Hua Wei built from its continuous trademark infringement activities, if being recognised by the Court, will undoubtedly encourage trademark infringers to circumvent liabilities through enlarging infringing scales, which clearly contradicts the legislative purpose and undermines the intrinsic value of the Chinese Trademark Law”.

In the calculation of the damages, the Court followed the same reasoning as the first instance court.

Hua Wei later filed an application for retrial, which was dismissed by the Supreme People’s Court on March 24, 2016.

Comments:

The Zhejiang Courts’ explicit denial of the argument based on market share built by continuous infringing activities seems to indicate that the so-called “inclusive development theory” proposed by the Supreme People’s Court in its Opinions of 2010 and 2011 has less influence. According to such theory, when two similar trademarks have reached a significant size in the market, they should continue to coexist in order to preserve market stability. The case also shows that refusing to cooperate in the finding of the fact, when the infringing is established, may have very negative consequences.

The case was simultaneously listed both by the Supreme People’s Court as one of its 50 Exemplary Intellectual Property Cases of 2015 and by the Zhejiang High Court as one of its Top 10 Intellectual Property Protection Cases of 2015.

Note: WAN HUI DA represented 3M Company and 3M China in this case.