China Court Awards for the Highest Amount of Damages for IP Infringement in the Home Appliance Industry

Recently, the Guangdong Provincial High People's Court made a final judgment on the "true and false RedSun" dispute case, adjudicating that the actions of Guangdong Zhimei Electric Co., Ltd. (“Zhimei Company”) constitute trademark infringement and unfair competition and ordering Zhimei Company to immediately stop the infringement and to compensate the Plaintiff, Guangzhou RedSun Gas Appliances Co., Ltd. (“RedSun Company”), economic losses of RMB 50 million and reasonable legal costs of RMB 450,000. The compensation liability is jointly and severally borne by the 4 provincial franchisers.

This case records the highest amount of IP infringement damages awarded in the home appliance industry to date in China.

Background
As a company equipped with strong scientific research capacity, RedSun Company has been continuously using the wordmark “RedSun” (in Chinese: 红日) as of 1993. Its “RedSun” brand kitchen and bathroom appliances are rated as famous brand products of Guangdong Province and have earned a high reputation in the industry. The “RedSun” trademark – combined of image and word - was identified as a well-known trademark by the Chinese government.

Zhimei Company was set up by a former marketing employee of RedSun Company, manufacturing integrated stove and other products branded "RedSun E Home". Zhimei Company operates sales on a large scale, collaborated with 4 former provincial franchisers of RedSun Company, using the sales channels and network jointly developed by RedSun Company and its franchisers.

By using the same and similar signs, after-sales service cards and name cards, selling “RedSun” and “RedSun E Home” products in the same terminal stores and using ambiguous promotion slogans, Zhimei Company managed to increase its sales volume.

Court’s Findings
The Court holds that Zhimei Company and the 4 franchisers intentionally used the original sales channels and network of RedSun Company, and sell the same types of "RedSun E Home" and "RedSun" products side by side in stores, with various publicity and marketing means, misleading the public and giving the impression that these products belong to the same brand. Zhimei Company demonstrates tuft hunting maliciousness by claiming that "RedSun E home" is the upgraded brand of RedSun kitchen and bathroom appliances. The aforesaid conducts easily tend to cause confusion and misidentification among the public, constituting unfair competition. Zhimei Company’s actions of using the "RedSun E Home" logo in the same types of products as the RedSun Company’s registered trademark and registering and using redsun-gd.com domain name all constitute trademark infringement.

During the first trial, Zhimei ignored the court's injunction order to of stop selling “RedSun E Home” products and issued a lawyer's letter encouraging the franchisers to continue operating. The evidence in this case sufficiently shows that RedSun Company has suffered huge losses due to the infringement. Alone in 2016, the losses of RedSun Company reach RMB 74 million, while Zhimei Company and the four provincial franchisers attained higher profits than this amount. After being ordered by the Court, Zhimei Company refused to submit a complete and true financial account book during the litigation, which constitutes an obstacle to proof. Meanwhile, Zhimei Company and the franchisers constantly appeared in violation of the integrity of litigation during the trial with a strong malicious intent.

Observations
The new PRC Trademark Law was rolled out in 2019, largely increasing punitive damages for trademark infringement. As stipulated under Article 63 of the PRC Trademark Law, the compensation amount for trademark infringement shall be determined in accordance with the actual losses suffered by the right holder, the gains derived by the tortfeasor, or by referring to the multiples of the licensing fee of the said trademark, depending on the circumstances. For malicious infringement of exclusive rights to use trademarks, in serious cases, the compensation amount shall be determined in accordance with the aforesaid method based on one to five times of the determined amount. The compensation amount shall include reasonable expenses incurred by the right holder to curb the infringement.

When determining the compensation amount, if the right holder has provided proof to its best effort, and the accounts books and materials relating to the infringement are held by the tortfeasor, the court may order the tortfeasor to provide accounts books and materials relating to the infringement; where the tortfeasor does not provide accounts books and materials or where the accounts books and materials provided are false, the court may determine the compensation amount with reference to the assertion of the right holder and the evidence provided.

The judgment of this case serves as a clear sign in relation to the awarding of punitive damages for trademark infringement under the new PRC Trademark Law. As a response to the ever-changing business environment, Chinese IP legislation and practice has continued to proclaim the intent to increase infringement liabilities.