2008 – 2009 Notable Chinese IP Cases

11 June 2009 Publication

Article

Neoplan Bus v. Zhongwei Bus & Coach Group and Zonda Industrial Group et al.

On January 14, 2009, the Beijing No. 1 Intermediate People’s Court ruled on one of the biggest design patent infringement cases since China joined the WTO in 2001. The defendants, Zhongwei Bus & Coach Group, along with its parent company, Zonda Industrial Group, and its agent Beijing Zhongtong Xinghua Vehicle Sales Co., Ltd. were ordered to pay RMB 21.16 million (about U.S. $3.11 million) in compensation to the German bus maker Neoplan Bus (Neoplan) for copying Neoplan’s Starliner bus design and infringing its design patent.

On September 23, 2004, Neoplan obtained a design patent covering its Starliner Coach buses and began to manufacture Starliner Coach buses in China. In the spring of 2006, Neoplan filed a lawsuit against the defendants for design patent infringement, claiming RMB 40 million (about U.S. $5.88 million) in damages. In order to strengthen its evidence, Neoplan even purchased an allegedly infringing A9 bus at the cost of RMB 1 million (about U.S. $147,000), which was notarized for purposes of submitting evidence. During the lawsuit, the defendants initiated two patent invalidation proceedings before the Patent Reexamination Board, neither of which were successful. The defendants also claimed that they had their own independent R&D record regarding its A9 bus, including pertinent design patents, as evidence that the A9 was definitely not a copycat of Neoplan's Starliner.

The court ruled that the alleged infringers failed to prove that they had independently designed their A9 model bus or that they possessed a prior right to use it even though they had obtained a design patent covering the bus as well. The court also stated that the difference between the A9 bus design and Neoplan's design is too insubstantial to constitute a notable visual effect on the entire design. Therefore, the Beijing No. 1 Intermediate People’s Court issued an injunction and ordered RMB 21.16 million (about U.S. $3.11 million) in compensation.

The defendants claimed that they would appeal the ruling, but no further information was released.

Ferrero Rocher S.P.A. v. Montresor Food Co. Ltd.

The world’s third-biggest chocolate manufacturer, Ferrero Rocher (Ferrero), finally won its five-year unfair competition litigation case on March 24, 2008 through a decision handed down from the PRC Supreme People’s Court (SPC). This case is widely regarded as the first pure unfair competition case for protecting a foreign company’s IP rights in China.

The Ferrero chocolates were sold in the China market beginning in 1984 — two years after their debut in their home Italian market — via China National Cereals, Oil and Foodstuff Import and Export Corporation, the only channel for foreign foodstuffs to enter into the China market. Before 1993, Ferrero chocolates were only sold in duty free shops, international airports, and other limited friendship shops in accordance with the government policies in place at the time.

The Chinese chocolate manufacturer Montresor has a brand of “Tresor Dore” chocolates that have golden-wrapped packaging and decoration that are substantially similar to Ferrero chocolates. Considering negative market influences, Ferrero filed an unfair competition lawsuit in November 2005 against Montresor in Tianjin No. 2 Intermediate People’s Court, alleging that Montresor’s unfair competition acts seriously infringed Ferrero’s rights and demanding the defendant stop the unfair competition, make public apologies, and pay Ferrero RMB 3 million for compensation. However, the court considered that Tresor Dore was better known in the China market and that consumers would not confuse these two well-known chocolate brands even though they had similar packaging and decoration. The court dismissed Ferrero’s claims on February 7, 2005.

Apparently not satisfied, Ferrero appealed the decision in January 2006 to the Tianjin Higher People’s Court. On January 9, 2006, the Tianjin Higher People’s Court issued a new judgment that overturned the decision in the first instance and confirmed that Montresor should stop using the infringing packaging and decoration immediately and pay RMB 700,000 (about U.S. $102,941) as compensation to Ferrero.

Although the judgment is quite favorable to Ferrero, the company still insisted on appeal for a case review from the SPC because it found Montresor’s infringing chocolates were still sold in the market, which means the judgment was not enforced. The SPC supported most parts of the second instance decision but corrected two main issues. One is that, although the determination of popularity should consider the status of fame outside China, the key factor to recognize the China well-known status should be a brand’s popularity within China. The SPC confirmed that Ferrero chocolate had a relatively high reputation in China, and the conclusion of recognizing the famous commodity was corrected. The other is that, based on PRC Anti-Unfair Competition Law, the compensation amount should be limited to RMB 500,000 (about U.S. $73,529) and, considering the negative influences, the SPC supported the highest statutory damages amount within the range at RMB 500,000 (about U.S. $73,529) but still less than the original amount of RMB 700,000 (about U.S. $102,941). The final judgment was issued in late November 2008 after more than five years of battling.  

After Montresor received the final judgment including an order to “stop selling the Tresor Dore series of Chocolate immediately,” Tresor Dore chocolate finally disappeared from the market, which should be viewed as a very important result for Ferrero.

In re: Shanghai She Fu Surface Techniques Ltd.

On January 9, 2009, the Shanghai No. 2 Intermediate People's Court maintained the verdict in the first instance and made its final ruling that the defendants were guilty for their infringement of certain trade secrets and imposed criminal sanctions.

Shanghai She Fu Surface Techniques Ltd. (She Fu) is a sole subsidiary of the French company H.E.F. Group, which mainly engaged in the technical surface treatment of mechanical components. In July 1998, She Fu obtained the license from H.E.F. for using certain metal thermochemical surface treatment techniques.

Between February 2001 and May 2001, two of the defendants — namely, She Fu general manager, Mr. Xu, and She Fu marketing manager, Mr. Wei — collusively set up a company called Shanghai Ou Ben Surface Treatment Techniques Ltd. (Ou Ben), providing surface treatments. In March 2001, Mr. Xu ordered three electric furnaces from one of She Fu’s equipment suppliers based on She Fu’s technology, which were delivered to Ou Ben (not She Fu) in June 2001. Further, Messrs. Xu and Wei also solicited Mr. Li, She Fu’s technical department manager, to join Ou Ben by offering a higher salary. In August 2001, Mr. Li copied She Fu’s Operation Guidelines, Procedural Document of the Quality Control Manual, Technological Flow manual, and other company documents onto his personal storage media device, and then resigned. Subsequently, Mr. Li was appointed as Ou Ben’s manager of technical supervision and quality control department.

Based on the documents stolen from She Fu, Ou Ben created similar technical requirement documents and acquired She Fu’s original customers by offering lower prices. From July 2001 to December 2003, by using She Fu’s techniques and technical standards, Ou Ben caused She Fu to suffer severe losses while Ou Ben gained profits of around RMB 970,000 (about U.S. $142,647).

The court determined that the criminal act was supported by the defendants’ employment verification statements, the storage media device containing the documents taken by Mr. Li, the business registration of Ou Ben, and the receipt of three electric furnaces ordered by Ou Ben.

In 2007, the Shanghai Yang Pu District People’s Prosecutorate filed a criminal action against the three defendants at the Shanghai Yang Pu District Court. In June 2008, Mr. Wei was sentenced to 15 months in jail and fined RMB 50,000 (about U.S. $7,352) by the court of first instance. Mr. Li was sentenced to one year in jail with suspension and was fined RMB 5,000 (about U.S. $735). Mr. Xu is subject to a separate trial. The appeals court affirmed the decision in January 2009.

Microsoft et al. v. Qingdao Ultimate Transportation Equipment Co., Ltd.

On October 16, 2008, the Shandong Higher People's Court made a final decision against Qingdao Ultimate Transportation Equipment Co, Ltd. (QUTE) for unauthorized installation and use of computer software. The Higher Court allowed QUTE to withdraw its appeal and maintained the lower court’s decision, in which QUTE was ordered to stop infringement, delete pirated software, and pay damages in the amount of RMB 1.72 million (about U.S. $252,941) to Microsoft, Parametric Technology Corp. (PTC), and Autodesk. Under the Higher Court’s mediation, a settlement was achieved, according to which QUTE was to compensate PTC RMB 800,000 (about U.S. $117,647), Autodesk RMB 250,000 (about U.S. $36,764), and Microsoft RMB 50,000 (about U.S. $7,352).

On December 9, 2005, upon the complaint from software developers such as Microsoft, the Qingdao Municipality Copyright Administration conducted an inspection of QUTE premises. Based on the investigation, nine sets of Microsoft Windows, nine sets of Microsoft Office, eight sets of PTC Pro/E Wildfire, and 14 sets of Autodesk AutoCAD software were found illegally installed in inspected computers, and no licenses were obtained from Microsoft, PTC, or Autodesk.

Initially, all parties tried to settle by negotiation. However, after a breakdown in settlement discussions in July 2007, the three companies jointly brought a lawsuit against QUTE before the Qingdao Intermediate People’s Court, seeking injunctive relief and compensation. On April 16, 2008, after a three-month trial, the Qingdao Intermediate People’s Court made its decision in favor of the plaintiffs. Then QUTE decided to appeal the decision to the Higher Court. After QUTE withdrew its appeal, the dispute ultimately settled under the Higher Court’s mediation.

Diageo PLC v. Blueblood (Shanghai) Wine Co., Ltd.

Diageo PLC (Diageo) is the proper owner of the bottle design, packaging, and decoration of the Johnnie Walker Black Label whisky (Black Label). Blueblood (Shanghai) Wine Co. Ltd. (Blueblood) is a dealer and wholesaler of the Polonius whisky. In 2006, Diageo found that the design packaging and decoration on Polonius whisky is substantially similar to its famous Black Label brand. Diageo filed complaints to administrative authorities twice, and Blueblood was fined for its unfair competition actions during 2006 and 2007. Although Blueblood was punished by the administrative authorities, it refused to stop selling Polonius whisky in the market. In order to protect Black Label’s market share and stop Blueblood’s illegal action, Diageo initiated a civil action against Blueblood in the Shanghai No. 2 Intermediate People’s Court, alleging that Blueblood’s act of copying the packaging and decoration of Black Label constituted unfair competition, seeking RMB 2 million (about U.S. $294,117) in compensation.

The court held that the specific design, packaging, and decoration of the Black Label is subject to the design, packaging, and decoration of famous commodities. The design, packaging, and decoration of Polonius whisky is substantially similar to the specific design, packaging, and decoration of the Black Label, which confused consumers in distinguishing between these two commodities. The court held that Blueblood violated the Anti-Unfair Competition Law and ordered the company to pay RMB 1.25 million (about U.S. $183,823) in damages to Diageo. The most interesting part of the case is that the court accepted that all the sales volume of Polonius whisky was confirmed as illegal product volume when calculating the compensation. Although Diageo failed to prove the revenue rate of Black Label per bottle, the court still used the standard revenue rate of the whisky and confirmed a damages award above the maximum statutory compensation amount of RMB 500,000 (about U.S. $73,529).

Zespri Group Ltd. v. Xishu Fruit Trading Co., Ltd.

This is a trademark infringement case between Zespri Group Ltd. (Zespri), the world’s largest kiwi fruit provider, and Xishu Fruit Trading Company (Xishu), one Chinese fruit company. Zespri’s kiwi fruit has been in the Chinese market since 1998. Zespri registered “Zespri” and the “sunbeam” pattern trademarks at the same time. In early 2007, Zespri found that two Chinese kiwi fruit brands named “Znishio” and “Nnishio,” both owned by Xishu, looked quite similar to their Zespri kiwi fruit products. In order to enjoin the infringement, Zespri filed a trademark lawsuit in the Shanghai No. 1 Intermediate People’s Court against Xishu for imitating the Zespri brand in the kiwi fruit market.

Although Xishu argued that the company had registered two design patents on the packaging that contained the trademarks Znishio and Nnishio, the first court found that Xishu’s design patents were granted later than Zespri trademarks, which meant the Zespri trademark right was the prior right. Xishu argued that Zespri abused its trademark rights to establish its monopoly position in the kiwi fruit market, but the court did not accept that argument. The court concluded that Xishu should stop infringing Zespri’s trademark and pay RMB 300,000 (about U.S. $44,117) in damages to Zespri. Xishu appealed to the Shanghai Higher People’s Court alleging that the Znishio and Nnishio trademarks were used on the kiwi fruit packaging, not the kiwi fruit, but Zespri was registered in Class 31 for fresh fruit. The Higher Court affirmed the lower court decision and commented that since Xishu also is a kiwi fruit industry player, Xishu should have known the brand of Zespri. Using similar trademarks can imply bad faith in confusing ordinary consumers. The final judgment was made on November 26, 2008.

Beijing Ciwen Movie & TV Production Co., Ltd. v. Beijing Zhenglejia Technology Co., Ltd.

The Beijing No. 1 Intermediate People’s Court made a final decision concerning the peer-to-peer (P2P) infringement by affirming a trial court decision in October 2008. This case was reported as the first P2P case with a final decision in mainland China.

In November 2007, Beijing Ciwen Movie & TV Production Co., Ltd. (Ciwen), the copyright owner of the movie "Seven Swords" in China, filed a lawsuit before the Beijing Haidian District People's Court against Beijing Zhenglejia Technology Co., Ltd. (Zhenglejia), a P2P software developer and also the operator of the Web site PP365.com. Ciwen alleged that Zhenglejia solicited and organized a download, search, and share service through its P2P software and that these acts infringed its copyright of “Seven Swords.”

Zhenglejia argued that it did not provide or duplicate any substantial content to the Internet end users; rather, it only provided information for the users to search and share the resources. Since P2P software may serve as a search engine that had its own program to run, Zhenglejia did not have the ability to predict, estimate, screen, or control the search results. On the other hand, Zhanglejia argued that upon receiving a cease and desist letter from Ciwen, it did follow Ciwen’s request to remove the download links directed to "Seven Swords." Therefore, Zhenglejia’s act cannot be regarded as copyright infringement.

The Beijing Haidian District People’s Court found that Zhenglejia, as an Internet service provider (ISP) providing a virtual platform for circulating the video productions, should understand that the download links of “Seven Swords” shared by the end users were nearly impossible to be an authorized source. In addition, the court stated that the selection and compilation of video products download resources conducted by Zhenglejia intentionally provided the users easy and straightforward access to download "Seven Swords," especially in light of the fact that the "Top 30 Downloading Movies" column (containing “Seven Swords”) was intentionally posted on its Web site. Therefore, the court ruled that Zhenglejia’s act constituted copyright infringement by facilitating the illegal circulation of “Seven Swords” via its P2P software and that Zhenglejia should stop the infringement and pay Ciwen RMB 120,000 (about U.S. $17,200) as compensation.

Zhenglejia appealed to the Beijing No. 1 Intermediate People’s Court, which affirmed the trial decision.

GuccioGuccis S.P.A. v. Senda Co., Ltd.

This case for trademark infringement is between the Italian original fashion and luxury company GuccioGuccis S.P.A. (Gucci) and one Chinese shoemaker, Senda Co., Ltd. (Senda) and the seller Yaohan Department Store, Pudong branch. The Pudong District People’s Court issued its first decision on April 15, 2008, which confirmed Senda’s trademark infringement act and ordered Senda to pay RMB 180,000 (about U.S. $26,470) as damages. Yaohan Department Store was ordered to stop selling the infringing Senda shoes immediately but did not bear any compensation liability.

As one of the world’s leading luxury brands, Gucci’s double G interlock pattern was registered widely as a trademark. Senda also gained a wide reputation in the Chinese middle-class shoe market and was recognized as a well-known trademark, while Gucci is still not. The shoes at issue were covered by the Gucci-registered double G interlock pattern on the upper cloth but with a Senda-women label on the inside of the shoes.

Senda argued during the hearing that the upper cloth of the shoes, which contained the double G interlock pattern, was bought from the market legally and that Senda had not intended to use the double G interlock pattern as a trademark because Senda had its own well-known trademark. Senda also demonstrated that the Senda-women label can only be found inside the shoes. Furthermore, since Senda shoes in Yaohan Department Stores were only sold through a Senda-franchised counter, consumers would not be confused by these two brands. The court found that, although the consumers who bought the shoes would not be confused, ordinary people would be made to believe that Senda’s shoes had a certain connection with Gucci and for the time being, the shoes in question would dilute Gucci’s double G interlock trademark. The court held that Senda’s act constituted trademark infringement and Senda should pay damages to Gucci. For Yaohan Department store, since it was not aware of the infringement during the sale, the court found that it should not bear any responsibility for the infringement and no compensation liability was imposed.

In re: Counterfeiting of Foreign Wine Brands

On July 1, 2008, an action filed by the Long Quan district (Chengdu City, Si Chuan Province) Prosecutorate concluded that all six defendants were sentenced to prison and fined due to their serious infringement of certain trademark rights of a foreign-branded wine. The principal offender was sentenced to four and a half years in prison and fined RMB 20,000 (about U.S. $2,941). The other five offenders were sentenced to eight to 10 months in prison and fined RMB 2,000 (about U.S. $294) each.

The public prosecutor claimed that, from March 2007 to November 2007, the principal offender (Mr. Zhang Xiaohua) committed a crime in producing fake foreign-branded wine, and five other defendants aided such infringement with intention. Based on the investigation, there were 2,365 bottles of counterfeit wine and 13 brands were counterfeited, including Chivas, Vodka, Hennessy, Remy Martin, Martell, Casa Rea, Ballantines, Jack Daniels, and others. From July 2005 to September 2005, Mr. Zhang also produced counterfeit foreign wine, and 236 bottles labeled with four brands (including Ballantines, Hennessy, Jack Daniels, and Chivas) were seized. All the seized products are counterfeits, and the total amount of illegal business value was approximately RMB 400,000 (about U.S. $58,823).

Since this serious counterfeit case involved many foreign wine brands and had a serious negative impact on society, the district public prosecutor paid significant attention to the case. Most trademark owners also designated their representatives to attend the court hearing. To show appreciation, Mr. Herve Ladsous, the French Ambassador to China, wrote a letter to the district prosecutor and spoke highly of the prosecutor’s effort to protect foreign IP rights against counterfeiting activities.

Pfizer v. Yang

Pfizer Inc. (Pfizer) filed a lawsuit against one Chinese citizen, Ms. Yang, who registered a domain name “Pfizer Dalian.” In April 2008, the Dalian Intermediate People’s Court made the first instance determination in favor of Pfizer and ruled that Ms. Yang should stop using the domain name Pfizer Dalian and withdraw the aforementioned domain name immediately. Neither parties appealed.

Pfizer claimed that Ms. Yang’s act of registering Pfizer Dalian infringed Pfizer’s legal rights, thus Ms. Yang should pay RMB 5,000 (about U.S. $730) as compensation. Ms. Yang denied the infringement, alleging that Pfizer cannot be recognized as a well-known trademark in China and that her registration is lawful. Based on the materials Pfizer provided to prove its reputation in the China market, investments made on advertising and market promotion, market share of the products bearing the Pfizer trademark, and other related factors, the court confirmed that Pfizer was recognized as a well-known trademark and Ms. Yang’s act constituted trademark infringement. However, since Pfizer failed to prove its losses and did not provide any evidence to show Ms. Yang’s illegal gain, the court did not support Pfizer’s compensation claim.

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