Legislation & Policy

PRC – Beijing Decision Confirms Right to Compensation of Legal Costs against Bad Faith Filer

SIPSKnowledge, Legislation / Policy

Background

The Beijing IP Court issued a decision in July 2022 confirming the right to compensation for victims of bad faith trademark registration.  To date, no such decisions had been issued by courts in Beijing, only by the courts of Shanghai, Hangzhou, Xiamen and Guangzhou (in a case handled by SIPS).

In the Beijing decision, the court ruled that the victim can claim compensation of legal costs incurred in registry actions necessitated by the bad faith behavior, including the cost of pursuing an invalidation as well as appeals of the rejections of victim’s trademark applications.

Following practice of other courts, the court conditioned relief on the fact that the bad faith pirate had sought to enforce its pirated trademark registration. Decisions of other courts also decided for the plaintiff based upon the pirate’s actual use of the pirated mark.

Trademark owners and associations have been advocating for Chinese courts will recognize the right of trademark owners to secure damages to cover their legal expenses without the need to prove that the pirate either used the victim’s mark or that it pursued enforcement measures against the victim or its business partners. However, Chinese courts have generally denied such relief on the basis that the mere filing of a trademark application – even if done in bad faith – does not qualify as a “civil act”.

Notably, CNIPA recently indicated that it would support amendments to the PRC Trademark Law that would explicitly allow access to such relief. For further information in this regard, see SIPS update here. However, the timeline for amendment of the Trademark Law remains unclear.

Case Note
Parties Plaintiff: Beijing Gubei Water Town Travel Co., Ltd.

Defendant: Beijing Xiaohao Technology Co., Ltd (“Xiaohao”)

Date of Decision July 15, 2022 (appeal)
Courts First Instance: Beijing Dongcheng District People’s Court

Second (Final) Instance: Beijing IP Court

Status Decision in the lower court decided for the plaintiff.

On appeal, the Beijing IP Court ruled to sustain the lower court’s decision.

Plaintiff’s Assertions
  1. Plaintiff was established in 2010 and has been using “Gubei Water Town” as its trade name and trademark continuously. The Plaintiff’s attraction was attracting millions of travellers each year, with annual revenue of over RMB10 million. But it had not registered the mark for either alcohol or clothing.
  2. Defendant was established on February 12, 2014, and its scope of business was focused on “trademark assignment and agency services”. It applied for Plaintiff’s mark “Gubei Water Town” in Classes 25 and 33 on February 26, 2014.
  3. Soon after the marks were registered in 2016, Defendant delivered a C&D to plaintiff, and filed an administrative infringement complaint with the local Market Supervision Bureau (“MSB”).
  4. Plaintiff then filed invalidations against the Defendant’s trademark registrations with the Trademark Review and Adjudication Department of CNIPA, and requested local MSB to suspend review of the pending invalidations. Plaintiff also filed its own application for the same mark, which was refused based on citation of the pirate mark.  Plaintiff then appealed the refusal to the Beijing IP Court, with a further appeal then filed to the Beijing Higher Court, and ultimately filing a request for retrial to the Supreme People’s Court.
  5. Following investigation, the local MSB confirmed that plaintiff was using its marks on products and agreed to suspend review of the infringement complaint.
  6. The TRAD later ruled in favor of the Defendant and sustained the trademark registrations. Plaintiff then appealed the case to the Beijing IP Court, which concluded that the marks had been registered in bad faith, and decided to invalidate them.  Defendant appealed the case further to the Beijing Higher People’s Court, which sustained the Beijing IP Court’s conclusion.
  7. The local MSB then decided that there was NO infringement and closed the administrative infringement case.
  8. The Plaintiff then sued the Defendant for unfair competition.  The damages consisted of two parts: (a) legal expenses incurred in dealing with the MSB complaint, the invalidation and court appeals; and (b) damages to Plaintiff’s good will and normal business operation.
Defendant’s Arguments
In the first instance, Defendant did not dispute the facts, but argued – unsuccessfully – that:

  • Plaintiff did not have the right to sue;
  • Sending the C&D and filing the MSB complaint were not conduct constituting unfair competition; and
  • Defendant should not be required to compensate the plaintiff’s legal expenses.

In the second instance, Defendant argued that:

  • Because this case relates to trademark prosecution, the Trademark Law should apply, not the Anti-Unfair Competition Law; and
  • The damages awarded by the lower court were excessive.
Court’s Holdings Defendant was ordered to compensate the Plaintiff for economic losses in the amount of RMB280,000 (~USD40,000) plus reasonable expenses RMB35,000 (~USD5,000), and to issue a public apology in the China IP News (中国知识产权报).

In particular, both courts explicitly supported plaintiff’s claims for the legal expenses incurred in the registry actions – including the invalidation of pirate mark and the appeal of refusal for its own application, as well as subsequent court appeals. Courts reasoned that these were damages caused by Defendant’s bad faith registration of the pirate mark.

(2021) Jing 73 Min Zhong No. 4553  [(2021)京73民终4553号]