Chinese court ruling: New Balance scores a goal against copycats

1/26/2018 9:56:11 AM

Some experts see glimmers of progress on intellectual property in China. Other mark the recent Chinese court ruling in favor of American sports shoe brand New Balance as ‘kicking a goal’ for damages in a country where copying someone’s product or brand is not always seen as a bad thing. But what does the ‘New Balance’ case win really mean for the future of IP protection? Club China asked the experts.

The New Balance brand case attracted worldwide attention, because IP rights (IPR) have been an issue for years. Some legal experts wonder if this is the turning point for IPR in China, now that a court ruled against Chinese competitors for infringing New Balance’s IPR.

The case

New Balance has been involved in several disputes involving trademark infringement after entering China against counterfeit Chinese shoemakers. This case involved the infringement of the brand’s well-known ‘N’ logo on its footwear by five Chinese shoemakers.

The court decided that the Chinese businesses had drastically damaged NB’s business reputation and market share in China and ordered the defendants to pay an unprecedented compensation of US$1.5 million to NB. The judges ruled that the Chinese shoemakers had to immediately stop the production and sale of shoes that infringe NB’s logo.

Why high-profile?

What makes this such a high-profile case? International businesses have been complaining for years that China does not do enough to protect IP rights. China’s intellectual property system, critics say, does not sufficiently protect foreign brands. The Chinese Government has promised to tackle the infringement issue caused by the millions of fake products produced and offered for sale as being ‘the original’. The New Balance decision seems to show that judges are getting tougher on copycats. Prior to the latest decision in favor of NB, the company had little success with IPR infringement issues in China.

What do the experts say?

In a comment, legal experts of McCullough Robertson, an Australian law firm with clients that deal with China, say that “this decision indicates steps are being made to support foreign rights holders.  It also provides reassurance for foreign brands looking to expand into the Chinese market and pursue an active brand protection strategy.”

In fact, as legal expert Srinivas Raman explains on behalf of Dezan Shira & Associates, a firm with a full-service practice in China, things haven’t been been going well for a long time. “In 2015, a court in the southern city of Guangzhou ordered NB to pay US$15.8 million to a man named Zhou Lelun, who had owned the trademark to NB’s Chinese name since 1994. The court ruled that NB had infringed on Zhou’s trademark ownership, as he acquired the Chinese trademark before NB under the country’s ‘first to file’ system.”

Raman points out that, under the Chinese system, the first party to file for a trade mark is awarded protection. This principle has caused many IPR protection challenges for international companies.

Following the unfavorable ruling in Guangzhou, many Chinese copycat manufacturers have imitated NB’s ‘N’ logo. It was not always outright copying, some used all off their creativity to launch new brands with the ‘N’, such as New Barlun, New Bunren, and New Boom.

A change of wind?

China has made international commitments to promote IPR protection within its jurisdiction since the 1980s. The ruling could be an indication that the wind has truly changed. The Dezan Shira expert: “Recently, amidst international criticism of China’s business environment and extensive IP theft, the government has brought about a slew of reforms aimed at improving IPR protection in China. The courts have also adopted a similar line of approach, as evidenced from recent awards passed in favor of foreign firms.”

What does this ruling bring other companies with trade mark and brand issues?

Unlike common law jurisdictions such as the EU and the US, where legal precedents have binding value, China follows the civil law system and courts are not bound to follow decisions laid down in prior cases. The Dezan Shira & Associate continues: “Therefore, it is uncertain whether this judgment will have any significant impact on future trademark infringement disputes. Trademark and other IP infringement litigation is an expensive and lengthy process and foreign firms often incur huge expenses in legal fees in such cases. Moreover, most cases do not result in favorable awards for foreign firms as the Chinese courts are very strict about the ‘first to file’ system and often rule in favor of trademark squatters.”

The best advice for protecting brands and trade marks?

Dezan Shira & Associates: “Register trademark in China as early as possible: Registration in China may take as long as 18 months, and it is advisable to file for registration as early as possible before entering the Chinese market, or even before making concrete plans to enter China.”

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