The Beijing IP Court recently issued its judgement on a trade mark infringement and unfair competition suit brought by Wilo (China) Water Pump System Co., Ltd. (Wilo China) against Weile Pumps (Jiangsu) Co., Ltd. (Jiangsu Weile) and the distributor Beijing Sunlight Keyu New Energy Technology Co., Ltd. (Sunlight Energy). In its judgement, the appellate court significantly increased the level of discretionary damages from CNY 500K (approx US$ 75K) to CNY 5M (approx US$ 750K). The Court also reversed the first instance decision to exempt the distributor, Sunlight Energy, from liability for damages. Instead, it was held jointly liable. The outcome reflects a more proactive approach by Chinese courts to joint infringing activities.
Facts
Wilo China is a subsidiary of Wilo SE (Wilo Germany). Its main business is manufacturing and sales of water pumps and pump systems. Wilo Germany has multiple registrations for its trade mark “Wilo” and its Chinese version “威乐” (Wei Le, a phonetic transliteration of “Wilo”).
Wilo Germany has promoted and sold its pumps and related products in China since the 1990s. Wilo Germany exclusively licensed Wilo China to use its locally registered marks on the products. Wilo China established an extensive sales network, including branch offices in major Chinese cities. Wilo China has promoted and sold the branded products in China since 2009 and the evidence attested to advertising expenditure of some CNY 20M (approx. US$ 3M).
Weile Pumps (Jiangsu) Co., Ltd. (威乐泵业 (江苏)有限公司) was incorporated in 2014. Its business scope includes manufacture and sales of water pumps and related products. The initial two characters in its Chinese company name are the same characters that comprise Wilo Germany’s Chinese mark, which was first registered in 2005.
Jiangsu Weile sold its pumps and related products through distributors, but also via its official website www.wilopump.cn and on other third party e-commerce platforms in China (e.g. JD.com, taobao.com and 1688.com)
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Jiangsu Weile’s Products promoted on its official website (example) |
Wilo Group’s Products promoted on the e-commerce platform JD.com (example) |
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Note: The four characters “威乐泵业” are prominently displayed on the product. The initial two characters “威乐” are Wilo Germany’s registered mark. The final two characters mean “pump industry”. |
Note: Both English and Chinese marks Wilo and “威乐” are used to identify the product on the webpage. |
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Jiangsu Weile’s Website(screenshot) |
Wilo Group’s Website(screenshot) |
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Note: The domain name “wilopump” incorporates the English name “wilo”, which is the registered mark of Wilo Germany. The four characters are “威乐泵业” prominently displayed, the initial two characters “威乐” being Wilo Germany’s Chinese mark. The final two characters mean “pump industry”. |
Note: Both English and Chinese marks Wilo and “威乐” are used to identify the business of Wilo Group. |
Sunlight Energy, established in 2008, is a re-seller of products supplied by both Wilo China and Jiangsu Weile.
First Instance Judgement
In January 2019, Wilo China sued Jiangsu and Sunlight Energy jointly for trade mark infringement and unfair competition and sought CNY 5M (approx. US$ 750K) in damages. While the court took account of the use by Jaingsue Weile of the characters “威乐”, “威乐泵业”, “江苏威乐泵业”, and the domain name “wilopump.cn”, it decided to disregard all sales and promotional activities that occurred via third party e-commerce platforms (jd.com, taotao.com, 1688.com) as these were independent of the joint infringing activities of the two defendants. Thus, they should be excluded from the scope of judicial review in this case.
Based on its findings, the court ruled that the unauthorized use by Jiangsu Weile, and the sales by Sunlight Energy, jointly infringed the registered trade marks of Wilo Germany. The court also affirmed that Jiangsu Weile’s registration and use of its Chinese corporate name incorporating the characters “威乐” amounted to unfair competition. As the court was unable to assess actual loss suffered by Wilo China, or profit earned by Jiangsu Weile, it awarded CNY 500,000 (approx. US$ 75,000) in discretionary damages. However, the court exempted Sunlight Energy from payment of damages as it had produced evidence of legitimate purchases and resale of products from Jiangsu Weile.
Second Instance Judgement
Both parties appealed. On appeal, the Beijing IP Court acknowledged the facts that had been established at first instance. But, based on this evidence, it held that Jiangsu Weile’s sales and promotional activities on third party e-commerce platforms were closely related to the activities complained of in this litigation and therefore these activities should not be omitted from the scope of the present case.
As a result, the appellate court upheld Wilo China’s right to all claimed damages (CNY 5M, approx US$ 750K) in light of the revenues generated by Jiangsu Weile on 1688.com (circa. CNY 100M, approx US$ 15M per year) and the duration of the infringing activities (2017-2022).
The court also found bad faith on the part of Sunlight Energy by inferring that this reseller should have known that products purchased from Jiangsu Weile infringed the trade rights of Wilo Germany in view of its concurrent sales of Wilo China’s genuine products since 2008. On this basis, the court ruled that Sunlight Energy should be jointly liable for damages up to CNY 150,000 (approx. US$ 22,500).
Comments
This practice of a Chinese company seeking to take advantage of its locally registered Chinese corporate name and domain name to unfairly trade on the reputation of a genuine brand owner is not uncommon. While the courts were united in finding that the activities of both defendants constituted infringement, their views diverged on the scope of the judicial review and the liability of the distributor.
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Scope of Judicial Review
At first instance, the court tended confined its review only to the joint infringing activities directly engaged in by Jiangsu Weile and Sunlight Energy. By contrast, the appellate court extended its review to all the infringing activities of the principal infringer, including its sales on third party e-commerce platforms, even though these may not have involved the co-defendant. The CNY 5M (approx. US$ 750K) damages were then imposed based on revenues derived from sales on third party platforms. The willingness of the Court in this case to take a broader view of infringing activity will benefit genuine IP holders who might now avoid the need to pursue multiple actions against the same defendant.
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Liability of the Distributor
The China Trademark Law provides that a distributor may be exempted from payment of damages if it does not know the products are infringing, can prove they were acquired by legitimate means, and discloses the supplier’s identity.
Following this provision, Sunlight Energy was at first instance able to escape liability for damages because it proved its legitimate acquisition of the products from Jiangsu Weile. But, based on the same facts, the appellate court decided differently. It established bad faith on the part of the distributor and found it jointly liable for damages. The appellate court reasonably concluded that the distributor should have had knowledge of the infringement as its was selling the products of both parties. This finding by the court seems to imply some general duty of care to avoid knowingly selling infringing goods.
