In September 2019, the Shanghai Pudong District People’s Court awarded triple punitive damages to Balanced Body Inc., which according to the Shanghai government news report was the first such award for a Shanghai Court to a foreign plaintiff.
Balanced Body is a provider of Pilates equipment and education and holds PRC trade mark registrations for “MORT” over a wide range of goods and services. Fitness equipment bearing the “MORT” mark has been widely sold in China, and Balanced Body also organises fitness training programmes in China in relation to their “MORT” fitness equipment.
The defendant’s infringing acts started back in 2011, when Balanced Body issued a warning to the defendant about the export of suspected infringing products to Spain. The parties entered into a settlement agreement in 2012 under which the defendant undertook not to engage in any further infringing activities. Yet, in 2018, it was discovered that the defendant had resumed its sales of low quality counterfeit products. Balanced Body filed a lawsuit in Shanghai and claimed 3 million RMB.
The Court held that the defendant’s infringing activities were “malicious” and the circumstances were “serious”, which allowed the Court to award punitive damages equal to three times the Defendant’s turnover. In particular, the Court found:-
- Comprehensive imitation of trade mark and products: The logo used was identical to Balanced Body’s trade mark registration and on the same products. The style, colour and positioning of the trade mark were almost identical. The act of comprehensive imitation showed the defendant’s obvious intention to infringe against Balanced Body’s trademark right and freeride on its goodwill.
- Repeated acts of infringement: Ignoring the 2012 settlement agreement, the defendant was producing and selling infringing products again a few years later. The defendant’s breach of its undertaking and disrespect to the intellectual property rights of others violates the principle of good faith, which amounted to ‘malicious’ infringement and the circumstances were ‘serious’.
- Extensive production and sales of infringing products: The defendant’s total sales in 2016 reached more than 8 million RMB. The defendant promoted and sold the infringing products to different cities through a large number of online and offline channels such as WeChat Mall, WeChat circle of friends, factories, exhibitions, etc., It can be seen that the scale of production and operation was large with a wide geographical coverage. Its infringing acts had a large impact on the market.
- Inferior quality caused damage to plaintiff’s reputation: The quality of the infringing products provided by the defendant was unsatisfactory. Consumers who mistakenly purchased the inferior quality products may have misbelieved that the products were provided by Balanced Body, which would cause damage to Balanced Body’s business reputation – this certainly amounted to “serious circumstances”.
Pursuant to the PRC Trademark Law (2019 Amendment), the Court is now allowed to award punitive damages of up to five times (it was “up to three times” under the 2013 Amendment that was in force at the time of the case) the defendant’s illegal profits, if the infringement is malicious and the circumstances are serious. This decision is welcomed since foreign right owners have long complained that it is difficult to take action in China and the damages awarded are often not sufficiently high to deter infringing activities in China. This case does show that undertakings are worth pursuing and if a wide enough range of evidence is submitted to demonstrate the maliciousness and seriousness of the infringement, then punitive damages should be available (and now even higher, at up to five times profits). It remains to be seen how often this provision will be invoked before other Chinese Courts across China.