By Xu Jing and Zhang Hairuo   King & Wood Mallesons’ IP Litigation Group

On April 22, 2013, the Supreme People’s Court of the People’s Republic of China (the “SPC”) released its Annual Press Release regarding Judicial Protection of Intellectual Property and Model Cases of 2012. The SPC therein unveiled the “Top Ten Innovative Intellectual Property Cases in China (2012)”, which included the “Leroy-Somer” trademark and company name infringement case (Case Number: [2012] Min Min Zhong Zi No. 819). As lawyers from King & Wood Mallesons’ IP Litigation Group, we represented the Plaintiffs, Leroy-Somer Societe Anonyme ( “LS”) and Leroy-Somer Electro-Technique (Fuzhou) Co., Ltd. (the “LSFZ”), against Lilaisenma Fujian Electrical Machinery Co., Ltd. (the “LLSM”) in this matter. The Fujian Higher People’s Court closed this case in December, 2012 and supported all appeals of the Appellants-Plaintiffs. Given the ongoing issues which arise concerning protection of Chinese character translations of foreign language-based trademarks and company names, we understand why this case was given the SPC’s designation as an “Innovative Case” and we believe that the Fujian Court’s rulings are instructive and provide useful guidance for the adjudication of similar cases in the future.

I. Case Brief

LS is the owner of P.R.C.-registered trademarks No. 292016 (“ ”) and No.G633661 (“LEROY-SOMER”), where these registrations are in the class of goods including dynamos. As a Chinese subsidiary of LS, LSFZ is authorized to use the aforesaid trademarks in China. In 2000, LSFZ registered the trade name (in Chinese characters) of “利莱森玛”, and has subsequently used this trade name in commerce in China. With its products still marked with , neither LS nor LSFZ registered the Chinese language version of its trademark, i.e., 利莱森玛, in China.

The Defendant, LLSM, was established in 2004 and changed its original company name “Fu’an Jianeng Electrical Machinery Co., Ltd.” to “Lilaisenma Fujian Electrical Machinery Co., Ltd.” on December 5, 2005. The trade name (in Chinese characters) of LLSM is the same as the trade name (in Chinese characters) of LSFZ. In addition, LLSM applied to register the trademarks “ ” and “ ” (still in the application process during the period of this lawsuit), and used “ ” on those dynamos which it manufactured and sold. The company name on the nameplate of those dynamos was “LEROYSOMMER FUJIAN ELECTRIC MACHINERY CO., LTD.” without any corresponding Chinese language version. The mark of “ ” was widely used in LLSM’s brochures and in its Use and Maintenance Manual.

LS and LSFZ filed an action against LLSM with the Ningde Intermediate People’s Court (the “Ningde Court”) for trademark infringement and unfair competition. Plaintiffs alleged that LLSM’s use of the above-mentioned marks infringed upon the exclusive rights of LS and LSFZ to use the registered trademarks of #292016 (“ ”) and #G633611 (“LEROY-SOMER”), and also that LLSM’s use of a company name comprised of their Chinese trade name of “利莱森玛” and Latin Character-based trade name “LEROYSOMMER” constituted unfair competition. LS and LSFZ requested that the Ningde Court order LLSM to stop the infringement immediately and to pay damages of RMB 2,141,944. The Ningde Court deemed that “利莱森玛” (in Chinese characters) was not similar to the registered trademarks “ ” and “LEROY-SOMER” of LS and the acts of LLSM did not constitute trademark infringement or unfair competition and, thus, rejected the claims of LS and LSFZ in the First Instance Judgment.

Unsatisfied with the First Instance judgment, LS and LSFZ appealed to the Fujian High People’s Court (the “Fujian Court”). The Fujian Court deemed that LS and the mark “LEROY SOMER” have a good reputation and are popular is in the generator industry. As “利莱森玛” is the Chinese transliteration of “LEROY SOMER” and is frequently used in LS’s business and operations, these two versions have already formed a fixed corresponding relationship which is widely recognized. In consideration of these facts, the Fujian Court found that LLSM’s use of “利莱森玛” (“LI LAI SEN MA”) and “LEROYSOMMER” on its generator products and in its company name was infringing upon the registered trademark of LS and constituted unfair competition. Therefore, the Fujian Court overruled the First Instance Judgment and ordered LLSM to cease these acts of infringement, change its company name, and pay damages of RMB 1,000,000.

II. Case Highlights

The key aspects of this case can be boiled down to three issues: how to properly define the scope of protection for registered trademarks employing foreign languages, how to resolve conflicts among different IP rights in such cases, and how to properly determine the amount of damages in such cases.

Firstly, can the scope of protection for registered trademarks in foreign languages be extended to their Chinese language translations (especially transliterations)? Can a similarity be formed between trademarks in foreign languages and their Chinese language translations?

As for this case, the Plaintiffs did not own any Chinese language registered trademarks in China, while the Defendant used the Chinese characters of “利莱森玛”. A key question raised by the Fujian Court was whether a similarity can be verified between “LEROY-SOMER” and “利莱森玛”. Even though such similarity may have existed in previous similar cases/trademark reviews, the claim of similarity was generally denied, leaving many famous foreign companies vulnerable to trademark “squatting” based on Chinese character translations of their trademarks.

In this case, the Plaintiffs submitted adequate evidence to support a claim of concurrent use of their foreign language trademark and Chinese language trade name, which proved that a corresponding relationship had already been established between “LEROY-SOMER” and “利莱森玛”. With this similarity established, acts of the Defendant were judged as trademark infringement according to the 1st Item of Article 52 of the Trademark Law of the P.R.C. This Judgment was especially noteworthy, as it was made after the Trademark Office’s denial of similarity in a previous trademark dispute review involving the marks at issue. This Judgment supported the principle that the scope of protection for registered trademarks in foreign languages could be extended to their Chinese translations, where such support is of great value to holders of foreign brands who wish to do business in China.

Secondly, the Second Instance Judgment properly dealt with those issues dealing with conflicts of rights between trade names and trademarks. In this case, the trade name used by the Defendant was exactly the same as that use by the Plaintiffs, which constituted a conflict of rights. When resolving IP rights conflicts, the Fujian Court, applying the principles of “honesty and trustworthiness”, “protection goes first” and “safeguarding fair competition”, decided that the trade name registered by the Defendant infringes on that of the Plaintiffs. In addition, in terms of remedies, the Fujian Court, for the purpose of maintaining fair competition in the marketplace, ordered the Defendant to stop using its trade name and to alter its company name within a stipulated period, so as to safeguard the interests of the Plaintiffs.

Lastly, there was the challenging issue of establishing the amount of damages. As for this case, LLSM presented many sale contracts and invoices to prove its own popularity independent from that of the Plaintiffs. Although there was not sufficient evidence to establish a precise amount of the Defendant’s illegal profits, the Fujian Court deemed that the amount of illegal profits must be higher than the statutory damage ceiling of RMB 500,000, on the basis of sales documents submitted. Considering the specific facts of this case, the amount of damages was set at RMB 1,000,000, based on the grounds that LS’s trademarks and trade name enjoyed a good reputation, LLSM had an obvious subjective intent to infringe, and the results of the infringement caused great damage. The Fujian Court’s decision in this matter should ultimately help to strengthen protection of trademarks, safeguard famous brands, and create a better legal environment for the establishment and development of well-known brands.

III. Innovative Significance

The SPC’s criteria for its Top 10 Innovative Cases are such that the case Judgment cited is: 1) in accordance with the policy orientation regarding judicial protection of IP rights; 2) whether a case explores a new legal area or issue; and 3) whether a case demonstrates new thoughts on application of the law. In addition, all cases in this list must be in line with the overall judicial policy orientation of “strengthening protection and classification with flexibility in ruling”.

In its “Brief Introduction to the Top Ten Innovative Intellectual Property Cases in China (2012)”, the SPC summarized the innovative significance of the Leroy-Somer case as follows:

[i]n full consideration of the famous nature of the foreign language trademarks, the Plaintiff’s prior use of the Chinese translation version, and public recognition of the corresponding relationship between the foreign language trademarks and its Chinese language translation, the Fujian Court deemed that “LEROY SOMER” has a fixed corresponding relationship with “利莱森玛”. This conclusion verifies the similarity between the Chinese characters “利莱森玛” and the original English [language] trademarks, which means that LLSM’s use of “利莱森玛” in both Chinese and English languages constitutes unfair competition. The Judgment of this case embodied the legislation purpose of the Trademark Law in eliminating malicious trademark squatting and encouraging honest business conduct, which eliminates confusion and promotes a fair competitive order in the market.

The SPC has acknowledged, by citing this case as being “innovative”, the Fujian Court’s pioneering view in this case on the similarity between foreign language trademarks and their Chinese language translations. Specifically, a high acceptance or recognition among the relevant buying public demonstrating a fixed corresponding relationship was deemed as a key criterion to be examined when determining whether similarity is to be established. Most importantly, the Fujian Court’s Judgment and subsequent recognition by the SPC as a “Top 10 Innovative IP Case” represents significant progress towards more effective rights protection for multinational brands in China.