Gucci sues two Chinese companies for trademark infringement

Italian fashion house Guccio Gucci SpA has instituted proceedings against Shanghai Basto Shoes Co Ltd and Beijing Hualian Supermarket Co Ltd for infringement of its figurative mark GG. Gucci's move illustrates that international businesses are taking IP rights enforcement into their own hands in China.

Since China joined the World Trade Organization in 2001, there have been major reforms to the country's IP laws. Although China fulfilled its obligations by acceding to the Agreement on Trade-Related Aspects of Intellectual Property Rights, the trademark legislation is still fraught with problems. In particular, the frequency and severity of criminal sanctions for infringement are insufficient to discourage - let alone curb - infringement. Although administrative measures are mostly time and cost-efficient, their long-term effectiveness is doubtful. International businesses are therefore increasingly instituting civil proceedings against infringers.

The cost of enforcement in China often exceeds the value of financial remedies. The Trademark Law states that the amount of damages is calculated based on either the profit earned by the infringer or the injury suffered by the rights owner; however, it provides no clear guidelines as to which basis should be used under different circumstances. The law allows the courts to award damages up to a statutory limit of Rmb500,000 (approximately $65,800). Damages calculated based on profits could be considerably lower than those based on the injury suffered by the rights owner; however, rights owners usually have difficulty proving or quantifying the extent of the actual damage. Yet, many international businesses are seeking to enforce their IP rights via the courts. There are strategic advantages for filing a civil suit over using administrative procedures or criminal enforcement. Among other benefits, the rights owners will be in active control of the proceedings and can allocate resources in terms of time, cost and expertise. A favourable judgment is often a stronger deterrent to other potential infringers.

On April 18 2006 the Beijing Higher Court held that the owner of the Silk Road Market in Beijing and five stall owners were liable for infringement of trademarks owned by various international companies including Gucci, Chanel and Burberry. The decision was significant in that it confirmed that landlords are jointly and severally liable with their tenants for counterfeit goods sold on their premises. This judgment allows international businesses to direct their actions against the different groups involved in the sale of counterfeit goods. Such actions are likely to become more common since it is difficult to target the counterfeiters themselves.

On September 28 2007 Gucci instituted proceedings against Basto Shoes and Hualian Supermarket for trademark infringement. In January 2007 Gucci found that women's shoes bearing a design similar to its figurative mark GG were sold by Hualian Supermarket. The infringing shoes were manufactured by Basto Shoes and bore the trademark BASTO (and design). Gucci requested that the two companies immediately stop manufacturing and selling the shoes at issue, and sought compensation totalling RMb500,000. The case has been accepted by the Beijing First Intermediate People's Court.

With rights owners taking more aggressive actions through the courts and lobbying for more effective anti-counterfeiting measures, it is hoped that the IP protection system as a whole will benefit.

Kenny Wong, Johnson Stokes & Master, Hong Kong