The North Face decision leaves market operator in the cold

The Beijing Second Intermediate People's Court has ordered the Silk Street Clothing Market Limited, the operator of the notorious Silk Street Market in Beijing, to cease infringing The North Face Apparel Corp's registered trademark THE NORTH FACE (and design). The North Face was represented in this case by Fangda Partners in Beijing.

Chinese trademark law provides that a person is liable for infringement if he or she intentionally provides facilitating conditions for infringement. This means that he or she is fully aware of the underlying infringing activities.

In the earlier Silk Street Cases, which involved Burberry, Chanel, Gucci, Louis Vuitton and Prada (for further details please see "Landlords allowing sale of infringing goods now under attack", "Chinese courts get tough on landlords", and "Chinese courts continue attack on landlords"), the vendors and the Silk Street Market operator were both sued for trademark infringement. The Beijing Second Intermediate People's Court and the Beijing Higher People's Court found that the Silk Street Market operator had a duty to take timely and effective measures to stop the infringing activities when it became aware of such activities upon receipt of the letters sent by the plaintiffs' attorneys. In arriving at the decisions, the courts looked at the lease contract and noted that the Silk Street Market operator furnished the premises for the vendors upon receipt of rent and a deposit. Moreover, the operator had the right to determine the business scope and categories of the vendors, and had power to maintain market order and stop illegal activities. As the operator took no action upon receipt of the letter, it failed in its duty.

In the The North Face Case, only the Silk Street Market operator was sued. In November 2006 and January 2007 The North Face purchased counterfeit clothing bearing the THE NORTH FACE mark from four different vendors at the market. In February 2007 a cease and desist letter was sent to the operator of the market on behalf of The North Face demanding that it:

• evict the vendors from the market; and
  
  
• adopt measures so as to ensure that the market was free from counterfeit goods.

Upon receipt of the letter, the operator issued warnings to the relevant vendors and required them to display the notice "fake sales warning" at their premises.

In March and April 2007 The North Face managed to purchase counterfeit The North Face clothing from six different vendors in the market (only one of them might have been involved in the first purchase, but this was subject to dispute). Similarly, The North Face also issued warnings against some of these vendors and had the fake sales warning displayed. It is unclear from the judgment whether these warnings were sent pursuant to another demand letter by The North Face. The North Face subsequently sued the operator of the market.

The Beijing Second Intermediate People's Court held that the operator, being a market manager, and pursuant to certain Administration for Industry and Commerce regulations, had the duty to supervise strictly the business activities within its management. Among other things, the operator had to ensure that the goods sold by the shop owners were from lawful sources/channels and that trademarked goods were validly authorized by the trademark owners. Therefore, the operator failed in its duties and was liable as it took no or little action after being warned.

The court thus ordered the operator to:

• cease the infringement;
  
  
• post notices within the market; and
  
  
• pay damages in the amount of Rmb20,000 (approximately $2,650) and reasonable expenses of Rmb19,000 (approximately $2,550).

This case shows that market operators and managers have a high duty of care and must keep their markets clear of infringement.

Howard Tsang, Wilkinson & Grist, Beijing