French wine mark ‘frozen’ by court

China
French wines are becoming increasingly popular in China, but French wine producer Castel has recently found itself the subject of a trademark infringement action in a local Chinese court. 

A Wenzhou-based merchant managed to register the Chinese equivalent of the famous CASTEL mark, KA SI TE, which is a phonetic translation of 'Castel'. The merchant sued the Castel Group in the Wenzhou Intermediate People’s Court on three accounts of infringement and requested damages of up to Rmb200 million (approximately $31 million).

What makes this case unique is not the dispute itself, but the decision of the Wenzhou court to 'freeze' the Castel Group’s valuable CASTEL mark at the initial stage of the lawsuit. This order will in effect prevent the CASTEL mark from being licensed or assigned to any third party while the case is pending. More importantly, if the court decides in favour of the plaintiff, the Castel Group could be compelled to pay damages - otherwise, the court may threaten to auction the CASTEL mark in order to pay the plaintiff.   

The fact that the local court 'froze' the Castel Group’s trademark reflects an aggressive approach. For many years, the Chinese civil procedure law has provided a form of ex parte provisional relief, called 'property preservation', which consists of preventing the defendants from transferring certain types of property and funds during the course of a lawsuit. 'Property preservation' has traditionally taken the form of freezing bank accounts and the transferability of real property by appointing a conservator to hold the property until the court reaches a decision. In the present case, the court's order touches directly on the Castel Group’s intangible assets - a similar order could threaten the interests of a vulnerable foreign defendant. 

As a side note, a few years ago the same court, in a very controversial decision, awarded a record-setting Rmb330 million (approximately $51 million) to local company Chint against leading multinational manufacturer Schneider Electric.  

This recent move by the Wenzhou court could spell new problems for foreign companies. Companies that do not have significant assets in China used to be less concerned about litigation risks in that country; however, they now face losing valuable intellectual property (trademarks or patents) if they lose a legal dispute in China. 

On the flip side, foreign IP owners may find this recent development helpful if they act as plaintiffs. More and more local firms are building up their brands and patent portfolios, and a court order freezing these IP assets may be viewed as a serious risk by the senior management of these companies. Local companies may prefer an expedited settlement, rather than going through an entire trial.
 
He Jing and Garland W Rowland, ZY Partners, Beijing

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