Court: Luzhou Intermediate People’s Court
Date of Issuance: November 7, 2024
Case No.: (2024) Chuan 05 Zhi Min Chu No. 5
Issue involved:
How did the right holder obtain a compensation award totaling CNY 196 million?
Mengchun’s Comments:
1. Collect data from the infringers’ official website, media platforms, and annual report, to serve as critical evidence for calculating sales volume and profit margins.
2. Provide evidence to demonstrate the infringer’s obvious bad faith, the long duration of infringement, extensive sales regions, large scale, and severe consequences. These factors justify a claim for punitive damages under Chinese IP law.
Summary of the First Instance Judgment:
1. Background
- On September 14, 2008, the defendant, Yelanggujiu Co. Ltd. registered the No. 4991740 “Ye Lang Gu in Chinese” (夜郎古) trademark.
- In 2017, the said company began producing two types of Chinese liquor: “Yelanggujiu · Special Gold in Chinese”（夜郎古酒·大金奖） and “Yelang Chun Qiu in Chinese”（夜郎春秋）.
- On October 25, 2022, Yelanggujiu Co. Ltd. established Yelanggujiu Zhuang Co. Ltd., and on November 9, 2022, it set up Yelanggujiu New Retail Co. Ltd., with all three entities jointly selling the said two products.
2. Trademark Similarity
- The “Yelanggujiu in Chinese”(夜郎古酒) trademark used by the three defendants was similar to the “Lang in Chinese” (郎) trademark owned by plaintiff Lang Jiu Co. Ltd., significantly altering the registered trademark’s distinctiveness and causing confusion among the relevant public, thus constituting trademark infringement.
- In the meantime, the “Yelang Chun Qiu in Chinese”(夜郎春秋) trademark used by the three defendants was similar to the “Lang” (郎) trademark owned by plaintiff Lang Jiu Co. Ltd., thus constituting trademark infringement.
- (note: the court’s conclusion on trademark similarity has been subject to expert criticism following the judgment).
3. Calculation of Profits
- [Sales Data] Yelanggujiu New Retail Co. Ltd. advertised on its official store that sales amount of “Yelanggujiu · Special Gold” reached 30 million bottles over seven years, while “Yelang Chun Qiu” reached 15 million bottles. The court considered the extensive sales regions, long sales duration, and the fact that these were the company’s main products, thus recognizing the data as credible. During the trial, the court ordered the defendant to provide relevant accounting records for review. However, since Yelanggujiu Co. Ltd. submitted an obviously inaccurate audit report, the court supported the plaintiff’s claim to use the publicly advertised data as evidence of sales amount.
- [Retail Prices] The plaintiff provided notarized evidence showing the minimum retail price of “Yelanggujiu · Special Gold” as CNY 399 per bottle and “Yelang Chun Qiu” as CNY 90 per bottle.
- [Profit Margin] The parent company, Shede Liquor Co. Ltd., disclosed a minimum gross profit margin of 48.9% in its 2022 annual report, which the court adopted for profit calculations.
- [Contribution Rate] The defendant did not disclose the contribution rate of the disputed trademark. The court comprehensively considered several factors, such as the prominent placement of the infringing trademark on the front of the products, the dependence of liquor products on branding, the reputation of the plaintiff’s trademark, the similarity in the defendants’ distribution model to that of the plaintiff, and the contribution of Yelanggujiu’s unique packaging and advertising to product sales. Thus, the court determined the infringing trademark’s contribution rate to the profits of the related liquor products to be 30%.
Based on this, the infringing profits of Yelanggujiu Co. Ltd. from the “Yelanggujiu · Special Gold” were calculated as CNY 1,758,153,600 (30 million bottles × CNY 399 per bottle × 48.9% profit margin × 30% contribution rate). After the establishment of Yelanggujiu Co. and Yelanggujiu New Retail Co. Ltd. the combined profits for selling “Yelanggujiu · Special Gold” during 15 months were CNY 313,956,000 (CNY 1,758,153,600 ÷ 84 months × 15 months).
The infringing profits of Yelanggujiu Co. Ltd. from the “Yelang Chun Qiu” Chinese liquor were CNY 198,288,000 (15 million bottles × CNY 90 per bottle × 48.9% profit margin × 30% contribution rate). After the establishment of Yelanggujiu Zhuang Co. Ltd. and Yelanggujiu New Retail Co. Ltd. the combined profits over 15 months were CNY 35,408,571.42 (CNY 198,288,000 ÷ 84 months × 15 months).
4. Punitive Damages
- During the litigation, the plaintiff did not seek punitive damages for the “Yelanggujiu · Special Gold,” only for the “Yelang Chun Qiu”.
- Considering the defendant’s clear bad faith, long-term infringement, extensive sales regions, large scale, and severe consequences, the court supported the plaintiff’s claim for triple punitive damages. The total punitive damages for Yelanggujiu Co. amounted to CNY 793,152,000 (CNY 198,288,000 + CNY 198,288,000 × 3). For Yelanggujiu Zhuang Co. and Yelanggujiu New Retail Co. Ltd. the combined punitive damages were CNY 141,634,285.68 (CNY 35,408,571.42 + CNY 35,408,571.42 × 3).
5. Compensation Award
- The combined compensation amount for the three defendants after the establishment of Yelanggujiu Zhuang Co. and Yelanggujiu New Retail Co. Ltd. from producing and selling the two types of Chinese liquor, totaled CNY 455,590,285.68 (CNY 313,956,000 + CNY 141,634,285.68), far exceeding the plaintiff’s claim of CNY 195,000,000 for trademark infringement. Therefore, the court fully supported the plaintiff’s claim on damages.
- The compensation for unfair competition was determined to be CNY 1 million, and the reasonable legal expenses were CNY 302,395. The total compensation awarded was approximately CNY 196 million.
