A Bitter Glass of Wine: the Intermediate People’s Court of Wenzhou Orders a Wine French Company to Pay RMB 33 Million Compensation

In April of this year, the Intermediate People’s Court of Wenzhou (Wenzhou is the third biggest city in Zhejiang Province) ordered a French wine producer and trader (namely Castel Freres SAS) as well as its Chinese distributor to pay a RMB 33 million (approximately Euro 4 million) compensation for infringement of a trademark registered in China.

In 1998, a Spanish citizen originally from China, Mr Li Daozhi, applied for the registration of the trademark “Castel” in Chinese (卡斯特, kasite) in class 33 (alcoholic beverages) in China. The registration of this trademark was granted in 2000.

Only a few years later, in 2002, Castel Freres SAS took steps to protect its trademarks in China. In the first instance, Castel Freres SAS applied for the registration of the trademark “Castel” in class 33.  The registration was granted in 2007. After that, Castel Freres SAS made several attempts to obtain the cancellation of the trademark registration of 卡斯特(kasite) belonging to Mr Li Daozhi in order to register this same trademark under its own name. These attempts were based on a three-year-non-use of the trademark in question as well as his fraudulent trademark registration.

However, all these attempts were unsuccessful, including Castel Freres SAS’s attempts to invalidate the trademark office’s decisions before the administrative courts.

In October 2009, Mr Li Daozhi sued Castel Freres SAS and its Chinese distributor before the Wenzhou Intermediate People’s Court, in his hometown of Wenzhou. The Wenzhou Court’s jurisdiction was based on the fact that certain alleged infringements of the trademark rights were also committed in Wenzhou.

After an almost three year trial, the Wenzhou Intermediate People’s Court ordered Castel Freres SAS and its Chinese distributor not to use the卡斯特 (kasite) trademark. Moreover, the Court has ordered Castel Freres SAS to pay around RMB 33 million (approximately Euro 4 million ) compensation to Mr Li Daozhi. This amount results from the China sales revenues that Castel Freres SAS had allegedly obtained from the use of the trademark in question.

This is an exceptionally high compensation by Chinese standards, considering the fairly low compensations usually granted by Chinese Courts in intellectual property cases. It is quite likely that the Wenzhou Court, with regard to the difficult task of providing permissible evidence in cases such as this, supported the claimant in the collecting of such evidence by ordering the respondents to submit copies of their accounting documentation.

The case is currently pending before the Supreme People’s Court of Zhejiang Province, as the appeal court.

This decision is a warning to foreign investors that a lack of registration of their trademark in China can cause not only the registration of that trademark by a third party but also, if the foreign investor keeps using such trademark despite the third party’s registration, liabilities for compensation. This case once again underlines the importance for foreign investors in China to

  • promptly register a trademark in China (in Chinese characters)  – with the trademark being registered well before the relevant products are sold in the Chinese market; and
  • if the trademark has already been registered by a third party, promptly take all the legal steps necessary to obtain the cancellation of the registration of the trademark.

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