Friday, August 31, 2007

Anheuser-Busch: How Good Does a Slam Dunk in Chinese Court Feel?

Anheuser-Busch, the world’s largest brewer, recently won a trademark infringement lawsuit against a Chinese infringer, obtaining substantial damages and an injunction.

The opinion of this case has not been reported in China, or at least I have not been able to find it on the Internet after substantial searching efforts. So, the facts of the case are based on a news report in Chinese (if any part of the facts is inaccurate, please kindly inform me by leaving a comment.).

The lawsuit involved Anheuser-Busch’s registered trademark, Budweiser, which in Chinese is “百威.” And in pinyin, it is pronounced “Baiwei.” In addition to the character, Anheuser-Busch also registered two other related marks in symbols. One of them is the “Wheat + Sash” graphic; and another is a combination of the graphic and the Chinese characters “百威.”

Around April of 2006, Anheuser-Busch began to see an infringing type of beer brewed by a Chinese company named Putian Golden Key Company (“PGKC”). What Anheuser-Busch found was a product titled “New Generation Beer,” bearing the very “Wheat + Sash” graphic. What is more, PGKC packaged its beer with boxes with large font Chinese characters—“American Budweiser International Beer Group, Ltd.” (“美國百威啤酒國際集團有限公司”). This type of beer was being sold in Shanghai, Jiangsu Province, and Jiangxi Province. Anheuser-Busch was not alone in discovering these copycat activities; in fact local branches of the Bureau of Industrial and Commerce fined four companies that distributed the beer made by PGKC.

Then, Anheuser-Busch went after PGKC and the afore-mentioned four distributing companies, suing PGKC for trademark infringement in the Shanghai First Intermediate People’s Court. Anheuser-Busch also sought an injunction against PGKC for manufacturing the infringing product in addition to damages in the amount of 500,000 Yuan. Further, it asked the Court to prohibit the four distributing companies from selling the “infringing beer.”

The plaintiff’s victory did not come as a surprise for a number of reasons. First, Anheuser-Busch registered its flagship trademark “Budweiser” in China in Chinese properly in 1998, and it even registered marks related to the “Budweiser” mark. Second, Anheuser-Busch signed a trademark use agreement with Wuhan Budweiser Co., making the latter the only party in China with permission to use its registered trademarks (I assume that the trademark license agreement was appropriately recorded with relevant government agencies). Third, the plaintiff had a very strong case from the beginning given the ample evidence of infringement, such as the similarity between the infringer’s “trademark” and that of Anheuser-Busch. And quite significantly, PGKC did not appear in Court even upon proper service of process by the Court (in China, courts have the authority to serve defendants), thus basically handing Anheuser-Busch a default judgment.

Besides the relative ease of the plaintiff’s ability to obtain the win, another element of this legal dispute seems significant to me. The Court took special notice of the misleading packaging used by PGKC, which, in the Court’s view, evidenced infringement with obvious malice. As a result, the Court imposed a civil penalty on PGKC.

Civil penalties are not commonly handed down in most civil cases. Normally, in a trademark infringement case, Article 59 of the Trademark Law of China controls in terms of damages and penalties:

Where any party uses, without the authorization from the trademark registrant, a trademark identical with a registered trademark, and the case is so serious as to constitute a crime, he shall be prosecuted, according to law, for his criminal liabilities in addition to his compensation for the damages suffered by the infringed party.

As one may notice, nothing in the language of the statute mentions civil penalties in a trademark infringement case. However, the absence of a court’s power to impose civil penalties in the Trademark Law does not mean that a court does not ever have the authority to do so. Because a trademark infringement action is a civil action, the General Principles of Civil Law of China (1986) (also referred to as the “Civil Code”) is also operative in the adjudication of such a case. Pursuant to Article 134 of the Civil Code, a people’s court has the discretion to “impose fines or detentions as stipulated by law” while at the same time awarding civil damages and granting injunctions. Thus, the imposition of civil fines and penalties, although unspecified in the Trademark Law, is strictly within a court’s discretional power as granted by the Civil Code.

Naturally, the Court’s decision to fine PGKC 10,000 Yuan begs the question—why did the court go out of its way to exercise the discretional power? In my opinion, it just demonstrates the overall judicial trend, especially in economically more developed areas of China, to step up intellectual rights protection. And civil fines may operate as another deterrent to infringement.

No comments: