New Balance Court Ruling in China Is Rare Win Against Piracy

New Balance has won a rare legal victory in China in an intellectual property dispute: A court has ordered five shoe manufacturers and sellers to pay the state $250,000 for using the American shoemaker’s signature slanting “N” logo.

In previous years, the company has battled legions of counterfeit manufacturers, taken on a rogue supplier who exported its shoes at a deep discount and, most recently, struggled in court to win the use of its Chinese name.

In a preliminary decision, the Suzhou Intermediate People’s Court on Monday fined the five companies for breaching an injunction issued in September prohibiting them from selling shoes with the logo, according to a report in China Intellectual Property Magazine. The $250,000 in fines will go to the state. The court will issue its final judgment at the end of May, at which time New Balance could get damages.

Amy Dow, New Balance’s senior global corporate communications manager, confirmed the penalty, saying the brand used by all five was called New Boom.

Ms. Dow said New Balance sued under China’s Anti-Unfair Competition Law because the country’s trademark laws “currently provide slight loopholes for these brands to exist.”

“These actions are significantly more costly than traditional counterfeit enforcement measures, but New Balance believes strongly in the protection of our intellectual property,” she said.

The case offers a high-profile example of how doing business in China can feel like a Wild West shootout.

For years, foreign brands have been battling low-quality manufacturers that churn out cheap copies of everything from iPhones to Louis Vuitton bags. But piracy in China, the world’s second-largest economy, has a new twist: Manufacturers copy everything about a product but with a slight modification of the brand name.

For New Balance, that meant consumers ran into New Boom, New Barlun, and New Bunren — brands that are protected under China’s trademark law.
“Parasite brands are fast becoming the scariest form of ‘counterfeit’ within China,” Ms. Dow said in an emailed response.

Ms. Dow said another Chinese court had awarded New Balance $550,000 this month in a judgment against companies making New Bunren brand shoes. Separately, New Balance has an outstanding case against manufacturers using the brand New Barlun.

In China, trademarks are generally awarded to those who first file paperwork with the government. That has given rise to a crush of people registering the names of well-known brands, a practice known as “trademark squatting.” Unlike in the United States, people who file for the trademarks do not have to give a reason for their application.

Many Western companies, like Apple and Starbucks, and celebrities, including President Trump, have been caught up in long legal battles over the right to use their names in China.

Trademark lawyers said companies rarely obtain preliminary injunctions in China, making this case an unusual one.

Douglas Clark, an intellectual property lawyer who has practiced in Greater China for the last 25 years, said he could not recall a Chinese court imposing such a substantial fine for breaching a preliminary injunction.

“It’s extremely significant because until now, defendants have very commonly in China just ignored court orders,” Mr. Clark said. “This is sending a message that if you don’t obey them, you will get into trouble.”

Guizeng Wayne Liu, a senior partner at Yuanhe Partners, said Monday’s decision underlined China’s willingness to protect intellectual property rights.
“This is a good sign for New Balance in future trial cases,” Mr. Liu added.

Trademark lawyers say Beijing has started taking intellectual property rights seriously because Chinese companies now have valuable intellectual property to protect.

Charles Feng, head of the intellectual property division at the law firm East & Concord Partners, said the injunction was particularly important because Chinese courts typically don’t award much in the way of damages in trademark infringement cases. An injunction helps them minimize the losses from trademark infringement, Mr. Feng said.

He cited statistics from the Chinese courts that show that in the past 10 years, only 5 to 10 percent of companies that applied for preliminary injunctions obtained them.

The decision comes 10 months after a Chinese court upheld an earlier ruling that New Balance’s Chinese trademark had infringed the rights of a businessman who had registered it first. The court ordered the company to pay the businessman $730,000, reducing the fine from $14 million.

Edward Lehman, from Lehman, Lee and Xu, one of China’s top law firms, said the punishment in this week’s case implied that the courts had monitored the enforcement of the injunction. That was a good sign, he said, but much is left to be done.

“From an intellectual property portfolio management perspective, this is a Band-Aid on cancer,” Mr. Lehman said.