New Balance suffers US$15.8 million setback in China

This article originally appeared in Managing Intellectual Property


The Chinese affiliate of US shoemaker New Balance was ordered by Guangzhou Intermediate People's Court to pay Rmb98 million (US$15.8 million) in compensation to a Chinese individual, surnamed Zhou, for infringing his registered marks. This is the highest compensation the court has ever granted in an intellectual property matter.

Yu Mingyong, deputy chief judge of the Intermediate People's Court in Guangzhou, says this case sends a reminder to those international brands seeking to explore China market to " knock at the 'intellectual property' door before entering".

New Balance has appealed the decision.

Malicious infringement

In 2006, New Balance set up a China subsidiary named "Xin Bai Lun" ("新百伦") in Shanghai to sell its products across mainland China. In Chinese, "Xin" means "new", and "Bai Lun" is a transliteration for the word "balance". The company registered the trade mark for "New Balance" in English but overlooked the Chinese version.

Zhou owns a footwear company in Guangzhou selling men's shoes using the "Bai Lun" and "Xin Bai Lun" trade marks in local shopping malls. He acquired the trade mark "Bai Lun" in 2004 and "Xin Bai Lun" in 2008, two years after New Balance commenced business.

Zhou brought up a lawsuit against New Balance in 2011, claiming it has been maliciously promoting and selling products using his Chinese trade mark. He alleged that New Balance's actions have been misleading customers, with some of his clients asked if they are selling New Balance's shoes, according to the written judgement of first instance.

According to the court record, New Balance filed an opposition against Zhou's registration of "Xin Bai Lun" but it was rejected by the China Trademark Office (CTMO). However, the defendant kept using the Chinese mark even while acknowledging it is validly owned by Zhou. Therefore, the court found New Balance committed malicious trade mark infringement.

"New Balance is supposed to lodge an invalidation proceeding or even a 'confirming not tort' suit [a declaratory judgment] instead of just letting it be," says Ma Qiang of Jun He in Beijing.

New Balance argued that "Xin Bai Lun" is a Chinese translation of "New Balance" and thus not infringement. However, the court disagreed, noting that Xin Bai Lun is actually a mixture of translation and transliteration. Thus, New Balance could not avail itself of this defence.

Damages questions

The Rmb98 million of damages stems from New Balance's profits since July 2011. However, it is this headline-grabbing award that will likely be the subject of much discussion on appeal.

The court held that the US shoe maker is making profit by using the Chinese trade mark "Xin Bai Lun" in marketing and advertisements. However, the Chinese name may not be the only factor that contributed to those sales, says Ma. "The Chinese name and English name work together to constitute a brand image. One cannot live without another".

The fact that the compensation was based on the infringer's gains rather than losses to the plaintiff is also questionable. Ma predicts that these remaining issues will be heatedly debated in the second instance.

The sooner the better

New Balance is not the first international brand to run into problems with trade mark squatters in China. Companies including Bottega Veneta, Nike/Air Jordan and Apple already have paid a heavy price in similar cases.

Ma Qiang says that the advice for international companies is straightforward. Once it decides on a mark, it should leverage trade mark search tools and distribution channels to check its availability, then register the mark. The most important advice for registration, he says, is "the sooner the better".


By Stephy Tang, Managing Intellectual Property