A recent decision of the Wenzhou Intermediate People’s Court in China should put Western brand owners on their guard when being sued in China. It also provides yet another reminder of the importance to Western brand owners of filing first in China.
The facts are as follows: Castel, the French wine producer, was sued by a local Chinese trader for using the Chinese “Ka Si Te” mark. “Ka Si Te” is the Chinese transliteration of the CASTEL mark. Unfortunately for Castel, the enterprising Chinese trader had registered the “Ka Si Te” mark first in China. The trader sued for infringement and for damages of up to US$ 31 million. Chinese law allows for plaintiffs to obtain ex-parte property preservation orders in order to prevent defendants from transferring property and money during the course of proceedings. These property preservation orders have normally taken the form of orders freezing bank accounts and real property until the proceedings are decided. The noteworthy aspect of this case is that, in response to an application from the Chinese trader, the court has applied a property preservation order on Castel’s CASTEL trademark in China, meaning that this mark cannot be licensed or assigned until the infringement case is resolved. The CASTEL trademark is, in effect, acting as “surety” for any damages which Castel may be required to pay in the event that the Chinese trader succeeds in the proceedings and Castel does not comply with an order requiring it to pay damages. It is believed that this is the first time that a Chinese court has applied a property preservation order to an intangible asset.
There are two practical consequences of this decision for Western brand owners. Firstly, the decision emphasizes yet again the importance to Western brand owners of ensuring that they adequately protect their brands in China. Failing to file trademark applications in China at the earliest possible date is a mistake which many Western brand owners continue to make, despite the fact that China has clear and well-established rules giving preference to the party who is first to file. The other mistake Western brand owners frequently make is not filing to protect the Chinese language version of their mark. Bearing in mind the fact that most Chinese people do not speak or read a foreign language, it is imperative that Western brand owners devise a Chinese language version of their mark and, just as importantly, file to protect the Chinese language version of their mark. Had Castel done this, it would not be facing an infringement suit for having used its “own” mark.
Secondly, the decision is of particular note for foreign entities who do not have significant assets in China. Typically, such entities may have considered themselves insulated from the risk of litigation in China due to a lack of assets in China. However, even foreign entities without significant assets in China very often have trademarks in China. Those trademarks are now in the firing line if the foreign entity ever gets sued, whether for trademark infringement or for other causes of action, particularly where the foreign entity has limited assets in China. Of course, this equally applies to foreign plaintiffs who seek to recover damages against Chinese defendants.