The landlord of the Beijing Silk Market is appealing a court ruling that, if upheld, could pave the way for more IP owners to bring civil actions against Chinese landlords who fail to stop the sale of counterfeit products on their properties.
On December 19, Beijing No 2 Intermediate People's Court ruled that five stall holders in the infamously counterfeit-packed Silk Market must each pay Rmb20,000 ($2,500) in compensation and legal costs to five luxury goods companies who brought an action for trade mark infringement in September.
In a key legal development, the five brand owners – Burberry, Chanel, Gucci, Louis Vuitton and Prada – also successfully sued the landlord of the market jointly with the stall holders. As a result, if the vendors do not pay up, Beijing Xiushui Haosen Clothing Market Co Ltd will be forced to pick up the bill.
On January 4, Xiushui Haosen filed an appeal. Zhang Weifeng, a lawyer at Ocean Law Firm who advised the landlord, told MIP Week by email that if the ruling stands, it will make it difficult for markets in China to survive: "Xiushui Haosen is not a state administrative law enforcement agency and does not have the power to stop infringement."
He said that making market managers responsible for trade mark infringement by tenants would require the private sector to take on law enforcement duties that should be performed by the government.
This new lack of separation between government and business would be a "backward step" for China, Zhang argued.
During the trial, the landlord argued that it had terminated the five stall holders' leases once the brand owners launched their lawsuit and requested other tenants to pledge not to sell fakes.
But in his ruling, presiding judge Shao Mingyan said that although Xiushui Haosen took some measures to stop the infringement, its actions were not "timely".
A decision in the appeal case is likely to be handed down before May.
The Court's decision has already put further pressure on the Chinese authorities to be more proactive in the fight against counterfeiting.
Since the ruling, officials from the Market Order Rectification Office (MORO), one of the Chinese agencies involved in fighting fakes, have contacted the anti-piracy lobby group Quality Brands Protection Committee (QBPC) to propose more cooperation, says Joe Simone, the Baker & McKenzie lawyer who advised the luxury goods companies in the Silk Market case, and a key lobbyist in QBPC.
The MORO officials said they will work with the QBPC to crack down on trade mark infringement in the Silk Market and want the brand owners' association to prepare a systematic survey of the problem there.
Although the order for compensation in the Silk Market case is far lower than the Rmb500,000 ($62,000) maximum that the Court was entitled to award under Chinese law, the legal principle is far more valuable, says Joe Simone: "This case was something of an education for all landlords."
And he believes that victory in the civil case could spur the Chinese authorities into prosecuting errant landlords. "There are efforts now underway at the policy level to get the police interested in pursuing landlords to make it clear that they have an obligation of some sort," Simone said.
The Beijing Court's decision is the clearest ruling so far on the issue of landlord liability for sales of fakes in China. The brand owners sued Xiushui Haosen under the Trade Mark Law, which says that by knowingly renting space to counterfeiters, landlords are "providing convenient conditions", effectively aiding and abetting the offence.
In an earlier hearing, the judge said that by issuing tax receipts to the stall holders knowing that fakes were being sold on the rented premises, the landlord had allowed the court to find him as responsible as if he had been the vendor.
The ruling comes after officials in the Administration of Industry and Commerce began to levy administrative fines on landlords who knew about the IP infringing activities of their tenants. The Beijing district of Xicheng, for example, issued penalties against two landlords in May 2005.
Simone believes that the recent civil and administrative blows dealt to landlords should encourage brand owners to up the ante in the fight against counterfeiting in China. He says that recent meetings between brand owners and landlords from different parts of Beijing show that keeping the pressure on market owners encourages them to self-police their premises. But he warns that IP owners need to work together.
"The phenomenon is that infringers move from one brand to another when they realize that the trade mark owner is determined to do something. That's why brand owners need to cooperate."
