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North Face decision blows cold message to landlords

Peter Ollier, Hong Kong

A recently published decision by a court in Beijing against the landlord of the city’s Silk Market has piled pressure on Chinese landlords who are reluctant to stop tenants from selling fakes in their markets

In September 20, US outdoor clothing maker North Face won a case at the Beijing No 2 Intermediate People’s Court against the landlord of Silk Market, located in the Chaoyang district of Beijing and one of the city’s most notorious hotspots for counterfeit goods.

The decision, issued just three months after North Face filed the civil action, clarifies that the landlord has an obligation "to strictly manage the market, including a duty to strictly verify the source of goods and the authenticity and legality of the proof of trade mark authorization".

The decision comes 18 months after the Chaoyang district Administration for Industry and Commerce issued a notice that requires landlords to review the effectiveness of tenants’ trade mark authorizations and keep copies of them on file. Landlords are also required to check the legal identity of tenants and their business licences.

During the trial, the landlord had claimed that notarized letters confirming that fake North Face products had been sold in the market did not indicate whether the sales were made openly or covertly. But the Court held that it was up to the landlord to prove that the sales were made covertly.

The landlord has appealed this part of the decision to the Beijing Higher People’s Court. It is expected to be heard in February or March 2008.

Increasing numbers of trade mark owners are testing the principle of landlord liability in Chinese courts. In September, UK clothes maker Dunhill won a case against the landlord of Bairong Mall in the Chongwen district of Beijing. In this case the landlord was found guilty of failing to prevent trade dress and trade mark infringement.

Joe Simone, a Baker & McKenzie partner, told MIP Week that three other markets in Beijing that sell counterfeits have now started to cooperate with brand owners. The three markets are Tianyi, Yuexiu and Yaxiu.

But he said that the landlord of the Silk Market is continuing to obstruct efforts to crack down on the sale of fakes in his market. Simone, who advised a coalition of luxury goods companies who won a landmark victory over the landlord in December 2005, said that some of his clients are planning to sue the landlord again in 2008 "with the objective of clarifying the law further and creating a clear basis for cooperation with landlords and enforcement agencies".

The December/January issue of Managing IP, online on Friday, includes in-depth analysis of the rules on landlord liability in seven key jurisdictions, including China.