From Licensee to Malicious Infringer: The Application of Punitive Damages in Trademark Infringement Cases of Chain Hotels
Preface:
When consumers enter the "counterfeit" hotel - judging from its signboard, decoration style, and room card design, it is indeed the well-known brand that everyone trusts. We choose well-known brands expecting standardized hygiene conditions, unified safety management, and the promised service quality. However, perhaps without realizing it, this hotel may have already "broken away" from the brand owner...
This phenomenon of "free-riding" and "riding on well-known brands" is not an isolated case in the chain hotel industry characterized by light asset expansion. For consumers, this is not only a case of consumer deception, but also likely to mean the loss of safety guarantees and the degradation of service quality; for brand owners, this is a double damage to the trademark identification function and the reputation bearing function; for judicial practice, this is precisely the typical field where the punitive compensation system can be applied.
01
How can a partner end up being the target of punitive damages?
(1)
Three steps: From "legitimate use" to "willful violation"
The legal authorization period's rights foundation has been established.
During the cooperation period, the franchisees are in a legally authorized state. They pay the trademark licensing fee on time and use the trademark in compliance with regulations. This constitutes a licensing contract relationship as stipulated in Article 43 of the Trademark Law between the two parties. At this stage, the identification function and quality guarantee function of the trademark are realized through a unified management system.
2. Clarification of the boundaries of rights upon contract termination
Upon the expiration or termination of the cooperation period, the franchisee explicitly promises to cease using the trademark and similar logos. At this point, the boundaries of the rights have been clearly defined. The clearance of the trademark logos is precisely the core content of the post-contract obligations.
3. Continued infringement after contract termination
After the contract is terminated, if the original franchisee continues to use the original trademark or a similar mark, the subjective intention has been formed, constituting the infringement act stipulated in Article 57 of the Trademark Law, namely "using the same trademark as the registered trademark on the same type of goods without the permission of the trademark owner" or "using a trademark similar to the registered trademark, which is likely to cause confusion".
The key judicial rules here are derived from Article 3 of the "Interpretation of the Supreme People's Court on the Application of Punitive Damages in Civil Cases Involving Infringement of Intellectual Property Rights": If the defendant has a labor, service, cooperation, licensing, distribution, agency, representative or other relationship with the plaintiff or interested party, and has come into contact with the infringed intellectual property rights, it can be preliminarily determined that the defendant has the intent to infringe intellectual property rights. The "former licensee" status of the original franchisee is not a defense certificate, but rather solid evidence of "knowledge".
(II)
"But they are still negotiating the renewal" - Why didn't this defense work?
Some of the original franchisees claimed that after terminating the contract, they were still negotiating with the brand owner for a new franchise cooperation. Therefore, they did not remove the signs and there was no malice. However, the attitude of judicial practice is very clear: Negotiation is not a shield for infringement! Negotiation is the process of discussion, communication and negotiation conducted by the contracting parties to reach an agreement. First, both parties are in the negotiation process. The original franchisee knew that due to the termination of the authorization, they no longer had the legal basis to use the brand owner's trademark. Subjectively, this was hardly justified. Secondly, no contractual rights and obligations were generated during the negotiation process. The brand owner did not authorize, and it still fell under the category of "without the permission of the trademark owner" as stipulated in the Trademark Law.
The key points in practice are as follows: The use of a trademark after the termination of authorization cannot be justified by the "negotiated renewal". The clarity of the rights status always takes precedence over the ambiguity of subjective intentions.
(III)
Why is popularity so crucial?
The intensity of trademark protection is adapted to the level of trademark popularity. The higher the popularity, the stronger the distinctiveness and market recognition of the trademark. In infringement judgments, the infringed trademark is more likely to be determined to be similar to the registered trademark of the brand owner and cause confusion, thereby obtaining a wider protection scope. In cases of authorization and confirmation of rights, well-known trademarks help achieve cross-category protection and prevent misleading the public. At the same time, judicial policies clearly require greater intensity and wider protection for trademarks with high popularity to curb copycat imitation and stimulate innovation of domestic brands.
For the hotel chain brand owners, the number and layout of stores, the number of guest rooms, the amount of business revenue, the scale of members, the intensity of advertising promotion, the rating on OTA platforms, and industry awards are all important dimensions for determining the trademark's popularity.
02
How is punitive damages calculated?
(1)
The proposition of a punitive damages range of 1 to 5 times the amount
Article 63, Paragraph 1 of the Trademark Law stipulates:
The amount of compensation for infringement of trademark exclusive rights shall be determined based on the actual losses suffered by the right holder due to the infringement; if the actual losses are difficult to determine, it can be determined by the profits obtained by the infringer from the infringement; if the losses of the right holder or the profits obtained by the infringer are difficult to determine, it can be reasonably determined by referring to a multiple of the trademark licensing fee. For malicious infringement of trademark exclusive rights with serious circumstances, the amount of compensation can be determined within one to five times the amount determined by the above methods. The compensation amount shall include the reasonable expenses paid by the right holder to stop the infringement.
The determination of the multiple for punitive damages requires comprehensive consideration of multiple factors, such as continuing use after knowing the termination of the authorization (former franchisee status), large scale of infringement (number of stores and guest rooms), long duration, failure to stop infringement even after receiving a warning letter, and obtaining excessive profits through imitative behavior. It is particularly important to note that the multiple for punitive damages is not a binary choice of "all or nothing", and can be determined within the range of 1 to 5 based on the circumstances of the case. The right holder should make detailed claims and, in combination with specific circumstances, argue why a certain multiple should be applied, in order to increase the probability of acceptance.
(II)
Determination of the base amount when the infringer refuses to provide the account books
Article 63, Paragraph 2 of the Trademark Law stipulates:
"To determine the amount of compensation, if the right holder has already made every effort to provide evidence, and the accounting books and materials related to the infringement are mainly held by the infringer, the infringer can be ordered to provide such accounting books and materials; if the infringer fails to provide them or provides false accounting books and materials, the amount of compensation can be determined based on the right holder's claims and the evidence provided."
Therefore, if the infringer refuses to provide financial information, the compensation amount can be calculated based on the claims of the rights holder and the evidence presented. The historical cooperation data submitted by the rights holder can be used as a reference for the business scale during the infringement period. In cases where the actual losses and the infringer's profits cannot be precisely proved, the base amount is generally determined by referring to the trademark licensing fee charging standard stipulated in the original licensing contract (the calculation formula can be referenced as compensation base = total number of rooms × average occupancy rate × room price × infringement time × trademark licensing rate).
03
Brand Owner vs. Franchisee: A Guide to Tackling the Battles
(1)
Brand owner: Risks are included in the contract. Consumer protection is integrated into the process.
1. Contract signing stage
Clearly stipulate the obligations for clearing trademark marks after the termination of the license, as well as the penalty clause for breach of contract, and pre-set the punitive compensation claim clause. Establish a mechanism for monitoring the business data of franchisees, and retain the payment vouchers for licensing fees. Establish a rapid response mechanism for consumer complaints, and use consumer satisfaction as an assessment indicator for franchisees to indirectly monitor infringement clues.
2. Contract Termination Phase
It is essential to obtain the加盟商的书面商标禁用承诺，设定合理的拆除整改期限及验收标准，以避免因口头约定而产生的举证困难。向社会公示解约信息，并通过官方网站、应用程序、OTA平台等渠道告知消费者某门店已非授权经营，以此保护消费者的知情权，同时固定“已采取合理措施防止混淆”的证据。
3. Post-termination Monitoring
Regularly inspect the original加盟 area, promptly identify infringement behaviors, and prevent the expansion of infringement and the spread of damage to the brand reputation. Pay attention to consumer reviews on OTA platforms. If there are comments such as "Thought it was XX brand but the service was very poor"， promptly collect evidence and fix the evidence as proof of consumer confusion and damage to the brand reputation.
(II)
Franchisee: Don't transform from "licensee" to "malicious infringer"
Before the expiration of the contract
Proactively assess the costs of renewal or termination, and make sound business decisions. The key points to evaluate include renovation costs, system replacement expenses, and the risk of member attrition.
2. At the time of termination of the contract
Simultaneously formulate plans for removing signs, replacing systems, and cleaning up materials, and retain evidence of the rectification, including before-and-after comparison photos and videos. Pay special attention to cleaning all possible points where trademark logos are used, such as storefront signs, elevator room guidance signs, room cards, packaging of toiletries, and reservation platform information.
3. After termination of the contract
Eliminate the continued use of any original brand elements, including logos, decorations, promotions, and reservation systems. Special attention must be paid to the risk of "misappropriation", such as changes in font, addition of symbols, adjustment of pronunciation, use of abbreviations, etc. If these actions still cause confusion among consumers, they will still constitute an infringement under Article 57 of the Trademark Law and Article 7 of the Anti-Unfair Competition Law.
Special reminder: Adding symbols or altering pronunciations on store signs - these are all forms of "deceiving oneself and hiding one's faults". They not only cannot absolve you of responsibility, but may also serve as conclusive evidence of "subjective malicious infringement", potentially leading to the application of punitive damages.
04
Conclusion
Consumers choose chain hotels because they are willing to pay a premium for the standardized services associated with the brand. When "unmanaged" hotels continue to use the brand logo, consumers make purchasing decisions based on their reasonable trust in the brand, but they may face risks such as decreased hygiene standards, increased fire hazards, and reduced service quality. Punitive damages not only serve as a remedy for the trademark owner but also protect the general consumer group - by increasing the cost of infringement, it forces franchisees to completely remove the brand logo when terminating the contract, ensuring that consumers can make rational choices based on the true trademark information.
In judicial practice, consumer complaint records, negative review data, and safety accident reports can all serve as supplementary evidence to prove that the infringement is "extremely serious", supporting the claim of the brand owner for higher multiple punitive damages. The punitive compensation system established by Article 63 of the Trademark Law is precisely aimed at breaking the侥幸 mentality of "infringement being cost-effective".
