“Brushing” and the Calculation of Damages in Trademark Infringement

April 19, 2023

Author:Leo Liu, Tate Zhao

Article 63 of the PRC Trademark Law stipulates that the illegal gains by trademark infringers serve as an important factor in determining the damages. The illegal gains by infringers can be calculated based on the sales of infringing products[1].

As e-commerce evolves, the product sales volume is often shown on e-commerce platforms as a way to attract customers. However, calculation of the infringers’ illegal gain has not become simple math. Infringers often claim that they inflate the volume through “brushing”[2] and the actual sales volume of the infringing goods is much lower than that is shown.

The question to the courts is whether the sales volume from brushing can be deducted from the calculation of illegal gains. We see that there are generally three opinions among the courts in China.

1. Some courts in Zhejiang and Shanghai do not believe that the sales from brushing should be included in the equation.

Zhejiang: Trademark Dispute between VANS INC. and Haining Yijihua Clothing Co. Ltd.[3]

In this case, platform statistics showed that the infringer sold three kinds of infringing goods with the sales volume of 9,019, 16,000, and 100,000+, respectively. The infringer claimed that the displayed sales volume was much higher than the actual due to brushing. The Haining Court deducted the sales attributable to brushing and confirmed that the actual sales of the above three shoes were 19, 3,127 and 991, respectively.

According to the Court, although it is a serious violation of the principle of honesty for sellers to obtain higher business rankings, credit, and user visits by inflating the number of transactions, the sales from brushing cannot be considered as the basis for calculating the damages. In intellectual property cases, damages need to be based on the actual sales. Therefore, if the Court finds that relevant transactions are from brushing, they should be removed from the equation. For the act of brushing, the Administration for Market Regulation, as the competent authority, can impose penalties.

The infringer in this case was indeed punished administratively for brushing. According to the investigation by Haining Administration for Market Regulation, from April to September 2020, Haining Yijihua Clothing had the employees and their relatives make fraudulent purchases by modifying the prices to increase the sales volume. The total number of transactions by brushing was 30 which include 121,115 pieces valuing at RMB112,455.42. The authority imposed a fine of RMB80,000 per Article 20 of the Anti-Unfair Competition Law.[4]

Shanghai: Trademark Dispute between 361 (Fujian) Sporting Goods Co. Ltd. and Guangzhou Heying Trade Department[5]

According to the platform statistics, the actual sales volume of infringing goods excluding returns and refunds was 20,021 as of the date the infringing goods were taken off the shelves. However, the total sales amount was RMB79.4, with the sales volume of 20,020 pieces from brushing.

Shanghai Xuhui District Court held that the only order sold was generated by the notary purchase entrusted by the right holder, so the infringer made little profit and the right holder suffered little losses. The Court excluded the sales volume attributable to brushing from the calculation of damages. Judgment was ultimately granted based on the reasonable expenses incurred by the right holder to stop the infringement.

2. Some courts in Shaanxi and Jiangsu have held that the sales from brushing should be deducted from the calculation of illegal gains, but should be a factor for determining damages.

Shanxi: Trademark Dispute between Zhang Daiyang and Hangzhou Lunford Chassis Technology Co. Ltd.[6]

The Chang’an District Court found that 3,899 out of the 3,920 sales displayed on the infringer’s online store were from brushing. The actual revenue of the infringing goods was RMB3,115.01 during shelf life of the infringing goods. The Court excluded the sales from brushing from the calculation of the infringer’s illegal gains.

The Court further held that although the sales from brushing could not be used to calculate the illegal gains, it can be a factor in determining damages. The Court sided with the right holder’s price erosion argument that the infringer had adversely affected the price and sales volume of the genuine goods by selling infringing goods at a lower price and attracting users through brushing.

Jiangsu: Trademark Dispute between Hebei Xiaoxing E-commerce Co., Ltd. and Suzhou Changxiu E-commerce Co. Ltd.[7]

The platform data showed that the infringer sold more than 150,000 pieces of infringing goods. The background data retrieved from the e-commerce platform showed that the total sales volume was 172,274 pieces, of which only 196 were real transactions. Suzhou Intermediate Court only considered the actual sales in the determination of sales volume.

The Suzhou Intermediate Court held that the infringer disguised the infringing goods as hot-selling products through fictitious sales. Such an act of inflating the sales by fabricating transaction orders is obviously against business ethics, and objectively increases the probability of infringing goods being searched and followed, increasing the damage to the right holder. Therefore, for infringers who fabricate sales volume through brushing, etc., although the sales from brushing cannot be included in determining the actual sales of infringing goods, dishonesty such as the brushing should be a factor in determining the severity of the infringement, which justify punitive damages in serious cases.

3. Some courts in Guangdong Province included the sales from brushing when calculating the illegal gains and ruled that the infringer should bear the adverse consequences brought by the act of brushing.

Guangdong: Trademark Dispute between HDMI Licensing Administrator, Inc. and Shenzhen Xindaying Technology Co. Ltd.[8]

In this case, according to the platform records, the sales volume of infringing goods was 21,210, and the sales amount was RMB1,629,862. The infringer claimed that the sales volume from brushing was 19,637 and the sales amount was RMB1,350,827.01, which should be excluded from the calculation of infringement profits. Shenzhen Intermediate People’s Court did not make such a deduction.

The Court held that according to the PRC E-Commerce Law, e-commerce business operators shall disclose information about goods or services fully, truthfully, accurately, and promptly, and protect consumers’ right to know and right to choose. E-commerce business operators shall not use false transactions, fabricated user reviews, etc. to conduct false or misleading business promotion, so as to defraud or mislead consumers. In practice, some e-commerce sellers indeed falsify transactions to gain a favorable competitive position in the ranking, to improve the reputation of sellers, or to give consumers the illusion of huge sales volume. Brushings constitute false transactions, which violate the principle of good faith, and fraud, which infringes upon consumers’ rights impairs the competitive interests of other sellers. In other words, the infringers benefit when they sell by brushing, and yet again benefit from excluding the sales from brushing from the calculation of illegal gains. Accordingly, the Court included the sales from brushing when calculating the illegal gains and held that the infringer should bear the adverse consequences of its false transactions and pay the price for its dishonest business behavior.

Apparently, courts have divided views on whether sales volume from brushing should be included in the calculation of illegal gains. The act of brushing can boost the infringer’s online store ranking, which in turn brings more trading opportunities and a higher competitive advantage. If the sales volume from brushing is not considered as a factor in the determination of damages, it is tantamount to allowing the infringer to profit from illegal acts. However, we still have to wait for a judicial interpretation on the subject matter to unify the courts’ views.

[1] Article 14 of the Interpretation of the Supreme People’s Court on the Application of Law in Trial of Trademark Civil Dispute Cases (《最高人民法院关于审理商标民事纠纷案件适用法律若干问题的解释》)

[2] Normally refers to the acts of inflating sales volume by fake orders, forging reviews, and other acts to attract customers and boost sales.

[3] Ten Typical Cases of Judicial Protection of Intellectual Property Rights in Jiaxing City, Zhejiang Province in 2021

[4] Hai Shi Jian Chu Fa [2022] No. 637

[5] (2023) Hu 0104 Min Chu No. 1573

[6] (2022) Shan 0116 Zhi Min Chu No. 126

[7] (2019) Su 05 Zhi Chu No. 1125

[8] (2021) Yue 03 Min Zhong No. 36087