Louis Vuitton Malletier, maker of iconic leather handbags toted by celebrities and socialites around the world, recently won a trademark infringement claim against a high-end Chinese hotel, which had allowed sales of counterfeit LV products in one of its hotel shops.  In March 2008, the Dongguan Intermediate Court ruled that the hotel, Gladden Hotel of Dongguan City in Guangdong Province, and the shop owner were jointly liable for trademark infringement.  Gladden Hotel and the shop owner were required to destroy the remaining counterfeit products and pay RMB100,000 (approximately US$ 14,500) in damages to LV.

This is a surprising judgment considering that the hotel only seemed to be leasing rental space to the infringer and did not directly participate in sales.  However, the Court found specific circumstances that made the hotel particularly culpable for contributory infringement.  While Gladden rented the space to an individual for an independently operated sole proprietorship, hotel staff members were often involved in the daily operations of the store, and employees that worked in the store wore Gladden Hotel uniforms.  The hotel’s seal was even affixed on the shop’s invoices and receipts, thus identifying the store with the hotel.  Moreover, the Court found that Gladden should have enforced the specific provisions in its rental contract with the store owner that prohibited sales of counterfeit products and should have demanded the store owner to cease selling the counterfeit products when hotel management became aware of the activity. 

LV’s award is quite high for IP lawsuits in China, and suggests that the Court wanted to warn other luxury hotels that they would be held liable for infringement if they leased their shops to infringers.  The Court noted that some infringing vendors take advantage of consumers’ trust in luxury hotels to sell fake products in hotel lobbies.  As a high-end hotel, the Court concluded, Gladden Hotel should have had better judgment and its actions have degraded the public’s confidence in other similar luxury hotels, which will result in negative social effects. 

It is unclear, however, whether the Court’s opinions will apply to non-hotel properties and future cases that are similar in nature.  One question that should be of particular interest to foreign companies wishing to protect their marks in China is whether companies will be able to successfully prosecute general property managers for renting spaces to infringing vendors or manufacturers. 

It seems that so far landlord liability cases have not changed the atmosphere.  The management of Beijing’s famous Silk Street market are not deterred.  Their website’s home page still describes the market as, “notorious among international tourists for their wide selection of counterfeit designer brand apparels” (http://www.silkstreet.com/).