China’s State Administration for Market Regulation Releases Typical Unfair Competition Case List

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On July 16, 2021, the State Administration for Market Regulation (SAMR) published a Notice entitled “Innovating the way of popularizing the law, strengthening the case analysis activities of anti-unfair competition through case interpretation, and achieving good results” (创新普法方式 强化以案释法反不正当竞争案例解析活动取得良好效果). The Notice includes a list of ten typical anti-unfair competition administrative cases with comments, of which 4 are intellectual property related (trade secret and trademark).  SAMR summaries and comments follow.

1. Fantuo Company infringed on trade secrets
 
(1) Basic case
The Market Supervision Bureau of Haicang District, Xiamen City investigated and handled a case of trade secret infringement by misappropriating a client list. Hong, a person involved in this case, was a foreign trade clerk of stone materials of Weisheng Company from 2012 to 2018. In October 2013, he was directly under the Market Supervision Bureau of Haicang District, Xiamen City. In September 2017, Hong, who was still in office, established Fantuo Company. In December 2017, Hong recorded the contact persons, emails and other information of seven stone foreign trade clients of Weisheng Company at the office of Weisheng Company, so as to engage in the stone foreign trade business again. In January 2018, Hong left his post from Weisheng Company. From January to April 2018, Fantuo Company conducted foreign trade transactions of stone with four of the aforesaid seven foreign trade clients, with the business volume of 469,600 yuan. Upon investigation, it was determined that Fantuo Company obtained and used Weisheng Company’s client list by theft, which disturbed the market competition order and constituted an infringement on trade secrets. According to Articles 9 and 21 of the Anti-Unfair Competition Law and in view of the many circumstances under which Fantuo Company was given a lighter punishment, it was decided to impose a lighter punishment on it and impose a fine of 69,000 yuan on it.
(2) Case insight
Customer information is an important resource on which the enterprise depends on to survive, and prevention is the best way to solve the problem of stealing customer list. First, the movement of separated employees is tracked, the relevant positions can be provided in good time, and excellent separated employees are encouraged to return; Second, the confidentiality restrictions shall be strengthened with the termination letter, and the relevant contents of the confidentiality obligation shall be indicated in the letter, so that the next entity may have a clear understanding of the relevant information. Third, the introduction of time stamp technology, which can clarify the right subjects of trade secrets and prove that the electronic documents have not been modified, meet the requirements of authenticity and integrity for the validity of evidence, and be conducive to protecting rights and providing evidence.
(3) Comments
What merits attention in this case is: (1) The customer list as business information may constitute trade secrets. In addition to determining whether a client list constitutes a trade secret based on its confidentiality, value and confidentiality, comprehensive consideration shall be given to such factors as whether the client list is unique, special, and obtained through labor, money, and efforts of the right holder. 2. The allocation of the burden of proof plays an important role in the determination of trade secrets infringement. 3. Infringement of trade secrets is an act of unfair competition that seriously undermines the market economic order that promotes the principle of good faith.
2. Case of a Company Accepting Commodity Packaging and Decoration Marks from Others
(1) Basic case

On October 31, 2018, the Market Supervision Bureau of Jiaohe City, Jilin Province, received a complaint, stating that: “There is a sale of soybean oil in Jiaohe Market that uses the registered trademark of ’93’ [Jiu San] without authorization, which infringes upon the exclusive right to use a registered trademark.” The “Jiu San” soybean oil brand has a good reputation and popularity in the market, is well known by the relevant public, and has certain influence in the edible oil market. The “Jiu San Yi Teng” soybean oil produced by the parties concerned was similar to the “Jiu San” soybean oil in terms of commodity name, package, decoration, and other marks indicated on the commodities, as well as the external features of the overall package and decoration, and the prominent position, overall background color, picture location, layout, and element combination of the trademarks indicated on the package and decoration marks, which visually caused confusion or misrecognition of the relevant public.

In this case, knowing that the parties did not have any relationship with “93” soybean oil, they used the name, packaging, decoration, etc. of commodities similar to “93” soybean oil, which was extremely easy to mislead people and had subjective intent. In addition, when the parties concerned sold Jiu San Yi Teng soybean oil in the shopping mall, the salespersons displayed the “Jiu San Yi Teng soybean oil special price promotion” billboard under the commodity display cabinet, which had caused the relevant public to mislead the relevant public into believing that the two products were the same brand or had certain relationship.

The acts of the parties violate Article 6 of the Anti-Unfair Competition Law: The provision of Item (1) constitutes an act of confusion. In accordance with the provisions of paragraph 1, Article 18 of the Anti-Unfair Competition Law, the Anti-Unfair Competition Bureau made an administrative penalty decision on January 4, 2019 on confiscating 1,233 packages of packaging and decoration marks used on the products of the party concerned and imposing a fine of 150,000 yuan on the party concerned.

(2) Case insight

In recent years, some illegal business operators have continuously innovated in the aspect of “free riding” on famous brands in order to seek profits, which have disrupted the market economic order and impaired the legitimate rights and interests of consumers. The Anti-Unfair Competition Law was amended to include  market confusion into the scope of regulation and intensify the administrative punishment, not only for the purpose of promoting the sound development of the market, protecting fair competition between business operators and regulating competition acts, but also for the purpose of better protecting the rights and interests of consumers.

The main reason for the occurrence of unfair competition is that the enterprises, in order to quickly occupy the market and make profits, adopt the act of market confusion and conduct unfair competition. This is the theft of the previous efforts of the original commercial brands. At the same time, whether the quality of the new brand meets the standards and whether it really meets the needs of consumers cannot be tested by consumers.

On the one hand, enterprises shall pay attention to lawful, compliant, and honest operation, and on the other hand, enterprises shall master relevant laws and regulations and actively protect their own lawful rights and interests according to law. It is not easy for an enterprise to develop into a well known enterprise with certain influence. The trade name, abbreviation, trademark, packaging and decoration of an enterprise are all business cards of the enterprise. Therefore, an enterprise shall strengthen the protection of its legitimate rights and interests, and at the same time, it shall operate in good faith and according to laws and regulations. We hope that we will make greater contributions to cracking down on unfair competition, maintaining fair competition and promoting the high quality development of China’s economy through joint effort.

 
(3) Comments
Notable things of this case includes: (1) “having certain influence” means that it has certain popularity in the market and is known by the relevant public within a certain scope. “Having some influence” embodies the actual identification power, influence and even popularity of commercial marks, and the protection of such marks complies with the idea and purpose of protecting the market competition order as prescribed in the Anti-Unfair Competition Law. If the conditions for “having certain influence” are not satisfied for a commercial mark, the improper use thereof shall be a “private infringement” between the business operators, and it is not necessary that the Anti-Unfair Competition Law be used for the purpose of protecting the market competition. (2) Where the name, package or decoration of a commodity is used without permission by others in a similar  manner, which is sufficient to cause misidentification or confusion on the part of purchasers, it may be determined based on a comprehensive analysis such as a similarity between the main part and the overall impression, or a misidentification occurring after the general purchasers applied ordinary attention. Using without authorization the same or similar name, package or decoration of others’ commodities, which causes confusion with others’ commodities and leads buyers to mistakenly consider such commodities or having a special connection with such commodities, shall be deemed as misconception of others’ commodities or the confusion of having a special connection with others as prohibited by Article 6 of the Anti-Unfair Competition Law. (3) Knowing that the “Jiu San Yi Teng” soybean oil seller had no relationship with the “Jiu San” soybean oil, the parties to this case had similar circumstances to the “Jiu San” soybean oil, and the relevant public were visually confused or they misidentified products, which constituted an act of unfair competition.
8. How to Strengthen the Protection of Intellectual Property Rights from a Case of Infringement of Trade Secrets by Optical Communication Module
 
(1) Basic case

In July 2019, the Market Supervision Bureau of Suzhou Industrial Park received a tip-off from a right holder that a party was suspected of obtaining by illegal means drawings, supplier data and other relevant information involving its trade secrets from its senior executives and employees, so as to produce and sell products of the same type.

The data in the electronic equipment of the party concerned shall be validated by the forensic identification institution after the on-site inspection of the party’s business premises. The expert conclusion is that the technical secret claimed by the right holder is non-public, and the technical secret claimed by the right holder is identical with the technical information obtained from the electronic equipment of the party. Meanwhile, the senior executives, employees and relevant suppliers of components and parts of the parties and the right holders were investigated, and it is found that the drawings of the party’s optical modules, partial purchase and sale contracts, production and sales data, correspondence between suppliers and customers, company personnel materials, financial information, etc. can be mutually proved, which fully proves that the parties have obtained optical modules products bearing the right holder’s technical secrets by illegal means.  In early 2019, it was in Suzhou that the parties set up production lines in an industrial park to produce similar products and sell them to other to profit from the the theft, and their behavior has constituted an act of unfair competition that violates trade secrets.

According to the statistics, the total sales amount of the photo module and semi-finished products of the parties was approximately 1.552 million yuan. With reference to the 48.94% profit rate of the rights holder’s products, it was estimated that the amount of illegal proceeds of the parties exceeded 500,000 yuan after conversion. Therefore, the Market Supervision Administration of Suzhou Industrial Park transferred the entire case to the public security authority, and the directly subordinate branch of the Public Security Bureau of Suzhou City placed the case on file in November 2019.

(2) Case insight
On the one hand, we shall enhance the internal impetus and capacity of the intellectual property protection of high-tech enterprises, and on the other hand, strengthen the joint action and concerted efforts of all government departments, and build a dense network for the protection of trade secrets. Although the right holder in this case has taken various confidentiality measures, many loopholes still exist in material control, supplier data maintenance, employee’s restriction of authority at all levels of all departments, and need to be reinforced. During the investigation, the Market Supervision Bureau of Suzhou Industrial Park thoroughly practiced the concept of pro-business services and provided various professional legal advice to right holders, which effectively promoted the right holders’ innovation of internal control systems including management of supply chain system and management and control of internal staff. However, by making use of the smooth investigation and handling of this case, we shall continue to play out its virtuous chain effect, summarize experiences and lessons, and help other technical enterprises to eliminate the difficulties in their subjective awareness and objective ability of trade secret protection and prevent problems before they occur.  
(3) Comments
This case is worth noting as follows: 1. The technical information is valuable and confidential, and is not common knowledge or industry practice in the field. It cannot be obtained through reverse engineering, and it is not disclosed through any public channels. It is confidential and will constitute a trade secret. 2. Proof of infringement of trade secrets has always been a difficult problem. The law enforcement agency in this case analyzed the relationship between internal and external personnel in a timely manner, held key people, and successfully restored the intricate personnel exchanges. During the surprise inspection of the parties’ business premises, the relevant electronic data was validated and locked by mirroring evidence for subsequent administrative and criminal investigations, which laid a solid and strong evidence base. 3. An act of infringement upon trade secrets not only requires the assumption of civil liability for damages and administrative liability, but may also give rise to criminal liability. The law enforcement organ of this case fully cooperated with the judicial organ, seamlessly connected the execution of criminal punishments, rapidly blocked the production and sales of the parties concerned, and effectively curbed the continuous expansion of the consequences of infringement upon trade secrets.
10. Chengdu Shucuifang Food Co., Ltd. Counterfeit “Zhang Fei Beef” Packaging and Decoration Case
(1) Basic case
Sichuan Zhangfei Beef Co., Ltd. (referred to as “Zhangfei Beef Company”) complained that a series of beef products sold by Chengdu Shucuifang Food Co., Ltd. (referred to as “Shucuifang Company”) was suspected of using packaging and decoration similar to its products, and was suspected of improper anti-competitive behavior.
Zhang Fei Beef Company named the product Zhang Fei Beef as early as the 1980s. After years of investment, its main beef products have been well-known to consumers in Sichuan Province and have a high market reputation. Shucuifang Company also produces and sells beef products, using the image of a singer with Peking Opera facial makeup on the product, which is similar to the packaging of Zhang Fei beef, but the production and sales  started after Zhang Fei beef sales were initiated.
The case handling agency believes that: First of all, the outer packaging of Zhang Fei’s beef is distinctively recognizable. With singer Peking Opera facial makeup as the main element of the outer packaging, for many years, Zhang Fei Beef has been the only one, and the outer packaging is obviously different from other beef products. Secondly, the outer packaging of the two products is similar. The main similarity between the two products is that they both use a facial makeup image on the product packaging. Except for colors, the two faces are similar in composition, lines, and expressions. It is not easy for ordinary people to distinguish apart from professionals. Finally, Shu Cuifang Company has a subjective intent. Shucuifang Company has been engaged in the food industry for many years, familiar with the beef product market, and also familiar with the products of Zhang Fei Beef Company. Knowing that only Zhang Fei Beef Company uses the image of a Beijing opera signer and has a high market reputation, it continues to use the outer packaging of a Beijing opera singer, which resulted in a high degree of similarity showing a subjective intent to fake or confuse.
In the end, the investigators unanimously believed that the actions of Shu Cuifang Company were enough to confuse consumers and make buyers mistakenly believe that it was a product of Zhang Fei Beef Company. According to the Anti-Unfair Competition Law, they confiscated RMB 9042.35 of illegal income. An administrative penalty of 27,000 yuan was imposed.
(2) Case insight
On the one hand, operators must raise their awareness of compliance operations, participate in competition fairly, and avoid free-riding. By confusing the public with the well-known Zhang Fei beef, Shu Cuifang Company objectively achieved the effect of opening up the market for a short period of time, but this was achieved by infringing on the legitimate rights and interests of other market players and violating fair competition. If it violates the law, it will be punished.  It also damages its own corporate image and cannot last long. Operators can only achieve better economic benefits and enterprise development if they raise their awareness of operating compliance, participate in competition fairly, and build their own brands.
On the other hand, when facing counterfeiting and infringement, operators should take the initiative to protect their rights and interests. Enterprises should always pay attention to their own rights and interests, and be familiar with laws and regulations such as the Anti-Unfair Competition Law. They should collect evidence in a timely manner and cooperate with law enforcement agencies to better compete in the market if they find counterfeiting, confusion or other infringements in market competition soastobetterestablishafirmfootholdinmarketcompetition.
Finally, we must strengthen the study of laws and regulations. Only by studying the law can we abide by the law, and only by knowing the law can we use it. The law is not only a red line that cannot be crossed, but also a tool to protect our legitimate rights and interests. It is necessary to study the “Anti-Unfair Competition Law” and other relevant laws and regulations and apply them flexibly.
(3) Comments
This case is worth noting as follows: 1. In order to promote self-interest, the operator used unfair means such as counterfeiting to infringe on the interests of legitimate competitors, and sold its own products by freeriding on others, causing market confusion, which causes market confusion and is an act of unfair competition that seriously damages the order of fair competition. 2. There are three key points in the determination of this case. One is whether the goods or enterprises that are being counterfeited and confused have a certain influence; the second is whether unauthorized use without the consent or authorization of others is established; the third is whether the consequences of confusion are caused – whether people mistakenly believe that it is someone else’s product or have a specific connection with another operator. 3. Although the elements of market confusion do not stress whether the business operators have subjective intent, Shu Cuifang has been engaged in the food industry for many years, is familiar with the beef product market and the products of Zhang Fei Beef Company, was fully aware that only Zhang Fei Beef Company used the Beijing opera singer image and had a high market reputation, and continued to use image, which has a high degree of similarity with Zhang Fei Beef, and may still confirm the judgment of the law enforcement organs that its conduct constituted unfair competition.
The full list of all 10 cases is available here.

Author: Aaron Wininger

Aaron Wininger is a Senior Attorney and Director of China Intellectual Property at Schwegman Lundberg & Woessner.

Author: Aaron Wininger

Aaron Wininger is a Senior Attorney and Director of China Intellectual Property at Schwegman Lundberg & Woessner.