Picture this: After a long fourteen hour plane ride to Beijing, you grab your luggage, hop in a taxi, and head to your hotel. On the drive into Beijing you glance out your window and see a billboard and accompanying storefront prominently advertising and displaying your brand and your company name, and further purport to be the exclusive distributor in China – and you thought you only had jetlag to deal with during your China stay.
Unfortunately situations like the above happen far too often. International companies, big and small, frequently discover that Domestic Chinese companies unlawfully advertise and exploit its registered trademark. This practice has occurred for quite some time, and unfortunately there does not appear to be a decrease in frequency. As Chinese Law continues to develop and solidify over time, it is inevitable that this illegal practice will disappear. In the meantime, however, a trademark owner has several avenues of enforcement to consider to stop the unlawful use and exploitation of its mark.
Before a Trademark owner even considers taking action against unlawful advertising or trademark infringement, conducting a basic background search on the infringer is essential. Every lawfully organized company will register their details with the corresponding local Administration for Industry and Commerce (AIC), and after accessing the AIC database one can learn the company's registered address, shareholders, size and registered capital. Once this information is obtained it can assist in determining what subsequent actions need to be undertaken to stop the illegal trademark use and false advertisement. Additionally through the course of a basic search, one often finds that a particular company has been set up and is operating illegally, which adds to the various options in the enforcement arsenal.
Cease and Desist Letter
After conducting a background search, generally, depending on the scope and size of the issue, sending a cease and desist letter is recommended. A strongly worded letter, with the accompanying registered trademark certificate often times stops the problem at the outset. For smaller issues, such as a single localized storefront or booth at a market, sending a letter which demands immediate action with a hard deadline has proven very effective. Additionally, it has proven beneficial to include other successful court decisions and actions taken against similar issues of infringement. After sending a letter it is imperative that counsel follows up with a series of phone calls until the advertising or other illegal activity stops. Further it is suggested to require a commitment of some sort, where by the opposing party assures the Trademark owner that they will not use the respective mark again without authorization.
Generally a letter works for a small localized situation, however if the false advertising is rampant across China, or if the company is large in size and scope, then other protective measures need to be taken.
Filing a lawsuit
Filing a lawsuit is generally the last step any Trademark owner wants to take, but often this is the only solution in order to stop the false advertising and potential trademark infringement. Filing a lawsuit is exceptionally effective in the cessation of the wrongful activity and the reach and prevention likely continues in perpetuity. The cost for filing a lawsuit is significantly less expensive than it is in other parts of the world, and the entire case, from start to finish, should be complete within one year.
When filing a lawsuit for the situation described in the first paragraph there will likely be two causes of action:
- Trademark infringement; and
- Unfair Competition
Trademark infringement is generally fairly easy to prove in this situation as the mark is being used without authorization from the Trademark owner. Still though, it will be necessary to acquire and submit notarized evidence of the infringing activity before a Court will accept the case. Such acquisition of evidence can be done by local counsel or through the use of an investigator who will travel, if necessary, to the location of the infringement and obtain the necessary evidence of the illegal use. The investigator will be accompanied by two public notaries who will document the entire evidence collection process, and their report along with an official seal is all that is necessary for a Court to accept evidence of the infringement.
With regard to Unfair Competition, Chinese Law has a number of provisions that relate directly to comparative advertisements. It is stipulated that market operators must follow rules, including but not limited to the following provisions:
- Article 2 states, "the principles of equality, fairness, honesty and credibility, and observe generally recognized business ethics."
- Article 9.1 states, "Operators must not use an ad to give false or misleading information on the quality, composition, performance, use, manufacturer, useful life or origin of the goods;"
- And, "Operators shall not design produce or produce false advertising where they clearly know, or should know, that such ads are false (Article 9.2)
- Operators shall not utter or spread falsehoods to damage the goodwill of a competitor or the reputation of its goods (Article 14).
- Additionally, The Supreme Court states that in unfair competition cases, the following circumstances shall be considered false advertising:
- Making one sided advertising or comparison of the products;
- Presenting information as true to promote a product when in fact that information is uncertain, or;
- Using idiomatic expressions with ambiguous or multiple meanings in order to mislead.
The Court has applied a test to the standards of false advertisement with relation to claims of Unfair Competition, and takes into account whether the general public will be mislead by the advertisement. Advertisement that is blatantly exaggerated and overplayed will likely not be considered to be false or generally misleading. The Court will base its decision on every day experiences by the general public as a whole, and determine objectively if anyone will reasonably be confused or misled. The Court will also take into account the scope and status of the advertised goods and or services with relation to the general public's perception and use.
While the Supreme Court does not outright ban the use of false or comparative advertising, it does allow latitude so long as the advertisement itself does not mislead or confuse the public as a whole.
Based on recent Supreme Court case law and provisions set forth by the Chinese legislature, the key element in determining whether advertisement constitutes "false advertising," is whether the advertisement actually harms the rights of the trademark owner or misleads the public in general. Going into further depth, overall the content must be vetted and not contain any blatant false statements. Additionally the advertisements should be based on a foundation of fact and truth, and be without fabrication of any kind.
The basic standard is that the notion of good faith and fairness of competition must be present in all advertising, and advertisers must consider their ads overall strength and not take advantage of others' famous brands and trademarks.
Damages, Compensation and Apologies
With regard to damages, Article 20 of the Unfair Competition Law states, "Where an operator, in contravention of the provision of this law, causes damage to another operator, it shall bear the responsibility of compensating for the damages. Where the losses suffered by the injured party are difficult to calculate, the amount of dames shall be the illegal profit gained by the infringer during the period of infringement through the infringing act. The infringer shall also bear all reasonable costs paid by the injured operator in investigating the acts of unfair competition committed by the operator suspected of infringing its lawful rights and interests."
Due to Chinese lack of discovery, evidence is not freely shared. Therefore a party is responsible for bearing their own burden of proof to determine the illegal profits gained by the infringing party. As this may prove difficult to obtain, the Court may calculate the total compensation based on the injury caused to the Trademark owner.
In determining overall damages, Courts generally take into account the following factors:
- Losses sustained from the unfair competition (although in practice it is challenging to calculate an exact amount of damages based on false advertising.
- Reasonable legal costs, including actual costs and attorney fees. The amount of attorney fees is usually not commensurate with the amount paid, but a general amount considered reasonable by the Court.
- Reasonable costs to the injured party to assist in "rebuilding its reputation in the market."
Further once compensation is determined and the infringing activity has ceased, it is imperative to demand a letter of apology for the opposing party. Although trivial in nature, the letter should contain an admission of false advertising or infringement, and the letter should be published in a newspaper and online. Although the overall effects may be limited, it will certainly act as a further deterrence, detracting from such activity in the future.
Frustrating? No question. Is there a solution? Definitely. Taking a long hard look at the overall topography and the size and scope of the problem is paramount. Once you ascertain the depth of the situation you can proceed accordingly. Once the appropriate evidence is collected, Courts overwhelmingly side with the Trademark Owner. The Laws favor the rights holder, and there is certainly a public policy benefit to assuring that business and competition flow freely. If you're faced with a tough situation, take a step back and breathe a sign of relief...there are options abound.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.