China: Advertising, Promotion, And Your Brand…Sometimes The Best Of Intentions Just Won't Do

Last Updated: 28 September 2016
Article by Aaron D. Hurvitz

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.

Background Check

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:

  1. Trademark infringement; and
  2. 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.

Legal Standards

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.

Conclusion

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions