China: Unfair Competition and the Protection of Well-known Packaging in China

Every day, thousands of new products and brands are introduced into the Chinese market, becoming known to consumers as well as counterfeiters and competitiors. Brand protection is a vital part of doing business in China, as is efficiently dealing with brand protection litigation when trademarks or packaging is copied. This article reports on a recent case of unfair competition and highlights certain things that companies (both Chinese and foreign) can do to prepare for packaging theft and other forms of unfair competition.

In September 2002, the Neijiang Municipal Administrative Authority for Industry and Commerce (AIC) in Sichuan province in China¡¯s developing West, dealt with a case of unfair competition. The plaintiff was a major automobile component manufacturer, a Fortune 500 US based company. The defendant was a Chinese State Owned Enterprise who made and sold automobile components in an enormous factory located in Neijiang. The defendant was found to be using packaging that was virtually identical to that of the US companies¡¯. After a careful investigation, the Neijiang AIC agreed to raid the Neijiang company, finding a large quantity of packaging (over 80,000 pacakges). The products with infringing packaging included engine bearings and piston rings. On the packaging of these products, a distinctive design was used, known to the US company as a "confetti style" design packaging due to its distinctive confetti like appearance. The US company had used this design since 1996 in China and throughout the world.

The Chinese company substantially copied the confetti design, but used a slightly different colour as compared to that which the US company had used. It also clearly wrote on the boxes that the product was made by it in China, as opposed to the US company. The question was whether it was sufficient for an act of unfair competition to be found for there to be a likelihood of confusion based solely on the mere similarity of the design of packaging, when considering the use of the disclaimer by the US company.

With the commencement on July 6, 1995 of the Anti-Unfair Competition Law, it became possible to take action for trade dress infringement cases. For example, item 2, article 5 of Anti-Unfair Competition Law provides that:" actionable unfair competition occurs where a company without permission, use the identical name, packaging, decoration of well-known merchandise, or the similar name, packaging, decoration, causing confusion of the well-known product and mistaken recognition by the purchaser." Under this article, "well-known merchandise " was left undefined, meaning that the degree of fame required before a product would be considered "well-known" would vary considerably from place to place, depending on the interpretation given by the local AIC or court, and the likelihood of confusion must be appreciated taking into account all factors relevant of the circumstances of the case. The test of deciding whether mistakes will occur and the public will be mislead involves considering how the product is usually purchased, its price, how much attention a person pays to the small print on the packaging and so on.

It should be noted that Article 8 of the PRC Trademark Law defines a trademark as "¡­ any visual sign capable of distinguishing the goods or service of one natural person, legal entity or any other organization from that of others, including any word, design, letter of an alphabet, numerals, three-dimensional symbol, combinations of color, and their combination¡­" Consequently, given that it is possible to register the get-up of a package as a trademark in China, foreign and Chinese companies should take advantage of this. Taking action for infringement of a registered PRC trademark is much easier as compared to taking an action for unfair competition because in practice, the appreciation of the likelihood of confusion must be made out, whereas for trademark infringement, this is not necessary.

In the Neijiang unfair competition case, despite the use of the name of the Chinese manufacturer and the slightly different colour used by the Chinese company for the packaging, the Neijiang AIC rightly found that a contravention if the Anti-Unfair Competition Law had occurred and made the necessary orders since:

• It accepted that consumers would not read the labeling carefully when buying the products and thus would not find out the identity of the manufacturer given the fine print used on the packaging
• Confusion was likely to occur given the substantial reputation the US company enjoyed in using the distinctive style of packaging
• The actions of the Chinese company were not in good faith

Perhaps if a statement was put on the packaging in big letters saying that the product is not made by Dana or any related entity of Dana, then the plaintiff would not have won. However, the plaintiff may have been able to rely on the PRC Copyright Law in such a case given the confetti design would have qualified as an artistic work ¨C the Neijiang AIC would not have had jurisdiction to consider such an argument though, and it would have been necessary to go to court.

Further, it should be noted that reference must be had to the Several Provisions Concerning Forbidding Unfair Competition of Counterfeiting Identical Names, Packaging, Decoration to Well-Known Products issued by SAIC¡¢Several Regulations on the Prohibition of Acts Involving the Passing-Off of a Name, Packaging or Trade Dress Peculiar to Well-known Merchandise and Several Issues Conderning the Application of the Law to the Trial of Civil Dispute Cases Involving Trademarks issued by the Supreme People¡¯s Court, when dealing with unfair competition cases in China, given these regulations clarify and supplement the major provisions of the Anti-Unfair Competition Law.

We have seen the Chinese administrative authorities become increasingly more willing to consider international legal theories and decided cases in dealing with unfair competition cases. It is a difficult area, given that registration certificates are not involved, and the relatively immature Chinese legal system. It is hoped that this trend of openness will continue so that Chinese and foreign companies will feel that they are able to put more trust in the legal system in China in relation to intellectual property rights, thus encouraging creativity and innovation in building brands and advertising campaigns.