Introduction

On July 16 2015 the Tokyo District Court issued a decision under the Unfair Competition Prevention Law (47/1993, as amended). The court held that the defendant's sale of ladies' apparel with a similar configuration as that of the plaintiff constituted an act of unfair competition under Article 2(1)(3) of the law. The court ordered the defendant to pay compensation of damages under Article 4, but refused to order the defendant to advertise an apology under Article 14.

Legal background

Article 2(1)(3) of the Unfair Competition Prevention Law defines 'unfair competition' as:

"the act of assigning, leasing, displaying for the purpose of assignment or leasing, exporting or importing goods that imitate the configuration of another person's goods (excluding a configuration that is indispensable for ensuring the function of said goods)."

Article 2(4) defines the 'configuration of goods' as:

"the external and internal shape of goods and the pattern, color, gloss, and texture combined with such shape, which can be perceived through the human senses by consumers when ordinary use is made of the goods."

Article 2(5) defines 'imitate' as "the act of creating goods of practically identical configuration to that of another person's goods based on the configuration of said goods". Further, Article 4 provides that "a person who has intentionally or negligently injured the business interests of another person through unfair competition shall be liable to compensate for the damage caused by such injury".

Article 5(1) provides calculations for the compensation to be paid to the infringed party, as follows:

"the quantity of articles transferred… multiplied by the amount of profit per unit of the articles that the infringed party could have sold in the absence of the act of infringement may be fixed as the amount of damages suffered by the infringed party, within the limits of an amount proportionate to the infringed party's ability to sell or conduct other acts concerning said articles."

Article 14 provides:

"At the request of a person whose business reputation has been injured, the court may order the person who has intentionally or negligently engaged in unfair competition… to take the necessary measures to restore the business reputation of that person."

Article 19(1)(5)(b) provides that the articles above do not apply to:

"the act of a person who has received goods that imitate the configuration of another person's goods by assignment (limited to a person who... was without knowledge that the goods imitated the configuration of another person's goods, and was without gross negligence in not knowing this) in assigning, leasing, displaying for the purpose of assignment or lease, exporting, or importing such goods."

Facts

The plaintiff (KK Fashion Village), which sells ladies' apparel, brought a lawsuit at the Tokyo District Court against the defendant (KK Sun Katsumi), which also sells ladies' apparel, claiming that the configuration of the defendant's products constituted an act of unfair competition under Article 2(1)(3) of the Unfair Competition Prevention Law. The plaintiff claimed:

  • Y13,784,266 as compensation of damages under Article 4 (ie, Y12,472,060 as compensation of damages under Article 5(1) and attorneys' fees of Y1,312,206);
  • payment for default at the legal rate of interest for those amounts; and
  • the advertisement of an apology by the defendant under Article 14.

Decision

On July 16 2015 the court admitted the plaintiff's claim seeking relief under Article 2(1)(3) and admitted the payment of compensation of damages under Article 4, but refused to accept the claim for an advertisement of an apology by the defendant under Article 14.

The decision was as follows:

  • The defendant was ordered to pay the plaintiff Y13,722,060 plus interest at the rate of 5% per annum from May 27 2015, until full payment is made.
  • All other claims by the plaintiff were dismissed.
  • One-twentieth of the litigation expenses were to be borne by the plaintiff, and the remaining litigation expenses by the defendant.
  • Only the payment of the fine could be provisionally executed.

The court indicated that the case involved five issues:

  • whether the plaintiff could be the subject of the claim (ie, whether the plaintiff could be 'another person' as defined in Article 2(1)(3));
  • whether the defendant imitated the configuration of the plaintiff's products (Article 2(5)) – that is, whether the configuration of the defendant's products was:
    • practically identical to that of the plaintiff's products; and
    • based on the plaintiff's products;
  • whether the defendant had knowledge or committed gross negligence (Article 19(1)(5)(b));
  • the amount of damages suffered by the plaintiff (Articles 4 and 5(1)); and
  • the necessity of advertising an apology (Article 14).

Subject of the claim

The plaintiff held documents proving that it was responsible for the design and manufacture of its products (ie, it did not purchase goods designed by another party). This meant that the plaintiff developed the configuration of its products through its own investment and labour. It thus qualified as 'another person' under Article 2(1)(3) and could be the subject of a claim seeking damages against a party that committed an act of unfair competition.

The defendant asserted that the plaintiff's products were merely the result of a combination of previously developed, similar products. However, no concrete assertion or proof as to the configuration of the products was advanced; thus, the assertion had no merit.

Practically identical configuration

The plaintiff's products were identical to the defendant's products in terms of basic and concrete configuration, except for a difference with regard to the presence or absence of gathers in Products 5 through 10 and concerning the extent of the stretch of the sleeves in Product 11.

Following an examination of the configuration of the plaintiff's products and the defendant's products, the court found that they were practically identical.

Product 3(1)

The basic structure was identical to the plaintiff's product and the concrete structure was almost identical, except for small differences that would hardly be noticeable to consumers.

Click here to view image.

Product 4

The basic structure was identical to the plaintiff's product and the concrete structure was almost identical, except for small differences that would hardly be noticeable to consumers.

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Product 5

The basic structure was identical to the plaintiff's product and the concrete structure was almost identical, except for small differences that either would not produce special differences or would hardly be noticeable to consumers.

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Product 6

The basic structure was identical to the plaintiff's product and the concrete structure was almost identical, except for small differences that either would not give a substantial impression to the consumers or should be construed as an extremely easy modification that would hardly be noticeable to consumers.

Click here to view image.

Product 7

The basic structure was identical to the plaintiff's product and the concrete structure was almost identical, except for small differences that were either a difference in the raw materials of the buttons or would not make a substantial difference in terms of appearance. Thus, these differences would hardly be noticeable to consumers.

Click here to view image.

Product 8

The basic structure was identical to the plaintiff's product and the concrete structure was almost identical except for small differences. The trim portion was common to both products, although there were invisible differences. There were other alterations that made little difference to the product's appearance and parts of the manufacturing process were skipped by decreasing the number of buttons. Thus, they would not affect the determination that the configuration was practically identical to the plaintiff's.

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Product 9

The basic structure and the concrete structure were both almost identical to the plaintiff's product, except for a small difference in concrete structure that would hardly be noticeable to consumers.

Click here to view image.

Product 10

The basic structure was identical to the plaintiff's product, although there were differences regarding the presence or absence of gathers or the type of gathers. However, such differences do not diminish the practical identity of the configuration and would not affect its general appearance.

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Product 11

The basic structure was identical to the plaintiff's product and the concrete structure was almost identical, except for small differences that would hardly be noticeable to consumers.

Click here to view image.

Based on plaintiff's products

The configuration of the defendant's products was practically identical to that of the plaintiff's products. Further, what differences there were did not require the defendant to incur additional labour or expense, indicating that the configuration of the defendant's products was based on the plaintiff's products.

From the sales history of the defendant's products, it was evident that – except for Product 4 – the defendant had purchased the plaintiff's products and then started selling its own corresponding products. As for Product 4, although the plaintiff kept no record of sales to the defendant, it can be assumed that the defendant initiated the sale of Product 4 by obtaining the corresponding products (as in the case of the other products). Thus, the configuration of the defendant's products was based on the plaintiff's products.

Knowledge or gross negligence

The defendant alleged that even if there had been imitation of the configuration of the plaintiff's products, it was not responsible for compensation of damages as it had no knowledge that its products imitated the configuration of the plaintiff's products and was not guilty of gross negligence. However, the defendant must have known when it acquired the plaintiff's products that its own products imitated their configurations. Thus, the defendant's assertion was groundless.

Amount of damages

Since the defendant's act of selling its products fell under Article 2(1)(3), it was obliged to compensate the damages suffered by the plaintiff under Article 4. The court concluded that the damages suffered by the plaintiff was Y12,472,060 (under Article 5(1)). The attorneys' fees (to be borne by the defendant) were valued at Y1,250,000.

Therefore, the claim for compensation of damages by the plaintiff against the defendant was Y13,722,060, together with the payment for default at 5% per annum prescribed by the Civil Code, calculated from May 27 2015 (ie, the starting date of the act of unfair competition) up to the date of full payment.

Necessity of apology

The plaintiff sought the advertisement of an apology from the defendant, asserting that the act of unfair competition had damaged its business reputation. However, there was no evidence that the plaintiff's business reputation had been damaged. Therefore, the court did not order the advertisement of an apology to restore the plaintiff's reputation.

Comment

Article 2(5) of the Unfair Competition Prevention Law defines the term 'imitate' as the act of creating goods with a practically identical configuration to another person's goods, based on those goods.

In this case, the real question was not whether the configuration of the defendant's products was practically identical to that of the plaintiff's products from a physical viewpoint only, but whether the configuration of the defendant's products was based on that of the plaintiff's products. The court carefully examined not only the physical similarity of both products, but also the surrounding circumstances, such as the fact that the defendant had purchased the plaintiff's products.

Although there have been many unfair competition cases in which the court admitted the imitation of a configuration under Article 2(1)(3), this one serves as a good example of an unfair competition case regarding ladies' apparel.

For further information on this topic please contact Eiichi Fukushima at Nishimura & Asahi by telephone (+81 3 5562 8500) or email (e_fukushima@jurists.co.jp). The Nishimura & Asahi website can be accessed at www.jurists.co.jp.

Endnotes

(1) The claims for Products 1 and 2 were later withdrawn from the petition by the plaintiff.

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