Huang Hui Paul Ranjard May 2 2022 China SPC's new interpretation on AUCL Wanhuida Intellectual Property | Intellectual Property - China Huang Hui, Paul Ranjard Intellectual Property IntroductionArticle 2Article 6IntroductionOn 29 January 2022, the Supreme People's Court (SPC) adopted a judicial interpretation on the Anti-Unfair Competition Law (AUCL). The new interpretation, which was published on 17 March 2022 and became effective on 20 March 2022, supersedes the previous interpretation of 2007 and shall apply to all pending cases. However, if a case has been adjudicated before that date but continues via the retrial procedure, the 2007 interpretation shall apply.The new interpretation covers all aspects of the AUCL. This article focuses the extension of the general principle of fairness and the protection of "signs".Article 2 The interpretation confirms the rising importance of the AUCL as a legal ground for civil litigation – in particular, article 2. This article establishes the general principle of fairness: "A business operator shall, during the production and operation, follow the principles of voluntariness, equality, fairness and good faith and observe the laws and business ethics." The article defines "unfair competition" as an act that "disturbs market competition order and damages the lawful rights and interests of other business operators or consumers".This principle established, the AUCL describes, in Chapter II, various types of unfair competition act, such as:creating confusion with another operator (article 6);false advertising (article 8);theft of trade secrets (article 9); anddefamation (article 11).Until recently, the people's courts had strictly interpreted the law, in particular article 6.1, which provides that "a business operator shall not use a sign that is identical with or similar to the name, packaging or decoration etc. of other person's products which has a certain influence". The emphasis was, therefore, on the likelihood of confusion, hence the need to prove the existence of a certain "influence" or reputation. If there was no evidence of reputation, there was no case.Article 2, however, places emphasis on the unfair behaviour of the operator, which requires a completely different type of evidence. The people's courts were initially reluctant to accept cases based only on the behaviour of a defendant, with no specific reference to any of the acts described in Chapter II of the AUCL. The situation evolved favourably thanks to trademark squatters. Several cases gave the courts an opportunity to rule against unfair practices.In the 2018 Bayer case, the trademark squatter, having failed to intimidate Bayer into buying his trademarks, launched complaints against Bayer's online sellers and offered to withdraw his complaints if the sellers agreed to pay damages. Bayer reacted by filing a civil action against the squatter, seeking a non-infringement judgment and an order to cease the squatter's acts of unfair competition.More recently, in the 2021 Brita case, Brita, after successfully concluding all administrative cases brought by the trademark squatter, sued for damages on the ground of unfair competition. The Shanghai Court held that the squatter's malicious pre-emptive registration of trademarks and systematic challenging of Brita's registrations violated the principle of good faith and business ethics. The Court affirmed that the trademark squatter's behaviour constituted acts of unfair competition and ordered the payment of 2.8 million yuan (approximately $437,500) as damages.Finally, in the 2021 In-Sink-Erator case, the Xiamen Court went one step further and considered that the behaviour of the defendant, who had registered many trademarks that were identical or similar to the plaintiff's trademarks, and also other famous marks, with no intention to use them, had breached the principles of good faith. The Court issued an order prohibiting the defendant from filing such pre-emptive applications in the future.All of these cases were based on article 2 of the AUCL.It is therefore possible to appreciate the meaning of article 1 of the new interpretation, which confirms the importance of the principle of fairness:Article 1. When the acts of an operator, disrupting the market competition order and damaging other operators' legitimate rights or the consumers' interests, are not specifically described in Chapter II of the AUCL, in the Patent Law, in the Trademark Law and in the Copyright Law, the People's Court may apply Article 2 of the AUCL.Business ethics are therefore becoming the essential touchstone of article 2 of the AUCL, and the SPC has taken this opportunity to clarify, in article 3 of the new interpretation, that the code of conduct generally followed and recognised in a specific business field constitutes the "business ethics" as stipulated in article 2 of the AUCL. The SPC details how the courts should determine whether an operator has violated business ethics.It remains to be seen whether the people's courts will still be reluctant to accept cases based on article 2 of the AUCL, when the litigious acts are relevant to Chapter II but when the conditions required (eg, proving the reputation of a commodity) are not sufficiently met – for example, the case of an operator that systematically copies the new models of a competitor, none of which yet have a reputation. Another issue concerns the case where an unregistered but well-known trademark can be protected against the use of the mark by another person on different goods, without confusion.Article 6 The commercial signs listed in article 6 of the AUCL are the name, packaging and decoration of a product (article 6.1), the name of an enterprise (article 6.2) and the website name (article 6.3), all of which need to enjoy a certain influence.There is, therefore, a difference of nature between the name, packaging or decoration of a product and the name of an enterprise or website. The "sign" referred to in article 6.1 relates to the product, whereas the "sign" referred to in articles 6.2 and 6.3 relates to the enterprise.The SPC makes no distinction between these types of sign and considers that they all are the equivalent of an unregistered trademark, which is a narrow interpretation of the concept of a "sign", in the context of the AUCL. Therefore, the SPC insists, in article 4 of the new interpretation, that the sign must have "distinctive features enabling the sign to distinguish the source of the goods", which is the definition of a trademark. The interpretation goes on in articles 5 and 6 to enumerate signs that cannot have "a certain influence" – namely:the generic names of goods;a reference to the quality of goods; andshapes dictated by the nature of the goods or serving to give them their substantial value.All of this is directly imported from the Trademark Law. Further, in article 7 of the interpretation, the SPC insists that a sign (under article 6 of the AUCL) may not be protected if it would be refused as a trademark pursuant to article 10 of the Trademark Law (ie, on absolute grounds).This link between the Trademark Law and the AUCL can be found again in article 10 of the interpretation. The people's courts are requested, when determining whether a sign has been used in the sense of article 6 of the AUCL, to apply the exact same definition of the term "use" as set out in article 48 of the Trademark Law (ie, "use on goods, commodity packaging or containers and commodity transaction instruments, or advertising, exhibitions, and other commercial activities, in China, to identify the source of the goods"). Such definition can hardly correspond to the enterprise name or the website name (ie, as referred to in articles 6.2 and 3 of the AUCL).However, another concept imported from the Trademark Law is welcome: article 14 of the interpretation provides that the AUCL shall apply to the act of selling the goods bearing the infringing sign (pursuant to article 6 of the AUCL) and, in the same way as provided in article 63.2 of the Trademark Law, the "innocent seller" who gives information concerning the supplier is exonerated from civil liability. Article 15 of the interpretation includes the acts of intentionally providing storage, transport, mailing, printing and other services in the confusing activities covered by the law. This is provided in article 1169.1 of Civil Code, which is also very similar to article 57.6 of the Trademark Law.Regarding the determination of damages, article 23 extends the principle of statutory damages (5 million yuan) – already provided in article 17.4 of AUCL for acts of confusion and the theft of trade secrets – to other circumstances, including the general principle of article 2. However, no mention is made of the possibility to obtain punitive damages.In article 24 of the Interpretation, the SPC addresses again the relation between the AUCL and the IP laws:If a People's court has found that a person has committed act(s) of copyright, patent or trademark infringement and has ordered such person to bear civil liability, the People's court shall not support another claim of unfair competition, against the same infringer, based on act(s) committed in the same geographical place and at the same time.Unfortunately, this article is quite vague. It is true that one act cannot be at the same time a violation of the AUCL and a violation of another IP law. However, it is not rare that an infringer commits a variety of acts, some of which qualify as IP rights infringement and others as unfair competition. The SPC does not give instructions to the people's courts as to how they should handle such situations. Therefore, it might still be found that, in such complex cases, a court will request the plaintiff to choose one legal ground and drop the other, instead of examining the entirety of the case in its complexity.For further information on this topic please contact Hui Huang or Paul Ranjard at Wanhuida Intellectual Property by telephone (+86 10 6892 1000) or email ([email protected] or [email protected]). The Wanhuida Intellectual Property website can be accessed at www.wanhuida.com.This article was first published in IAM.