Interpretation on Several Issues Concerning the Application of the Law in Trials of Civil Unfair Competition Cases

(Promulgated by the Supreme People's Court on January 12 2007 and effective as of February 1 2007.)

SPC Interpretation [2007] No.2

The Interpretation has been formulated pursuant to the relevant provisions of laws such as the PRC General Principles for Civil Law, the PRC Anti-unfair Competition Law, the PRC Civil Procedure Law (2nd Revision), etc., while taking into account experiences in previous trials and actual circumstances, in order to correctly try civil unfair competition cases, protect the lawful rights and interests of business operators in accordance with the law, and maintain competition in the market.

Article 1: Merchandise that has a considerable degree of public recognition in the market and is familiar to the relevant public in China shall be deemed “well-known merchandise” as specified in Item (2) of Article 5 of the Anti-unfair Competition Law. When recognizing well-known merchandise, a people's court shall consider such factors as the length of time the merchandise has been on sale, the sales territory, turnover, the target of the sales, the continuous period, degree and geographical scope of any publicity therefor, instances of the protection thereof as well-known merchandise, etc., and make a comprehensive judgment based thereon. The plaintiff shall bear the burden of proving the degree of public recognition in the market of its merchandise.

Use in a different geographical territory of a name, packaging or trade dress identical or similar to that peculiar to well-known merchandise shall not constitute unfair competition under Item (2) of Article 5 of the Anti-unfair Competition Law if the party using the same chronologically later is able to substantiate that its use thereof is in good faith. If, due to later business activities, such merchandise enters the same geographical territory, causing confusion as to the origin of the merchandise, and the party that used the same chronologically first petitions for an order requiring the party that used the same chronologically later to add some other mark sufficient to distinguish the origin of the merchandise, the people's court shall support such petition.

Article 2: The name, packaging or trade dress of merchandise that is distinctive in distinguishing the origin of merchandise shall be deemed “a name, packaging or trade dress peculiar to well-known merchandise” as specified in Item (2) of Article 5 of the Anti-unfair Competition Law. A people's court shall not give recognition as a name, packaging or trade dress peculiar to well-known merchandise if such name, packaging or trade dress:

(1) is the generic name, a graphic representation or the model of the merchandise;

(2) the name of the merchandise is one that merely indicates explicitly the quality, main raw materials, functions, purpose, weight, quantity or other characteristic of the merchandise;

(3) a form arising simply due to the nature of the merchandise itself, a form required in order to obtain the technical effect of the merchandise or a form that causes the merchandise to have substantive value; or

(4) other name, packaging or trade dress of merchandise that is devoid of distinctiveness.

If any of the circumstances specified in Item (1), (2) or (4) above has become distinctive through use, it may be deemed a name, packaging or trade dress peculiar to well-known merchandise.

If the name, packaging or trade dress peculiar to well-known merchandise contains the generic name, a graphic representation or the model of the merchandise, or directly indicates the quality, main raw materials, functions, purpose, weight, quantity or other characteristic of the merchandise or contains a place name and other parties legitimately use the same in objectively describing the merchandise, such act shall not constitute unfair competition.

Article 3: The decoration of the place of business of a business operator, the type of the articles used in the business, the dress of the business personnel, etc., that constitute the unique style of the entire business image may be deemed “trade dress” as specified in Item (2) of Article 5 of the Anti-unfair Competition Law.

Article 4: If the name, packaging or trade dress of merchandise is sufficient to cause the relevant public to mistake the origin of the merchandise, including mistakenly believing that there is a certain relationship with the business operator of the well-known merchandise, such as a licensing arrangement, affiliation, etc., such name, packaging or trade dress shall be deemed to “cause confusion with the well-known merchandise of another party and cause purchasers to mistake the merchandise for such well-known merchandise” as specified in Item (2) of Article 5 of the Anti-unfair Competition Law.

The use on the same type of merchandise of a name, packaging or trade dress that is identical or essentially indistinguishable visually shall be deemed sufficient to cause confusion with the well-known merchandise of another party.

When determining whether a name, packaging or trade dress of merchandise is identical or similar to that peculiar to well-known merchandise, reference may be made to the principles and methods for judging whether trademarks are identical or similar.

Article 5: If the name, packaging or trade dress of merchandise falls within the category of a mark that, pursuant to the first paragraph of Article 10 of the Trademark Law, may not be used as a trademark and the concerned party petitions for protection thereof pursuant to Item (2) of Article 5 of the Anti-unfair Competition Law, the people's court shall reject such petition.

Article 6: Enterprise names lawfully registered by the competent enterprise registration authority and the names of enterprises of foreign countries (regions) commercially used in China shall be deemed “enterprise names” as specified in Item (3) of Article 5 of the Anti-unfair Competition Law. If the business name component of an enterprise name has a considerable degree of public recognition in the market and is familiar to the relevant public, it may be deemed an “enterprise name” as specified in Item (3) of Article 5 of the Anti-unfair Competition Law.

The names of natural persons used in merchandise business shall be deemed “personal names” as specified in Item (3) of Article 5 of the Anti-unfair Competition Law. If the pen name, stage name, etc., of a natural person has a considerable degree of public recognition in the market and is familiar to the relevant public, it may be deemed a “personal name” as specified in Item (3) of Article 5 of the Anti-unfair Competition Law.

Article 7: Commercial use in China, including use of the name, packaging or trade dress peculiar to well-known merchandise, or enterprise name or personal name on merchandise, the packaging of merchandise and transaction documents for the merchandise or their use in advertising, publicity, exhibitions and other commercial activities shall be deemed “use” as specified in Items (2) and (3) of Article 5 of the Anti-unfair Competition Law.

Article 8: Any of the following acts committed by a business operator that is sufficient to mislead the relevant public may be deemed misleadingly false publicity as specified in the first paragraph of Article 9 of the Anti-unfair Competition Law:

(1) one-sided publicity for, or biased comparison of, merchandise;

(2) using as a proven fact in publicity for the merchandise a position, phenomenon, etc., that has not been scientifically proven; or

(3) using ambiguous language or other misleading methods to publicize the merchandise.

Publicizing merchandise through obvious exaggeration that is not sufficient to mislead the relevant public does not fall within the category of misleadingly false publicity.

A people's court shall determine whether publicity is misleadingly false based on such factors as day-to-day life experience, the general attention of the relevant public, the facts that mislead the relevant public, the actual circumstances of the item being publicized, etc.

Article 9: Relevant information that is not generally known or easily available to relevant persons within the same sector shall be deemed “non-public” as specified in the third paragraph of Article 10 of the Anti-unfair Competition Law.

Relevant information may be deemed not to constitute “non-public” if:

(1) such information is part of the general knowledge of persons in the relevant technical or economic field, or is industry practice;

(2) the information speaks only to the product's dimensions, structure, materials, simple assembly of the parts, etc., and once the product enters the market could be obtained by the relevant public directly through examination of the product;

(3) the information was publicly disclosed in a publicly available publication or other medium;

(4) the information was disclosed in an open conference, exhibition, etc.;

(5) the information is available through other public channels; or

(6) the information is easily available without giving certain consideration.

Article 10: If relevant information has actual or potential commercial value and can give its rights holder a competitive advantage, it shall be deemed “to be able to bring economic benefits to the rights holder and be practical” as specified in the third paragraph of Article 10 of the Anti-unfair Competition Law.

Article 11: The reasonable protection measures appropriate to the commercial value of information and other specific circumstances that a rights holder takes to prevent leakage thereof shall be deemed “confidentiality measures” as specified in the third paragraph of Article 10 of the Anti-unfair Competition Law.

A people's court shall determine whether the rights holder has taken confidentiality measures based on factors such as the features of the medium holding the information, the rights holder's desire to maintain its confidentiality, the identifiability of the confidentiality measures, the difficulty a third party faces in obtaining the information through legitimate channels, etc.

If any of the circumstances set forth below are, under normal circumstances, sufficient to prevent the confidential information from being leaked, the rights holder shall be deemed to have taken confidentiality measures:

(1) it has restricted the scope of access to the confidential information and only made the contents thereof available to the relevant persons who need to know;

(2) it has taken precautionary measures such as locking, etc., in respect of the medium holding the confidential information;

(3) it has marked the medium holding the confidential information as confidential;

(4) it has used encryption or password protection on the confidential information;

(5) it has executed a confidentiality agreement;

(6) it restricts visitors to the confidentiality related machinery, plant building, workshop, etc., or requires them to keep the same confidential; or

(7) it has taken other reasonable measures to ensure the confidentiality of the information.

Article 12: The obtaining of a trade secret through one's own research and development or reverse engineering, etc., shall not be deemed an infringement of a trade secret as specified in Items (1) and (2) of Article 10 of the Anti-unfair Competition Law.

For the purposes of the preceding paragraph, the term “reverse engineering” means obtaining by technical means through disassembly, surveying, analysis, etc., the relevant technical information of a product obtained through public channels. If a party has come into knowledge of a trade secret of another through improper means and claims that its obtaining thereof was lawful by reason of using reverse engineering, its claim shall be rejected.

Article 13: Customer lists that fall among trade secrets generally refer to special customer information, consisting of customers' names, addresses, contact methods and transaction practices, intent, details, etc., that is distinguishable from related public domain information, and includes customer registers that bring together a large number of customers, as well as specific customers with whom long-term stable transaction relationships are maintained.

If a customer conducts market transactions with a work unit based on its trust of an individual employee of such work unit and if, after leaving that work unit, the employee is able to substantiate that the customer willingly opted to conduct market transactions with him/her or his/her new work unit, he/she shall be deemed not to have used improper means, unless otherwise agreed by the employee and his/her former work unit.

Article 14: When a party claims that another party has infringed its trade secret, it shall bear a burden of proving that the trade secret that it possesses meets the statutory conditions, that the other party's information is identical or substantively identical to its trade secret and the fact that the other party has used improper means. Evidence that a trade secret meets statutory conditions includes the medium that holds the trade secret, the specific content thereof, the commercial value thereof and the specific confidentiality measures taken to protect the trade secret, etc.

Article 15: If the licensee under a trade secret exclusive licensing contract institutes a legal action for infringement of the trade secret, the people's court shall accept the same in accordance with the law.

If the licensee and rights holder under a sole licensing contract jointly institute a legal action, or the licensee itself institutes a legal action while the rights holder does not do so, the people's court shall accept the same in accordance with the law.

If the licensee and rights holder under a non-exclusive licensing contract jointly institute a legal action, or the licensee does so alone with the written authorization of the rights holder, the people's court shall accept the same in accordance with the law.

Article 16: When a people's court renders a judgment in respect of an infringement of a trade secret that orders that civil liability be borne by ceasing the infringement, in general, the period during which the infringement is halted shall endure until the trade secret in question enters the public domain.

If the period of time during which the infringement is halted in a judgment rendered pursuant to the preceding paragraph is markedly unreasonable, a judgment may be rendered that orders the infringer to cease using the trade secret in question for a certain period of time or within a specific scope, provided that the competitive advantage bestowed on the rights holder by such trade secret is protected in accordance with the law.

Article 17: When determining the measure of damages for infringement of trade secrets as specified in Article 10 of the Anti-unfair Competition Law, reference may be made to the method for determining the measure of damages for infringement of patent rights. When determining the measure of damages for the unfair competition specified in Article 5, 9 or 14 of the Anti-unfair Competition Law, reference may be made to the method for determining the measure of damages for infringement of the right to exclusive use of a registered trademark.

If a trade secret enters the public domain due to infringement, the measure of damages shall be determined in line with the commercial value of such trade secret. The commercial value of a trade secret shall be determined based on factors such as the cost of researching and developing the same, the returns derived from working the same, the potential benefits from the same, the period of time during which the competitive advantage can be maintained, etc.

Article 18: In general, intermediate people's courts shall have jurisdiction over civil cases of unfair competition in first instance specified in Articles 5, 9, 10 and 14 of the Anti-unfair Competition Law.

Higher people's courts may, based on the actual circumstances in their jurisdiction and with the approval of the Supreme People's Court, designate several basic level people's courts to accept civil cases of unfair competition in first instance. Those basic level people's courts that have already been approved to try civil cases involving intellectual property rights may continue to accept such cases.

Article 19: The Interpretation shall be effective as of
February 1 2007.