Beware of ‘commercial defamation’ when defending IP rights

By Li Jialin, Tiantai Law Firm
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When it comes to protecting IP rights, both litigation and administrative proceedings can be time-consuming options. Maybe there is a better way? Might it be possible to, for example, hint at the competitor’s nature as an infringer? Or, if the administrative complaint is not accepted, is it an option to report the competitor to other regulatory authorities over, say, product defects, as a roundabout way to protect our own IP rights?

While it makes sense to take multiple measures simultaneously when protecting IP rights, these must not be brash or reckless. Some measures, at first glance, might seem a legitimate exercise of rights, but they may incur the legal consequences of commercial defamation.

Article 11 of the Anti-Unfair Competition Law provides that “operators shall not fabricate or disseminate false or misleading information to damage the commercial reputation or commodity reputation of competitors”. Commercial defamation includes subjective elements, behavioural elements and damage consequences. In addition, courts also consider whether the perpetrator has the subjective intention of crowding out competitors or disrupting the order of market competition.

Platform complaints

李佳霖, Li Jialin, Associates, Tiantai Law Firm
Li Jialin
Associate
Tiantai Law Firm

In a 2019 case involving a commercial defamation dispute among ENES, Jieksoil and Taobao, Jieksoil believed that products sold by ENES in its Taobao online store infringed its trademark right. Without pursuing any investigation, or purchasing such products for basic comparison, it filed more than 10 complaints to Taobao within four months, resulting in the removal of ENES products from the platform and ENES being marked as a seller of counterfeit products.

During this period, ENES was able to submit evidence for appeal multiple times, all of which were successful, but Jieksoil failed to make further verification or cease filing complaints.

The court held that, although complaints to Taobao are, by nature, close-ended, the results of such complaints affected the whole platform, and Jieksoil’s action directly cut off public access to ENES’s products on the platform. Hence, it was determined that the repeated complaints had public ramifications, objectively resulting in reduced trade opportunities and damaged goodwill for ENES. The court ruled that Jieksoil’s actions constituted commercial defamation.

Administrative complaints

In a 2010 commercial defamation dispute between a Shanghai company and a Beijing rival, based on a compliant by the Shanghai company, the Shaanxi Administration of Work Safety issued a letter to a Shaanxi petroleum company, a client of the Beijing company and the user of the product in question, requesting it to provide information showing that the product had been certified by relevant national institutions.

The Beijing company filed a lawsuit against the Shanghai company on the grounds that the complaint constituted commercial defamation. For this case, the courts of first and second instances were in agreement that the scope of “dissemination” referred to in article 14 of the Anti-Unfair Competition Law (1993, invalid) includes direct dissemination to consumers, as well as indirect dissemination to consumers by reporting and complaining to administrative departments.

Therefore, if the act fulfils the constitutive elements of commercial defamation, it should be identified as such. However, since the majority of content disseminated in this case was factual, the court ruled that the defendant’s act did not constitute “disseminating false information” and rejected the plaintiff’s claim.

Executive remarks

In a 2018 commercial defamation dispute among Haimao Company, Hengtai Company and Anjing Company, all three being aquatic product companies, Duan, the legal representative of Anjing Company, stated during a “promotion meeting” entirely attended by aquaculture farmers that “Haimao is fake … its seed shrimp source is also fake”.

The chairman and vice chairman of Hengtai subsequently expressed similar views. Haimao believed that these actions constituted commercial defamation, and filed a lawsuit.

To begin with, the court held that commercial defamation could be established on the grounds that the defendants had no evidence to prove their remarks.

With regard to the liability subject, the court held that since the promotion meeting in question was organised by Hengtai, and the senior executive of Hengtai also introduced himself and spoke on several instances as one of the shareholders and vice chairman of Hengtai. Combined with the content of his remarks, the action was identified as an act in the course of the performance of official duty.

In addition, given that the theme of the meeting was to introduce the seed shrimp business of Hengtai, although Duan was the legal representative of Anjing, he attended the meeting as the Chinese business general representative of a US-based international seed shrimp company. Therefore, the liability should be jointly and severally borne by Hengtai and the US seed shrimp company, and Anjing Company was not liable for infringement.

Beyond the scenarios listed above, right owners attempting to protect their own rights by publishing short videos or articles on social media without waiting for an official judgment by a competent authority, or by sending official letters to the competitor’s business partners to disseminate the idea that “the competitor is an infringer”, may be held liable for commercial defamation.

To sum up, while exercising their lawful rights, enterprises should abide by recognised business ethics and pay attention to maintaining the market order of fair competition. When formulating a plan for intellectual property right protection, the first step that ought to be taken by enterprises is to conduct comprehensive investigation and secure evidence.

Even with full understanding and confidence of the infringement, enterprises must still be cautious when making complaints or remarks, so as not to deviate from the original intention of stopping infringement. Right owners should avoid improper means or extreme remarks, and only pursue right protection in a proper, legitimate manner.

Li Jialin is an associate at Tiantai Law Firm

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