After a 5-year Chinese court battle, Ferrero SPA (“Ferrero”), an Italian chocolate maker, recently won a dispute to stop infringement of its intellectual property rights against Montresor (Zhangjiagang) Food Co. Ltd. (“Montresor”) and Montresor’s distributor, Zhengyuan Distribution Co., Ltd (“Zhengyuan”) in China’s Supreme People’s Court (SPC).  This is the first known case where Chinese Courts applies the Anti-Unfair Competition Law to protect well-known foreign merchandise.

The dispute started in Tianjing No. 2 Intermediate People’s Court in July 2003.  Ferrero brought a lawsuit under the Chinese Anti-Unfair Competition Law (“AUCL”), arguing that the main features of the packaging and decoration of Montresor’s Tresor Dore Chocolate products are substantially the same as those of Ferrero Rocher chocolates.  It requested that Montresor and Zhengyuan be ordered to stop their acts of unfair competition and pay RMB 3 million in damages to Ferrero.

In February 2005, Tianjin No.2 Intermediate People’s Court made the first instance judgment, overruling the claims of Ferrero.  Then Ferrero appealed to Tianjin High People’s Court who made the second instance judgment ruling that the action that Montresor used the specific decoration and package owned by Ferrero without authority constituted unfair competition and Montresor should cease infringement and compensate Ferrero RMB 700,000.

Montresor was not satisfied with the judgment of second instance and lodged an appeal for review to the SPC.  The SPC entered a judgment on March 24, 2008 in favor of Ferrero, affirming the judgment of Tianjing High People’s Court.  The SPC ordered Montresor to immediately cease using packaging and decoration similar to the unique packaging and decoration of the Ferrero Rocher chocolate products and to pay RMB 500,000 to Ferrero.  The SPC also ordered Zhengyuan to cease selling the Tresor Dore chocolate products immediately.

The judgment of SPC is based on article 5 (2) of AUCL that a party must not, without consent of the manufacturer of “well-known merchandise”, use packing or decoration that is identical or similar to the unique packaging or decoration of “well-known merchandise” and thereby creates confusion among consumers that its products are the well-known merchandise.  The following three tests must be met:

I. Well-known merchandise

II. Distinguishing packaging and decoration

III. Confusion of the public

I. Well-known merchandise

The interpretation of The SPC on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition, (“The Interpretation”) effective as of February 1, 2007, states that, "a commodity shall be recognized as well-known under Article 5 (2) of AUCL if it has a certain market reputation in China and is known by the relevant members of the public.”  China doesn’t have clear criteria for recognizing well-known merchandise outside China.  Tianjing No. 2 Intermediate People’s Court compared the popularity of both Ferrero and Montresor inside the China market and use the comparison as the main basis of the judgment.  The Tianjing High People’s Court held that the status of popularity of a product should be determined based on its overall popularity in particular markets both at home and abroad, and should not be construed as being directed only to famous products within the territory of China.  The SPC held that, although the statement of popularity in the judgment of second instance was inappropriate, the conclusion that the Ferrero Rocher chocolate had a relatively high reputation in the relevant markets within the territory of China, made by Tianjing High People’s Court, was correct.

II. Distinguishing Packaging and Decoration

Distinctiveness is the basic requirement for “Name”, “Packaging” and “Decoration” in Several Provisions on Prohibition of Unfair Competition Acts of Imitation of the Name, Packaging and Decoration Unique to Well-known Commodities (“Several Provisions” ), promulgated by State Administration of Industry and Commerce on July 6, 2005.  Also, several provisions state that the specific name, packaging and decoration of a commodity shall be determined in light of the principle of prior use.  The court of first instance, the court of second instance and the SPC affirmed that the plaintiff’s packaging and decoration had the function of distinguishing commodities, and the prior use of the plaintiff’s packaging and decoration.

The SPC stated that: “The packaging and decoration of the Ferrero Rocher chocolate, which were unique by virtue of the arrangement and combination of their elements in respect of word, design, color, shape and size, produced a distinctive overall image.  In addition, this packaging and decoration were unrelated to the functionality of the product and had been advertised for a long time and to a great extent so that the relevant public could associate their overall image with the Ferrero Rocher chocolate product.  This packaging and decoration could serve to distinguish the origin of the product.  Therefore, they should belong to the unique packaging and decoration as set forth in Article 5 (2) of AUCL.  Furthermore, the packaging and decoration of the Ferrero Rocher chocolate were used earlier, and Montresor’s assertion that it had originally designed the packaging and decoration on its own was not supported by sufficient evidence.”

III. Confusion of the Public

According to The Interpretation, “the confusion and mistake” in AUCL is “sufficient to cause relevant members of the public to mistake the origin of a commodity, including misrepresenting the relationship or association, such as suggesting licensing relations or business operators of well-known commodities.”  In this case, the packaging and decoration of the Montresor’s chocolate product were visually extremely similar to the unique packaging and decoration of the Ferrero Rocher chocolate.  Even if these two kinds of products differed in price, quality, taste, level of consumer, name of manufacturer, and trademark, the relevant public would still be misled into thinking that the Tresor Dore Chocolate was somehow related to the Ferrero Rocher chocolate economically.

In summary, although China does not follow a case law system, cases in the SPC are very important in providing guidance for the interpretation of laws and regulations.  The Ferrero case will provide an important guideline on how foreign companies can use AUCL to protect their intellectual property rights in China.