Thinking over the “Lotte” case

March 2, 2005
By Futang Dai , Dandan Zhou, Unitalen Attorneys at Law, Unitalen Law Office

On December 20, 2004, Beijing No.2 Intermediate People's Court (referred to as “the Court” hereinafter) made first-instance judgment to the unfair competition re “Lotte vs. Orion” (coded <2004> Er Zhong Min Chu Zi No. 12016), the so-called “Chewing Gum Battle”. The author represented the plaintiff in this case, and would like to give a brief comment on several law issues reflected by this case.

I. Background – facts and judgment

The jurisdiction court investigated and acknowledged that:

1. The plaintiff's chewing gum is well-known goods

Since September 2002, the plaintiff Lotte China Foods Co., Ltd. has been selling the bar packaged “ Lotte Xylitol Sugarless Chewing Gum ” ; and from September 2003, the plaintiff started to sell bottle packaged product in the market, the plaintiff has input a lot in the advertisement, to promote the above products, and the sales network has covered all major Chinese cities; due to large sales volume, good quality, high credit, and many awards received, the products enjoy high popularity among consumers. Therefore, the court deemed “ Lotte Xylitol Sugarless Chewing Gum ” as well-known goods.

2. The plastic bottle package of the chewing gum is not peculiar to the plaintiff

The plastic bottle that the plaintiff uses is of ordinary shape; evidences submitted by the defendant “Orion Food Co., Ltd.” show that: identical or similar plastic bottle had already been applied to different commodities before the plaintiff's products were launched to market. Though the plaintiff took the lead in applying it to the chewing gum, it would not certainly constitute the condition that this package becomes peculiar, and neither does this package have any distinctive features. So the Court does not hold that this package is peculiar to the plaintiff.

3. With respect to the peculiar decoration of well-known goods

The sticker on the plaintiff's plastic bottle embodies the features of the product, and the words, pattern and colors all show the plaintiff's exclusive design, which reflect the distinctive features of the plaintiff's products, and therefore shall be deemed as peculiar decoration to the well-known goods. Even though the sticker on the plastic bottle of the Xylitol Sugarless Chewing Gum manufactured by Orion show some differences in words, pattern and color through careful comparison, in terms of overall layout of the three-strip in blue-white-blue, the arrangement and combination of “xylitol” in word and the figure of grain-shaped chewing gum, the defendant's design constitutes similarity to that of the plaintiff's plastic bottle.

The Court finally made the judgment: According to Item 2, Article 5 of Law against Unfair Competition of PRC, the defendant must immediately stop using the decoration of the plastic bottle when selling the product of “ Lotte Xylitol Sugarless Chewing Gum ” ; and make a compensation to the plaintiff's loss and reasonable expense for litigation, totaling RMB 100,000, and etc..

II. The plaintiff has adduced sufficient evidence, laying a foundation for acquiring supports to its claim

In order to prove that the product concerned is well-known goods, and receive protection from the Unfair Competition Law, the plaintiff has submitted large amount of evidence from different aspects.

1. Large amount of advertisements: the plaintiff has offered the material of the news conference convened when launching the product; materials of the “Country-wide Itinerant Exhibition of Xylitol on the Teeth-Caring Day”, serial activities co-organized with NCOH; large amount of TV commercials on “LOTTE Chewing Gum” broadcasted in 129 TV stations including CCTV, for which the plaintiff has offered the showing records.

2. Wide sales network: the plaintiff has provided materials on a dozen of sub-companies and offices in places other than Beijing, to prove broad sales network in Chinese mainland.

3. Large sales volume: the plaintiff has provided independent audit reports prepared by CPAs as evidence for sales volume.

4. Good quality: the concerned products of the plaintiff have received certifications from NCOH, and British SGS International Quality.

5. Good credit: the plaintiff has submitted awards received, e.g. “National Quality Reliable Product”, “Consumers' First Choice with Reliable Quality on Chinese Chewing Gum Market”, and so on.

6. Large market share: the plaintiff has provided materials including several media reports, and retail market survey reports concluded by ACNielson, to prove that the plaintiff's related product holds the second place in terms of market share in China.

The author thinks that based on sufficient, systematic, reasonable and persuasive evidences prepared for the action, the plaintiff petitioned to the Court to acknowledge the related product as well-known goods, and gained the Court's support, and with these evidences as lawful condition, the Court finally held that the defendant constituted unfair competition in decoration.

III. Query on the Court's determination that the related product's “bottle” package is not a peculiar package

The peculiar package that the plaintiff advocates refers to the plastic bottle applied particularly on chewing gum. In the past decades, the domestic chewing gum industry has always used aluminum foil to pack gums with bar-shaped. The plaintiff initiated packing the gums with plastic bottle from September 2003. Comparing with traditional package, the plaintiff made fundamental change to the structure and form of traditional package, which is very creative, to make the related bottle products both good-looking and convenient to carry and store; it is also easy to distinguish it from other traditional gum packages, and gives a visual shock to the Chinese consumers (there had never been bottled chewing gum available in Chinese market before). Therefore, it is natural for Chinese consumers to believe that bottled chewing gums are definitely Lotte products. Thus, it can be seen that as for the package of chewing gum, plastic bottle has distinctiveness (or identification), and is peculiar decoration of the plaintiff's chewing gums.

In this case, the Court supported the defendant's evidence: A. Korean company had sold the chewing gums packed in plastic bottle in South Korea prior to the plaintiff's production and sale; B. Some companies in other domestic fields (such as the bottled “Gaitianli”calcium tablets) have applied similar or identical bottle in products other than chewing gum; C. Other domestic companies in the same field (such as “Extra” and “Huaaikang” chewing gums) have also used this package after the launch of plaintiff's product concerned. So the Court held that the plaintiff's bottle package was not peculiar to the plaintiff in accordance with the defendant's rebuttal evidence mentioned above.

The author regard this determination of the Court as wrong for the following reasons:

The so-called package in the “Law Against Unfair Competition” refers to: the auxiliary article and container used for identifying goods and convenient carrying and storing purposes; the so-called “peculiar” refers to being used solely by the user, or solely by other person with the user's authorization, which can be distinctive from commodities of the same kind used by other operators. Being “peculiar” is determined according to the principle of prior use, and for the same market, including competitive markets in the same territory, and competitive markets in the same category products.

A. In this case, in term of the defendant's evidence, the issue on the legality of competition between the plaintiff and the defendant is restricted to Chinese market, and the Korean market does not consider as a competitive market to the Chinese one, and thus the evidence of Korean company's selling in Korean market has no relevancy to this case.

B. Other products (such as the bottled “GaiTianLi” calcium tablet) are of different categories from chewing gums, and there is neither competition nor comparability between the enterprises and products, and thus the evidences are irrelevant to this case.

C. Products of the same category produced and sold afterward have used similar package. However, the “peculiarity” is determined in the principle of prior use, and it is the plaintiff who first used the package of the related product, and thus the plaintiff's claim cannot be denied with such evidence provided by the defendant.

In the author's point of view, the Court is wrong in that, when determining a peculiar package, the package should be considered together with the specific product; and it would be both a logical mistake and meaningless to discuss solely whether a package is peculiar regardless of the specific product, and it would not comply with the legislative intention of “Law Against Unfair Competition” (to protect well-known goods). According to the Court's logic, a newly-invented package never been applied in any commodity can be called as peculiar package, this is obviously not the issue that “Law Against Unfair Competition” intends to solve.

(All information on this case including that on the litigants have been published by Beijing No.2 Intermediate People's Court in the “Paper of Civil Judgment” coded <2004> Er Zhong Min Chu Zi No. 12016)