How can companies avoid free riding?

Release Date：2025-03-27 Number of views：46

Introduction

In the commercial competition, some enterprises, in order to quickly gain market share, induce consumers to misidentify that their products are related to the genuine ones by imitating the trade names, packaging and decoration, and other marks of well-known brands. Such "free-riding" behavior is clearly defined as "confusing behavior" in the Anti-Unfair Competition Law. This behavior not only damages the rights and interests of consumers but also disrupts the fair market order. This article systematically analyzes the legal types, legal consequences, and compliance paths for enterprises of confusing behavior, clarifies the legal boundaries for operators, and helps consumers identify infringing acts.

I. On Confusing Behavior and Its Legal Consequences

Confusing behavior, in simple terms, refers to the behavior of an operator using marks identical or similar to those of other business entities, making consumers mistakenly believe that their goods or services have a specific connection with those of others, thereby obtaining an unfair competitive advantage. This behavior not only infringes on the legitimate rights and interests of other operators but also misleads consumers and disrupts the market order.

Confusing behavior not only damages the legitimate rights and interests of other operators but also misleads consumers and undermines the fair competitive market order. According to the Anti-Unfair Competition Law and relevant laws and regulations, enterprises that commit confusing behavior will face multiple legal sanctions, including civil and administrative sanctions.

(1) Civil Liability

According to Article 17 of the Anti-Unfair Competition Law, an operator who has suffered damage due to confusing behavior may file a lawsuit in the people's court, requesting the cessation of the infringement, compensation for losses, etc. The amount of compensation shall be determined according to the actual losses. If the actual losses are difficult to calculate, it shall be determined according to the benefits obtained by the infringer from the infringement. In addition, the court may, based on the severity of the circumstances, order the infringer to pay punitive damages. For example, in a confusing case involving a well-known brand, the court may comprehensively consider factors such as the duration of the infringement, the scale of the infringement, and the subjective malice, and order a high amount of compensation to deter the infringing behavior. At the same time, the court may also order the infringer to publicly clarify the facts and eliminate the adverse impact on consumers and market competition caused by the confusing behavior.

(2) Administrative Liability

According to Article 18 of the Anti-Unfair Competition Law, the market supervision and administration department has the right to impose administrative penalties on the operator who commits confusing behavior, including ordering the cessation of the illegal act, confiscating the illegal goods, imposing a fine, etc. The amount of the fine shall be determined according to the severity of the illegal circumstances, and the maximum can reach five times the illegal business turnover. For particularly serious circumstances, the market supervision and administration department may also revoke the business license or order the suspension of business for rectification. For example, in a case involving the large-scale imitation of the packaging and decoration of well-known goods, the market supervision and administration department will not only impose a high fine on the infringing enterprise but may also confiscate its production equipment, destroy the infringing goods, and even order it to withdraw from the market. In addition, the administrative penalty information will be included in the enterprise credit record, which will have a long-term negative impact on the business reputation and market competitiveness of the infringing enterprise.

The legal consequences of confusing behavior not only include economic compensation but also may involve administrative penalties, which will comprehensively hit the operation and development of the enterprise. Therefore, enterprises should strictly abide by laws and regulations in market competition, avoid any behavior that may cause confusion, and safeguard their legitimate rights and interests and the market order.

Article 6 of China's Anti-Unfair Competition Law clearly lists several legal types of confusing behavior. Below, we will analyze them one by one in combination with cases.

II. Confusing Behavior - Imitating the Trade Name, Packaging, and Decoration of Goods

The trade name, packaging, and decoration of goods are important signs for consumers to identify the source of goods. If an enterprise uses marks identical or similar to the trade name, packaging, decoration, etc. of other goods that have a certain influence without permission, it may cause consumers to misidentify the source of the goods.

Legal Basis

Item (1) of Article 6 of the Anti-Unfair Competition Law clearly stipulates that an operator is prohibited from using, without permission, marks identical or similar to the trade name, packaging, decoration, etc. of other goods that have a certain influence, leading people to mistakenly believe that they are the goods of others or have a connection with a specific subject.

Constituent Elements

The imitated mark has "a certain influence": It is necessary to comprehensively determine its market influence through factors such as the duration of sales (generally not less than 3 years), the geographical coverage (at least the provincial-level market), the scale of sales (such as an annual sales volume of over 100 million yuan), and the investment in advertising and promotion (such as an annual advertising fee of over 5 million yuan).
The imitating behavior is sufficient to cause confusion: The court adopts the "multi-factor test method", including the visual similarity of the marks (such as the similarity of color, font, and pattern layout), the relevance of the goods or services (in the same category or upstream and downstream fields), the attention level of the relevant public (for example, consumers of low-priced fast-moving consumer goods are more likely to be confused), etc.

Typical Cases

Top Ten Intellectual Property Cases in Chinese Courts in 2017
- Dispute over the Unique Packaging and Decoration of Well-known Goods between Wanglaoji and Jiaduobao
- Two cases of disputes over the unauthorized use of the unique packaging and decoration of well-known goods between Guangdong Jiaduobao Beverage & Food Co., Ltd. and Guangzhou Wanglaoji Great Health Industry Co., Ltd., Guangzhou Pharmaceutical Holdings Limited
Ruling Reason
The court holds that: "Considering the historical development process of the red-can Wanglaoji herbal tea, the cooperation background between the two parties, the recognition of consumers, and the principle of fairness, since Guangzhou Pharmaceutical Group and its predecessors, Jiaduobao Company and its affiliated enterprises have all played an active role in the formation, development, and the establishment of the goodwill of the rights and interests of the involved packaging and decoration, completely awarding the rights and interests of the involved packaging and decoration to one party will lead to an obviously unfair result and may damage the public interest. Therefore, under the premise of following the principle of good faith, respecting consumers' recognition, and not harming the legitimate rights and interests of others, the rights and interests of the unique packaging and decoration of the involved well-known goods can be jointly enjoyed by Guangzhou Pharmaceutical Group and Jiaduobao Company."
Guiding Case of the Supreme People's Court
- Case 47: Unfair Competition Dispute between Ferrero SpA of Italy and Mondivisa (Zhangjiagang) Food Co., Ltd., Tianjin Economic-Technological Development Area Zhengyuan Marketing Co., Ltd.
Ruling Reason
The court holds that: "The packaging and decoration of the FERRERO ROCHER series of chocolate products of the appellant Ferrero SpA is an overall design, which expresses a specific meaning and forms a unique packaging and decoration form. After on-site identification, the 'TRESOR DORE' chocolate products of the appellee Mondivisa Company, which are the subject of the lawsuit, use basically the same packaging and decoration as the FERRERO ROCHER series of chocolate products of the appellant Ferrero SpA. And the appellee Mondivisa Company cannot prove that it independently designed the packaging and decoration, and the packaging and decoration it claims to have continued to use from the former Zhangjiagang Dairy Factory No. 1 was also used since 1990. In view of the fact that the appellee Mondivisa Company cannot prove that it independently designed or used the packaging and decoration earlier, it can be determined in this case that the 'TRESOR DORE' chocolate products of the appellee Mondivisa Company have unauthorizedly used the unique packaging and decoration of the FERRERO ROCHER series of chocolate products of the appellant Ferrero SpA."
50 Typical Intellectual Property Cases in Chinese Courts in 2020
- Case 37: Unfair Competition Dispute between Yunnan Baiyao Group Co., Ltd. and Yunnan Nuote Jinshen Oral Care Products Co., Ltd.
Ruling Reason
The first-instance court holds that the packaging used by the 'Yunnan Baiyao Toothpaste (Spearmint Flavor)' requested to be protected by the plaintiff is a rectangular paper toothpaste box, which is a commonly used packaging in the toothpaste industry, cannot be exclusively used, and does not have the significant characteristics of distinguishing the source of goods. Therefore, this packaging is not a unique packaging. The decoration used by the 'Yunnan Baiyao Toothpaste (Spearmint Flavor)' has a unique arrangement and combination in aspects such as the blue background color of the toothpaste box, the silver-white sealing edge of the rectangular lines of the toothpaste box, the color of the toothpaste word trademark, and the structural layout of the logo and text, forming a significant overall image. And it has nothing to do with the functionality of the goods. After long-term use and a large amount of publicity, it is sufficient for the relevant public to associate the above decoration with the 'Yunnan Baiyao Toothpaste (Spearmint Flavor)' goods of the plaintiff, and it has the function of identifying the source of the goods. In the absence of evidence proving that this decoration belongs to the commonly used decoration in the toothpaste industry, the decoration of the 'Yunnan Baiyao Toothpaste (Spearmint Flavor)' belongs to the unique decoration protected by Item 2 of Article 5 of the Anti-Unfair Competition Law.

Case Insights

The disputes over the red-can packaging between Wanglaoji and Jiaduobao, the packaging and decoration disputes of chocolates between Ferrero and Mondivisa, and the judgment of the Yunnan Baiyao toothpaste case not only reveal the legal consequences of imitating behavior but also provide valuable lessons for enterprises. These cases jointly show that while pursuing market expansion and commercial interests, enterprises must attach great importance to the protection of intellectual property rights, build a systematic risk control system, and enhance their core competitiveness through innovation-driven development.

Brand Rights Protection and Innovation-driven Development
The case of the packaging and decoration dispute of the red-can herbal tea between Wanglaoji and Jiaduobao highlights the importance of the rights and interests of brand packaging and decoration. Enterprises should lay out the protection of intellectual property rights in advance and build a legal moat for the brand through methods such as trademark registration and application for design patents. At the same time, enterprises need to pay attention to brand building and innovation, create differentiated products, and enhance market competitiveness to avoid being in a passive position due to rights disputes.
Innovation Awareness and Legal Compliance
The case of Ferrero SpA suing Mondivisa Company emphasizes that enterprises should enhance their innovation awareness and avoid simply imitating the products of others. In market competition, enterprises need to create identifiable products through independent research and development, unique design, etc., and avoid legal disputes caused by imitating behavior. In addition, enterprises should strengthen the study of laws and regulations such as the Anti-Unfair Competition Law to ensure that their business activities are legal and compliant and reduce legal risks.
Market Competition Rules and Industry Self-discipline
The Yunnan Baiyao toothpaste case further reflects the important role of the Anti-Unfair Competition Law in maintaining a fair and competitive market environment. Enterprises should consciously abide by market competition rules, compete fairly, and jointly create a good market order. When dealing with unfair competition disputes, enterprises need to pay attention to the collection and preservation of evidence, deeply study legal provisions, and reasonably use legal weapons to safeguard their own rights and interests. At the same time, industry associations and other organizations should play an active role in promoting the standardized development of the industry, guiding enterprises to compete fairly, and promoting the healthy development of the market.
Enterprise Risk Control and Compliance System Construction
It can be seen from the three cases that enterprises need to build a complete risk control and compliance system in market competition. Specific measures include:
- Pre-event Prevention: Protect core intellectual property rights in advance through methods such as full-class trademark registration and layout of design patents.
- In-event Monitoring: With the help of digital tools (such as trademark early warning systems and image recognition technologies) and manual inspections, promptly discover infringement behaviors.
- Post-event Response: Establish a hierarchical response mechanism, and take measures such as sending warning letters from lawyers and administrative complaints for infringement behaviors of different degrees to safeguard the legitimate rights and interests of the enterprise.

III. Confusing Behavior - Imitating the Name of an Enterprise, the Name of a Social Organization, or a Name

The name of an enterprise, the name of a social organization, a name, etc. are important marks of an operator or an individual and have a certain commercial value. If an operator uses, without permission, the name of an enterprise, the name of a social organization, a name, etc. that have a certain influence of others, it may cause consumers to mistakenly believe that their goods or services have a specific connection with those of others.

Legal Basis

Item (2) of Article 6 of the Anti-Unfair Competition Law: It is prohibited to use, without permission, the name of an enterprise (including abbreviations, trade names, etc.), the name of a social organization (including abbreviations, etc.), the name (including pen names, stage names, translated names, etc.) of others that have a certain influence, leading people to mistakenly believe that there is a specific connection with others.

Constituent Elements

The imitated mark has "a certain influence": It is necessary to comprehensively determine it through factors such as market popularity, commercial value, and consumer recognition.
The imitating behavior causes confusion: Using identical or similar marks makes consumers mistakenly believe that there is an authorization or associated relationship.

Typical Cases

Guiding Case No. 29: Unauthorized use of the name of another enterprise, which causes relevant public to be confused and mistaken, is an unfair competition behavior and shall bear tort liability
- Dispute over the unauthorized use of the name of Tianjin China Youth Travel Service by Tianjin Guoqing International Travel Service
Ruling Reason
"Tianjin China Youth Travel Service" is the enterprise name that the plaintiff has been using since its establishment in 1986, and the plaintiff enjoys the exclusive right to the enterprise name. As the abbreviated name of its enterprise name, "Tianjin Qinglv" has been widely used by the plaintiff in its business activities since 2007. Relevant publicity reports and customers also refer to Tianjin China Youth Travel Service as "Tianjin Qinglv". After years of use and publicity in business activities, it has enjoyed a certain market popularity, been known by the relevant public, and has established a stable associated relationship with Tianjin China Youth Travel Service, having the significance of a commercial mark that can identify the business entity. Therefore, "Tianjin Qinglv" can be regarded as the enterprise name and protected together with "Tianjin China Youth Travel Service".
Top Ten Typical Cases of Anti-Unfair Competition in Jiangsu Courts (2019-2022)
- Case 8. Imitating the trademarks, packaging and decoration of goods, and trade names of world-renowned welding machine enterprises is judged as an infringement - Lincoln Global LLC, Lincoln Electric Company, Lincoln Electric Management (Shanghai) Co., Ltd. v. Shanghai Lingken Electric Co., Ltd., etc. for disputes over trademark infringement and unfair competition
Ruling Reason
The court holds that the trademarks of Lincoln Global LLC were registered relatively early and have been actually used for a long time. Shanghai Lingken Company and others use "IMG_256" and "IMG_257" similar to those of Lincoln Global LLC on the same kind of goods, which is likely to cause relevant public to be confused and mistaken, constituting trademark infringement. When Shanghai Lingken Company applied for the registration of its enterprise name, Lincoln Electric Company and others already had a fairly high popularity in the welding machine industry, but it still registered and used an enterprise name with a trade name similar to "Lincoln". Lincoln Electric Company, Lincoln Shanghai Company, and others have long promoted and used the packaging and decoration design of welding machines with a red machine shell and a combination of front and rear black panels. This has been sufficient for the relevant public to associate this packaging and decoration design with their welding machine products, having the function of identifying the source of goods and strong distinctiveness, and belongs to the packaging and decoration of goods with a certain influence. Shanghai Lingken Company and others use packaging and decoration that are basically visually indistinguishable from those of Lincoln Electric Company and others on the alleged infringing welding machine products and in promotions. Subjectively, they have the intention of leveraging the reputation of others, and objectively, it is sufficient to cause relevant public to be confused and mistaken about the source of the goods, constituting unfair competition.
Typical Cases of Antitrust and Anti-Unfair Competition in People's Courts in 2023
- Case 6. Dispute over the imitation and confusion of "Siemens" - Determination of imitation and confusion behavior
Ruling Points
The trade name "Siemens" of Siemens AG and Siemens China Co., Ltd. already has a certain influence, and their enterprise names also belong to the enterprise names with a certain influence. In addition, the Chinese and English trademarks of Siemens were registered in China in 1997 and 1995 respectively, and the Trademark Office of the former State Administration for Industry and Commerce and the court have both recognized the well-known nature of the Chinese and English trademarks of Siemens on goods in Class 9 and Class 11 in previous rulings or judgments. Qishuai Company used the enterprise name "Shanghai Siemens Electrical Co., Ltd." on the outer packaging of the alleged infringing products and in promotional activities. Since the trade name "Siemens" in this enterprise name is the same as the trade names of Siemens AG and Siemens China Co., Ltd. and the registered Chinese trademark "Siemens", it is likely to cause relevant public to mistakenly believe that the alleged infringing products are the products of Siemens AG or Siemens China Co., Ltd., or mistakenly believe that there is an associated relationship with Siemens AG or Siemens China Co., Ltd. Therefore, its behavior belongs to the act of unauthorized use of the enterprise name of others that has a certain influence and the act of using the registered trademark of others as the trade name in the enterprise name, conforming to the situations specified in Item 2 and Item 4 of Article 6 of the Anti-Unfair Competition Law revised in 2017, and constitutes unfair competition.
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Article author

Haili Zhou

zhouhaili@raytoip.com