Cases
The
2nd Shanghai Intermediate People’s Court
Argued Sept. 16, 1996
Zhongtian
HK
v.
Shanghai
Bichun Co.
Yanzhong
Brewery
And
Yanzhong
Industry
Tort
of illicit competition
By
fraudulently copying of peculiar name and decoration
Of
brand commodity
Note: This is an edited English translation of one case from Selected Cases of People’s Court (No.43 of Volume 24), including a true introduction to the facts and trial.
Facts:
Plaintif: Zhongtian (Hong Kong) International Co. Ltd. (“Zhongtian”)
1st defendant: Shanghai Bichun Trade & Development Co.
Ltd., Shanghai, China (“Bichun Co.”)
2nd defendant: Shanghai New Yanzhong Brewery Co. Ltd.,
Shanghai, China (“Yanzhong Brewery”)
3rd defendant: Shanghai Yanzhong Industry Company Limited by
Shares, Shanghai, China (“Yanzhong Industry”)
In 1992, an equity joint venture Shanghai Yanzhong Drinking Water Company Ltd. (“Joint Venture”) was established by and among Zhongtian (60%), Yanzhong Industry (30%) and Jianbang Industry Company, Shanghai, China (10%). The Board of Directors of Joint Venture was formed by 6 directors of whom 3 were designated by Zhongtian and 3 were designated by the other shareholders from Shanghai. The chairman was one director from Shanghai and the Vice-Chairman and General Manager were from Zhongtian. It was agreed in the Joint Venture Contract that “all disputes arising from the performance of or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC), Shanghai Branch for arbitration.” The distilled water named as “Bichun”, being produced and sold by the Joint Venture beginning from the year of 1994, was the commodity of famous brand. The name of “Bichun” and the decoration for the products were particularly related to the brand commodity. The brand of “Bichun” was valued at RMB Yuan 74,000,000.00 via assessment.
In Sept. 1995, Yanzhong Industry invested, with the immaterial assets of
the brand of “Bichun” in the name of owner of the brand, to establish Bichun
Co. and designated Wang Jian, Chairman of the Joint Venture, as the Chairman of
Bichun Co. concurrectly. In Feb.
1996, Bichun Co. also invested to establish Yanzhong Brewery and Wang Jian was
still the Chairman concurrently. In Apr. 1996, Yanhzong Brewery started to
produce drinking water named as “Yanzhong”, for sales of which Bichun Co.
was responsible. It was found by
comparison that the color, wording arrangement, main parts and appearance of
decoration for products of “Yanzhong” drinking water produced by Yanzhong
Brewery and sold by Bichun Co. were basically same as or in propinquity of that
for products of “Bichun” distilled water, and the word “Bichun” was
prominent on the decoration for “Yanzhong” drinking water. Yanzhong Industry
had never expressed dissenting opinion of the word “Yanzhong Industry” on
the decoration for the drinking water. The 3 defendants many times advertised
the drinking water using brand “Bichun” and the name of defendants together.
After discovery of above acts, Zhongtian and its 3 directors of the
Joint Venture sent 2 letters to Yanzhong Industry and 3 directors from Shanghai
in June 1996, proposing to hold on July 1, 1996 the meeting of the BOD of the
Joint Venture for discussion on the resolving the problem of tort by Bichun Co.
and Yanzhong Brewery, which was rejected by Wang Jian. On July 1, 1996, the BOD
meeting was held and attended by 3 directors from Zhongtian and 2 resolutions
were made, of which one was that the Joint Venture was to bring a legal action
against Bichun Co. and Yanzhong Brewery due to their tort and the General
Manager was to exercise temporarily the rights of legal representative within
the scope of activities of litigation. On
July 5 of same year, the General Manager of Joint Venture presented a bill of
complaint with the stamp of the Joint Venture thereon against Bichun Co. and
Yanzhong Brewerey to The 2nd Shanghai Intermediate People’s Court,
requesting an order to desist from infringement and compensate for the losses of
RMB Yuan 10,500,000.00, etc.
After The 2nd Shanghai Intermediate People’s Court accepted
the case, Wang Jian in the name of legal representative of the Joint Venture
applied to the Court for withdrawal of the action with the reason that the
consent by the BOD of the Joint Venture and its legal representative was not
obtained on the action.
On Sept. 16, 1996, Zhongtian brought again an action in The 2nd
Court against Bichun Co., Yanzhong Brewery and Yanzhong Industry, alleging that
the Joint Venture was the owner of the name of “Bichun” and the product
decoration particularly related to the brand commodity “Bichun” , 3
defendants had constituted tort of illicit competition by copying the peculiar
name and decoration of brand
commodity. The Joint Venture could not regularly exercise its right because the
legal representative and some of directors were designated by Yanzhong Industry
and served as officers of defendants, therefore infringed were the lawful rights
and interests of Zhongtian holding 60% of the shares of the Joint Venture. On
the above basis Zhongtian asked The 2nd Court order the defendants
to: (1) stop the tort of illicit competition and destroy the relevant commodity;
(2) extend a formal apology and eliminate ill effects; (3) compensate the
plaintiff for losses of RMB Yuan 10,000,000.00 and RMB Yuan 500,000.00 as
reasonable investigation charges paid for the case; (4) pay the court costs of
the case.
Bichun Co. and Yanzhong Brewery all contended that:
The direct obligee Joint Venture as a plaintiff had instituted the
action against Bichun Co. and Yanzhong Brewery, therefore the indirect obligee
Zhongtian, in the name of a plaintiff, was not entitled to claim against these
two defendants for the losses arising from the name of “Bichun”. Otherwise,
it would lead to the consequences that not only an investor might exercise its
rights on a company’s property but also the direct and indirect obligees might
file two actions against the two defendants due to one act.
Yanzhong Industry contended that:
All disputes between Yanzhong Industry and Zhongtian arising from
operation of the Joint Venture should be submitted for arbitration according to
the provision of the Joint Venture Contract. The Court had no jurisdiction over
the disputes between Yanzhong Industry and Zhongtian arising from the Joint
Venture.
After Yanzhong Industry lodged an dissenting opinion of the
jurisdiction, CIETAC Shanghai Branch expressed that the Court might accept the
case and was not necessary to be kept within bounds of arbitration clause of
Joint Venture Contract. At the beginning of 1997 Wang Jian on behalf of the
Joint Venture, in the name of legal representative, filed an action in The 1st
Shanghai Intermediate People’s Court against Bichun Co. and Yanzhong Brewery
due to their tort, the title of petition and the facts and reasons alleged,
except of the claiming amount RMB Yuan 1,500,000.00, were basically same as that
when General Manager on behalf of the Joint Venture filed the action in The 2nd
Shanghai Intermediate People’s Court. On the Apr. 8, 1997, The 1st
and 2nd Shanghai Intermediate People’s Court respectively gave
rulings rejecting the actions by the General Manager and by Chairman in the name
of the Joint Venture with the same reason that the actions by the plaintiffs had
not been in line with the provisions of laws.
Trial:
During the litigation, a competent notary took a sample survey of 37
consumers in Sanyang Food Company, Shanghai and it was indicated that 54% of the
consumers confused the product of “Bichun” and of “Yanzhong”.
It was audited that RMB Yuan 10,140,000.00 was the direct losses caused
to the Joint Venture. The plaintiff alleged that its direct losses were 60% of
the above losses, in addition to over RMB Yuan 500,000.00 of the reasonable
costs for the case.
Four parties to the case, through conciliation by the Court in the
course of proceeding, reached an agreement
as follows:
(1)
Bichun Co. and Yanzhong Brewery were to make a formal apology to
Zhongtian because Zhongtian’s interests was infringed by two defendants,
without authorization, using peculiar name and decoration of brand commodity
“Bichun” distilled water; Yanzhong Industry was to expressed apology to
Zhongtian because Yanzhong Industry was liable for the administration over the
tort by the two defendants;
(2)
Within 3 months beginning
from date of the Conciliation entering into force, Bichun Co. and Yanzhong
Brewery were to remove the advertisements and product decoration as the result
of the said tort and to be liable for recovery of the infringing products in
time;
(3)
Bichun Co., Yanzhong Brewery and Yanzhong Industry were jointly and
severally to compensate Zhongtian for economic losses of RMB Yuan 1,700,000.00;
(4)
The 3 defendants were to undertake the court costs, appraisal fees and
auditing fees for the case;
(5)
A mediation statement was to be reached among the plaintiff and the
defendants regarding the matters not stipulated in this conciliation statement;
(6) The plaintiff was to renounce its other litigious claims.
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