Warning Letter V.S. Unfair Competition

Recently, a case attracted the widespread attention. Honda was ordered to compensate Shuanghuan RMB16 million by the Supreme People’s Court (‘SPC’), because SPC decided that Honda had violated the Unfair Competition Law by sending the warning letter improperly. Since in May 2015, the First Circuit Court of the Supreme People’s Court (‘FCC’) addressed the nature and validity of the warning letter in a business defamation case (Edan v. Mindray). The Honda v. Shuanghuan case is another milestone in the application of Unfair-competition Law on the warning letter (‘WL’), in which the SPC has further addressed the relevant factors and criteria.

For the nature of the ‘WL’. The FCC addressed, in order to protect the patent right, the patentee sent the ‘WL’ should be deemed as an important method and procedure of negotiation …the patentee could implement the patent right by sending the ‘WL’. In the other words, the FCC takes the ‘WL’ as the implementation of the patent right. However, the SPC addressed, the patentee sent the ‘WL’ should be deemed as a self-help method and the procedure of negotiation, the laws had not prohibited such self-help method before the rulings had been made by any courts on any infringement cases. …… It is a self-help method for Honda to protect its patent right as the patentee by sending the ‘WL’. It seems that the SPC has addressed that the ‘WL’ has 2 nature, which are the self-help method and the implementation of IP right. From the perspective of nomology, SPC’s address is improper. But by analyzing these 2 cases, we could find out that no matter in the negotiation stage or before the ruling has been made, principally, the ‘WL’ is allowed to be sent. It is worth to mention that the FCC has pointed out that while the patentee conducts a true self-help activity, it is the patentee’s right to choose a favorable timing to send the ‘WL’, and such choice shall not be deemed as an unfair competition activity.

For the factors on deciding whether the ‘WL’ shall be deemed as an unfair competition activity. The FCC pointed out that such activity should be identified based on many factors, such as the status of the IP right; the content of the ‘WL’; the intention, recipients, methods and scope of sending such ‘WL’. In addition, it has brought out the criteria on the identification of the validity of the ‘WL’. The FCC addressed, since the patentee should be well known of the status of its own patent, and normally, it should be able to be aware of the relevant infringement facts, the patentee should send the ‘WL’ based on duty of care, and fully disclose the necessary information. In view of this, the FCC has addressed 2 important factors, which are duty of care and a comprehensive disclosure.

The SPC has further explained the above 2 factors. Whether the ‘WL’ shall be deemed as a reasonable self-help activity or an unfair competition activity, the specific circumstances shall be taken into consideration. And the key parts are whether the content of the ‘WL’ is comprehensive, and the infringement has been described specifically. Before sending the ‘WL’, the patentee shall analyze and discuss on the specific facts of the infringement. The content of the ‘WL’ shall not be vague and general, and it shall disclose the necessary information related to the infringement, such as the identity of the patentee, the validity and protection scope of the patent, and etc.. The purpose by sending the ‘WL’ is to inform the recipient that it might have infringed the other’s right. ……Moreover, the SPC emphasizes that for the different recipients, the patentee bears the different duty of care. For example, the distributors might have less ability in identifying an infringement activity, and it would try to avoid any risks, so the patentee shall pay more attention to the ‘WL’, in which the information shall be disclosed more specifically and comprehensively, including the protection scope of the patent, the details related to the alleged infringement, and other necessary information related to the identification of an infringement and the cease of an infringement. Thus, for the patentee, in order to eliminate the relevant risks, it shall pay attention to the purpose and methods by using the ‘WL’ to protect its legitimate rights.