Remedies for Free Riding on Goodwill or Substantially Copying

published on 3 Nov 2015

The Fair Trade Commission (FTC) is an administrative institute empowered to ensure free and fair competition, maintain trading order and protection of consumers' interests. The FTC under its authority can conduct an investigation ex officio against any business activity that obstructs or limits a free and fair competition in the marketplace, can order a business to correct or cease its acts, and can impose penalties to the businesses which violate its administrative orders. Administrative remedies provided under the Fair Trade Act (FTA) do not prevent a complainant from seeking civil remedies from a judicial judgment. However, some unfair competition issues regulated in the FTA may not be directly dealt with by the FTC under its administrative powers, but will need to be resolved at the court forum. In addition, the FTC does not handle issues that can be resolved by the enforcement of other laws, i.e., Trademark, Patent, and Copyright Acts.

Upon an Amendment to the FTA effective February of this year, remedies available for passing off an unregistered mark or trade dress of others may be subject to two kinds of resolution. First, one may be subject to civil liability under Article 22 of the FTA (Article 22) if he or she uses a mark identical or similar to an unregistered but well-known symbol or packaging of others in identical or similar categories of goods or services, so as to cause confusion. Otherwise, if a type of competitive conduct does not fall under Article 22, but is obviously unfair in such a way that it may amount to influence in the trading order, remedies can be resorted to by the general clause stipulated under Article 25 of the FTA (Article 25). However, an Article 25 violation will not only be subject to civil liability but FTC's administrative penalties as well.[1]

According to the "Principles on Handling Article 25 of the FTA" promulgated by FTC (the "Handling Principles"), conduct which does not comply with business ethics in competition, including free riding upon the fruits of other's labor, is an obviously unfair conduct that may affect trading order. Typical types of free riding are: (1) free riding upon the goodwill of others, (2) substantially copying and (3) promoting one's own goods or services by exploiting the labor of others. Now the FTC plans to abolish administrative penalties for conducts that are against business ethics by removing the relevant provisions, namely the two types of acts:  “free riding on goodwill” and “substantially copying,” from the Handling Principles The purpose of the FTC is to unify the available remedies to the civil court and to leave possible consequences for violation of Articles 22 and 25 to civil liabilities only.

The Taiwan Intellectual Property Office (TIPO) held a seminar inviting the FTC and the practitioners to exchange ideas about this matter in response to the public concerns that such a removal from the Handling Principles may substantively limit the protection for unregistered marks or trade dress from free riding upon goodwill or substantially copying. Their opinions are summarized as follows.

TAIWAN INTELLECTUAL PROPERTY OFFICE

“Free riding on goodwill” and “substantially copying” should still remain in the Handling Principles as offending types of free riding in order to avoid potential narrowing of the protection scope. TIPO pointed out that a trademark holder may resort to civil remedy on the grounds of Article 25 of the FTA. Therefore, the scheduled removal may lead the courts to erroneously believe that Article 25 of the FTA does not apply to the said two types of free riding acts any more. By all means, the FTC should at least include some explanations in the Handling Principles in order to allow a trademark holder to seek relief for the two types of free riding acts at the civil court despite the administrative relief from the FTC has become unavailable.

FAIR TRADE COMMISSION

FTC contended that violation of Article 22 will only be subject to civil liabilities whereas violation of Article 25 will trigger FTC’s administrative investigation and penalty. FTC deemed it to have unequal legal consequences. In a case where the unregistered mark is well-known and the use of the alleged infringing mark may cause confusion as to the source of the goods in the similar categories of goods and services, the rights holder will resort to civil proceedings pursuant to Article 22 of the FTA. Article 25 should come into play to supplement the gap in trademark protections in a case where the alleged infringing mark may not confuse the consumers but dilution of the distinctiveness may occur. The FTC will need to initiate an investigation against the conduct in the latter situation, as it is a violation of Article 25, while the FTC does not need to do so for the former one, as it is only in violation of Article 22.

The FTC indicated that it will continue its administrative enforcement against online key words that free ride on the goodwill of other enterprises. But for substantially copying of trade dress, FTC will step back so that the right holders can seek civil remedy at the court.

PRACTIONERS

The FTA should not remove “free riding on goodwill” and “substantially copying” from the Handling Principles merely for the reason of imbalanced regulations between Article 22 and 25. The FTC should adhere to the legislative purposes of the FTA, namely, for the maintenance of orders in trade, protection of consumers’ interests, and ensuring an environment of free and fair competition.

Article 22 and 25 are actually treating two different types of infringement rather than being supplementary to each other. Article 22 will be triggered only if the public is confused by the use of a mark on identical or similar products whereas Article 25 prevents dilution of a mark by deprivation of mark holder’s economic efforts and commercial interests. Therefore, they are independent causes of action and should be treated differently.  It is legitimate and justifiable that violations of Article 25 must be regulated utilizing the administrative powers of the FTC

Unanimously, it was proposed to not to remove “free riding on goodwill” and “substantially copying”, terms which are currently stipulated in the Handling Principles in order to avoid the court from wrongly interpreting that these two types of free riding acts are no longer regulated under Article 25. Otherwise, a new administrative rule should expressively stipulate that civil remedies are still available.