Weekly China Brand Protection News

March 26, 2025

Scraping Off Codes Sales Disrupts Market Order, Second-Instance Court Rules It Constitutes Unfair Competition

Recently, the Linyi Intermediate Court of Shandong, acting as a second-instance court, issued a final ruling in the case involving trademark infringement and unfair competition between Atomy (China) Co., Ltd. and Yinan Shanggu Food and Grocery Store. The court overturned the first-instance judgment’s trademark infringement finding and ruled that Shanggu Food and Grocery’s code-scraping sales constitute unfair competition.

Atomy (China), legally authorized by trademark holders Atomy Co., Ltd. and Kolmar BNH Co., Ltd., has the right to independently enforce its rights against intellectual property infringement and unfair competition acts in China. Atomy (China) claimed that Shanggu Food and Grocery’s sale of Atomy Huanliyin products on its Taobao store constituted trademark infringement and unfair competition. Given that Shanggu Food and Grocery had scraped off the product traceability codes and internal management tracking codes, the disputed products were clearly not genuine goods purchased from Atomy (China), thereby constituting trademark infringement and unfair competition.

Shangu Food Supermarket stated that the products they purchased were genuine, with black hidden codes covered. These hidden codes were Atomy’s internal monitoring codes that could track member purchases and product flow. Distributors had therefore covered these codes. When selling on domestic platforms, they did not conceal this fact, and the subsequently added labels included the product name, ingredients, nutrition information, and batch number, which were completely consistent with the original product.

First-Instance Court Ruling:

The court held that Shanggu Food and Grocery’s act of scraping off codes while claiming to sell genuine products hindered the trademark owner’s ability to manage product distribution, track quality, and protect brand reputation. It also misled consumers about the products’ true origin and sales channels, infringing their right to accurate product information and quality assurance. Thus, the court ruled that the code-scraping constituted both trademark infringement and unfair competition.

Second-Instance Court Ruling:

For trademark infringement, the court emphasized that trademarks primarily serve to identify a product’s source (i.e., the manufacturer), not the specific seller. Atomy (China) bore the burden of proving the disputed products were counterfeit. However, aside from obscured traceability codes, missing black secret codes, and differently sized barcodes, the products’ packaging and contents were identical to genuine ones. Shanggu Food and Grocery provided a reasonable explanation for removing the codes, while Atomy (China) failed to sufficiently prove the products were counterfeit. Moreover, the court found no consumer confusion about the product’s origin or disruption of the trademark’s source-identification function. The first-instance ruling on trademark infringement was therefore overturned.

For unfair competition, the court affirmed that Shanggu Food and Grocery and Atomy (China) were competitors, and the products sold were identical. Atomy’s secret codes were designed to track product flow and prevent resale. By obscuring traceability and expiration date codes, Shanggu Food and Grocery intentionally hid the product’s origin and impeded manufacturer oversight, thereby undermining product integrity, disrupting market order, and harming consumer rights. This constituted unfair competition.

Consequently, the second-instance court partially supported Shangu Food Supermarket’s appeal. It modified the first instance judgment, ordering Shangu Food Supermarket to immediately cease sales and pay Atomy (China) CNY 30,000 (apprx. USD 4,100) in economic losses and reasonable rights protection expenses.

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