Weekly China Brand Protection News

August 13, 2024

“Scraping off codes” (removing barcodes and QR codes) infringes upon the rights of both producers and consumers, constituting unfair competition

OPPLE Lighting Co., Ltd. (“OPPLE”) sued an individual and their operated sole proprietorship, claiming that the removal of barcodes and QR codes from packaging and products infringed on OPPLE’s trademark rights and constituted unfair competition.

OPPLE conducted a notarized preservation of evidence of a carton of goods, which contained 30 OPPLE-branded LED downlights, a box of OPPLE-branded switches (with 10 individually packaged items), and a box of sockets (with 10 individually packaged items). The court found that: 1. The barcode printed on the outer packaging of the carton was removed. 2. The barcode printed on the outer packaging of the sockets was removed, but the individual packaging still displayed complete information about the brand, manufacturer, and warranty, with some individual packages bearing a barcode. 3. The QR code on the LED downlight products was removed, but the outer packaging box containing the products bore the “OPPLE” and “OPPLE Lighting in Chinese” trademarks, product parameters, barcodes, and QR codes, with a label next to the QR code stating “Scan to activate warranty, verify authenticity, and enjoy worry-free after-sales service,” along with information on product parameters, warranty period, brand, and manufacturer. 4. The outer packaging box and individual packaging bags for the switches were intact, with the “OPPLE” and “OPPLE Lighting in Chinese” trademarks, product parameters, barcodes, and QR codes printed on them. A label next to the QR code also stated, “Scan to activate warranty, verify authenticity, and enjoy worry-free after-sales service,” along with information on product parameters, warranty period, brand, and manufacturer.

First Instance Court – the Jianghan District Court held that:

1. No Trademark Infringement: OPPLE acknowledged that the products purchased from the defendant’s store were genuine. The OPPLE trademark was clearly visible on the products, even though some products or packaging were missing QR codes and barcodes. This did not constitute an infringement of trademark rights, as the origin of the products could still be identified from the products or packaging. According to the “Trademark Rights Exhaustion ” principle, OPPLE has the right to sell its products. But agreements between OPPLE and its distributors about not selling across regions do not grant the right to restrict others from reselling products purchased from distributors. In this case, the defendant’s product listings on WeChat and offline sales involved genuine OPPLE products, with manufacturer and after-sales information provided, which would not confuse consumers about the product’s origin. Therefore, OPPLE’s claim of trademark infringement was not upheld.

2. No Unfair Competition: First, the parties involved are not competitors in the same industry. The defendant operates as a retailer, not a manufacturer, and sells genuine OPPLE products. The sales revenue flows to OPPLE, and the defendant’s sales did not diminish OPPLE’s market share, meaning the two parties do not have a competitive relationship under competition law. Second, regarding the products in question, the items sold were genuine, and consumers could verify authenticity and apply for after-sales services using the brand information, barcodes, and QR codes on the individual or packaging boxes. The defendant’s act of removing codes does not inherently affect consumer rights. OPPLE’s distribution management system does not impact consumers, and OPPLE also lacked sufficient evidence to prove that this act negatively affected the company’s reputation or violated business ethics. Therefore, the court did not support OPPLE’s claim of unfair competition.

OPPLE appealed the decision.

Second Instance Court – the Wuhan Intermediate Court held that:

First, the Anti-Unfair Competition Law targets competitive actions, and the existence of a competitive relationship, especially in the same industry, is not the only prerequisite for determining whether a certain behavior constitutes unfair competition. With economic development and the innovation of business models, service divisions have become increasingly refined. Competition not only exists among operators engaged in identical services with direct substitution relationships, but also among operators with overlapping, interdependent, or otherwise related relationships. Therefore, the competitive relationship should be broadly interpreted. Here, OPPLE and the defendant, as operators in different stages of the same market, still have a competitive relationship.

Second, sale of products with removed QR codes or barcodes infringes upon OPPLE’s rights. Although OPPLE loses control over its products once they enter the market, if the condition of a product sold with permission changes, such as being damaged, continuing to sell it may cause consumers to misunderstand the product’s quality, harming OPPLE’s reputation. In this case, the product’s original packaging was damaged, and the QR codes set by OPPLE were removed, compromising the product’s integrity and leading to the loss of key information, which infringes upon OPPLE’s rights. The manufacturer’s QR code tracking system should be respected as long as it does not harm third-party interests.

Third, a sale of products with removed codes infringes on consumers’ rights. Although serial numbers or QR codes added by the manufacturer beyond national production standards are meant to track the distribution path of products, maintain pricing systems, and support business models, and are not directly related to production standards or quality assurance, removing the codes merely separates the product from OPPLE’s tracking system. As in this case, OPPLE still has ways to identify whether a product is genuine and must continue to provide warranty services for genuine products. However, from OPPLE’s evidence on requiring consumers to distinguish authenticity and after-sales service, selling products with removed QR codes is not conducive to protecting consumers’ right to know and obviously increases consumers’ time and costs for communication, thus infringing on their rights.

Finally, based on the above analysis, the defendant’s sale of products with removed QR codes or barcodes violates the second paragraph of Article 2 of the Anti-Unfair Competition Law. Although the defendant initially provided evidence showing that the products were sourced from OPPLE’s distributors, the packaging and pricing of products with removed codes were significantly different from those without removed codes. The defendant should have known that the products being sold had codes removed and is not exempt from liability even if they proved the products were legally obtained and identified the provider.

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