SAIC launches action against free riding of goodwill

The State Administration for Industry and Commerce of China (SAIC) has launched a nationwide action to combat the 'free riding' of goodwill.

The term 'free riding' refers to the unauthorized use of other companies' reputable trade names or trademarks, thereby creating a likelihood of confusion among the public. Local administrations for industry and commerce must:

• thoroughly assess the problem;
  
  
• initiate administrative actions to stop infringing acts; and
  
  
• select significant and typical cases for focused attention.

The SAIC will carry out random checks and participate in actions where appropriate.

The SAIC highlights the following forms of free riding, which are deemed to constitute unfair competition:

• use of a company name giving prominence to its distinctive part (ie, the trade name) such as would amount to trademark infringement;
  
  
• use of a company name in its abbreviated form with the intention of misleading as to the place of manufacture or the identity of the manufacturer; and
  
  
• use of a company name incorporating another company's reputable trade name (eg, the name of a foreign enterprise in commercial use in China), thereby creating a likelihood of confusion.

The third form of free riding is common. Numerous 'shadow' companies have been established in Hong Kong under a name that is similar or identical to the well-known name or mark of another company. The name of the Hong Kong company is then featured on goods manufactured and sold in China by an associated factory, thereby creating a likelihood of confusion. Rights owners have been lobbying China's authorities to take more effective measures against this problem.

The SAIC's action started in August and will end in December 2007.

Howard Tsang, Wilkinson & Grist, Beijing