Competition is one of the most basic operating mechanisms of market economy. Market competition is the process of competition among various market subjects in order to pursue and realize the maximization of operating benefits. The result of competition is to realize the priority and the elimination of the inferior and the social progress. Cosmetics industry belongs to FMCG industry, the competition is particularly fierce. China's cosmetics industry is huge in scale, and is still in a period of rapid growth, with huge development potential and prospects. In order to achieve better market performance, cosmetics enterprises continue to innovate in research and development, products, channels, sales strategies, brand promotion and other aspects. However, competition should be fair, business operators in the market competition should follow the principles of voluntariness, equality, fairness, honesty and credit, abide by the generally recognized business ethics. There will be unfair competition, counterfeiting, manufacturing and selling counterfeit products, making and publishing false advertisements, denigrating the commercial reputation of competitors and other acts not only infringe on the legitimate rights and interests of consumers, but even distort and strangle the healthy economic order. In order to ensure the healthy development of the market economy, encourage and protect fair competition, and protect the legitimate rights and interests of operators and consumers, all countries have relevant competition regulations. My country is no exception. Jiao Hanwei, lawyer of Shanghai Guolinghouse Law Firm, will discuss the problem of unfair competition in cosmetics business based on practical experience to provide reference for operators.

Unfair competition definition

Unfair competition refers to the competition behaviors that violate the principles of honesty and fairness in business activities, such as counterfeiting, parading brand names, infringing trade secrets, publishing false advertisements, dumping, etc. It is generally believed that unfair competition behavior has the following four characteristics: (1) the subject of unfair competition behavior is the operator. The term "business operator" refers to legal persons, other economic organizations and individuals engaged in commodity business or profit-making services. In principle, non-operators are not the subject of competition, so they cannot be the subject of unfair competition. However, in some cases, some behaviors of non-operators will also harm the legitimate business activities of operators and infringe the legitimate rights and interests of operators, and this kind of behavior is also the regulation object of anti-unfair competition law. For example, the government and its subordinate departments abuse administrative power to hinder the fair competition of business operators is this type of behavior. (2) Acts of unfair competition are illegal. The illegality of non-competitive acts is mainly manifested in the violation of the provisions of the Anti-unfair Competition Law, including the violation of the specific provisions of the anti-unfair competition Law on the prohibition of various acts of unfair competition, and the violation of the principles of voluntalism, equality, fairness, honesty and credit under the anti-unfair Competition Law. Although it is difficult to identify certain acts of operators as acts of unfair competition clearly stipulated in the Law, they should also be identified as acts of unfair competition as long as they violate the principles of voluntness, equality, fairness and good faith or violate recognized business ethics, damage the legitimate rights and interests of other operators, and disrupt the social and economic order. (3) An act of unfair competition is a tort. The infringement of unfair competition means that unfair competition harms or may harm the legitimate rights and interests of business operators. Unfair competition acts use unfair means to destroy the market competition order, damage the legitimate rights and interests of other operators, so that law-abiding operators suffer both material and spiritual damage. (4) Unfair competition has a variety of social hazards. Unfair competition not only directly or indirectly damages the interests of competitors and consumers, but more importantly, compared with the general infringement, it also harms the normal function of market competition mechanism and leads to serious social harm.

Cosmetics business seven common unfair competition behavior

In terms of the form of unfair competition, the competition law of each country usually makes a general provision first, and then enumerates the typical and outstanding unfair competition behavior in detail. According to China's Anti-Unfair Competition Law, unfair competition refers to the behavior of a business operator that violates the provisions of the law, damages the legitimate rights and interests of other business operators, and disturbs the social and economic order. On the basis of the above general provisions of unfair competition behavior, some typical unfair competition behavior is clarified. Among them, the more common acts of unfair competition in cosmetics business are mainly as follows:

(1) Product counterfeiting

Cosmetics counterfeiting refers to the behavior of cosmetics operators in the market operation activities, using various untrue methods to make false representations, explanations or promises of their own products, or counterfeit others' products to promote their own products, so that users or consumers have misunderstanding or wrong understanding, disturb the market order, and damage the interests of competing products or consumers. The specific forms are: counterfeit cosmetics registered trademarks of others; Unauthorized use of the name, packaging, or decoration of a well-known cosmetic product, or use of a name, packaging, or decoration similar to a well-known cosmetic product, causing confusion with a well-known cosmetic product of others, so that the purchaser may mistake it for the well-known cosmetic product; Unauthorized use of other people's cosmetics company name, causing people to be mistaken for other people's products; Forging or falsely using certification marks, famous and excellent marks and other quality marks on cosmetics, forging the origin of cosmetics, making misleading false representations of cosmetic quality, etc. The counterfeit behavior of cosmetics is a prominent problem in the cosmetics competition at present, and it is a very representative unfair competition behavior in the cosmetics business. Imitation and being imitated has always been a problem that many cosmetics companies are very distressed about.

(2) False propaganda

Cosmetic false publicity refers to the misleading false publicity made by the operators to the quality, performance, composition, use and origin of cosmetics by advertising and other methods. The sale of cosmetics by advertisement or other means is the most common promotion means in cosmetics business, but all kinds of false advertisements and other false publicity not only mislead users and consumers, make them make wrong consumption decisions, have caused a lot of social problems, but also violated the legitimate interests of other cosmetics operators, causing the chaos of the competition order in the cosmetics industry. The Advertising Law and the Anti-Unfair Competition Law both regulate such acts as illegal acts that must be prohibited. The concentration of the cosmetics industry has not yet been completed, the industry competition incentive, the current phenomenon of false publicity is more prominent, especially the wechat business, new retail and other channels, the problem is more prominent. Many net celebrities or people in the process of bringing goods at will on the quality of goods, production ingredients, performance, use, producers, expiration date, origin and other misleading false publicity, not only harm the interests of consumers, more serious damage to the interests of competing products, and even there is a market risk of driving out good money.

(3) unfair sales with prizes

Unfair prize selling refers to the behavior that operators, in the name of providing rewards (including money, goods, additional services, etc.) when selling goods or providing services, actually harm the interests of users and consumers by cheating or other improper means, or harm the legitimate rights and interests of other operators. Prize selling is an effective means of promotion, which can be roughly divided into two ways: one is bonus sales to all buyers, and the other is lottery sales to reward some buyers. The law does not prohibit all sales of prizes, but only those that may cause adverse consequences and undermine competition rules. China's Anti-Unfair Competition law stipulates that operators shall not engage in the following kinds of sales with prizes: the fraudulent way of selling prizes by falsely claiming that there are prizes or intentionally letting the designated personnel win the prizes; To promote goods of inferior quality at higher prices by means of lottery sales; Raffle sales, the highest prize amount of more than 50,000 yuan. At present, in China's cosmetics industry, some brands in order to stimulate product sales, often use a lottery to promote the way of prize sales, such as buying products to participate in the lottery, which once the prize for the amount of more than 50,000 cars and other large items is illegal. Cosmetics operators should pay attention to the amount of prizes in the process of cosmetics promotion.

(4) improper conditional sales

Unfair conditional sale of cosmetics means that the operator takes advantage of its dominant position in brand and market to force the counterparty to buy the goods it does not need or do not want to buy, or accept other unreasonable conditions when selling cosmetics. Such behavior violates the principle of fair sale and hinders the freedom of market competition. It affects the business activities of the counterparty to choose and buy goods freely, and also leads to the result that the trading opportunities of competitors are relatively reduced, so it has obvious anti-competition nature. In the cosmetics business, it is more typical that some cosmetics brands impose certain conditions on the distributors of their products in order to restrict competitive products, such as not acting as agents of competitive products, which is an improper conditional sale of cosmetics. China's Anti-Unfair Competition Law stipulates that a business operator may not tie in the sale of commodities against the will of the purchaser or attach other unreasonable conditions. At present, this behavior mainly appears in some well-known cosmetics brands, but it is not widespread.

(5) Dumping of cosmetics at low prices

Low-price dumping refers to the practice of selling goods at a price below the cost in order to exclude competitors. Low-price dumping violates the principle of enterprise survival and the law of value, often leads to price wars in the market competition, small and medium-sized enterprises have closed down and other vicious competition events, and even leads to the serious consequences of industry-wide shrinkage. In 1998, the Shanghai market milk dealers to compete for the market low price dumping, causing the industry to operate at a loss, unbearable support is clear evidence. After the relevant government departments intervened in accordance with the law, the competition order of the milk market was restored to the right track. To prevent this from happening, both unfair competition and price laws prohibit operators from selling goods below cost in order to discourage competitors. China's unfair competition law stipulates that business operators must not sell goods at a price below the cost for the purpose of crowding out competitors. The main criterion for judging whether the sale of cosmetics is low-price dumping is whether the sale price is lower than the cost price. At the same time, it should be pointed out that cosmetics enterprises below the cost price to deal with the expiration of the effective period of products or other backlog of products, or to pay off debts, change production, shut down the sale of goods, does not belong to low-price dumping. The competition in the cosmetics industry is becoming more and more exciting, and this phenomenon is showing a rising trend in the cosmetics industry.

(6) Infringement of trade secrets

Trade secrets refer to technical information and business information that are not known to the public, can bring economic benefits to the right holder, are practical and have been kept confidential by the right holder. The right of trade secret is the fruit of the labor of the right holder, and the right of trade secret is a kind of intangible property right owned by the right holder. Different from patents and registered trademarks, trade secrets can be owned and used by multiple rights subjects at the same time, as long as the means of obtaining and using them are legal, such as independent research and development or deciphering others' trade secrets through reverse engineering. The violation of trade secrets in the cosmetics industry mostly occurs in the research and development process, which often causes the violation of trade secrets of the formula due to the flow of research and development engineers. At the same time, business data such as business operation and finance will also involve trade secrets. In the course of operation, a cosmetics business operator shall not obtain the cosmetics formula and other trade secrets of the right holder by theft, inducement, coercion or other improper means; Shall not disclose, use or allow others to use the cosmetics formula and other trade secrets of competitive products obtained by the foregoing means; Neither shall it disclose, use or allow others to use the product formula and other trade secrets in violation of the agreement or the requirements for keeping trade secrets.

(7) Damage to the goodwill of competing products

The behavior of defamation of goodwill refers to the behavior that operators fabricate and spread false facts to damage the business reputation and commodity reputation of competitors, thus weakening their competitiveness. Goodwill is a comprehensive and positive evaluation of the reputation of market operators by the public. It is the operator's long-term efforts to pursue, deliberately create, and invest a certain amount of money, time and energy to obtain. Good goodwill itself is a great intangible wealth. In economic activity, it eventually returns to its owner through tangible forms (such as sales, profits). The law gives respect and protection to the goodwill obtained through active labor, and imposes severe sanctions on the behavior of infringing the competitor's goodwill by improper means. The Anti-Unfair Competition Law stipulates that business operators shall not fabricate or spread false facts to damage the commercial reputation and commodity reputation of competitors. If an enterprise fabricates or spreads false information to damage the commercial goodwill of competing products or the reputation of commodities, it may be illegal or suspected to constitute a crime.

Illegal consequences of unfair competition

Operators who violate the provisions of the Unfair Competition Law and carry out acts of unfair competition in the course of their operations shall bear legal responsibility. At present, the investigation and punishment of unfair competition is mainly carried out by the market supervision and management department. According to China's "Anti-Unfair Competition Law", "Criminal Law" and other relevant laws and regulations, the legal liability of unfair competition operators mainly has three kinds of civil liability, administrative liability and criminal liability. As far as civil liability is concerned, China's "Anti-Unfair Competition Law" stipulates that if an operator's acts of unfair competition cause damage to the legitimate rights and interests of other operators, the operator shall bear the compensation responsibility and bear the reasonable expenses paid by the injured operator for investigating the operator's acts of unfair competition that infringe on its legitimate rights and interests. The forms of administrative responsibility mainly include the forms of ordering to stop the illegal act, ordering to correct, eliminating the impact and revoking the business license. The above-mentioned administrative responsibilities stipulated in the Anti-Unfair Competition Law shall be realized through the investigation and punishment of unfair competition acts by the supervision and inspection departments. As far as criminal responsibility is concerned, it is mainly applicable to those unfair competition acts that cause serious losses to other operators, consumers and social and economic order. The Criminal Law of our country sets up the crime of damaging commercial reputation, the crime of accepting bribes from non-state staff, the crime of infringing trade secrets, the crime of counterfeiting registered trademarks and so on.

Nivea v. Yingzi Cosmetic packaging and decoration unfair competition was upheld by the court

In 2009, Nivea (Shanghai) Co., LTD. (hereinafter referred to as "NiveA Company") found that eight products produced by Dongyang Yingzi Cosmetics Co., LTD. (hereinafter referred to as "Yingzi Company") had fake packaging and decoration unique to its men's series products and face series products, which was enough to cause consumer confusion. Therefore, Nivea company will Dongyang Yingzi Cosmetics Co., Ltd. and its distributor Ms. Sun to court. Nivea said Ms. Sun was a distributor of Yingzi, a skincare manufacturer that competes with Nivea in the Chinese market. Yingzi Company has been deliberately imitating the unique packaging and decoration of Nivea men's series and face series, using packaging and decoration very similar to Nivea's two series products on its eight products such as "Omena Men's Facial cleanser (Oil Control Skin cleansing)" and "Omena Whitening Foam Facial Cleanser". The above behavior of Yingz Company deliberately reduces or even obfuscates the difference between its products and Nivea skin care products, in order to take advantage of the high awareness and acceptance of Nivea products formed by consumers over the years, and increase its market share through unfair competition. Yingzi Company believes that the evidence provided by Nivea company cannot prove that the products involved are well-known commodities, tubular packaging is the conventional packaging in the cosmetics industry, and the decoration of the original defendant's products will definitely not cause confusion and misidentification for defense. At the same time, based on common sense, the grade of the product when purchasing cosmetics is the most important factor in determining the relevant public. The minimum product of Nivea company also needs dozens of yuan, while Yingzi company's product is only two or three yuan; Nivea's products are mainly sold through shopping malls, counters and other ways, while Yingzi's company is sold through wholesale markets, so the relevant public of the two are completely different, and will not cause misidentification.
After hearing the case, the Fengtai District People's Court of Beijing held that the two parties in the case are in the same industry, producing and selling the same products, so it constitutes a competitive relationship. "NIVEA /NIVEA" series products have a high reputation among consumers, so the court recognized it as a well-known commodity; The packaging of this series of products uses rectangular cartons and plastic tubular packaging common in this kind of goods, which does not belong to the unique packaging, but the decoration used reflects the characteristics of the goods, and there is no evidence that this decoration is common in similar products, and should be identified as unique decoration. Yingzi company involved in the "OUMEINA" product interior and exterior packaging decoration and "NIVEA /NIVEA" series of product decoration basic color is the same, similar color collocation, similar line pattern, element combination, the overall visual effect is similar, enough to cause confusion between the two products. Therefore, the court found that the decoration used by Yingzi Company on the internal and external packaging of its "OUMEINA" products involved in the case is the same or similar to the decoration unique to the well-known "NIVEA /NIVEA" products, which is enough to cause the relevant public to misidentify, constitute unfair competition, and should bear the corresponding legal responsibility. The infringing goods produced by Yingzi Company are sold by Ms. Sun in the name of a cosmetics firm, and the two constitute joint infringement and shall bear joint liability for compensation. In the end, the court ordered the two to stop the infringement and compensate Nivea for the corresponding economic losses.

Jiao Hanwei

Chief partner and lawyer of Shanghai Guohillhouse Law Firm

Have more than 10 years of legal service experience and more than 5 years of operating experience in the cosmetics industry, familiar with law and business, He is good at providing enterprises with cosmetics business legal services, legal counsel, equity structure, equity incentive, equity financing, equity acquisition, brand management, brand rights protection, brand acquisition, business negotiation, litigation and arbitration and other solutions for the whole stage of enterprise development from the perspective of law and operation. He has led many corporate equity restructuring, equity incentive, equity financing, factory acquisition, brand acquisition and other cases, and has rich experience in practical operation.