Safe Motorola Cell Phone + Deadly Battery: Who Is Liable for Tort Damages?

I have been following a high profile consumer death incident in China involving a Motorola cell phone. Here is the gist of the story reported widely in China lately (in Chinese only). On, June 19, 2007, a welder named Xiao Jinpeng (肖金鹏) (“Xiao”) with a mining company out in Gansu Province suffered a fatal injury when his Motorola cell phone exploded while on the job. It turned out that the battery was the culprit. The battery of his phone exploded under high temperature, which broke Xiao’s ribs, and one of the broken ribs pierced his heart.

Soon after the incident, Motorola (China Division) sent its investigators and lawyers to figure out what exactly happened. A governmental report came out stating that this is a case of work place death caused by shoddy cell phone battery. Xiao’s family received 130,000 Yuan in compensation from his company, but according to the Law of the People's Republic of China on Protection of the Rights and Interests of the Consumers (“Consumer Rights Protection Law”) (Chinese) and the Product Quality Law of the P. R. China (“Product Quality Law”) (Chinese), Xiao’s family is also entitled to damages from the sell and manufacturer of the cell phone battery.

According to the Product Quality Law, a seller and manufacturer have comparative tort liability for injuries or death caused by products in question.

With respect to injury or damages to property caused by products with defects, the seller is personally liable when selling products with unknown manufacturers:

Article 42

A seller shall be liable for a personal injury or damage to the other's property caused by a product's defect resulted from the fault of the seller.

A seller shall be liable for damage if he can not give the producer or the supplier of the defective product.

An injured person may seek compensation from both the seller and manufacturer:

Article 43
If the defect of a product causes personal injury or damage to other's property, the injured or damaged person may claim compensation from the producer of the product or may also claim compensation from the seller of the product. If the compensation lies to the liability of the producer of the product but the seller of the product has made the compensation, the seller of the product has the right to seek the compensation from the producer of the product. If it lies to the liability of the seller of the product but the producer of the product has made the compensation, the producer of the product has the right to seek the compensation from the seller of the product.

Article 44

If the defect of a product causes personal injury to the injured person, the injurer shall compensate for the medical expenses, the nursing fees during the period of treatment and income lost due to the miss of work; if it causes the disability of the injured person, the injurer shall pay the fees for self-aid tools, living allowance, compensation for the disability and the living expenses for the persons the injured person supports; and if it causes the death of the injured person, the injurer shall pay the funeral expenses, the pension for the family of the deceased and the living expenses necessary for the persons supported by the deceased before his death.

If the defect of a product causes damage to the property of the injured person, the injurer shall restore the damaged property to its original state or pay compensation according to the market price. If the injured person suffers other substantial damages therefrom, the injurer shall be liable therefor.

[note: the above statutory texts are extracted from the website of Lehman & Hu. For the full texts of the laws quoted here, go here]

Upon further investigation, Motorola has stated in the Chinese media that the battery involved in the case is not genuine Motorola batter; therefore, it should not bear liability for Xiao’s death. In that case, if true, Xiao’s family could only go after the seller of the cell phone, who could then trace the provider of the battery. At the same time, it is not beyond all reason that Xiao probably chose to purchase the shoddy battery when the original battery became unusable. In all possibilities, tracking down the persons liable for producing and selling these types of fake, low-quality battery will very difficult because of the lack of quality regulation enforcement and wide spread practices of the selling and buying of substandard products in China.

How to Protect Your Trade Secrets in China?

There are four major regimes of intellectual property: trademark, patent, copyright, and trade secret. Trade secrets are the oldest and probably not most recognized form. Your trade secret is likely one of the most important things that gives you an edge in your success and survival amongst fierce competition. If you take your business into China, that still rings true. Thus, an understanding of the law of trade secrets in the P. R. China is essential in order for your to protect your trade secrets.

Unlike the United States, China does not have an unified body of law addressing the protection of trade secrets; in stead, trade secret protection laws are scattered in a few pieces of legislation, and the complexity of which warrants dedicated attention.

Definition of Trade Secret

Trade secret is defined as, pursuant to Several Regulations on Prohibiting Actions of Infringing Trade Secrets (《关于禁止侵犯商业秘密行为的若干规定》)

any formula, pattern, device, machine, process, technique, compilation of information, or program (referred to collectively as proprietaryinformation)

Regulations/Laws on Trade Secret

An article I ran into succinctly and accurately lays out the relevant laws on trade secret, I will try to shorten the pithy parts of it.

1. Article 10 of the Anti-Unfair Competition Law states that a competitor is prohibited from using the following measures to infringe upon another's trade secrets:a) To acquire the owner’s trade secret by theft, intimidation, or other improper approaches;b) To disclose, use, or allow others to use the owner's trade secrets that have been obtained through the above methods;c) To disclose, use or allow others use the trade secrets which breach the agreement or requirements of the owner.

It is considered a trade secret infringement for any third party to acquire, use or disclose another's trade secrets under the condition that he acknowledges the existence of illegal behavior as set forth in the above clauses.
Article 25 of the Anti-Unfair Competition Law further stipulates the penalties for violations under Article 10.

2. Article 22 of Labor Law of the P. R. China allows an employer to include a clause in an employment contract clause that affords protection for the employer's trade secrets. And a typical such clause appears in the form of a confidentiality agreement, which prohibits an employee from disclosing the employer’s trade secrets at the end of his/her employment.

3. Article 118 of the General Principle of Civil Law, Article 43 of the PRC Contract Law, and Article 219 of the Criminal Law.

Protective Measures

The same article quoted above suggests excellent ways to protect your trade secrets. It states:

it is important to keep the trade secrets conforming to the special features that are prescribed by the law, that is, unknown to the public, with business value and kept in secret. In the event of a breach, this allows for a legal basis for prosecution. For example, if a company leaves the trade secrets in unlocked file cabinets in unrestricted areas of the company, or leaves the documents disclosing trade secrets in garbage cans without shredding the documents, then they have more difficulty establishing that the trade secret was to remain unknown to the public or has high commercial value. It is sometimes surprising how many companies are susceptible to such a simple mistake. It is quite easy and inexpensive to establish such internal protective measures and with a documented policy on how such materials are to be handled, there becomes a point of reference for a court to base prosecution on.

Then, it provides practical steps to safeguard your trade secrets:

A. Maintain documentation that you are the legitimate owner of the trade secrets that you seek to protect.

B. Establish an internal trade secrets protection system:
Have a written trade secret plan and follow the plan
Train your employees on the protection of trade secrets
Sign and enforce confidentiality agreements

Trademark Protection in China—More Steps Forward

On the heels of the Starbucks v. Shanghai Starbuck case, another foreign trademark holder doing business in China had its day in court and won. Of course, this is only in the trial court; appeals might follow.

In this case the plaintiff is the French company Lacoste, trademark holder of the famous “Crocodile” clothing trademark. Lacoste registered the “Crocodile” mark in October 1980, and the China Trade Mark Office, according to a Chinese report, put this mark in question on the list of “Famous Trademarks to Be Targeted for Protection.” (《全国重点商标保护名录》)

Defendants are three Chinese companies: Guangzhou Tai Crocodile Clothing Co., Ltd. (“Guangzhou Crocodile”), and two other sellers of Guangzhou Crocodile’s clothes. Curiously enough, Guangzhou Crocodile had its trademark “Golden Crocodile” registered, which can be described as a crocodile crouching in water waves, and with the Chinese Character “金鳄”next to them, which means “golden crocodile.” According to the facts of the case, Golden Crocodile places the crocodile portion of its mark in the prominent areas of clothes, while sews on the water wave and the Chinese characters in the background, which bear the same colors as the materials used for clothes as a whole. The intention of this, I guess, is to display the crocodile prominently, and let the rest of the mark fade away into the background.

Lacoste sued, joining the three defendants, in Beijing’s First Intermediate People’s Court for trademark infringement and trademark dilution, and it further pleaded for an injunction, public notice of such infringement, seeking also damages in the amount of ￥1,000,000.

Congratulations to Lacoste. It pretty much wrote its own ticket in its pleadings because the Court gave it basically all it asked for: infringement and dilution of the Crocodile mark by Guangzhou Crocodile; cessation of production by Guangzhou Crocodile; destruction of all infringing clothes; damages in the amount of ￥760,000; a public apology to be issued by the three defendants on the China Industry & Commerce Times.

Yes, this is a sweet victory for Lacoste and its lawyers. While the board members of Lacoste celebrate with French wine, I celebrate this case with this blog post for the following reasons:

1. The court carefully examined the circumstances of Defendant Guangzhou Crocodile’s use of its own mark; it focused on Guangzhou Crocodile’s misuse of its mark, and held that the misuse of a legitimate trademark, in certain circumstances, could constitute infringement of another’s trademark.

2. The Court cited a case out of Changchun Intermediate People’s Court. In that case, the Crocodile trademark was held to be a “famous mark.” The Court cited this holding in part to bolster the fact that Lacoste has an indeed famous mark, which is entitled to legal protection in China.

3. The Court extended infringement liability to sellers of products that infringed on the trademark holder’s rights. In its opinion, the Court expressed in strong language that the two co-defendants, as sellers of clothing, failed to investigate thoroughly the legitimacy of Guangzhou Crocodile’s use of its trademark, and such an obviously subjective failure to investigate resulted in sales that violated the rights of Lacoste. And such a gross failure to investigate warrants civil liability (negligence, tort liability).

4. The remedies handed out by the Court are appropriate. Even though the Court did not grant the full amount sought in damages by Lacoste, it imparted more value to Lacoste and trademark holders than the ￥24,000 can buy in China—a clear message that reads: “Don’t Mess with Legitimate Trademarks of Others!”

Cheers! À votre santé ! 干杯!!