Attorney Shao Shiwei | Distinction Between “Tenfold Compensation for Counterfeit Goods” and “Triple Compensation with Refund” | Selection of Litigation Strategy

 

Author of this article: Attorney Shao Shiwei

 

 

A Brief Case Study—On the Importance of Litigation Strategy:

A purchased a certain imported food product from a supermarket. Assuming it is indeed an unsafe food product, if A seeks tenfold compensation for counterfeit goods, how should the litigation strategy be formulated? Analysis: According to the Food Safety Law, A may sue the business operator. The question arises: ? Sue the supermarket or sue the importer? Will the outcome differ?   Reverse reasoning is required: If the court determines that the business operator bears liability, it is necessary to ascertain which party’s liability as a business operator is more significant.   First, the supermarket: Supermarkets generally possess the corresponding qualifications and review relevant certificates of the importer, such as the business license and hygiene permit. When selling to consumers, they may not necessarily have “actual knowledge.” Second, the importer: The importer may also raise defenses similar to those of the supermarket, claiming that it also lacked “actual knowledge.” However, although the importer is not the producer of the imported food, it is the primary liable entity responsible for importing the food into the country. The importer has irreplaceable control capabilities regarding the food safety of imported foods; moreover, other sellers often rely on the importer’s credibility when selling imported foods; meanwhile, controlling food safety at the first gateway can minimize prevention and control costs.   Therefore, it is evident that, compared to the supermarket, the importer should bear heavier liability.   Conclusion: The likelihood of success in suing the importer for “refund plus tenfold compensation” is greater.

 

 

“Refund Plus Triple Compensation”—Applicable to Goods or Services

 

Scope of Compensation:

(Article 55, Paragraph 1, Fraud) Compensation Claim = Three times the price (supplemented to 500 yuan if less) + Actual losses

 

(Article 55, Paragraph 2, Serious Consequences) Compensation Claim = Up to two times the losses + Actual losses

 

Legal Provisions:

 

Law of the People's Republic of China on the Protection of Consumer Rights and Interests (2013Amended)

Article 55: Where a business operator engages in fraudulent conduct in providing goods or services, it shall, at the consumer’s request, increase compensation for the losses incurred. The amount of increased compensation shall be three times the price paid by the consumer for the goods or the fee paid for the services; if the amount of increased compensation is less than 500 yuan, it shall be 500 yuan. Where laws provide otherwise, such provisions shall prevail.

Where a business operator, knowing that goods or services are defective, still provides them to consumers, causing death or serious health damage to consumers or other victims, the victims have the right to demand that the business operator compensate for losses in accordance with Article 49, Article 51, and other legal provisions of this Law, and have the right to demand punitive compensation of up to two times the losses suffered.

 

Determination of Fraudulent Conduct:

 

Measures for the Punishment of Acts Infringing upon Consumer Rights and Interests (2020Revised)

Article 16: Where a business operator commits any of the acts specified in Items (1) through (6) of Article 5 of these Measures and cannot prove that it did not deceive or mislead consumers in committing such acts, it constitutes fraudulent conduct.

Where a business operator commits any of the acts specified in Items (7) through (10) of Article 5, Article 6, and Article 13 of these Measures, it constitutes fraudulent conduct.

 

Article 5: Business operators providing goods or services shall not engage in the following acts:

(1) Selling goods or providing services that do not meet the requirements for safeguarding personal and property safety;

(2) Selling expired or deteriorated goods;

(3) Selling goods with forged places of origin, forged or falsely used factory names or addresses, or altered production dates;

(4) Selling goods with forged or falsely used certification marks or other quality marks;

(5) Selling goods or providing services that infringe upon another person’s exclusive right to use a registered trademark;

(6) Selling goods with forged or falsely used names, packaging, or decorations unique to well-known goods;

(7) Adulterating or mixing impurities into goods sold, passing off fake goods as genuine, inferior goods as superior, or non-conforming goods as conforming;

(8) Selling goods that the state has explicitly ordered to be eliminated and discontinued from sale;

(9) Intentionally using non-conforming measuring instruments or damaging the accuracy of measuring instruments in the provision of goods or services;

(10) Defrauding consumers of payments or fees without providing goods or services, or not providing them as agreed.

 

Article 6: Information provided by business operators to consumers regarding goods or services shall be truthful, comprehensive, and accurate. The following false or misleading promotional acts are prohibited:

(1) Providing goods or services under false names or marks;

(2) Selling goods or services through false or misleading product descriptions, standards, physical samples, etc.;

(3) Making false or misleading on-site explanations and demonstrations;

(4) Engaging in deceptive sales inducements through fictitious transactions, falsified transaction volumes, fake reviews, or hiring others;

(5) Selling goods or services using false “clearance prices,” “liquidation prices,” “lowest prices,” “discount prices,” or other deceptive price representations;

(6) Selling goods or services through false “prize-linked sales,” “refund-upon-purchase sales,” “trial sales,” etc.;

(7) Falsely claiming that “processed goods,” “defective goods,” “substandard goods,” etc., are genuine products;

(8) Misleading consumers by exaggerating or concealing information materially affecting their interests, such as quantity, quality, or performance of the goods or services provided;

(9) Misleading consumers through other false or misleading promotional methods.

 

Article 13: Business operators engaged in service industries shall not engage in the following acts:

(1) Business operators providing repair, processing, installation, decoration, and other services to consumers falsely reporting labor and material usage, intentionally damaging or swapping parts or materials, using parts or materials that do not meet national quality standards or agreed specifications, replacing parts that do not need replacement, cutting corners, or charging extra fees, thereby harming consumer rights and interests;

(2) Business operators providing intermediary services such as housing leasing and domestic services providing false information or employing deception, malicious collusion, and other means to harm consumer rights and interests.

 

 

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“Refund Plus Tenfold Penalty”—Applicable to Food and Drugs

 

Scope of Compensation:

Compensation Claim = Ten times the price OR three times the losses (supplemented to 1,000 yuan if less) + Actual losses

 

Legal Provisions:

 

Food Safety Law of the People's Republic of China (2021Amended)

Article 148Where a consumer suffers damage due to food that does not meet food safety standards, they may claim compensation for losses from the business operator or from the producer. The producer or business operator receiving the consumer’s compensation claim shall implement the system of primary liability, making advance compensation without shifting blame; if the liability lies with the producer, the business operator has the right to seek recourse from the producer after compensating; if the liability lies with the business operator, the producer has the right to seek recourse from the business operator after compensating.

 

Where food that does not meet food safety standards is produced, or where food known to not meet food safety standards is traded, in addition to claiming compensation for losses, the consumer may also demand that the producer or business operator pay compensation amounting to ten times the price or three times the losses; if the amount of increased compensation is less than 1,000 yuan, it shall be 1,000 yuan. However, this does not apply to defects in food labels or instructions that do not affect food safety and will not mislead consumers.

 

Article 149: Violations of the provisions of this Law that constitute crimes shall be investigated for criminal responsibility in accordance with the law.

 

Drug Administration Law of the People's Republic of China (2019 Revision)

Article 144Where drug marketing authorization holders, drug manufacturers, drug distributors, or medical institutions violate the provisions of this Law, causing damage to drug users, they shall bear compensation liability in accordance with the law.

Where damage is suffered due to drug quality issues, the victim may claim compensation for losses from the drug marketing authorization holder or drug manufacturer, or from the drug distributor or medical institution. The party receiving the victim’s compensation claim shall implement the system of primary liability, making advance compensation; after making advance compensation, they may seek recourse in accordance with the law.

Where counterfeit or inferior drugs are produced, or where counterfeit or inferior drugs are knowingly sold or used, the victim or their close relatives, in addition to claiming compensation for losses, may also demand payment of compensation amounting to ten times the price or three times the losses; if the amount of increased compensation is less than 1,000 yuan, it shall be 1,000 yuan.

 

 

Definition of“Non-compliance with Food Safety Standards”:

 

Food Safety Law of the People's Republic of China (2021 Amendment)

Article 26Food safety standards shall include the following contents:

(1) Limits for pathogenic microorganisms, pesticide residues, veterinary drug residues, biological toxins, heavy metals, and other pollutants, as well as other substances hazardous to human health, in food, food additives, and food-related products;

(2) Varieties, scope of use, and dosage of food additives;

(3) Nutritional component requirements for staple and auxiliary foods specially supplied to infants, young children, and other specific populations;

(4) Requirements for labels, marks, and instructions related to food safety requirements such as hygiene and nutrition;

(5) Hygiene requirements for food production and trading processes;

(6) Quality requirements related to food safety;

(7) Food inspection methods and procedures related to food safety;

(8) Other contents that need to be established as food safety standards.

Article 150

“Food” refers to various finished products and raw materials for human consumption or drinking, as well as items that are traditionally both food and Chinese medicinal materials, but excludes items intended for therapeutic purposes.

“Food Safety” means that food is non-toxic and harmless, meets the nutritional requirements it ought to have, and causes no acute, subacute, or chronic harm to human health.