Countermeasures of Foreign Enterprises in Business Reputational Tort Cases Involving Difficult Technical Facts

If a company encounters competitor who defames its reputation by publishing articles on the Internet, it usually defends its rights through filing a lawsuit of reputational tort. However, it adds a special difficulty to rights holders to protect their rights if such articles involve complex technical facts.

A typical case that a prestigious Chinese internet corporation successfully defended by Beijing Wis & Weals Law Firm against its Chinese competitor in an unfair competition regarding the disclosure of personal data through antivirus software reflects China ’s judicial tendency to commercial defamation cases involving difficult technical facts and has great theoretical and practical reference value. Based on this typical case, we discuss the identification the technical issues as well as the subject and channel of information release in such cases.

I. Complicated technical issues in commercial discrediting cases

Although the typical case is unfair competition by way of commercial discrediting, the disputed facts are rather complicated technical issues. Therefore, in the trial of the case, it is necessary to ascertain the constitutive elements of general commercial discrediting, and more importantly the disputed technical facts.

1. Elements for assertion of general commercial discrediting

The typical case took place in 2010 and is applicable to the Law against Unfair Competition of 1993. Article 14 of the law stipulates that: " An operator may not utter or disseminate falsehoods to damage the goodwill of a competitor or the reputation of his goods."

It is generally believed that the constitutive elements of commercial discrediting include:

(1) Subject elements: the subject committing the act is an operator in competition with the defamed object.

(2) Conduct elements: the operator has fabricated and disseminated false facts for the purpose of unfair competition; and

(3) Result elements: this act has damaged the commercial and commodity reputation of competitors.

2. How to ascertain the authenticity of technical facts

The core fact of the dispute in the typical case is whether defendant’s product has a "backdoor" and whether it poses a potential security risk of arbitrary operations on the system registry and user information.

Obviously, the facts are not easily identifiable, but require proof and technical analysis to conclude.

During the trial of the typical case, the defendant stated that it had done a so-called "test" to the plaintiff's products using software compiled by itself, whereby proved the existence of the above-mentioned technical facts. Whether the defendant's "test" conforms to the technical standards of the industry and whether the defendant's interpretation of the "test" results is professional are questions that the plaintiff needs to answer.

Meanwhile, the plaintiff also needs to prove what the technical facts of the dispute objectively contain. Although this practice of letting the plaintiff prove its own innocence increases the plaintiff's burden of proof, it is critical to clarifying the facts and making the judges believe the facts in their hearts.

3. How to ascertain the accuracy and appropriateness of the evaluation of technical facts

After ascertaining the technical facts, the next dispute arises whether the subjective evaluation of facts in the disputed article is accurate and appropriate.

If the subjective evaluation lacks factual basis and is defamatory, it is undoubtedly inaccurate and inappropriate. For example, the "backdoor", "hidden danger of security" and other subjective evaluation words.

Reputation infringement or commercial discrediting sometimes occurs even with factual basis on some practical occasions due to their inaccuracy and inappropriateness of evaluation of facts.

On the one hand, "backdoor", "hidden danger of security" and other evaluation words used are difficult to distinguish for ordinary consumers as they require the understanding of profound professional knowledge; on the other hand, such words are easy to draw great attention from consumers because they involve the key interests of consumers. Against this background, inaccurate and inappropriate subjective evaluation will cause major misunderstandings and biased consumption choices among consumers, thus cause huge losses to the plaintiff.

The provisions of the Law against Unfair Competition of 2017 on commercial discrediting expands the category of commercial discrediting information from "false facts" to "false or misleading information", which extends to cover technical facts and subjective judgments, making legislation more precise.

II. The subject and channel of information publication in the assertion of commercial discrediting

If the facts are identified as "false facts", then to determine whether such facts constitute " utter or disseminate falsehoods " resulting in damage to the commercial reputation of competitors, comprehensive analysis shall be conducted in the light of the competitive characteristics of the industry and the sensitivity of consumers to the false facts. 

As far as the typical case is concerned, the Internet security industry in which the plaintiff and the defendant operate is different from other Internet service industries and it mainly has the following characteristics:

1. Products or services have strong exclusiveness.

Internet users often chooses one Internet security product or service only, and seldom use two or more anti-virus software products concurrently, which leads to fierce industry competition in winning users.

2. The industry is highly technical.

Users have insufficient knowledge of whether there is a product quality evaluation standard in the industry and how to identify the standard. They do not have the ability to conduct technical evaluation of the relevant products and services.

3. Users pay more attention to Internet security issues.

Users are more sensitive to the quality information of such products, and the comments from competitive enterprises in the industry have a great impact on users, unlike in other industries where users have a greater autonomy in quality evaluation.

As for the subject of information dissemination, the court of second instance in the typical case held that: "Before the relevant competent authorities of the State or the authoritative organizations with corresponding qualifications have issued any conclusive scientific opinions on professional and technical issues which require the use of expertise for analysis and judgment, no one may rely solely on its own standpoint to publish tendentious comments to the public on the commercial behaviors, product quality and other issues in respect of other market players, especially competitors."

As for the way of information dissemination, the court of second instance held that: "Even if the relevant market players believe that their judgments on specific issues do have factual basis, they should resolve such issues through due legal procedures such as reporting the issues to the relevant national authorities, otherwise, any explicitly directional, tendentious or conclusive statements and comments published by such market players in any way, which may have adverse effect on the normal production and operation activities of others, shall be prohibited by law."