By Shi Bisheng King & Wood Mallesons’ IP group.
On 4 November 2017, the 30th Meeting of the Standing Committee of the Twelfth National People’s Congress of the People’s Republic of China passed an amendment to the Anti-Unfair Competition Law of the People’s Republic of China (“Anti-Unfair Competition Law”), which will come into effect on 1 January 2018. This is the first major amendment to the Anti-Unfair Competition Law since its implementation in 1993, and it will have a significant impact on businesses in China.
The main amendments to the Anti-Unfair Competition Law are as follows:
Greater Clarity about Judging Principles on an Unfair Competition Activity
The amendment provides greater clarity about judging principles on an unfair competition activity.
First, putting the expression “disrupt the order of market competition” before “the rights and interests of operators and consumers” in Article 2 Paragraph 2 directs courts and law enforcement agencies to place greater weight on the public interest, rather than on the business’s interests, when determining whether the relevant activities constitute unfair competition.
Second, the amendment alters the test to weigh the interests of businesses, consumers, and other parties. It achieves this by introducing the criterion of whether the consumer’s interests are harmed.
The amended law emphasizes the need to protect the public interest, as well as the interests of businesses and consumers.
When the interests of different businesses conflict, the decisive factor in determining whether the either of the businesses have engaged in an unfair competition activity may be whether their conduct is in the long-term interests of the consumers.
The Rules for Determining Unfair Competition Activities
1. The Rules for Determining Confusion
The amendment alters Article 5 to remove duplication with the Trademark Law by deleting the reference to “feigning of others’ registered trademarks” in Article 5(1).
Consistently, the amendment also removes Article 5(4), which prohibited making misleading or deceptive representations about the origin or quality of goods, and the use of false documentation (e.g. certificates of attestation, qualification, quality or origin) to mislead others.
The amendment also expands the definition of ‘protected commercial marks’ to include the name, packaging, domain name, and website name used for a particular product. The expanded scope of this definition will facilitate greater effectiveness in regulating anti-competitive conduct online.
2. The Rules for Determining Commercial Bribery
The identity of the ‘bribery recipients’ is central to the definition of commercial bribery. The amendment alters the definition of ‘commercial bribery’ by redefining the term ‘bribery recipients’ to include:
- employees of the counterparty in a transaction;
- work units or individuals entrusted by the counterparty in a transaction to handle relevant matters; and
- work units or individuals that take advantage of the power or influence to interfere with the transaction.
To meet the definition of a bribery recipient, an individual must have the power or influence to manage affairs.
In practice, the affairs managed by the bribery recipients are often the affairs of others, because a rational person managing their own affairs will not harm their own interests.
Article 7 of the amendment limits the improper expansion of the scope of commercial bribery by stipulating that commercial bribery will only occur in circumstances where there has been a breach of fiduciary duty or an exchange of interests gained by taking advantage of the position.
3. The Rules for Determining False Commercial Promotion
Article 8 of the amendment defines false commercial promotion with reference to false commercial advertisements. The amendment expands the scope of false commercial promotion to include commercial advertisements that cause public misunderstanding.
In addition, the amendment clarifies the application of the Anti-Unfair Competition Law to advertising by making clear that the Advertising Law must be applied first.
Article 20 of the amended Anti-Unfair Competition Law states that “an operator who violates the provisions of Article 8 of this Law is deemed as publishing a false advertisement, and shall be punished in accordance with the provisions of the Advertising Law”.
The amendment also addresses the issue of false commercial promotion in e-commerce by introducing a prohibition on the use of false ‘sales amounts’, ‘user ratings’ or ‘honours’ to deceive or mislead consumers. The amendment also prohibits operators from assisting other operators to engage in false commercial promotion by fabricating transactions, or by any other means.
4. The Rules for Determining Prize Sales
Article 10 of the amended Anti-Unfair Competition Law also prohibits sales based on unfair information about potential prizes by adding one provision:
“The unclear prize sales information about the types of prize, the conditions of prize-redeeming, the amount of prize money, or gifts, etc. that affects prize redeeming is one of the forbidden conducts.”
In addition, the amendment increases the maximum amount of prize money for lottery winning sales from 5,000 RMB to 50,000 RMB. This increase will allow businesses greater flexibility.
5. The Rules for Determining Commercial Slander
Article 11 of the amended Anti-Unfair Competition Law stipulates:
“Operators shall not fabricate or disseminate false or misleading information to damage the business reputation or product reputation of the competitors.”
In practice in the past, there has been a lack of clarity about how to define the term “false facts” when used in the context of “fabricate, spread false facts”. The amendment clarifies that the fabrication or the dissemination of “false information” or “misleading information” may constitute unfair competition. The inclusion of the term “misleading information” in the definition of “sale facts” appears to expand the former law.
The amendment also specifies the penalty for commercial slander, which was not specified in the former law. Article 23 of the amended Anti-Unfair Competition Law stipulates:
“Where an operator violates the provisions of Article 11 of this Law by damaging the competitor’s business reputation or product reputation, the supervision and inspection department shall order it to stop the illegal act and eliminate the negative effect, and shall impose a fine of not less than 100,000 RMB but not more than 500,000 RMB; if the circumstances are serious, a fine of not less than 500,000 RMB and not more than 3,000,000 RMB shall be imposed.”
6. The Relevant Provisions of the Protection of Trade Secrets
The amended Anti-Unfair Competition Law does not make substantial changes to the protection of trade secrets.
The main changes comprise two aspects. First, the amendment removes the “practical value” requirement as one of the elements of a trade secret.
Secondly, the amendment gives greater clarity about when third parties will be liable:
“A third party who knows or should know that the employees and former employees of the trade secret owner or other work units, individuals conduct the illegal acts listed in the preceding paragraph, but still obtains, discloses, uses or allows others to use the trade secret shall be regarded as violating the trade secret.”
In addition, new Article 15 requires the supervision and inspection department and its employees to maintain the confidentiality of any trade secrets that are known during the investigation.
7. New Rules on Unfair Competition in the Internet
Article 12 of the amended Anti-Unfair Competition Law prohibits the use of software and other technological means to interfere with, restrict and influence other businesses and users of the Internet.
The amended law provides rules for the unfair competition activities carried out by technological means on the Internet, and adds a provision to accommodate future developments.
Article 12 of the amended Anti-Unfair Competition Law now stipulates:
“Operators shall not use technological means to obstruct or damage the normal operation of network products or services lawfully provided by other operators by influencing the choice of users or by other means:
- to insert a link or force the user to visit another webpage in the network products or services lawfully provided by other operators without their consent;
- to mislead, deceive, and force users to modify, shut down, and uninstall the network products or services lawfully provided by other operators;
- Maliciously make the network products or services incompatible with the Internet products or services lawfully provided by other operators;
- Other behaviors that obstruct or damage the normal operation of network products or services lawfully provided by other operators.”
Article 24 of the amended Anti-Unfair Competition Law also provides that:
“An operator who violates the provisions of Article 12 of this Law, obstructing or damaging the normal operation of network products or services lawfully provided by other operators”, if the circumstances are serious, may be imposed a fine of not less than 500,000 RMB but not more than 3,000,000 RMB.”
Removing Crossovers between the Anti-Unfair Competition Law and the Antitrust Law
An important purpose of the amendment is to distinguish it from the Antitrust Law and to avoid the cross-over between the two.
The amended Anti-Unfair Competition Law deletes the provisions about public enterprises that restrict competition, tying behavior, selling below cost, and administrative monopolies. In addition, the provisions about collusive bidding have been removed because this conduct is regulated by the Bidding Law. The amendment also provides a clear distinction between the Anti-Unfair Competition Law and the Anti-Monopoly Law.
During the reform process, the question of whether to regulate “the use of market dominance for unfair competition” was controversial. The legislature formed the view that businesses who do not have market dominance shall be allowed to set the terms of their transactions. If the purchaser is not willing to accept those terms, the purchaser may choose to transact with other businesses.
Damages for Unfair Competition
Prior to the amendment, the court lacked statutory guidance in relation to the calculation of damages. Article 17 of the amended Anti-Unfair Competition Law stipulates the basic principles for calculating damages, providing that:
“The amount of compensation for the operator who has suffered damage due to unfair competition is determined according to the actual loss suffered by the infringement; if the actual loss is difficult to calculate, the amount of compensation shall be determined according to the interests obtained by the infringer due to the infringement.”
It is noteworthy that the provision clearly stipulates that “the amount of compensation shall include the reasonable expenses incurred by the operator in stopping the infringement.” This is also the case with damages for intellectual property offences.
Where a business has violated the provisions of Article 6 and Article 9, and the actual loss suffered by the claimant due to the infringement, and the benefits obtained by the defendant as a result of the infringement, are difficult to quantify, the People’s Court shall award the claimant not more than 3,000,000 RMB in compensation. The statutory compensation ceiling of 3,000,000 RMB will substantially raise the price of unfair competition.
The Means and Measures of Supervision and Inspection
The former Anti-Unfair Competition Law was criticized for inadequate supervision, inspection and enforcement. These criticisms have been addressed by the amendments.
The amendments enhance the supervisory and investigative powers and duties of the law enforcement agencies.
The amendment also authorises law enforcement agencies “to seal up or seize the property related to the suspected unfair competition” and “to investigate the bank accounts of operators involved in the suspected unfair competition.”
In addition, the amendment places an obligation on the parties to cooperate with an investigation, providing that:
“A person who impedes the supervision and inspection department to perform its duties, refuses or obstructs the investigation under this law shall be ordered to make corrections by supervision and inspection department. An individual may be imposed a fine of not more than 5,000 RMB, a work unit may be imposed a fine of not more than 50,000 RMB and a public security administration punishment may be given by the public security agency.”