Authors:Jiao Hongbin, He Shijia, Intellectual Property group, King & Wood Mallesons

On 18 August 2021, the Supreme People’s Court of the P.R.C. issued the “Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Anti-Unfair Competition Law of the People’s Republic of China (Draft for Comments)” (hereinafter referred to as the “Draft for Comments”) for public review and opinions. The Draft for Comments represents the Supreme Court’s first move of making comprehensive amendment[1] of the “Interpretation of the Supreme People’s Court on Several Issues on the Application of Law in Hearing Civil Cases Regarding Unfair Competition” (hereinafter referred to as the “2007 Judicial Interpretation of the Anti-Unfair Competition Law” or “2007 Interpretation”), which has been in effect since 2007. The Draft for Comments accommodates the 2017 and 2019 amendments of “Anti-Unfair Competition Law of the People’s Republic of China” (hereinafter referred to as the “Anti-Unfair Competition Law”) and reflects on and summarizes the relevant rules in judicial practice over the past few years.

The highlights of the Draft for Comments are mainly reflected in three aspects: clarifying the test to apply the general or principle provision, supplementing the relevant provisions on the protection of commercial signs, and refining the application of Article 12 (hereinafter referred to as the “Internet Provisions”) of the Anti-Unfair Competition Law. In addition, the Draft for Comments has also modified or supplemented the 2007 Interpretation on substantive issues such as false or misleading commercial promotion, commercial defamation, the application of statutory compensation under the Anti-Unfair Competition Law, and the liability of stop using enterprise names, and on procedural issues such as repeated litigation, jurisdiction, and the statute of limitations. A summary is as follows.

  1. Clarification of the test to apply the general or principle provisions of Article 2 of the Anti-Unfair Competition Law

As a general or principle provision, Article 2 of the Anti-Unfair Competition Law has long been widely invoked in various types of modern intellectual property infringement and unfair competition cases. When the 2007 Judicial Interpretation of the Anti-Unfair Competition Law was formulated, the Supreme Court originally intended to provide for rules to apply the general provision, but the rules were eventually deleted. In order to prevent the abusive application of the general provision, the Supreme Court has successively clarified the elements of the test to apply Article 2 of the Anti-Unfair Competition Law through reported cases and judicial policy documents[2]. On the basis of the previous judicial practice, now the Supreme Court for the first time provides for a clear test in Article 1 to Article 3 of the Draft for Comments to apply Article 2 of the Anti-Unfair Competition Law, which would be highly binding as a judicial interpretation.

Article 1 of the Draft for Comments emphasizes the relations between Article 2 and Chapter II of the Anti-Unfair Competition Law, i.e., the general provision and the special provisions. It also highlights that the legislative purpose of the Anti-Unfair Competition Law is to protect the competition on the market. Article 1 Paragraph 1 reiterates the prerequisite that only conducts not expressly enumerated in the special provisions of Chapter II of the Anti-Unfair Competition Law can be regulated by the general provision of Article 2. This is consistent with long-standing judicial practice. It is worth noting that, according to Article 1 Paragraph 2 of the Draft for Comments, the unfair competition acts regulated by Article 2 of the Anti-Unfair Competition Law do not include situations where only the interests of the parties are harmed. The parties are required to prove that the cause of action disrupts the sound order of market competition. Some opinions are that Article 2 Paragraph 2 of the 2017 amendment of the Anti-Unfair Competition Law emphasizes the competition order and public interests by placing “disrupting market competition order” before the protection of rights and interests of related parties[3], which indicates that the competition order is a superior factor in the determination of the reasonableness of the competitive acts. Thus, Article 1 Paragraph 2 of the Draft for Comments can be read as a response to Article 2 paragraph 2 of the 2017 amendment of the Anti-Unfair Competition Law.

Articles 2 and 3 of the Draft for Comments clarify the criteria for determining “competitive relations” and “business ethics” in the application of Article 2 of the Anti-Unfair Competition Law. The criteria for determining “competitive relations” have undergone continuous expansion in practice, from the initial direct competitive relations, to the inclusion of indirect competitive relations, and then to the current general idea of determining “the possibility of harming others and benefiting oneself”[4]. Based on the development of judicial practice, Article 2 of the Draft for Comments has clarified for the first time the standard of competitive relations as “the existence of possible competition for trading opportunities, impairment of competitive edge, and other relations” at the high level of judicial interpretation. As for “business ethics”, although the wording of Article 2 of the 2017 amendment of the Anti-Unfair Competition Law has been amended from “recognized business ethics” to “business ethics”, Article 3 of the Draft for Comments still defines business ethics in Article 3 as “generally accepted and followed norms of conducts in a particular business field”. At the same time, Article 3 of the Draft for Comments points out that the factors to be considered in determining whether business ethics have been violated include the rules of the industry or commercial practices, the subjective state of the business operator, the willingness of the counterparty to make the deal, the impact on the market competition order, and the consumers’ rights to know and choose, etc. This is in line with Article 2 of the 2017 amendment of the Anti-Unfair Competition Law, which emphasizes the protection of the market competition order and the legitimate rights and interests of consumers. In addition, the Draft for Comments has confirmed the practice of referring to practice norms, self-regulatory conventions, or technical norms in determining business ethics in judicial practice, from the high level of judicial interpretation.

  1. Refinement of provisions relating to the protection of commercial signs under Article 6 of the Anti-Unfair Competition Law

Articles 4 to 16 of the Draft for Comments are all detailed provisions addressing the protection of commercial signs under Article 6 of the Anti-Unfair Competition Law, amending and supplementing Article 1 to Article 7 of the 2007 Judicial Interpretation of the Anti-Unfair Competition Law.

  1. Clarification of the definition of “signs with certain influence”

Article 4 of the Draft for Comments heavily revised Article 1 Paragraph 1 of the 2007 Interpretation. Under the 2007 Interpretation, a right holder wishing to claim the “unique name, packaging, and trade dress of well-known commodities” is required to first prove that the commodities are “well-known commodities” before claiming that the name, packaging, and trade dress constituted those of the “well-known commodities”. This rule has been widely criticized. The 2017 amendment of the Anti-Unfair Competition Law replaces “unique name, packaging, and trade dress of well-known commodities” with “name, packaging, and trade dress of commodities with certain influence”. This brings the rules back to the essence of commercial signs by emphasizing the signs themselves rather than the fame of the commodities. In order to be consistent with the law, Article 4 of the Draft for Comments defines the term “signs with certain influence” as “signs with certain market fame and distinctive features to distinguish the source of commodities”, and emphasizes that “the plaintiff shall prove the fame of the signs”.

  1. Clarification of the circumstances in which Article 6 (4) of the Anti-Unfair Competition Law shall be applicable

Article 13 of the Draft for Comments divides the situation where the catch-all clause of Article 6 (4) of the Anti-Unfair Competition Law shall apply into two categories: “Firstly, the unauthorized use of signs with certain influence other than those stipulated in Article 6 (1), (2), and (3) of the Anti-Unfair Competition Law; secondly, the use of others’ registered trademarks and unregistered well-known trademarks as the trade name of the enterprise name, where the use is not prominent.” Among them, the second category clarifies the choice of law in cases where the trademarks of others are used as the trade name of the enterprise name in a non-prominent manner, which is consistent with the major judicial practice over the past few years. This could act as a connecting provision between the Trademark Law and the Anti-Unfair Competition Law. According to the relevant judicial interpretation of the Trademark Law[5], the prominent use of others’ registered trademarks or unregistered well-known trademarks as the trade name of the enterprise name constitutes trademark infringement. However, the rules to address non-prominent uses of the said marks have not been clarified. In practice, before the 2017 amendment of the Anti-Unfair Competition Law, the right holder usually claimed rights under both Article 58 of the Trademark Law and Article 2 of the Anti-Unfair Competition Law (general provision) when facing the said non-prominent use. After the 2017 amendment of the Anti-Unfair Competition Law, right holders usually invoke Article 6(4) of the Anti-Unfair Competition Law in addition to the aforementioned legal basis when facing the said non-prominent use. Article 13(2) of the Draft for Comments has confirmed the legitimacy of this practice.

  1. Clarification of the elements of infringement of assistance and sales under Article 6 of the Anti-Unfair Competition Law

The Anti-Unfair Competition Law and the 2007 Judicial Interpretation of the Anti-Unfair Competition Law only provide for the “use” of commercial signs under Article 6 of the Anti-Unfair Competition Law. In practice, some opinions view that the “use” here is only limited to direct use, i.e. the use by the manufacturer or operator of the infringing commodities/services. Thus, opinions differ on whether assistance and sales constitute unfair competition under Article 6 of the Anti-Unfair Competition Law. Article 14 and Article 16 of the Draft for Comments have clarified this issue by referring to the provisions of the Trademark Law and the relevant judicial interpretations. The rules are (1) if a person intentionally helps another to commit confusion, he/she constitutes joint infringement; (2) sales constitute infringement, but the defense of “lawful sources” applies, which is that if a person sells commodities that he/she does not know or should not know that are infringing commodities, he/she can prove that the commodities are lawfully obtained by him/her, and the supplier of the said commodities can be stated, he/she shall not bear compensation liability.

  1. Clarifying the factor of “bona fide use” defense

Article 15 of the Draft for Comments adds “bona fide use” factors to the rules set by Article 1 Paragraph 2 of the 2007 Judicial Interpretation of the Anti-Unfair Competition Law. Article 15 Paragraph 2 of the Draft for Comments stipulates that a “bona fide use” could be weighed on “the fame of the prior used signs on the market, the knowledge of the alleged infringer of the prior used signs, the geographical area where the signs are used, etc.”

  1. Other amendments

In addition to the major amendments analyzed above, the Draft for Comments clarifies the following issues related to Anti-Unfair Competition Law and makes a few changes to the 2007 Judicial Interpretation of the Anti-Unfair Competition Law.

Regarding the commercial signs protected by Article 6 (2) and (3) of the Anti-Unfair Competition Law, such as the enterprise name and the main part of the domain name, the Anti-Unfair Competition Law only stipulates that unauthorized use is prohibited, but does not specify whether the use of signs similar to the aforementioned signs is prohibited. However, according to the provisions of Article 6 (1) of the Anti-Unfair Competition Law, the prohibition on the use of similar signs by others in the said manner is an ought-to-be interpretation. Despite so, Article 11 of the Draft for Comments draws a clear line and confirms the understanding.

Article 5 to Article 10, and Article 12 of the Draft for Comments are derived from Article 2 to Article 7 of the 2007 Interpretation, without substantive revision to the content. The details of the fine amendments are as follows: Firstly, Article 7 of the Draft for Comments is derived from Article 2 Paragraph 3 of the 2007 Interpretation, both of which are derived from the “fair use” provision of Article 59 Paragraph 1 of the Trademark Law. It is worth noting that Article 7 of the Draft for Comments substitutes “raw materials” for “major raw materials”, the latter of which is used in connection with the word, “use”, in Article 2 Paragraph 3 of the 2007 Interpretation and Article 59 Paragraph 1 of the Trademark Law. Secondly, Article 9 of the Draft for Comments bears no substantive changes compared with Article 6 of the 2007 Interpretation. Article 9 Paragraph 1 omitted “trade name”, since the “trade name” and “name (including pseudonym, stage name, etc.)” stipulated in Article 6 of the 2007 Interpretation have already been clarified in Article 6 of the 2017 amendment of the Anti-Unfair Competition Law. Article 9 Paragraph 2 is new and explicitly includes “names (including abbreviations, trade names, etc.) of a sole proprietorship with certain influence” under the protection of Article 6 (2) of the Anti-Unfair Competition Law. Thirdly, with regard to the definition of use, Article 10 of the Draft for Comments bears no substantive amendment compared with Article 7 of the 2007 Interpretation and only clarifies the requirement of “identifying the source of commodities” by referring to Article 48 of the Trademark Law. Fourthly, Article 12 of the Draft for Comments further clarifies the type of specific connection as “commercial association, licensed use, commercial title, advertising endorsement, etc.”, based on the “licensed use, affiliated enterprise relationship, etc.” provided in Article 4 of the 2007 Interpretation.

  • Refinement of the application of Article 12 (Internet Provisions) of the Anti-Unfair Competition Law

The Internet Provisions are the major highlights of the 2017 amendment of the Anti-Unfair Competition Law. Article 12 Paragraphs 2 (1) to (3) provide for three types of unfair competition acts commonly found in the Internet field, which are commonly referred to in practice as “compulsory redirects”, “misleading, deceptive, and compulsory acts”, and “malicious incompatible acts”, while Item (4) is used as a catch-all clause, leaving room to address new types of unfair competition that may occur on the Internet. Article 22 to Article 24 of the Draft for Comments specify the specific circumstances to apply the three aforementioned types of conducts, respectively. Article 25 specifies the elements of the application of the catch-all clause. Article 26 stipulates whether the unauthorized use of user data lawfully obtained by other operators violates the catch-all clause.

Regarding “compulsory redirects”, Article 22 Paragraph 1 of the Draft for Comments defines the acts as “compulsory redirects that occur directly without the consent of other operators and the users”, which adds “without the consent of the user” to Article 12 of the Anti-Unfair Competition Law. Article 22 Paragraph 2 of the Draft for Comments further stipulates that the mere insertion of hyperlinks and the redirects triggered by the user do not necessarily constitute “compulsory redirects” prohibited by Article 12 of the Anti-Unfair Competition Law. It is necessary to consider the reasonableness of the acts by weighing “the specific manner of inserting the hyperlinks, the justification for the acts, and the impact on the interests of the user and other operators.”

Regarding the “misleading, deceptive, and compulsory acts”, Article 23 of the Draft for Comments adds two elements, i.e., “without prior express indication to the user and the consent of the user” and “maliciously interfering with or disrupting the cyber products or services lawfully provided by other operators”, on the basis of Article 12 of the Anti-Unfair Competition Law.

Regarding the “malicious incompatible acts”, Article 24 of the Draft for Comments specifies four elements: “(1) incompatibility is committed against other specific operators; (2) it prevents users from normally using cyber products or services lawfully provided by other operators; (3) the other operators cannot eliminate the impact of the incompatible act by, for example, cooperating with third parties; and (4) lack of justification.” Article 24 explicitly stipulates that the four elements must be met at the same time.

Regarding the catch-all clause of the Internet Provisions, it is considered in practice that its application is actually similar to that of Article 2 of the Anti-Unfair Competition Law. It has been argued that even with the addition of the Internet Provisions, Article 2 of the Anti-Unfair Competition Law still plays a central role in the cyber unfair competition cases and that Article 12(4) can at best act as a subordinate provision for the interfering conducts, instead of substituting for Article 2. Article 25 of the Draft for Comments lists five elements that need to be met at the same time in the application of the catch-all provision: “(1) (Defendant) employs cyber technology to implement the acts; (2) the acts are against the will of other operators and lead to the failure of the normal operation of cyber products or services lawfully provided by them; (3) the acts are contrary to the principle of good faith and business ethics; (4) the acts disrupt the market competition order and harm consumers’ legitimate rights and interests; and (5) the acts are without justification.” Given the above, Article 25 of the Draft for Comments seems to be aimed at clarifying the scope of application of the catch-all clause and drawing a clear line between the application of Article 2 of the Anti-Unfair Competition Law. However, the core items (3) to (5) are still examining whether the acts being sued are unjustifiable.

In addition, in response to the disputes[6] arising from the unauthorized use of user data lawfully obtained by other operators, Article 26 of the Draft for Comments provides for the elements to constitute an infringement under the catch-all provision. It specifies that the platform operator may claim rights and interests on the commercially valuable user data lawfully collected with the consent of its users. It emphasizes that the said unauthorized use needs to “be sufficient to substantively substitute for the relevant products or services provided by other operators, and to impair fair competition”, which is basically consistent with judicial practice over the past few years.

  1. Miscellaneous

In addition to the above-mentioned three groups of highlights, the Draft for Comments also revises or supplements the 2007 Judicial Interpretation of the Anti-Unfair Competition Law in the following substantive and procedural aspects.

Regarding other substantive issues, firstly, Article 17 of the Draft for Comments emphasizes that the false and misleading commercial promotion shall be analyzed at the core by finding whether the act is “misleading”, which is in line with the 2017 amendment of “misleading false promotion” to “misleading commercial promotion” in the Anti-Unfair Competition Law. Meanwhile, Article 18 of the Draft for Comments adds a new Item (4) “other commercial promotional acts sufficient to mislead (consumers)” on the basis of the rules set by Article 8 of the 2007 Interpretation. Article 19 of the Draft for Comments stipulates that a party should prove damages when it claims that other parties’ acts constitute false promotion and seeks compensation. Secondly, Article 20 of the Draft for Comments provides that Plaintiff in a commercial defamation case must prove that it is the target of the specific damages caused by the commercial defamation, and Article 21 of the Draft for Comments points out that the intentional dissemination of false or misleading information fabricated by others also constitutes commercial defamation. Thirdly, Article 27 of the Draft for Comments expands the application of statutory compensation under Article 17 Paragraph 4 of the Anti-Unfair Competition Law (originally only covering Article 6 and Article 9) by including the unfair competition acts provided in Article 2, Article 8, Article 11, and Article 12 of the Anti-Unfair Competition Law. Fourthly, Article 29 of the Draft for Comments clarifies that the liability under Article 6 of Anti-Unfair Competition Law includes the cessation of using the enterprise name.

Regarding the procedural issues, Article 28, Article 30 to Article 33 of the Draft for Comments address the issues of repeated litigation, compensation when Defendant raises the statute of limitations, jurisdictional issues, and the application of laws (between the older and the amended), respectively. Among them, it is worth noting that: firstly, for Plaintiff who knows or should have known that the rights and interests were infringed and about the infringer for more than three years, Plaintiff is entitled to file the lawsuit if the acts sued continue, but whether the damages should be counted from the date the infringement began has been controversial in practice. Article 30 of the Draft for Comments clearly points out that under such circumstances, if the defendant moves to the statute of limitations, the amount of damages shall be calculated from the date three years forward the date when Plaintiff brings the lawsuit. Secondly, Article 31 Paragraph 2 of the Draft for Comments explicitly rejects the idea of using the place of receipt of online purchases to establish jurisdiction.

The above only serves as a preliminary overview of the Draft for Comments. King & Wood Mallesons will follow up on the subsequent amendments to the Judicial Interpretation of the Anti-Unfair Competition Law and will update it in a timely manner.

[1] “The Regulations of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Regarding Infringement upon Trade Secrets”, which came into effect on September 12th, 2020, only addressed trade secret issues. “The Interpretation of the Supreme People’s Court on Several Issues on the Application of Law in Hearing Civil Cases of Unfair Competition (2020 Amendment)”, which came into force on January 1st, 2021, only amended some of the wordings to accommodate the implementation of the Civil Code, with no substantive changes.

[2] Those include the Supreme People’s Court Reported Case (2009) Min Shen Zi No. 1065 “Unfair Competition in Sea Belt Quota”, Article 11 of the Opinions of the Supreme People’s Court on Several Issues of Intellectual Property Judgment Serving the Overall Situation in the Current Economic Situation, Article 24 of the Opinions of the Supreme People’s Court on Giving Full Play to the Function of Intellectual Property Judgments to Promote the Great Development and Prosperity of Socialist Culture and the Independent and Coordinated Development of the Economy.

[3] Article 2 Paragraph 2 of the 1993 Anti-Unfair Competition Law reads “Unfair competition in this Law refers to the conduct of an operator who violates the provisions of this Law to the detriment of the legitimate rights and interests of other operators and disrupts the social and economic order.” In 2017, the article was amended to read “Unfair competition referred to in this Law shall mean the behavior of an operator who violates the provisions of this Law in its production and business operation, disrupts market competition order, and harms the legitimate rights and interests of other business operators or consumers.”

[4] See (2014) Yi Zhong Min Zhong Zi No. 3283 The Case of Liebao Browser Blocking Youku.com Video Ads; (2014) Jing Zhi Min Zhong Zi No. 79 The Case of Jiluyou Blocking iQIYI Video Ads.

[5] 5 Article 1 of the “Interpretation of Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Involving Trademark Disputes”, “The following acts shall fall under acts causing other harm to others’ exclusive right to use registered trademarks as stipulated in item (7) of Article 57 of the Trademark Law: (1) using words identical or similar to others’ registered trademark as an enterprise name and prominently using them on identical or similar commodities so as to likely cause misidentification among the relevant public”

[6] For example, (2016) Jing 73 Min Zhong No.588, Sina Weibo v. Pulse Dating Software Regarding Unfair Competition