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12 January, 2018
On 4 November 2017, the Anti-unfair Competition Law of the People's Republic of China (the New ACL) was promulgated by the Standing Committee of the National People’s Congress of the People's Republic of China. This has been the first significant amendment to the old Anti-unfair Competition Law (the Old ACL) which came into force back in 1993. The New ACL came into effect on 1 January 2018.
The following paragraphs will introduce some key changes and highlights in the amendment and remind those market entities of the potential risks of being involved in unfair competition conducts during their business operations in China so as to protect their lawful interests.
The Purposes of the amendment
According to the Draft Amendment to the Anti-Unfair competition Law of the People's Republic of China, the purposes of this amendment are: (1) On one hand, the current law is silent on those newly emerging conducts that disrupt the order of competition and feature a nature of unfair competition. On the other hand, the current law also fails to provide a sufficient basis for legal enforcement as the characteristics of unfair competition have changed with time. (2) The institution that governs and regulates unfair competition conduct needs to be perfected. The role of the civil damages system in regulating unfair competition should be further enhanced, and the measures for the administrative investigation and punishment yearn for further innovations. Responding to the requirements to strengthen the administrative supervision over the entire course of business, a legal liability system should be established in which the organic link between civil liability and administrative punishment can be reinforced, and criminal liability functions as the last disciplinary means. (3) After the implementation of the Old ACL, other laws such as the Antitrust Law and the Bidding Law have also been adopted. As there are overlaps and even inconsistencies between the Old ACL and these other laws, the amendment is necessary in order to realise consistency between contradictory regulations.
The major changes in the amendment
The expansion of the scope of application
Article 2 in the New ACL further clarifies and properly extends the scope of regulation of the Old ACL, with such scope being changed from "business transactions" to "production and operation activities". Meanwhile, the definition of business manager has been changed from a subject who "undertakes commodities business or provides profitable service" to a subject who "engages in the production and operation of commodities or the provision of services". As a result, the scope of the application of the law against unfair competition extends from the circulation domain to the production domain.
Further protection rendered over all categories of trademarks
The amendment removes the content concerning some acts of confusion that include trademark infringement and false advertising provided in Article 5 of the Old ACL, clarifies the connection between the other relevant laws and the Old ACL with respect to false advertising, and also affords protection to company abbreviation, fonts, names of social organizations (including their abbreviations, etc.), names of natural persons (including pen names, stage names, names in translation, etc.), domain names, website names and web pages. The phrase "sufficient to mislead a person into believing that a commodity is one of another person or has a particular connection with another person" has also been applied so as to enable the provision to function as a final safeguard.
Clear definition of the subjects involved in bribe-offering and bribe-taking
Article 8 in the Old ACL does not clearly define the subject that may commit a commercial bribery. In the amendment, the subject involved in bribe-offering is clearly defined into three categories: (1) An employee of the other party to a transaction; (2) The entity or individual authorised by the other party to a transaction to handle relevant affairs; (3) An entity or an individual that uses power or influence to affect a transaction. Also, the pre-condition that the subject seeks transaction opportunities or competitive edges has to be satisfied. At the same time, the new law clearly stipulates that a commercial bribery should generally be regarded as a conduct of the business operator, unless the operator has such evidence to prove that the act of bribing is individual and has nothing to do with a pursuit of business opportunities or competitive advantages for the benefit of the business operator.
False advertising becomes a new form of unfair competition conduct
In order to adapt to the current trend of unfair competition, especially the prevalence of e-commerce platform, this amendment explicitly prohibits fraudulent "user ratings" and "the organisation of a false transaction". It treats those who benefit from and contribute to the false transaction as the subject of regulation.
Provisions on the infringement of the trade secret by an employee or a former employee
Apart from a relaxation of the definition for the trade secret (the initial requirements for practicability have been cancelled), and in order to reflect the actual situation in infringement of trade secrets, it provides that "where a third party knows or should have known that an employee or a former employee of the right holder of a trade secret or any other entity or individual has committed an illegal act as specified in the preceding paragraph but still acquires, discloses, uses, or allows another person to use the trade secret, the third party shall be deemed to have infringed the trade secret. "
Provisions on the regulation of the unfair competition conduct via the use of the internet
Article 12 of the New ACL explicitly prohibits conducts, often being the use of technical means in the field of the Internet and influencing the choice of users, or other means, that will hinder and undermine the operation of network products or services provided lawfully by other business operators. Such conduct includes: (1) Inserting a link or forcing a URL redirection in an online product or service legally provided by another business operator without its consent; (2) Misleading, defrauding, or forcing users into altering, shutting down, or uninstalling an online product or service legally provided by another business operator; (3) Maliciously causing incompatibility with an online product or service legally provided by another business operator; and (4) Other acts hindering or sabotaging the normal operation of online products or services legally provided by another business operator. This provision will provide a legal basis as well as a uniform standard for the future administrative enforcement by the relevant administrative departments and the court's discretion in specific cases.
Strengthening the authority of the administrative enforcement of law and an increase in the cost for violation
Article 13 of the New ACL stipulates detailed measures that the administrative enforcement departments may take when investigating unfair competition conducts. Such measures include entering relevant business premises, requesting information or materials, seizing or impounding property and inquiring about business operators' bank accounts. In the meantime, Article 13 also requires the administrative enforcement departments to abide by the Administrative Compulsion Law of the People's Republic of China when performing their duties and assuming their responsibilities.
The New ACL has greatly increased the intensity of administrative penalties for the acts constituting unfair competition. For example, the maximum fiscal penalty that might be imposed for any act of confusion will be a fine no more than five times the amount of illegal operations or no more than RMB 250,000. With respect to other unfair competition conducts, the party in breach might be fined up to RMB 3,000,000, accompanied by a revocation of its business license. This will greatly enhance the deterrence of the law.
The alteration of business name forms an extra means of punishment, and the statutory damages may apply to acts of confusion and infringement on trade secrets
Considering the possibilities that the name of a business might lead to confusion and the difficulties of handling such cases when enforcing the law, the amendment provides that "a business whose registered enterprise is in violation of Article 6 of the New ACL shall, in a timely manner, undergo name modification registration; and before its name is modified, the original enterprise registration authority shall substitute its unified social credit code for its name." This will form a legal basis for the administrative authority to lawfully alter the business name.
In addition, as there are practical difficulties in proving either the obligee's losses or infringer's gains caused by the conducts of unfair competition or infringement on trade secrets, the new amendment provides an extra option for statutory damages, which has lifted the maximum penalty amount to RMB 3,000,000.
For further information, please contact:
Elliot Papageorgiou, Partner, Clyde & Co
elliot.papageorgiou@clydeco.com
