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27 February, 2018
On 1 January 2018, major amendments to China’s Anti-Unfair Competition Law (“Anti-Unfair Competition Law”) came into effect to address, amongst other things, protection of trade secrets and false advertising practices.
On 4 November 2017, amendments to the Anti-Unfair Competition Law were passed in China, and these amendments took effect on 1 January 2018. Material changes have been made to Anti-Unfair Competition Law, which dates back from 1993, to the take into account technological advancement in the way we conduct business and to rectify inconsistency with China’s Anti-Monopoly Law 2008.
In this article, we highlight the key changes with regard to trade secrets and false advertising aspects of the Anti-Unfair Competition Law.
Trade Secrets
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The old law in 1993 |
The new law in 2018 |
Changes |
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A new definition for “trade secret” |
A trade secret should be of “economic interests” to the trade secrets owner or have “practical application”, and has been subject to reasonable steps under the circumstances, by the trade secrets owner, to keep it secret. |
“Trade secret” is defined as technical or business information which is (i) is not known to the public; (ii) has commercial value; and (iii) has been subject to reasonable steps under the circumstances, by the trade secrets owner, to keep it secret. |
The new law places emphasis on the “commercial value” of trade secrets. |
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What constitutes a breach of confidence in trade secrets |
“obtaining trade secrets by theft, promise of gains, coercion or other improper means” |
“obtaining trade secrets by theft, bribery, fraud, coercion of other improper means” |
The new law has removed “promise of gains” and added “bribery” and “fraud”. |
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Trade secrets disclosed by employees and former employees of the trade secrets owner |
If a person knows or would have known trade secrets have been obtained by other parties in breach of their obligations of confidentiality, and still obtains, discloses or uses such trade secrets, that person shall be deemed to be liable for a breach of confidence. |
The new law has expressly clarified that these “other parties” include employees and former employees of the trade secrets owner. |
The new law has specifically referred to employees and former employees of the trade secrets owner, ie. it is illegal to obtain, disclose or use trade secrets unlawfully disclosed by employees or former employees of the trade secrets owner. |
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Consequences of breach |
Injunction may be imposed to prevent any further unauthorised use or disclosure of trade secrets. |
The maximum fine for this offence has been increased from RMB 200,000 to RMB 500,000, or up to a RMB 3 million in serious cases. |
Penalties for a breach of confidence in trade secrets have been increased. |
False advertising
Another notable change brought by the newly amended Anti-Unfair Competition Law is that it has targeted advertising malpractices of online traders.
Under the new law, false or misleading advertising statements regarding the quality, function, sales status, consumer reviews and product awards are prohibited. “Sales status”, “Consumer reviews” and “awards” have been added to the old text to address malpractices which are relevant to e-commerce, eg. misrepresenting the number of purchase orders to mislead customers, or racking up user ratings and transaction volumes to enhance the perceived creditworthiness of the business. Offenders may face a fine of between RMB 200,000 and RMB 1 million, or up to RMB 2 million and their business licenses may be revoked in serious cases.
In addition, if there is any overlap between the scope of prohibition against false advertising under the Anti-Unfair Competition Law and China’s Advertising Law, the later would prevail.
Conclusion
The new Anti-Unfair Competition Law has broadened the scope of protection of trade secrets.
The new law also seeks to protect consumers on online e-commerce platforms. These amendments seek to benefit businesses by enhancing protection of trade secrets on one hand, and benefit consumers by updating the definition for false advertising on the other hand.
For further information, please contact:
Karen Ip, Partner, Herbert Smith Freehills
karen.ip@hsf.com
