China to Amend Its Law Against Unfair Competition


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The PRC Law Against Unfair Competition has been a valuable tool in fighting unfair business practices, including acting against passing off and trade secret theft. The Chinese government has released a draft of amendments to this law, which all who operate in China need to look at.

On February 26, 2017, upon reviewing, the 12th Standing Committee of the National People’s Congress released the amendments to the PRC Anti-Unfair Competition Law (“the Amendments”) for public opinion solicitation.

Background

The current effective Anti-Unfair Competition Law has been implemented for more than 20 years since its first release in 1993; whereas the economical
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and social environment in China has changed a lot. For instance, new types of unfair competition behaviors have emerged which are not listed under the current Anti-Unfair Competition Law; and there are overlapping or even inconsistency between the Anti-Unfair Competition Law and other laws, such as the Antimonopoly Law etc. and so on. Thus, it is necessary to amend the current Anti-Unfair Competition Law, in order to make it reflect what is happening now and more fit to the practice.

On December 30, 2015, the State Administration of the Industry and Commerce (“SAIC”) submitted the amendment reviewing draft of the Anti-Unfair Competition Law to the State Council. Upon receipt of the reviewing draft mentioned above, the Legislative Affair Office of the State Council released the reviewing draft for opinions in February, 2016, and re-amended the said reviewing draft upon taking consideration of the opinions and finally formed the current Amendments which was submitted to the NPC for review and opinion solicitation.

Amendments

Comparing to the current Anti-Unfair Competition Law, the Amendments has following changes worth of attention:

⋅ Amending the definition of the unfair competing behaviors to make it more fit to the current need (Article 2 of the Draft);
⋅ Adding that the State Council will establish coordinating system for anti unfair competition work (Article 3);
⋅ Adding new types of unfair competition behavior, such as “using main part of other’s domain name, website name, webpage, as well as the name and logo of channel, program, show, which results in people misleading such use as other’s goods” and so on (Article 6);
⋅ Adding provision on commercial bribery, especially the recognition of commercial bribery by employee. For instance, it provides that “employee of an operator uses bribery to obtain trade opportunity or competing advantage for the operator, it shall be determined as behavior of the operator unless the operator has proof to prove that it is the employee’s personal behavior” (Article 7);
⋅ Improving the protection for trade secret, such as adding circumstance of infringing trade secret by current or former employee, as well as obligation of protecting the trade secret by state personnel and professionals (e.g. lawyers, accountants) during their performance of duties (Article 10);
⋅ Adding unfair competition clause in the field of Internet (Article 14);
⋅ In order to cope with unfair competing behaviors in future, adding a miscellaneous provision concerning behaviors that violate the Anti Unfair Competition Law and severely damage the competing order, but are not stated in the current laws and regulations (Article 15);
⋅ Adding that any entity or individual have the right to report unfair competing behaviors to supervision and inspection departments, and such departments shall notify the reporter of the result and keep them confidential (Article 19);
⋅ Amending the Liability chapter accordingly, especially establishing the principle of civil liability prevailing the administrative liability (Article 20, 30).

Comment

Based on the above, it can be seen that the Amendments seeks to be more adaptable to the current practice by adding new types of or modifying the forbidden unfair competition behaviors, and one of such amendments is to define relevant forbidden unfair competition behaviors in the field of Internet etc.

Actually there were precedents involving Internet unfair competition in judicial practice already. For instance, the Beijing First Intermediate People’s Court issued ten typical cases in the field of Internet unfair competition in 2014 and below is some of the examples:

⋅ In a 2005 case which Baidu sued Beijing 3721 Technology Co., Ltd, the Court recognized that the defendant improperly set up warning in its software, which resulted in misunderstanding in users and led them to give up the choice of Baidu’s software. Thus, the Court decided that the defendant constituted unfair competition and compensated Baidu RMB 6000 Yuan.

⋅ In another 2005 case which Baidu sued Beijing Everest Technology Co., Ltd., the Court recognized that the defendant forcedly modified other’s webpage through “mysearch” software without other’s permit, which resulted in damage of the plaintiff’s business mode, decrease of the plaintiff’s website traffic, increase of the defendant’s website and links’ traffic. Thus, the Court decided that the defendant constituted unfair competition and compensated the plaintiff RMB 500,000 Yuan.

⋅ In a 2010 case which Tencent sued Beijing Sougou Technology Co., Ltd., the Court recognized that the defendant set up obstacle in its input method software to prevent users from using the plaintiff’s input method which misled the relevant public and violated the principle of good faith. Thus, the Court decided that the defendant constituted unfair competition and should cease infringement, eliminate effect and compensate the plaintiff RMB 240,000 Yuan.

⋅ Also, in a 2013 case which Baidu sued Beijing Qi Hu Technology Co., Ltd, the Court recognized that the defendant inserted warning mark without the plaintiff’s permit, which changed the content provided by the plaintiff to users and should be forbidden. The defendant also led users to install its 360 browser through the plaintiff’s search engine and hijacked traffic by modifying clue words displayed in the input area of the plaintiff’s search engine, which violated the principle of good faith. Thus, the Court decided that the defendant cease infringement, eliminate effect and compensate the plaintiff RMB 450,000 Yuan.

It can be seen that since the current Anti-Unfair Competition Law does not contain any provision concerning unfair competition behavior in the Internet field, the judge had to try those cases in accordance with the principle of honesty and credibility, which is provided in Article 4 of the General Principles of the Civil Law “in civil activities, the principles of voluntariness, fairness, making compensation for equal value, honesty and credibility shall be observed”, and such principle could be adopted to fill in legal blank to avoid injustice.

In the Article 14 of the Amendments, it adds four kinds of behaviors considered as unfair competition, and therefore should be forbidden, which are 1) without agreement, insert links in the online products or services legally provided by other operator and enforce a redirect; 2) mislead, fraud, force users to modify, shut down, uninstall online products or services legally provided by others; 3) disturb or damage normal operation of the online products or services legally provided by others; 4) maliciously make the online products or services legally provided by others incompatible. It is also worth of mentioning that in case of violation of the said Article 14, the imposed fine may be as high as 3 million Yuan. Thus, in future, similar cases like above will have clarified legal grounds.

It is also worth of mentioning that, the Amendments provides a miscellaneous clause in Article 15 to cope with new types of unfair competition behaviors emerged in future. It provides that with respect to unfair competition behaviors that are not stated in the Anti-Unfair Competition Law and other relevant laws and regulations, but severely damage the competition order and should be dealt with, upon research by the AIC department or the AIC department along with other State Council departments, if they consider such behaviors should be determined as unfair competition behaviors, they shall report to the State Council for decision.

In addition, compared to the current Anti-Unfair Competition Law, the Amendments deletes some articles, such as sales dumping (Article 11 of the current Law) and collusion during the tendering and bidding (Article 15 of the current Law) and so on. Such deletion does not mean that those behaviors are legal; instead, those behaviors are regulated by other laws already, such as the Antitrust Law, the Tendering and Bidding Law etc.

The opinion soliciting will be ended by March 25, 2017. It is possible that the Amendments may go through further modification upon taking consideration of all the opinions before its finalization. Thus, it is suggested pay attention to its follow-up moves.

ABOUT THE AUTHOR: Fei Dang and Matthew Murphy
Matthew Murphy and Fei Dang are members of the MMLC Group.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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