China Confirms Amendments to Its Law Against Unfair Competition
On November 4, 2017, the Standing Committee of the National People’s Congress of China passed its comprehensive amendments to the PRC Law Against Unfair Competition (“LAUC”), which is its first ever major amendment since it first came into effect in 1993, The amendments commence operation on January 1, 2018.
Compared to the 1993 version, the 2017 amendments to the LAUC deletes four provisions that were overlapping with other laws, such as restricting competition by public utility enterprise, administrative monopoly provisions, predatory pricing, anticompetitive third line forcing, and others. Furthermore, it has also made some major amendments to the following provisions of the LAUC:
1. Confusing Behaviors
In accordance with the new Article 6 of the LAUC, it stresses that an operator shall not use other’s marks without authorization in a way that it misleads people to consider such operator’s products as the other’s or having certain association therewith. Those marks include ones that are the same or similar to name, package, or decoration of another's commodity; another’s enterprise name including shortened name, trade name etc.; another’s social organization name including its shortened name etc.; another’s name including pen name, stage name, transliteration name etc.; another’s major part of a domain name, website name and webpage and so on.
It can be seen that this amended article a) deletes the “counterfeiting a registered trademark of another person” part in the old LAUC, since the current Trademark Law already covers this in detail; b) expands the scope of the marks to be protected mentioned above by exemplifying some specific forms of the enterprise names (e.g. trade name etc.) and personal name (e.g. pen name etc.), as well as adding social organization names, major part of domain name and so on; 3) adds a miscellaneous provision to make it more flexible and applicable to the ever-changing practice. It is also worth of noticing that those marks mentioned above must be of certain influence; however, the standard of “certain influence” remains uncertain and it requires further legal interpretation and/or judicial practice to fill in the blank.
2. Commercial Bribery
In accordance with the new Article 7 of the LAUC, it provides that there are three types of persons could become the subject of accepting business bribery restricted hereunder, which are 1) employees of the counterparty of a transaction; 2) work unit or individual that are entrusted to deal with relevant matter by the counterparty of the transaction; and 3) work unit or individual that influence the transaction by using power or influence. Thus, compared to the old LAUC, it broadens the scope of the subject of accepting business bribery.
Also, a bribery conducted by the employee of an operator will be deemed as the conduct of such operator, unless the operator has evidence to prove that the employee’s bribery has nothing to do with obtaining transaction opportunity or competition advantage for the operator. According to the SAIC on a media release, such evidence of proof refers to that the operator has made legal, compliance and reasonable measures and adopted effective measures to supervise, and shall not indulge or indulge in a disguised form its employees to bribe.
3. False Promotion
In accordance with the new Article 8 of the LAUC, it provides that operator shall not make false or misleading commercial promotion, such as commodity nature, function, quality, sales status, user comment and awarded honors and so on to deceive and mislead consumers. Compared to the old LAUC, this new Article has deleted the content of “using advertisements or other methods” as well as replacing “component, function, manufacturer, effective term, origin place” with the content mentioned above. It also adds a new sub-clause with respect to organizing false transaction for the purpose of helping other operators with false or misleading commercial promotion.
It is considered that those new amendments to the article herein will be better for regulating the false promotion issues in the field of e-business. For instance, apart from making false promotion by an operator itself, helping others with click farming, deleting negative comments, falsifying transaction and so on, will be punished under the 2017 Law.
4. Infringing Trade Secret
In accordance with the new Article 9 of the LAUC, apart from “stealing, coercing or other unfair methods” provided in the old LAUC, it deletes “inducing with benefit” but adds two more unfair methods to obtain another’s trade secret, which are bribery and fraud. It further specifies that where a third party knows or should have known that current/former employee or other work unit/individual conduct the illegal activities listed in the said article, and still obtain, disclose, use or allow other to use such trade secret, it shall be deemed as infringement of trade secret.
This article also amends the definition of the trade secret by replacing “can bring economical benefit, practical utility” with “commercial value”, which is technical information and operational information that are not known to the public, of commercial value and taken with relevant secret-keeping measurements by the right owner. Thus, it is said that such new definition actually enlarge the object of the trade secret. For instance, failed lab data may also become the object of the trade secret under the new 2017 LAUC.
5. Lottery-Attached Sales
In accordance with the new Article 10 of the LAUC, it adds a new circumstance to be forbidden under the new LAUC, which is information about the lottery-attached sales (e.g. the types, condition for claiming prize, amount of the prize or prize etc.) is unclear and affects the prize claiming. The content in the old LAUC “using lottery-attached sales to promote goods that in low quality but with high price” has been deleted. Furthermore, it also increases the highest amount of the lottery-drawing prize to RMB 50,000 Yuan from RMB 5,000 Yuan.
6. Commerical Defamation
In accordance with the new Article 11 of the LAUC, it amends the “fabricate or spread false fact” in the old LAUC into “fabricate, spread false information or misleading information”, which further refines the content of the previous “false fact”.
7. Internet Unfair Competition Act
In accordance with the new Article 12 of the LAUC, it adds a whole new article to regulate the unfair competition acts in the field of Internet. The article exemplifies three forbidden acts which interrupt, restrict or affect other operators and users’ acts. Furthermore, it also sets up a miscellaneous provision therein to adapt the needs of the fast-changing practice.
This new article provides that operator shall not obstruct or damage the normal operation of the Internet products or service legally provided by other operators by using technical means through affecting users’ choice or other methods:
1) insert link and force a URL redirection on Internet products or services legally provided by other operators without obtaining their consent;
2) mislead, deceive or force user to modify, close, uninstall the Internet products or services legally provided by other operators;
3) maliciously cause incompatibility with the Internet products or services legally provided by other operators;
4) other acts that obstruct or damage the normal operation of the Internet products or service legally provided by other operators.
Investigation Against Acts of Unfair Competition
The 2017 amendments improve enforcing department’s inspection means. For instance, it adds new content as follows: entering the operation location that is in suspicious of unfair competition for inspection; seizing and detaining relevant property that is in suspicious of unfair competition for inspection; and inquiring bank account of the operator that is in suspicious of unfair competition for inspection. Such measurements must be taken upon written report to and obtaining approval from the person in charge of the supervision and inspection department. In case of the later two measurements, the approval must be obtained from the person in charge of the supervision and inspection department at upper level’s people’s government.
Another example of such improvement is that the supervision and inspection department and the personnel thereof are obligated to keep confidence of trade secret coming to their knowledge during the investigation. In addition, it also adds that any work unit or individual have the right to report to the supervision and inspection department with respect to suspicious unfair competition acts, and the department shall keep confidence of the reporter and notify the report of the result.
Liability Results From Acts of Unfair Competition
In order to further enhance the enforceability and the deterrent effect of the Law, amendments to the liabilities provided in the 2017 amendments as follows are worth of attention:
The 2017 amendments sets up a maximum amount of RMB 3,000,000 Yuan civil compensation resulting from violation of new Article 6 (confusing behaviors) & Article 9 (infringing trade secrets), if the actual loss of the right owner or the profit obtained by the infringer due to the said violation is hard to be determined, then the people’s court may decide the amount within the said scope in its discretion (Article 17 of the LAUC).
Apart from the civil compensation mentioned above, the maximum amount of the administrative fine is also greatly raised. For instance, in case of violating articles relating to bribery in business, infringing trade secret, commercial defamation and Internet unfair competition act, the maximum amount of administrative fine is raised to RMB 3,000,000 Yuan as well. In addition, the maximum amount of administrative fine for false promotion and lottery-attached sales are raised to RMB 2,000,000 Yuan and RMB 500,000 Yuan respectively. The maximum amount of administrative fine for confusing behaviors is also raised to five times amount of the illegal gains if it exceeds RMB 50,000 Yuan, or RMB 250,000 if there is no illegal gains or it is less than RMB 50,000 Yuan. Also, any administrative fine by an operator due to violation of the Law, such penalty will be recorded into the credit record and published in accordance with relevant laws, regulations. (Article 18-24 of the LAUC)
It further provides that where an operator violates the LAUC and shall bear civil, administrative and criminal liabilities, if its property is insufficient to pay, the civil liability shall prevail. (Article 27 of the LAUC)
It can be seen that the 2017 amendments have made a lot of major changes, including but not limited to re-adjusting the types of acts of unfair competition, improving the enforcement strength and increasing the punishment for the unfair competition. By deleting articles that are already covered by other laws (e.g. tendering and bidding, advertising related parts etc.), it straightens out the relationship and draws boundaries between the LAUC and other laws (the Tender and Bidding Law, the Trademark Law, the Advertising Law and so on); and resolves their overlapping issues in the past. On the other hand, it also adds new articles, such as the Internet unfair competition article as well as the raise of the administrative fine and so on, to make the 2017 amendments better reflect the new issues emerged in practice in recent years, and take them under the wing of the law. However, the effect thereof on regulating the unfair competition acts remains to be seen. The amendments to the LAUC will come into effect on January 1, 2018.
ABOUT THE AUTHOR: Fei Dang
Fei Dang is a Senior Associate in 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.