Introduction

The Anti-unfair Competition Law dates back to September 2 1993. The first draft revising the law was released for comment in mid-2004, but no further information on the legislature's intent to update and modernise the law was provided until March 2016, when the State Council Legislative Affairs Office released a second draft of the revised law.

This update discusses the impact of the law on intellectual property.

IP infringement

The list of infringing acts that constitute 'unfair competition' (Article 5) has been modified and two provisions have been removed:

  • trademark counterfeiting (now redundant as a result of the Trademark Law); and
  • forging quality symbols and making false representations as to the origin or quality of goods (now redundant as a result of the Consumer Protection Law).

The draft law focuses on the act of using another party's 'business identifier' without consent, thus causing confusion in the market. The terms of Article 2 (ie, "name, packaging and decoration unique to a well-known product") have been replaced by the wider expression "highlighting the use of a well-known business identifier". In addition, the use of a registered or unregistered trademark as a shop or enterprise name and the use of a well-known enterprise's name in a trademark or domain name – thus causing confusion in the market – have been expressly listed.

Article 9 prohibits the infringement of another party's trade secrets and is essentially the same as the current law. The definition is slightly modified: "practical value" in the existing law has been replaced by "having business value".

Legal liabilities

Article 18 is structured similarly to its equivalent sections in the Trademark Law and the Patent Law: in the case of a dispute caused by one of the acts listed in Article 5 (ie, use of a business identifier and causing confusion in the market), parties are invited to settle through negotiation and – in the event that negotiation fails – can choose civil litigation or the administration's resolution. The level of fine that the administration can impose has been significantly increased compared to the current law (in which it is one to three times the amount of illegal income). The fine will depend on the amount of the illegal income:

  • If the illegal income is more than Rmb50,000, the maximum fine will be five times the illegal income.
  • If the illegal income is less than Rmb50,000, the maximum fine will be Rmb250,000.
  • If the illegal income is difficult to calculate, the fine will be between Rmb100,000 and Rmb1 million.
  • In serious cases, the administration may revoke the infringer's business licence.

This range of fines also applies to Article 9 (ie, trade secrets).

The draft law introduces a practical solution for cases where an operator has used another party's trademark in its company name (Article 5.1). If the defendant fails to comply with an order to change its name, it will be identified only by its registration number.

A new concept that is equivalent to 'indirect infringement' has been added. A party that knows or should know that an act of unfair competition has been committed but still provides conveniences to the unfair operator may also be fined between Rmb100,000 and Rmb1 million.

Appeals against administration decisions

A party that has been fined can apply to the higher level of the administration for reconsideration or institute proceedings before the court according to the Administrative Procedure Law.

Comment

The requirement for a business identifier to be 'well known' or 'famous' has been maintained, which sets a difficult threshold for victims of unfair practices. It has therefore been suggested that this requirement be removed.

The law's list of unfair acts covers a wide range of different practices – both those that are aimed at competitors (eg, stealing trade secrets or using another party's business identifier) and those that are not. Chinese courts appear to be better adapted to deal with practices aimed at competitors than the administration. In particular, trade secret issues are extremely sensitive and require a complex step-by-step disclosure of secret information, which can be better organised by a court than during an administrative raid. Further, some commentators are concerned that trade secret violations are often committed by employees or past employees, rather than by 'operators', which does not seem to have been considered in the draft.

However, the draft law also brings welcome solutions such as Article 5.1, which solves the delicate problem of enforcing a judgment ordering a company to change its name.

For further information on this topic please contact Paul Ranjard at Wan Hui Da Law Firm & Intellectual Property Agency by telephone (+86 10 6892 1000) or email (ranjard@wanhuida.com). The Wan Hui Da Law Firm & Intellectual Property Agency website can be accessed at www.wanhuida.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.