Along with the public consultation on amendment of the Anti-unfair Competition Law (“AUCL”), some long-time controversial topics of AUCL are awaiting to be clarified through this amendment. One of them is the necessity of defining the existence of “competition relationship” in AUCL cases. Related amendments proposed in the draft AUCL are the revisions on original Article 2 (definition of unfair competition), Article 5 (market confusion) and Article 14 (defamation of business reputation), which we will discuss in this article later.
In the traditional AUCL area, the existence of “competition relationship” between the plaintiff and defendant is deemed as the premise to apply to AUCL. This theory and practice is based on Article 2 of the current AUCL. Literally speaking, according to current Article 2, in a civil law suit involving unfair competition, if the defendant damages the legitimate rights and interest of other operators and disturbs the economic order, plaintiff’s related claims should be heard under the AUCL. Instead of the damages and disturb provided in Article 2, the existence of competition relationship is used by some courts as a standard to accept a case as an AUCL dispute, and such practice is also considered to be a device to prevent vexatious litigation in practice by some judges and scholars. Conventionally, only the business operators engage in the same industry could be considered as having competition relationship, which is also known as direct horizontal competition relationship.
However, currently such practice and theory is confronted with more challenges, especially in the unfair competition disputes involving the internet industry. As internet companies usually try to attract users’ attention by providing various services, and then turn such attention into interest, companies providing different products or services may be considered as competitors for competing with each other for attracting attentions of internet users. Therefore, in the internet industry, the unfair competition issues arising from companies which are not active in the same business or same market become more prominent. Meanwhile, this challenge is present in other industries as well, especially for cases involving market confusion and/or defamation of business reputation.
Regarding the above challenges, most of the judges and scholars agree that in an unfair competition case, the relationship between the plaintiff and the defendant should not be limited to the traditional concept of “competition relationship”, i.e. the direct competition relationship in the same business or industry. The relevant draft amendments of the AUCL appear to be in line with such agreement to weaken the limitation of the traditional theory and practice. In the draft Article 2, the legitimate rights and interests of consumers are added into the definition of unfair competition. It reflects the litigator’s idea to protect consumers as well as other operators. In the draft Article 5 (market confusion) and Article 14 (defamation of business reputation), the concept of competitors are deleted.
However, regarding the exact way to weaken the limitations of the traditional competition relationship theory and practice, different approaches have been developed. Some judges and academics propose that it is not necessary for courts to particularly determine the competition relationship between the plaintiff and the defendant when hearing an unfair competition dispute, and in some judicial practices, some courts keep silent about the competition relationship in some judgment. In comparison, some other courts in the judicial practices and academics consider that the existence of competition relationship is necessary, but the concept and the boundary of “competition relationship” should be enlarged. For example, in the relevant widely discussed cases Beijing Baidu v. Qingdao Aoshang, and Youku v. Cheetah Browser which were commented by the Supreme Court, the courts in both cases recognized the business operators that engage in different business as competitors.
In its Guidelines for Trial of Network-Related Intellectual Property Cases issued on April 13, 2016 (“Beijing High Court Guidelines”), the Beijing High Court has taken the second approach mentioned above. Article 31 of the Beijing High Court Guidelines extensively interprets the “competition relationship” as having existed in not only the goods or services of the undertaking can be substituted with each other in direct or indirect ways, but also the business activities of the business operators may be overlapped, interdependent, or correlated in other ways. Although the Beijing High Court Guidelines are only applicable for Beijing courts when deciding network-related cases, it does provide a reference for the legal field when facing difficulties caused by traditional competition relationship theory and practice. However, we still need to wait for future interpretation of the amended AUCL to see generally under the AUCL whether defining the existence of competition relationship is needed or whether such extensive explanation on the competition relationship can be accepted by lawmakers.
Meanwhile, it is interesting to compare the extended concept of competition relationship under the AUCL and Anti-Monopoly Law (“AML”). In the perspective of the AML, competition relationship is considered to be the relationship between or among business operators who engage in the same relevant product or service market, i.e. whose products/services are substitutable. The relationship of business operators whose businesses are only interdependent or correlated is unlikely to be considered as competing under the AML. If the extensive explanation of competition relationship is applied under the amended AUCL, it is necessary to distinguish the different concepts and scopes of “competition relationship” under the AUCL and the AML.
It is advisable that undertakings pay more attention to the latest development of AUCL amendment, although the boundary of competition relationship between companies engaged in the different business is still subject to the court’s discretion case by case until the official clarification on competition relationship under the AUCL comes out. Undertakings should be mindful that unlike the AML, competition relationship may be broadly defined under the AUCL, which increases undertakings’ exposure to unfair-competition disputes.