The current Chinese law against unfair competition dates back a long time: September 2, 1993. A first revision draft had been released and commented in the middle of 2004, but since then, no information had filtered as to the intentions of the Legislator to update and modernise the law. In March 2016, the State Council Legislative Affairs Office released a second draft for the revision of the law (the Draft).
Some of the main points are introduced below.
Acts of unfair competition.
The list of acts defined as unfair competition (Article 5) is modified. Two provisions of the current law are deleted: trademark counterfeiting (redundant with the trademark law) and forging quality symbols and making false representations as to the origin or qualities of goods (redundant with consumer protection law). The focus is on the act of using, without consent, the "business identifier" of another person, thus "causing confusion in the market". The terms of Article 2 ("name, packaging and decoration unique to a well-known product") are replaced by a wider expression "highlighting the use of a well-known business identifier". Besides, using a "registered or unregistered trademark" as a shop name or enterprise name, and using the name of a "well-known enterprise" in a trademark or domain names, thus causing "confusion in the market", are expressly listed.
In Article 6, the words "public utilities or other operators having monopolistic status" are replaced by a new concept: operators having a "relatively dominant position". Four practices considered as unfair are listed (if there is no good reason to justify them): forcing a counterparty to procure commodities from a designated supplier, imposing the purchase of certain goods, restricting the freedom of the counterparty to deal with others, overcharging. This "relatively dominant position" is defined very broadly in terms of finance, technology, market access, sales channels, creating certain dependency for the counterparty and making it "hard to transact with other parties".
Article 7 extends in detail the concept of "commercial bribery" ("seeking economic benefit", "failing to truthfully record economic benefit", or "promising to provide economic benefits for a third party").
Article 8 relates to false advertising, in a more detailed way than in the current law (for example "incomplete promotion" for the fact of not disclosing relevant information concerning a product, or stating what is not "commonly recognized in science as concluded facts").
Article 9 prohibits the infringement of other's trade secrets and is basically the same as the current law. The definition is slightly modified: the "practical value" (in the current law) is replaced by "having business value".
Article 10 details various prohibited practice of promoting sales with the award of prizes, where the conditions for obtaining such prizes are not clear or unreasonable, or with lucky draws with a maximum amount exceeding CNY 20,000.
Article 11 addresses the act of spreading false information etc. in order to damage the reputation of "others" (the current law only refers to "competitors").
Article 12 is the same as Article 15 of the current law (about "bid-rigging”) in tenders).
Article 13 is entirely new and refers to the use of "network technologies" or "application services" to "influence the choice of users and interfere with the normal operation of other operators", such as, "preventing them from using an application", "adding links to display another page", "forcing users to modify, close or uninstall lawful applications" etc.
And finally, a back-up clause (Article 14) meant to cover any other type of act "that damage the lawful rights and interests of others and disturb the market order", it being specified that all such other acts of unfair competition "shall be recognized by the Administration of Industry and Commerce of the State Council".
Powers of the administration for "control and inspection".
The powers (of the Administration for Industry and Commerce) are strengthened: entering the premises, ordering the operators to desist from the act and freeze the properties involved, seizure, access to account books including electronic data and audio-visual material, and applying to the judicial authority for freezing assets (Article 15).
The obligation to cooperate with the investigation lies not only on the operator but also on "other related entities and individuals" (Article 16).
Article 18 is structured in a similar way as its equivalents in the Trademark and the Patent Laws: in case of dispute caused by one of the acts listed in Article 5 (use of "business identifier" causing "confusion in the market"), the parties are invited to settle through negotiation, and in case the negotiation fails, they have the choice between civil litigation or asking the administration to resolve the dispute. The level of the fine that the administration may impose is significantly increased compared to the current law (currently one to three times the illegal income). It depends on the amount of the illegal income. If more than 50,000 CNY, the maximum is five times such illegal income. If less than 50,000 CNY, the maximum is 250,000 CNY. If it is difficult to calculate, the fine can be between 100,000 CNY and one million CNY. And in serious cases, the administration may revoke the business licence.
This range of fine (up to five times the illegal income or between 100,000 and one million CNY) applies to other articles of the law: Article 6 (abuse of a "relatively dominant position"), Article 8 (false advertising), and Article 10 (sales with prizes).
Violation of Article 6 (abuse of relatively dominant position) can be sanctioned by a higher fine: between 100,000 CNY and three million CNY if there is no illegal income or if it is difficult to calculate. The sales amount applies to Article 9 (trade secrets), Article 11 (false information), Article 12 (bid rigging), Article 13 (use of network technologies) and even to the "back-up clause" of Article 14.
Commercial bribery (Article 7) can be sanctioned by a fine between 10% to 30% of the illegal income.
The Draft introduces a very practical solution to solve the cases where an operator uses the trademark of another person in its company name (Article 5.1): if, following an order to change its name, the defendant still does not comply, the enterprise will be identified only by its registration number.
A new concept is added, equivalent to "indirect infringement": a person who knows or should know that an act of unfair competition is committed but still provides conveniences to the unfair operator may be fined as well (between 100,000 CNY and one million CNY).
Appeal against decisions by the Administration
A person who has been fined may apply to the higher level of the administration for reconsideration, or institute proceedings before the court according to the administrative procedure law.
The requirement of being "well-known" or "famous" (for the "business identifier") is maintained. This sets a difficult threshold for the victims of such unfair practices. It has been therefore suggested to delete this requirement.
Besides, the list of unfair acts covers a wide range of very different practices. Stealing trade secrets, using a business identifier of another person or spreading false information to damage the reputation of another, are acts that aim directly against a competitor. Whereas the act of commercial bribery, selling with a prize, or using controversial styles of promotion etc. may cause market unbalance, but are not necessarily aimed at a competitor. For the first category of act, it seems that the People's Courts of China are better adapted than the administration. In particular, the trade secret issues are an extremely sensitive topic, which requires a complex procedure of step-by-step disclosure of secret information. This can be better organised by the court than during an administrative raid. Furthermore, as regards trade secrets, some commentators are concerned that violations are often committed by employees or ex-employees, rather than by "operators". This does not seem to be taken into account in the draft.
As to the second category of acts, many suggestions have been made to mitigate the impact of what could be considered as wide and discretionary powers of the administration. Enterprises should not be held automatically liable by unauthorised practices, and should be able to submit a defence based on their internal rules and regulations.
This being said, the draft brings some very welcome solutions, such as Article 5.1 which solves the delicate problem of enforcing a judgment that order a company to change its name.