On 4 November 2017 the Standing Committee of the National People's Congress of China promulgated the new PRC Anti-Unfair Competition Law (“AUCL 2018”) after two rounds of drafts for soliciting public opinions. AUCL 2018 will take effect on 1 January 2018 and the current PRC Anti-Unfair Competition Law promulgated in 1993 (“AUCL 1993”) will cease to be effective accordingly. Compared with AUCL 1993, AUCL 2018 has brought several significant amendments as follows:
1. Revising the Definitions of Unfair Competition Activities
With the rapid social and economic development over last two decades, AUCL 1993, which was formulated according to the market practices back then, requires overhaul. Thus in AUCL 2018, definitions of some unfair competition activities, e.g. confusing acts, commercial bribery and false commercial promotion, have been revised as to cater for the current business environment. In addition, considering the booming online economy in recent years, the Chinese legislator also included an article in AUCL 2018 stipulating the unfair competition activities in the Internet.
a) Confusing Acts
According to Article 6 of AUCL 2018, confusing acts refer to the acts of a business operator that will lead people to mistake its product for products of others or to believe that there is certain relationship between its product and products of others. The Chinese legislator added two new types of confusing acts in Article 6 of AUCL 2018: (1) unauthorized use of names of well-known social organizations; and (2) unauthorized use of well-known main domain names, website names or webpage of others. Simultaneously, the Chinese legislator also deleted two types of confusing acts which are stipulated in AUCL 1993: (1) counterfeiting registered trademarks of others; and (2) falsely using symbols of quality on products, falsifying the origin of products, and making false and misleading representations on the quality of products. However, they are still prohibited under the PRC Trademark Law and the PRC Product Quality Law.
b) Commercial Bribery
The most significant amendment in relation to commercial bribery is that AUCL 2018 specifies three types of bribe recipients as followings:
• Working personnel of the business counterparty in a transaction;
• Units or individuals entrusted by the business counterparty to handle relevant matters; and
• Units or individuals that can affect the transaction by taking advantage of their powers and influence.
According to AUCL 1993, offering money to business counterparty and receipt of money by business counterparty are considered as offering and receipt of kickbacks, provided that it is not reflected in the financial books of the offering party and recipient. However, such clause has been deleted in AUCL 2018. Such deletion now leads to the discussion on whether AUCL 2018 signifies that such activities would not be considered as commercial bribery, but merely an accounting or tax issue of failure to make appropriate book-keeping. However, the Interim Regulations on Prohibition of Commercial Bribery promulgated by the State Administration for Industry and Commerce (“Commercial Bribery Regulations”) still have the same provisions of treating such activities as commercial bribery. It is also noteworthy that offering bribes to state-owned units as business counterparty may still constitute a crime if the relevant value threshold is met.
According to Article 7 of AUCL 2018, bribery offered by the working personnel of the business operator shall be regarded as being offered by the business operator itself. This is consistent with the provisions in the Commercial Bribery Regulations. However, AUCL 2018 provides an exemption, i.e. the business operator will not be held liable for such activities if it can prove that the behavior of its working personnel is not related to acquiring trade opportunity or competition advantage for such business operator.
c) False Commercial Promotion
According to Article 8 of AUCL 2018, false or misleading commercial promotions regarding functions, sales status, comments from consumers and awards of products are also not allowed. In addition, business operators shall not assist other business operators with their commercial promotions in a false or misleading manner by means of organizing false transactions or by other means. Under these new provisions, falsifying the number of purchase orders in e-commerce in order to mislead consumers, which are not uncommon in current e-commerce business in China, is also deemed as illegal.
d) Infringement of Trade Secrets
There is a slight difference between AUCL 1993 and AUCL 2008. According to Article 9 of AUCL 2018, if a third party clearly knows or should have known that the trade secret is obtained illegally but still allows others to use such trade secret, such act shall also be regarded as infringement of the trade secrets. While in AUCL 1993, there is no such provision. Besides, AUCL 2018 further enhances the protection of trade secrets by setting obligations on administrative authorities and their working personnel. The administrative authorities and their working personnel are obliged to keep the trade secrets obtained during investigations confidential. If the working personnel of administrative authorities violate such provision, they may be subject to administrative punishment.
e) Prize-giving Sales
The Chinese legislator added one new type of unfair competition activity in prize-giving sales, i.e. prize types, terms for collecting prize, value of prize, or other relevant information is not expressly specified, which affects the collection of prizes. In addition, in a prize-giving sale in form of a lucky draw, the highest amount of the prize is now increased to 50,000 RMB from 5,000 RMB.
f) Commercial Slander
Article 11 of AUCL 2018 stipulates that the business operator shall not fabricate or disseminate any false information or misleading information to damage the reputation of its competitors or products of its competitors. Compared with AUCL 1993, the new law extends the definition of the commercial slander. Under AUCL 1993, only fabricating or disseminating false information is deeded as commercial slander.
g) Unfair Competition in the Internet
AUCL 2018 defines several unfair competition activities in online business in its Article 12. Business operators shall not take advantage of technical means to obstruct or damage the normal operation of network products or services legally provided by other business operators by influencing network users making choices or by other means:
- inserting a link or a forced destination jump into the network products or services legally provided by other business operators without their consent;
- misleading, deceiving or forcing network users to modify, close or uninstall the network products or services legally provided by other business operators;
- maliciously making the network products or services incompatible with the network products or services legally provided by other business operators; and
- any other act that obstructs or damages the normal operation of network products or services legally provided by other business operators.
2. Distinction between AUCL and Competition Law
AUCL 2018 makes a clear distinction between the AUCL and the PRC Anti-Monopoly Law. Abuse of market dominant position, abuse of administrative power by government agencies and bid-rigging, which belong to the regime of competition law and are stipulated in AUCL 1993, are now taken out from AUCL 2018.
3. Increasing the Penalties of Unfair Competition Activities
Compared with AUCL 1993, the legal liabilities of unfair competition activities are more severe and clear in AUCL 2018. AUCL 2018 included a basic principle for calculating the amount of compensation for the business operators suffering damages due to unfair competition activities, which is lacking in AUCL 1993. According to this calculation principle, the amount of compensation for the infringed business operator shall be subject to the actual losses suffered from the infringement; if the actual losses can be hardly calculated, such amount shall be determined in accordance with the benefits obtained by the infringing business operator from the infringement. The amount of compensation shall also include the reasonable expenses borne by the infringed business operator for stopping the infringement. In addition to the clear compensation mechanism, the administrative penalties of all the unfair competition activities have been obviously increased. For example, the upper limit of fines for commercial bribery and infringement of trade secrets has been increased from RMB 200,000 to RMB 3,000,000. Furthermore, according to Article 19 of AUCL 2018, in case that the situation of commercial bribery is severe, the authorities will revoke the business license of the business operator. In addition to the above, under AUCL 2018 the administrative penalties will be recorded in the public credit record of the business operators who conduct unfair competition activities.
4. Reinforcing Supervision and Inspection
Compared with AUCL 1993, AUCL 2018 newly introduced three new investigation measures in its Article 13, i.e. entering to the operating premise to inspect, sealing up and detaining the property related to the unfair competition activities, and investigating the bank account of the suspected business operator. This means after the AUCL 2018 coming into force, the supervision and inspection authorities will have more power to investigate the unfair competition activities. In addition, AUCL 2018 also provides the obligation of cooperation in its Article 28. The units or individuals who refuse to cooperate or refuse to be investigated shall be subject to administrative penalties imposed by the supervision and inspection authorities, and may be further subject to public security administration punishment imposed by public security authorities.
AUCL 2018 has enacted great changes based on AUCL 1993, including revising the definitions and the scope of unfair competition activities, clarifying the legal consequences of and increasing the penalties of unfair competition activities as well as reinforcing the supervision and inspection measures. Companies doing business in China shall be aware of these new developments, and make relevant amendments to their marketing strategies and business models taking into consideration of the changes under AUCL 2018.