China's new Anti-Unfair Competition Law
Introduces additional offences for IP, commercial secrets and other market-conduct related violations
18 July 2019
China's main legislation on unfair competition practices has received a long-awaited update. Rules on unauthorised use of brands, packaging, corporate and domain names, commercial bribery and disclosure of trade secrets have all been strengthened in the new law which came into effect on 1 January 2018.
China revises its Anti-Unfair Competition Law
China's main legislation on unfair competition practices has received a long-awaited overhaul with the revised Anti-Unfair Competition Law (the "New Law") having come into force on 1 January 2018.
The New Law is the first update to the Anti-Unfair Competition Law originally promulgated in 1993 (the "Old Law").
The Old Law was formulated according to market practices current back in 1993. There is hence a need for many of the principles and definitions to be updated. The New Law has expanded the scope of commercial bribery offences and introduced additional offences for IP, commercial secrets and other market-conduct related violations. It has also eliminated many overlaps with the Old Law with other related laws/regulations and adjusted penalty amounts.
Compared with the Old Law, the New Law has brought in several significant amendments as follows:
Revising the definitions of unfair competition activities – Article 6 (and Article 18(2))
The categories of prohibited acts which cause market confusion (such as misuse of trade marks, name or packaging) have been expanded under Article 6 of the New Law and the criteria for obtaining protection have also been relaxed.
Article 6 provides that any of the following actions, which lead to confusion as to the origin or association of a product, will be prohibited:
- unauthorised use of the name, packaging or decoration, etc., or marks similar to the name, packaging or decoration of products of a certain level of influence;
- unauthorised use of another's corporate name (including short forms), personal name (including pen, stage and translated names), domain name or website name which are of a certain level of influence; and
- other confusing acts which would mislead people into believing that a product originates from a third party or has a particular association with a third party.
These changes are in contrast to the Old Law which only offered protection to "unique names, package or decoration" of "famous commodity". Although there is no clarity as to how to demonstrate "a certain level of influence" under the New Law, it is hoped that this will be clarified in subsequent implementing regulations. Drawing an analogy from the same standard used in the PRC Trade Mark Law, "a certain level of influence" should be a lower threshold than "famous". In addition, the New Law has also clarified that "short forms" of corporate names, domain names and website names are also protected.
On the other hand, the prohibitions relating to the counterfeiting of "registered trade marks" have now been removed to reduce overlaps with the PRC Trade Mark Law.
If it is a company's name which contravenes the provisions of Article 6 above, Article 18 of the New Law empowers the company registration authority to replace the company name with the company's unified social credit code pending the change of name procedures to be carried out by the business operator. This is a practical and welcome improvement for brand owners so that any infringing company names can be quickly removed with the aid of the relevant registration authority.
Trade secrets – Article 9
The New Law prohibits a business operator from:
- obtaining another's commercial secrets by theft, bribery, intimidation or other improper means;
- disclosing, using, or allowing third parties to use another's commercial secrets obtained by the means mentioned in the preceding paragraph; or
- disclosing, using or allowing third parties to use another's commercial secrets in violation of an agreement or another's requirements on keeping such commercial secrets confidential.
The New Law has not made substantial changes in respect of trade secrets infringement. The major changes are: (i) updating the definition of "trade secrets"; and (2) extending protection against third parties who do not misappropriate the trade secrets by themselves but who use/publish trade secrets with knowledge (or constructive knowledge) that the trade secret has been misappropriated. In this regard: -
- the New Law defines "trade secrets" as technical information and operational information not known to the public that has "commercial value" (and for which measures have been taken to maintain confidentiality). This is in contrast with the old definition which required "economic benefits and practical value". The new definition, which has removed the requirement for "practical value", offers a broader protection to cover trade secrets which may not have practical use; and
- It is also provided that, where a third party knows or ought to be aware that an employee or former employee of the owner of commercial secrets (or any other entity or individual) has committed any of the illegal acts listed above - but nonetheless accepts, publishes, uses or allows any others to use such secrets - the third party will itself be deemed to have infringed the trade secrets. Therefore, even though the third party may not have obtained the trade secrets directly from an employee, the third party could still be liable if the employee or former employee disclosed the trade secrets unlawfully in the first place.
Redefining commercial bribery – Article 7
The Old Law prohibits commercial bribery aimed at the sale or purchase of products. The New Law expands this prohibition to include commercial bribery aimed at securing a transaction opportunity or competitive edge. Furthermore, the prohibition is no longer limited to bribery of those directly involved in a transaction but now includes those who may use their powers to influence to affect a transaction.
New Rules against internet-related unfair competition by technical means - Article 12
The New Law also introduces new regulations against unfair competition acts in the online space. Persons are prohibited from:
- inserting a link into a network product or service legally provided by another operator to compel a destination jump without the approval of such operator;
- misleading, deceiving or compelling users into modifying, closing, or uninstalling a network product or service legally provided by another business operator;
- implementing in bad faith an incompatibility with a network product or service legally provided by another business operator; or
- any other act that impedes or disrupts the normal operation of network products or services legally provided by another business operator.
The key idea behind the conducts listed above is that an Internet company is prohibited from obstructing legitimate activities of competitors. The last prohibition appears to be a "catch-all" provision which can be used to enforce against a wide variety of objectionable acts in the online space.
Increasing the Penalties of Prohibited Activities
Very often, it is difficult to determine the actual loss suffered by the rights holder or the illegal gains obtained by the infringer, which are used as the basis for determining damages. Thus, the enhanced amount of penalties becomes very helpful as rights holders will often seek statutory compensation instead of trying to establish the damage caused by the wrongdoing or having to calculate any illegal gains made by the infringer, which are often intangible and difficult to estimate. See below some examples of the tougher penalties:
- Unfair Competition Activities – Article 6: Fines for contravention of Article 6 are increased to up to 5 times the illegal gains (an increase from up to 3 times the illegal gains). Where the illegal gains cannot be determined, a fine of up to RMB 250,000 may also be imposed.
- Commercial bribery – Article 7: The limit on fines for commercial bribery is increased from RMB 200,000 to RMB 3 million.
- Trade secrets – Article 9: The limit on fines for contravening the prohibitions on trade secrets has been increased more than tenfold from RMB 200,000 to RMB 3 million.
- Online trade practices – Article 12: Contraventions of the new regulations against unfair competition acts in the online space will also attract fines of up to RMB 3 million.
Cases of serious contraventions of Article 6 (unfair competition activities) and Article 7 (commercial bribery) may now result in the revocation of the business licence of the infringer as well.
Reinforcing Supervision and Inspection – Articles 13 and 28
The investigative powers of authorities to investigate acts of unfair competition have also been expanded under the New Law. For example, authorities are granted powers to (i) access the business premises involved in a suspected act of unfair competition for inspection; (ii) question the business operator under investigation; and (iii) inquire into the bank account of a business operator suspected of an unfair competition act.
A fine of up to RMB 5,000 (for individuals) and RMB 50,000 (for corporates) may be imposed for any obstructions to the supervision or investigation by authorities under the New Law.
In summary, the New Law has brought the Old Law up-to-date in many areas. In particular, it addresses some of the issues raised by advances in technology by setting out new objectionable online trading practices as unfair competition acts enabling enterprises/business operators to better safeguard their legitimate rights and interests when faced with unfair competition online. In addition, the New Law has also removed many ambiguities and overlaps under the Old Law to provide a much broader protection for rights holders which is to be welcomed.
Key Take-Away Points
- China's new anti-unfair competition law came into effect on 1 January 2018.
- There are expanded prohibitions against the unauthorised use of third party marks, names and brands.
- Protection of trade secrets and prohibition against commercial bribery are both broadened in scope.
- Prohibitions on unfair trade practices, including online trade practices, have also been updated.