Highlights of the PRC revised Anti-Unfair Competition Law and key points for foreign enterprises

On November 04, 2017, China’s National People’s Congress passed the revision of the Anti-Unfair Competition Law (“Revised AUCL” or “Law”).  The Revised AUCL came into effect on January 01, 2018.

It is the first amendment of the Anti-Unfair Competition Law since its enactment in 1993 (“AUCL 1993”).  The Revised AUCL focuses on situations and issues found in emerging business behaviours in the market in recent years, and seeks to strengthen and improve the rules and regulations against unfair competition.

Highlights of the Revised AUCL

The Revised AUCL is a major overhaul of the AUCL 1993 by including principles and definitions, eliminating overlaps with other related laws and regulations, adjusting penalties, adding new provisions and deleting outdated provisions, etc.  In this article, we highlight the following three main points among all the changes which are of particular importance.

 I.           Change of the definition of unfair competition

Article 2 of the Revised AUCL provides that “an unfair competition act as mentioned in this Law refers to in the production and operating activities, a business operator’s act violating the provisions of this Law, disrupting the market competition order and infringing upon the lawful rights and interests of another business operator or consumer”.  In the revised definition of “unfair competition”, the lawful rights and interest of consumer are included for the first time.  In comparison, the AUCL 1993 definition of “unfair competition” only mentioned “another business operator” rather than consumers.

This change means that a consumer would now have the right to bring a lawsuit as plaintiff against a business operator for its unfair act which disrupts competition.  In practice, it will need further interpretations by the authorities to see how such a lawsuit may be commenced (e.g. the proper cause of action).

 II.          New rules on the unfair competition using Internet technologies

The Revised AUCL adds specialized contents on unfair competition acts committed through using the Internet, which is one of the most concerned points in this amendment with the development of times and flourish of technologies.  Article 12 of the Revised AUCL stipulates that “a business operator shall comply with each provision of this Law when engaging in production and operating activities by using networks.  A business operator shall not hinder or damage a network product which is lawfully provided by other business operator or normal running of a service, by using technical means and by influencing a user's choice or through other means”.

On the one hand, some unfair competition activities in the Internet field introduced under the new Law are expansions of existing unfair competition acts, which should be regulated by applying other relevant laws.  On the other hand, other unfair competition acts which are unique in the Internet field and are carried out by using technical means are now dealt with in Article 12 of the Revised AUCL which lists three items of unfair competition behaviors by using technical means, and one miscellaneous provision to cater for future development.  While the new Law serves to protect Internet innovations, it also maintains the market competition order in this regard.

 III.         Prohibition of false commercial publicity

Due to the serious threats of false commercial publicity in the e-commerce field, Article 8 of the Revised AUCL refines the provision as “a business operator shall not conduct any false or misleading commercial publicity in respect of the performance, functions, quality, sales status, user evaluation, and awards received in respect of its commodities etc., in order to defraud or mislead consumers.”  A new provision is also added that “A business operator shall not help other business operators to conduct any false or misleading commercial publicity by means of organizing false transactions, etc.”

We can foresee that illegal operators like “internet ghostwriter” who help with scalping, hyping credits, deleting negative evaluations, organizing false transactions, etc. will be severely punished in the days to come.  Consumers should have a better online shopping environment with the promulgation and effective implementation of this Article.

Other points that are worth noting

Besides the aforementioned highlights of the Revised AUCL, business operators should also take note of the following revisions.

 I.           Counterfeiting and confusing acts are further defined

Article 6 of the new Law further defines counterfeiting and confusing acts as “(1) using without permission a label identical with or similar to others' product names, packaging or decoration that has a certain degree of influence; (2) using without permission others’ enterprise names (including abbreviations, trade names, etc.), social organization names (including abbreviations, etc.) or names (including pen names, stage names, translated names, etc.) that have a certain degree of influence; (3) using without permission the main parts of others’ domain names, website names, webpages, etc. that have a certain degree of influence; (4) Other confusing acts which are sufficient to cause its products from being mistaken for the products of others or from being mistaken as having specific connection with others. ”

In order to keep up with the Trademark Law, this Article changes the word “famous” originally used in the AUCL 1993 to “a certain degree of influence”.  But the standard of “a certain degree of influence” is not clear yet. By sub-Article (2), the trade names and abbreviations of enterprises or social organizations, pen names, stage names and translated names of natural person are clarified as being protected.  Besides, other network confusing acts like pretending others’ domain names, website names and webpages, etc. are also brought into the scope of this Law.

Under Article 18.2 of the Law, “if the enterprise’s name registered by a business operator breaches Article 6 of this Law, the business operator shall undergo name modification registration timely, before the name is modified, the original enterprise registration authority shall substitute its unified social credit code for its name.”

 II.          Scope of bribery is changed

Article 7 of the Revised AUCL provides that commercial bribery (to be distinguished from the bribery acts relating to government officials under the PRC Criminal Law) shall consist of the intent to “pursue business opportunities or competitive advantages”.  This Article lists out three types of recipients of commercial bribe: “(1) employees of transaction counterparties; (2) entities or individuals authorized by transaction counterparties to handle matters; (3) entities or individuals that exploit authority or influence to create an impact on the transaction.”

From the above three types of recipients, we can see that the “counterparty” itself may not be considered as bribe-taking entity, benefits offered by a business operator to its counterparty in a transaction will generally no longer be treated as commercial bribery so long as the benefits are accurately recorded in the account books of both the business operator and the counterparty. It is unclear whether it would be considered as bribes if the benefits would ultimately be used by the employees (or other qualified recipients as defined).  We would still need to follow the actual interpretation and enforcement of Article 7 of the Revised AUCL in practice.

Meanwhile, this Article expands the category of bribe recipients to include, not only individuals from the counterparties of a transaction but also a third party (an individual or an entity) who may affect a transaction by using its functional power or influence.

In addition, where a staff member from a business operator solicits a bribe, it shall be deemed as the act of the business operator unless it can be proved otherwise.

 III.         Investigation powers are enhanced

The Revised AUCL expands the authority’s investigation powers, including the power to enter a business premises where there is suspicion of an unfair competition act being conducted; the power to seal up and to seize properties relating to a suspected unfair competition act; and the power to access a bank account of a business operator who is suspected of conducting unfair competition acts.  Before exercising such powers, approval must be obtained from the main responsible person of the relevant authority as a measure to avoid abuse.

Conclusion

The Revised AUCL has updated and covered the latest common acts of unfair-competition in practice, which will impact the business operation of all market players.  It is important for companies operating business in China to review their compliance programs in order to reduce the legal risk of infringement under the Revised AUCL.