Amendments of Anti-Unfair Competition Law

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(Author:Wen Zhong; Source: Liu Shen & Associates)

After 24 years of implementation of the Anti-Unfair Competition Law (hereinafter referred to as “Existing law”), the first amendment to the Existing law has been passed by the Standing Committee of the National People’s Congress. The new law will come into force on January 1, 2018.

There are three motives of this amendment: the first is that new unfair competition behaviors arise already which the Existing law did not enumerate, or even though had enumerated, the characteristics of the relevant behaviors have changed; such behaviors need to be supplemented or regulated in the revision law. The second is to perfect the legal liability system for unfair competition, strengthen the compensation for civil damages, and improve administrative investigation and punishment measures/procedures against unfair competition. The third, there have been certain overlapping or even inconsistent contents between the Existing law and other newly enacted laws, which calls for the amendment of the Existing law.

This article intends to proceed with reference to the context of the above-discussed three motivations and to make a brief introduction of the amendment specifically in relation to intellectual property protection in China.

I. Amendments on the definition of unfair competition and relevant behavior types

1. The change of the definition

According to Article 2 of the new law, there have been major changes in the definition of unfair competition. The behaviors of unfair competition must cause disruption or damage to the three kinds of interests, that is, disrupt the “market competition order” and/or undermine the “rights and interests of the business operators and the consumers.” Among the three interests, the brand-new one provided in the new law is consumer interests. By protection of the interests of consumers, the anti-law has become a consumer-oriented marketing practice law. To determine whether a behavior is unfair competition, it is necessary to consider whether the above three kinds of interests are disturbed or damaged by said behavior.

Said definition of the new law indicates that the order of market competition is the first factor to be considered when judging a behavior under the concept of unfair competition; that is to say unfair competition is in the first place a kind of damage to the market competition mechanism and/or public interest. Therefore, protection provided by anti-law is different from the protection provided by specialized intellectual property law, and unlike the specialized IP laws, it does not take private rights and absolute rights as its protection purpose. The intellectual property that exists as a private right should be mainly protected by special IP laws. In other words, anti-unfair competition law is not the “backdoor law” of intellectual property law. In comparison with the special law of intellectual property, the “anti-law” is weaker in the sense of protection strength to intellectual property and it pursues the principle of modesty.

Intellectual property right holders seeking anti-legal relief need to examine and analyze the positioning of the anti-law beforehand in order to more effectively protect the intellectual property infringement via anti-law.

2. Amendments on unfair competition behavior types

1) The new law stipulates common elements that constitute confusion of commercial signs/ business identifiers. WIPO sorts the business identifiers into trademark, trade name and business identifier other than a trade mark or trade name. The new law coordinates with the WIPO’s sorting, and expands the type scope of commercial identifiers, and lowers the threshold for determining on confusion of commercial identifiers.

First of all, article 6 sets out the common elements of confusion of commercial identifiers by clarifying that the confusion of commercial identifiers includes not only the confusion about the source of goods, but also the confusion about the might-be association between different business operators. The newly revised law clearly expanded the type and scope of confusion and explicitly added association-confusion into the law as one of the confusion types in addition to the product-source-confusion. It is also clear here that the constitution of association-confusion does not require “same kind of business area or identical or similar goods/services”, which is of great practical significance, especially when it comes to protection of trade name which used to require that the owners of the disputed trade names must be in the similar or same business area, or the trade names are used on similar or identical goods or services. This is very beneficial to right holders of prior trade name to enforce their rights in the real life.

Above-said amendment directly reflects the characteristics of anti-unfair competition protection, that is, basically, when talking about commercial identifier confusion, we are referring to the background that the business operators involved are engaging in similar or identical business area. However, if the use on non-similar goods is enough to cause confusions, that would be where the anti unfair competition law comes. The new law shows that anti-unfair competition protection focus on the legitimacy of competitive behavior, rather than act as a mere last resort backing up the special laws such as Trademark Law or Patent Law; it is not that the anti-law is set up to protect private rights, it is that it protects the related IP interests (private rights) through its deterrence of unfair competition behaviors.

For intellectual property right holders, when the commercial identifiers are imitated and the trademark law is not able to provide protection or can not protect in a time fashion, the anti-law provides a very operative remedy thereto.

2) The “name, packaging, decoration of recognized goods” in Article 5 of the existing law is expanded to include signs such as “the same or similar signs of name, packaging and decoration”. As such, the name, packaging, and decoration are not supposed to be deemed as the specific limitations on protection of the appearance and shape of products. Any other types of commercial identifiers can be equally protected just like the product name, packaging, and decoration as long as they are sufficiently distinctive. But not that simple, the relevant commercial identifiers are required to be of certain influence in the market as well. As for to what extent the influence can be called as “certain influence”, our opinion is that, compared with the reputation level provided in the Existing law, there is actually no substantive difference at all. It should be interpreted that as long as the commercial identifiers have been used in relevant market, you can safely claim a certain influence.

3) Article 18 of the new law stipulates that if the name of the enterprise registered by the operator violates the provisions of Article 6 of this Law, it shall promptly change the name; before the name is changed, the original enterprise registration authority shall replace its name with the unified social credit code.

During the implementation of the Exsiting law, it happens quite often that business registration names conflict with each other, and it has always been a difficult issue to be solved. Business administrations often fail to handle the relevant conflicts because the registered names of the relevant enterprises are all legally registered and one of them can not be simply invalidated. After the introduction of the new law, this unsolved problem should be solved. The earlier trade name owner may directly request the business registration authority to handle conflicts according to the new provisions of unfair competition law.

4) Article 6, paragraph 2 adds “social organization name” into the scope of commercial identifiers. The new law also protects the names of natural persons and social organizations with market value, so that the protection of related rights no longer depend on the personal rights of Civil Law. As a result, the once controversial topic of whether the right to commercialization has always been a legal right has finally landed.

Article 6, paragraph 3 also added the domain name, webpage and other commercial signs into the scope of commercial identifiers. All these amendments are addressing to the various free-ride-taking behaviors commonly seen in the current social environment. As the result of law amendments, said behaviors, which had been once in a gray area, now are subject to the prohibition of the new law which allows rights holders to actively pursue their rights by claiming unfair competition.

5) Article 8 of the new law provides for the prohibition of false propaganda not only addressing to taking fee ride of other’s good will and other commercial reputations, the new law but also prohibits publishing false sales and false consumer’s praises. The practice of hiring disguised consumers/buyers on the E-commercial platform to pile up disguised consumer’s favorable comments is just case in the point. Such behavior disrupts the order of market competition, unfairly reduces other competitor’s chance of transaction, and also deprives the consumer’s rights to know, meet all the new law’s principles and standards to determine an unfair competition behavior.

6) Internet unfair competition

Added several specific behaviors in Article 12 in the context of Internet-related business. In particular, operators who provide online software services may claim this article when they suffer malicious interference with the products of others and the basis to involve copyright protection is not that sound or convincible. Of course, the premise of this article is still to determine whether the interference act is unfair; it is not reasonable to cite this article just simply restricting the normal competition in the market such as if the so-called “interference” is just caused by the upgrading, innovation and development of Internet technologies.

7) Violation of trade secrets

Article 9, paragraph 2, of the newly revised law clarifies the risk of unfair competition infringement may be caused by hiring other competitor’s employees or former employees to gain a competitive advantage. Employers are given a high degree of attention obligation. At the same time, we think that this article does not exclude employees from becoming legal subjecgt that infringe on trade secrets. Hence, employers and employees still can be co-defendant accused of trade secret infringement.

II. The improvement of damage compensation, administrative investigation

The newly revised law has strengthened administrative coercive measures, expanded the scope of administrative penalties and increased statutory compensation to the amount of 3 million RMB.

III. Coordination of the laws

New law has drawn a line with antitrust law. In the process of revision, some people think that the antitrust laws have clearly stipulated the tied sale; and those who do not have market dominance power should be allowed to set trading conditions independently. Therefore, the new law deleted the relevant provision of Article 12 of the former law.

However, it is noteworthy that the judicial interpretation of technical contracts has actually regulated the tied sale behavior and does not care whether there is the market monopoly position. This is the factor to be considered when export of technology.

To sum, the new law summarizes the new types of unfair competition behaviors, eliminating some long-standing uncertain factors in the anti-law practice, resolving some problems which appear to be in the gray area for a long time. At the same time, however, the new law further clarifies the positioning of anti-unfair competition law. That is, it could not function the same as the IP special law does; it provides “accompanying protection” to IP holders in the process of prohibiting unfair competition behavior. in this sense, our point of view is, if want to successfully get special protection from Anti-Unfair Law to our Intellectual Property, it doesn’t matter much how private interests are damaged by certain behavior; what does matter is how the damage upon the private interests will result in damages to public interests. and that is our route of thinking when handle relevant cases.