Anti-unfair Competition Law (2017) (Mainland China)

Joyce Wen

The Standing Committee of the 12th Term National People’s Congress adopted the new version of the Anti-unfair Competition Law (the “New Law”) during its 30th meeting on November 4, 2017.  The New Law overhauled the current Anti-unfair Competition Law of 1993 by revising the definition of unfair competition behavior as well as provisions concerning behavior intended to confuse the consumer, trade secrets, commercial bribery, and prize-based sales, and by adding provisions concerning unfair competition behavior on the Internet.  The New Law will go into effect on January 1, 2018 with specific provisions highlighted below.

1. Adjustment of basic principles

The amendments first make relatively significant changes to the basic principles of the Anti-unfair Competition Law by changing “in the course of market transactions” in Article 1 into “in the course of production and operation activities,” and the previous “publicly recognized business ethics” into “business ethics.”  Not only are the wordings used more rigorously, they also expand the application scope of Anti-unfair Competition Law.

In addition, the definition of “unfair competition behavior” is changed from the previous “behavior that undermines the lawful rights and interests of other operators and disrupts the social and economic order” into “behavior of an operator that violates the Law, disrupts the market competition order or undermines the lawful rights and interests of other operators or consumers during its production and operation activities.” This not only smoothes the logic but also more specifically indicate that the Anti-unfair Competition Law’s primary purpose is to protect the lawful rights and interests of other operators and the consumers.

2.Modification of “major unfair competition behavior”

Since the Anti-unfair Competition Law was enacted at an earlier time, and other competition laws were subsequently formulated, a number of provisions in the various competition laws contain repetitions and contradictions.  These amendments thus address this issue by deleting provisions concerning behavior of utility enterprises that restrict competition, the abuse of administrative authority, tie-ins, tender and bidding, false advertising, etc. and clarify the restrictions on such anti-competitive behavior.

On the other hand, new unfair competition behavior has also emerged in the market as time goes by.  These amendments also expand the previous scope of “trademarks, packaging and interior decoration” as “labeling” so that three dimensional trademarks can also be protected.  The previous “enterprise designations or names” are changed into “enterprise designations, social organization designations or names” with the inclusion of simplified designations, alias, pen names, or translated names of enterprises.  Miscellaneous provisions are made to further enhance the protection against behavior intended to confuse.  In addition, the New Law revises the provisions on false advertising so that the suppression against unfair competition behavior is expanded to cover false marketing, and the behavior of “organized false transactions” is also included in the scope of suppression.  Meanwhile, the New Law contains additional provisions concerning unfair online competition behavior via the Internet and prohibits an operator from using technical means to engage in any act that impedes or disrupts the normal operation of network products or services lawfully provided by other operators by affecting subscribers’ choices or in other manners.

3.Modification of legal liabilities

Compared with earlier legal requirements, the New Law imposes greater punishment against unfair competition behavior.  The maximum amount of fine which may be imposed under a lesser type of penalty is RMB500,000, while the maximum amount which may be imposed for a more serious  type of penalty is RMB3,000,000.  Particularly with respect to acts that infringe on the trade secrets of other and cause confusion in the market, the New Law specifically impose new statutory damages of up to RMB3,000,000.  In addition, the New Law also provides for concurrent civil and administrative liabilities and prioritizes damages under civil liabilities first.

The New Law represents the first amendment of the Anti-unfair Competition Law since its enactment, and is based on the actual social and economic developments in this country.  It is particularly significant in comprehensively deepening economic institutional reform, enhancing market supervision, creating a fair competitive market environment, and it also stipulates higher compliance requirements of enterprises.