By He Wei, Zhu Zhigang & Paul Ranjard, first published by WTR

• The SAMR is calling for comments on the revised draft of the Anti-unfair Competition Law

• The draft addresses the emergence of new forms of unfair practices in the digital economy

• Other changes seek to reinforce the administrative and judicial supervision of traditional unfair behaviours

Introduction

On 22 November 2022 the State Administration for Market Regulation (SAMR) published the revised draft of the Anti-unfair Competition Law of the People's Republic of China, with a call for comments.

A significant number of articles of the draft relate to the emergence of new forms of unfair practices in the digital economy. This concern is summarised by the new Article 4, which provides that “business operators shall not take advantage of data, algorithms, technologies, capital advantage, platform rules, etc, to carry out unfair competition practices”.Most of the new articles introduced by the draft describe and address various ways of misusing the technologies that are now available in the digital economy.

However, other noteworthy modifications of the law aim at strengthening the administrative and judicial supervision of “traditional” unfair behaviours. Some of these new provisions are presented below, according to the relevant articles of the draft.

Principle of fairness - Articles 2 and 37

Article 2 of the Anti-unfair Competition Law provides for the general principle of fairness. This article has been progressively recognised by the People’s courts as a powerful tool to deal with various kinds of unfair practices (that are not specifically described in other parts of the law). For example, it has been possible to deal with abusive trademark squatting by making use of Article 2 of the law. The draft emphasises the importance of the general principle of fairness by introducing the concept of ‘contributory act’ and extending liability to those who provide assistance.

Until now, all litigation based on Article 2 was to be initiated before the People’s courts. Article 37 of the draft provides that the Administration for Market Regulation (AMR) shall have the power to investigate acts committed in violation of Article 2 and, therefore, to order cessation of the unfair acts and impose sanctions (confiscation of illegal income and fines up to Rmb5 million in serious cases).

Confusion - Articles 7 and 28

A few welcome modifications are introduced in Article 7 of the draft (which corresponds to the current Article 6 of the Anti-unfair Competition Law):

• Article 7(1) specifies that the infringing item may be not only a mark, but also a packaging or decoration;

• Article 7(2) adds the word ‘similar’to the (unauthorised) use of a name or trade name, among other things;

• Article 7(3) adds a few more types of web-related identifications (eg, self-media and icon of application software);

• Article 7(4) - which is new - introduces the concept of using the sign (with a certain influence) of another person as a search keyword in order to mislead the public.

• Finally, a last paragraph has been added which provides for a prohibition against selling products made in violation of Article 7(1), and also against the act of providing convenience (eg, warehousing, transporting, mailing, printing and concealing) to the infringers.

Article 28 of the draft provides for the sanctions. In the current law, administrative sanctions are limited to ordering the cessation of the acts, confiscating the illegal products and imposing a fine (up to five times the illegal turnover, or from Rmb50,000 to 250,000 in case there is no turnover). The new Article 28 adds that the AMR may also confiscate the illegal income and the manufacturing tools (without specifying whether they are exclusively used to manufacture the illegal products). Further, the seller of such products, if it knew of or should have known that they are infringing, is subject to the same sanctions. However, a seller who can prove that it did not know this, and provides information concerning the supplier, is exonerated of any liability (apart from the order not to sell the products).

False advertising - Articles 9 and 30

Article 9 of the draft, which concerns the various acts of misleading promotion, adds a new paragraph in order to make a distinction between promotion and advertising, and specifies that advertising is not covered by this law. However, the distinction is not very clear. It seems that the term ‘promotion’ would include all activities that aim to direct the attention of the public to the qualities or reputation of the product, whereas ‘advertising’ merely consists of displaying, explaining, describing the products and activities on the business premises and in exhibitions (the relevance of this explanation is not guaranteed).

An example based on practice might help: an infringer is spotted on the Internet, identified, located and sued in court, with a compensation claim calculated on the basis of the infringer’s own allegations concerning the number of its sales (as advertised on its website). The defendant argues that these sales numbers are displayed on the website only to attract consumers, but are not real sales and should not be taken into account for calculating the illegal profits and damages. Such a defence establishes the violation of Article 8 of the Anti-unfair Competition Law (Article 9 of the draft) and triggers the sanctions provided in Article 20 of the law (essentially fines).

Article 30 of the draft, which corresponds to Article 20 of the Anti-unfair Competition Law, adds that, in addition to the fines, the AMR may also confiscate the illegal income. Further, the draft provides that any person who knowingly provides assistance to the operator may also be sanctioned.

Traffic hijacking - Articles 15, 16, 36 and 38

The expression ‘traffic hijacking’ should be construed as encompassing all the ways in which a business operator may influence, in an unfair manner, the choice of consumers when they navigate the Internet, thus disrupting the fair competition order.

Article 15 of the draft provides some examples: “use of data, algorithms, technologies and platform rules”. Article 16(2) of the draft is more specific: “embedding links to their own products or services by means of keyword association, setting false operation options, etc, so as to cheat or mislead users to click”.

These unfair practices are sanctioned by Article 36 of the draft, which increases the penalties provided in Article 24 of the Anti-unfair Competition Law: for “ordinary cases”, the maximum fine (currently Rmb500,000) is raised to Rmb1 million and, for serious cases, the maximum fine (currently Rmb3 million) is raised to Rmb5 million.

In addition, Article 38 of the draft creates a new category of “extremely serious” cases of an “extremely malicious” nature where a fine, equal to between 1% and 5% of the sales of the previous year, can be imposed. Further, the operator may be ordered to cease business and the legal representatives may also be held liable, with fines ranging from Rmb100,000 to Rmb1 million.

Civil liability - Article 28

Article 17 of the Anti-unfair Competition Law, replaced by Article 28 of the draft, has been significantly modified.

The method of calculation of the prejudice is unchanged: firstly, the amount is determined in consideration of the actual losses suffered by the victim of the unfair competition acts; secondly, if such losses are difficult to ascertain, the amount may be determined by reference to the profits obtained by the infringer. Further, Article 17 of the Anti-unfair Competition Law provides that, for serious trade secrets infringement cases, the amount of compensation calculated according to one of the above methods may be multiplied up to five times (which is the equivalent of the “punitive damages” provided in other IP laws). Finally, when it is difficult to estimate the amount of the prejudice in confusion cases (current Article 6) and in trade secrets cases (current article 9), Article 17 of the Anti-unfair Competition Law provides that the court may award “statutory damages” with a maximum of Rmb5 million.

The new Article 28 of the draft extends the concept of punitive damages from serious trade secret infringement cases to all “serious violations of this law”, and provides that statutory damages can be applied in all cases, and not only in confusion and trade secrets cases.

Comment

These changes introduced in the Anti-unfair Competition Law by the draft are welcome. They show the efforts of the SAMR to keep up with the fast evolution of the technologies used in the digital economy. Unfair competition behaviours are becoming increasingly sophisticated, and knowing that the administration and the People’s courts are keeping up-to-date with this evolution is heartening.g.