On 4 November 2017, the Standing Committee of the National People’s Congress (NPCSC) passed the amendment to the PRC Anti-Unfair Competition Law (the AUCL), the first amendment since the implementation of the AUCL in 1993.
The revised AUCL became effective on 1 January 2018, bringing about important changes affecting intellectual property (IP) rights owners. The revisions regulate newly emerged unfair competition behaviors in the marketplace, provide clarity by removing provisions that are overlapping or conflicting with other laws as well as impose harsher penalties for offenders of unfair competition activities.
The main changes are summarized below.
1. Acts intending to cause confusion
The revised law prohibits a business entity from carrying out acts intending to cause confusion, which would mislead others into thinking that its products belong to another party or that there is an association with another party, by:
a. using without permission, a mark that is identical with or similar to product names, packaging or decoration of others with a certain degree of influence;
b. using without permission, the name of an enterprise, a social organization or an individual with a certain degree of influence;
c. using without permission, the main element of a domain name, website name or webpage with a certain degree of influence;
d. carrying out confusing acts that are intended to mislead others into thinking that a product belongs to another party or there is an affiliation with another party.
The main criterion for an act to cause confusion is that the act must be "misleading", which is in contrast with the current position that the act must be unfair and cause harm to competitors. Dilution is not covered under the revised law and the provision relating to counterfeiting registered trademarks has been removed to the extent that they have already been included in the PRC Trademark Law.
Another modification to the list of acts intending to cause confusion is the replacement of "famous" with "a certain degree of influence". Whilst this is a welcome modification making it less onerous for brand owners to prove the fame of their marks, the revised law does not define what is "a certain degree of influence". However, the use of this term is in line with Article 32 of the PRC Trademark Law.
The AUCL supplements the PRC Trademark Law as the latter generally only protects trademarks in respect of similar goods and services. The revised AUCL not only protects a wider range of business identifiers in addition to trademarks, it also expands the protection to cover dissimilar goods and services as long as the unauthorized use of an identical or similar business identifier is considered to be "misleading".
Where an act causing confusion has taken place, the local Administrations for Industry and Commerce (AICs) are empowered to impose a range of penalties, including orders to stop the illegal act and to confiscate the infringing goods. A newly added provision empowers the AICs to investigate the bank accounts of the infringer.
In addition, the AICs are now entitled to impose higher fines than before, with the severity of the fine still tied to the amount of the illegal turnover. If there is no illegal turnover or the illegal turnover is less than RMB 50,000 (~USD 8,000), the AICs can impose a fine up to RMB 250,000 (~USD 38,000). Where the illegal turnover is over RMB 50,000, the AICs can impose fines up to 5 times the illegal turnover. In serious circumstances, the business license of the offender may be revoked. In the case of an infringing trade name, the trade name will be replaced by the social credit number of the enterprise before the trade name is changed formally. This will resolve the constant problem in practice where infringers have refused or delayed the name change process.
Current PRC laws are unclear about the handling of conflicts between trademark rights and trade name rights. The revised law helps to clarify this issue because it forbids enterprises from using names containing words that are identical or similar with the names of famous goods or services which arguably also include trademarks.
2. Misleading promotional activities
Misleading promotional activities not only include general false advertising activities which are forbidden under the PRC Advertisement Law, but also include other unscrupulous promotional tactics prevalent in online marketing and employed on e-commerce platforms. The revised law specifically addresses false or misleading representations as to sales performance or popularity of a product, user reviews and awards or accolades received. The revised law also provides for the situation where promoters provide services of false or misleading promotion to merchants, by arranging bogus sales purchases to boost sales figures or adopting other misleading tactics.
Violations are punishable with fines between RMB 200,000 and RMB 1,000,000 (~USD 30,000 to USD 154,000) and in serious cases, fines between RMB 1,000,000 and RMB 2,000,000 (~USD 154,000 to USD 307,000) and the revocation of business license. These punishments are consistent with the consequences for conducting false advertising in violation of the PRC Advertisement Law.
3. Trade secrets
The definition of trade secrets set out in the current AUCL has been modified in the revised law to read "….technical information or business information which is unknown to the public, has commercial value and for which the rights owner has taken corresponding measures to ensure confidentiality."
The requirement that a trade secret possess "practical value" in the old law has been removed, broadening the scope of trade secrets.
More importantly, the revised law provides clarity on the involvement of third parties in trade secrets infringement cases. A third party will be infringing upon a proprietor’s trade secret, if he/she is aware that the proprietor’s employee or ex-employee, other organization or individual has obtained the trade secret through illegal means. This is a welcome improvement as in practice, there has been numerous trade secrets cases involving employees where the third party has not been found liable for trade secrets infringement. Since an employee is not a competitor against an employer, it remains to be seen whether a proprietor's current employee can directly be held responsible for infringing trade secrets under the revised law.
Violations are punishable with fines between RMB 100,000 and RMB 500,000 (~USD 15,000 to USD 77,000), or between RMB 500,000 to RMB 3,000,000 (~USD 77,000 to USD 460,000) in serious cases.
In addition, the revised law requires authorities to maintain the confidentiality of any trade secrets during investigation.
4. Commercial libel
The revised law provides a wider scope for commercial libel by including the fabrication and publication of false and misleading information.
Fines for committing commercial libel range between RMB 100,000 and RMB 500,000 (~USD 15,000 to USD 77,000), or between RMB 500,000 and RMB 3,000,000 (~USD 77,000 to USD 460,000) in serious cases.
5. Prize sales
The revised law expressly prohibits prize sales that are unclear about the types of prizes, the terms for prize redemption and the amount of prize money or gifts, suggesting the authorities will remain rigid in clamping down on bogus prize sales.
The maximum amount of prize money that can be redeemed has been increased from RMB 5,000 (~USD 766) to RMB 50,000 (~USD 8,000).
Other noteworthy changes to the AUCL
The AUCL also introduces new provisions targeting internet-related unfair competition activities. It mainly represents a codification of existing case-law principles applied by the PRC courts. Specifically, the revised law also regulates four types of online unfair competitive conducts by prohibiting business operators from:
i. inserting hyperlinks or causing URL redirection in other operators' webpage or application services without its permission;
ii. misleading, deceiving or compelling end-users into altering, closing or uninstalling products/services of other internet providers;
iii. maliciously rendering the products/services of other internet providers incompatible; or
iv. disturbing the provision of internet products or services in general (a "catch-all" provision).
Violations are punishable with fines between RMB 100,000 and RMB 500,000 (~USD 15,000 to USD 77,000), or between RMB 500,000 and RMB 3,000,000 (~USD 77,000 to USD 460,000) in serious cases.
The definition of "business entity" has been expanded to include manufacturers and service providers, whether they are incorporated or unincorporated entities. Under the old law, a business entity refers to a legal person, an economic entity or an individual who engages in commercial business or for profits service. The expansion is a welcome development as a larger scope of entities will be held accountable for unfair competition.
Implications for brand owners
Protection awarded to brand owners under the revised law is improved as are penalties for violations more heavy-handed. Reviewing and re-strategizing enforcement portfolios in China will be essential to ensure the maximum is capitalized from the revised law.