China: PRC Anti-Unfair Competition Law (Draft Amendment 2016)

On February 25, 2016, China's Legislative Affairs of the State Council ("SCLAO") released the Draft Amendment of PRC Anti-Unfair Competition Law ("Draft Amendment") and started to solicit public comments on the Draft Amendment until March 25, 2016.  Click here for the unofficial translation of the Draft Amendment.  The current PRC Anti-Unfair Competition Law came into effect early on December 1, 1993 and with more than twenty years' enforcement, the regulatory authority of unfair competition-State Administration for Industry & Commerce ("SAIC")-decided to amend the law to fit into the ever changing market environment. 

The Draft Amendment is concerned with 30 articles among the 33 articles of the current PRC Anti-Unfair Competition Law and the major changes that the Chinese media focused on include the following aspects:

  1. Article 2 of the Draft Amendment broadens the definition of a "business entity" to include those who participate in manufacture of products or provision of services. Under the current law, the scope of a business entity is limited to those who are engaged in operation of products or provision of services. And the revised definition is consistent with the definition of a business entity under the PRC Anti-Monopoly Law which took effect on August 1, 2008.
  2. Notwithstanding the overlap of enforcement power with other regulatory authorities, Article 3 of the Draft Amendment grants the Administration for Industry & Commerce at or above county level the general jurisdiction over unfair competition misconducts, in particular for purpose of protecting business entities and consumers. For example, when a hospital is engaged in false advertising, the local Administration for Industry & Commerce Bureau is empowered to punish the hospital with fines for purposes of prohibiting unfair competition. In addition, the local Commission of Health and Family Planning is also empowered to suspend the practice license of the hospital for purpose of regulating health care providers.
  3. In terms of engaging in the market confusion misconduct by making use of the commercial sign, Article 5 of the Draft Amendment proposes the definition of "commercial sign"1 and "market confusion"2. Also, Article 21 of the current law generally imposes a fine of not less than one time but not more than three times the illegal earnings. But Article 18 of the Draft Amendment further provides for a categorized fine structure, where a business entity whose illegal operation revenue is more than RMB 50,000 shall be imposed a fine of less than five times of its illegal earnings, a fine of less than RMB 250,000 shall be imposed if there is no illegal earnings or the illegal earnings are less than RMB 50,000, and a fine of more than RMB 100,000 but less than RMB 1,000,000 shall be imposed on the basis of the seriousness of the illegal conduct if the illegal earnings cannot be calculated.
  4. Article 7 of the Draft Amendment clarifies the standards of determining a commercial bribery conduct through setting forth three types of commercial bribery conducts3 and defining commercial bribery as "the conduct whereby a business entity provides or promises to provide economic benefits to its trading counterparty or any third party who may have an impact on the transaction, to induce such trading counterparty or third party to seek trading opportunities or competitive advantages for that business entity." Therefore, the intent to induce should be a prerequisite to constitute commercial bribery. Article 7 of the Draft Amendment further increases companies' liabilities for individual employees' violations, providing that commercial bribery on the behalf of employees "shall be viewed as the activities by that business entity."
  5. In an action filed by a rightful owner of trade secrets against an infringer, Article 22 of the Draft Amendment provides for a clear division of burden of proof between the rightful owner of the trade secrets and the infringer. It provides that "where a rightful owner of trade secrets can prove that the information used by other party is substantively the same as its own trade secrets and the other party has the access to such trade secrets, the other party shall bear the burden of proving that the information is acquired through legitimate source."The Draft Amendment is expected to be finalized in the first half of 2016. We will keep monitoring the SCLAO's responses to the public comments solicited till March 25 and follow up with the date of effectiveness of the Draft Amendment.

Footnotes

1 "Commercial sign" refers to a symbol that differentiates product manufacturers or traders, including but not limited to the unique names of famous products, packaging, trade dress, shape of goods, trademarks, enterprises and conglomerates' names and abbreviations, trade names, main parts of domain names, website names, webpages, names, pen names, stage names, program names and logos of TV channels, etc.

2 "Market confusion" refers to misunderstanding by the general public of product manufacturers, traders or a particular relationship linked to product manufacturers or traders.

3 (i) seek economic benefits from an organization, department or individual that provides public services based either on the public service entity's actual provision of services or on the public entity's influence; (2) provide economic benefits between business entities based on false contracts and accounting documents; or (3) provide or promise to provide economic benefits to a third party who may influence the transaction to the detriment of the legitimate rights and interests of other business entities or consumers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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