China: Impact Of Amended Anti-Unfair Competition Law On Advertising And Marketing In China

On 4 November 2017, the Standing Committee of the National People's Congress issued an amended Anti-Unfair Competition Law of the People's Republic of China. Effective 1 January 2018, this is the first significant amendment to the law since its initial promulgation in 1993. The key changes include an expanded definition and scope of "Unfair Competition Acts" and increased penalties and enforcement measures better suited to new and emergent commercial practices.  Several new or enhanced provisions in the law could impact marketing and promotional activities in China.

  • "Confusing Acts": As part of the expanded scope of "Unfair Competition Acts", Article 6 establishes criteria for identifying "confusing acts". These are now defined as activity intended to mislead consumers to mistake one business' products or services for another's or to indicate certain relations or associations that do not exist. The following are specifically highlighted as comprising "confusing acts": (i) unauthorized use of a label identical or similar to another's product name, packaging or trade dress; (ii) unauthorized use of another's enterprise name (including abbreviations, trade names, etc.), the name (including abbreviations) of a social organization, or the name (including pen-name, stage names and name translations) of an individual; and (iii) unauthorized use of the main part of another's domain name, website name, or webpage.

Importantly, this provision appears to provide a way for a brand owner to protect assets that may not be sufficiently protected under intellectual property law.

Commercial actors undertaking anticompetitive behavior identified in Article 6 may be subject to fines of up to RMB 250,000; face business license revocation; and ordered to pay compensatory damages. If actual losses cannot be proven, the amount of illegal gains from such activity up to RMB 3 million may be awarded at the discretion of the court.

  • False Commercial Promotion: under Article 8, false or misleading commercial promotions related to product function, quality, sales, consumer reviews, and awards are deemed anticompetitive.

False commercial promotions and abetting other commercial actors using false promotions or misleading actions, such as organizing false transactions, will be subject to a fine of up to RMB 2 million and the possible revocation of business license in serious instances.

  • Commercial Slander: under Article 23, the fabrication and dissemination of false and/or misleading information by commercial actors in order to injure the credit or reputation of a competitor are prohibited. Commercial slanderers may be subject to a fines of up to RMB 3 million in serious cases.
  • Award Prizes: under Article 10, sales activity that includes the awarding of prizes must be undertaken with carefully drafted promotion rules and expressly specified prize types, terms for collecting prizes, prize values, and other information. Without this information, such behavior will be considered anticompetitive and subject the operator to fines of up to RMB 500,000. The highest amount that may be offered in a "lucky draw" prize award has been increased to 50,000 RMB from 5,000 RMB.
  • New Measures for Behavior Online: Article 12 prohibits acts that impede or disrupt the normal operation of online goods and services legally provided by other business operators by taking advantage of technical means to influence consumer choice, including to

...insert a link or force the user to visit another webpage in the network products or services law fully provided by other operators without their consent; to mislead, deceive, and force users to modify, shut down, and uninstall the network products or services law fully provided by other operators; Maliciously make the network products or services incompatible with the Internet products or services law fully provided by other operators; Other behaviors that obstruct or damage the normal operation of network products or services law fully provided by other operators.

For example, some e-commerce websites include compulsory advertisement pop-ups that cannot be closed for five or more seconds, while others block competitor payment platforms. Whether such activity is prohibited under the new law will be subject to future interpretations and case-by-case court ruling, but the possibility appears the be there. Article 24 imposes a fine of between RMB 100,000 to RMB 3,000,000 for Article 12 violations.

  • Increased Enforcement Measures: the amended law addresses past criticisms of poor levels of enforcement by enhancing the powers of enforcement agencies in several ways, including the power to investigate bank accounts and seize property. It also obligates subject parties to cooperate with any investigatory activities.  

The amended Anti-Unfair Competition Law updates this area of law to reflect the continuing prominence of anticompetitive activity in the Chinese market, as well as the diversification of retail activity in China over the past two decades. Businesses will need to be more cautious about aggressive promotional and competitive activates, while ordinary truthful advertising activities should not be materially affected. 

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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