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Insights e-Newsletter

The amended Anti-Unfair Competitive Law of People’s Republic of China (Amended AUCL)

Introduction

On November 4, 2017, the Standing Committee of the National People’s Congress adopted the amended Anti-Unfair Competitive Law of People’s Republic of China (Amended AUCL) and announced it would go to effect on January 1, 2018. In this regard, the AUCL comes into a new stage since it is the first time of amendment after two decades of formation in 1993. This is because of the less-developed legal regulations, which is in contract to the emergence of new business models and systems due to the development of the market economy. There also shows overlaps with other laws like the Trademark Law and the Antimonopoly law, etc. In general, the amended AUCL worth attention among all business entities given its important role in regulating and managing market competition and disorder.

Main amendments

The amended AUCL was made up of five chapters: General Provisions, Acts of Unfair Competition, Investigations upon Engaging in Unfair Competition, Legal Responsibilities and Supplementary Provisions. This newsletter is centred on 8 important amendments and is expected to give some implications to either business entities and individuals.

 

Chapter One: General Provisions

  1. Redefine unfair competition and extend to unincorporated associations

The unfair competition was redefined as “a business operator’s acts, in the production and operation activities (used to be in the market transactions), violating the provisions of AUCL, disturbing the socio-economic order and infringing upon the lawful rights and interests of another business operator or customers (used to be no customers)”.

In addition, the amended AUCL extends the applicable business operator from “a legal person or any other economic organization or individual” to “a natural person, a legal person and unincorporated associations”. Unincorporated associations are between legal persons and natural persons, mainly referring to social organizations unregistered by a legal person. In this regard, unincorporated associations lack legal personality, and they are not civil subject with no civil right. This means they can neither sign nor perform, and they do not have legal capacity to sue or be sued. In face of this amendment, operators of unincorporated associations, such as subordinates to legal persons, cooperatives, societies, foundations, schools or research centers, should be alert of the new policy and take action if possible.

 

Chapter Two: Acts of Unfair Competition

  1. The Act of Confusion

In chapter two, the amended AUCL introduces one new type of the unfair competitive act that amounts to confusion, misleading people to associate one product with other products or people. For example, a business operator uses the same or similar influential identifications such as commodity names, package, decoration without authorization. Also, it can be confusing and further unfair, if a business operator uses influential corporate names (including abbreviation and word number), social organizations (including abbreviation) and individuals (including pen names, stage names and translated names) without authorization. Besides, the unauthorized use of influential main domain names, website names and webpages would be seen as confusion as well.

  1. Discard regulations regarding public utility enterprises and the government

In the old version, a public utility enterprise or any other business operator occupying monopoly status by law shall not restrict people to purchasing commodities from the business operators designated by him, thereby precluding other business operators from fair competition.

Also, governments and their subordinate departments shall not abuse administrative power to restrict people to purchasing commodities from the business operators designated by them and impose limitations on the rightful operation activities of other business operators. Governments and their subordinate departments shall not abuse administrative power to restrict commodities originated in other places from entering the local markets or the local commodities from flowing into markets of other places.

 

*Case Study 1: Public Utility Enterprise, Qingyuan Water Ltd., Resrticts Competition

Qingyuan Water Ltd. (Qingyuan), is a Lian Yungang-based public utility enterprise that provides water service for the Ganyu district. For those who applied for water service, or fire-fighting equipments and fire service meters, they are have to pay Qingyuan 3000 to 5000 RMB cash deposit in the name of protecting the fire deamnd from misuse. Otherwise, Qingyuan would not provide them with the water service and fire-fighting facilities. Consequently, Qingyuan received in toal 407,000 RMB from 75 users including bureaus, schools, corporations, public institutions and individuals.
The decision of cash deposit is based mererly on the oral permission of several in-charging persons without documentary and written record, the permission of which thus is not legal evidence and belongs to unfair conditions. In this regard, the act to charge cash deposit is in breach of the sixth provision of Anti-Unfair competition law as restricting the competition. Hence, the supervision and inspection departments ordered Qingyuan to stop the illegal act and imposed a fine of 120,000 RMB.ingyuan Water Ltd. (Qingyuan), is a Lian Yungang-based public utility enterprise that provides water service for the Ganyu district. For those who applied for water service, or fire-fighting equipments and fire service meters, they are have to pay Qingyuan 3000 to 5000 RMB cash deposit in the name of protecting the fire deamnd from misuse. Otherwise, Qingyuan would not provide them with the water service and fire-fighting facilities. Consequently, Qingyuan received in toal 407,000 RMB from 75 users including bureaus, schools, corporations, public institutions and individuals.
Notably, the amended AUCL has discarded regulations upon public utility enterprises and the government, which means the new version would not be applicable any more for those public insititutions’ misconduct in the production and operation activities. However, this does not mean the regulations has been relaxed. On the contrary, the purpose of removal is to better and more strictly regulate those misconducts in the Antimonopoly Law, because the penalty in AUCL is way lighter than that of the Antimonopoly Law. Therefore, the public utility enterprises and the government should be mindful of this policy change and pay more attention to their activities.

 

  1. Define bribery recipients and impose vicarious liability

The amended AUCL defines that a business operator shall not resort to bribery for exchanging business opportunities or a competitive edge to three level of entities or individuals. Firstly, a recipient can be employees of the transaction counterparty. Secondly, a recipient involves entities or individuals entrusted by the transaction counterparty to handle relevant affairs. Thirdly, entities or individuals that use authority to influence a transaction. Notably, the amended AUCL seeks responsibility upon business operators whose staff engages in bribery unless there are evidence show that the conduct of their staff has nothing to do with business opportunities or a competitive edge.

  1. Extension to false or misleading product publicity

The false or misleading product information is not limited to performance, function and quality, added aspects including sales, user comments and prizes are also expected to be free from misleading or deceptive business publicity. Meanwhile, the business operator is not allowed to help other operators to make false or misleading publicity by organizing false transactions.

  1. Regulations about unfair competition of Internet production and operation

The amended AUCL begins to lay attention to the unfair competition in the Internet industry. In this regard, Internet business operators shall not impede and damage the valid Internet products of other operators by influencing the customers’ options with technological approaches. The first example is to insert links for target jumping in the products or services they provide to other operators without their permission. Second, to mislead, deceive or force users to change, close or uninstall other operators’ valid products or services. Third, to make other operators’ valid products or services incompatible maliciously. Fourth, to engage in other conducts that impede or destroy other operators’ valid products and services.

The new focus on Internet is reasonable when considering the rapid development and wide coverage of the Internet. This also implies that there is no tolerance for unfair competition in the Internet production and operation. In other words, the business competition should be regulated by law based on the value of fairness and inviolability of others’ rights, though it is a showcase of technology freedom.

 

*Case study 2: Sohu’s appeal against Meizu

The People’s Court of Beijing Haidian Division announced on December 11, 2017, about receiving the appeal from Feihu Information Technology (Tianjin) Ltd. (Feihu) and Sohu, Inc. (Sohu) against Meizu Technology Co., Ltd. and Meizu Telecom Co., Ltd. (Meizu).
Feihu and Sohu are operators of a Chinese online video platform, by which the main source of revenue comes from advertisements. But for the users, advertisements are annoying and would destroy their watching experiences. Based on this, Meizu produced a router that are able to block ads, and promoted the ad-blocking function as the main selling point, which attracted a lot of customers. In responding, Feihu and Sohu brought proceedings against Meizu, alleging that Meizu engaged in unfair competition by producing the ad-blocking router and claimed for 2.1-million RMB compensation. Till now, the case is still under processing.he People’s Court of Beijing Haidian Division announced on December 11, 2017, about receiving the appeal from Feihu Information Technology (Tianjin) Ltd. (Feihu) and Sohu, Inc. (Sohu) against Meizu Technology Co., Ltd. and Meizu Telecom Co., Ltd. (Meizu).
Glancing at the Chinese online video platforms, launching advertisements seems reasonable and valid, because the platforms have paid a large amount of money for the video copyright and thus make videos available to customers. If Meizu blocks the advertisements, while the video views might be surged in a short term, less videos are available since less video copyright are affordable by the video platforms without the investment from advertisers. In other words, the proceedings against Meizu might be approved when considering article 12 of the amended AUCL. The article regulates that business operators who conduct production and operation activities on the Internet should not impede and damage the valid internet products of other operators by influencing the customers’ options with technological approaches by making other operators’ valid products or services incompatible maliciously or engaging in other conducts that impede or destroy other operators’ valid products and services.

 

Chapter Three: Investigations upon Engaging in Unfair Competition

  1. Broaden investigation measures and strengthen regulation upon supervision and inspection departments

In this chapter, two main amendments are found important. One is the broadened investigation measures that the amended AUCL extends the scope of investigation from mere documents to operation sites, bank accounts and further the right to seal financial assets. Another amendment is that the regulation upon supervision and inspection departments are strengthened and become stricter. For example, functionaries, from 2018 on, have to prepare a written report to the main supervisor for seeking approval of investigation. The amended AUCL also adds a provision that enforce to publish the supervision and inspection result. In comparison, the 1993 Version has only one provision says that functionaries of supervision and inspection shall produce their certificates when supervising and inspecting unfair competition acts.

 

Chapter Four: Legal Responsibility

  1. Strengthen penalty for breaching AUCL

On the one hand, the strengthened penalty can be seen from the surge of the fine for breaching AUCL. For example, operators who engage in bribery might pay fines ranging from 100 thousand to 3 million RMB, which used to be 10 to 200 thousand. This is also true in the case of business secrets infringement. The fine was 10 thousand to 200 thousand RMB, compared with 200 thousand to 1 million now. On the other hand, seeking penalty case by case is also a showcase of the strengthened penalty. For instance, operators, involving in publishing or helping others publish false or misleading product information for business purposes, have to pay 200 thousand to 1 million RMB fines, but the fine can be up to 2 million RMB when it comes to severe circumstances. Take the withdrawal of licenses as another example. The application of this penalty has been widened that it is now applicable in misconducts of confusion, bribery and false or misleading publicity, however, it was only functioning upon misconduct of confusion.