By Albert Chen
Recently, as researched by Beijing No.2 Intermediate People’s Court (note: the link is in Chinese), the judicial protection of Online Intellectual Property Rights in China has not kept pace with the development of Internet technology and online services in the country. Among these protections, it has been found that the Anti Unfair Competition Law has not sufficiently covered all situations in which unfair competitive behavior is an issue. Specifically, it has been found that provisions of the Anti Unfair Competition Act cover only about fifty percent of cases involving Online Unfair Competition. As for the remaining cases, they can only be governed by the principles outlined in Article 2 of the Anti Unfair Competition Law , providing that “[. . .]an operator shall, in market transactions, abide by principles of voluntariness, equality, fairness, honesty and credibility, and observe generally recognized business ethics.” In today’s post, we would like to share our analysis on the Chinese Anti Unfair Competition Law, and to discuss each situation as can be seen under the current law.
I. Unfair competition conduct by general subjects
1. Confusing Behavior
Pursuant to Article 5 of the Anti Unfair Competition Law, the following are deemed to be confusing measures taken by the operator in the act of unfair competition:
(1) Passing off the registered trademark of another;
(2) Using, without authorization, the name, packaging or trade dress of well-known goods or using the name, packaging or trade dress similar to that of well-known goods, so that his goods are confused with the well-known goods of another, causing buyers to mistake them for the well-known goods of the other person;
(3) Using, without authorization, the business name or personal name of another person on his own goods, leading people to mistake them for the goods of the other person;
(4) Forging or illegally using, on his goods, quality assurance symbols such as symbols of certification and symbols of well-known and high-quality goods, falsifying the origin of goods, and making false representations which are misleading as to the quality of the goods.
The basic conditions required to establish statutory confusion is showing a likelihood of confusion among consumers, and that ultimate purpose of the operator, producing a product of poorer quality and commercial reputation, has benefited illegally by way of consumers confusing his product with that of a product possessing higher quality and better commercial reputation.
As prohibited by Article 8 of Anti Unfair Competition Law, the operator shall not “sell” or “purchase” their products through bribery. At the same time, all kickbacks or commission shall be recorded in an account by both the offering and receiving party; otherwise they shall be punished for participating in bribery. In other words, once the legal and accounting procedures have been carried out, all kickbacks and commission are permitted by law and won’t be considered unfair competition.
3. False publicity
Article 9 of Anti Unfair Competition Law prohibits the operator from carrying out misleading, false publicity by use of advertisements or other means. Article 9 also lists the scope of what is defined as “false publicity,” including quality, composition, function, use, manufacturer, product life, origin, etc. of the goods. Yet in practice, once false advertising surrounding the goods has been found, and consumer confusion or a likelihood of confusion has been established, according to Article 9 of the Anti Unfair Competition Law, it will be deemed as false propaganda; in other words, false advertising and promotion of the product. This very situation has been seen recently; during the price battle between 360buy.com and suning.com, despite the fact that fraudulent pricing is not within the scope of legally regulated situations, both parties are under investigation for suspicion of unfair competition due to fraudulent pricing.
It should be noted that in addition to the goods operator, in situations where the marketing operator is deemed to have known, or should have known under the situation that he was engaging in false advertising and publicity, that he may also be found guilty of false advertising. Moreover, pursuant to Article 38 of the Advertisement Law, when the advertisement operator can provide no name or address of the advertiser (including the manufacturer of the product), he or she shall assume full legal responsibility and all liability.
4. Infringement against trade secret
Pursuant to Article 10 of Anti Unfair Competition Law, the operator shall not undertake the following means to infringe another’s trade secrets:
(1) Obtaining trade secrets from the rightful owner by stealing, promising of gain, resorting to coercion or other improper means;
(2) Disclosing, using, or allowing others to use trade secrets of another obtained by the means mentioned in the preceding article;
(3) Disclosing, using or allowing others to use trade secrets that he has obtained by breaking an agreement or disregarding the requirements of the owners of the trade secrets to maintain the trade secrets in confidence.
Also, it stipulates that where a third party obtains, uses or discloses the trade secrets of others when he obviously has or should have had full awareness of the illegality of such acts, that he shall be deemed to have infringed the trade secrets of others.
Of course, to determine unfair competition we shall first define the term “trade secret.” By law, it refers to technical information and operational information which is not known to the public, which is capable of bringing economic benefits to the owner of the trade secret, which has practical applicability and which the owner of rights has taken reasonable measures to keep secret. In practice, taking into consideration the vague standard of “bringing economic benefits to the trade secret owner” or “having practical applicability”, most trade secrets are determined as being those requiring or having special protection or a particular method of access. For example, information within a company that would only be available or retrievable by those above a certain level of management is likely to be considered a trade secret.
5. Sale at unreasonably low price
Article 11 of the Anti Unfair Competition Law defines an “unreasonably low price” as being those prices resulting in the selling of goods below cost. There are exceptions:
(1) Selling fresh or live goods;
(2) Disposing of goods, the useful life of which is about to expire, or other overstocked goods;
(3) Reducing prices seasonably;
(4) Selling goods at reduced prices for paying off debts, changing the line of production, or closing the business.
6. Sales with conditions
Pursuant to Article 12 of the Anti Unfair Competition Law, the following conditional transactions are banned:
1) Making a tie-in sale against the wishes of the buyer
2) Attaching other unreasonable conditions.
7. Improper sales with prizes
Pursuant to Article 13 of the Anti Unfair Competition Law, improper sales containing prizes includes the following situations:
(1) Conducting sales with prizes attached by fraudulent means, falsely claiming the existence of prizes or intentionally rigging the prizes to be won by insiders;
(2) Promoting the sale of inferior but high-priced goods by offering prizes;
(3) Making sales with prizes attached in the form of a lottery where the amount for the highest prize exceeds 5, 000 yuan (RMB).
8. Damage to a competitor’s reputation
The law prohibits the operator to utter or disseminate falsehoods in order to damage the goodwill of a competitor or the reputation of his goods.
9. Tendering in bad faith
Collusive tendering as prohibited by the law includes those in collusion between the colluder as well as those between the colluder and the colluding-inviting party. The first situation may lead to a man-made high or low price, and the latter one could exclude competitors from fair competition.
II. Unfair competition conducts by special subjects
In addition to the general subject of unfair competition, the Anti Unfair Competition Law also stipulates that it may also levy fines if it is found that a public utility enterprise, operators having monopolistic status, or governments and their subordinate departments has abused its powers to restrict others from buying the goods of certain manufacturers, or restricting the distribution and circulation of such goods.
Due to their special position, the above subjects are commanding more economic resources. Once left alone, the abuse use of such a position, necessarily, could damage fair competition within the market. To our regret, despite investigations and lawsuits over the giants in the corporate field, like 3Q Battle, up until the present we have seen no successful case against local protection of business interests.