Revision of the Anti-unfair Competition Law Shall Strengthen Striking with Internet Underground Economy in China

(By You Yunting) National People’s Congress, the China’s legislature, has authorized the State Administration of Industry and Commerce (the “SAIC”) to propose the revision draft of the  Anti-unfair Competition Law which has been implemented for more than twenty years in China. Recently, Shanghai Administration for Industry and Commerce held a meeting in making suggestions upon business operators and administrative authorities for the revision. In the meeting, I delivered a speech with the following presentation.

The Internet underground economy across the concealment, anonymity and technical barrier brought serious difficulties to be stricken with. But within its characters, i.e., quick transmission and strong damages, it is great harmful to the competition order of entity economy unless this growing problem is addressed. As such, it is very necessary for striking with the Internet underground economy in the revision of the Anti-unfair Competition Law.

I. The Anti-unfair Competition Law may revise the provision towards business operators who conducted unfair competitive practice.

Paragraph 3, Article 2 of the existing Anti-unfair Competition Law stipulates, for the purpose of this Law, business operators refer to legal persons, other economic organizations and individuals engaging in the trading of goods or for-profit services. (Goods referred to hereinafter include services.) At revision, the scope of the business operators should be extended to include the operators who contribute to assist the unfair competitive practice, except as prescribed hereof.

The operators assisting the unfair competitive behaviors play a part in the Internet underground economy, as some of the operators may be legal persons, other economic organizations and individuals who had some techniques and attempted to assist conducting unfair competitive behaviors. Their behaviors are considered illegal but less likely to commit a crime, and are the difficult bit in the management of legislation. If the Criminal Law cannot strike with these operators, it is only the Anti-unfair Competition Law that may regulate against them.

Because the infringing party may find it difficult to rely on other legal basis, except the Paragraph 1, Article 2 of the Anti-unfair Competition Law, if filing civil litigations against these operators. (Paragraph1, Article 2 of the  Anti-unfair Competition Law stipulates that, in carrying out transactions on the market, business operators shall follow the principle of voluntariness, equality, fairness, honesty and credibility, and observe generally recognized business ethics.) The operators of Internet underground economy may contain:

(1) Operators who develop the cheat program or assist bypassing the authentication mechanism;

Specific examples would be the cheat program developer for online games and plug-in software developer for instant messenger software. A famous example of plug-in software in China may be the Anthozoan edition of Tencent QQ, which could remove Tencent’s ads and identify the IP address towards online friends.

(2) Makers who conducts fictitious trading;

Examples may be sellers who act as funs of Zombie Wars on Weibo, makers who help the sellers on to increase the numbers of fictitious trading, or controllers who provide incorrect numbers of software downloads in the App Store.

(3) Service providers who offer extension services for unfair competition;

Robot accounts on Weibo which is programmed to automatically deliver speeches in damaging business credit; Websites which promote private servers for online games; Makers who leave unpleasant comments on the website of App Store.

These operators assisting to conduct unfair competition behaviors in the field of internet have the techniques and are services providers. What they have conducts is for the purpose of the violation of the Anti-unfair Competition Law and other laws. If these operators are not fixed, these third parties will produce great barriers for the development of small and medium-sized enterprises with following reasons. Firstly, these operators are anonymous and thus are unlikely for the victims to file civil litigations in preventing from infringement. As such, the victims would like take self-reliance relief, keeping with revenge by the same methods against their competitors. If so, there is an example where bad competitors drove out goods ones, and thus is likelihood of damaging the competition environments and orders.

These unfair competition behaviors resulting from Internet underground economy may not damage the interests of the public at first, but it will damage the competition environment of the public interests in the end by virtue of its anonymity. For these reasons, the use of public authority shall be used to regulate these unfair competition behaviors through the improvement over administrative enforcement. Fortunately, the revision of the Anti-unfair Competition Law at this time provides a legislature method for strengthening the regulations against the Internet underground economy.

II. Suggestions on the administrative authorities are proposed in the enforcement of unfair competition.

  1. The existing regulations towards administrative authorities in the field of online unfair competitions

Article 18 of the Administrative Measures for Internet Information Services stipulates that:

“The supervisory department for the information industry under the State Council and the telecommunications administration authorities of provinces, autonomous regions and municipalities directly under the central government shall supervise and regulate Internet information services in accordance with law.

The supervisory departments for supervising and regulating news, publishing, education, public health and pharmaceuticals, for administering industry and commerce and for public security and national security shall supervise and regulate the content of Internet information within the scope of their respective competences in accordance with law.”

Accordingly, the Ministry of Industry and Information Technology drew up the Several Provisions on Regulation of the Order of Internet Information Service Market with detailed contents about the general unfair competition behaviors online which are absent from the Anti-unfair Competition Law.

2. The case of Qihoo360 exposed the problems about the administrative authorities in the enforcement of unfair competition.

Beijing Administration for Industry and Commerce and its Xicheng District Branch met up with the Qihoo 360 Technology Co., Ltd and issued an administrative warning on its use of 360 Safe Guard constituting unfair competition in the field of browsers.

When issued such administrative warning, Qihoo 360 Technology Co., Ltd replied, stating that it had “no idea why the Administration would investigate internet industry competition and practices, and that previously, the management of the Internet companies was mainly the responsibility of the Ministry of Industry and Information Technology”. Afterwards, the Market Regulation Management Office of the SAIC published its response, stating that “the Administration of Industry and Commerce also has the legal duty and responsibility to govern the Internet market and investigate related matters in accordance with the Anti-Unfair Competition Law and other relevant regulations promulgated by the State Council”.

3. Which administrations on earth do have the authority to govern the unfair competition in the field of internet?

There are three methods with virtues and faults to solve this problem:

(1) A single administration would be responsible for the unfair competition enforcement. Considering the different unfair competition models in all walks of life, the Administration for Industry and Commerce, acting as the authority in charge, may be required into various teams to handle down the matters in accordance with the facts and conditions of different industries. However, there may be problems about the professions because the Administrations for Industry and Commerce are divided on the grounds of different areas.

(2) The combination of the Administration for Industry and Commerce and related industry authorities would be keeping on. Advantages will be that common unfair competition would be under the control of the Administrations for Industry and Commerce whilst the professional questions under the related industry authorities. However, if so, there will be too many authorities and actually no authorities will be responsible for unfair competition.

(3) The model of US department of Homeland Security will be followed. A group of authorities led by the Administration for Industry and Commerce could be encouraged to strike with unfair competition. The advantage is the combination of authoritativeness and specialization whilst challenge would be the combined enforcement of different administrations.

 Lawyer Contacts

You Yunting86-21-52134918

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