Legislation & Policy

Draft Anti-Unfair Competition Law

SIPSLegislation / Policy

On February 25 2016, the Legislative Affairs Office of the State Council released a draft version of an amended Anti-Unfair Competition Law (draft AUCL) for public comment.

The draft was reportedly prepared by the State Administration for Industry and Commerce (SAIC), the ministry-level organ responsible for administrative enforcement under the current law.

The AUCL was enacted in 1993 and this is its first revision since then.

The draft is intended to fill obvious gaps in the scope of protection of the law, increase the level of administrative fines against violators and address new issues not contemplated when the law was originally issued.

Expanded protection for “business identifiers”

With respect to IP, the Draft AUCL would fill one of the biggest gaps in the current law: the lack of protection for unregistered logos, domain names and other business identifiers not enumerated in the current AUCL.

Article 5 of the draft defines “famous business identifiers” to include the following:

…symbols that distinguish goods, producers, or operations; including but not limited to the name, packaging, decoration, and shape of famous goods; trademarks, the name or the abbreviation of an enterprise or an enterprise group, brands, the main body of a domain name, a website name, webpages, full names, pen names, stage names, the name of a channel’s programming and symbols, etc.

Article 5 of the current AUCL protects a much narrower range of identifiers, including trade dress, packaging designs, personal names, trade names and unregistered word marks.

Product shapes

Article 5 of the draft AUCL would offer protection for the “shapes” of products, and not just their packaging or trade dress. If included in the final version of the law, this would add a potentially powerful new tool for stopping slavish copying by local factories, thereby filling gaps in the scope of protection offered by design patents and copyright.

Trade names/company names

Article 5(3) of the current AUCL prohibits business operators from using the name of an enterprise or a person’s name in a manner that causes consumer confusion. The draft AUCL would replace this provision with one that requires a petitioner to have a trademark that is registered in China or, if unregistered, that is deemed “well-known”, presumably under the same standards set out in the Trademark Law.

Article 5(4) of the draft AUCL meanwhile offers inverse protection to trade names against mis-use as trademarks or domain names, provided that the trade name is famous.

Competitor relationship and confusion

Notably, the draft AUCL omits language in Article 5 requiring an explicit showing that use of a particular “unfair method (has) harmed a competitor.” This provision was generally interpreted to require a petitioner to be a direct competitor with the infringer, or to show an inference that an infringer had acted in obvious bad faith. In the draft AUCL, this requirement is removed.

The draft AUCL imposes a requirement of “market confusion” for all violations under Article 5.

Notably, a 2007 judicial interpretation by the Supreme People’s Court (SPC) specifies that evidence of actual confusion is unnecessary under the current AUCL, and that the implied standard is one of a “high likelihood of confusion”. This same standard is already reflected in Article 57 of the PRC Trademark Law, amended in 2013, and thus it is likely the future AUCL amendment will adopt a similar approach.

Trade secrets

The draft AUCL includes only mild changes to the existing law, with the only substantive change being a new prohibition against infringers authorising third parties to use protected trade secrets.

Criminal enforcement?

The AUCL only governs civil and administrative enforcement. China’s Criminal Code provides criminal sanctions for “serious” violations of trade secrets, but not for any of the other forms of unfair competition enumerated under the AUCL.

Article 216 of the Criminal Code and related judicial interpretations of the Supreme People’s Court set out a threshold of Rmb500,000 (US$77,000) for criminalisation of trade secret violations. These provisions have been widely criticised due to the requirement that the threshold be calculated by reference not to the value of the trade secret, but rather harm caused to the trade secret owner in the form of lost sales. These provisions effectively require evidence that the secret has already been commercialised and significant harm already created before prosecutions can be initiated – an approach that frustrates criminal complaints against most violations and is largely inconsistent with international practice.

Administrative and civil enforcement

Consistent with changes to the PRC Trademark Law introduced in 2013, the Draft AUCL proposes significant increases in the maximum level of administrative fines against infringers.

Under the draft AUCL, violations of Article 5 may result in confiscation of the illegal goods, and, where the infringer’s revenue exceeds Rmb50,000 (US$ 9,000), imposition of a fine of up to five times the total revenue. For cases involving revenues under Rmb50,000, the maximum fine is set at Rmb250,000 (US$45,000). By comparison, the current AUCL establishes a maximum fine of three times the infringer’s illegal revenues.

On the civil side, the most notable provision in the Draft AUCL is Article 17, which expands the category of potential plaintiffs to include consumers, and not just victim business operators.

Unlike the Trademark Law, the current and Draft AUCL do not provide for statutory damages or treble damages against infringers.

Next step?

Under a best-case scenario, the State Council will collect public comment on the draft AUCL and may issue a further draft for public comment in late 2016 before formally submitting the draft for consideration by the national legislature, China’s National People’s Congress, in 2017.

Joe Simone and Scott Livingston