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China’s Draft Anti-Unfair Competition Law Amendments

Published on 30 Sep 2016 | 4 minute read
Provisions relating to IP-related acts of Unfair Competition

Earlier this year China released draft amendments to its Anti-Unfair Competition Law[1] (‘Draft’) for review and public comment. They had been long overdue:  the Anti-Unfair Competition Law was introduced as long ago as 1993, in a very different economic environment, and has not been amended since. Although the period for public comment on the Draft ended some time ago, the proposed amendments are far-reaching and important. Progress of the Draft is being watched with interest.

The amendments involve the revision of 30 of the Law’s current 33 clauses, the removal of seven, and the introduction of nine new clauses – they cover a wide range of matters including commercial bribery, various acts of unfair competition and monopolistic behaviour, as well as administrative penalties. This article, however, focuses on the amendments that relate specifically to the misuse of ‘business identifiers’ such as business names and logos.

Article 5 of the Draft expands the current list of acts of unfair competition by introducing the broad concept of ‘business identifier’ which is defined as follows:

"a sign used to distinguish a commodity producer or business operator, including but not limited to the name, package, decoration and shape, trademark of a well-known commodity, as well as the name, abbreviation, trade name of enterprises and business groups, main body of domain names, website name, webpage, name, pen name, stage name, name and logo of a channel, program or column, etc.".

It goes on to prohibit the misuse of ‘business identifiers’ that creates ‘market confusion’.

The introduction of the broad concept of ‘business identifier’ is to be welcomed. This is the first time the term has formally appeared in Chinese legislation. The definition is not, however, as clear or precise as it should be, which could lead to some uncertainty in implementation. The definition contained in Paragraph 2 of Article 2 of WIPO’s 1996 Model Regulations on the Protection of Anti-fair Competition Law, for example, is, in our view, much more satisfactory:

“trademark, trade name, goods appearance (packaging, shape, color, etc.), other business emblems (badge, mark, slogan, advertisement, store style, dress, etc.), celebrities or well-known virtual images, etc."[2]

In addition to adding the concept of ‘business identifier’ into Article 5, the Draft removes Paragraph 1 and Paragraph 4, which dealt with registered trademarks, indications of product quality and misleading advertising. These matters are dealt with under the Trademark Law, Product Quality Law and Advertising Law respectively.

Other important changes to Article 5 include the following.

First, whereas the Law previously focused on acts that harm competitors, the Draft refers to acts that cause ‘market confusion’. Theemphasis is on the protection of market and consumers, rather than the regulation of businesses and market competition.

Secondly, the Draft identifies in detail the uses of business identifiers that will cause ‘market confusion’:  these include the use of a third party’s registered or unregistered well-known trade mark in a trade name. It should be noted, however, that the Article refers only to the trade mark whereas, in practice, it is often not the identical mark that is used, but a misleading variation. In order to close this loophole, words to the following effect should be included: "marks which consist of or are deceptively similar to a third party’s registered or unregistered well-known trademark ".

Thirdly, the concept of ‘market confusion’ introduced into Article 5 refers to "the public misidentifying the relationship between commodity producers and operators". While this is an improvement over the wording of the Law, which referred simply to confusion as to the origin of products, it is still limited to commodity producers and operators and makes no reference to ‘service providers or operators’.

 A new clause, Article 18, deals with liability and enforcement. Paragraph 3 of that clause provides:

 "In case of violation of Item 3, Paragraph 1 of Article 5 herein (i.e. use of a third party’s registered or unregistered well-known mark as part of the name of company, which misleads the public and leads to market confusion)  the supervision and inspection authorities shall order the parties involved to change their company name within one month. If they fail to do so within the prescribed period, the authorities shall impose penalties in accordance with the foregoing provisions hereof. The competent supervision and inspection authorities in the place where the company is registered shall delete the infringing company name from the Enterprise Credit Information Publication System, replace the company name with the company registration number or unified social number and put the infringer on the blacklist of enterprises with abnormal operation. Where the situation is sufficiently serious, the business license shall be revoked."

This provision directly strengthens the enforceability of the Law. It has been difficult, under the current Law, to enforce the right holders' rights in this situation. The parties against whom the complaint is filed usually argue that their company names have been legally registered with the local authorities, or that use as a company name does not constitute trade mark use and is therefore not unlawful. Even if the enforcement authority determines that there has been infringement, there is no clear or unified time frame within which the infringing company names must be changed. Some authorities require an infringing company name to be changed within 10 days; others within 30 days. More importantly, the administrative enforcement authorities have no means of enforcing the cancellation or variation of a company name under the current law. Even worse, some infringing parties clearly express the view that they would rather pay the fineimposed by the administrative authoritiesthan change the company name. In these situations, the only means of putting an end to the infringement has been to commence litigation. Article 18 should, therefore, be supported and welcomed by both rights holders and enforcement authorities.

Nevertheless, the authorities have, in our view, been given an overly broad discretion in relation to the imposition of monetary fines; e.g. Paragraph 2 of Article 18 stipulates that "if illicit turnover cannot be calculated, business operators shall be subjected to fines of CNY 100,000 to 1,000,000 depending on the degree of severity." There is no indication as to how this discretion should be exercised.

TheAnti-Unfair Competition Law has played an extremely important role over the years, often providing a remedy for right holders' when no remedy was available under specific IP laws. The Draft revision contains valuable provisions in relation to business identifiers and is generally to be welcomed. There remain, however, a number of areas that would benefit from further contemplation and discussion. These matters will, hopefully, be addressed before the amendments are finalised.

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Rouse Editor
+44 20 7536 4100
Rouse Editor
+44 20 7536 4100