In today's booming world economy, for businesses to stand out from intense market competition, innovative thinking patterns and intangible assets or intellectual property rights such as core scientific technologies and high-quality products and services are essential key factors for success. It is essential to establish a fair market environment and prevent behaviors that disrupt the competition order, such as taking advantage of loopholes, stealing others' labor achievements or intangible assets or intellectual property rights, or suppressing competitors and seeking illegitimate interests by deceiving consumers.
Therefore, China is progressively enhancing supervision and enforcement against various unfair competition acts in the economic market to foster a healthy and fair competitive market environment. It offers a variety of remedies for affected market entities, primarily through administrative and legal avenues.
For instance, according to the Beijing Municipal Administration of Market Regulation, in a word-of-mouth marketing campaign by Beijing A Company for its liquor product on online platforms, the participants were found not to be genuine buyers of the product. This conduct was deemed as false publicity. Consequently, Beijing A Company was ordered to cease illegal activities and faced fines. Additionally, the Shanghai Municipal Administration of Market Regulation and the Shenzhen Municipal Administration of Market Regulation also issued the same order and fine punishment against an individual Wu, a former senior R&D engineer at Shanghai B Medical Technology Company, for trade secret infringements, and against Shenzhen C Company (a squatter impersonating DJI Company) for employing tactics that caused confusion, respectively.
The aforementioned acts of "false publicity", "trade secret infringements" and "confusion" all constitute unfair competition. As the regulatory body overseeing market entities, the Market Supervision Administrations have the legal power to combat and punish unfair competition acts in the market to uphold a fair market competition order.
In addition to administrative means, market entities affected by unfair competition acts may also seek legal remedies through the courts. For example, a natural person Chen maliciously registered a trademark for "Xiao Ai Tong Xue", which were used as wake-up words by Xiaomi Technology Co. Ltd. to activate its AI speaker products and had obtained certain influence, and Chen also employed this trademark to send a cease-and-desist letter to Xiaomi Technology Co. Ltd. The Zhejiang High Court ruled that this conduct constituted unfair competition through confusion and false publicity, leading to a judgment mandating Chen to cease infringement and compensate for losses.
I. Unfair competition acts
- Definition
According to the Anti-Unfair Competition Law of China, unfair competition acts mean that in its production or distribution activities, a business disrupts the order of market competition and causes damage to the lawful rights and interests of other businesses or consumers, in violation of the Anti-Unfair Competition Law..
- Characteristics
2.1 The subjects of the acts are market operators
According to the aforementioned provisions, the subjects who commit unfair competition acts are market operators (businesses), specifically referring to natural persons, legal entities, and unincorporated organizations engaged in the production or distribution of goods or the provision of goods or services. They include various corporate entities, profit-oriented institutional entities, other economic organizations involved in commercial and service competition, as well as individual citizens and partnerships. It is important to note that civil subjects acting as consumers in the market are not considered an operator (business) as defined by the Anti-Unfair Competition Law.
2.2 The entities affected are other businesses in the same industry or consumers
Entities impacted by unfair competition acts are market entities who may compete with a business for trade opportunities and damage its competitive advantages in production and operation activities, usually manifested as other businesses producing or selling similar products or providing similar services or as consumers. Therefore, the object of unfair competition actions is the legitimate rights and interests of other businesses or consumers in the same industry.
However, if the acts of a business that harm the legitimate rights and interests of consumers do not involve competition order or relationship, the provisions outlined in the Anti-Unfair Competition Law will not apply. Instead, the rights and interests of consumers should be protected in accordance with the Law on the Protection of Consumer Rights and Interests.
2.3. The acts violate the provisions of the Anti-Unfair Competition Law
For actions by businesses to be classified as unfair competition acts, they must distinctly violate explicit provisions of the Anti-Unfair Competition Law, disrupt market order, and gain unfair competitive edges. On the contrary, if these actions do not violate the relevant provisions of the Anti-Unfair Competition Law but breach other laws, they are typically not regarded as unfair competition acts.
2.4 The acts are harmful
Conducting unfair competition acts will cause actual harm to the legitimate rights and interests of other businesses or consumers. Such harm includes direct economic losses and potential losses of business opportunities or reputation, which will disrupt the normal order of market competition.
Furthermore, conducting unfair competition acts may lead to actual risks of infringement. For example, when a party engages in unfair competition with others by printing false publicity materials or signing contracts to print counterfeit registered trademarks for others, even if the materials have not been distributed, the contracts have not been unfulfilled, or the trademarks have not been printed, there is still a risk of infringement.
- Types
The current effective Anti-Unfair Competition Law in China expressly stipulates seven types of unfair competition acts.
3.1 Acts of confusion to mislead a person into believing that a commodity is one of another person or has a particular connection with another person
According to the Anti-Unfair Competition Law, a business shall not commit acts of confusion to mislead a person into believing that a commodity is one of another person or has a particular connection with another person.
Acts of confusion typically refer to a business entity improperly using another person's marks with certain influence on its own products or services to gain unfair benefits, leading to confusion between its offerings and those of other businesses.
Specific acts of confusion include: (1) Using without permission a label identical or similar to the name, packaging or decoration, among others, of another person's commodity with certain influence; (2) Using without permission another person's name with certain influence, such as the name (including abbreviations and trade names) of an enterprise, the name (including abbreviations) of a social organization, or the name (including pseudonyms, stage names and name translations) of an individual; (3) Using without permission the principal part of a domain name, the name of a website, or a web page with certain influence, among others, of another person; and (4) Other acts of confusion sufficient to mislead a person into believing that a commodity is one of another person or has a particular connection with another person.
In assessing acts of confusion, it is necessary to confirm whether the object being confused is a label "with certain influence," verify permission for using this label, and ascertain whether such actions could lead the public to mistakenly perceive the accused goods or services as belonging to another person or having particular connections with another person.
Specifically, "labels" are primarily categorized into trademark labels, entity labels, and network labels. To determine whether a label holds "a certain influence", two criteria must be met: firstly, the label should exhibit a level of market recognition, which requires an evaluation of factors such as public awareness in China at the time of the accused act, sales details like time, region, quantity, target customers, advertising duration, intensity, geographical reach, and the label's protection status; secondly, the label itself should possess distinctive traits that identify the product's origin or have acquired such traits through usage. As for "particular connections", this typically involves commercial partnerships, licensing agreements, co-branding, and advertising endorsements with other entities.
3.2 Acts of commercial bribery
According to the Anti-Unfair Competition Law, a business shall not seek transaction opportunities or competitive edges by bribing the transactional parties with property or by any other means.
The transactional parties include: (1) An employee of the other party to a transaction; (2) The entity or individual authorized by the other party to a transaction to handle relevant affairs; and (3) An entity or an individual that uses power or influence to affect a transaction.
Moreover, when assessing whether acts of commercial bribery committed by an employee of a business amount to unfair competition, a legal principle called the presumption of fault is applied. Essentially, a bribery committed by an employee of a business is typically deemed to have been committed by the business. However, if the business has evidence that the act of the employee is irrelevant to seeking a transaction opportunity or competitive edge for the business, then such conduct is not considered unfair competition through commercial bribery.
3.3 Acts of false or misleading commercial publicity
According to the Anti-Unfair Competition Law, a business shall not conduct any false or misleading commercial publicity of its commodities, in order to defraud or mislead consumers. And it shall not help another business conduct any false or misleading commercial publicity by organizing false transactions or any other means.
The acts of false or misleading commercial publicity mainly consist of two categories: (1) The business conducts false or misleading commercial publicity in respect of the performance, functions, quality, sales, user reviews, and honors received of its commodities, in order to defraud or mislead consumers; and (2) The business helps another business conduct any false or misleading commercial publicity by organizing false transactions or any other means.
"False commercial publicity" refers to businesses offering untrue product information in promotional campaigns, which deceives or misguides the public. On the other hand, "misleading" is determined based on factors like daily life experiences, general public awareness, instances of confusion, and the actual context of the advertised products.
3.4 Acts of infringing upon trade secrets
According to the Anti-Unfair Competition Law, a business shall not commit acts of infringing upon trade secrets.
The prohibited acts of infringing upon trade secrets refer to: (1) Acquiring a trade secret from the right holder by theft, bribery, fraud, coercion, electronic intrusion, or any other illicit means; (2) Disclosing, using, or allowing another person to use a trade secret acquired from the right holder by any means as specified in the preceding subparagraph; (3) Disclosing, using, or allowing another person to use a trade secret in its possession, in violation of its confidentiality obligation or the requirements of the right holder for keeping the trade secret confidential; and (4) Abetting a person, or tempting, or aiding a person into or in acquiring, disclosing, using, or allowing another person to use the trade secret of the right holder in violation of his or her non-disclosure obligation or the requirements of the right holder for keeping the trade secret confidential.
"Trade secret" means technical, operational or other commercial information that is unknown to the public and is of commercial value for which the right holder has taken corresponding confidentiality measures. This indicates that a trade secret has three essential elements: (1) confidentiality, which means that the commercial information is not generally known or easily accessible within the field; (2) value, indicating that the commercial information can offer economic benefits or competitive edges to the infringer or right holder through present or future use; and (3) confidentiality measures, i.e. the right holder has implemented adequate safeguarding measures that correspond to the specific circumstances of the business value of the information.
According to regulations, entities engaged in infringing upon trade secrets may further include a natural person, legal person or unincorporated organization, besides a business. In addition, where a third party knows or should have known that an employee or a former employee of the right holder of a trade secret or any other entity or individual has committed an act of infringing upon the trade secret but still acquires, discloses, uses, or allows another person to use the trade secret, the third party shall be deemed to have infringed upon the trade secret.
3.5 Acts of unfair premium campaign
According to the Anti-Unfair Competition Law, a business shall not conduct any unfair premium campaign, which includes: (1) The information on the types of premiums, conditions for claiming premiums, amount of a prize, or premiums, among others, in the premium campaign is ambiguous, affecting a claim for a premium.(2) A premium campaign is conducted by offering nonexistent premiums or intentionally pre-determining premium winners; and (3) In the case of a lottery-based premium campaign, the amount of the top prize exceeds 50,000 yuan.
3.6 Acts of commercial defamation
According to the Anti-Unfair Competition Law, a business shall not conduct any act of commercial defamation.
Commercial defamation refers to a business fabricating or disseminating false or misleading information (including those fabricated by others) to damage the goodwill or product reputation of a competitor.
Commercial defamation must be directed at specific competitors. When a party claims that a business has engaged in commercial defamation, the party has the burden of proof to show that it is the specific victim of such commercial defamation.
Furthermore, in cases where false information includes a positive fact fabricated by the defendant, the court typically assigns the burden of proof to the defendant. For example, if the defendant asserts that the plaintiff was involved in illegal activities during product sales, it is not the plaintiff's obligation to prove their innocence. It is instead the defendant's duty to prove that the plaintiff indeed carried out the alleged illegal actions during product sales. Otherwise, the defendant should bear the consequences of failing to provide evidence.
3.7 Acts of online unfair competition
According to the Anti-Unfair Competition Law, no business may carry out unfair competition acts by technical means when engaging in production or distribution activities online.
In particular, no business may, by technical means to affect users' options, among others, commit the following acts of interfering with or sabotaging the normal operation of online products or services legally provided by another business: (1) Inserting a link or forcing a URL redirection in an online product or service legally provided by another business without its consent; (2) Misleading, defrauding, or forcing users into altering, shutting down, or uninstalling an online product or service legally provided by another business; (3) Causing in bad faith incompatibility with an online product or service legally provided by another business; and (4) Other acts of interfering with or sabotaging the normal operation of online products or services legally provided by another business.
Furthermore, the "Interim Provisions on Anti-Unfair Competition in the Internet Sector", effective as of September 1, 2024, complements the "Anti-Unfair Competition Law." These provisions not only outline new variations of traditional unfair competition acts, such as confusion and false publicity in the internet environment, but also further refine the specific manifestations of acts that generally impede and disturb the normal operation of internet products or services legally provided by other businesses. Notably, the interim provisions highlight examples of unfair competition acts conducted by platform operators, including setting unreasonable deposit deductions via service agreements or trade rules and cutting back on subsidies, discounts, and traffic resources.
II. Remedies for unfair competition acts
Market entities can resort to the following remedies and solutions if during market transactions their rights and interests are infringed upon by others through unfair competition means.
- Negotiation, mediation, sending legal letters, and other private remedies
In the realm of business, collaboration and competition are intertwined. When unfair competition harms one company's rights, traditional remedies like administrative or judicial routes can be slow, expensive, and may bring potential reputational damage. Given the fast-paced nature of commercial information today, seeking private negotiation or third-party mediation for resolving unfair competition issues can lead to mutually favorable results in this era of rapid economic change.
Alternatively, prior to pursuing public enforcement, issuing warnings to those engaging in unfair competition through means like sending legal letters can prompt them to voluntarily cease infringement and eliminate adverse consequences.
- Administrative remedies including administrative reporting and investigations
According to the Anti-Unfair Competition Law, the departments performing the functions of industry and commerce administration of the people's governments at and above the county level (i.e. market supervision and administration bureaus at or above the county level) have the authority to order businesses engaging in various forms of unfair competition during market transactions to cease their unlawful activities. They can also impose administrative penalties such as confiscation of illegal incomes, fines, and revocation of business licenses according to the law.
For example, according to the State Administration for Market Regulation's penalty document Jing Feng Shi Jian Chu Fa [2023] No. 195, the Fengtai District Market Supervision Bureau in Beijing investigated Beijing X Company based on a report from Huawei. The investigation revealed that Beijing X Company unlawfully utilized the "Huawei Mall" product webpage without authorization from Huawei and sold Huawei phones on the Pinduoduo e-commerce platform (the Chinese equivalent of Temu). The bureau found this conduct as a confusion act falling under unfair competition, involving the unauthorized use of another entity's domain name, website name, or webpage with a certain influence. In accordance with Article 18(1) of the Anti-Unfair Competition Law, Beijing X Company was instructed to rectify the violation and faced a financial penalty.
Therefore, when business entities encounter unfair competition that violates their rights, they should promptly report such incidents to regulatory authorities. This enables administrative bodies to intervene and prohibit actions that disrupt market order, thereby ultimately improving market supervision and fostering a cleaner business environment.
- Judicial remedies including civil litigation and criminal litigation
In a society governed by the rule of law, judicial remedies serve as the ultimate safeguard for protecting rights. According to the Anti-Unfair Competition Law, if a business' legal rights are harmed by unfair competition acts, they have the right to bring a lawsuit before the people's court.
For example, in a dispute between Supor and Zhejiang B Company, Zhejiang B Company, through hosting discussions on Weibo topics and holding press conferences, explicitly or implicitly indicated that its patent was infringed upon by Supor, and then Supor initiated a legal action against Zhejiang B Company's allegation. After examination, the Zhejiang High People's Court found that Zhejiang B Company presented speculative statements as established facts in their promotions, exceeding the scope of legitimate rights protection causing harm to Supor's business reputation and constituting commercial defamation. Upholding the first instance's ruling, the High People's Court finally ordered Zhejiang B Company to cease infringement, eliminate the impact caused, and compensate for losses.
In the above case, the party involved achieved remedy through civil litigation. In situations where an action of the opposing party constitutes a criminal offense, the concerned entities have the option to report the matter to public security or procuratorate authorities. Subsequently, the court can apply criminal penalties. For instance, in the case of Zhejiang Z Company and a natural person Fang, along with six others involved in trade secret infringement, the victimized entity is a leading enterprise in product manufacturing. The technology involved had undergone years of development breakthroughs, relating to significant interests and long-term development of the company. The procuratorate authority insisted on combating the entire chain of trade secret infringement crimes, prosecuting all individuals involved - ranging from masterminds orchestrating the schemes to those engaging in bribery, as well as technical personnel responsible for theft and unauthorized disclosure of the technological secret.
Therefore, when a business entity suffers losses from unfair competition by others, they have the option to seek resolution in court. The court will oversee the case, investigate the matter, determine facts, apply the law, and deliver a fair judgment aimed at safeguarding the rights and interests of the affected party.
- A commonly used remedy for online unfair competition - applying for a preliminary injunction or act preservation order
Within the Internet Plus Economy framework, traffic, value-added services, and advertising stand as significant revenue streams for businesses relying on online platforms. Yet, malicious entities may misuse online tools to hijack traffic, usurp market presence, and benefit their own commercial interests, resulting in losses of others. To prevent further traffic loss, the affected entity may seek a preliminary injunction with appropriate evidence to protect its rights effectively.
For example, Tencent took a legal action against Wuhan J Company for using technical methods to attract WeChat users, thereby enhancing its market transaction opportunities and gaining a competitive edge. Tencent requested a preliminary injunction from the court to prevent further harm through preservation measures. Upon review, the court found Wuhan J Company's actions violated good faith principles and generally acknowledged business ethics, constituting unfair competition. Considering that the preservation measures would not adversely affect public interests and Tencent had provided adequate assurances, the court issued a preliminary injunction against Wuhan J Company. This injunction prohibited it from promoting, selling, or distributing its Group Control Intelligent Marketing System, which utilized mass marketing spam on the WeChat platform via a group control mechanism.
III. Prevention and response strategies against unfair competition acts
When operating in the market, businesses should innovate in scientific technology and implement protective measures against unfair competition. This involves safeguarding trade secrets, preserving technical tips, effectively using patent system to protect innovations and maintain core competitiveness. Moreover, while enhancing product and service quality, it is important to build a distinct brand, timely register intangible assets like trademarks, copyrights, and company names, and align them with the brand. In the digital economic era, apart from utilizing digital resources, it is crucial to ensure online platform security and strengthen defenses against external technological infringements.
Upon discovering potential unfair competition by others, it is crucial for a business to promptly collect and secure evidence and proactively defend its own legitimate rights using available solutions. If private remedies are insufficient, pursuing public remedies through reporting, litigation, and other means becomes necessary. Complementing this approach with property and act preservation measures can help minimize losses effectively.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.