China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect

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1 January 2018 China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect On 4 November 2017, the Standing Committee of National People s Congress (the NPC ) adopted the amended Anti-Unfair Competition Law of the People s Republic of China (the Amended AUCL ). The Amended AUCL will become effective on 1 January It is comprised of five chapters regarding general principles, unfair competition behaviours, investigations, legal liabilities and supplementary matters. To put things into perspective, there have been calls over the past years for a revamp of the current AUCL which has been in force since In response to the calls, the State Administration for Industry and Commerce ( SAIC ), which led the amendment initiative, set out three goals for the amendments: adaption to the evolving economic and social landscape, harmonisation with the Anti-Monopoly Law (the AML ) and other legislations, and provision of further rules regarding, among others, investigation procedures and damages calculation 1.The Amended AUCL reflects multiple rounds of comments from stakeholders. Draft amendments were published for comment in February 2016, February 2017 and September 2017, respectively 2. This note discusses the key changes as introduced by the Amended AUCL and the expected enforcement trends. A convenience translation of the Amended AUCL, including a comparison with the current AUCL as prepared by Linklaters, is also attached to this article for ease of reference. Overview of unfair competition conducts Contents Overview of unfair competition conducts... 1 Commercial bribery... 2 Internet-related unfair competition... 3 Other unfair competition conducts... 4 General provision on unfair competition conducts... 5 Reconciliation with the AML... 6 Enforcement power and penalties... 6 Private enforcement... 7 Conclusion... 8 Appendix: English translation of the Amended AUCL in comparison with the 1993 AUCL... 8 The Amended AUCL specifically prohibits the following seven categories of unfair competition conducts: Acts of confusion which make people mistake one company s product for another company s product (Article 6); Commercial bribery (Article 7); 1 See Mr. Zhang Mao s explanation about the proposed amendment on behalf of the State Council to the NPC Standing Committee s session. Available at 2 In February 2016, the SAIC prepared a draft revised law (the February 2016 Draft ), which was submitted to the State Council. In February 2017, the Legislative Affairs Office of the State Council issued the first round of draft revisions for public comment (the February 2017 Draft ), and in September 2017, the NPC released a second round of draft revisions (the September 2017 Draft ). China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 1

2 False or misleading statements in promotions (Article 8); Trade secret infringements (Article 9); Unfair sales involving prizes (Article 10); Commercial deformation (Article 11); and Internet-related unfair competition conducts (Article 12). As compared with the current AUCL, the rules under the Amended AUCL in relation to commercial bribery have been revamped most significantly and the Internet-related unfair competition clause is newly added. In addition, the Amended AUCL no longer provides for four types of unfair competition conducts now regulated under the AML or bid-rigging dealt with under the Bidding Law. We discuss each of the above specified unfair competition conducts in detail below. Commercial bribery The current AUCL provides that business operators should not commit bribery through the use of money or other means to purchase or sell goods. The Amended AUCL has re-shaped commercial bribery in the following aspects: the context is expanded from the purchase and sale of goods to a broader scope, transaction in general; an element of purpose is added, i.e. the commercial bribery is to obtain transaction opportunity or competitive advantage ; and most importantly, the scope of recipients of bribes is re-defined. According to the current rules 3 and enforcement practice, giving bribes to the direct transaction counterparty or a third party who has certain influence over the transactions could be considered to amount to commercial bribery 4. By contrast, the Amended AUCL essentially requires recipients of bribes to be entities/individuals owing a legal duty to the transaction counterparty (employees or entrusted entities/individuals), or third-party entities/individuals who have influence over the transaction. The redefined concept appears to suggest that giving benefits to the direct transaction counterparty would no longer constitute commercial bribery. This is widely considered to capture the essence of commercial bribery, i.e. offering undue benefits to a person acting for/on behalf of the direct transaction counterparty, with a view that such person would not properly perform his fiduciary duty owing to the direct transaction counterparty 5. 3 For instance, see SAIC s reply to the Issue of Travel Agency s Acceptance of Personal Expense and Parking Fees by Shopping Mall ( 国家工商行政管理局关于旅行社或导游人员接受商场支付的 人头费 停车费 等费用定性处理问题的答复 ). 4 The February 2017 Draft also used the term third party that has influence over a transaction. Under this draft, paying a third party who does not have any prior relationship with the business counterparty could be considered as bribery. 5 See Changes of the Amended AUCL and Its Impacts to Enforcements, by He Maobin; and Hot Issues Interpretation of the Amended AUCL by Zhang Shihai. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 2

3 Meanwhile, SAIC officials emphasized that the identification of a transaction counterparty shall not take a formalistic approach (for instance, by looking at who are contractual parties). The transacting counterparties should be determined based on who provides the products and who receives the products in substance. Taking the procurement of school uniforms as an example, although the school enters into the purchase agreement with the supplier, the parties to the transaction should be the students and the suppliers if the school is entrusted by students (or empowered by relevant regulations) to purchase uniforms form such supplier; if the supplier gives benefits to the school with a view to boost sales of the uniforms, it would entail risks of commercial bribery. However, it should be noted that Article 7 still seems to keep some space to catch the act of giving bribery to a transaction counterparty if the benefits/discounts are not properly booked or recorded 6. For example, a medical instrument supplier may lease medical instruments to a hospital free of charge to promote its sales of reagents. Given that it would be very difficult for the supplier to record the value of the instrument in its financial books, such practice runs the risk of being regarded as commercial bribery. We note that in a recent notice promulgated by the SAIC 7, it is also emphasised that authorities would pay close attention to medical instrument leasing behaviours in the future. The Amended AUCL explicitly provides for the employer s vicarious liability, as well as an exception. Specifically, commercial bribery carried out by an employee would be imputed to the employer, but the employer will not be held liable if it can prove that the employee s bribery is not relevant to seeking transaction opportunities or competitive advantages for the employer. Linklaters has separately prepared a client alert (available here) which discusses commercial bribery under the Amended AUCL in more detail. Internet-related unfair competition Another notable feature of the Amended AUCL is the introduction of a clause which specifically regulates unfair competition conducts in the context of the Internet. The current AUCL, which came into being at the time of conventional brick-and-mortar markets, does not provide specific rules for unfair competition conducts emerging amid rapidly-evolving innovation and technology. As a result, the courts had to apply the general provision under the current AUCL to pursue unspecified but unfair competition conducts in the Internet area. Filling the gap, the newly added Internet-related clause provides detailed rules for Internet-related unfair competition conducts. Firstly, it sets out clearly that companies should not engage in the specified unfair competition behaviours during the operation of their Internet-related business. In addition, companies should not impede or disrupt the provision of Internet-related products/services 6 Article 7 of the Amended AUCL also provides that a company s offering of discounts to the transaction counterparty would not amount to bribery provided that the payment and receipt of such discounts are properly recorded in the financial books of both the payor and payee. 7 See Notice to further Intensify Punishments to Anti-Unfair Competition in Medical Fields ( 关于进一步加强医药领域不正当竞争案件查处工作的通知 ) promulgated by SAIC on 21 August China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 3

4 by other companies by taking advantage of technical means to influence users choice. More specifically, the following Internet-related conducts are prohibited: traffic hijacking, i.e. one company inserts a link into another company s online products/services, forcibly directing users to its own products/services without such company s consent 8 ; misleading, deceiving or compelling users such that they modify, close or uninstall another company s online products/services; making, in bad faith, one s own products/services incompatible with another company s online products/services 9 ; and other conducts which impede or disrupt the provision of Internet-related products/services by other companies. It is worth watching how the enforcement authorities and courts would interpret these provisions and to what extent they would find other unspecified behaviours to constitute Internet-related unfair competition conducts in contravention with the Amended AUCL. In this regard, the SAIC officials, during a Q&A session, called for a prudent approach and striking a balance between protecting competition and promoting innovation when applying the Amended AUCL to the Internet sphere. It is yet to be seen whether an effect-based approach would be adopted. Other unfair competition conducts Acts of confusion Article 6 of the Amended AUCL prohibits a business operator from making consumers perceive its products as others products or making them believe that its products are related to others products. The notable features of this clause include: products with a certain level influence are entitled to protection against bad-faith confusion caused by other products, which is broader in scope than the well-known products under the current AUCL; and a wide range of symbols/features are protected, including name, translation name, abbreviation, packaging, appearance, domain name, website, web page, etc. False or misleading statements in commercial promotions Article 8 of the Amended AUCL provides that a company should not make false or misleading statements in commercial promotions regarding its products performance, function, quality, sales volume, user rating, honours received 8 As an example, in Baidu v. Qihoo, Qihoo s antivirus software arbitrarily changed the search outcomes generated in Baidu s search box and directed users to Qihoo s affiliated websites. The Courts found Qihoo s behaviours unlawfully hitchhiked users trust to Baidu search and unfairly obtained competitive advantage by directing Internet traffic to its own websites. See details in Beijing Intellectual Property Court (2015). 9 The second and third types of conducts were in dispute in Qihoo v Tencent. In this case, Qihoo misleadingly announced that Tencent s instant messaging software QQ was likely infringing users privacy and suggested users uninstall it. As a counter-measure, Tencent suspended services to computers where Qihoo s 360 antivirus software is installed. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 4

5 etc., thereby defrauding or misleading consumers. The following aspects are noteworthy: the prohibited false or misleading statements can be in any commercial promotion context, noting that false advertisements are more specifically regulated under the Law on Advertisements; not only false statements, but also misleading statements are prohibited; and aiding or abetting the false or misleading statements by others, by way of, among others, organising false transactions (e.g. click farm), would also amount to a contravention. Trade secret infringements Article 9 of the Amended AUCL prohibits infringing others trade secrets. This clause remains largely unchanged except in the following aspects: the Amended AUCL no longer requires trade secrets to have practical value in order to be protected; and the Amended AUCL makes it clear that a third party would be held liable if it knows or should have known that the trade secrets it has received from a current or former employee of another company results from an infringement, but nonetheless accepts or uses such trade secrets. Unfair sales involving prizes Compared to the current AUCL, the Amended AUCL introduces a new type of prohibited conduct: the organiser providing unclear information on types of prize, terms of redemption or prize amount, thereby resulting in difficulty in prize redemption. In addition, the ceiling monetary amount for permissible lucky draws has been increased from RMB 3,000 to RMB 50,000 to allow for greater flexibility. Commercial deformation Under the Amended AUCL, one is prohibited from damaging the reputation of a competitor or its products by fabricating false or misleading information. As with the false or misleading promotions (see above), the addition of misleading information means that the prohibition also covers information which technically may not be false but would still harm competitors reputation in the same way as outright untrue information. General provision on unfair competition conducts In addition to the above specified unfair competition conducts, the Amended AUCL in Article 2 provides a definition of unfair competition conducts, which refers to conducts disrupting the competition order in the market and infringing the legitimate interests of other business operators or consumers The definition under the Amended AUCL is broadly in line with that under the Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of Law in the Trial China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 5

6 The current AUCL also contains a similar general provision, based on which the courts in previous litigation cases determined that an unspecified behaviour would amount to an unfair competition conduct. Notably, the courts generally have been cautious in applying the general provision to capture unspecified unfair competition conducts, and their findings were highly case-specific and based on an examination of multiple factors, such as impacts on end-users and more broadly competition, commercial and technology innovation, as well as alleged conducts deviation from well-recognised business ethics and conventions, etc. It remains to be seen how the courts would apply the general provision under the Amended AUCL to behaviours which are not specified unfair competition conducts but are allegedly detrimental to competition. It should be noted that the SAIC and its local offices are not empowered to apply the general provision to investigate to or penalise the unspecified conducts. Reconciliation with the AML The prohibitions against the following conducts, along with the legal liability clauses, are contained in the current AUCL but have been removed from the Amended AUCL: exclusive dealing requirements by a public utility company or a business operator holding a monopoly position according to law (Article 6); abuse of administrative power to impose exclusive dealing requirements or favour locally manufactured products (Article 7); below-cost sales (Article 11); and tie-in sales and imposition of unreasonable trading conditions (Article 12). The above conducts are regulated under both the current AUCL and the AML (as abuse of market dominance or administrative power), but the legal benchmarks under the two laws differs, thereby resulting in confusions in compliance. With these four provisions removed from the Amended AUCL, the relevant conducts would be only subject to the scrutiny of the AML in the future 11. Enforcement power and penalties The Amended AUCL expands the investigation power of the AICs, giving the authorities additional power to seal and seize the funding and property involved in the alleged conducts and access the relevant companies bank accounts 12. of Civil Cases Involving Unfair Competition. 最高人民法院关于审理不正当竞争民事案件应用法律若干问题的解释 11 Notably, the controversial relative advantageous position clause proposed in the February 2016 Draft is removed from the Amended AUCL. Under the proposed rule, companies are prohibited from abusing their relatively advantageous position (a term distinct from the term dominant market position ) without justification, by, for instance, restricting their trading counterparty s choice of business partners, requiring their trading counterparty to buy designated products, or unreasonably requiring their trading partners to provide economic benefits. This far-reaching prohibition drew much controversy during public consultation and was not included in the final Amended AUCL. 12 See Article 13 of the Amended AUCL. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 6

7 These measures are usually considered effective and critical for uncovering wrongdoings. As a check on the enforcement power, the Amended AUCL provides that a local AIC needs to submit a written report and obtain an approval from the chief official before taking investigation and evidence collection measures. Sealing/seizing a company s property or accessing a company s bank accounts would even require the approval from the person-in-charge of the AIC at a higher level 13. However, in practice, it may be difficult for companies under investigation to check whether the AIC on their doorstep has obtained the necessary approvals as the AIC does not have an obligation to present such approval along with the investigation notice. The Amended AUCL also significantly increases the penalties for infringements. The penalty for acts of confusion increases up to five times the illegal gains 14. The maximum fines for commercial bribery, defamations, trade secret infringements and Internet-related unfair competition conducts were raised from RMB 200,000 to RMB 3 million 15. Where the circumstances are serious, the authorities are even entitled to revoke the infringing company s business licence in case of acts of confusion, commercial briberies and false/misleading promotions 16. Another important change is that the Amended AUCL adds a clause to emphasise that the enforcement authorities have a confidentiality obligation to the business operators as to the information that they received during the investigation 17. Private enforcement The Amended AUCL places importance on private actions, expressly stipulating that civil damages should take priority in the sequence of getting paid and enjoy preference over administrative and criminal fines 18. The new law also clarifies the scope of damages in addition to the actual harm caused by the alleged unfair competition conduct, the reasonable expenses incurred by the aggrieved party to stop the infringement (e.g. attorney s fees) should also be borne by the infringing party 19. With the introduction of these plaintifffavourable measures, the Amended AUCL is expected to herald a wave of private actions against unfair competition conducts. 13 Ibid. 14 See Article 18 of the Amended AUCL. 15 See Article 20, 21, 23 and 24 of the Amended AUCL. 16 See Article 18, 19 and 20 of the Amended AUCL. 17 See Article 15 of the Amended AUCL. 18 See Article 27 of the Amended AUCL. 19 See Article 17 of the Amended AUCL. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 7

8 Conclusion The Amended AUCL is expected to have far-reaching impacts on how companies conduct businesses in China. Companies operating in China are strongly advised to closely follow how certain key issues/rules (e.g. benefits given to the direct transaction counterparty) will be interpreted/implemented following the entry into force of the Amended AUCL. In the meantime, in light of the refined categories of specified unfair competition conducts and the more severe penalties, companies must re-evaluate their commercial practice and compliance policies and as appropriate to ensure full compliance. Contacts For further information please contact: Fay Zhou Partner (+86) Yuan Cheng Counsel (+86) Clara Ingen-Housz Partner (+852) Authors: Xi Liao, Yumeng Li This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2018 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of the LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on Please refer to for important information on Linklaters LLP s regulatory position. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com. Linklaters LLP Linklaters LLP Beijing Office Unit 5206, Level 52, China World Tower B No. 1 Jianguomenwai Avenue Beijing , China Telephone (+86) Facsimile (+86) Linklaters.com China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 8 A /1.1/15 Jan 2018

9 Appendix: English translation of the Amended AUCL in comparison with the 1993 AUCL Chapter I Article 1 This Law is formulated for safeguarding the healthy development of the socialist market economy, encouraging and protecting fair competition, preventing acts of unfair competition, and protecting the legitimate rights and interests of undertakings and consumers. General Provisions Article 1 This Law is formulated for promoting the healthy development of the socialist market economy, encouraging and protecting fair competition, preventing acts of unfair competition, and protecting the legitimate rights and interests of undertakings and consumers. Article 2 An undertaking shall, in the course of economic activities, follow the principles of voluntariness, equality, fairness, honesty and good faith, comply laws and observe wellrecognised business ethics. For the purpose of this Law, "unfair competition" shall refer to an undertaking's acts violating the provisions of this Law, infringing the legitimate rights and interests of other undertakings and disrupting the socio-economic order. For the purpose of this Law, "an undertaking" shall refer to a legal person or any other economic organization or individual engaged in products trading or the provision of profit-making services ("products" referred to hereinafter includes such services). Article 3 The people's governments at each level shall take measures to prevent acts of unfair competition and create a favourable environment and conditions for fair competition. An administration for industry and commerce of a people's government above the county level shall supervise and inspect acts of unfair competition; where laws or administrative regulations provide that such acts shall be supervised and inspected by another department, those provisions shall prevail. Article 2 An undertaking shall, in the course of production and business activities, follow the principles of voluntariness, equality, fairness, honesty and good faith, comply laws and observe business ethics. For the purpose of this Law, act(s) of unfair competition shall refer to acts whereby an undertaking violates the provisions in this Law, disrupting the competition order of the market, and infringing the legitimate rights and interests of other undertakings or consumers in the course of production and business activities. For the purpose of this Law, an undertaking shall refer to a natural person, a legal person or any other unincorporated organization engaging in the manufacturing or trading of products or the provision of services ( products referred to hereinafter includes services). Article 3 The people's governments at each level shall take measures to prevent acts of unfair competition and create a favourable environment and conditions for fair competition. The State Council shall establish an anti-unfair competition work coordination mechanism, study and decide on major anti-unfair competition policies, and coordinate and deal with major issues for maintaining the order of market competition. Article 4 The department responsible for industrial and commercial administration under a people's government at or above the county level shall investigate and deal with acts of unfair competition. Where laws or administrative regulations provide 20 This English translation has been prepared by Linklaters LLP Beijing Representative Office and may be reproduced solely for internal educational purposes. While every effort has been made to ensure the accuracy of the translation, it is not possible to guarantee an exact English translation since each language has its own grammatical structures, embodies different legal and cultural concepts and is open to different interpretations. Therefore, this English translation must not be relied upon by any person in making any decision or taking any action. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 9

10 that such acts shall be investigated and handled by another department, those provisions shall prevail. Article 4 The State encourages, supports and protects all organizations and individuals in the exercise of public oversight over acts of unfair competition. Staff members of state organs shall not support or shield any acts of unfair competition. Article 5 The State encourages, supports and protects all organizations and individuals in the exercise of public oversight over acts of unfair competition. State organs and their staff members shall not support or shield any acts of unfair competition. Industry organizations shall strengthen industry self-regulation, guide and regulate their members to compete within the law, and maintain the order of market competition. Chapter II Article 5 An undertaking shall not adopt any of the following unfair means in market transactions to harm its competitors: 1. where the undertaking counterfeits registered trademarks of others; 2. where the undertaking uses, without authorization, unique names, packages, or decorations of others famous products, or uses names, packages or decorations similar to those of others famous products, thereby causing its products from being mistaken for those famous products and leading the buyers to mistake the former for the latter; 3. where the undertaking uses, without authorization, others enterprise names or individuals names, thereby leading people to mistake its products for those of the said enterprise or person; or 4. where the undertaking forges or counterfeits authentication marks, famous-and-excellentproduct marks or other product quality marks on its products, forges the origin of products or makes false and misleading indications as to the quality of its products. Article 6 Public utility enterprises or other undertakings occupying monopoly status according to law shall not restrict others to purchase goods from the undertaking designated Acts of Unfair Competition Article 6 An undertaking shall not conduct any of the following acts of confusion to cause its products from being mistaken for others or from being mistaken of having certain connections with others: 1. where the undertaking uses, without authorization, marks identical with or similar to others product names, packaging or decoration that is influential to a certain extent; 2. where the undertaking uses, without authorization, others enterprise names (including abbreviations, trade names, etc.), social organization names (including abbreviations etc.), or individuals names (including pen names, stage names, translated name etc.), which is influential to a certain extent; 3. where the undertaking uses, without authorization, the main parts of others domain names, website names, web pages, etc. which is influential to a certain extent; and 4. other confusing acts that are sufficient to cause its products from being mistaken for the products of others or from being mistaken as having specific connection with others. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 10

11 by them to exclude other undertakings from fair competition. Article 7 Governments and their subordinate departments shall not abuse administrative powers to restrict others to purchase goods from undertakings designated by them or impose limitations on the rightful operating activities of other undertakings. Governments and their subordinate departments shall not abuse administrative powers to restrict goods originated in other places from entering the local markets or the local goods from flowing into markets of other places. Article 8 An undertaking shall not conduct bribery, by offering property or any other means, in selling or purchasing products. An undertaking who offers off-the-book rebate in secret to other parties, entities or individuals, shall be deemed and punished as offering bribes; and any entity or individual that accepts off-the-book rebate in secret shall be deemed and punished as taking bribes. During the course of transactions, an undertaking may pay a discount to the counterparty in an express manner, or pay commissions to the intermediaries concerned. The undertaking shall truthfully credit relevant amounts into account books if it pays discounts for transaction counterparties or pays commissions to intermediaries. The undertakings who accept discounts or commissions shall truthfully credit such amounts into account books. Article 9 An undertaking shall not, by advertisement or any other means, make false and misleading commercial promotions for its products quality, ingredients, performance, usage, producers, duration of validity or origin. Article 7 An undertaking shall not bribe any of the following entities or individuals by offering property or other means to seek a transaction opportunity or competitive advantage, 1. any employees of the counterparty in a transaction; 2. agent entities or individuals hired by the transaction counterparty to handle matters related to the transaction; or 3. entities or individuals which may affect the transaction by taking advantage of powers or influence. During the course of transactions, an undertaking may pay a discount to the counterparty in an express manner, or pay commissions to the intermediaries concerned. The undertaking shall truthfully credit relevant amounts into account books if it pays discounts for transaction counterparties or pays commissions to intermediaries. The undertakings who accept discounts or commissions shall also truthfully credit such amounts into account books. The acts of bribery committed by a staff member of an undertaking shall be deemed as an act of the undertaking, unless the undertaking has evidence to prove that such act is irrelevant to efforts in seeking for transaction opportunities or competitive advantages for the undertaking. Article 8 An undertaking shall not engage in false or misleading commercial promotions for its products performance, functions, quality, sales status, user evaluations, honours received etc. to defraud or mislead consumers. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 11

12 An advertisement agent shall not act as agent for, or design, produce or release, a false advertisement while he knows or should have known its falsehood. An undertaking shall not assist another undertaking to conduct false or misleading commercial promotions by way of organizing false transactions or other means. Article 10 An undertaking shall not use any of the following means to infringe on others business secrets: 1. obtaining the business secrets of a rights holder by theft, luring, coercion or other improper means; 2. disclosing, using, or allowing others to use the business secrets of a rights holder that are obtained by the means prescribed in the preceding paragraph; or 3. disclosing, using or allowing others to use the business secrets of the rights holder in its possession, in breach of agreements or in violation of the requirements of the relevant rights holder on keeping business secrets confidential. Where a third party knows, or should have known the fact that the case falls under the unlawful acts listed in the preceding paragraph, however, accepts, uses or discloses such business secrets, such a practice shall be deemed as infringement on business secrets. For the purpose of this Law, business secrets refer to any technical information or operational information that are not known to the public and can bring about economic benefits for the rights holder, have practical utility, and for which corresponding confidentiality measures have been taken by the rights holders. Article 9 An undertaking shall not engage in any of the following infringements on business secrets: 1. obtaining the business secrets of a rights holder by theft, bribery, fraud, coercion or other improper means; 2. disclosing, using, or allowing others to use the business secrets of a rights holder that are obtained by the means prescribed in the preceding paragraph; or 3. disclosing, using or allowing others to use the business secrets of the rights holder in its possession, in breach of agreements or in violation of the requirements of the relevant rights holder on keeping business secrets confidential. Where a third party knows, or should have known the fact that an employee or former employee of the rights holder who obtained commercial secrets, or other entities or individuals conduct illegal acts specified in the preceding paragraph, however, accepts, discloses, uses or allows any other to use such business secrets, such a practice shall be deemed as infringement on business secrets. For the purpose of this Law, business secrets refer to any technical information or operational information that are not known to the public and have commercial value, and for which corresponding confidentiality measures have been taken by the rights holders. Article 11 An undertaking shall not sell goods at prices below the cost of production to drive competitors out the market. Any of the following shall not be deemed as an act of unfair competition: 1. selling perishables or live products; 2. disposing of products near expiration of their validity duration or those kept too long in stock; 3. seasonal sales; or China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 12

13 4. selling products at a reduced price for the purpose of clearing off debts, change of business or suspension of operation. Article 12 An undertaking shall not engage in tying sales of goods or attach any other unreasonable conditions to the sale of their goods without a buyer s consent. Article 13 An undertaking shall not engage in any of the following sale activities involving offering prizes: 1. where the undertaking engages in sales by offering prizes in a fraudulent manner, such as by falsely claiming there are prizes available or deliberately letting pre-chosen persons to win the prizes; 2. where the undertaking engages in sales by offering prizes as a means to sell goods of low quality at a high price; or 3. where the undertaking engages in sales by offering prizes in the form of a lucky draw, and the amount of the highest prize exceeds RMB 5, 000. Article 14 An undertaking shall not fabricate or disseminate any false information to harm the commercial reputation and product reputation of its competitors. Article 10 When engaging in sales by offering prizes, an undertaking shall not conduct any of the following conducts: 1. where the information on the sales by offering prizes, such as the prize types, terms for redeeming prizes, the amount of prize money or goods gifted, etc. is not expressly specified, and the redemption of prizes by purchasers is affected; 2. where the undertaking engages in sales by offering prizes in a fraudulent manner, such as by falsely claiming there are prizes available or deliberately letting pre-chosen persons to win the prizes; or 3. where the undertaking engages in sales by offering prizes in the form of a lucky draw, and the amount of the highest prize exceeds RMB 50, 000. Article 11 An undertaking shall not fabricate or disseminate any false information or misleading information to harm the commercial reputation and product reputation of its competitors. Article 15 Bidders shall not act in collusion with each other so as to force up or down the bidding prices. Bidders and tender-inviters shall not collude with each other so as to exclude their competitors from fair competition. Article 12 An undertaking shall comply with the regulations in this Law when engaging in production and business operations by using the Internet. An undertaking shall not conduct any acts that impede or disrupt the normal operation of Internet products or services lawfully provided by other undertakings, by taking advantages of technical means and through influencing users choices or otherwise. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 13

14 1. inserting a link into Internet product or service lawfully provided by another undertaking to compel a target link jump without obtaining approval from such undertaking; 2. misleading, deceiving or compelling users into modifying, closing, or uninstalling a network product or service legally provided by another undertaking; 3. maliciously implementing an incompatibility with an Internet product or service lawfully provided by another undertaking; or 4. any other act that impedes or disrupts the normal operation of Internet products or services that are lawfully provided by another undertaking. Chapter III Investigations into Suspected Acts of unfair competition Article 16 Supervision and inspection authorities at or above the county level may carry out supervision over and inspection of acts of unfair competition. Article 17 Supervision and inspection authorities shall, in supervising and inspecting acts of unfair competition, have the right to exercise the following functions and powers: 1. questioning the undertakings under inspection, any interested parties, or witnesses in accordance with the prescribed procedures, and requiring them to provide testimonial materials or other materials in relation to the acts of unfair competition; 2. inquiring into and copying the agreements, account books, vouchers, documents, records, business correspondence and other materials related to the acts of unfair competition; and 3. inspecting the property involved in the acts of unfair competition under Article 5 of this Law; and, when necessary, ordering the undertakings under inspection to explain the source and quantity of the products, suspend the sale and await the inspection thereof, China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 14

15 and the property involved shall not be transferred, concealed or destroyed. Article 18 Staff members of supervision and inspection authorities shall, when supervising and inspecting acts of unfair competition, produce their inspection certificates. Article 19 The undertaking under inspection, the interested parties, and witnesses shall truthfully provide the relevant materials or information when the supervision and inspection Article 13 The supervision and inspection authorities may take any of the following measures to investigate into any alleged unfair competition conducts, 1. entering the premises involved in an alleged act of unfair competition for inspection; 2. questioning the undertakings under investigation, any interested parties, or any other related entities or individuals, and requiring them to explain relevant situations or provide other materials in relation to the investigated act; 3. inquiring into and copying the agreements, account books, vouchers, documents, records, business correspondence and other materials related to a suspected act of unfair competition; 4. sealing up and/or detaining the property involved in a suspected act of unfair competition; and 5. inquiring into the bank account of an undertaking that is suspected of an act of unfair competition. Prior to any measure specified in the preceding paragraph is taken, a written report shall be submitted to the principal of the supervision and inspection authority for approval. For measures specified in Item 4 or Item 5 in the preceding paragraph, a written report shall be submitted to the principal of the supervision and inspection authority under the people's government at or above the municipal level (with district) for approval. The supervision and inspection authorities shall abide by the Administrative Enforcement Law of the People's Republic of China and other applicable laws and administrative regulations while investigating suspected acts of unfair competition, and promptly disclose the investigation and results to the public. Article 14 The undertaking under investigation, the interested parties, and other related entities or individuals, shall truthfully provide the relevant materials or information when the supervision and China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 15

16 authorities are supervising and inspecting alleged acts of unfair competition. inspection authorities are investigating alleged acts of unfair competition. Article 15 The supervision and inspection authorities and their staff members shall have the obligation of confidentiality on business secret learned during the investigations. Article 16 Any entity or individual shall have the right to lodge tip-offs against any alleged acts of unfair competition to the supervision and inspection authorities. The supervision and inspection authority shall promptly process such tip-offs according to the law upon receipt of these reports. The supervision and inspection authorities shall make available to the public the phone numbers, mailing addresses or addresses for receiving tip-offs, and keep the identities of informants confidential. For a real-name informant who presents fact and evidence, the supervision and inspection authorities shall inform them of the investigation results. Chapter IV Article 20 An undertaking who violates this Law and thus causes damage to the infringed undertakings, shall bear the liability of compensation for such damage. Where the actual losses suffered by the damaged undertaking are difficult to calculate, the amount of compensation shall be determined according to the benefits obtained by the infringer from the infringement during the period of the infringement. The infringer shall also bear the reasonable expense paid by the damaged undertaking for investigating the infringer's acts of unfair competition violating his legitimate rights and interests. A damaged undertaking whose legitimate rights and interests are infringed by an act of unfair competition may file a lawsuit before a people's court. Legal Liability Article 17 An undertaking who violates this Law and thus causes damage to others shall bear civil liabilities for such damage in accordance with the law. An undertaking whose legitimate rights and interests are infringed by an act of unfair competition may file a lawsuit before a people's court. The amount of compensation for an undertaking whose legitimate rights and interests are damaged by acts of unfair competition shall be determined according to the actual losses suffered by the undertaking as a result of the infringement; or be determined according to the benefits obtained by the infringer from the infringement if the actual losses are difficult to calculate. The amount of compensation shall also include the reasonable expenses paid by the damaged undertaking to stop the infringement. Where an undertaking violates the provisions stipulated in Article 6 or Article 9 herein, and the actual losses suffered by the damaged undertaking and the benefits obtained by the infringer from the infringement are both difficult to determine, the people's court shall award the damaged undertaking a compensation for up to RMB China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 16

17 3,000,000 depending on the circumstance of the infringing acts. Article 21 Where an undertaking counterfeits others registered trademarks, uses without authorization others enterprise names or individual names, forges or counterfeits authentication marks, famous-and-excellentproduct marks or other product quality marks, forges the origin of products or makes false and misleading indications as to the quality of its products, such conducts shall be punished in accordance with the provisions of the Trademark Law of the People's Republic of China and the Law of the People's Republic of China on Product Quality. Where an undertaking uses, without authorization, unique names, packages or decoration of others famous products, or uses names, packages or decorations similar to those of others famous products, thereby causing its products from being mistaken for that famous products and leading the buyers to mistake the former for the later, the supervision and inspection authority shall order the undertaking to cease the illegal acts and have the illegal products confiscated and may, in light of the circumstances, impose on it a fine not less than one time but not more than three times the illicit turnovers; where the circumstances is serious, the undertaking s business license may be revoked; and if the products sold are fake and inferior, and the case constitutes a crime, it shall be investigated for criminal responsibility according to law. Article 22 Where an undertaking conduct bribery by offering property or other means, such conducts shall be investigated for criminal responsibility according to law if the case constitutes a crime; or in light of the circumstance, it may be imposed a fine between RMB 10,000 and RMB 200,000 and have its illegal gains confiscated (if any) by the supervision and inspection authorities, where the case does not constitute a crime. Article 18 Where an undertaking conducts any confusing act in violation of Article 6 herein, the supervision and inspection authority shall order it to cease the illegal acts and have the illegal products confiscated. Where the amount of illicit turnover reaches or exceed RMB 50, 000, a fine of up to five times the illicit turnover shall be concurrently imposed; and, in the absence of any amount of illicit turnover or where the amount of illicit turnover is less than RMB 50, 000, a fine of up to RMB 250, 000 shall be concurrently imposed. Where the circumstance is serious, its business license may be revoked. Where an undertaking s registered enterprise name violates the provisions of Article 6 herein, the undertaking shall change its registered enterprise name in a timely manner. Prior to the change of the enterprise name, the original corporate registration authority shall use the unified social credit code in lieu of the enterprise name. Article 19 Where an undertaking engages in commercial briberies to others in violation of Article 7 herein, the supervision and inspection authority shall confiscate its illegal gains, and impose on it a fine between RMB 100,000 and RMB 3,000,000. Where the circumstance is serious, its business license shall be revoked. Article 23 Where a public utility enterprise or any other undertakings occupying monopoly status according to law engages in restricting others to purchase goods from the undertaking designated by them to exclude other China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 17

18 undertakings from fair competition, the supervision and inspection authorities at the provincial level or cities with districts shall order it to cease the illegal acts and may, in light of the circumstances, impose on it a fine between RMB 10,000 and 200, 000. Where the designated undertaking takes advantage of its monopoly status to sell goods of low quality at high prices or indiscriminately collects fees, the inspection and supervision authority shall ; and the illegal gains confiscated, and may, in light of the circumstances, impose on it a fine not less than one time but not more than three times the illicit turnovers. Article 24 Where an undertaking engages, by advertisement or any other means, misleading false commercial promotions for its products, the supervision and inspection authority shall order it to cease the illegal acts and eliminate the adverse effects, and may, in light of the circumstances, impose on it a fine between RMB 10,000 and RMB 200,000. Where an advertisement agent acts as agent for, or designs, produces or releases, a false advertisement though knows or should have known the falsehood, the supervision and inspection authority shall order it to cease the illegal acts and have the illegal gains confiscated, and impose on it a fine according to law. Article 25 Where an undertaking infringes any business secret in violation of Article 10 herein, the supervision and inspection authority shall order it to cease the illegal acts and may, in light of the circumstance, impose on it a fine between RMB 10, 000 and RMB 200, 000. Article 20 Where an undertaking, in violation of Article 8 herein, conducts commercial promotions for its products in a false or misleading manner, or assists other undertaking s false or misleading commercial promotions by such means as organising false transactions, the supervision and inspection authority shall order it to cease the illegal acts and impose on it a fine between RMB 200, 000 and RMB 1,000,000; where the circumstance is serious, a fine between RMB 1,000,000 and RMB 2,000,000 shall be imposed, and its business license may be revoked Where an undertaking violates Article 8 herein constituting the releasing of a false advertisement, it shall be punished according to the Advertising Law of the People's Republic of China. Article 21 Where an undertaking infringes any business secret in violation of Article 9 herein, the supervision and inspection authority shall order it to cease the illegal acts and impose on it a fine between RMB 100, 000 and RMB 500, 000; or a fine between RMB 500, 000 and RMB 3,000,000 where the circumstance is serious. China Amends Anti-Unfair Competition Law: What are the Changes and What to Expect 18