Application of the law in online unfair competition cases

By Wang Yadong and Lu Lei, Run Ming Law Office
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During “Double 11” (November 11) last year, Taobao’s Tmall sales turnover exceeded RMB91.2 billion (US$14 billion), showing that the huge business opportunities encompassed in the online economy are real. Competition among Internet enterprises is intensifying by the day. The initial industry situation – where each had its own specialty, e.g. Baidu focusing on search, 360 on virus protection, Tencent mainly on instant messaging and Taobao on e-commerce – has transformed into one in which each of the giants utilizes the users they have accumulated from their main business to extend their feelers into browsers, search, video, music, input methods, security software, Internet finance, and other sectors.

As a result, the odds of friction between the giants have greatly multiplied and the number of unfair competition cases relating to networks has increased. The Law Against Unfair Competition was implemented in 1993, whereas China’s Internet industry only sprang up after the turn of the millennium. All the network-related new technology, new applications and new business models could not have been foreseen by legislators of the Competition Law at the time. And the conflict between the “new” of the online world and the “old” of the Competition Law is becoming more acute.

The Competition Law

Articles 5 to 15 of chapter 2 of the Competition Law detail 11 types of unfair competition. Article 5 mentions the traditional counterfeiting of goods, article 9 false publicity, article 10 infringement of trade secrets, and article 14 harming the goodwill of others.

Wang Yadong is Executive Partner and Lu Lei is the Partner of Run Ming Law Office
Wang Yadong is Executive Partner and Lu Lei is the Partner of Run Ming Law Office

However, in comparison to current online acts of unfair competition, with the exception of using networks to counterfeit goods, carry out false publicity, engage in commercial defamation and carry out other such acts to which the above-mentioned provisions are directly applicable, a corresponding legal basis in the specific provisions mentioned above are unavailable for such acts of unfair competition as using malware, paid ranking, browser ad blocking, inserted warnings in security software, etc., none of which had arisen when the law came out.

However, even as the law remains unchanged, online unfair competition disputes have experienced exponential growth, and the Competition Law must nevertheless regulate such acts. Although the online world is relatively new, it remains a mere means of trade, such that the definition of acts of unfair competition by the Competition Law is not outmoded. Article 2 of the Competition Law specifies that, “In the course of market trading, business operators shall observe the principles of free will, equality, fairness and good faith and abide by generally accepted commercial ethics. For the purposes of this law, the term ‘Unfair Competition’ means business operators’ acts that violate this law by harming the lawful rights and interests of other business operators and disrupting the social and economic order.”

In the Shandong Foodstuffs Import and Export Corporation v Qingdao SKD Credit Trading, “kelp quota” unfair competition case, the Supreme People’s Court stated that, “in a specific case, those acts of market competition not enumerated in chapter 2 of the Law Against Unfair Competition may be rectified based on the general provisions of the first and second paragraphs of article 2 of the Law Against Unfair Competition, so as to ensure fair market competition”.

In an article, a Beijing judge compiled statistics on the judgments in 48 online unfair competition cases tried in Beijing courts between 2002 and 2014 and found that article 2 of the Competition Law was applied in 39 of the cases. It can be seen that application of provisions of principle has become one of the main legal bases in the handling of network-related unfair competition cases.

Commercial ethics

As article 2 is a provision that sets out general principles, its application has naturally given rise to numerous interpretations, and to small loopholes that require filling by judges and others in the course of practice. Accordingly, studying typical cases may have more reference value in handling network-related unfair competition disputes than it does in any other type of case.

For example, criteria for application of article 2 of the Competition Law appear in the judgment of the Supreme People’s Court in the “kelp quota” unfair competition case. With respect to the connotation and denotation of “commercial ethics”, the court provided incisive reasoning in the “kelp quota” case.

The interpretation and application of the “good faith principle” and “commercial ethics” are important topics in the handling of many of these cases. In the judgment in Jinshan v Qihoo, the court raised the issue of the application of the “good faith principle”. In the Baidu v Qihoo inserted warning case, the Beijing Municipal Higher People’s Court innovatively put forward the criterion for the application of “commercial ethics”, i.e. the “principle of non-interference unless the public interest is involved”, and in its appeal judgment in the same case, the Supreme People’s Court elaborated on the “principle of least privilege”.

In Heyi v Jinshan, the court’s statement that “technical neutrality is limited to the technology itself, not neutrality in the way it is used” gets to the point. In the judgments in the 3Q case and the Baidu v Sogou case, the courts summarized the criteria for assessing technical innovation. A large number of typical cases have involved the issues of the specific application and interpretation of article 2, providing invaluable reference for handling similar cases in future.

Law sorely needed

Provisions of principle (i.e. article 2) give judges far too much discretion, and the fact that more than 80% of cases require the application of provisions of principle shows the lack of means available in the 1993 Competition Law to handle new types of unfair competition cases.

From the perspective of application of the law, reliance on provisions of principle is not conducive to the maintenance of judicial uniformity and gravitas. Although the guiding significance of precedents is gradually increasing, China remains a statutory law country, and the facts in any two cases differ in any number of ways. Accordingly, systematic collation and summarizing of the fruits of judicial practice as appropriate to promote them to the level of law or judicial interpretations that are universally binding remains the basic premise for correctly handling network-related acts of unfair competition.

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