Revised draft tightens regulation of internet unfair competition

By Leo Wang and Ben Chai, DaHui Lawyers
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As a fundamental piece of legislation regulating market competition in China, the Anti-Unfair Competition Law has played a significant role in maintaining fair market competition since its promulgation in 1993. In recent years, new types of unfair competition that are unique to the internet have continued to emerge one after another, such as hijacking internet traffic, content tampering, misleading comparisons and improper blocking of advertisements. However, currently effective PRC legislation (including the Anti-Unfair Competition Law) has no specific restrictions and regulations in this regard.

LEO WANG Associate DaHui Lawyers
LEO WANG
Associate
DaHui Lawyers

In judicial practice, only general principles are available for internet-related unfair competition. Therefore, clear definitions and restrictions on internet-related unfair competition at the legislative level are urgently needed.

In this context, the Anti-Unfair Competition Law (Revised Draft submitted for review), published by the Legislative Affairs Office of the State Council on 25 February 2016, includes specific provisions on internet operations, and strives to regulate unfair competition in the internet sector in the ways set out below.

Defines the scope of commercial marks. The revised draft expressly stipulates that the main body of internet domain names, website names and webpages fall within the scope of commercial marks, and that operators may not misappropriate the same (e.g., by using a similar domain name as a competitor to divert traffic to another website) to mislead the public and cause confusion in the market. This provision explicitly strengthens the legal protection of commercial marks.

Defines the scope of unfair competition for internet service providers. The revised draft expressly stipulates that the following four acts constitute unfair competition, and punishment may be imposed:

  1. Blocking users’ access to network services provided by other operators;
  2. Inserting links in network application services provided by other operators, resulting in forced page redirection;
  3. Misleading, deceiving or forcing users to modify, close, uninstall or otherwise prevent the normal use of network application services lawfully provided by others; and
  4. Interfering with or disrupting normal operations of network application services lawfully provided by others.

In brief, an internet service provider must avoid any restrictions of customers’ use of services provided by other similar or associated service providers.

Strengthens supervision and inspection powers of law enforcement agencies. The revised draft further strengthens the supervision and inspection powers of law enforcement agencies against unfair competition. It expressly stipulates that law enforcement personnel have the right to enter relevant premises for inspection, review and copy agreements, books, vouchers, documents, records, business correspondence, electronic data, audio-visual material and other material in connection with the acts under investigation, to seize and detain property suspected of being involved in illegal acts, to inspect the bank accounts of operators suspected of being involved in illegal acts, and to apply to judicial authorities to freeze illegal funds.

Compared to the current Anti-Unfair Competition Law, the revised draft provides for greater supervision and inspection powers of law enforcement agencies, and specifically includes electronic data into the scope of evidence that may be investigated, which is important to the collection of relevant evidence and imposing punishment in a targeted manner.

Increases penalties. The revised draft stipulates that an operator found to have committed unfair competition in the internet sector will “be ordered to stop the illegal acts and be subject to a fine of not less than RMB100,000 (US$15,000) and not more than RMB3 million, according to the circumstances”. The amount of such a fine is substantially higher than that set out in the current law, and will have a greater deterrent effect.

In current practice, an infringing operator will often continue with wilful infringement even after it has been ordered by a court to bear civil liabilities, while the infringed operator usually “wins the lawsuit yet loses the market”, even if it has obtained legal indemnification. Therefore, there is an urgent need for the competent authorities to strengthen punishments against relevant illegal acts after the revised draft becomes a formal legislation.

BEN CHAI Associate DaHui Lawyers
BEN CHAI
Associate
DaHui Lawyers

Strengthens consumer protection. The revised draft stipulates that consumers who suffer damages from unfair competition may also institute legal proceedings. In contrast, the current Anti-Unfair Competition Law only expressly provides for other operators’ right to sue as an aggrieved party, but lacks express provisions on consumers’ right to sue. Under the new provisions, consumers can independently take legal action against internet-related unfair competition. With the enhanced legal awareness of consumers, it is predicted that the number of individual judicial cases will rise and, therefore, facilitate the regulation of the internet services market.

Defines obligations of internet service platforms. The revised draft stipulates that “those who know or ought to have known about unfair competition provided for in this law, yet still provide network services, technical support, advertising promotion, payment and settlement, and other facilitating services in connection therewith, will be subject to a fine of not less than RMB100,000 and not more than RMB1 million, according to circumstances”. The provisions increase the self-regulatory obligations of network operators, large search-ads platforms and third party payment platforms against unfair competition. Those who “know or ought to have known” about unfair competition yet still provide assistance in connection with it, as proven by relevant evidence, will be subject to separate punishment.

According to legislative practice in China, normally the key provisions of the revised draft will be retained in the final promulgated version. Therefore, the internet-related provisions above are likely to become the focus of anti-unfair competition legislation in China’s internet service sector in the future. Internet service operators should pay close attention to ensure compliance for their business operations.

Leo Wang and Ben Chai are associates at DaHui Lawyers

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