Trends in Shanghai administrative penalty cases 2016-2017

By Quan Kaiming, AllBright Law Offices
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With the implementation of the “relaxed access, stringent oversight” strategy by state regulators, non-compliant operational acts by enterprises are more likely to be subject to administrative penalties, directly affecting enterprises’ credibility. The author statistically analysed more than 20,000 administrative penalty decisions for the years 2016 and 2017, published in Shanghai’s industry and commerce system, and, through a big data analysis and comparison, hopes to help enterprises clearly understand the direction of administrative law enforcement and effectively guard against compliance risks.

全开明 QUAN KAIMING 锦天城律师事务所 律师 Associate AllBright Law Offices
全开明
QUAN KAIMING
锦天城律师事务所
律师
Associate
AllBright Law Offices

The scope of the administrative penalty data statistics was limited to the functional scope of industry and commerce administration, and the scope of business acts covered registration acts, market trading acts, merchandise quality in the distribution sector, direct marketing and multi-level marketing, advertising acts, trademark registration and exploitation, as well as contractual acts.

Compilation of percentage statistics for administrative penalties from 2016 to 2017. Through a statistical analysis of more than 20,000 administrative penalty decisions, it was not difficult for us to find that the leading violations likely to result in administrative penalties from 2016 to 2017 were chiefly operating without a licence, product quality, daily enterprise operations, fair competition, advertising, trademarks, standard form contracts, direct and multi-level marketing, and protection of consumer rights. The probability of other violations being penalized was relatively small.

Fair competition made up more than 900 cases and product quality more than 2,000 cases. Such traditional spheres of violations as fair competition, product quality, etc., remained relatively stable, while operating without a licence, daily enterprise operations and trademarks showed a marked decreasing trend, and penalties for advertising acts increased sharply.

Violations in daily enterprise operations decreased markedly. Violations in daily enterprise operations decreased from 2,810 cases in 2016 to 1,784 cases in 2017, a drop of 36.5%. The reason for this is that, with the reform of the registration system, the oversight over the registered particulars of enterprises has become more relaxed, with the violations relating to registered particulars no longer being penalized as serious violations. Also, with the extensive implementation of the Interim Regulations for the Publication of Enterprise Information, the authorities are being increasingly careful when it comes to such penalties as revocation of the business licence, instead taking such measures as placing enterprises on a breach of trust list.

Penalties for operating without a licence decreased substantially. Violations involving operating without a licence decreased from 2,125 cases in 2016 to 924 cases in 2017, largely a result of a change in the application of the law. The amended Measures for the Investigation and Handling of Operating Without a Certificate or a Licence took effect on 1 October 2017, with the previously stringent investigation and handling of operating without a licence slowly softening. In particular, the oversight of operating without a licence where a permit is not necessary has progressively become less stringent, accordingly resulting in a downward trend in the investigation and handling of operating without a licence.

Rise of a large number of penalty decisions involving advertising. The reason for this is that the extent and breadth of implementation of the new Advertising Law has expanded. Regardless of whether looked at from the perspective of case handling or social impact, all the regulators are prepared to apply the new Advertising Law in dealing with enterprises, and the determination of advertising acts has become simpler, and penalties heavier. These are the reasons that have led to a large increase in such penalties.

The number of penalties for violations of the law involving internet advertising is progressively increasing, from 332 cases in 2016 to 720 cases in 2017, representing an increase of more than 100%. The number of false advertisements increased three times compared with 2016, increasing from the original 254 cases to 828 cases. Furthermore, the stands from which penalties for violations involving advertising may be imposed are also increasing, which means that, for an enterprise, advertising or publicity that cannot be self-certified is a potential violation of the law and, if discovered, will almost inevitably result in penalties.

With an ever increasing awareness of the protection of consumer rights and interests, penalty cases involving the protection of consumer rights and interests are also more and more common, and with professional fraud warriors adding fuel to the fire, the frequency of such cases is rising dramatically.

Since the implementation of the Law Against Unfair Competition on 1 January 2018, the incidence of investigation and handling of violations involving unfair competition is sure to rise sharply, which will result in a new wave of law enforcement.

Penalties for violations involving false publicity will increase sharply. Compared with traditional advertising and publicity acts, false publicity is much more likely to be subjected to administrative penalties, and the scope of such penalties has increased from the former minimum of RMB10,000 (US$1,600) to RMB200,000. The sphere of law enforcement will also extend to such spheres as offline shop signs, decorations and trade dress, product packaging, etc., and will increasingly broaden.

Violations involving commercial bribery will occur with much greater frequency. Pursuant to the new regulations, business operators may not use property or other means to bribe entities or individuals specified in regulations to secure trading opportunities or a competitive advantage. The amount of fines has increased to not less than RMB100,000 and not more than RMB3 million, with the illegal income also being subject to forfeiture.

Acts of commercial confusion are more likely to be penalized. Acts of confusion include: “using without authorization a mark identical or similar to another’s product name, packaging, trade dress, etc., that has a certain influence; using without authorization another’s enterprise name (including abbreviation, trade name, etc.), social organization name (including abbreviation) or personal name (including pen name, stage name, translated name, etc.), that has a certain influence”. Currently, such acts of confusion are extremely common in online business operations, and this will be one of the key areas in which online oversight is strengthened.

Penalties relating to advertising will also continue to occur at a high frequency. The professional level in the advertisement publication of many enterprises has never improved and, in terms of advertisement review, many lack the services of professional service firms, so violations involving advertising will continue to occur at a high frequency.

Quan Kaiming is an associate at AllBright Law Offices

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