Supreme People's Court issues new interpretation of the Anti-Unfair Competition Law

On 29 January 2022, the Supreme People's Court (SPC) adopted a judicial interpretation of the Anti-Unfair Competition Law, which was published on 17 March and became effective on 20 March. This interpretation supersedes that of 2007 and shall apply to all pending cases. However, if a case has been adjudicated before that date but continues with the retrial procedure, the 2007 interpretation will apply.

The catch-all Article 2

The interpretation confirms the rising importance of the Anti-Unfair Competition Law as a legal ground for civil litigation and, in particular, Article 2. This establishes the general principle of fairness: “A business operator shall, during the production and operation, follow the principles of voluntariness, equality, fairness and good faith and observe the laws and business ethics.”

The article goes on to define ‘unfair competition’ as an act that "disturbs market competition order and damages the lawful rights and interests of other business operators or consumers”.

Having established this principle, in Chapter 2 the law describes various types of acts of unfair competition, including the following:

• creating confusion with another operator (Article 6);
• false advertising (Article 8);
• theft of trade secrets (Article 9); and  
• defamation (Article 11).

Until recently, the courts had interpreted this law very strictly, in particular Article 6.1, which provides that “a business operator shall not use a sign that is identical with or similar to the name, packaging or decoration etc. of other person's products which has a certain influence”. The emphasis was, therefore, on the likelihood of confusion; hence the need to prove the existence of a certain influence or reputation. No evidence of reputation, no case.

Article 2, however, places emphasis on the unfair behaviour of the operator, which requires a completely different type of evidence.

The courts were reluctant to accept cases based only on a defendant’s behaviour, with no specific reference to any of the acts described in Chapter 2.

This situation evolved favourably, thanks to trademark squatters. Several cases in this area gave the courts an opportunity to take a stand against unfair practices.

In Bayer (2018), the trademark squatter, after failing to intimidate Bayer into buying his trademarks, complained about Bayer’s online sellers and blatantly offered to withdraw these complaints if the sellers agreed to pay damages. Bayer reacted by filing a civil action against the squatter, seeking judgment of non-infringement and an order to cease unfair competition acts.

Then, more recently, in Brita (2021), Brita, after successfully concluding all the administrative cases caused by the trademark squatter, sued for damages on the grounds of unfair competition. The Shanghai court held that the squatter's malicious pre-emptive registration of trademarks and systematic challenging of Brita’s registrations violated the principle of good faith and business ethics. The court affirmed that the trademark squatter’s behaviour constituted acts of unfair competition and ordered the payment of Rmb2.8 million ($437,500) in damages.

Finally, in In-Sink-Erator (2021), the Xiamen court went one step further, and considered that the behaviour of the defendant, who had registered many trademarks identical, or similar, to the plaintiff's trademarks alongside other famous marks, with no intention of using them, had breached the principle of good faith. The court issued an order prohibiting the defendant from filing such pre-emptive applications in the future.

All these cases were based on Article 2 of the Anti-Unfair Competition Law.

We can, therefore, appreciate the meaning of the new interpretation which, in Article 1, confirms the importance of the principle of fairness:

Article 1.  When the acts of an operator, disrupting the market competition order and damaging other operators' legitimate rights or the consumers' interests, are not specifically described in Chapter II of the AUCL, in the Patent Law, in the Trademark Law and in the Copyright Law, the People's Court may apply Article 2 of the AUCL.

Business ethics have thus become the essential touchstone of Article 2. The SPC takes this opportunity to clarify in Article 3 of the interpretation that the code of conduct generally followed and recognised in a specific business field constitutes the business ethics as stipulated in Article 2. The SPC goes into detail about how courts should determine whether an operator violates business ethics.

It remains to be seen whether the courts will still be reluctant to accept cases based on Article 2 when the litigious acts are relevant to Chapter 2 but the conditions required (eg, proving the reputation of a commodity) are not sufficiently met. (Take, for example, the case of an operator who systematically copies the new models of a competitor, none of which yet have a reputation.) Another issue concerns cases where an unregistered but well-known trademark can be protected against the use of the mark by another person on different goods, without confusion.

The commercial signs listed in Article 6 of the Anti-Unfair Competition Law and the Trademark Law

These signs are the name, packaging and decoration of a product (Article 6.1), the enterprise name (Article 6.2) and the website name (Article 6.3), all of which need to enjoy a certain influence.

There is, therefore, a difference between the name, packaging or decoration of a product and the name of an enterprise or website. The ‘sign’ of Article 6.1 relates to the product, whereas that of Articles 6.2 and 6.3 pertains to the enterprise.

The SPC does not make any distinction between these different types of signs and considers that they are all the equivalent of an unregistered trademark, which is a narrow interpretation of the concept of sign in the context of the Anti-Unfair Competition Law. So, the SPC insists (Article 4) that the sign must have "distinctive features enabling the sign to distinguish the source of the goods", which is the definition of a trademark. The interpretation goes on, in Articles 5 and 6, to enumerate signs that cannot have a certain influence: the generic names of goods, the reference to their quality, the shape dictated by the nature of the goods or that serve to give them substantial value. All of these are directly imported from the Trademark Law. In Article 7, the SPC insists that a sign (under Article 6 of the Anti-Unfair Competition Law) may not be protected if its registration as a trademark would be refused pursuant to Article 10 of the Trademark Law (absolute grounds).

This link between the Trademark Law and the Anti-Unfair Competition Law can be found again in Article 10 of the interpretation. The courts are requested, when determining whether a sign has been used in the sense of Article 6 of the Anti-Unfair Competition Law, to apply the exact same definition of the term used in Article 48 of the Trademark Law (ie, "use on goods, commodity packaging or containers and commodity transaction instruments, or advertising, exhibitions, and other commercial activities, in China, to identify the source of the goods"). This definition hardly corresponds to the enterprise name and the website name (Articles 6.2 and 6.3).

However, another concept imported from the Trademark Law is welcome. Article 14 of the interpretation provides that the Anti-Unfair Competition Law shall apply to the act of selling the goods bearing the infringing sign (pursuant to Article 6) and, as in Article 63.2 of the Trademark Law, the “innocent seller” who gives information concerning the supplier is exonerated from civil liability. Article 15 of the interpretation includes the acts of intentionally providing a storage, transportation, mailing and printing service, among others, in the confusing activities covered by the law. This is cited in Article 1169.1 of the Civil Code, which is also very similar to Article 57.6 of the Trademark Law.

Regarding determination of the damages, Article 23 extends the principle of statutory damages (Rmb5 million) - already provided in Article 17.4 of the Anti-Unfair Competition Law for confusing acts and theft of trade secrets - to other circumstances, including the general principle of Article 2. However, no mention is made of the possibility of obtaining punitive damages.

In Article 24 of the interpretation, the SPC again addresses the relationship between the Anti-Unfair Competition Law and IP laws:

If a People's court has found that a person has committed act(s) of copyright, patent or trademark infringement and has ordered such person to bear civil liability, the People's court shall not support another claim of unfair competition, against the same infringer, based on act(s) committed in the same geographical place and at the same time.

Unfortunately, this article is quite vague. It is true that one act cannot violate both the Anti-Unfair Competition Law and another IP law at the same time. However, it is not rare for an infringer to commit a variety of acts, some of which qualify as IP rights infringement and others as unfair competition. The SPC gives no instructions as to how the courts should handle such situations. Therefore, it might still be found that, in such complex cases, a court will request the plaintiff to choose one legal ground and drop the other, instead of examining the entirety of the case in all its complexity.