The Unfair Competition Law, which was enacted in 1993, has been described as the constitution of the market economy. However, China’s rapid social and economic development has given rise to new forms of unfair competition that the legislature did not foresee. The law is now in the final stages of amendment; the State Administration for Industry and Commerce (SAIC) has completed a revised draft and has submitted it to the Legislative Affairs Office of the State Council.
Information released by the SAIC suggests that the changes focus on:
- identifying the competent enforcement agency to ensure uniform enforcement standards; and
- idefining new forms of unfair competition to extend the scope of administrative enforcement.
Identifying competent enforcement authorities
Various forms of unfair competition have led industry groups to bring claims to demand fair, well-ordered and legitimate competition. In recent times Google’s domain name leaving for Hong Kong, the so-called ‘circumvention affairs’ between milk manufacturers Mengniu and Yili regarding tainted milk products and the dispute between Tencent and Qihu in the internet sector have all been cited as examples of the Chinese commercial environment becoming increasingly unstructured. In disordered markets, new forms of unfair competition may slip through the gaps in the existing law.
A compromise in the Tencent and Qihu dispute was finally reached following mediation conducted by the Ministry of Industry and Information Technology. The matter was subsequently resolved by the parties apologising to the public. Both parties may have been in breach of the law throughout the period in question, but the SAIC unfortunately chose to remain silent, despite being the main enforcement agency.
The main issues surrounding implementation of the law are how to manage the relationship between the SAIC and related industry departments and how to clarify each authority’s administrative and enforcement functions to ensure consistent enforcement.
Article 3 of the law states that the administrative departments for industry and commerce at or above county level have the right to supervise and inspect acts of unfair competition. The article further states that "where laws, administrative rules and regulations provide that other departments shall exercise the supervision and inspection roles, those provisions shall apply". Thus, in addition to administrative departments for industry and commerce, such acts may be monitored and inspected by other entities, such as:
administrative departments of quality supervision, inspection and quarantine;
health departments; and
departments of culture.
This provision of the law leaves broad scope to apply other laws and regulations. For example, the Insurance Law, the Law on Commercial Banks and the Tendering and Bidding Law all contain provisions identifying enforcement agencies which are not mentioned in the Unfair Competition Law. This creates conflicts between laws and regulations in practical terms. The provisions on enforcement agencies in the Unfair Competition Law are unclear, as is the division of enforcement rights and responsibilities. This seriously weakens the law as an instrument of competition enforcement.
An expert who participated in the drafting of the revised law has disclosed that it assigns responsibility for enforcement to the administrative departments for industry and commerce. It states that "the SAIC and administrative departments for industry and commerce at various local levels exercise rights of supervision over, and inspection of, acts of unfair competition". This provision seeks to ensure consistency not only in identifying the correct agency, but also in the standards to be applied. This change will support the development of the market economy, encouraging and protecting fair competition and preventing acts of unfair competition.
Greater rights for consumers
On January 14 2011 the Ministry of Industry and Information Technology published a consultation draft of the Interim Measures on the Supervision and Management of the Internet Information Service Market Order. It states that entities which, without reasonable excuse or authorisation, provide products or services that are incompatible with competitors’ legal products or services may be liable for a fine of between Rmb100,000 and Rmb1 million. In particularly serious cases, an operator may be required to cease operations while it rectifies the problem.
The consultation draft acknowledges that the internet era has resulted in new technical methods of unfair competition. Some software manufacturers have tried to change or inhibit the normal downloading and installation of their competitors’ software by blocking the set-up process or deleting notification windows. The problem is becoming increasingly serious and widespread, but the existing law has no definitive answer to the question of whether such tactics are legal.
The revised draft addresses the issue by listing more acts of unfair competition in the field of information technology and e-commerce, including:
- the counterfeit use of another party’s domain name or a commonly used abbreviation of the company name;
- the use of identical or similar marks with others which are well known to the public, but are registered in another country or area; and
- the amendment of another party’s brand label and the placement of its products on the market without authorisation.
Moreover, the revised draft empowers the SAIC to identify other acts of unfair competition. Article 2 of the existing law provides that ‘unfair competition’ refers to the violation of the law by operators’ acts "which infringe other operators’ lawful rights and interests and disturb the socio-economic order". The revised draft adds ‘the consumers’ as potential injured parties, which expands the scope of protection. Unfair competition acts are always harmful to consumers’ rights and interest. In future, consumers may be able to bring suit and protect their rights and interests on the basis of the new law.
The revised draft contains many more changes. An overhaul of the law could be a big step forward for market operations in China; it promises reasonable regulation of unfair acts and stronger protection of consumers’ rights and interests.