After a whole year’s review and rounds of public comments, on February 22, the State Council has eventually submitted the Draft Amendments of the Anti-Unfair Competition Law (the “Draft”) to the Standing Committee of the National People’s Congress for ratification. Most of the key principles of the earlier drafts have remained while rules in addressing the abuse of dominant market positions were taken out.

Here are some highlights vis-a-vis previous draft:

  1. Scope of unfair competition (Art. 2): In the previous draft, the behaviors infringing consumers’ legitimate rights and interests fall into the scope of unfair competition. The new Draft excludes consumers from being the subject of violation, and leaves the consumer rights and interests to be protected by the Consumer Protection Law, which we believe a correct revision avoiding the overlap of different laws.
  2. The abuse of relatively dominant position: The inclusion of abuse of relatively dominant position as unfair competition conduct has been one of the most controversial issues in the earlier draft. Some worries that it may blur the boundary between AUCL and AML and put common trade practice under the risk of anti-competition concerns. Now there is no need to worry as the new Draft removed all the clauses regarding abuse of dominant position, which may be good news for leading companies in different industries.
  3. Trade secret (Art. 9-10, Art.19): The new Draft further expands the scope of trade secrete protection and specifically indicates both employees and former employees are forbidden to obtain the trade secrets by theft, bribery, threatening and other illegal ways. The government employees and other professionals like lawyers, accountants are also obliged to keep the trade secrets confidential in their duties. However, the clause in the earlier draft which shifted the burden of proof to the defendants in trade secret cases has been removed. The earlier draft provided that the right holders only need to prove “substantial similarity” and “access to confidential information”, which is quite positive for the right holders. The new Draft, however, makes the burden of proof unclear in trade secret violation cases, which may weaken the protection of trade secrets.
  4. Unfair competition in the internet industry (Art. 14): When it comes to the internet sector, the protection area extends from the earlier draft’s really narrow concept of “network application services” to a broader one of “network products and services” in the new Draft. Three out of the four kinds of unfair competition behaviors banned in the earlier draft – i.e. forcing users to redirect from competitors’ websites, misleading or forcing users to shut or unload competitor’s products or services, and interfering or interrupting competitors’ products or services – still remain with only some change of wording. Another illegal practice, “blocking the services of competitors”, has been replaced by “being maliciously incompatible with competitors’ legitimate products or services ”.
  5. Authority of Inspection (Art. 16): Art. 15 of the earlier draft remains in the new Draft. It gives the local authorities of industry and commerce (AICs) power to investigate alleged violations, including raiding the business sites of violators, seizing relevant goods and investigating bank accounts, as well as to request relevant parties to provide data, technical support and other materials. The local authorities, with expanded power, may push forward law enforcement on the one hand, while on the other arouses concerns of inconsistency in different regions.

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