China Update: Analysis of the Interim Provisions on Anti-Unfair Competition on the Internet

Background

On 11 May 2024, the State Administration for Market Regulation (“SAMR”) issued the Interim Provisions on Anti-Unfair Competition Online (the “Interim Provisions”), which will come into force on 1 September 2024. Previously, on August 17, 2021, the State Administration for Market Regulation issued the Provisions on the Prohibition of Online Unfair Competition (Draft for Public Comment). After nearly three years of discussion and revision, the Interim Provisions were officially promulgated, becoming the first provision for online business activities under China’s anti-unfair competition law system. In order to help enterprises understand the content and impact of the Interim Provisions, this article is divided into three parts, focusing on the detailed provisions of the Interim Provisions on the determination of online acts of unfair competition.

Key content reminder: Based on the characteristics of online business activities, Articles 7 to 11 of the Interim Provisions respectively provide detailed provisions on the manifestations of four types of traditional unfair competition acts stipulated in the Anti-Unfair Competition Law of the People’s Republic of China (the “Anti-Unfair Competition Law”), namely counterfeiting and confusion, false publicity, commercial bribery, and commercial defamation.

1. Detailed Provisions on the Manifestations of Counterfeiting and Confusion

Article 7 of the Interim Provisions provides detailed provisions on counterfeiting and confusion on the basis of the Anti-Unfair Competition Law:

Article 7 of the Interim Provisions stipulates that:

Proprietors must not use the network to carry out the following confusing conduct, leading people to mistakenly believe that they are the goods of others (the goods referred to in these Provisions include services) or that there is a specific connection with others:

(1) Unauthorized use of logos that are identical or similar to the main body of a domain name, website name, web page, and so forth that have a certain influence on others;

(2) Unauthorized use of others’ influential trade names, enterprise names (including abbreviations, trade names, etc.), names of social organizations (including abbreviations, etc.), and names (including pen names, stage names, translated names, and so forth) as identifiers for the main body of domain names;

(3) Unauthorized use of logos that are identical or similar to the page design, name, icon, shape, and so forth of application software, online stores, clients, mini programs, official accounts, game interfaces, and so forth, where others have a certain degree of influence;

(4) Unauthorized use of other people’s network names, network symbols, network abbreviations, and other such markings that have a certain degree of influence;

(5) Producing or selling goods that are sufficient to lead people into mistakenly believing that they are the goods of others or that there is a specific connection with others;

(6) Jointly carrying out confusing conduct with other business operators by providing facilitation such as online business venues;

(7) Other confusing conduct carried out using the network that is sufficient to lead people to mistakenly believe that it is someone else’s goods or that there is a specific connection with others.

Unauthorized setting of another person’s influential commercial logo as a search keyword, which is sufficient to lead people to mistakenly believe that it is another person’s goods or that there is a specific connection with others, is the confusing conduct provided for in the preceding paragraph.

At present, there are a large number of law enforcement and judicial cases in the game industry, involving the unauthorized use of game interfaces, character images, specific scenes and other elements that have a certain influence on others, and therefore are found to constitute unfair competition acts of counterfeiting and confusion.

• In the case of copyright infringement and unfair competition dispute between the plaintiff Shanghai miHoYo and the defendants Beijing Technology Company, Zhang and Lin in the Beijing Shijingshan People’s Court^【1】The trial court held that the defendant’s prominent use of “Genshin Impact” as the name of the WeChat public account involved in the case, namely “Genshin Impact Creative Workshop”, and the publication of advertisements with “Genshin Impact” as the title of the article, were obviously commercial acts and could easily cause confusion and misunderstanding among the relevant public, and held that there was a specific connection between the plaintiff and the defendant such as commercial cooperation and licensing. In addition, the defendant’s direct use of the Genshin Impact game login interface as the interface of the application developed specifically for the Genshin Impact game can also cause confusion and misidentification within the meaning of the Anti-Unfair Competition Law, so it should be found to be counterfeiting and confusion in accordance with Article 6 of the Anti-Unfair Competition Law.
• In the case of copyright infringement and unfair competition dispute between the appellant Qianqi Company and the appellee Miaoyou Company and the defendant Qiyou Company in the original trial [Case No.: (2020) Yue 73 Min Zhong No. 4825] heard by the Guangzhou Intellectual Property Court, the trial court held that the accused games promoted and operated by Qianqi Company and Qiyou Company were consistent with the game types and themes of Miaoyou Company, and that when promoting and operating the games, they should reasonably avoid the game names “Merry President” and “Secretary Cultivation Record” used by Miaoyou Company when naming the games. However, in the case that the names of the games involved in the cooperation agreement signed between Qianqi Company and Youdong Company were not “Merry President” and “Secretary Cultivation Record”, instead of reasonable avoidance, they also used the names of the prior games “Merry President” and “Secretary Development Record” that were exactly the same as those of Miaoyou Company when promoting the accused games, and used game icons and game download landing pages that were consistent with the art works of Miaoyou Company when the accused game characters were not the character images in its games. The above-mentioned combined use of Qianqi Company and Qiyou Company subjectively has obvious intention to confuse and objectively can easily cause confusion among relevant users, and falls under “other confusing behaviors that are sufficient to lead people to mistakenly believe that they are the goods of others or have a specific connection with others” as provided for in Article 6, Paragraph 4 of the Anti-Unfair Competition Law, and constitute unfair competition.

1. Detailed Provisions on the Manifestations of False Propaganda

Articles 8 and 9 of the Interim Provisions provide detailed provisions on false publicity on the basis of the Anti-Unfair Competition Law:

Article 8 of the Interim Provisions provides:

Proprietors must not employ the following methods to make false or misleading commercial propaganda about commodity production and business entities, as well as commodity performance, function, quality, source, honors, qualifications, and so forth, to deceive or mislead consumers or the relevant public:

(1) Displaying, demonstrating, explaining, explaining, promoting, or textually annotating through websites, clients, mini programs, official accounts, and so forth;

(2) Carrying out commercial marketing activities through methods such as live broadcasts, platform recommendations, and online copywriting;

(3) Carrying out commercial marketing activities through methods such as hot searches, hot reviews, hot transfers, and lists;

(4) Other false or misleading commercial promotions.

Business operators must not assist other business operators in carrying out false or misleading commercial publicity conduct in the preceding paragraph.

Article 9 of the Interim Provisions stipulates that:

Proprietors must not carry out the following conduct to make false or misleading commercial promotions to commodity production and business entities, as well as commodity sales status, transaction information, business data, user evaluations, etc., to deceive or mislead consumers or the relevant public:

(1) False transactions or false rankings;

(2) Fabricating data and information related to operations, such as transaction volume, transaction volume, and reservation volume;

(3) Using methods such as false claims of spots, fictitious reservations, or false panic purchases to conduct marketing;

(4) Fabricating user reviews, or using methods such as misleading displays to conceal negative reviews, putting positive reviews in front and negative reviews in the back, or evaluations that do not significantly distinguish between different products, and so forth;

(5) Using methods such as cashbacks, red envelopes, or coupons to induce users to make interactive conduct such as designated praises, likes, or targeted voting;

(6) Fictitious traffic data such as favorites, clicks, followers, likes, reads, subscriptions, and forwards;

(7) Fabricating interactive data such as the number of votes, listens, views, broadcasts, box office, and ratings;

(8) Fictitious education and training effects such as admission rates, examination pass rates, and employment rates;

(9) Using methods such as falsifying word-of-mouth, concocting topics, creating false public opinion hotspots, or fabricating the income of online employees to conduct marketing;

(10) Other false or misleading commercial publicity conduct.

Business operators must not assist other business operators in carrying out false or misleading commercial publicity conduct in the preceding paragraph through methods such as organizing false transactions or organizing false rankings.

Articles 8 and 9 of the Interim Provisions enumerate false publicity in online business activities from two aspects: marketing methods and marketing data, respectively. In current law enforcement and judicial practice, the above-mentioned situations are the behaviors that are of concern to be concerned.

• In the case of Sanduo Technology Co., Ltd.’s false commercial promotion of user evaluations of goods investigated and dealt with by the Beijing Municipal Administration for Market Regulation^【2】The law enforcement agency determined that the party entrusted Shenzhen Caotian Company to conduct marketing and publicity of Mobai Baijiu through false question-and-answer word-of-mouth marketing. Shenzhen Caotian Company carried out false propaganda on Mobai Baijiu through online consulting and social platforms such as Baidu Q&A and Tieba in the form of publishing articles and question-and-answer word-of-mouth marketing. Among them, question-and-answer word-of-mouth marketing is a method in which Shenzhen Caotian Company deceives and misleads consumers by falsely claiming that the purchase and tasting experience of Mobai Baijiu is good, under the pretense of people who have not actually purchased or tasted Mobai Baijiu, simulating the tone of consumer selectors and actual buyers. The party’s conduct violated the provisions of Article 8, Paragraph 1 of the Anti-Unfair Competition Law, and the party was ordered to stop the illegal act and imposed an administrative penalty of a fine of 30,000 yuan.
• In the case of Gezhiyue Company organizing false transactions and helping other operators to carry out false commercial promotion, which was investigated and dealt with by the Market Supervision Bureau of Longquanyi District, Chengdu^【3】The law enforcement agency determined that the party pushed the “second sales promotion (marketing) plan (plan)” to the customer through WeChat, and used the drainage wizard software to realize the attention of product fans, store attention, product collection and other services. In addition, modify the unit price on Pinduoduo stores and use the wholesale function to achieve basic sales display, order swiping and product praise for single products. The conduct of the parties violated the provisions of paragraphs 1 and 2 of Article 8 of the Anti-Unfair Competition Law, and the parties were ordered to stop the illegal acts and imposed an administrative penalty of a fine of 200,000 yuan.

III. Detailed Provisions on the Manifestations of False Propaganda

Article 10 of the Interim Provisions provides detailed provisions on commercial bribery on the basis of the Anti-Unfair Competition Law:

Article 10 of the Interim Provisions stipulates that:

Business operators must not use property or other means to bribe platform staff, units or individuals that have an impact on transactions, in order to seek trading opportunities or competitive advantages in traffic, rankings, post services, and other areas.

“Property” as used in the preceding paragraph includes cash, items, online virtual property, gift certificates, funds, shares, debt forgiveness, and other property rights and interests.

Article 10 of the Interim Provisions clarifies that “online virtual property” is “property”. In practice, “online virtual property” may include virtual currency, game items, monthly card recharges, etc.

In recent years, commercial bribery cases in the Internet sector have emerged one after another, and more and more Internet companies have made the construction of commercial bribery compliance systems a key task. Among them, the e-commerce industry is the key target of commercial bribery law enforcement in the Internet field, and the main form of behavior is to obtain a competitive advantage in the platform by bribing platform staff and other entities.

• In the commercial bribery case of Shengzhan Apparel Company investigated and dealt with by the Shangcheng District Market Supervision and Administration Bureau of Hangzhou [Case No.: Hangzhou Listing Supervision Penalty [2023] No. 239], the law enforcement agency determined that the party concerned gave kickbacks and benefit fees to the then head of the brand operation department of the shopping platform in order to obtain assistance in the layout of the shopping platform and the expansion of sales volume, and the party’s behavior violated the provisions of Article 7, Paragraph 1 (3) of the Anti-Unfair Competition Law, constituting commercial bribery.

In addition, it should be noted that employees of companies who accept bribes may therefore be suspected of committing criminal offenses. For example, in ByteDance’s anti-corruption circular issued in April 2024^【4】, 4 employees are suspected of committing criminal offenses:

• From December 2022 to May 2023, Lu, a former employee of Douyin, took advantage of his position to illegally accept huge benefits from external partners. On January 26, 2024, Lu was investigated by the public security organs on suspicion of accepting bribes by non-state employees and taken compulsory measures of criminal detention.
• From May to September 2022, Gao Moumou, a former employee of Life Services, took advantage of his position to introduce service providers in violation of regulations, and accepted a total of 40,000 yuan in benefits from service providers. On January 17, 2024, Gao Moumou was investigated by the public security organs on suspicion of accepting bribes by non-state functionaries and was released on bail pending further investigation.
• From August to September 2023, Cao Moumou, a former outsourced employee of product R&D and engineering architecture, used a virtual account in violation of regulations to obtain illegal income from external agencies. In March 2024, Cao Moumou was investigated by the public security organs on suspicion of illegal business operation and taken compulsory measures of criminal detention.
• In December 2023, Zhou, a former employee of Douyin Live, abused his work authority and made a profit. In January 2024, Zhou was investigated by the public security organs on suspicion of a criminal offense and taken compulsory measures of criminal detention.

4. Detailed provisions on the manifestations of commercial defamation

Article 11 of the Interim Provisions provides detailed provisions on commercial defamation on the basis of the Anti-Unfair Competition Law:

Article 11 of the Interim Provisions stipulates that:

Business operators must not use the network to fabricate or disseminate false or misleading information, and carry out the following acts that harm or may damage the commercial reputation of competitors or the reputation of goods:

(1) Organizing or instigating others to maliciously evaluate competitors’ goods;

(2) Exploiting, organizing, or instigating others to disseminate false or misleading information through the internet;

(3) Using networks to disseminate risk warnings, letters of notice to customers, warning letters, or report letters that contain false or misleading information;

(4) Other acts of fabricating or disseminating false or misleading information, harming the commercial reputation of competitors or the reputation of goods.

Clients, Mini Programs, and Official Account operators, as well as organizations or individuals that provide post comment services, must not intentionally carry out the conduct in the preceding paragraph with business operators.

The term “commercial reputation” as used in this article refers to the credit and reputation of a business operator in commercial activities, including the relevant public’s evaluation of the business operator’s credit status, business ethics, technical level, economic strength, and other aspects.

The reputation of the product as used in this article refers to the reputation and popularity of the product in terms of quality and brand.

Due to the rapid and extensive nature of online dissemination, the high incidence of cases of business operators slandering or derogating competitors through platforms such as Weibo, live broadcast, and Douyin has become a key issue in law enforcement and judicial practice. Article 11 of the Interim Provisions provides for targeted and detailed provisions in this regard. Among them, “using the Internet to disseminate risk warnings, customer notices, warning letters or whistleblower letters, etc. containing false or misleading information” is a compliance risk that business operators are likely to face when choosing countermeasures in the course of disputes.

Specifically, when a business operator has a dispute with a competitor such as an infringement lawsuit, it will often consider issuing a lawyer’s letter, an infringement warning letter, a risk warning letter and other letters through online platforms and other channels to disclose information on the competitor’s involvement in litigation due to infringement. The purpose of the above-mentioned measures is, on the one hand, to remind relevant entities to be cautious about trading with competitors, and on the other hand, to urge competitors to stop their infringing acts and other commercial demands. In this regard, China’s judicial practice requires that the sender of the letter should exercise a duty of care, and if it exceeds the tolerance limit for the protection of its own rights and interests, it may constitute commercial defamation.

• In the commercial defamation dispute between Wuxi Jingmei Company and Jiangsu Xinghui Company [Case No.: (2021) Su Min Zhong No. 919] heard by the Jiangsu Provincial High People’s Court, Jiangsu Xinghui Company believed that Wuxi Jingmei’s products and the patent involved in the case infringed its licensed patent rights, and after entrusting a patent comparison analysis, it sent a Patent Infringement Warning Letter to Wuxi Jingmei’s cooperative customers, claiming that the refrigerator drawer slide produced by Jingmei Company was suspected of constituting patent infringement and affecting the normal operation of Jiangsu Xinghui Company. Wuxi Jingmei’s cooperative customers are required to immediately stop producing, selling, and promising to sell the infringing products produced by Jingmei. The trial court held that, without the competent authority making a determination in accordance with the law, Jiangsu Xinghui Company’s assertion that Jingmei Company had patent infringement was a unilateral subjective judgment, and that its act of directly informing Wuxi Jingmei’s cooperative customers of Wuxi Jingmei Company’s knowledge without consulting with Wuxi Jingmei Company was an act of disseminating suspected false or misleading information, which was not a legitimate act of rights protection, and its act of sending the letter objectively caused damage to the goodwill of Wuxi Jingmei Company and constituted commercial defamation.

With the development of the Internet industry, unfair competition behaviors that are not stipulated in the “Internet Regulation” have developed many new manifestations in the online environment, such as counterfeiting and confusion, false publicity, commercial bribery, and commercial defamation, and are usually more hidden. In order to make a more accurate determination of the above-mentioned acts, the Interim Provisions supplement and improve the new forms of expression of the relevant acts. On the one hand, it makes higher requirements for operators to improve their own compliance systems; On the other hand, it also provides clearer guidance and basis for business operators and consumers to protect their own rights and interests in judicial and law enforcement practice.

Footnote:

[1] The original text of the document has not yet been made public, and this is the news publicly released by the people’s court on the trial of the case: https://sjsqfy.bjcourt.gov.cn/article/detail/2024/04/id/7885462.shtml

【2】https://www.samr.gov.cn/xw/zj/art/2023/art_e473580b0f7a496784c7f146048e6b7c.html

【3】https://www.samr.gov.cn/xw/zj/art/2023/art_e473580b0f7a496784c7f146048e6b7c.html 

【4】https://www.thepaper.cn/newsDetail_forward_27268234 

Anjie Broad, China, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact china@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 84 Brook Street, London W1K 5EH, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.