Chinese Supreme Court Issued New Rules for Anti-unfair Competition Disputes

Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Law of the People's Republic of China against Unfair Competition (hereinafter referred to as “the New Interpretation”) came into effect on March 20, 2022. The New Interpretation replaces its predecessor – Interpretation of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition (promulgated in 2007 and revised in 2020) and becomes an important guidance for market players in protecting their interests against unfair competition, and for judges in recognizing unfair competing activities in the rapidly developing society. This article will introduce 4 highlights of the New Interpretation.

I.    Identifying the competitors
Unfair market competition always arises between market competitors. In the Anti-Unfair Competition Law, unfair competition is defined as the behavior of violating the provisions of the Anti-Unfair Competition Law in the production and business operation, disrupting market competition order, or harming the legitimate rights and interests of other business operators or consumers. The “other business operators” are namely the competitors.

The New Interpretation clarifies the “other business operators” as any market player that may have any connection in the production and business operation activities, such as possible competition for transaction opportunities, or possible damage of competitive advantages. Such clarification in nature broadens the scope of competitors and echoes the position of the courts in relevant precedents.

In one of SPC guiding cases, a company engaged in glass and paint repair services relevant to automobile maintenance brought a claim against an automobile company for the latter had the same brand name as the former resulting in confusion to the market. Eventually, Tianjin High Court recognized the existence of competition between the two companies, establishing whether the participants are in one relevant business sector is the key to identify the competitors.

II.    Definition of “business ethics”
Anti-Unfair Competition Law imposes “business ethics” as a general principle for market players to comply with. However, before the New Interpretation, there was no unified criteria to determine whether a market practice violates “business ethics”.

In a famous precedent between iQIYI, one of biggest online video platforms in China, and Sogou, a key player in Chinese character input method with touches upon browser service, iQIYI accused Sogou of violating business ethics by using candidate words in its input method as a clickbait, inducing iQIYI APP users to jump to Sogou browser and resulting in user losses to iQIYI. Shanghai IP Court held that the impact of such practice on iQIYI’s operation, consumers’ interests, and market order were three keys to determine the violation of business ethics. Eventually, Shanghai IP Court did not uphold iQIYI’s claims for the consumers had no trouble understanding that the candidate’s words belonged to Sogou’s service, not iQIYI’s. After being redirected, consumers could choose freely to revert to iQIYI or stay with Sogou, so their using experiences actually improved due to more choices. In addition, the court took note that internet industry, compared with traditional industries, especially requires a more free and flexible business environment to thrive.

On the basis of the judicial practice, the New Interpretation specifies on important factors to consider when determining the violation of business ethics: the industry rules, business norms, subjective mental state of the operator, the choice willingness of transaction counter parties, the impact on the rights and interests of consumers, market competition order and public interests. This determination may also be concluded by referring to the code of practice, technical specifications and self-regulatory conventions formulated by the competent authorities of the industries, industry associations or self-regulatory organizations.

III.    “Influential” in trademark protection
Preventing malicious confusion among trademarks is one of the crucial functions of trademark law, as well as Anti-unfair Competition Law. As a matter of fact, Anti-unfair Competition Law complements trademark law by covering intangible business resources which are not registered as trademarks. To be protected by anti-unfair competition law, brand names, labels and marks must be “influential”. But in previous legal practices, the understanding of “influential” varied across the country.

The Interpretation clarifies constitutive requirements of “influential” as: 1. market popularity; 2. capability of distinguishing the source of the goods. To evaluate market popularity, one needs to consider factors such as the knowledge level of the relevant public within the territory of China, the time, region, amount and target objects for sale of the goods, the duration, degree and territorial scope of the publicity and the protection of the mark, etc.

IV.    Unfair competition in cyberspace
The New Interpretation, collaboratively with the draft for public comment of the State Administration of market supervision issued Provisions on Prohibition of unfair competition on the Internet, emphasizes two of the most rampant practices of cyber unfair competition, namely "forced redirect" and “malicious interference with net services”.

According to the New Interpretation, a forced redirect can only be legitimized when there are double permissions from both the user and the operator. In addition, when a user actively triggers a pre-set link, one should consider specifically how and why the link is placed, and its impact on users and other operators, to conclude whether the redirect is compulsory.

In recognizing malicious interference with users’ experiences, the New Interpretation introduced two more element, “lacks of explicit notice and permission from the user”, and “malicious interference and damages on others’ net product”. Specifically, behaviors such as “modify, close and unload” are listed as inferences, but the list is far from exhaustive: judges are given discretionary power to add other behaviors into the list in their practical cases if applicable.

V.    Conclusion
The New Interpretation summarizes China's judicial experience over the years, effectively responds to practical needs and we believe, it will help the market players to reach a consensus in understanding the unfair competition and thus to protect their legitimate rights more efficiently.

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