The PRC Unfair Competition Law of 1993 (the “Old Law”) was amended for the first time since its introduction 24 years ago, bringing some important changes including some related to intellectual property.
One of the highlights of the Amendments (the "New Law") is the introduction of an effective system to change an infringing trade name. Under the New Law, an infringing trade name will be replaced by “Social Credit Numbers” (namely the company code for the identity and credit record) before the name is formally changed. Such provisions will remove the headache of an infringer refusing to change its name after an infringement is determined.
The New Law will become effective as of 1 January 2018. The main changes are summarised as follows.
Product name and trade dress
- The criteria to determine the infringement of “product name, packaging, and decoration” in the New Law have been changed to the product name and trade dress “having certain influence" and the defendant’s product potentially causing "confusion and misleading", instead of requiring the product to be “famous” and the product name/dress being “unique” in the Old Law.
- "Certain influence" is not defined in the New Law. It’s not clear if any difference with the same term used in Article 32 and Article 59 of PRC Trademark Law, which would be subject to the courts’ discretion.
- The term "confusion and misleading” is interpreted more broadly than the Old Law: it not only refers to confusion of the source of goods, but also includes confusion of "special connection" (such as licensing or merchandising). This is similar to the interpretation of the term under Trademark Law.
- The New Law does not specify "product shape" which was initially introduced in an earlier draft, suggesting that it is still difficult to protect product shape under unfair competition laws, though it may be possible in some exceptional cases.
Trade name
- The criteria to determine the infringement of trade name is the same as trade dress above, requiring “certain influence" and "confusion and misleading".
- When a trade name has been determined as an infringement, the company name registry will replace the name with “Social Credit Numbers” before the name is changed. This will effectively solve the enforcement problem where the infringers refuse or delay to apply for the change of trade name.
- The New Law protects pen names, stage names, translated names, the main part of a domain name, website names, web pages etc. The criteria also need to comply with “certain influence" and "confusion and misleading” provisions.
Trade secret
- The New Law removes “practicality" as one of the required elements of trade secrets, which may help to protect trade secrets which are not necessarily “practical”, for example experimental data.
- The New Law specifies that "the employees, former employees of the right owner of trade secrets" who illegally acquire, disclose, use or allow the use of trade secrets by others, shall be deemed as infringing the trade secret.
Misrepresentation
- The Old Law prohibits business operators to promote products by giving "false and misleading statements". The New Law amends the term to "false or misleading statement”, which may broaden the scope to challenge misleading practice.
- The New Law adds "sales status, users’ comments, winning awards" as possible areas of false or misleading statements. It also explicitly prohibits the use of "false transactions" to stop the use of false or misleading business communications (such as false sale figures at e-commerce shops).
Enforcement agencies’ powers
- The New Law enhances the powers of law enforcement agencies, e.g., the power to detain infringing goods and search infringers’ bank accounts which are not available under the Old Law. The power to “search infringers’ bank accounts” is newly introduced for the first time in IP law and is currently not available in the Trademark or Copyright Law.
Statutory damages
- The New Law sets maximum statutory damages of RMB 3 million for infringement product names, trade dress, trade names and trade secrets, which is at same level of current Trademark Law.
Other major changes
- The New Law specifies unfair competition activities in relation to the internet, such as “inserting a link into an online product or service legally provided by another business operator to compel a destination jump without the approval of such business operator”; “implementing in bad faith an incompatibility with an online product or service legally provided by another business operator" and so on. These new provisions may cause challenges and debate on how they are to be interpreted and implemented.
- The maximum prize of a lucky draw in prize-giving sale activities is raised from RMB 5,000 in Old Law to RMB 50,000.
- The New Law has significantly increased the penalties imposed by law enforcement agencies. For instance, the maximum penalty for “false statement” and “trade secret infringement” is raised from RMB 200,000 in the Old Law to RMB 2 million and RMB 3 million respectively.
- The New Law also adds provisions that law enforcement agencies may include and publicise details of punishments into credit records against the infringing parties.
- The New Law further clarifies that the payment of civil damages shall prevail where an infringer is fined by administrative or criminal enforcement agencies and his or her assets are insufficient to pay.
For more information on the new law or if you have any questions, please contact August Zhang.
A version of this article was first published in World Trademark Review in December 2017.
