The PRC Anti-unfair Competition Law and intellectual property protection

By Wang Yadong and Lu Lei, Run Ming Law Office

Article 2 of the PRC Anti-unfair Competition Law provides that “a business operator shall, during the course of a market transaction, follow the principles of voluntariness, equality, fairness and good faith, and comply with generally accepted business ethics. For the purpose of this Law, ‘unfair competition’ shall refer to any act of a business operator that damages the lawful rights and interests of other business operators and disrupts the social and economic order in breach of the provisions of this Law”. Although academic circles remain divided over whether this clause can be directly cited as a basis for civil judgments, the courts have, in practice, established a number of precedents in cases relating to intellectual property, which have been identified as unfair competition under Article 2.

For example, in Beijing Unitalen Attorneys At Law v Beijing Guanglixin International Intellectual Property Agency in 2008, Unitalen alleged that a Google search for the keywords “Unitalen Attorneys At Law” returned links to the website of Guanglixin which contained content similar or identical to that on the website of Unitalen. Guanglixin argued in an appeal that this did not constitute an act of unfair competition as specified in the Anti-unfair Competition Law.

Wang Yadong
Executive partner
Run Ming Law Office

However, the Beijing Second Intermediate People’s Court stated in its verdict at second instance that “if, when pursuing civil liability for acts of unfair competition under the Anti-unfair Competition Law, we strictly refer to the typical acts of infringement as set out thereunder without taking into account the general provisions and principles of that law, this is not conducive to encouraging and protecting fair competition, curbing acts of infringement and achieving the original intention of the Anti-unfair Competition Law. Thus, with respect to any acts not specifically defined in Chapter 2 of the Anti-unfair Competition Law, a people’s court may establish such acts as acts of unfair competition based on the principles set out in the Anti-unfair Competition Law”.

Role in development of IP law

There are also other instances where the application of Article 2 of the Anti-unfair Competition Law has facilitated the development of the law in the field of intellectual property. In the classic case of reverse trademark counterfeiting – Garment Factory 1 of Beijing Jingong Garment Industrial Group (the plaintiff) v Crocodile International (the defendant), the defendant altered, without authorization, the maple leaf brand on trousers made by the plaintiff, to the CARTELO trademark, owned by Crocodile, and offered the trousers for sale.

Lu Lei
Run Ming Law Office

This reverse counterfeiting was not regulated under the then prevailing PRC Trademark Law, but the Beijing First Intermediate People’s Court held that the actions of the defendant had, without offering any compensation, taken advantage of the efforts made by the plaintiff to build its reputation and market share through legitimate competition, in violation of the basic principles of good faith and fair competition. Accordingly, pursuant to Article 4 of the Civil Code and Article 2 of the Anti-unfair Competition Law, the court ruled that the act of the defendant constituted unfair competition. Subsequently, under the revised PRC Trademark Law of 2001, reverse trademark counterfeiting was expressly specified as a trademark infringement.

Another example is the dispute involving Beijing Jinrongcheng Network (the plaintiff) v Chengdu Moneywise Software (the defendant) heard by the Beijing Second Intermediate People’s Court in 2000.

A chart tracking the movement of foreign exchange produced by the plaintiff was framed and linked to the defendant’s website. According to the then prevailing PRC Copyright Law, the chart could not be recognized as a protected compilation of works. Accordingly, pursuant to the first paragraph of Article 2 of the Anti-unfair Competition Law, the Beijing Second Intermediate People’s Court ruled that the actions of the defendant constituted unfair competition on the grounds of the defendant’s breach of the legal principles of good faith and fair competition.

For this reason, the PRC Copyright Law, since its amendment in 2001, has contained express stipulations on the compilation of works and the copyright thereto, laying a legal basis for resolving future disputes in this area.

A useful supplement to intellectual property laws

The above discussions suggest that the application of the first paragraph of Article 2 of the Anti-unfair Competition Law has played a positive role in the development of both the judicial and legislative aspects of intellectual property rights. As the intellectual property sector is closely linked to the development of science and technology, it has become an area where new disputes and new issues often emerge. As intellectual property laws can clearly lag behind fast-changing technology, the Anti-unfair Competition Law offers a useful extra weapon in the legislative armoury.. The judiciary’s direct application of Article 2 has made the law more flexible in coping with new issues.

In cases of infringement of intellectual property rights, plaintiffs often state alleged acts of unfair competition as a cause of action, and may increase their chances of success by doing so.

Under China’s system of statutory law, however, the courts will act with caution in applying abstract principles.

Only a small number of courts have cited Article 2 of the Anti-unfair Competition Law in their judgments. The precedents discussed above suggest that the principles set out in the Article have largely been applied to cases where the particulars in dispute are very novel, no specific laws or regulations can be referred to during the hearing, and the relevant acts are obviously contrary to the principles of fairness and good faith.

As improvement and supplements are being made to the law, there is likely to be a decline in the number of cases involving the direct application of the principles in Article 2. However, the direct application of that Article has, provided a solution to novel disputes not regulated under existing laws, and offered a new idea to lawyers and their clients in planning legal action.

Wang Yadong is executive partner of Run Ming Law Office.

Lu Lei is an associate at Run Ming Law Office.

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