China's Anti-unfair Competition Law: cracking down on malicious infringement in advertising

Recent amendments to China’s Anti-unfair Competition Law have seen legal compensation rise from Rmb3 million to Rmb5 million, which goes some way to addressing the significant cost of stopping infringement.

Advertising is the most important means of promoting a business. According to one official report, the scale of the advertising industry in China has been continuously expanding and is now growing even more thanks to improvements in multimedia and internet techniques. For the past two years, China’s advertising industry has ranked second in the world.

China is a member of the World Trade Organisation; as a signatory to various international regulations (ie, the Paris Convention for the Protection of Industrial Property and the Agreement on Trade-Related Aspects of Intellectual Property Rights), it also has domestic legislation in place to protect the legitimate rights and interests of business operators and consumers, and to tackle different forms of unfair competition.

The Paris Convention states that ‘unfair competition’ practices include:

  • all acts of such a nature as to create confusion by any means whatever with the establishment, goods or industrial or commercial activities of a competitor;
  • false allegations in the course of trade of such a nature as to discredit the establishment, goods or industrial or commercial activities of a competitor; and
  • indications or allegations which in the course of trade are liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for purpose or quantity of the goods.

In line with the Paris Convention, Chinese law prevents activities that may result in consumer confusion or be misleading as to the quality, origin or characteristics of the goods.

Advertising Law

The Advertising Law provides the following:

  • Article 4 states that an advertisement must not resort to any falsehood that results in deception or misleads consumers.
  • Article 12 states that an advertisement should have no content that denigrates the goods or services of other producers or operators.
  • Article 14 states that an advertisement for medicines or medical apparatuses should in no way contain comparisons to other medicines or medical apparatuses regarding efficacy or safety.
  • Article 21 states that in carrying out advertising activities, advertisers, advertising agents and advertisement publishers should not engage in any form of unfair competition.

Anti-unfair Competition Law

The Anti-unfair Competition Law provides the following:

  • Article 6 states that a business must not mislead a party into believing that a product belongs to another party or has a particular connection with another party and prohibits the following acts:
    • using without permission a label that is identical or similar to the name, packaging or decoration, among other things, of another party’s product with certain influence;
    • using without permission another party’s name with certain influence, such as the name (including abbreviations and trade names) of an enterprise, the name (including abbreviations) of a social organisation or the name (including pseudonyms, stage names and name translations) of an individual;
    • using without permission the principal part of a domain name, name of a website or web page with certain influence, among other things, of another party; and
    • other acts of confusion sufficient to mislead a person into believing that a product belongs to another party or has a particular connection with another party.
  • Article 8 states that a business should not conduct any false or misleading commercial publicity in respect of the performance, functions, quality, sales, users’ comments and honours received regarding its products, in order to defraud or mislead consumers. Nor should it help another business to conduct any false or misleading commercial publicity by organising false transactions or via any other means.
  • Article 11A states that a business must not fabricate or disseminate false or misleading information to damage the goodwill or product reputation of a competitor.

At present, China’s IP system focuses mainly on the protection of traditional intellectual property. In addition to traditional IP law (eg, patent, trademark and copyright law), the Anti-unfair Competition Law also provides a kind of complementary protection to intellectual property in a broad sense. For example, while the Trademark Law focuses on the protection of a rights holder’s exclusive right to use a registered trademark, Article 6 of the Anti-unfair Competition Law can be used to combat the infringement of other signs not protected by the Trademark Law.

Advertising in terms of unfair competition in China can be identified as:

  • misleading advertising;
  • false advertising; and
  • comparative advertising.

Misleading advertising

Misleading advertising refers to advertising activities that cause confusion by making consumers believe that a product or service belongs to another party or has a particular connection with another party.

In Yili v Mengniu – two famous Chinese dairy-product companies – Yili claimed that Mengniu’s behaviour constituted unfair competition. Yili proceeded to sue because Mengniu’s Future Star products used similar product packaging, decoration and product names to its QQ Star products.

Yili’s product packaging (left) and Mengniu’s product packaging (right)

Image 1

Yili’s registered trademark (left) and Mengniu’s registered trademark (right)

Image 2

Both parties have registered trademarks used on their yoghurt and milk products. Comparing the product packaging of the two items, both share the term ‘nutritious juice yoghurt drink’ in Chinese characters, the position of each term is similar and the design and background colour is basically the same. The Beijing IP Court decided that Mengniu’s activity constituted unfair competition (according to Article 6 of the Anti-unfair Competition Law), reasoning that although there are some differences between the terms ‘QQ’ and ‘Future’, the images of the cartoon characters and fruit pictures demonstrate that Mengniu was imitating the packaging and decoration of Yili’s products, leading to consumer confusion.

False advertising

False advertising refers to advertising activities that:

  • cause confusion and mislead consumers by making them believe in the existence of a commercial relationship or association between two entities; and
  • suggest that products come from a specific location or region, or have a special quality, whereas in reality such products come from elsewhere, resulting in confusion as to the true origin and quality of the products.

Yestar, a Chinese medical cosmetology hospital, was ordered to stop its false advertising and unfair competition activities after the Korean company Medipartnerco Ltd instigated court proceedings on the basis of Article 8 of the Anti-unfair Competition Law. On its website and in other promotional documents, Yestar falsely published information about:

  • its time of establishment;
  • the place of origin of its brand Yestar;
  • investor information; and
  • its company scale.

All such information was deemed to be misleading to consumers. In addition, Yestar used Medipartnerco’s company introductions, photos, honours and other information falsely on its website and other publications, to build up its own competitive advantage inappropriately, causing confusion among consumers regarding Yestar’s relationship with Medipartnerco and affecting consumer decision making.

Comparative advertising

Comparative advertising is permitted in China, except for medicines and medical apparatuses. However, comparative advertising containing false or misleading information or information that denigrates a competitor’s goods or services is not allowed. For example, Company A must not post an advertisement which compares its products with its competitor’s (Company B) products, while highlighting the advantages of A’s products and the disadvantages of B’s products. Such advertising activity may be considered as “denigrating the commodities or services of other producers or operators” and thus violating Article 12 of the Advertising Law.

Top tips

The Anti-unfair Competition Law was amended in April 2019. With the rapid development of the advertising industry and a surge in the number of infringement cases in China, demand to increase efforts to crack down on malicious infringement action and increase legal compensation has been high. Under the new Anti-unfair Competition Law, legal compensation has risen from Rmb3 million to Rmb5 million, consistent with the newly revised Trademark Law. To some extent, this will solve the problem of the significant cost of stopping infringement action and previously low compensation. More rules and regulations are expected to be issued in order to improve and complete the legal framework in this field.

According to the relevant regulations, when an entity’s advertising activities directly or indirectly affect another’s business or image, it is possible to file a complaint with the local Administration for Industry and Commerce, which will investigate the case and decide on the complaint. If the local administration office holds the activity to be illegal, it will order the advertisement to be stopped immediately and issue fines to the parties involved. In addition, it can initiate unfair competition litigation to stop the advertisement and claim damages if rights are harmed by acts of unfair competition.

According to Article 17 of the Anti-unfair Competition Law, where an operator, in contravention of the law, causes damage, it must bear the responsibility for compensating that damage. Where the losses suffered by the injured operator are difficult to calculate, the amount of damages will be the profits gained by the infringer during the period of infringement through the infringing act. The infringer must also bear all reasonable costs paid by the injured operator to stop the tort.

Where an operator violates Article 6 of the Anti-unfair Competition Law and the actual losses suffered by the rights holder as a result of the infringement or the profits gained by the infringer are difficult to determine, the people’s court will award compensation of up to Rmb5 million to the rights holder, according to the circumstances of the infringement.

Unlock unlimited access to all WTR content