New Chinese body cracks down on market confusion acts, trade secrets and web misconduct

The Chinese government has continued its crackdown on market confusion acts, trade secret infringement and internet-related misconduct, and is focusing its efforts particularly on the online and pharmaceutical industries. Experts advise risk managers with companies that procure products from China to make doubly sure that they are asking the right questions of suppliers to ensure that they are compliant. The latest move came as the Chinese state has recently created the State Administration for Market Regulation (SAMR) to lead the effort. This powerful new body is formed through the combination of six former regulators. These are: the Antimonopoly Bureau of the Ministry of Commerce (MOFCOM); the Price Supervision and Antimonopoly Bureau of the National Development and Reform Commission (NDRC); the Antimonopoly and Anti-unfair Competition Bureau of the State Administration of Industry and Commerce; the Antimonopoly Commission Office of the State Council; the State Quality Supervision Inspection and Quarantine Bureau; and the State Food and Drug Supervision Administration. Robin Tabbers of R&P China Lawyers, a boutique PRC law firm based in Shanghai that supports international business in China, has issued a note on the implications of the government’s latest move. In it, he writes: “Following their establishment, SAMR announced an in-depth enforcement sweep, focusing particularly on the online and pharma industries. This targeted campaign began on 17 May and will continue through until October 2018. The targets of the campaign will be market confusion acts, trade secret infringement and internet-related misconduct.” Mr Tabbers explains that the main legislation of note in this crackdown are Articles 6, 9, 18, and 21 of the amended Anti Unfair Competition Law (AUCL). “According to Article 6, market confusion acts refer to actions taken by a company to cause consumers to mistake its product for the product of another company, or to believe that there is a certain relationship between the company's product and that of another company,” explains Mr Tabbers. The competition expert says that the legislature has added two new types of market confusion acts in Article 6 of the amended AUCL. These are: first, unauthorised use of names of social organisations which have certain influence; and second, unauthorised use of domain names, website names or webpages of others which have “certain influence”. At the same time, two types of market confusion acts that appeared in the old AUCL have been removed. These are: first, counterfeiting the registered trademarks of others; and second, falsely using symbols of quality on products, falsifying the origin of products, or making false and misleading representations about product quality, explains the lawyer. “This appears to be a moot point as both these actions remain prohibited under the PRC Trademark Law and the PRC Product Quality Law,” he adds. Article 9 of the amended AUCL concerns trade secret infringement. Mr Tabbers explains that there has been a “significant” development in Article 9. This element should be of interest to any risk managers who work for a company that sources goods in China. “The amended AUCL no longer requires that trade secrets have ‘practical value’ and a third party will now be held liable if the third party knew, or should have known, that trade secrets it accepted and used from a current or former employee of another company were obtained illegally,” states Mr Tabbers. The lawyer further explains that Article 18 stipulates the potential legal consequences that could follow from a violation of Article 6. These are an order to cease the infringing acts, a confiscation order in respect to the infringing commodities and/or administrative fines. Mr Tabbers also explains that Article 18 increases the maximum amount of administrative fines that can be imposed. Fines have increased from three times up to five times the amount (if illegal turnover is greater than CNY50,000), or up to CNY250,000 (if illegal turnover is less than CNY50,000, or if no illegal turnover is generated). Article 21 provides the penalties for violating Article 9, including an order to cease the infringing acts and an administrative fine of up to CNY3m (previously CNY200,000), adds the Shanghai-based lawyer. In an interview with Commercial Risk Asia, Michael Cripps, consultant at Clyde & Co Westlink JLV – a joint law venture between Clyde & Co and Westlink Partnership that serves clients in China in the areas of banking and finance, foreign direct investment, M&A, corporate governance, and in particular outbound investment and litigation-related legal issues – said the change is not “seismic”. This is because it forms part of a wider government crackdown on market abuses that has been occurring for some time. But he did advise risk managers of companies that procure products from China to make sure that they are asking the right questions of suppliers to ensure compliance. “SAMR has largely been created to streamline administration and regulation in this important area. Much of the approach that SAMR will be taking is not altogether different from its predecessor bodies. The most material difference is in the amended Article 9 of the AUCL where now no ‘material value’ is required, but in reality the change is not seismic. Otherwise there is no change to current law, regulation, or administration. The Chinese government has been committed to cracking down on market abuses for some time so this fresh sweep should be seen in that context and should be a surprise,” he said. "To ensure compliance, risk managers of entities procuring goods from Chinese producers should, if they haven't already, ensure that their supplier compliance questionnaire contains a question that covers whether the supplier is aware of any violations by them or their employees of the AUCL," advised Mr Cripps.

New Chinese body cracks down on market confusion acts, trade secrets and web misconduct

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