NPC Reviews Second Draft of Anti-unfair Competition Law

On 5 September 2017, the National People's Congress ("NPC") Standing Committee released the Anti-unfair Competition Law of the People's Republic of China (Second Draft for Deliberation) for public comment.

This draft follows a prior draft circulated by the NPC in February 2017.

The second draft contains the following key changes against the first draft:

  • Commercial bribery. The elements of a bribery offense include an intent to seek a trading opportunity or other competitive advantage. Entities with which a business operator may commit bribery are specified.
  • Trade secrets. A third party commits infringement if it knows or should know that a trade secret was not lawfully obtained by a current or former employee of a rights holder or another entity and still obtains, discloses, uses or allows others to use it.
  • Internet. Online commercial activities are subject to the same restrictions against unfair competition as traditional commerce.
  • Procedural restrictions. Administrative authorities must obtain approval to begin an investigation, seal and seize products and search bank records.
  • Compensation for civil liability. The cap on compensation for intellectual property or trade secret-related unfair competition is RMB 3 million (as determined by the courts) if the loss or illegal gain is difficult to assess.
  • Tying. Tying and imposing other unreasonable conditions in relation to the sale of goods and services are no longer covered in the second draft, as these acts are regulated under the anti-monopoly law

Market Reaction

Xu Liang, Partner, Hogan Lovells, Beijing

"The list of unfair acts remains long and diverse, but the revised draft attempts to balance some of the concerns raised by businesses against the concerns of regulators. In particular, administrative authorities now must obtain approval to begin an investigation, seize assets or look into bank accounts; third parties (including employees and former employees) are prohibited from passing along a company's trade secrets; and online business operators are expressly bound by the same rules applicable to traditional businesses."

Action Items

General Counsel for companies operating in China will want to reiterate concerns about the company's risk exposure in relation to commercial bribery, particularly the provisions related to the acts of employees and the bribery of third party influencers, and to ensure that senior management understand the risks and take active measures to train and discipline staff. Counsel also will want to stress other types of anti-competitive acts, including unfair promotional activities, anti-competitive uses of technology, and acts no longer covered by this law, but still prohibited under other rules.