In February 2016, the Legislative Affairs Office of the State Council of China published the draft Amendment to the Anti-Unfair Competition Law (the 'Revision'), for public consultation. This is the first major revision to the current Anti-Unfair Competition Law (AUCL) since it was enacted 23 years ago.
The highlights of the Revision concern unfair competition acts in relation to trade names and the practical administrative penalties regarding use of improper trade names. As the law currently stands, the AUCL does not provide specific provisions or penalties for using others' registered or unregistered trademarks unfairly in one's trade name, despite both the Trademark Law and the judicial practice referring to such behavior as "unfair competition conduct". The absence of specific provisions in the AUCL has caused considerable difficulties in both administrative and judicial actions.
In addition, under the current AUCL, when a prior IP rights owner successfully obtains an administrative decision or judicial judgment ordering change of an improper trade name, such change can only occur upon the accused operator's request. This has caused major enforcement issues as most accused operators decline to file the name change request. The Revision has proposed changes to the law to help resolve these practical issues.
Article 5 - Unfair competition in connection with trade names
Although it is not clearly stated in the current AUCL, it has been an established rule of judicial practice that it is an unfair competition conduct if an operator benefits from unfairly using other's registered or unregistered trademark in its trade name. To fill in this gap in legislature, Article 5.3 of the Revision articulates that "a business operator cannot use another’s registered trademark or unregistered well-known trademark as the trade name in its enterprise name, and thereby misleads the public and causes market confusion".
Further, Article 5.4 of the Revision also introduces a new rule prohibiting use of another famous enterprise's trade name or short name as the dominant part of a trademark or domain name. This rule most notably incorporates a test of "market confusion" when determining the unfair competition behavior. This is apparently a higher standard, as compared to the likelihood of confusion standard in finding trademark infringements.
Practical administrative penalties for violation of Article 5.3
The administrative penalties proposed in the Revision appear far more practical than the current practice in relation to one's use of another’s registered trademark/unregistered well-known trademark as a trade name, as provided for in Article 5.3. Specifically, the current AUCL does not provide any practical means to enforce an administrative order or a judicial judgment on a change of an improper trade name when an accused operator fails to comply with these orders. The Revision in Article 18.2 moves a step forward by granting the relevant Administration for Industry and Commerce (AIC) a broad power to remove the enterprise name from the enterprise credit information publication system by replacing it with a registration number or an uniform social credit code as well as putting the enterprise on the List of Enterprises with Abnormal Operations. In severe circumstances, the AICs may also revoke the business operator’s business licence.
Notably, Guangdong province has published the Regulations of Guangdong Province on Commercial Registration on December 3, 2015 to reflect such change in practice. The Regulations clearly authorize the AICs in the Guangdong Province to replace any questioned trade name with an uniform social credit code. These Regulations became effective on March 1, 2016.
Public consultation of the Revision closed on March 25 and the State Council will now consider further amendments, before finalizing the Revision for review by the National People's Congress's standing committee.