Foreign Investment Bulletin March, 2016（II）

3、The Anti-Unfair Competition Law (Revised Draft Submitted for Review) Draws Extensive Public Attention
The Anti-Unfair Competition Law (Revised Draft Submitted for Review) was released for public comment until March 25, 2016 and will be further revised based on feedback received from the public.
3.1Background
On February 25, 2016, the Legislative Affairs Office of the State Council released the Anti-Unfair Competition Law (Revised Draft Submitted for Review) and submitted it for public comments. Major revisions include: (i) removing provisions overlapping with that of the Anti-Monopoly Law, the Trademark Law, and the Advertising Law; (ii) adding provisions regulating conduct of unfair trading of business operators with a comparative advantage position, and also provisions regulating conduct of unfair competition of enterprises engaging in internet business; (iii) clarifying definitions and conduct of commercial bribery; and (iv) increasing the legal liabilities for committing illegal acts, etc..
The announcement of the Anti-Unfair Competition Law (Revised Draft Submitted for Review) has drawn extensive public attention in China and abroad. Its consultation period ended on March 25, 2016.
3.2Legal Review
We have reviewed a wide range of comments made on the internet, and noticed that the most predominant opinions include removing or narrowing down the provisions regulating conduct of unfair trading of business operators with comparative advantage position.
The Anti-Unfair Competition Law (Revised Draft Submitted for Review) clearly defines “comparative advantage position” and enumerates 5 types of conduct of unfair trading of business operators taking advantage of their comparative advantage position. “Comparative advantage position” is defined as “an advantageous position in a specific transaction held by a business operator in terms of capital, technology, market access, distribution channel and material procurement, etc. and its trading counterparty is reliant on such business operator and is difficult to switch to other business operators.” Conduct of unfair trading of business operators taking advantage of their comparative advantage position include: (i) restricting counterparties’ trading partners without justifiable cause; (ii) restricting counterparties to purchase designated goods without justifiable cause; (iii) restricting trading terms and conditions between counterparties and other business operators without justifiable cause; (iv) abusively overcharging or unreasonably demanding counterparties to offer other economic interests; and (v) attaching other unreasonable trading terms.
Grounds for suggestions to remove or narrow down such provisions mainly include the following:
a. Standards for ascertaining “advantage position” are vague in the sense that they lack quantitative criteria similar to those used for ascertaining and presuming market predominant position of business operators, which leave excessive discretion to the law enforcement agencies.
b. Whether the “illegal per se rule” or “rule of reason” shall apply when determining conduct of unfair trading of business operators taking advantage of their comparative advantage position is not specified.
c. No exceptions are provided, affecting the balance between benefits brought to business operators by such conduct and disadvantages brought by competition.
d. Business operators with stronger bargaining power are likely to be deemed to carry out conduct of unfair trading taking advantage of their comparative advantage position in the process of entering into and performing contracts, and are therefore punished.
e. Fines imposed on business operators who are deemed to carry out conduct of unfair trading taking advantage of their comparative advantage position could be more serious than fines imposed on business operators who are deemed to carry out abusive use of their market predominant position. The former may lead to penalties up to RMB 3 million, while the later may result in fines up to 10% of business operators’ turnover of the previous year.
f. Other than the conduct of abusively overcharging or unreasonably demanding counterparties to offer other economic interests, the remaining 4 types of unfair trading acts overlap with the abusive use of market predominant position of business operators as stipulated in the Anti-Monopoly Law, which could weaken the application of Anti-Monopoly Law.
3.3Next Step
The State Council has included the revision of Anti-Unfair Competition Law in the working agenda of legislation in 2016. Future progress in respect to revisions of the Anti-Unfair Competition Law deserves close attention.