On the Revision of “Anti-Unfair Competition Law” in April 2019

On 23 April 2019, the 10th meeting of the Standing Committee of the 13th National People’s Congress decided to amend eight laws, including the Trademark Law and the Anti-Unfair Competition Law. Among them, the revision of “Anti-Unfair Competition Law” is of great progressive significance. This amendment has made more detailed provisions on some existing concepts in the Anti-Unfair Competition Law, which expanded the scope of application of this Law while further clarifying the responsibilities and penalties for illegal acts.  

  1. Definition of infringement of trade secrets and expansion of its scope of application

  This amendment has made more detailed provisions on the infringement of trade secrets. On the one hand, electronic intrusion is added to the act of infringing trade secrets. With the advent of the electronic age, illegal acts of infringing trade secrets in the form of electronic invasion have become increasingly frequent. This form of invasion is often more covert, convenient, and technical than usual. Compared with the previous classification of electronic intrusion into the category of “other unfair competition means” in Article 9, this amendment juxtaposes it with theft, bribery, fraud, coercion in the form of enumeration, clarifying the illegal nature of electronic intrusion and facilitating relevant departments to supervise and regulate it. By explicitly including this new form of intrusion into the law as a notice provision, the Anti-Unfair Competition Law will be more adaptable to the complicated business competition situation and will be more conducive to ensuring the network security of business secrets. On the other hand, a new paragraph (4) is added to Article 9 to include the acts of instigating, luring, and helping others to obtain trade secrets into the acts of infringing trade secrets. At the same time, other natural persons, legal persons, and organizations of non-legal persons other than business operators are also defined as the subject of infringing trade secrets, further clarifying the scope and targets of this law.  

  1. Increase in compensation and punishment standards

  This amendment adds compensation and punishment standards for serious violations to Article 17 of the Anti-Unfair Competition Law. If the circumstances are serious due to the malicious acts of business secret infringement committed by the business operator, compensation shall be made according to the standard that the actual amount of losses suffered due to infringement is more than one time but less than five times. In addition, the punishment for violations of trade secrets will be increased from a maximum of RMB 3 million yuan to a maximum of RMB 5 million yuan, and the supervision and prosecution department has the right to confiscate the illegal income from violations. The increase of the punishment standard and upper limit has greatly increased the cost of illegal acts, which will help to crack down more effectively on infringement on business secrets.  

  1. Transfer of burden of proof

In normal cases, the proof rule of “the burden of proof lies with the person making the claim” is applied in civil proceedings. The party who claims provides evidence to prove his claim and bears corresponding adverse consequences if he fails to prove it. Before this amendment, this rule of proof was applicable to illegal acts that violate trade secrets. The right holder of trade secrets needs to prove the existence of infringement acts and damage results, the causal relationship between acts and results, and the infringer is at fault for the occurrence of results. However, due to the strong concealment of trade secret infringement, theft, disclosure, and illegal application of trade secrets are usually carried out in a secret way. The application of the general rule of “the burden of proof lies with the person making the claim” often places the plaintiffs of trade secret infringement cases in a very passive position, which leads to the high losing rate of the plaintiffs of trade secret infringement cases tried by our courts in recent years.   This amendment adds a new article 32, which stipulates that the rule of inversion of burden of proof will apply to cases of infringement of trade secrets. The plaintiff only bears the preliminary burden of proof; that is, it only needs to prove the existence of infringement or infringement risks and has taken reasonable confidentiality measures for trade secrets. Correspondingly, the suspected infringer needs to prove that there is no infringement or the trade secret claimed by the obligee does not belong to the trade secret stipulated in this law. This amendment has reversed the situation of showing fairness to the plaintiffs in cases of infringement of trade secrets and provided a strong guarantee for the holders of trade secrets to safeguard their legitimate rights and interests.   

Summary 

This amendment specifies some specific issues of unfair competition from the aspects of definition and scope of application, compensation, punishment, and allocation of burden of proof, etc. The identification standard of infringement has been clarified, and some forms of infringement with apparent harmful nature have explicitly been incorporated into the law to be stipulated separately so that this law can meet the challenge of illegal infringement under the new situation. It has also strengthened the punishment for infringement, increased the burden of proof for the infringer, and significantly increased the expected cost of illegal infringement.