Provisional Regulations On Combating Unfair Competition In The Online Sphere: A Step Toward A Healthier Digital Economy

In an effort to prevent and curb unfair competition in the online sphere, maintain fair market competition, encourage innovation, and protect the legitimate rights and interests of businesses and consumers, the State Administration for Market Regulation (SAMR) of China recently announced the "Provisional Regulations on Combating Unfair Competition in the Online Sphere" (hereinafter referred to as the "Regulations"), which will take effect on September 1, 2024.

The Regulations consist of five chapters and 43 articles, covering general provisions, types of online unfair competition, supervision and inspection, legal liabilities, and supplementary provisions. The key features of the Regulations include:

1. Regulating Competition

In response to the new characteristics, trends, and requirements of China's digital economy, the Regulations refine the standards and requirements for identifying and regulating various types of online unfair competition. Traditional unfair competition behaviors like imitation and confusion, and false advertising have been redefined in the context of the online environment. Additionally, the Regulations enumerate new types of unfair competition, such as fake reviews and illegal data acquisition, providing regulatory measures to address these issues.

2. Strengthening Consumer Protection

Addressing societal concerns, the Regulations focus on key issues in online consumption that harm consumer rights, such as fake reviews, incentivized positive feedback, and practices that influence user choices. By providing policy support to tackle these emerging problems in new consumption scenarios, the Regulations aim to enhance consumer protection.

Examples of Violations:

1. Fake Reviews and Inflated Ratings: The Regulations explicitly prohibit "刷单炒信" (brushing orders and inflating credit), which involves creating false transactions or fake reviews to create a misleading impression of a product's popularity or quality. The first clause of Article 9 forbids fabricating transaction volumes, appointment counts, collection numbers, clicks, follows, likes, reads, subscriptions, shares, and other data or information related to business operations to manipulate perception and inflate rankings.
2. Incentivized Positive Feedback: The Regulations also prohibit "好评返现" (positive review cashback), which involves merchants offering cashbacks, red envelopes, coupons, or other incentives to consumers in exchange for positive reviews, likes, or directed votes. The first clause of Article 9 bans such inducements, ensuring that consumer feedback remains objective and trustworthy.

3. Enhancing Platform Responsibility

Platforms are urged to strengthen the management of competitive behaviors within their ecosystems. The Regulations address issues like the abuse of data algorithms to gain competitive advantages, ensuring that platforms do not exploit their dominant positions unfairly.

For example, Article 6 of the Regulations emphasizes the responsibility of platform enterprises to regulate competitive behaviors within their platforms. Platform enterprises, which handle vast amounts of data and connect numerous entities, are both key targets for the supervision of online unfair competition and crucial nodes for collaborative regulation. When platform operators detect unfair competition, illegal sales of goods, services, or infringement of consumers' legitimate rights and interests, they must take necessary measures promptly, preserve relevant records, and report to the market supervision department at the county level or above where the platform operator is located. The record retention period is calculated from the date of taking disposal measures and should be no less than three years.

4. Optimizing Enforcement

Given the widespread, cross-platform, and cross-regional nature of online unfair competition, the Regulations include special provisions for supervision and inspection procedures. An expert observer system is introduced to provide intellectual and technical support for resolving key issues, thus enhancing enforcement efficiency and effectiveness.

5. Clarifying Legal Liabilities

The Regulations emphasize the combined use of various legal measures within the market regulation framework, effectively linking the Anti-Unfair Competition Law, E-commerce Law, Anti-Monopoly Law, and Administrative Penalty Law. By clearly defining the legal liabilities, including the confiscation of illegal gains, the Regulations strengthen the regulatory impact.

Implementation and Future Prospects

Set to take effect on September 1, 2024, the SAMR will enhance training and guidance for local market regulation departments to ensure effective enforcement of the Regulations. This effort is intended to protect the legitimate rights and interests of both businesses and consumers, promote orderly competition, and foster innovation.

Overall, the Provisional Regulations on Combating Unfair Competition in the Online Sphere supplement and enhance China's legislative framework against unfair competition in the digital realm. They address practical enforcement and judicial needs, clarify key concepts, and detail the application of critical provisions. These Regulations will provide clearer guidance and expectations for businesses to operate legally and compliantly.

*Minjie Lu is an intern in the firm's Shanghai office.

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