How Is China Tackling Unfair Competition in the Digital Marketplace?

January 2, 2025

On December 29, 2024, China’s State Administration for Market Regulation (SAMR) unveiled Seven Typical Cases of Unfair Competition on the Internet. This move is a follow-up to the Interim Provisions on Anti-Unfair Competition in the Internet formulated and issued in May 2024. The objective of releasing these cases is to provide effective guidance to business entities, encouraging them to operate within legal confines, regulate their business conduct, and foster a competitively fair market environment.

Addressing Unfair Competition in the Digital Space

The Pervasive Issue of Unfair Competition

A dominant theme throughout the report is the pervasive issue of unfair competition in the digital space. These unfair practices not only distort the market but also mislead consumers, diminishing their trust in online businesses. SAMR aims to spotlight these deceptive practices to deter other businesses from engaging in similar activities. The common thread among these cases is the unethical use of competitive tactics to gain an unjust advantage in the market, often at the expense of competitors and consumer trust.

Instances of unfair competition in the digital realm vary widely, from false advertising to manipulation of search engine results. These deceptive strategies undermine fair market practices and manipulate consumer perception, leading to distorted market dynamics. SAMR’s initiative to publicize such cases underscores a commitment to curbing these behaviors and fostering a trustworthy online environment. As the digital economy continues to expand, it becomes increasingly crucial for regulatory bodies to enforce legal norms and promote ethical competition.

Deceptive Keyword Advertising

One notable case examined by Ningbo Municipal Market Supervision Administration involves Ningbo Yinzhou Yixing Times Beauty Hospital Co., Ltd., a plastic surgery and stomatology institution. To drive business growth and consumer interest, this institution engaged in deceptive keyword advertising. They purchased keywords of competing institutions, ensuring that searches using these keywords would direct potential customers to their promotional links. This behavior not only diverted traffic from competitors but also misled consumers into believing there was an association with the institution they intended to visit.

Such practices clearly violated Article 7, paragraph 2 of the Interim Provisions on Anti-Unfair Competition on the Internet and Article 6, paragraph 2 of the Anti-Unfair Competition Law of the People’s Republic of China. Consequently, the institution was fined RMB 50,000 and ordered to cease all illegal activities. This case highlights the importance of ethical advertising practices and the need for businesses to operate with honesty and integrity. By enforcing strict penalties, regulatory authorities signal the seriousness of maintaining fair competition and protecting consumer interests in the digital marketplace.

Protecting Intellectual Property and Trade Secrets

Infringement on Trade Secrets

Another high-profile case involved the Market Supervision and Administration Bureau of Gongshu District, Hangzhou City, which investigated Hangzhou Shantao Technology Co., Ltd. This company was found guilty of infringing on trade secrets and disseminating false advertisements. Since 2019, Hangzhou Shantao Technology had illicitly accessed substantial volumes of business data from an online trading platform, using hacking methods to penetrate the platform’s electronic waybill system. With the stolen data, the company manipulated online order processes to inflate sales figures by replacing legitimate product orders with small gift orders, thus deceiving the platform’s system.

This egregious conduct resulted in the unauthorized acquisition of over 520,000 business data entries, furnishing nearly 590,000 order-brushing services, and generating transactions exceeding RMB 1 million. For these violations, Hangzhou Shantao Technology was fined RMB 725,000 and ordered to discontinue its illegal operations. This case illustrates the severe repercussions for businesses that infringe on trade secrets and employ deceptive practices to gain a competitive edge. It underscores the critical need for robust cybersecurity measures and ethical conduct in business operations.

The Importance of Data Security

Analyzing this case reveals the substantial commercial value of online transaction data, which is often protected as trade secrets by e-commerce platforms. Companies like Hangzhou Shantao Technology pose significant threats to the security and integrity of business operations by hacking into these platforms. Their activities not only distort data integrity but also damage fair market competition by creating false consumer interest and inflated product demand. The regulatory response to such violations underscores the importance of protecting business data and maintaining rigorous standards for operational security to safeguard against unethical behavior.

The case also highlights the broader implications of data breaches and the need for stringent regulatory oversight to mitigate risks. By enforcing penalties and publicizing violations, regulatory authorities aim to deter similar actions and reinforce the significance of data security in the digital age. Ensuring the protection of trade secrets and business data is paramount to fostering a competitive and trustworthy online marketplace, ultimately benefiting both businesses and consumers.

Regulatory Measures and Their Impact

Increasing Scrutiny and Regulation

SAMR’s revelation of these seven typical cases underscores a broader trend of increasing scrutiny and regulation of online business practices in China. As e-commerce continues to grow, authorities are keen to ensure that the competitive environment remains fair and that consumer interests are protected. The overarching trend is a shift towards stricter enforcement of regulations to curb unfair competition and safeguard both businesses and consumers. This heightened regulatory vigilance reflects a commitment to cultivating a fair competitive landscape that prioritizes transparency and accountability.

By spotlighting instances of unfair competition, SAMR sends a clear message to businesses about the importance of adhering to legal and ethical standards. The regulatory body’s actions aim to deter companies from engaging in deceptive practices and encourage a more level playing field. As regulations become more comprehensive, businesses must adapt by implementing robust compliance measures and fostering a culture of integrity. This proactive approach not only enhances the market environment but also builds consumer trust in online platforms.

Building a Transparent Marketplace

On December 29, 2024, China’s State Administration for Market Regulation (SAMR) publicly disclosed Seven Typical Cases of Unfair Competition on the Internet. This action is a continuation of their initiative following the release of the Interim Provisions on Anti-Unfair Competition in the Internet, which were formulated and issued in May 2024. The primary goal of releasing these cases is to offer clear guidance to businesses, urging them to adhere to legal standards, thereby regulating their commercial practices. By highlighting these cases, SAMR aims to encourage the creation of a market environment that promotes fair competition and bounds unlawful activities. These efforts are crucial in helping entities understand the legal framework and avoid practices considered unfair. Furthermore, the release serves as a deterrent to potential violators by demonstrating the consequences of engaging in unfair competition. Ultimately, this initiative seeks to cultivate a healthier, more transparent, and equitable market landscape for all participants.

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