Jul 04, 2017 11:13 AM

Editorial: No Exceptions Should Be Granted in Unfair Competition

A recent meeting held by lawmakers at China’s top legislature, the National People’s Congress (NPC), to discuss the amendment to the Law Against Unfair Competition signaled an acceleration in the pace of revising the law for the first time since its introduction over two decades ago.

The Law Against Unfair Competition was first introduced in 1993 when China had just set out its key reform goal of transforming the economy from a government-planned to a market-oriented system. The law — also known as the Anti-Unfair Competition Law — at the time provided the initial legal framework to regulate market activities. But in the 24 years since, the law has been unable to keep pace with the ever-changing economy and has become more difficult to coordinate with laws that were enacted later, such as the Anti-Trust Law of 2008.

Calls to amend the decades-old Anti-Unfair Competition Law have grown louder as China has stepped up efforts to tighten regulations on business practices. Early last year, the State Council’s Legislative Affairs Office submitted the first draft amendment to the NPC. The NPC’s Standing Committee held the first review of the draft in February.

There have been lingering concerns that acts of unfair competition damage China’s business environment. On one hand, traditional industries such as energy production and telecommunications are still strictly dominated by state players and subject to local protections, creating room for business monopolies, false marketing and even business fraud to thrive. On the other hand, the booming internet economy has become increasingly engaged in wild competition under a loose regulatory framework despite its contribution to industrial transformation.

Some people argue that the emerging internet economy should be exempt from competition rules to encourage growth. But leaving businesses with such a profound impact on people’s livelihoods and the national economy at the mercy of such a lawless landscape would undoubtedly create serious problems in the future. Building a marketplace with fair competition and orderly business practices is the ultimate goal that should be equally applied to both the internet economy and traditional businesses.

Lawmakers have addressed their concerns over acts of unfair competition on the internet in the draft amendment to the Anti-Unfair Competition Law. New articles have been added to prevent internet business operators from using technical measures to manipulate consumers’ decisions and disrupt normal business operations of rival players. These are much-needed legal arrangements in response to market developments, but how effective they will be remains to be seen.

The rise of the internet economy has posed unprecedented challenges to regulators as many innovative measures have emerged to breach rules of fair market competition and challenge the established regulatory framework. In 2010, a legal battle between tech giant Tencent Holdings Ltd. and internet security software developer Qihoo 360 Technology Co. placed internet competition misconduct in the spotlight. A branding war broke out as competition escalated between the two companies’ anti-virus software packages, with Qihoo accusing Tencent of spying on its users and then blocking its users from running Tencent’s popular messaging software, QQ. Millions of internet users were then forced to choose sides and opt to use either QQ or Qihoo’s anti-virus software. The dispute lasted for years before it was finally brought to an end by a court ruling against Qihoo in 2014.

Similar business disputes in the following years — including a lawsuit filed by Baidu Inc. accusing Qihoo of taking unauthorized screenshots of content on Baidu’s sites, and a quarrel between software developer Kingsoft and online video site — have fueled wider concerns about internet competition practices that fall outside of the existing legal network since the current Anti-Unfair Competition Law doesn’t include specific terms regarding internet businesses.

This legal vacuum has led to difficulties in law enforcement and punishment, and provided leeway and loopholes ripe for internet misconduct. It may partly explain the fast rise in the number of legal cases involving unfair-competition allegations in the internet sector in recent years.

The ongoing revisions to the Anti-Unfair Competition Law are seeking to lay the legal groundwork for supervising competition practices for the internet industry. The draft amendment outlined different types of violations, such as embedding links in rival companies’ products and services without authorization, and misleading users to uninstall rival companies’ products.

As the internet sector continues to consolidate after years of fierce competition, the opportunity for dominant players to monopolize or abuse the market also rises, putting fair competition at risk. But law enforcement departments have yet to set up a clear and unified plan to respond to this rising problem.

Dealing with unfair competition in the internet industry is more complicated than it is in traditional industries, and the crucial point will be to balance the role of market with the role of government. As tech giants continue to rise, their ties with local governments tighten, making it a challenging issue for industry regulators to prevent business giants from using government support to skirt or breach competition rules. Another tricky issue is how regulators balance the objectives of supervision with the need for innovation. How to ensure fair competition while leaving enough room for the growth of innovative businesses will be a key test for regulators.

Competition is not only a business issue, it is also closely linked to the public interest. We have seen how battles between internet majors like Tencent and Qihoo have hurt the interests of consumers. Protecting consumers’ rights has become an important principle for regulators across the world to practice anti-unfair competition supervision. China is no exception.

Revising the Anti-Unfair Competition Law is just the start of China’s efforts to better regulate the internet industry. Regulators will require visionary thinking and a free hand to be allowed to enforce legal changes to overcome the challenges they are facing. In 2016, the State Council outlined guidelines to set up a market competition review system which, while largely applauded by the market, has yet to be fully implemented. Now the public is looking forward to revisions to the Anti-Unfair Competition Law and a much-needed legal framework to build on. But perhaps more importantly, the ability of regulators to enforce new rules will depend on whether they have been given the legal teeth to do so.

Hu Shuli is the editor-in-chief of Caixin Media.

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