With the increasing development of Internet technologies and the continuous occurrence of various ways of business and competitions, conventional acts of unfair competitions are extending and expanding in the Internet field, thus resulting in various of new types of unfair competitions. The aforementioned acts of unfair competitions, however, have never occurred in previous legislation or cases, or have not been assessed yet. How these new types of competitions performed based on Internet technologies would be judged and assessed by justice will probably influence the development and future of the whole industry, as well as the benefits of the underlying consumers or the public.

The existing differentiation between legislation and reality also causes the qualitative determination for the Internet’s “acts of unfair competitions” to be faced with challenges. With regards to the competitions, there are huge divergent perceptions and different legal precedents on protection objects, nature of rights, infringement identification, compensation calculation standards and so on both between China and foreign countries and between theory and practice. How to achieve a beneficial balance between network operators as well as between operators and consumers under new technology conditions, and to achieve information sharing and promote industry development while protecting the lawful rights of owners have become important and difficult issues in the current research.

Defining new types of unfair competitions in Internet

Definition of new types of unfair competitions in Internet

The judicial cognizance for new types of unfair competitions brought along by the development of novel Internet technologies is quite controversial in practice since they are different from those traditional ones that have been explicitly specified. Generally, new types of unfair competitions can only be defined based on miscellaneous provisions (general clauses) of Anti-Unfair Competition Law. The new version of Anti-Unfair Competition Law passed on Nov 4, 2017 in China has additional “Internet-specific provisions”, which are intended for unfair competitions carried out by technical means.

Characteristics of new types of unfair competitions

The new types of competitions based on the development of Internet technologies generally have the following characteristics:

First, they do not belong to legal property rights that have clearly stipulated by law, for example, the rights such as big data information, commercial business mode or setting technical obstacles for other Internet service providers for the purpose of protecting competitive advantages. 

Second, the business boundary between competitors is more obscure than that in traditional industries. More and more Internet platforms integrate various types of value-added services to basic services, thus presenting diversity and complexity. 

Third, related commercial rules are still being explored as a whole, and there is still no agreement in the market community on whether numerous novel competitions or business modes violate commercial ethics.

Cases of new types of Internet unfair competitions

As can be seen from the current judicial practice, cases of new types of unfair Internet competitions are mainly classified as below: grabbing data without permission, traffic hijacking, malicious incompatibility, etc.

Grabbing Data Without Permission

Data grabbing in the Internet field may infringe the competition advantages of the grabbee, but the grabber may make full use of the real value behind the data and further expand innovative field based on analysis and reutilization of the grabbed data. On the other hand, if the operators’ data belong to social-sharing resources whereas they refuse to share the data, this will probably cause malicious incompatibility, and the operator may therefore constitute malicious competition.

Which way of data reutilization will be encouraged by justice? Clear cognizance criteria and guides need to be offered by the judiciary for this issue in the circumstance that no uniform commercial moral cognition has been formed yet in the Internet world. The American courts firstly confirmed, in the Google Library case, the legitimacy of the act of reasonably utilizing institutions for grabbing of commercial text and data; whereas in the Directive on Copyright in the Digital Single Market of the EU and Amendment of the Copyright Law of the UK, provisions on legal utilization of data for non-commercial purposes were added, but the legitimacy of commercial study and generation of data were rejected.

The first case involving “big data” in China was the case in which Taobao prosecuted Anhui Meijing for illegally sharing its business advisor service which is designed for providing a derivative of big data service for e-commerce retailers. In this case, the court held that Taobao had the legal rights for the derivative data formed by in-depth analysis, processing and integration. The acts of the Anhui Meijing directly using the above data as a tool for gaining commercial profits and providing homogeneous services to achieve business benefits and competitive advantages constituted unfair competitions.

Traffic Hijacking

In the Internet age, user traffic plays a key role in the value of an Internet company, and many operators hijack traffic and try to insert his/her own information or link pages in other famous webpages or software without any permission from the providers. Such an act, on the one hand, may cause users to reduce their evaluation on the product operators’ services and thus depreciate the commercial value thereof, and on the other hand, freely utilizes the target clients and network traffic of the product operator and infringes their legal rights.

In June 2019, the People’s Court of Haidian District of Beijing pronounced a judgment on the three cases of Baidu(China’s top search engine)&Qihoo 360(Web browser), UC Web Inc.( a mobile browser maker) and Shenma(a mobile search unit of Alibaba) respectively prosecuting Sogou(China’s second-largest search engine) for unfair competition. In these cases, the court held that in the case of a user has selected a search engine, Sogou mislead the user purposely by guiding the user, through search candidate words on the input method interface, to a Sogou search result page without obvious identification and hijacking the user traffic that should have belonged to the three prosecutors in these cases, and that such an act shall be construed as affecting users’ selection by technical means and thereby hindering the normal operation of the business activities of the three prosecutors, thus constating an act of unfair competitions.

Malicious Incompatibility

Implementation of malicious incompatibility means that the operator of one party, for certain purposes, disables the users of a network product or service of another party to use the network product or service which has been made incompatible. However, specific conditions shall be taken into analysis on determining whether all incompatibility acts constitute infringement.

In a case of Baidu prosecuting Qihoo 360 for violating robots protocol, Baidu rejected Qihoo 360 search engine for grabbing its own content by setting a robots protocol, but Qihoo 360 refused to obey this rule. The robots protocol is a technical rule that is commonly used and followed in the Internet industry in China and abroad, rather than an agreement or contract in the sense of law. In this case, the court held that without permission from Baidu, Qihoo 360 search engine violated the robots protocol to grab the content of websites of Baidu, copied the websites and created snapshots for the users, which had obviously exceeded the reasonable range of webpage snapshots. The court did not identify the right of an Internet website using robots protocol for allowing or not allowing access of a search engine as a legal right; rather it held that Qihoo 360 itself shall promise, through Self regulation Convention on Internet Search Engine Services, to obey the robots protocol that is a self-regulation discipline generally acknowledged by the Internet industry. Thereby, the court decided pronounced Qihoo 360 as constituting unfair competitions for violating Anti-Unfair Competition Law.

AD-blocking

The development of the Internet allows traditional content service providers to exhibit more content on the Internet and offer related free programs to the user with the aid of websites for pushing free advertisements. However, the development of open-source software allows the users to easily embed related plug-in in their browsers and block advertisements on the browsing webpages, which applies a significant pressure on the content providers.

There is a dispute in China and abroad on whether ADs blocking constitutes unfair competitions. In the case of “Fernsehfee” in June 2004, the Federal Supreme Court of Germany held that a company promoting and selling advertisement filter did not violate “general clauses” in view of consideration for freedom of decision of consumers. In 2014, Internet content providers representative of traditional publishers and TV stations conducted a prosecution for anti-unfair competition and anti-restraints of competition against operators of related AD blocking software, but were all rejected by related courts in 2015 based on the judgment of the Fernsehfee case, which suggests that applicability to general clauses of Anti-Unfair Competition Law under Internet conditions is more complicated.

Elements for Constituting Unfair Internet Competitions

The Supreme People's Court of China has already explicitly explained the conditions applicable to Anti-Unfair Competition Law, Article Two: first, no specific provision for such competition act is provided in the Law; second, the legal rights of other operators are indeed damaged due to the competition; third, this competition violates the principle of good faith and commonly acknowledged commercial ethics, which is the key point for this issue and the focal point for determination.

Rights for which no provisions are stipulated in the existing statutory laws but yet requiring judicial protection

The rights protected by Anti-Unfair Competition Law must be the rights to be protected beyond the protection scopes of specialized laws such as Copyright Law, Patent Law, Trademark Law. Particularly, when the copyright, patent, trademark and so on sought for protection by the right holders are confronting a risk of prosecution due to unconformity with the constitution elements prescribed by the laws, they shall not appeal to “general clauses” of Anti-Unfair Competition Law to seek for protection.

The general clauses of Anti-Unfair Competition Law shall be evaluated by the standards of the general practices, i.e., “business practices” commonly acknowledged in the industry. In the discussion of the criteria for commercial ethics in a particular industry, the judge’s personal deduction shall be particularly avoided to prevent the general clauses of Anti-Unfair Competition Law from being providing excessive supplementary protection for Intellectual property laws.

Loss of operators damaged by the competition to the extent of judicial intervention

The reasons that the competition is unfair are that, firstly, it is harmful, i.e., it damages certain interests. However, the right owner having losses does not necessarily equal to others’ unfair acts, and only losses caused by “violating commercial ethics” and reaching to the extent of judicial intervention are objects applicable to the Article two in Anti-Unfair Competition Law. The interests that have been damaged include not only fair and orderly market competition order but also erosion of the consumers’ interests. The reasoning from damage results backward to the illegitimacy of acts shall be avoided in justice.

The standard for judging whether a sued act is fair is whether it complies with the principle of good faith in a specific industry and the commonly acknowledged commercial ethics

The commonly acknowledged commercial ethics are not equal to ethics. The commercial ethics established from social practice in specific industries include general practice conforming to its own development characteristics, norms of behavior, commercial modes, etc. Commercial ethics cognitions shall be different depending on the specific business filed in particular cases. The ethics criteria in the market transaction activities and commonly acknowledged commercial modes are all behavior criteria commonly recognized by transaction participators, and the judiciary shall not determine whether a certain act violates commonly acknowledged commercial ethics only based on interest loss of a single party of operators.

Consumers’ interests are the conditions necessary for judging the legitimacy of competition

The judgment for legitimacy of sued acts in judicial practice shall not be made only based on interest losses of the prosecutor; rather it shall be made according to whether the competition violates the core concept of Anti-Unfair Competition Law— the competitive order of the field and whether the consumers’ interests are damaged. What is to be protected in Anti-Unfair Competition Law is the balance, rather than consistency, between the operators’ interests and the consumers’ interests, and what is prohibited is the acts violating the interests balance therebetween and competition order.

Identification for interest conflicts and norms for “balance of interests” shall be noted for general applicable provisions

The newly revised Anti-Unfair Competition Law established multiple elements for judging legitimacy of competitive acts, and the three protection objects--“market (competition order)”, and “(legal rights of) operators” as well as “(legal rights of) consumers”, and held that “disturbing market competition order” has priority among others.

Whether applicability conditions for general clauses are satisfied is determined through the balance of interests

Balance of legal interests in judicial practice is a method carried by the judge for making a judgement by comparing the weight, legitimacy and urgency of the legal interests underlying the claims of the parties according to the natures, types and intensities thereof and protecting or not protecting any positive or negative results to be respectively caused thereby. Anti-Unfair Competition Law is based on the principle of free competition, and the inherent damaging from competitive acts dictate that determination of legitimacy shall be based on the balance of interests and proportion principle, which makes the determination criteria possess strong relativity. Therefore, unfair competition is increasingly imparted with the meaning of balance of interests.

The relationship between technologies and laws in the balance of interests

The judge may often need to determine novel technologies in judicial practice quantitatively. The analysis method of “efficiency maximization” in legal economics solves the defense of “technological neutrality” commonly raised by the defendants in most cases of Internet unfair competitions. From the view of legal economics, “the basic value orientation in laws is efficiency with the premise of not destroying impartiality,” and reduction of transaction costs for products or services and increase of production efficiency of products or services can both be beneficial to the achievement of legal efficiency.

It can be deducted that the use of the technologies in the following two cases are not in conformity with the value orientation of efficiency: first, malicious incompatibility or malicious interference with competitors; use of such particular technologies increase the transaction costs of products or services, resulting in increase of prices of the products or services and reduction of consumers’ profits; second, advertisement filtering in browsers and videos; use of such a new technology seems to be beneficial to consumers, but it only transfers the interests that should have been gained by the providers of products or services to related competitors, and does not reduce the production and transaction costs of the products or services.

The legitimacy of applicability shall be considered for applicability to general clauses

The general clauses of Anti-Unfair Competition Law are generally applicable for defining unfair competitions that have not been classified, and the meaning of the presence thereof is to provide a solution to new problems not predicted by legislation. Therefore, the general clauses of Anti-Unfair Competition Law are only applicable only with the premise that there are no regulations in other laws or it is not stipulated in the specific provisions. Some practices of “escape to the general clauses” in the current judicial judgments ignore the specific legal rules, but directly appeal to general clauses to be concretized, which goes against the principle of “resort to legal principle after trying all legal regulations,” and thus the justification of the judgment is also doubted.

Contributions made by innovation to improvement of economics are far more than the efforts made simply for creating and maintaining competitive markets. Destroy of the static balance of interests and reduction of competition intensity will restrict the guiding function of the market on innovation and industry services. Therefore, judicial judgment shall protect the consumers’ right to select competitive products of competitors without any interference, thereby achieving the purpose of market guiding innovations. The history of the development of the Internet also suggests that the appearance of every important product or new industry will lead to redifferentiation of the market; substitutions between products or services are precise representations of innovations, and neither markets nor clients inherently belong to certain people forever.

About the Authors: 

Jiang Xiaoxi; Lan Shiwen

Judge of The Intellectual Property Court of Shenzhen Intermediate People's Court

Source: China IP Magazine, Issue 95