Other BriefingsExamining Enforcement of China’s Anti-Unfair Competition Law – Insights from Typical Court Cases
Recent developments in anti-unfair competition in China reflect a stronger judicial focus on protecting fair market order and corporate integrity. In early September, China’s Supreme People’s Court (SPC) released expert commentary on typical cases interpreting the Anti-Unfair Competition Law, offering valuable insights into how courts are addressing trade secret theft, corporate defamation, and unfair conduct in emerging sectors like AI.
In early September, China’s Supreme People’s Court (SPC) released expert commentary on two batches of “typical cases” concerning the application of China’s anti-unfair competition legislation, copyright law, and other related legal frameworks. These cases shed light on how China’s courts are interpreting and enforcing key provisions governing fair competition, trade secrets, and anti-competitive market conduct.
China recently issued an amendment to its Anti-Unfair Competition Law (AUCL), which will come into effect on October 15, marking another step in the continued development of China’s anti-unfair competition regime.
For foreign companies operating in or engaging with the Chinese market, the SPC’s commentary offers valuable insights into evolving judicial trends, particularly in areas such as corporate defamation, trade secret protection, and anti-competitive conduct in emerging sectors like AI.
In this article, we highlight four of the SPC’s selected cases to discuss their key legal principles and practical takeaways for businesses operating in China.
Case 1: Computer software and trade secret infringement
Parties
Plaintiffs: Company A and its subsidiaryboth engaged in the design and manufacture of centrifugal compressors and holders of proprietary technologies, including the “Centrifugal Compressor Selection” software and related impeller model data.
Defendants: Company B and Company C, as well as three individuals, Sun, Yin, and Wu, all of whom were previously employed by Company A.
Case overview
The dispute arose when Company A and its subsidiary discovered that their former employees, Sun and Yin, had secretly established and operated competing companies (Company B and Company C) while still employed at Company A. These companies engaged in identical business activities and covertly used Company A’s trade secrets and copyrighted software.
Between 2008 and 2011, the defendants unlawfully obtained Company A’s compressor design drawings, selection software, and core impeller data. Despite signing a written commitment in 2011 to cease using Company A’s trade secrets – following a criminal investigation that was later withdrawn – they continued to use the misappropriated materials in their commercial operations.
Technical analysis showed that the impeller codes and performance data of the defendants’ products were virtually identical to Company A’s internal designs. The defendants failed to offer a reasonable explanation or rebut the evidence. The courts determined that the Two Si Companies’ acquisition and continued use of the software and data constituted infringement of both trade secrets and software copyright.
Sun and Yin were found to have acted in bad faith by secretly forming a competing company during their employment, violating their loyalty obligations and directly engaging in the infringing conduct. Wu, meanwhile, was held partially liable for assisting the infringement.
The Court ordered Company B, Company C, and the three individuals to cease all infringing acts, including the unlawful acquisition, use, and disclosure of Company A’s software and data. The defendants were jointly ordered to pay economic damages totaling RMB 166.1 million (US$23.3 million), with Wu held severally liable for RMB 3 million (US$420,846). The ruling also imposed delay damages to ensure enforcement and deterrence.
Violations
Although the court did not explicitly cite article numbers in its published decision, the conduct described clearly falls under multiple provisions of the AUCL.
The primary violation concerns Article 9 (Article 10 in the 2025 amendment), which prohibits the unlawful acquisition, disclosure, or use of another party’s trade secrets by theft, fraud, or other improper means. The defendants’ actions in acquiring and using Company A’s confidential compressor data and software directly contravened this provision.
Additionally, the defendants’ establishment of a competing business while still employed by Company A violated Article 2 of the AUCL, which requires business operators to uphold principles of fairness, good faith, and business ethics in competition. Their conduct disrupted the fair market order and harmed Company A’s legitimate interests.
Lastly, under Article 32 (Article 39 in the 2025 amendment), the burden of proof shifts to the alleged infringer once the rights holder presents preliminary evidence of infringement and reasonable confidentiality measures. The Supreme People’s Court applied this article to require the defendants to prove that no infringement occurred, which they failed to meet.
Key takeaways
This case underscores the serious legal and financial consequences of trade secret misappropriation and employee disloyalty. For companies, it highlights the importance of:
- Implementing robust confidentiality and intellectual property protection mechanisms, including non-disclosure and non-compete agreements for key employees.
- Conducting internal audits and digital forensics to detect unauthorized access or use of proprietary software and data.
- Maintaining clear contractual and technical safeguards to demonstrate reasonable confidentiality measures, ensuring protection under Article 10 of the AUCL.
This decision demonstrates the courts’ strict stance against employees or affiliates who exploit confidential technologies for personal or competitive gain. It also reinforces a strong judicial framework for protecting trade secrets and provides a legal foundation for companies to pursue claims against former employees or competitors who misuse confidential technology, particularly for enterprises in high-tech or R&D-intensive industries.
Case 2: Defining corporate defamation
Parties
Plaintiff: Company A, owner of the registered trademarks “Mouhu” and “Mouhu Car Maintenance” for automotive maintenance and repair services. The trademarks enjoy high market recognition and are well known among consumers in the auto service industry.
Defendants: Company B, a trading company, Company C, an IT company, and Company D, an IT company.
Case overview
In September 2023, the three defendant companies jointly launched a low-price marketing campaign titled “Zhenhu Price” (震虎价) for their car maintenance services and products. The campaign used online and offline advertising that prominently featured the Chinese character 虎 (meaning “tiger”), which is the same character used in Company A’s well-known “Mouhu” trademark.
Promotional materials included videos and images of car repair workers depicted as tigers holding tools branded with the “tiger” character, as well as captions such as “Does car maintenance also involve ‘Tiger’ paint?”, “Does car maintenance also involve ‘Tiger’ treatment?”, and “Does car maintenance also involve ‘Tiger’ people?” Some ads showed a tiger-shaped figure being knocked over with the text “Zhenhu Price doesn’t tiger people” and similar slogans. Online user comments reinforced the connection, stating that the ads “clearly refer to [the trademark] Mouhu” even though it was not named directly.
Company A claimed that the campaign was deliberately crafted to exploit its brand reputation while misleading the public into associating Company B’s services with its own. Company A filed a suit demanding the cessation of the infringing behavior and damages totaling RMB 5.3 million (US$743,494).
Violations
The Shanghai Minhang District People’s Court found that the defendants’ “Zhenhu Price” campaign fabricated and spread misleading information about Company A, damaging its commercial reputation and product image. The court determined that the campaign’s references, though indirect, were clearly directed at Company A and intended to disparage it in the eyes of consumers.
The court ruled that the defendants’ actions constituted commercial defamation and ordered them to stop the infringing activities and jointly pay RMB 5 million (US$701,410) in damages and reasonable expenses.
The defendants’ actions were found to have violated the provisions governing commercial defamation in the AUCL:
- Article 14 (Article 11 in the 2025 amendment) of the AUCL prohibits business operators from fabricating or disseminating false or misleading information to damage the commercial reputation or product reputation of competitors.
- The court found that the defendants’ use of similar imagery, slogans, and stylized characters, combined with suggestive messaging, amounted to the deliberate dissemination of misleading information that harmed Company A’s reputation.
Key takeaways
According to Professor Liu Lijuan, director of the Intellectual Property Center at Beijing Foreign Studies University, the central issue was whether conduct that does not explicitly name a competitor can nonetheless be understood by the public as referring to them. The court determined that given Company A’s dominant market presence and the deliberate parallels in branding, the public would reasonably perceive the ads as targeting Company A. This approach correctly defined the boundaries between permissible advertising and unlawful disparagement.
This case highlights the importance of distinguishing between competitive marketing and commercial defamation. While companies are free to promote their products and engage in comparative advertising, they must avoid campaigns that mislead the public, exploit competitors’ goodwill, or disparage others through suggestive or mocking references.
For businesses, that means:
- Avoiding using imagery, language, or design elements that could be interpreted as referencing a competitor’s trademark or brand identity.
- Establishing internal review mechanisms for advertising materials to ensure compliance with the AUCL.
- When conducting comparative advertising, ensuring that claims are factually accurate and not misleading.
This decision also establishes a strong legal basis for companies with established brand recognition to pursue claims against competitors that attempt to exploit or disparage their reputation through misleading or defamatory marketing campaigns. This case therefore empowers well-known enterprises to actively defend their commercial reputation and maintain fair competition in the market.
Case 3: Establishing whether trade information is “publicly known”
Parties
Plaintiff: Company A, a New Zealand biotechnology company holding trade secrets for the production process and product preparation procedures for isolating and purifying natural protease 3 (PR3) from azure granules in human neutrophils. PR3 is an enzyme used in diagnostic and therapeutic applications in immunology and autoimmune disease research.
Defendants: Company B, an Wuhan-based biotechnology company, and Sun, a former employee of Company A who became the legal representative and major shareholder of Company B.
Case outline
Company A alleges that Sun, after leaving the company, disclosed its proprietary PR3 production technology to Company B without authorization. Company B then used the trade secrets to produce PR3 products and applied for a patent based on the same technology, which resulted in the public disclosure of Company A’s confidential information. Company A claimed that these actions caused significant economic harm and infringed its legal rights. The Wuhan Intermediate People’s Court found that the patented technology and Company A’s trade secrets were substantially identical and that Sun and Company B had jointly infringed the trade secret. The court ordered them to cease the infringing activities and to pay Company A RMB 1.8 million (US$252,507) in damages.
Violations
The court found that the defendants’ conduct constituted a violation of the AUCL, specifically concerning the unlawful acquisition and use of trade secrets.
Under Article 9(4) of the AUCL (Article 10(4) in the 2025 amendment), business operators are prohibited from engaging in acts that infringe upon trade secrets, including instigating, enticing, or assisting others in violating confidentiality obligations or the right holder’s requirements for maintaining trade secrets, in order to obtain, disclose, use, or allow others to use the right holder’s trade secrets.
The defendant’s activity therefore violated the law in the following ways:
- Unauthorized disclosure or use of trade secrets: The defendant, Sun, unlawfully disclosed Aimo Diagnostics’ confidential production process and preparation methods for PR3 to Company B, enabling the latter to use the technology without authorization.
- Inducing or assisting another party to violate confidentiality obligations: Sun, as a former employee of Aimo Diagnostics, breached his confidentiality duty by providing the company’s proprietary information to Company B, which jointly used it for commercial gain.
- Use of misappropriated trade secrets: The defendants unlawfully used Company A’s confidential technical information in their own research and development activities, incorporating it into a patent application process.
The Supreme People’s Court affirmed that even though certain individual elements of the technology (such as general knowledge about PR3 extraction) were known in the field, Company B’s complete and optimized process constituted a protectable trade secret. Thus, the defendants’ actions violated the principle of good faith and fair competition under Article 2 of the AUCL and the specific prohibitions in Article 10(4) concerning the disclosure and unauthorized use of trade secrets.
Key takeaways
This case highlights the importance of protecting trade secrets in cross-border contexts and highlights the vulnerability of employers to the leak of their trade secrets when an employee leaves the company. At the same time, it also demonstrates that even if parts of a technical process are publicly known, a complete, optimized process developed through research and experimentation remains protectable.
Companies can implement a variety of confidentiality measures to protect against such activities, including implementing protocols for departing employees such as nondisclosure agreements and implementing internal access controls. Employers should also exercise caution when hiring personnel from competitors and ensure they do not unintentionally use confidential information from their employees’ former employers.
Case 4: Market confusion and user diversion
Parties
Plaintiff: Company A, developer of the “Anime Transformation” feature on its mobile application, which uses AI to transform real-time photos and videos into stylized anime versions through facial reconstruction, feature adjustment, and real-time image rendering.
Defendant: Company B, operator of another app that launched a similar “shōjo manga” filter shortly after Company A’s product release.
Case overview
Company A launched its “Anime Transformation” effect on June 15, 2020, after extensive R&D investment in AI modeling, data training, and fine-tuning of model parameters. The feature became highly popular, allowing users to generate anime-style avatars in their likeness.
Less than two months later, on August 4, 2020, Company B launched its filter in a “shōjo manga” style – a type of Japanese manga – which produced visuals and animations nearly identical to those generated by Company A’s model. Company A alleged that Company B had directly copied the AI model’s structure and parameter settings, thus gaining an unfair competitive advantage by saving time and costs in data collection, training, and optimization.
Company A claimed this conduct constituted unfair competition under the AUCL, as it replicated proprietary technical elements and caused substantial market confusion and user diversion. The company requested the court to order Company B to cease the infringement and pay damages exceeding RMB 5 million.
The Beijing Chaoyang District People’s Court found that Company B’s actions harmed Company A’s competitive interests and constituted unfair competition under Article 2 of the AUCL.
The court compared the two companies’ model structures, parameter configurations, and possible access to Company A’s model. Based on the high similarity of outputs and the absence of credible evidence proving independent development, the court found it highly probable that Company B had directly used Company A’s AI model.
Violations
The ruling primarily applied Article 2 of the AUCL, which requires operators to “adhere to the principles of voluntariness, equality, fairness, and good faith” in their production and business operations, and to “abide by laws and business ethics, and participate fairly in market competition.”
The court determined that Company A’s AI model, comprising its structure and trained parameters, constituted a “competitive interest” deserving protection.
Company B’s direct replication of this model violated Article 2 by:
- Using improper means to exploit a competitor’s technical achievements without authorization or independent development.
- Disrupting the innovation mechanism and competitive equilibrium in the AI industry.
- Damaging both the plaintiff’s commercial interests and consumers’ rights to fair and diverse technological offerings.
According to Professor Du Ying, Director of the Intellectual Property Research Center at the Central University of Finance and Economics, this case offers a clear framework for applying Article 2 of the AUCL to new technology disputes such as those involving AI models.
Key takeaways
This case sets a significant precedent for protecting AI models and trained parameters under the AUCL. It establishes that algorithmic models, even if not protected by specific intellectual property rights, can still be safeguarded as “competitive interests” when they represent substantial innovation and market value.
For AI and technology companies, this means:
- They must ensure the independence and traceability of their AI models, maintaining detailed documentation of data sources, training processes, and algorithm design to defend against unfair competition claims.
- They should implement strict internal protocols to prevent unauthorized use of third-party datasets or models.
- When developing similar technologies, firms must demonstrate genuine independent R&D and avoid replicating others’ model architectures or parameter configurations.
Considerations for foreign Companies
China’s courts are taking a more proactive and sophisticated approach to enforcing the AUCL, with clear judicial reasoning that emphasizes commercial ethics, market order, and the protection of innovation. For foreign companies operating or investing in China, these developments carry several important implications.
For instance, the scope of “unfair competition” is being interpreted broadly. Courts are increasingly willing to apply Article 2’s general clause to address new types of misconduct, such as AI model imitation and online defamation, that may not fit neatly into traditional intellectual property categories. This signals that behavior violating recognized business ethics or market fairness may trigger liability even in the absence of a specific statutory breach.
In light of recent trade secret rulings, businesses should place particular emphasis on protecting proprietary information when employees depart or establish competing ventures. While courts have shown a growing readiness to hold individuals and related entities liable in instances where former employees misappropriate trade secrets, foreign companies operating in China should still ensure strong employee confidentiality agreements and conduct exit reviews to remind departing employees of their obligations to confidentiality.
Finally, with the new AUCL amendment taking effect on October 15, it is also important to monitor its implementation and be prepared to adapt compliance programs accordingly.
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