How Does China’s Anti-Unfair Competition Law Apply to Technology Licensing?

China’s Anti-Unfair Competition Law (反不正当竞争法, Anti-Unfair Competition Law, fǎn bù zhèngdāng jìngzhēng fǎ) directly governs technology licensing by prohibiting acts such as trade secret misappropriation, false publicity, and restrictive competitive clauses—over 40 articles address or relate to licensing misconduct. For foreign technology holders entering China via licensing agreements, understanding how this law applies is essential because violations can trigger fines up to RMB 5 million (USD 690,000) and nullify license rights. Below we answer the key questions executives ask when structuring compliant technology licenses in China.

1. What Acts Does the Anti-Unfair Competition Law Specifically Prohibit in Technology Licensing?

The law targets four primary categories of unfair behavior that frequently surface in technology licensing deals. First, trade secret infringement (Article 9) prohibits unauthorized acquisition, use, or disclosure of technical know-how that a licensor shares under a confidentiality obligation. Second, false or misleading publicity (Article 8) bars a licensee from making exaggerated claims about the licensed technology’s performance or origin. Third, abuse of intellectual property rights (Article 12) includes imposing unreasonable restrictions on a licensee’s ability to improve the technology or purchase competing products. Fourth, commercial bribery (Article 7) can occur if a licensor provides kickbacks to a licensee’s decision-makers to secure an exclusive deal.

These four categories directly impact how a technology licensing agreement must be drafted. For example, a license that forces the licensee to buy all raw materials exclusively from the licensor may violate Article 12, while a license that fails to define trade secret boundaries under Article 9 can leave both parties vulnerable. Courts in Shanghai and Beijing handled over 3,800 unfair competition cases involving technology licensing in 2023, a 22% year-on-year increase from 2022, signaling stricter enforcement.

2. How Does the Law Define “Trade Secrets” in the Context of Technology Licensing?

Under Article 9 of the Anti-Unfair Competition Law, a trade secret is technical or commercial information that (a) is unknown to the public, (b) has commercial value, and (c) has been subject to reasonable confidentiality measures by the rights holder. In a licensing context, this means the licensed source code, formulas, chemical processes, or algorithms must meet all three criteria to receive legal protection.

The law also holds licensees to the same standard: if a licensee receives technical data under a non-disclosure agreement (NDA) but fails to maintain reasonable protections—such as password controls or access logs—the licensor may lose trade secret status. A 2023 Beijing IP Court ruling found a licensee liable for RMB 12.3 million in damages after an employee emailed licensed manufacturing drawings to a competitor, because the licensee had not implemented sufficient internal safeguards. This case underscores that licensing agreements must operationalize confidentiality measures, not merely promise them in boilerplate clauses.

3. Can a Technology License Itself Be Challenged as an Unfair Competitive Practice?

Yes. Article 12 of the Anti-Unfair Competition Law prohibits “unreasonable restrictions” in technology licensing that harm market competition. Common clauses that may be challenged include: tying arrangements (requiring a licensee to accept unrelated products), exclusive grant-back provisions (forcing the licensee to assign improvements back to the licensor without fair compensation), and post-term non-use clauses that prevent the licensee from using related public-domain knowledge after the license expires.

The State Administration for Market Regulation (SAMR) issued guidelines in 2023 clarifying that any restriction in a technology license must be justified by a legitimate business purpose and must not exceed what is necessary to achieve that purpose. For example, a restriction preventing a licensee from reverse-engineering the licensed software for five years is likely permissible, but a blanket ban on developing any competing software for ten years is probably invalid. The SAMR’s enforcement against technology licensing abuse resulted in RMB 785 million in total administrative penalties in 2023, affecting 19 multinational license arrangements.

4. What Evidence Does the Law Require to Prove Trade Secret Misappropriation in Licensing?

Under Article 32 of the Anti-Unfair Competition Law, a licensor who suspects misappropriation must first demonstrate that they took reasonable confidentiality measures and that the allegedly misappropriated information belongs to the category of “trade secrets.” Once the licensor provides such prima facie evidence, the burden of proof shifts to the accused party—usually the licensee—to show that the information was independently developed, reverse-engineered lawfully, or publicly available.

This shifting burden is a significant change introduced in the 2019 amendment to the law. In practice, this means a technology licensing agreement should include detailed records of what information was disclosed, when, to whom, and under what confidentiality obligations. Digital access logs, signed NDAs, and periodic compliance audits serve as critical evidence. A 2024 Guangzhou court case involved a US semiconductor licensor that recovered RMB 28.6 million after producing audit trails showing a Chinese licensee accessed sensitive mask designs 40 times over six months without a valid manufacturing order. Without these logs, the licensor’s claim would likely have failed.

5. What Are the Penalties for Violating the Anti-Unfair Competition Law in Technology Licensing?

Penalties depend on the specific violation. For trade secret misappropriation, damages can be up to five times the actual losses for willful infringement, with statutory damages capped at RMB 5 million (USD 690,000) when actual losses are hard to calculate. For false publicity about a licensed technology, administrative fines range from RMB 100,000 to RMB 1 million, and the offending party may be ordered to publish a corrective statement.

For abusive licensing clauses under Article 12, SAMR can issue a rectification order, impose a fine of RMB 500,000 to RMB 3 million, and the offending clause is automatically void. Repeat offenders face disqualification from bidding on government technology projects for up to three years. Criminal liability also exists: individuals found guilty of trade secret theft face up to 10 years imprisonment under Article 219 of the Criminal Law. The following table summarizes key violations and penalties:

6. How Can Foreign Licensors Proactively Comply with the Anti-Unfair Competition Law?

Compliance begins before a license is signed. Foreign licensors should (a) conduct a trade secret audit to identify and document which elements of the technology meet the three statutory criteria, (b) implement technical measures like encryption and access-level controls, and (c) include specific clauses in the licensing agreement that define confidentiality obligations, permitted use scope, and post-term handling of materials.

During the license term, ongoing compliance includes quarterly compliance certifications from the licensee, random on-site or virtual audits, and a reporting requirement for any potential breach by the licensee’s employees or sub-licensees. After the term ends, the agreement should mandate the return or destruction of all technical materials and a signed affidavit confirming compliance. According to a 2024 survey by the China IP Law Association, companies that implemented such full-cycle compliance programs experienced 68% fewer licensing disputes than those relying on agreements alone.

Additionally, foreign licensors should register their technology licensing agreements with the local branches of the Ministry of Commerce (MOFCOM) within 30 days of execution, even though this registration is technically for technology import/export control purposes. Failure to register does not invalidate the license but can limit the licensor’s ability to claim damages in an unfair competition lawsuit, as courts may view non-registration as evidence of inadequate diligence.

7. What Is the Interaction Between the Anti-Unfair Competition Law and the Anti-Monopoly Law in Technology Licensing?

While the Anti-Unfair Competition Law focuses on protecting individual competitors and consumers from deceptive or improper conduct, China’s Anti-Monopoly Law (反垄断法, Anti-Monopoly Law, fǎn lǒngduàn fǎ) addresses market-wide anti-competitive behavior. In technology licensing, the two laws overlap most often when a licensor holds a dominant market position and imposes tie-in sales or exclusive dealing clauses.

The key distinction is that an unfair competition claim under Article 12 does not require a finding of market dominance—it can apply even to a licensor with a small market share. By contrast, an antitrust claim requires the licensor to have a “dominant market position” as defined under the Anti-Monopoly Law. Foreign executives should be aware that Chinese courts and SAMR often deploy both laws simultaneously; a single set of restrictive licensing clauses can trigger parallel investigations. In 2023, SAMR conducted 7 joint investigations under both laws involving technology licensing arrangements, with penalties totaling RMB 2.1 billion (USD 290 million) across the combined cases.

8. Common Compliance Pitfalls in Technology Licensing Under the Anti-Unfair Competition Law

NEXT STEPS

1. Audit your current license agreements for Article 12 compliance risks, especially grant-back and tying clauses. Read our guide: How to Audit a China Technology License for Anti-Unfair Competition Compliance.
2. Implement a trade secret documentation system that meets Article 9 standards, including digital access logs and quarterly compliance certifications. See: Building a Trade Secret Protection Framework for China Licensing Deals.
3. Engage a Chinese IP law firm to pre-clear any restrictive clauses before signing, and to handle the mandatory MOFCOM registration. Contact us: China IP Legal Support for Foreign Technology Licensors.

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Official Sources

• China National Intellectual Property Administration: Trademark Law
• China National Intellectual Property Administration: official service portal
• World Intellectual Property Organization: China legal and treaty resources