First E-commerce Law in China

On 31 August 2018 the Standing Committee of the National People’s Congress published the long-awaited E-commerce Law, which will come into effect on 1 January 2019. The law reflects the Chinese government’s determination to fight counterfeits and protect consumers in one of the largest (if not the largest) e-commerce markets in the world. This article highlights some of the changes introduced by the E-commerce Law to which brand owners should pay attention.

Protection of IP rights

The E-commerce Law clarifies uncertainties in Article 36 of China’s Tort Law and establishes a complaint procedure for e-commerce platforms. It also puts the onus on platform operators to remove listings, disable web pages and terminate transactions if IP rights infringement is detected.  Although complaint systems are already in place on most popular e-commerce platforms, the E-commerce Law specifies the procedures that e-commerce platform operators must follow.

The law stipulates that if a rights holder has reason to believe that a business operator on the platform has infringed its rights, it can notify the platform operator by submitting a notice of IP rights infringement to request that the platform operator take measures against the business operator. The notice requires that the rights holder submit prima facie evidence of infringement at the same time. Upon receipt of the notice, the platform operator redirects it to the business operator. If the platform operator fails to do so, it will be held jointly and severally liable for additional damages caused by the prolonged infringement. The business operator can equally submit a declaration of non-infringement to the platform operator. This declaration, similar to the notice, is submitted together with prima facie evidence of non-infringement. Upon receipt of the declaration, the platform operator forwards this to the rights holder and informs it that it may file a complaint with the relevant administrative authority or commence legal proceedings against the business operator in court. If the platform operator does not receive notice within 15 days from the rights holder about filing a complaint or commencing legal proceedings, it can cease all measures taken against the business operator.

This is a welcome change in the structure of the complaints procedure. It gives rights holders confidence that their complaints will be properly handled and measures taken promptly against the infringer. However, the procedure for business operators to submit a non-infringement declaration attempts to mitigate the risk of squatters attempting to disrupt the business of legitimate operators on e-commerce platforms.  The E-commerce Law holds the complainant liable for loss and damage suffered by a business operator in the case of a wrongful complaint. Liability can be doubled in the case of a malicious complaint. However, the levels of evidence required and the meaning of prima facie evidence of infringement and prima facie evidence of non-infringement are yet to be clarified.

The complaint procedure is terminated if the business operator provides prima facie evidence of non-infringement and the rights holder fails to take action within 15 days. The absence of a reply mechanism and the need to take action within such a short period (which is unlikely to be sufficient for an overseas rights holder to prepare the necessary documents) may mean that procedures are brought to a close prematurely. Further, it is not uncommon for an infringer to fabricate authorisation documents. The rights holder may therefore have to be prepared to take action against the infringer following a complaint and may raise these authorisation documents (if fabricated) against the infringer in subsequent legal proceedings.

There is a concern that detailing the differences between genuine and counterfeit products could provide the infringer with information to make counterfeit goods in the future, as the notice is redirected to the infringer and includes prima facie evidence of infringement. The details required to meet the threshold are crucial to minimise leakage of valuable and confidential information to the infringer.

Enhanced protection of consumer rights

The E-commerce Law places great emphasis on the protection of consumer rights. Practices that may damage the e-commerce credit system (eg, false advertising) are explicitly prohibited. The E-commerce Law protects consumers from fake reviews by:

  • banning dishonest practices such as hiring agents to write positive reviews;
  • luring customers to leave favourable reviews with monetary rewards;
  • disclosing credibility records selectively; and
  • deleting unfavourable comments (unless they are defamatory or otherwise prohibited).

The E-commerce Law also requires e-commerce platform operators to shoulder more responsibility in ensuring the quality of items listed on their platform. For goods or services that affect the health and safety of consumers (eg, medical products), platform operators are held jointly liable with the business operator if they fail to examine the qualifications of business operators on the platform. Consumers are entitled to seek compensation directly from platform operators, which can subsequently seek reimbursement from the retailer.

Under the E-commerce Law, all business operators on e-commerce platforms must be registered and licensed with the SAIC, except for sellers of crafts and home-grown agricultural products. Businesses must make their licence information available on their web pages and provide their identity information to platform operators. These mandatory requirements will make it easier for consumers and right holders to identify infringers and make it harder for infringers to evade enforcement actions by simply closing down their online stores.

While the E-commerce Law has been passed to keep up with the massive growth in China’s e-commerce market, there are doubts as to how it will be enforced on a day-to-day basis.  It is expected that further notes and/or guidelines will be published for further clarification and more updates as to the actual practice will be provided after the E-commerce Law comes into force.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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