Quarterly Update: China’s New E-Commerce Law

Article written by: Susan Hur    |    Thursday 6th December 2018

In June 2018, China’s internet userbase surpassed the 800 million mark,[1] making it the world’s biggest internet userbase holder and e-commerce market potential in the world. The People’s Republic of China is committed to a stronger intellectual property and consumer protection regime in the e-commerce space, as shown in the passing of the “E-Commerce Law” (中华人民共和国电子商务法) on 31 August 2018, effective from 1 January 2019. We have reviewed three major avenues in which a rights holder can make complaints for infringement of intellectual property rights under this new regime. 


Those familiar with online infringement of intellectual property (IP) in the e-commerce marketplace will know that it is possible to report infringement by lodging a complaint to the relevant e-commerce platform operator. The claim is received by the platform, assessed, and any infringing post is removed. The post complained of may refer to a counterfeit product, or may contain other misuse of IP – for example, unauthorised use of copyrighted content, such as promotional materials. 

The E-Commerce Law introduces three broad categories of potentially useful rules for preventing IP infringement.

Category 1: Complaint procedure for IP rights holders

Article 42 provides that an IP rights holder can lodge an IP infringement claim with the platform operator, and request that the operator takes necessary measures (for example, to delete or block the transaction and services). The claim needs to contain evidence of infringement. Once the claim is received, the e-commerce platform operator must also pass the IP owner’s notice to the infringer in a “timely manner”.[1] 

However, IP rights holders (and potential busybodies) must be aware of the following major caveat and potential deterrence to filing a vexatious infringement claim:

IP right holder shall be duly held for civil liability if it causes any damage to operators on the platform due to mistaken notice. In the case that malicious notice causes losses to an operator on the platform, the IP right holder shall assume the liability of double damages.

Further, Article 43 provides that an online shop,[2] upon receiving an IP infringement notice, can submit a “declaration of non-infringement”[3] with accompanying evidence to the platform operator. At that point, further recourse is available to the IP owner upon filing a complaint with the relevant departments, such as the Market Regulation Department (MRD), or proceedings within the jurisdictional court within in 15 days. If that is not completed, the online shop will be allowed to continue trading, potentially despite ongoing infringement. Interestingly, there is no penalty for an online shop making a wrongful declaration of non-infringement. 

In 2017, there were over 137,000 copyright cases, almost 38,000 trade mark cases, and 16,000 patent cases filed in the Chinese courts. Most of these were lodged in Guangdong, Beijing, and Shanghai, which have specialised chambers for IP litigation with cross-regional jurisdictions in 15 cities, such as Suzhou. 

Category 2: Obligations of e-commerce platform operators

Article 45 imposes a positive obligation on the e-commerce platform to take necessary measures once it is aware, or should know, of IP infringement:

Where an e-commerce platform operator knows or should have known that any operator on the platform infringes upon intellectual property, it shall take necessary measures, for example, to delete, block, disconnect or end transactions and services, and failing to do so, it shall be jointly and severally liable along with the infringer.

IP rights holders should note that it is unlikely that platform operators will actively monitor for infringement, or report any IP infringement to the IP holders. Active monitoring and enforcement programs are still encouraged, but in the case of blatant or ongoing infringement, the e-commerce platform operator may be held liable together with an infringer.

Category 3: Health and safety concerns / breach of export laws

There is a third consumer protection oriented category that may assist IP owners, contained under Articles 13 and 17 (consumer protection oriented), and 26 (breach of import or export laws of another country). In summary:

  • Article 13: the e-commerce operator needs to sell or provide goods and services that comply with safety requirements, and not those prohibited by laws and administrative regulations. 
  • Article 17: the e-commerce operator needs to accurately disclose information about goods and services. 
  • Article 26: the e-commerce operator engaging in cross-border e-commerce shall comply with relevant import and export laws and administrative regulations. 

Even where the product is genuine, there may be domestic restrictions or regulations as to the nature of the goods and/or their advertisement for sale. Products such as medicine, animal, and plant products may be removed from sale if in breach of local restrictions. The products are channelled via Daigou (代购) and are often bought in large quantities and on-sold at a profit. There is an avenue for complaint under Article 26, if the complainant can provide supporting evidence about how the products imported were in breach of the export laws and administrative regulations.      

Liabilities of the platform operators

A significant and positive development of the new law lies in holding platform operators liable for violating Article 42 or 45 by failing to take the necessary measures against IP infringement. Article 84 states:

where an e-commerce platform operator violates Article 42 and Article 45 by failing to take necessary measures against IP infringement by operators on the platform, IP administration department shall order it to rectify within the prescribed period of time; failing to rectify within the prescribed period of time, it shall be imposed a fine of more than RMB50,000 but less than RMB500,000, or a fine of more than RMB500,000 but less than RMB2,000,000 if the circumstance is serious.

Article 85 also holds the e-commerce operator to be liable for IP infringement:

Where an e-commerce operator violates this Law by selling the goods or providing the services that do not satisfy personal or property safety requirements, publishing false or misleading commercial propaganda or having other acts of unfair competition, abusing its dominant market position, and infringing upon intellectual property or consumers’ legitimate rights and interests, etc., it shall be subject to penalty in accordance with relevant laws.

These provisions appear to send a clear message to platform operators, who will not be able to get away with ignoring or improperly dismissing the complaints of IP rights holders.

Conclusion

The E-Commerce Law sets out some positive binding principles for platform operators, online stores, and IP rights holders, which include encouraging innovation,[1] abiding to principles of “good faith”, and fulfilling obligations in respect of IP protection.[2] The E-Commerce Law is still in its infancy, and while it is undoubtedly a positive step towards proper recognition of IP rights, the onus for enforcement, as always, remains with IP rights holders, and it is important for rights holders to be aware of the measures operators have in place so that they know what action to take if a problem arises. Further, there will be differences in what operators offer and this should form part of the distribution channel selection process. It therefore remains essential to prepare an advance IP enforcement strategy for each e-commerce platform in China. 

We will continue to report on e-commerce developments as they come into force and are put to the test in the coming months.


[1] 42nd China Statistical Report on the Internet Development issued by China Internet Network Information Center

[2] “Timely manner” is undefined under the E-Commerce Law, but it is likely that this is deliberate. If the notice is not passed to the infringer in time, the platform operator risks being jointly and severally liable with the online shop for infringement. 

[3] “e-commerce operator” or “an operator on the platform”, under Article 9. 

[4] It is unclear what a “declaration of non-infringement” is, or how closely the platforms will scrutinise the evidence of non-infringement submitted by the online shop.  

[5] Article 3, E-Commerce Law

[6] Article 5, E-Commerce Law

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