New Chinese E-Commerce Law and its impact on IPR protection

On 11 November 2018, when this Kat was ordering from a popular Dutch takeout website, she was amused by the ‘Singles day 10% korting’ – 'Taobao has landed here (sort of)!' 

Debuted in 2009 in China, the Singles’ Day (or ‘Double 11’) was a great invention by Chinese e-commerce giant Alibaba. Growing by leaps and bounds, the Singles' Day event has encouraged many other e-commerce platforms to celebrate this day and has become, not only in China but around the world, the biggest shopping carnival. In the 10th anniversary of the Singles’ Day, within 24 hours, the total Gross Merchandise Volume (GMV) of all Chinese platforms (e.g. TMALL.com, JD.com, suning.com, amazon.cn) reached CNY 314.3 billion (approx. EUR 40.7 billion), with a 23.8% year-over-year increase. 

The booming e-commerce industry, on the one hand, has significantly made people’s lives more convenient. In China, one can easily remain housebound for weeks leading quite a comfortable life and order everything (legally, of course) online; on the other hand, the 10 years’ barbaric rapid growth of the e-commerce industry has caused a lot of problems, including, e.g., misleading advertising, counterfeits and fraudulent transactions. 

In response to all this, China introduced its E-Commerce Law (promulgated on 31 August 2018, effective as from 1 January 2019, hereinafter referred to as the ECL, Chinese version: here; English version: here) to ‘safeguard the lawful rights and interests of all parties to e-commerce, regulate e-commerce conduct, maintain the market order, and promote the sustainable and sound development of e-commerce (Article 1 of the ECL)’.

E-commerce platform business operators shall establish rules for IPR protection and enhance cooperation with IPR holders to protect IPRs in accordance with the law. (Art.41). 

Scope of ‘e-commerce’ 

According to the ECL, ‘e-commerce’ refers to business activities concerning the sale of commodities or the provision of services via the internet or any other information network, with the exception of financial products and services, as well as news information, audio and video programs, publications, cultural products, and other content services provided via information networks. (Art.2.2). 

Scope of ‘e-commerce business operators’

Article 9 of the ECL specifies three types of e-commerce business operators: 

1. The ‘e-commerce business operators’, referring to natural persons, legal persons or unincorporated organisations that engage in the business activities of selling commodities or providing services via the Internet or any other information network; 
2. The ‘e-commerce platform business operators’, referring to legal persons or unincorporated organisations which, in e-commerce context, provide both or multiple parties to transactions with services such as offering online business premises, deal making, and releasing information, for them to independently conduct trading activities;
3. The ‘on-platform business operators’, referring to e-commerce business operators that sell commodities or provide services via an e-commerce platform. 

Key provisions on IPR Protection 

(1) Guidance for IPR holders on the complaint procedure: Articles 42 and 43 

Article 42: (emphasis added) 

Where IPR holders perceive an infringement of their IPRs, they have a right to notify e-commerce platform business operators to take necessary measures such as deleting, blocking or disconnecting links and terminating transactions or services. The notices shall include preliminary evidence relating to the infringement. 
Upon receiving such notices, e-commerce platform business operators shall promptly take necessary measures and forward the notices to on-platform business operator; and where necessary measures are not taken promptly, e-commerce platform business operators shall be jointly and severally liable together with such businesses for any increase in damages. Where any error in a notice causes harm to on-platform businesses, e-commerce platform business operators shall assume civil liability in accordance with the law. Where any erroneous notice is issued maliciously and causes harm to on-platform businesses afterwards, e-commerce platform business operators shall assume liabilities that are doubly incumbent on them. 

Article 43: (emphasis added) 

Upon receiving the forwarded notices, on-platform business operator can submit declarations of non-infringement of any IPR to e-commerce platform business operators. The declarations shall include preliminary evidence of non-infringement. 
Upon receiving the declarations, e-commerce platform business operators shall forward them to IPR holders who have issued the notices and notify them that they may complain to the competent authorities concerned or institute legal proceedings in the People’s Courts. Where e-commerce platform business operators have not received notices that IPR holders have made complaints or instituted legal proceedings, within 15 days of receipt of the declarations by such rights holders, they shall promptly terminate all measures they have taken. 

(2) Obligations of ‘e-commerce business operators’: Article 45 

Article 45: (emphasis added) 

Where e-commerce platform business operators know, or should know, that on-platform business operator infringe any IPR, they shall take necessary measures such as deleting, blocking or disconnecting links and terminating transactions or services; and where necessary measures are not taken, e-commerce platform business operators shall be jointly and severally liable together with infringers in such cases. 

(3) Liabilities of the platform operators: Articles 84 and 85 

Article 84: (emphasis added) 

If an e-commerce platform business operator, in violation of the provisions of articles 42 and 45 of this Law, fails to take necessary measures in accordance with the law against the infringement of on-platform business operators upon IPRs, he or she shall be ordered by the relevant IP administrative authorities to make corrections within a time limit; if he or she fails to make corrections within a time limit, the e-commerce platform business operator shall be fined more than CNY 50,000 but less than CNY 500,000; in particularly serious circumstances, he or she shall be fined more than CNY 500,00 but less than CNY 2 million. 

Article 85: (emphasis added) 

If an e-commerce operator, in violation of the provisions of this Law, sells commodities or provides services that do not meet the requirements of guaranteeing personal and property safety, commits acts of unfair competition such as conducting false or misleading commercial promotion, abuses his or her dominant market position, or commits acts of infringing on IPRs or consumers’ rights and interests, he or she shall be punished according to relevant laws. 

Comment 

The ECL is a significant development and initiative. From the perspective of IPR protection, it explicitly extends the scope of application of some key rules, for instance safe harbour, red flag, notice and take down, to the field of e-commerce. Moreover, it expressly sets out some clear principles, including encouraging the development of new business types in e-commerce and innovation in business models, promoting the research, development, promotion and application of e-commerce technologies (Art.3), equally treating the online and offline business activities, and promoting their integrated developments (Art.4), the principles of voluntariness, equality, fairness and honesty (Art.5). 

As many commentators have pointed out, some wording of the ECL is rather broad. There are many questions, including, inter alia, around the meaning of ‘necessary measures’, which will probably be the subject of further discussions or even litigation. Yet, given the complexity of e-commerce activities, this Kat believes that it makes sense for the ECL to take rather a cautious approach in its infancy, whilst ensuring the direction to which it has been heading is right.

It is noteworthy that, according to the Legislation Law of China, normally a bill shall be deliberated three times by the Standing Committee of the National People’s Congress (NPCSC) before being voted on, but unprecedentedly it took four NPCSC deliberations (and heated discussions) to vote on the ECL, which, as one of the many evidences, shows China’s stand on the issue. Undoubtedly detailed enforcement rules and cases will follow, of which this Kat will keep a close eye on -- stay turned for further updates!

Photos courtesy: 
The 1st photo: Mevrouw Florence Tordoir
The 2nd photo: Forbes Statista
The 3rd photo: eMarketer/The Economist