New Law governing E-commerce is published in China

On 31 August 2018, the Standing Committee of the National People’s Congress of the PRC published the PRC E-Commerce Law (“E-commerce Law”).

Under the E-commerce Law, “e-commerce” refers to operating activities of selling goods or providing services through the internet or other information networks. As to other models of e-commerce activities such as providing financial products and services, news publications, audio and video programs, general publications, cultural products and other content through an information network, the existing relevant laws and regulations, rather than the E-commerce Law, should apply.

The E-commerce Law mainly applies to the following three types of “E-commerce Operators”:

• “Platform Operators”, which refer to any legal persons or unincorporated organizations that provide virtual places of business, transaction matching, information release and other services to the parties of an e-commerce transaction to enable them to carry out independent transaction activities. A typical example would be the operator of Taobao;
• “Operators on Platform”, which refer to e-commerce operators that sell goods or provide services to customers through e-commerce platforms operated by the relevant Platform Operators (e.g. a vendor that operates an online shop (on the Taobao platform); and
• Other e-commerce operators, which might include e-commerce operators that sell their own goods or provide their own services through self-established websites or other channels (e.g. merchants on WeChat).

We discuss below a few significant provisions of the E-commerce Law:

1. User profiling In accordance with Article 18, if an E-commerce Operator provides goods or services to a consumer based on his/her interests, hobbies or habits, the E-commerce Operator shall also provide alternative options without these personal characteristics being taken into account.
2. Unfair competition Article 22 emphasises fair competition obligations of all E-commerce Operators. If an E-commerce Operator obtains a dominant market position via methods such as technologies advantage, numbers of users, control over relevant industries, other operators’ dependence on transactions, it must not abuse its dominant market position to exclude or restrict competition. In addition, Article 35 prohibits a Platform Operator from imposing upon its Operators on Platform unreasonable restrictions or conditions upon any transactions or prices, or collect any unreasonable fees from its Operators on Platform.
3. Liability allocation between a Platform Operator and its Operators on Platform In accordance with Article 38, if a Platform Operator knows, or should have known, that goods or services provided by its Operators on Platform do not comply with the requirements of personal or property safety, or has conducted other acts infringing the legitimate rights and interests of consumers, the Platform Operator, if it has not taken any necessary measures, would be jointly and severally liable together with the infringing Operators on Platform. Meanwhile, if a Platform Operator fails to examine the qualifications of its Operators on Platform or fails to protect its consumers’ safety in respect of goods or services that may affect a consumers’ health, the Platform Operator shall take the corresponding liability to consumers. The E-commerce Law does not elaborate on the scope of the corresponding liability, which may be interpreted, as Platform Operators should take the responsibility under existing legal frameworks.
4. IP protection On the one hand, if an IP right holder believes that an Operator on Platform has infringed its IP rights, the IP right holder can notify the relevant Platform Operator and request the Platform Operator to take necessary steps, such as to delete or screen information about the alleged infringement, disconnect the relevant webpages, or end the relevant transactions and services (“Preliminary Measures”). Such notice should contain the prima facie evidence of said infringement. The IP right holder shall be held liable if it causes any damage to the Operator on Platform by its wrongful notice. If the IP right holder submits a notice with malice, the liability will be doubled. If the Platform Operator does not take the necessary Preliminary Measures upon receiving such notice, it will be jointly and severally liable for the additional damages caused along with the Operator on Platform. If the Platform Operator knows or should have known the infringement but fails to take the necessary Preliminary Measures, it will be jointly and severally liable for the entire damages caused. On the other hand, the Platform Operator must transmit the notice of the IP right holder to the Operator on Platform. The Operator on Platform, upon receiving the transmitted notice, may submit a declaration of non-infringement to the Platform Operator with prima facie evidence. The Platform Operator shall transmit the declaration to the IP rights holder and direct it to complain to relevant competent authorities or take its case to a court. If the Platform Operator does not receive a notice of a complaint or a lawsuit within 15 days upon transmitting the declaration, the Platform Operator should terminate Preliminary Measures it has taken.

In addition to the highlighted provisions discussed above, the E-commerce Law also reinstates many of the existing legal principles and rules governing the various aspects of e-commerce, such as cybersecurity, privacy and personal data protection, online advertisement, consumer protection, standard form of contract, e-signature, etc.

The E-commerce Law will come into effect on 1 January 2019. Please click here to read the full text of the E-commerce Law (Chinese only).