New regulations were imposed on China’s e-commerce sector on 1 January 2019 with the intention of protecting consumers and brand owners.
E-Commerce sales are ballooning in China with over USD403 million in revenue in 2016 increasing to an expected US$740 million in 2019, according to Statista.com. In an International Post Corporation report, between 2013 and 2015, e-commerce from the whole of the Asia Pacific to Europe grew by 66%, and the global value of e-commerce sales forecast for 2019 is expected to reach US$3.5 trillion. Revenue is expected to reach an annual growth rate of 10.1%, according to the Statista report. With this growth comes the need for a stricter set of oversight rules and regulations.
The law “aims to pressure businesses in the e-commerce sector to take action against counterfeits, copycats and general infringing acts prevalent in the market,” according to Nick Beckett, managing partner in the Beijing office of CMS Law.
“A greater onus will be given to e-commerce platforms, known as ‘Platform Operators’, to regulate their online sales policies, measures for addressing infringement by their vendors and their dealings with such vendors such as conditions or fees, in order to ultimately protect consumers,” Beckett said.
The first of its kind in China, the new e-commerce law will cover several elements of the commercial platform, according to Deacons, a Hong Kong law firm. In a Deacons newsletter, it was explained the new law, which was passed in August 2018, will cover many facets, including the:
- registration and licensing of e-commerce operators,
- electronic payment,
- e-commerce dispute resolution,
- false advertising,
- consumer protection,
- data protection and cybersecurity, and
- the protection of intellectual property (IP).
The new law will affect multiple areas of e-commerce, according to the Mayer Brown IP & TMT Quarterly Review Third Quarter 2018 report provided by Conor Warde, a partner at Mayer Brown.
Protecting IP rights is emphasised in the new law, especially with ‘Platform Operators’ (such as Taobao) and ‘In Platform Operators’ (such as online retailers on Taobao), according to the Mayer Brown report. However, there are no specific IP provisions regulating Self-Operators, the report pointed out. Essentially, all e-businesses are now required to register as a formal business – except farmers selling their goods online – and pay taxes, according to a newsletter from Australia’s Trade Victoria.
“Following years of increasing growth in the e-commerce sector, the legislative authority had realised that due to the lack of a comprehensive law focused on e-commerce, separate authorities had tended to only protect their own interests,” Beckett explained.
“Outdated and existing regulations had not been able to deal with e-commerce-related risks effectively, requiring the establishment of new legislation as technology development continues to thrive. The digital economy has been a strong driver for the Chinese economy, and the Chinese government has been pushing for developments in regulation by including e-commerce operators, which are all private entities instead of state-owned enterprises, under its regulatory regime. Certain e-commerce companies, such as Alibaba, had strongly opposed the implementation of the E-Commerce Law.”
If e-commerce platforms don’t respond to a notification of a violation of IP rights in a timely manner, they face fines of nearly US$300,000, according to China Briefing. Also under the new law, e-commerce platforms and sellers are jointly responsible for selling counterfeit goods.
A more serious penalty can be imposed on ‘Platform Operators’ who fail to respond in a timely manner to reports of the sale of fake goods – this can amount to US$30 million, reported China Briefing.
‘Platform Operators’ will hold a large amount of responsibility, Beckett said. They will be responsible for “developing rules for IP protection and implementing notice-and-takedown procedures to combat IP infringement, combined with an additional ‘should have known’ requirement in comparison to the PRC Tort Law’s ‘actual knowledge’ requirements.
Additionally, ‘Operators on Platforms’, being the businesses and vendors on the ‘Platform Operator’s’ e-commerce platform, shall also be liable for any IP infringements through fines and a potential joint and several liability with the relevant ‘Platform Operator’,” Beckett said.
One of the biggest effects these laws may have on trade is in the daigou market, according to a Jing Daily report. Daigou is the act of “buying on behalf of” and is an extremely popular practice for Mainland Chinese consumers to acquire overseas goods that may either not be available in China or considerably less expensive abroad.
The Jing Daily reported that the daigou market has been promoting the undocumented practice on social media outlets at a steady pace and will now come under increasing scrutiny.
However, in the long term, daigou – who generally have a large and loyal customer base – may end up partnering with e-commerce platforms in a mutually beneficial partnership, Jing Daily explained. As a result, daigou may generate more focused sales content for e-commerce sites and become micro-influencers, the newspaper reported.
However, regulation of China’s e-commerce law may prove difficult, according to Beckett. “The E-commerce Law supplements existing anti-unfair competition, advertising and intellectual property legislation and covers other issues including the protection of consumer rights, allocation of liability between e-commerce operators and the protection of personal information,” Beckett explained.
“No consolidated regulatory authority will handle enforcement of the E-commerce Law as of yet. The E-Commerce Law re-states existing legal principles, meaning that the relevant authorities will continue to oversee enforcement within their respective powers. It, therefore, remains to be seen how this new law will be implemented in practice in conjunction with the current legal framework in China,” he concluded.