On 27 December 2016, the Chinese government published the draft of its first E-Commerce Law (Chin. 中华人民共和国电子商务法). The law will cover all major aspects of e-commerce, including delivery and payment methods. The law also intends to strengthen IP rights and to more effectively punish infringements and retailers of fake products.
Below are the most important points of the draft:
According to Art. 12 of the law, all businesses engaging in e-commerce in China, be it in form of a 3rd Party Platform or individually via their own website, have to obtain a business license prior to selling their goods or services.
Exceptions are service providers, offering their own individual technical skills, family businesses selling handicrafts, as well as small household farms, who sell their home-grown agricultural products.
Furthermore, if the products sold online require a special administrative approval or license, this license also needs to be obtained (Art. 13).
The new law also emphasizes the responsibility of 3rd party platform provider for IP violations by their hosts. As Art. 53 stipulates:
If the e-commerce operator infringes upon the intellectual property rights within the platform, it shall take the necessary measures such as deleting, shielding, breaking the link, terminating the transaction and service according to law.
Moreover, Art. 54 states that if an e-commerce platform receives a notice about an IP violation by one of its shop owners, “it shall promptly transmit the notice to the operators within the platform and take the necessary measures according to law”.
Art. 88 then declares that, if the platform ignores the notice and does not stop the counterfeited good from being sold and if the violation is considered to be “serious”, the ICP license shall be revoked and a fine of at least 100 000 RMB but not more than 500 000 RMB shall be imposed.
Although this seems to put the responsibility clearly with the platform operator, there are justified doubts with regard to the execution of the law. First, it leaves a lot of room for interpretation about what constitutes a “serious” violation, and, second, the law does not clearly specify which administrative level will be in charge. In the past, local governments have often been reluctant to punish counterfeit producers, thus casting doubt on the effectiveness of these rules as formulated in the current draft.
The law might also mean that foreign businesses have to be even more aware of their own brand’s trademark and IP protection in China. According to Art. 53, the claimant should make sure that the trademark is really protected in China (see our article on trademark protection in China ), because the law also says that, if the claim is not warranted according to Chinese law(!), the claimant will be liable for all damages incurred to the accused business. Therefore, foreign companies, which spot copied versions of their own products should make sure that they have registered their patents and trademark in China. Otherwise, their claim will be rejected and they might even have to recompense the Chinese company for their losses.
The law also clarifies the obligations for e-commerce operators and platforms with regard to consumer data protection. Operators and platforms have to publish the rules for data use and have to ask for the user’s consent for these regulations before collecting or storing these data. This also holds for amendments to the operator’s data policy (Art 46).
Art. 45 clearly states the customer retains the right to his or her personal information. This includes name, ID, address, contact information, such as e-mail or phone number, buying history, financial data, as well as other information which can provide clues on the customer|s identity or whereabouts.
Businesses have to establish an internal control mechanism to protect their customer’s data in order to avoid leakages or data theft (Art. 49) and are obliged to anonymize information when sharing with other service providers (Art. 50).
The law also reiterates the Chinese government’s support for cross-border e-commerce. As Art. 68 states:
“The State promotes the development of cross-border e-commerce, supports the legal operations of small-and-medium-sized enterprises engaged in cross-border e-commerce, cross-border e-commerce comprehensive service providers and enterprises engaged in relevant services.”
The draft also aims at a further electronisation of cross-border e-commerce and allows for the use of electronic documents during the procedures at the State Import and Export Administration (Art. 70).
What E-Commerce Businesses can do now?
ECOVIS Beijing will closely follow the legislative process and keep you updated on further changes and the implementation process.
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