China’s e-commerce law amendments can shut Alibaba, Taobao, Tmall, JD, etc if they flout IP rules

10 September 2021

China’s e-commerce law amendments can shut Alibaba, Taobao, Tmall, JD, etc if they flout IP rules

China has recently proposed amendments to its e-commerce law allowing trading licenses to be revoked should online platforms fail to take measures against vendors who infringe IPRs.

According to the State Administration of Market Regulation, the amendments are open for public review until October 14, 2021.

“The draft mainly proposes four amendments: Firstly, the waiting period after the anti-notification is extended from originally 15 to 20 days, which is beneficial to the right holders and provides sufficient time for them to assert their rights. Secondly, the vendors suspected of infringement are allowed to provide security to suspend the measures taken against them by the platforms, so that they can resume normal operations within a certain period of time. Thirdly, if the vendors' declarations of non-violation are false and cause the right holders' losses to increase, they'll be doubly liable for compensation. Fourthly, the accountability for e-commerce platforms has been strengthened. If the operators of the platforms fail to take necessary measures to stop the infringement committed by the vendors, and the circumstances are particularly serious, the relevant departments may restrict them from carrying out relevant network business activities. The ultimate sanction will be revoking licenses related to certain network operation,” says Xiangjing Luo, a partner at Jadong IP Law Firm in Beijing. “The changes are small in scope and mainly focus on provisions related to IP protection. Generally speaking, the proposed amendments are welcomed by the public. Firstly, the infringement, piracy and unfair competition in e-commerce activities not only infringes upon the interests of the obligee, but also has a great negative impact on the interests of consumers. To strengthen the protection of IP is good for both right holders and consumers. Secondly, in recent years, China has continuously strengthened its IP protection efforts, and the degree of social consensus on IP protection has also been deepening. The public has understood and gradually accepted the trend of strengthening IP protection by the state. Thirdly, this proposed amendments, on the overall trend of strengthening the protection of IP, also pays attention to taking into account the actual operating conditions of the vendors in the platforms, and has implanted with a security system, so that before being confirmed as infringing by judicial or administrative procedures, the vendors may continue to operate conditionally. Thus certain balance between the obligees and the vendors has achieved.”

“As to the e-commerce platforms, the current e-commerce law has clearly stipulated the obligations of them on the protection of IP. For example, the platforms should formulate the rules for the protection of IP. Upon receipt of the notices from the obligees, the platforms shall promptly take necessary measures to delete, block, disconnect, or terminate the transactions and services, and shall promptly transmit the notices to the vendors within the platforms. If the platforms know or should know that certain vendors within the platforms have infringed IPRs and fail to take necessary measures, they shall be jointly liable with the infringers. If the platforms violate the above-mentioned obligations, the relevant IP administrative departments may impose administrative penalties. The above legal provisions have been applied in the judicial practice, and played a considerable restrictive role on the platforms,” Luo says. “On this basis, the amendment-draft has added new legal responsibilities to the platforms, that is to say, if the operator of an e-commerce platform fails to take necessary measures according to law against the vendor who commits an act of infringement of intellectual property rights, and the circumstances are especially serious, the relevant authorities may restrict the operator from carrying out relevant network business activities until the relevant license for network business is revoked. The provisions of this article are indeed very severe! The proposal of this provision should be related to the repeated prohibition of certain types of copyright infringement and piracy on certain platforms. The right holders suspect that certain platforms are indulging and shielding the infringers, and have long wanted to toughen penalties. But e-commerce platforms certainly don’t want to see this proposed provision become a reality. We hence believe that they will definitely express their opinions and lobby through various channels before the amendment is finalized.”

“As far as the specific provision is concerned, the conditions of its application aren’t clear enough and are prone to disputes. For example, what does circumstances are especially serious mean? Which department does relevant department refer to? Is it the network security supervision department or the market regulation department? Is the restriction permanent or phased? As for revoking the network operation related license, it might be a devastating punishment, and the applicable circumstances need to be clearly defined. It is therefore anticipated that there may be some revision to this provision after consultation,” she says. “In any case, this amendment-draft has sounded another alarm to the platforms and infringers - the sword of Damocles may fall at any time.”

Over the past year or so, the country has been tightening regulatory control over domestic internet giants by drafting new laws in the areas of anti-monopoly and data security.

When asked if even more restrictions are following or the approach of laissez faire should be considered, Fabio Giacopello, a partner at HFG - Law & Intellectual Property in Shanghai, says the latter is out of discussion! “Technology and related laws as well as regulations are blossoming at an increasing speed in recent years. This legislative effort therefore intends not only to control the tech giants but to regulate the business environment that is changing rapidly and is becoming more important for persons and companies. At the current stage the general framework has basically come to a completion, I’d expect to have additional secondary regulations coming in a more detailed and practical way, rather than significant structural adjustment.”

While the license revocations are new, the proposed amendment retains an existing maximum penalty of a ¥2 million (US$310,000) fine for platforms committing less serious infringement.

“The proposed formulation of article 84 in the e-commerce law adds a new ‘third’ and higher level of legal consequences in case an e-commerce platform fails to take measures against a vendor that infringes upon IPRs. If the e-commerce platform fails to take measures against vendors that infringe IPRs, the consequences could be corrections and fines of ¥50,000 - ¥500,000 (US$7,700 - US$77,000). If the case is serious, the fine could be ¥500,000 - ¥2 million and if the case is extremely serious, the platform’s operation license could be revoked. At the current stage it is difficult to say what is less serious, serious and extremely serious. We expect additional secondary regulations fixing the detailed criterions probably with monetary thresholds. Also, a certain discretionary power will be left in the hands of authorities that will calibrate the fine after taking all factors into consideration. Currently in judicial practice, the e-commerce platforms are seldomly found liable and the penalties imposed so far are never as high as ¥2 million. Probably creating such higher third level of legal consequence will push authorities to reach the maximum fine from time to time,” says Giacopello.


Johnny Chan

Law firms

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