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New China e-commerce law from Intellectual Property perspective
China is by far the world's largest e-commerce market in the world. In 2017 it saw its online retail sales grow 32 % to reach 7.18 trillion Yuan (Aprox. 90,300 Billion USD).
The impact of the E-commerce market on social life and the current economy cannot be denied. Its own nature makes it to be constantly in change and it seems that the agents taking part in this market are always ready to go one step forward.
For those reasons among others, it seems to be necessary to provide a legal framework to tackle most of the ongoing and upcoming issues within the scope of e-commerce.
Thus, on 31 August 2018, the Standing Committee of the National People’s Congress of the PRC published the long-awaited PRC E-Commerce Law (“E-commerce Law”). The law will enter into force on January 1st, 2019.
The E-commerce Law is set to "protect legal rights and interests of all parties" and"maintain the market order", declared Yin Zhongqing, one of the lawmakers of this new law. Its scope of application covers those operating activities of selling goods or providing services through the internet or other information networks. Therefore, it affects not only famous platforms such as JD.com or Alibaba's Taobao but also those selling products or providing services via social networks such as WeChat.
More specifically, it requires all e-commerce operators to fulfill their obligations to protect consumers' rights and interests as well as personal information, intellectual property rights (IPR), cyberspace security and the environment.
Now, it is on these provisions regarding Intellectual Property (IP) affairs on the e-commerce platforms that we are going to focus our analysis of the E-commerce Law in this article.
IP provisions within the E-commerce Law are mainly included in Section 2 of the Law, which refers to E-commerce Platform Operators’ and their main obligations.
The protection of IP rights within the e-commerce market is tackled by this law essentially regulating two main points:
1.Defining a clear procedure to deal with IP rights infringement on e-commerce platforms;
2.Forcing the E-commerce Platforms Operator to carry out certain obligations (“take necessary measures”) to prevent IP rights infringements occur on their platforms.
Defining a clear procedure to deal with IP rights infringement on e-commerce platforms
Art. 42 of the E-commerce Law states that “if an IP right holder believes that an Operator on an E-commerce Platform has infringed its IP rights, the IP right holder can notify 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. Such notice should contain the prima facie evidence of said infringement”.
And continues… “the e-commerce platform operator, upon receiving such notice, shall take necessary measures in a timely manner and transmit the notice to operators on the platform; and failing to do so, it shall be jointly and severally liable for additional damages along with operators on the platform”.
Furthermore, article 43 develops the rest of proceeding stipulating that “an operator on the platform, upon receiving the transmitted notice, may submit a declaration of non-infringement to the e-commerce platform operator. Such declaration shall contain the prima facie evidence of non-infringement”.
The article finalizes saying “the e-commerce platform operator, upon receiving such declaration, shall transmit the declaration to the IP right holder and direct it to complain to competent authorities or take its case to the people’s court. The e-commerce platform operator shall timely terminate the measures taken if it has not received the notice that the right holder has made a complaint or brought a lawsuit within 15 days after the declaration is transmitted and delivered to the right holder”.
Obviously lacking of any jurisprudence or judgments on the matter at this point a strict interpretation of the letter of these articles may lead to understand that the E-commerce Platform Operator obligation in this proceeding is limited or reduced to merely transmit the information between the parties in the complaint (notice of infringement by the IP right holder and the declaration of non-infringement by the operator).
Moreover, it seems that considering that the E-commerce Platform Operator will not be entitled or obliged to analyze or examine the evidences provided by those parties but just transmit them.
The potential infringer operator might easily prevent his online store to suffer any effective measure against the infringement (at least temporarily) by providing the e-commerce platform operator with this declaration of non-infringement.
No doubt, whether the role of the E-commerce Platform Operators will be the mere transferor of information in the claim or they will take an active approach to evaluate the information provided by the parties and take measures on that basis, is yet to be determined. Usual practice and Jurisprudence will bring light to this dichotomy once the E-commerce Law comes into force.
We shall highlight that according to article 43 once the E-commerce Platform Operator notifies the IP right holder the declaration of non-infringement submitted by the potential infringer, the first one will have 15 days to file an official administrative complaint or lawsuit reporting the potential infringement to the competent authorities.
In the event he does not file such official complaint the E-commerce Platform Operator will be entitled to close the infringement procedure raised against the potential infringer in the platform according to this new Law.
As a result of what explained, from a practical perspective, this new legislation seems to be putting the IP right holders in a situation where they will have to face a significant economic investment any time they want to act against potential infringers of their rights in the E-commerce Platforms without, apparently, having the chance to effectively settle their claims before the IP E-commerce Platform Operators. To the contrary, they will have to necessarily take their complaints before the competent administrative or judicial authorities at all times.
Therefore, it is undeniable this new regulation has implemented a clear procedure to deal with IP infringements in the E-commerce Platforms. However, it seems such procedure does not offer or include more efficient tools to prevent counterfeit goods being sold in these platforms or stop those acts of infringement from happening.
In addition, it is important to note for its novelty and potential consequences that the Law also stipulates certain limitations for the IP rights holders by imposing legal consequences in case the complaints filed before the E-commerce Platforms Operators lack of legal basis. Thus, article 42 states that “the IP right holder shall be held liable if it causes any damage to the Operator on Platform by its wrongful notice”. Moreover, if the IP right holder submits a notice with malice, the liability will be doubled.
Forcing the E-commerce Platforms Operator to carry out certain obligations (“take necessary measures”) to prevent IP rights infringements occur on their platforms
Contrary to what explained above about the ineffectiveness of the new procedure to prevent infringements in the online environment happening, there seems to be further regulation which states the liability the E-commerce Platform Operators they may incur in case they do not act against infringement of Intellectual Property on their platforms.
In particular, art. 44 stipulates that “were an e/commerce platform operator know or should have known that any operator on the platform infringes upon intellectual property, it shall take necessary measures, for example, to delete, screen, disconnect or end transactions and services, and failing to do so, it shall be jointly and severally liable along with the infringer”.
However, the vagueness of the wording of this article makes hard its current analysis lacking of any jurisprudence or practice application at the moment. The article states as a premise for the E-commerce Platform Operators to be held liable that they “knew or should have known” about the infringement.
The formula “knew or should have known”, oftently used in different legislations, requires of precise interpretation based on specific premises in order to define its scope of application and determine whether the E-commerce Platform Operator knew or should have known about the infringement and consider its liability.
It is likely that further regulations developing this new E-commerce law together with administrative and judicial decisions will bring light and certainty to precise the how and when the liability of the E-commerce Platform Operators in these cases may be claimed.
It is also relevant to point out that the E-commerce Law regulates in his article 82 the specific consequences for the E-commerce Platform Operators in case they do not perform their obligations provided by articles 41-44 analyzed above and fail to take the necessary measures against the IP infringements on their platforms. Thus, fines amounting from 50,000 to 2,000,000 RMB may be imposed to them depending on the circumstances of the infringement and the damages caused.
Foreign Legal Counsel
HFG Law&Intellectual Property
