E-commerce market in China is one of the fastest growing in the world. The boom in Chinese e-commerce has been dramatic and exponential. During Chinese annual "Singles Day" shopping frenzy in 2018, the world's biggest 24-hour shopping event, Chinese e-commerce giant Alibaba hit a record USD 30.7 billion in orders.
To improve regulation over the flourishing market and maintain the market order, China promulgated E-Commerce Law which will take effect on 1 January 2019. The E-Commerce Law deals with a range of areas, such as intellectual property protections, personal data protection, advertising, competition and consumer rights. In this article we highlight IP protections in the new 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. It is also worth noting that the E-Commerce Law will not be applicable to certain e-commerce activities including provision of financial products and services, news publications, audio and video programs, general publications, and cultural products. The law specifically regulates three categories of e-commerce operators: i) platform operators (e.g., the e-commerce platforms such as Taobao or JD.com); ii) operators on platform (e.g., online shops on those platforms), and iii) other operators (e.g., traders who use public accounts on apps).
In principle, the law requires all e-commerce operators to fulfill their obligations to protect intellectual property rights, consumers' rights and interests as well as personal information, cyberspace security and the environment. In accordance with article 41, platform operators are required to establish rules to protect IP rights on their platforms as well as to strengthen cooperation with IP rights owners.
Articles 42-45 of the E-commerce Law formulates detailed rules in connection with a notice-and-take-down procedure as follows:
i) if an IP right holder believes that an operator on platform has infringed its IP rights, the IP right holder can inform the relevant platform operator of the infringement together with the prima facie evidence, and request the platform operator to take necessary steps including removing the postings or blocking links to allegedly infringing products.
ii) the platform operator shall forward the notice of the IP right holder to the operator on platform. Upon receiving the notice, the operator on platform may present a statement of non- infringement to the platform operator along with prima facie evidence.
iii) the platform operator shall pass the statement to the IP rights holder and request the IP rights holder to complain to relevant competent authorities or bring its case to a court.
iv) if the platform operator does not receive a notice of a complaint or a lawsuit within 15 days, the platform operator should terminate measures it has taken.
The E-commerce Law imposes liability for IP infringements against platform operators. If the platform operator does not take the necessary measures upon receiving the notice from the IP right holder, it will be jointly and severally liable for the additional damages caused by the IP infringement. If the platform operator knows or should have known the infringement but fails to take the necessary measures, it will be jointly and severally liable for the entire damages. As the Law remains silence on what constitutes “should have known” of an infringement, this obligation can be broadly interpreted. On the other hand, to prevent the IP right holder from abusing its rights, the E-commerce Law stipulates that 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 maliciously presents a notice, the liability will be doubled.
To further strengthen the liabilities of platform operator, administrative penalty is imposed against platform operators. In accordance with article 84 of the E-commerce Law, if platform operators fail to take necessary measures against operators who have infringed the IP rights, administrative authorities in charge have powers to issue a correction order. If a platform operator fails to make corrections in accordance with the order, it may be fined between RMB 50,000 and RMB 500,000. In serious infringement cases, the fines can be more than RMB 500,000, up to a maximum of RMB 2 million.
Finally, it should be drawn to attention that the E-commerce Law typically requires web shops on e-commerce platforms to obtain a business license, file tax return and pay taxes. Although this provision triggers controversies by driving many smaller players out of business, new obligation has positive influence on e-commerce business in China. It has been widely reported that counterfeiting by small players has particularly been prevalent on platforms for long time as it was extremely hard for an IP right holder or the administrative authority in charge to locate the real identification and address of an IP infringer. This new obligation would leave no room for small players who sell counterfeit products to dodge enforcement actions by simply closing their online virtual shop without paying any compensation and set up a new e-shop later on. This provision will inevitably prevent flooding of counterfeiters and fraud in online marketplaces and create healthy environment for e-commerce development in China.
Although it remains to be seen how the E-commerce Law will be enforced, the E-Commerce Law reflects China’s pledge to protect IP rights in the e-commerce market. It is anticipated that platform operators will be revisiting their internal policies to step up their efforts to fight against IP infringements on their platforms, which may ultimately eliminate counterfeit goods in online marketplaces.