On 1 January 2019, China enacted the PRC E-Commerce Law which is of interest to foreign brand owners who maintain an online storefront in China. This is the first comprehensive piece of legislation governing e-commerce within China, and brings significant changes. This legislation has a broad scope and encompasses multiple facets of e-commerce, such as the registration and licensing of e-commerce operators, electronic payments, e-commerce dispute resolution, and the taxation of e-commerce enterprises. This legislation also addresses other important aspects of e-commerce including consumer protection, data protection and cybersecurity, as well as the protection of intellectual property (IP).
Below are the most important IP features of the new law.
1. Joint and several liability for platform operators
In a boon for IP owners, the new law specifically provides that an e-commerce platform operator will have joint and several liability along with the vendors, where a platform should know, that a vendor has violated intellectual property rights and fails to take the necessary action in removing the infringing goods from the platform. This will not only make it ever more important for platform operators to take down counterfeits; but it also means that IP owners could try to seek damages from the platform operators.
2. Notice and take-down
The new law provides a framework for “notice and take-down” procedures, whereby an IP holder can notify the platform of an alleged infringement, which then is obligated to prevent the trade of the infringed good pending investigation. The law refers to acting “promptly” to take the necessary measures after receipt of a take-down notice. Unfortunately, promptly is not defined, and platforms will likely create their own rules and standards for processing the notices.
3. Counter-notices and reinstatement
There is also a provision for counter-notices which may be of concern to international brand owners. on-platform businesses who are accused of infringing another’s IP rights may respond with a counter-notice that no violations exist. Those counter-notices must include “preliminary evidence” showing that no violation has occurred. After e-commerce platform operators receive the declaration, they shall forward the statement to the IP owner. The IP owner then has 15 days to file a claim with the competent court or the relevant regulatory department; if no claim is filed, then the e-commerce platform operator must suspend the IP protection measures they had employed. This seems to give infringers a loophole – especially considering that that the term “preliminary evidence” is not defined, and that many brand owners would prefer to avoid the cost of filing a civil or administrative claim.
4. Fines for the platform
When an e-commerce platform operator fails to take necessary measures in respect of IP infringements upon being notified by an IP owner, the State Administration for Market Supervision may order it to rectify the situation within a set time. The legislation provides that failure to rectify by the deadline could expose the platform to a fine of RMB 50,000 to RMB 500,000. In serious cases, a fine of RMB 500,000 to RMB 2,000,000 may be levied.
5. Erroneous and malicious notifications
The new law provides for penalties in the case of erroneous (damages awarded) or malicious notifications (punitive + damages). Yet there is some ambiguity with regards to the relevant articles, as the law does not specify who bears the liability in the instance of an erroneous notification. The concern is that when an international brand files a complaint it could be held liable if the claim is later proven erroneous. This increases the importance of evaluating the merit of the claim in advance and seeking legal assistance to avoid potential liabilities.
6. Constructive knowledge
The new law imposes liability where the e-commerce provider knew, or should have known, that relevant goods and services infringe the rights and interests of consumers or the intellectual property of others. This is similar to the “mere conduit” and “hosting” clauses in the EU Electronic Commerce Directive where an online service provider should only be liable if they are aware of the facts and circumstances of the infringing activity.
7. Retention of transactional information
E-commerce platforms are now obligated to keep records of product and service information including transaction records for no less than three years. Any failure to keep such records will result in significant fines and suspension of operations.
These records could be vital in IP cases; but practice will tell whether the courts or administrative enforcement authorities will order disclosure of such transactional information for the purpose of infringement proceedings.
In any case, the law does provide for e-commerce operators to hand over information to relevant authorities in the context of data protection, cyber security and tax.
The general wording of some of the articles may be designed to give courts flexibility in applying and interpreting the law; and most of the IP provisions in the PRC E-commerce Law are not actually a significant departure from the previous legal framework, but rather a collation of existing laws under a single unified legislation. Nonetheless it is evident that the onus is being placed on the online platforms to do more to protect the interests of IP owners. Major e-commerce companies already have mechanisms in place to identify and handle counterfeits and have been making use of big data technology in an attempt to combat IP infringements already, but this e-commerce legislation may encourage an additional bit of vigour in their efforts.