China adopts new e-commerce law; expert highlights “concerns” for rights holders

On Friday, after a fourth reading by the Standing Committee of the National People's Congress (NPC), China’s long-awaited e-commerce law was adopted. However, while the official text has not yet been released, one local expert notes that the provisions related to the liability of e-commerce platform operators in respect to IP infringement may have been “somewhat watered down”.

The new law – which has been almost two years in the making -- will come into force on 1 January 2019. Xinhua reports that the law requires e-commerce operators, including Alibaba and Pinduoduo, to “fulfill their obligations to protect consumers' rights and interests as well as personal information and intellectual property rights”. The law will apply to e-commerce platform operators, platform merchants and those doing business on their own websites or via other web services (including social media and messaging services). In terms of competition, online platform operators face fines of between 500,000 yuan ($73,260) and 2 million yuan ($292,731) if they “fail to fulfill their duties to protect consumers”, with Xinhua noting,a penalty of the same range may also be applied to platform operators if they fail to take necessary steps against IPR infringement by merchants on their platforms that they are aware of or should be aware of”.

In March last year, writing in World Trademark Review, David Saussinan, legal and public affairs manager at Union des Fabricants, the French association against counterfeiting, argued that the new e-commerce law should be taken as an opportunity to require that “intermediaries – particularly trade platforms – take on greater responsibility in order to ensure adequate IP protection”, stating: “Under the current regime, online intermediaries adopt proactive measures to address IP violations only if they believe this to be in their own business interests. In practice, even where intermediaries do introduce proactive measures, these tend to be insufficient or ineffective… rebalancing responsibilities for intermediaries is necessary in order to protect consumers and companies – especially small and medium-sized businesses – and to promote healthy competition among stakeholders”.

However, Eugene Low, partner at Hogan Lovells, told World Trademark Review: “As yet, we have not been able to find an official version of the enacted law consolidating the four rounds of discussion in the legislative process. However, according to reports, the final version of the law has somewhat watered down the liability of e-commerce platform operators in respect of infringement of customer rights by e-commerce merchants on their platforms. Instead of being jointly liable with merchants, this new law provides that e-commerce platform operators would only bear a ‘supplemental’ liability on top of the merchants' primary liability.”

Low continued: “This causes potential concerns because this somewhat suggests that an aggrieved party may have to first establish liability and claim against the merchant first, and only if the merchant cannot satisfy the full claim then the aggrieved party can claim or have remedies against the e-commerce operator.”

While, for IP owners, “we await to see the exact wording of the passed law to see whether this scope of infringement of customer rights also applies to IP infringement”, he concludes that this is a development that rights holders need to monitor. Not only because it could have a significant impact on enforcement efforts, but because they too will need to ensure they stay on the right side of the rules: “The e-commerce law has a very wide scope, covering/codifying regulations on many aspects of e-commerce, eg, personal data protection, advertising (including online behavioural advertising), electronic payment, electronic dispute resolution, etc. IP owners should definitely pay attention to this new law to ensure they are compliant.”

Full analysis of the new e-commerce law and its implications for rights holders will be presented on in the coming weeks, and appear in the next issue of the hard copy magazine.

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