New requirements for online retailers will 'change game' for mark owners

China
As of July 1 2010 all e-commerce retailers are required to provide their real names to operate e-commerce businesses.

China’s business-to-consumer (B2C) and consumer-to-consumer (C2C) sales on third-party e-commerce platforms, such as 'taobao.com', 'alibaba.com' and 'paipai.com', are thriving. In 2009 Chinese online sales exceeded Rmb250 billion (approximately $37 billion), with estimates suggesting that online sales will reach Rmb500 billion (approximately $74 billion) in 2010.

Until recently, China’s online vendors were able to operate unchecked due to a loosely regulated e-marketplace. With the growing volume of online transactions, more and more Chinese 'netizens' are complaining to the SAIC and its local offices (LAICs) about the lack of after-sale guarantees and poor services from online vendors. These complaints are taken seriously by the Chinese government, which sees the growth of China’s online market as an essential part of the country's economic development.

In order to protect and promote the growth of China’s online marketplace, the SAIC issued the Interim Regulations on the Management of the Internet Merchandise Transactions and Related Services. The interim regulations require that, beginning July 1 2010, all online retailers, including B2C and C2C retailers, run by a natural person register the person’s real name, real address and identification information with the third-party platform. This requirement is intended to better protect the buyer’s legal rights and to make online transactions more secure.

To ensure that B2C and C2C retailers comply with the interim regulations, third-party platforms will be responsible for:
  • investigating and conducting periodic review of the identity of B2C and C2C service providers;
  • maintaining a transaction history of those providers; 
  • reporting operating irregularities to the LAICs; and
  • assisting the SAIC in its investigations of B2C and C2C operators.
Failure by the platforms to fulfil their obligations under the interim regulations may result in:
  • warnings;
  • fines; or
  • the blocking or closing of the platform.
The registration requirements imposed on third-party platforms may prove to be a game changer for trademark owners dealing with infringement and counterfeiting on Chinese B2C and C2C sites. B2C and C2C service platforms are frequently used by infringers and counterfeiters due to the popularity of these platforms with online consumers. For 2009, transactions on B2C and C2C service platforms accounted for over 80% of China’s online annual sales.

Prior to the interim regulations, online counterfeiters and infringers would typically use a fake name to register an online store on a third-party platform, so that they could sell infringing goods without being identified. At the same time, third-party platforms were under no obligation to verify the identity of the person using their services.

Without an obligation being imposed on third-party platforms to confirm the identity of their users, trademark owners often had difficulty enforcing their rights against those counterfeiters and infringers operating anonymously behind B2C and C2C services – even if a platform was to shut down an online store offering counterfeit or infringing goods, the same counterfeiter or infringer could resume its activities by opening a new virtual store under a different user name.

By imposing greater transparency on China’s online marketplace, the interim regulations may thus bring an end to this practice, as third-party platforms are now obligated to do more than performing a cursory review of the identities behind B2C and C2C services. The interim regulations should provide trademark owners with a reliable means of identifying trademark infringers and counterfeiters on B2C and C2C sites.

However, trademark owners may not be able to rely on these registration requirements until a number of issues are resolved - namely:
  • the mechanisms to be adopted for recording and verifying the identity of B2C and C2C operators by third-party platforms;
  • how stringent the checks will have to be to verify the identity of B2C and C2C operators; and
  • how long it will take to record the real names of all current B2C and C2C vendors (estimated to be over 3 million for 2010).
However, in time, a reliable database should be available for trademark owners looking to identify and enforce their rights against B2C and C2C service providers engaged in trademark infringement and counterfeiting.

Although much still needs to be done for the successful implementation of the interim regulations, they are likely to succeed because all parties involved accept that a more transparent online marketplace is to their benefit. The government can now better protect the growth and development of China’s online marketplace, while reputable B2C and C2C vendors can obtain more certainty and reliability at a minimum cost to them, by simply providing their real name and supporting information. Finally, although third-party platforms will have to assume greater costs and responsibilities, they understand that this is necessary to protect their business model. In the end, if disreputable vendors are using their system to cheat customers, their business model loses credibility.

George Chan, Rouse, Beijing

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