Legislation & Policy

Draft Amendment to the PRC E-commerce Law

SIPS Knowledge, Legislation and Policy

On August 31, 2021, the State Administration of Market Regulation (“SAMR”) issued draft amendments to the PRC E-commerce Law for public comment.

Set out below is a summary of the changes listed in the SAMR draft together with SIPS’ suggestions for both the law and future implementing rules.

Overall, the changes proposed in the SAMR draft seem intended mainly to render the law in compliance with the January 2020 Economic and Trade Agreement between the United States and the PRC, and they are unlikely to have a significant impact on day-to-day IP enforcement work. As such SAMR and the National People’s Congress (“NPC”) are encouraged to take this opportunity to conduct a broader review of the success of the E-commerce Law in reducing violations and further changes that should be considered to strengthen IP protection and the protection of consumer rights.

A. Proposed Amendments to Articles 43 and 84

SAMR’s consultation draft proposes amendments to only two provisions of the E-commerce Law: Articles 43 and 84. See Attachment 1 for an English translation of these amendments.

1. Article 43 of the E-commerce Law

(a) Liability of Vendors for Submitting False Non-Infringement Statements

Article 43 of the SAMR draft proposes to impose liability on a vendor that knew or should have known that evidence or declarations used to prove that goods are non-infringing is false.

“If the operator on the platform submits a false non-infringement statement, which causes the loss of the right holder to increase, it shall take twice as much liability for compensation.”

While arguably implied in existing law, this provision is laudable and consistent with industry proposals submitted to the NPC in 2017.

(b) Vendor Guarantees to Facilitate Sales following Counter-Notice

Article 43 of the draft also proposes to allow platforms to permit vendors that have been the subject of successful take-down notices to continue selling goods subject to their filing a counter-notice and providing a guarantee (presumably a cash bond and/or freezing of sales proceeds in the vendor’s account managed by the platform).

“[If] the operator on the platform provides a guarantee to ensure compensation for losses caused by potential intellectual property infringements, the e-commerce platform operator can temporarily suspend the measures that have been taken.”

It is recommended that this language be deleted from the draft due to the risk of abuse by vendors of infringing items and the related risk that it will lead platforms to relax their efforts to conduct a reasonable review of the merits of a particular dispute.

While there may well be circumstances under which vendors should be permitted to continue selling subject to payment of a bond or other form of guarantee, it is preferable that pilot programs be conducted first to ensure that the concept is sound and not abused.

(c) Working Days to File Complaint

With regard to Article 43, the draft proposes to extend the period during which an IP owner should file a civil or administrative complaint following a successful counter-notice from the current 15 days to 20 working days.

“If the e-commerce platform operator, after the forwarded statement reaches the intellectual property right holder, does not receive a notice of complaint or lawsuit within 20 working days, it shall promptly terminate the measures that have been taken.”

While 20 working days may be adequate for domestic litigants, foreign IP owners will normally need more time than this to obtain the legalized POA and other paperwork required to file a civil complaint. Indeed, in the COVID era, it has sometimes taken as long as six months for foreign companies to secure legalized documents.

While the extension of the deadline to 20 working days is laudable, further consideration needs to be given to allowing foreign litigants to meet this requirement without presenting legalized documentation.

2. Article 84 of the E-commerce Law

The proposed amendment to Article 84 clarifies the power of government authorities to suspend or cancel the business operations or business license of an online platform based upon its failure to effectively address serious IP violations.

“If the circumstances are particularly serious, the relevant department may restrict it from carrying out relevant online business activities, up until the relevant license for online business is revoked.”

While arguably local government authorities already have these powers, it is clearly preferable that they be expressly mentioned in the E-commerce Law, as it may help in encouraging platforms to address wider-scale infringements – including particularly counterfeiting – in a more proactive manner.

Online platforms – including those with enormous resources for enforcement – have typically been resistant to taking proactive measures to prevent and stop infringements by claiming lack of resources and the fact that the law limits their obligations largely to notice-and-take-down.  The proposed revision of Article 84 should send a clear message that such arguments will be ignored by government authorities if violations are taking place on a large scale.

That said, to ensure the effective implementation of Article 84, consideration will need to be given to ensuring that government authorities are incentivized to closely monitor the status of infringements on particular platforms and encouraged – and indeed required – to intervene in an appropriate manner.  As such, it is recommended that the E-commerce Law and/or implementing rules thereto ensure that adequate channels are created to ensure that information on the status of infringements flows quickly to relevant authorities. This can be achieved in part by requiring authorities to conduct their own regular audits of platforms, but also by establishing new procedures for IP owners, consumer associations, individual consumers and other relevant government authorities to provide information on a structured basis, e.g., through an annual or biannual review process.

B. Further Comments on the Provisions of the E-commerce Law

The following section offers suggestions for further amendments to the E-Commerce Law and future implementing rules beyond the provisions covered in the SAMR consultation draft. These suggestions focus specifically on the following issues:

  • Platform duty of care;
  • Anonymity;
  • The role of administrative enforcement authorities;
  • The need to avoid unnecessary burdens on IP owners;
  • Standards for handling complex cases, including potentially through ADR; and
  • The applicability of the E-Commerce Law to social media platforms.

1. Duty of Care

In China and indeed worldwide, the “safe harbor” for platforms of “notice-and-take-down” is increasingly understood to be insufficient to meet the objective needs of society, and unnecessary in light of the enormous success achieved in the development of the e-commerce industry. It is therefore recommended that relevant provisions of the E-commerce Law, starting with Article 45, be amended to both strengthen and clarify the duty of care of platforms in a manner that will provide concrete and substantial results.

Article 45 of the E-commerce Law sets out a helpful foundation for determining the duty of care of platforms to deal with IP violations:

“Where an e-commerce platform business knows or should have known that an in-platform business infringes upon any intellectual property right, it shall take necessary measures such as deletion, blocking or disconnection of links and termination of transactions and services, or, failing that, it shall be jointly and severally liable with the infringer.

It is suggested instead that this provision be revised as follows, in particular to expand the scope of platform obligations to reflect other legal requirements and to promote a more collaborative and results-oriented approach to IP protection work:

Where an e-commerce platform business knows, has reason to know or suspects that an in-platform business infringes upon any intellectual property right, it shall take reasonable measures, including those necessary to delete, block or disconnect links and terminate transactions services, or take reasonable proactive measures, including but not limited to the following:

    1. increase monitoring, supervision and due diligence against in-platform businesses;
    2. require in-platform businesses to provide sufficient evidence when submitting non-infringement statements showing that their products are not infringing upon the relevant IP owner’s rights;
    3. introduce appropriate filters to block the use of relevant keywords, images, etc., including as needed to address specific circumstances of particular IP rightsholders;
    4. provide information reasonably requested by the relevant authorities and/or intellectual property owners to facilitate investigations into the alleged infringement; and
    5. take other measures or provide other assistance as reasonably required under the circumstances, with particular regard to the history and scale of the in-platform business’ dealings in infringing items.

If the e-commerce platform business fails to take such measures, it shall be jointly and severally liable with the infringer.

The foregoing proposal is consistent with established best practices of major platforms. It is also consistent – and arguably mandated – under fundamental tort principles. In this regard, see the 2016 Guidelines of the Beijing Higher People’s Court on the Adjudication of Network-Related IP Cases (available here), which provides an elegant explanation of the need for a dynamic duty of care that is determined based upon the circumstances of each case (including the history of verified infringement), the “balance of convenience”, and other factors.

The online trading platform sector has benefited greatly from the safe harbor provided by the “notice-and-take-down” standard for IP protection – a standard which was introduced and accepted as a means of encouraging the development of the sector. But as the sector is now clearly mature, such preferential policies no longer appear necessary or justifiable. As such, more consistent application of accepted best practices and enforcement of traditional legal requirements is appropriate.

Judicial interpretations were issued in 2019 by the Zhejiang Higher People’s Court (see here) (the “Zhejiang Guidance”) and in 2020 by the Supreme People’s Court (see here) (the “SPC Opinion”) that contain several provisions clearly intended to boost the duty of platforms to act against infringements. The most notable of these is Article 21 of the Zhejiang Guidance, which defines “knowledge” of infringements by platforms by reference to the following:

People’s Courts should not conclude that an e-commerce platform operator did not know about infringing activities solely based on the rightsholders’ failure to send notices or inadequate notices; rather, the receipt of notices from administrative departments, receipt of consumer complaints, and so forth, can also qualify as evidence that they knew of infringing activities;

Article 23 of the Zhejiang Guidance also clearly suggests circumstances under which proactive measures are required vis-à-vis keyword filtering and management of the names of “flagship stores”.

[I]f the following conditions are met, the People’s Court may rule that the e-commerce platform operator has not fulfilled its reasonable duty of care:

    1. Failure to request submission of a trademark registration certificate or related authorizations when a seller applies to enter the platform as a branded “flagship store”, “specialty store” operator, among others;
    2. Failure to adopt effective technical measures for infringement monitoring that had been widely available by the time an infringement occurred, such as failure to directly filter out links with wordings such as “counterfeits”, “high-quality imitations”, among others, and failure to prevent the re-listing of infringing pages after a complaint has been successfully established, among others.

See similar language in Article 11 of the SPC Opinion.

2. Anonymity

(a) Enterprise Registration

As explained in the above-mentioned QBPC report, e-commerce vendors often operate with anonymity or through shell companies that are intended to mask their identity. Counterfeiting networks operating online thrive on this anonymity. The existing E-commerce Law (Articles 27 and 28) merely requires platforms to remind vendors to register and seems to place the burden of enforcement on local MSBs, which generally lack the resources to do so.

It is (again) recommended that all vendors be required to register their enterprises with the MSBs and the local tax bureau, and that platforms reject (and eject) vendors who have failed to do so. To these ends, the following underlined changes are recommended to the E-commerce Law:

Article 27:

An e-commerce platform business shall not permit a business operator to establish an account to sell commodities or provide services in its platform unless it has submitted authentic information, including its identity, address, contact information, and administrative licensing, provided verification of its registration as a legal person, provided the platform with a copy of its business license, and established a register. An e-commerce platform business shall also require business users to make regular and timely updates and verification to said information and shall remove or suspend services to business users who fail to meet these criteria.

When an e-commerce platform business provides services for non-business users selling commodities or providing services in its platform, the e-commerce platform business shall observe the relevant provisions in this Section.   

Article 28:

An e-commerce platform business shall submit the identity information of in-platform businesses to administrative authorities of market regulation as required and cooperate with the administrative authorities of market regulation, remind a business that has not made market participant registration to make registration as legally required, cooperate with the administrative authorities of market regulation, and based on the characteristics of e-commerce, provide businesses required to make market participant registration with registration facilitation.

An e-commerce platform business shall submit the identity information and the information related to tax payment of in-platform businesses to the taxation authorities, in accordance with laws and administrative regulations on tax collection administration, and require e-commerce platform businesses, which are not required to make market participant registration under Article 10 of this Law, to make tax registration under paragraph 2, Article 11 of this Law.

(b) Information Requests by IP Owners to Platforms to Support Investigations

In practice, IP owners seeking information on vendor identity from platforms will typically be refused unless they have successfully taken down ads for offending goods. But IP owners prefer in many cases to refrain from filing take-down notices for fear of tipping off the vendor.

It is therefore recommended that the E-commerce Law clarify that vendor identity data and other relevant information be disclosed to IP owners upon receipt of appropriate evidence of the infringement (such as a notarized purchase and declaration).

Quite often, there are multiple vendors of offending items, and it is difficult or impossible for the IP owner to determine which vendors to prioritize for investigation. As such, it is recommended that the E-commerce Law require platforms to cooperate with all reasonable requests from IP owners, as well as orders from MSBs and judicial authorities, for all information that can assist in investigations into the individuals responsible for violations, including the scale of their activities.

It is suggested that Article 31 of the E-commerce Law be amended as follows:

An e-commerce platform business shall record and retain the information on the commodities and services and transaction information released in the platform and ensure the integrity, confidentiality and availability of the information. The information on commodities, services, and transactions shall be retained for at least three years from the day of completion of the transaction, unless otherwise provided by any law or administrative regulation.

Where an intellectual property right holder submits a request to an e-commerce platform business for the disclosure of information relating to infringing operators on its platform, and such request is reasonable and supported by appropriate evidence of the infringement (such as a notarized or otherwise verified purchase and declaration) or by an order of administrative authorities of market regulation or judicial authority, the e-commerce platform business shall provide the intellectual property right holder with all information, which may reasonably assist in the intellectual property right holder’s investigations into said infringing operators, including the identity of said infringing operator, the scale of their commercial activities and other relevant information.

3. Administrative Enforcement

As noted above, the roles of SAMR and MSBs in online enforcement of IP rights remains relatively undefined.  IP owners look forward to innovations being introduced in the manner in which MSBs assist in online-related cases.

In the meantime, it is recommended that consideration be given to amending the E-commerce Law in a manner that explicitly grants MSBs the power to demand information from platforms regarding vendors of suspected infringing items, including the identity data of vendors, information on related trading accounts, information on prior transactions, bank account details, and other information required to comprehensively investigate violations.

It is likewise recommended that the E-commerce Law explicitly grant IP owners the right to petition MSBs and the People’s Courts to issue orders (subpoenas) to platforms to disclose such information for the purpose of aiding IP owners in their own investigations. This procedure – akin to a subpoena process – may prove crucial where platforms believe such disclosures are not possible due to privacy or other concerns.

It is suggested that Article 43 of the E-commerce Law be amended as follows:

The intellectual property right holder shall have the right to petition to the relevant competent authority and the People’s Court to issue orders to the e-commerce platform operator to disclose all information which may reasonably assist the intellectual property right holder in its own investigation against the infringing vendor.

The relevant competent authority shall have the power to demand information from the e-commerce platform regarding vendors of suspected infringing items, including the identity data of vendors, information on related trading accounts, information on prior transactions, bank account details, and other information required to comprehensively investigate violations.

If the e-commerce platform operator, after the forwarded statement reaches the intellectual property right holder…

Further, to promote the more rapid adoption of new and healthy norms by platforms in the handling of disputes, it is recommended that the E-commerce Law explicitly grant IP owners and consumers the power to petition MSBs to issue binding decisions or recommendations on the legality of IP protection procedures of platforms.

It is suggested that Article 41 of the E-commerce Law be amended as follows:

An e-commerce platform business shall develop rules for protection of intellectual property rights and strengthen cooperation with owners of intellectual property rights, so as to protect intellectual property rights according to the law.

Intellectual property right holders and consumers shall have the power to petition relevant competent authorities to issue binding decisions or recommendations on the legality of the intellectual property protection procedures of the e-commerce platform business.

4. Unnecessary Burdens

Platforms quite often impose unreasonable requirements on IP owners before they are willing to take down ads for infringing goods. This problem has already been recognized and addressed in the Zhejiang Guidance (Article 12) and the SPC Opinion (Article 4).

To ensure platforms comply with these requirements and to provide a stronger legal basis for MSB intervention against unreasonable practices, it is suggested that Article 42 of the E-commerce Law be amended to state as follows:

Where the owner of an intellectual property right considers that his or her intellectual property right has been infringed upon, he/she shall have the right to notify the e-commerce platform business of taking reasonable measures as defined in Article 45 hereof. The notice shall include prima facie evidence that the infringement has been committed. Requirements for notices issued by e-commerce platform operators shall not set unreasonable conditions or obstacles for intellectual property right holders to enforce their rights in accordance with law.

This proposed amendment would be consistent with other provisions in the law that already prohibit behavior that would prejudice the rights of consumers and users, such as Article 21 (no unreasonable restrictions for recovering deposits) and Article 24 (no unreasonable restrictions for the deletion and correction of user information).

It is further recommended that Article 42 be amended so as to require platforms to adopt uniform standards when conducting IP protection work, with appropriate exceptions made where reasonably justified, such as reducing evidentiary burdens for IP owner complaints which have a consistent record of acceptance. In this regard, we suggest the addition of the following clause to Article 42:

When assessing the notices of intellectual property right holders, e-commerce platform operators shall adopt a uniform standard of review for all intellectual property right holders, provided that notices submitted by trusted intellectual property right holders shall be subject to lower evidentiary burdens.  An intellectual property right holder is “trusted” if it demonstrates (i) expertise and competence in detecting, identifying, and notifying infringing content and (ii) has a consistent record of acceptance.

The e-commerce platform business shall, after having received the notice, take timely and necessary measures and forward the notice to the in-platform business…

5. Difficult/Complex Cases

The current E-commerce Law does not attempt to establish criteria or procedures for platforms to assess infringement claims. While a number of questions have arisen over time in this regard, two in particular have been addressed in the Zhejiang Guidance, and it is recommended that the E-commerce Law be amended in these areas to create greater clarity and predictability to platforms and IP owners alike.

First, Article 17 of the Zhejiang Guidance attempts to address the problem of abusive behavior by vendors by allowing platforms to ignore counter-notices that repeat the contents of prior counter-notices.  This behavior has become an increasing problem, fueled in part by the tolerance of platforms in considering multiple submissions by vendors.  It is accordingly recommended that the E-commerce Law be amended to address this issue, for example, by requiring platforms to ignore counter-notices that have already been fully considered in prior submissions, rather than just allowing platforms to do so at their discretion.

It is suggested that the following underlined wording be added after the newly proposed amendment to Article 43 of the E-commerce Law:

… If the operator on the platform submits a false non-infringement statement, which causes the loss of the right holder to increase, it shall be required to pay twice the level of compensation.

Where the operator on the platform submits a further non-infringement statement that has previously been fully considered and processed and bears no difference from the prior submission, the e-commerce platform shall ignore said further non-infringement statement.

Second, Article 15 of the Zhejiang Guidance allows platforms to assess whether counter-notices are valid based not on the judgement of legal professionals specializing in IP but rather based on the “average judgement capacity of e-commerce platform operators”.

In reality, bona fide counter-notices are normally filed in cases where there are somewhat complex issues of law, and platforms will routinely (if not consistently) entrust legal professionals, (whether working in-house or externally), to render their opinions. But it is widely known that, in many cases, platforms will allow the judgement of these professionals to be influenced by commercial considerations that are more favorable to vendors.

As such, it is strongly recommended that the E-commerce Law be amended to address this important issue, effectively requiring that platforms entrust specialists that are properly trained to evaluate IP disputes (inhouse or outsourced).

It is suggested that the underlined clause below be added to Article 44 of the E-commerce Law:

E-commerce platform operators must ensure that they employ or entrust individuals who are appropriately trained to evaluate intellectual property disputes to review notices and non-infringement statements received pursuant to Articles 42 and 43 of this Law.

An e-commerce platform business shall publish the received notice, declarations and disposition results as specified in Articles 42 and 43 of this Law in a timely manner.

6. ADR

In general, platforms in China will rarely be willing to take down ads where the IP owner is asserting rights in certain categories of cases, such as:

  • unfair competition disputes, such as rights in trade dress or unregistered trademarks; or
  • where the vendor’s product bears a highly similar mark that was preliminary approved and is under opposition before the PRC Trademark Office.

Platforms will typically encourage IP owners to address such cases – no matter how blatant the violation – through the civil courts or via administration complaints. In practice, such cases typically take several months or even years to be decided.

Consideration should therefore be given to how the E-commerce Law can be amended in a manner that will promote more efficient resolution of such cases.

The most obvious solution is to strengthen provisions in the E-commerce Law that encourage the use of ADR, including binding arbitration. It is therefore recommended that the following underlined wording be added to Article 43 of the E-commerce Law:

… After receiving the statement, the e-commerce platform operator shall forward the statement to the intellectual property right holder who issued the notice and inform the right holder that it can file a complaint with the relevant competent authority or file a lawsuit with the People’s Court. The e-commerce platform operator may also inform the right holder that it can apply for mediation or file an arbitration claim with an alternative dispute resolution body.

7. Social Media

It is strongly recommended that the E-commerce Law be amended to explicitly state that e-commerce activities conducted on platforms predominantly categorized as “social media” be deemed subject to provisions of the Law.  The scale of advertising activity and sales facilitated on social media in China is huge, and while there are challenges ahead for both government regulators and social media platforms to implement appropriate controls, it is critical that the fundamental legal foundation for legal responsibility be stated in the law.

As such, it is suggested that Article 2 of the E-commerce Law be amended to add the underlined wording as follows:

… For the purpose of this Law, “e-commerce” means business activities of selling commodities or providing services through the Internet, social media platforms or any other information network.

It is also recommended that SAMR consider more deeply new legal and administrative strategies for addressing new and complex challenges posed by bad faith actors advertising infringing goods on social media platforms. Principal among these challenges are the following:

  • the use of closed communications group, which due to privacy are difficult to investigate – whether for social media platforms, IP owners or administrative enforcement authorities; and
  • the use by infringers of online trade platform accounts to implement sales of infringing goods advertised on social media, particularly where the corresponding ad on the trade platform appears on its face to promote an entirely different product (a phenomenon known as “hidden offers”).

It is strongly recommended that SAMR intensify its research into these and other phenomena involving social media and establish pilot programs to test out new potential solutions.  No doubt, these will require proactive involvement by social media and online trade platforms alike.

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