How will e-commerce platforms be impacted by the E-commerce Law in China?

Having spent five years in legislative process, the fourth and final draft of the E-commerce Law (the “Final Draft”) was finally adopted by the National People's Congress on August 31, 2018. The E-commerce Law (the “Law”) will become effective from January 1, 2019. This being the first fundamental law addressing e-commerce in China, it is likely to have a significant impact upon e-commerce practice. Compared with the previous third draft released for public comment, the Final Draft makes only a small number of noteworthy changes. They relate to provisions that had previously been the subject of widespread discussion, in areas including platform operators’ joint and several liability and the protection of intellectual property rights. The key content of the Final Draft is summarized below.

  1. Adjustment to Target and Scope of Application
  2. The E-commerce Law applies to “business activities for the transaction of goods and services that take place through the Internet or other information networks within the territory of the People’s Republic of China” (“e-commerce activities.”) It does not apply to financial products and services, news information provided through information networks, services that broadcast audio or video programs, and content services such as publications and cultural products.1 Given the cross-border nature of the Internet and of e-commerce practice, the Final Draft clarifies the scope of regulation by explicitly prescribing that the application scope is within the territory of China.

  3. E-commerce Operators
  4. In the Law, e-commerce operators refers to “natural persons, legal persons, and unincorporated organizations that engage in the sale of goods and the provision of services through the Internet or other information networks.”

    Three types of e-commerce operators are defined in the Final Draft, namely (i) e-commerce platform operators; (ii) operators on the platform; and (iii) e-commerce platform operators that sell goods or provide services through their own websites or other network services. E-commerce platform operators (“platform operators”) refers to legal persons and unincorporated organizations that provide virtual business premises, transaction matching, information dissemination and other services to transaction parties.2

  5. General Obligations of E-commerce Operators
  6. The Law stipulates that e-commerce operators should abide by a series of general obligations when they undertake e-commerce activities, they being primarily:
    • Registration of business entities;
    • Obtaining any required administrative license;
    • Publishing details of licenses and other important information. If the e-commerce activity is to be terminated on the e-commerce operator’s own initiative, this information should be published at least 30 days in advance;
    • Following the rules for protection of personal information as stipulated by relevant laws and regulations, providing clear details about user information, inquiry, correction, deletion and user cancellation, and promptly responding to user requests;
    • Disclosing information about goods or services in a comprehensive, truthful and accurate manner, in order to protect consumers’ right to know and right to choose;
    • Taking responsibility for any risks in the transportation of goods.

    In addition, the Final Draft sets out to address various well-documented issues that have arisen in the course the development of the e-commerce sector, specifically:

    • In response to the problem of “Click Farming”, e-commerce operators are not allowed to publish false or misleading commercial propaganda by means of fictitious transactions or user reviews and thereby deceive or mislead consumers;
    • Regarding "price discrimination using big data”, it is stipulated that, when marketing goods or services to consumers according to their interests, hobbies and consumption habits, e-commerce operators shall also provide consumers with options that are not specific to their personal characteristics, and shall respect and protect the legitimate rights and interests of all consumers equally;
    • Consumers shall be made aware of any tying (i.e. the practice of selling one product or service as a mandatory addition to the purchase of a different product or service) by e-commerce operators, and the tying of goods or services shall not be the default option for consent;
    • Regarding the collection and refund of deposits, e-commerce operators shall clearly explain the procedure for deposit refunds, shall not impose unreasonable conditions for refunds, and shall promptly provide refunds;
    • Regarding the issue of e-commerce platform operators prohibiting e-shops from promoting on more than one platform (for the purpose of maximizing profit for its own platform), it is stipulated that any e-commerce operator with market dominance due to factors such as technological advantage, the number of users, the ability to control related industries, and other operators’ dependence on its transactions, is prohibited from abusing its position of dominance to exclude or restrict competition.

  7. Special Rules for E-commerce Platform Operators
  8. In addition to the legal obligations applicable to general operators, e-commerce platform operators are required to observe the following special rules. They should:
    • Assess and manage operators on their platform;
    • Submit the required information to government departments, such as industry and commerce, tax, etc.;
    • Record and retain goods and services information and transaction records for a minimum of three years;
    • Develop service contracts and transaction rules for their platform and keep these prominently displayed. Any changes to these service contracts and transactions rules should be open to public comment;
    • Publicize any penalties imposed on operators on the platform;
    • Distinguish between their own transactions and their clients’ transactions;
    • Establish a comprehensive credit evaluation system and refrain from deleting customer reviews of goods and services on the platform;
    • Identify any paid listings as such;
    • Establish rules to protect intellectual property rights. Adopt appropriate measures for deleting, screening, disconnecting and ending transactions and services in prescribed situations.

    The Final Draft prescribes different liabilities that the platform operators should bear in accordance with specific circumstances:

    • Joint and several liability: failing to adopt necessary measures when they know or should have known that the goods sold or services provided by operators on the platform do not meet personal or property safety standards, or that there are other actions that infringe the legal rights of the customers;
    • Joint and several liability: failing to adopt necessary measures when they know or should have known that operators on the platform have infringed intellectual property rights.
    • Corresponding liability: Causing damage to consumers because the platform operator did not undertake their duty to check the qualifications of platform operators, or their duty to protect consumer safety. It is of note that the Final Draft does not adopt other options such as joint and several liability or the supplementary liability proposed in previous drafts and discussion of the legislation. Instead, it adopts a relatively general provision, and platform operators should bear different liabilities in accordance with specific circumstances.

  9. Drawing up and Execution of E-contracts
  10. The Final Draft provides some useful guidance as to the burden of proof for e-commerce operators:

    • When dealing with e-commerce disputes, e-commerce operators should provide the original contract and transaction history;
    • If the e-commerce operator loses, forges, tampers with, destroys, conceals or refuses to provide the aforementioned information, with the result that the People’s Court, arbitration centres or other relevant organizations are unable to secure the necessary facts or information, the e-commerce operator shall bear the corresponding legal liability.

  11. E-commerce Dispute Resolution
  12. The Final Draft clearly establishes the validity and execution of contracts drawn up via automated decision-making systems, the conditions for establishing an e-contract and the time frame for transactions, and adopts principles regarding e-commerce logistics and payment services.

    In particular, the Final Draft introduces a number of new requirements relating to record-keeping, the reversal of unauthorized payments and the burden of proof upon e-commerce payment service providers:

    • E-commerce payment service providers should provide users with account verification services and transaction records for the past three years;
    • They should immediately take steps to minimize losses if they find or are notified of any unauthorized payment instruction. If steps are not taken to minimize losses, and there is a subsequent increase in losses, the e-commerce service provider will be liable for these additional losses;
    • Any loss arising from unauthorized payment shall be borne by the e-commerce payment service provider. However, if the unauthorized payment is found to have been due to the user, the e-commerce service provider will not be responsible for damages.

  13. Our Observations
  14. The E-commerce Law is the first comprehensive legislation addressing the e-commerce sector in China. It covers issues such as the protection of consumer rights, the obligations of businesses, e-contracts, electronic payments, cybersecurity, the protection of personal information, anti-competitive activity, and the protection of intellectual property rights.

    E-commerce operators, and in particular platform operators, will need to evaluate the ability of their own internal regulatory systems to satisfy the strengthened consumer protections and regulatory responsibilities proposed under the new law within the four months before the law becomes effective, on January 1st, 2019.

    There is likely be considerable ongoing uncertainty, and therefore the possibility of space to maneuver. Some of the questions arising from the Final Draft include how the E-commerce Law will correspond to and supplement current regulations,3 how to interpret and apply the stated principles and requirements in practice, and how the Law will adapt to e-commerce’s inevitably ever-changing business models and technological developments.

    It is notable that no specific regulatory authority is designated for enforcement of the E-commerce Law or for the administration of e-commerce business. Accordingly, in practice each competent government agency will bear their responsibilities within their existing relevant authority. It remains to be seen how these government agencies will divide and coordinate their work the course of law enforcement.

    Furthermore, given that many of the provisions of the Final Draft are stated as general principles, it is likely that corresponding implementation rules and guidance will be introduced for more specific areas. We will continue to pay close attention to future developments relating to the legislation, enforcement and implementation of the Final Draft, as well as their impact on the e-commerce industry, and will advise accordingly.

1 Article 2, E-commerce Law
2 Article 9
3 E.g. for current business law in terms of market admission, and the connection to Contract Law and Electronic Signature Law for digital text

Originally published on 07 September 2018 by Marissa Dong on the JunHe website.

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