The new measure shows greater importance attached by the Chinese government to consumer protection, which is a good news to the business operation of name brands.

Recently, SAIC issued a new Opinion to push forward “12315”(the consumer complaint and enquiry hotline) related actions in order to further protect consumers’ rights and interests, with the key measures listed as below:

  • Improve the telephone and web platform of the hotline;
  • Effectively analyze and use the data collected through the hotline in market regulation and in the policy making process;
  • Extend the coverage of the hotline to third party E-Commerce platforms and TV shopping, etc.;
  • Encourage the establishment of an efficient consumer complaint settlement mechanism featuring “advance compensation payment” by business operators like e-commerce platforms, TV shopping channels, and big shopping malls.

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Before handing over power-of-attorney to third party brand protection agencies, brand owners need to carry out effective due diligence. It is also worthwhile for them to guard against the tendency of weakening IPR protection by Alibaba and other platforms at the excuse of “malicious” complaints.

In early February, Alibaba announced that it would no longer process IP violation complaints from an IP agency called Hangzhou Wangwei Technology. According to Alibaba, Wangwei has filed thousands of complaints, of which more than 60% since 2015 have ended up being withdrawn after counter-appeals from merchants.

The blocking of Hangzhou Wangwei is part of a wider campaign of Alibaba against the so-called malicious complaints. Alibaba has accused several IP agencies for filing false accusations about the sale of fake goods and intellectual property violations on its online shopping platform, calling for merchants to boycott those agencies. Alibaba claims that 24% of all complaints it receives are deemed “malicious” and “a drain on the group’s efforts to stamp out counterfeits”.

Although these warnings are not aimed at brand owners, which shall not be regarded as a setback in Alibaba’s IPR protection efforts, the action against the “malicious’ agencies may divert the attention of the platforms from IPR protection.

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We believe this new initiative will have a bigger impact on foreign app stores, which will face more stringent censorship. Foreign entities may need to pay attention to the developments to ensure smooth distribution and operation of its apps.

On January 13, 2017, the Cyberspace Administration of China (CAC) issued the Notice on Initiating Recordation of Internet App Stores (“Notice”). As of January 16, 2017, all app stores must file for recordation with the provincial-level cyberspace authority according to the Notice, a measure to implement the Regulations on the Administration of Mobile Internet App Information Services (“Regulation on APP”) issued by CAC in mid 2016.

According to the CAC spokesperson, the initiative aims to identify and crack down such violations as distributing illegal information, infringing online users’ rights and endangering public security on apps.
All app stores must record for start of operation, modification of recorded items and termination of operation. App stores refusing recordation, providing false information, or having severe violations in operation will be penalized according to law.

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The proposed legislation remains staying at high level rules, without imposing real enforcement effects on the platforms such as Alibaba. Nonetheless, there are some encouraging articles entities may leverage on, such as those concerning IPR protection, which, though, are not strong enough in our opinion. Running on-line stores, entities may also need to pay attention to the articles providing personal information protection obligations for Platforms.

The draft E-Commerce Law (the “Draft”) is open for public comments till January 26, 2017. The law aims to regulate the e-commerce market, and protect the legitimate rights and benefits of various parties in the e-commerce transactions.

The Draft is not changed much from the version submitted to the NPC for review. One notable difference is that financial products and services as well as audio-video programs and internet publishing are excluded from the law.

The key highlights of the Draft are summarized as follows:

The Scope and Definition

E-commerce is widely defined as “business activities involving products or services transactions through information networks such as the Internet”, which means e-commerce transactions taking place through mobile Internet are included as well. Additionally, products refer to both tangible and intangible products. The law applies to e-commerce activities within the territory of China and cross-border as well.

E-Commerce Operators and Third-Party Platform

The Draft expressly states the distinction between E-Commerce Vendor (“Vendor”) and E-Commerce Third-Party Platform (“Platform”) and stipulates their respective obligations.

For vendors, the Draft Law clearly provides obligations they should undertake. For example they must show their business licenses in visible places on their homepages. They are not allowed to charge consumers an express logistics service fee higher than what is offered by the professional express logistics service providers, or to restrict consumers from choosing their preferred express logistics service providers.

For Platforms, the Draft expressly mandates that Platforms should be obliged to review the Vendors on their platforms, and provide them with stable and safe services. Platforms are also required to formulate open and transparent transaction rules, make public important information, and record transaction logs.

E-commerce Transaction Safeguard

  • Intellectual property rights protection: Not only Vendors but also Platforms are obliged to protect intellectual property rights. Platforms must take necessary measures in accordance with laws and regulations upon intellectual property rights holder’s notice. These positive elements are then weakened by such provisions that rights holder must shoulder civil liabilities of wrongful accusations IP infringement. And once the accused Vendor submits a statement to the platform guaranteeing that no infringement has taken place, the platform should terminate the measures in a timely manner and inform the rights holder so it can seek remedies through administrative or judicial ways. Although the most severe penalty for Platforms fail to fulfill their IPR protection obligations could be the suspension of business license, the penalty is generally not sufficiently biting as there are no corresponding enforcement measures provided in the Draft.
  • Personal information protection: The Draft provides that e-commerce business entities can collect personal information of the consumers only against lawful, justifiable and necessary need, and with the consent of the consumers. Platforms must set up a mechanism to guard against leakage, loss, damage or destruction of consumers’ personal information.
  • Protection of fair competition: Acts of unfair competition are expressly prohibited by the Draft, including domain name abuse, fake and misleading links, attacks or invasions to other company’s network, unauthorized use of electronic signs to mislead people, and inappropriate restricting transactions.
  • Prohibition of illegal credit rating: the Draft clearly prohibits acts disrupting e-commerce credit rating including enhancing one’s reputations through fictitious transaction, deleting adverse evaluations, making compensations or other conditions in exchange for favorable evaluations, forcing the other party to the transaction to make, modify, and delete evaluations against its wills, and publishing untruthful credit rating information.
  • Consumer protection: the Draft emphasizes the protection of consumer rights by such requirements as authenticity of product information, product and service quality guarantee, transaction rules, standard rules, consumer rights protection deposits, as well as online dispute settlement mechanism.

Cross-border e-commerce

The Draft encourages cross-border e-commerce by claiming to set up a supervising and regulatory mechanism adaptable to e-commerce with electronic customs clearance, duty collection, commodity inspection and quarantine.

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