China regulators are looking to bolster its e-commerce law amid a larger crackdown on big tech. On Tuesday, China’s State Administration for Market Regulation released a draft version to amend the national e-commerce law, subject to a period of public comment, which includes new penalties for e-commerce operators, such as Alibaba and JD.com should they fail to address intellectual property violations on their platforms, adding the potential revocation of companies’ business licenses to the existing ability of the SAMR to slap bad actors with steep fines.
In addition to having the authority to levy monetary penalties of up to 2 million yuan ($309,400) on service providers that are found to have engaged in “less serious” intellectual property infringements, the proposed new rules seek to bolster the ramifications of wrongdoing by revoking the necessary licenses “if the platforms fail to take necessary measures against vendors who infringe intellectual property rights,” and also by extending the window of time that “an individual merchant’s business can be restricted while infringement claims are settled” to 20 business days, Reuters reports. Currently, the time frame is 15 business days.
Passed by the Standing Committee of the National People’s Congress in August 2018 and formally enacted in January 2019, China’s e-commerce law – which defines electronic commerce as any “business activities related to selling goods and services via information networks, such as the Internet” – requires all covered entities to register as market entities. Because “e-commerce operator” is defined broadly, AmCham Shanghai states that the sweeping legislation “covers most online sellers and selling activities, including e-commerce platforms like Taobao and JD.com; any vendor on any of these platforms; and even individual daigou sellers, who operate on social media apps, such as WeChat.”
In addition to requiring registration with the government, the e-commerce law sets out standards for “taxation, electronic payment processing, and e-commerce dispute resolution” for e-commerce entities, as well as for the protection of intellectual property, according to a post by Hong Kong-based law firm Deacons. It also requires e-commerce operators to make various disclosures to consumers, including “procedures for refunding any deposits collected,” and notice if an e-commerce operator “voluntarily discontinues its e-commerce business,” among other things.
Maybe most importantly, though, the e-commerce law makes e-commerce platform operators and/or other service providers jointly liable along with third-party merchants for selling counterfeit and otherwise infringing products whenever that operator/service provider “knows or should have known that a party on the platform has infringed others’ intellectual property rights but fails to take the necessary preliminary measures.” At the same time, the law states that if a platform operator “knows or should have known that goods or services [offered up by a third party merchant] on the platform do not comply with the requirements for personal or property safety protection, or a [third party merchant] on the platform has otherwise infringed the legitimate rights and interests of consumers but fails to take any necessary measures, the platform operator is jointly and severally liable with the infringing [merchant].”
A Decade in the Making
The push to bulk up the e-commerce law comes amid the rapid development of China into the world’s largest e-commerce market, with Chinese online sales amounting to $1.53 trillion in 2020, estimates by research firm eMarketer show. It also follows from more than a decade of developments in Chinese tech regulation, including a flurry of legislation since 2020.
The first Anti-Monopoly Law came into effect in August 2008, “aiming to outlaw monopolistic practices, but authorities were hesitant to enforce the rules against tech companies in the heyday of China’s internet boom,” according to Mark Greeven, a Professor of Innovation and Strategy at the International Institute for Management Development. “Except for a few high-profile cases, China’s focus was on building digital capabilities and increasing consumption.” Next came the e-commerce law in 2018, which was characterized at the time as a significant development for the country, but a relatively “cautious” one in light of some of the board wording, which has left room for “detailed enforcement rules and cases to follow.”
Yet, in reality, it was not until 2020 that “China’s antitrust regime for big tech came into focus,” Greeven says, pointing to the State Council’s Anti-Monopoly Commission July 2020 investigation of Ant Group payments arm Alipay and Tencent’s WeChat Pay, and the major data-protection legislation that came into play, including the Draft Data Security Law, which was issued for public comments in July 2020, followed by the Draft Personal Data Protection Law, which was formally passed on August 20. “Together with the Cybersecurity Law of 2016, it means that three fundamental pieces of legislation are now in place in this arena.”
The new proposed amendments to the e-commerce law further signify enduring attempts by the government to sure up its controls over internet businesses. Taken together, Greeven expects that these legislative moves and others, paired with those still in the pipeline, will mean that Chinese big tech – retail behemoths very much included – “will likely have to fundamentally rethink the way it does business in future.”
The period for public comment on the newly-published e-commerce rules runs until October 14.
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