China: China proposes new internet regulation

Last Updated: 26 January 2011
Article by Martyn Huckerby, Emily Deng and Sharon Wong

China's Ministry of Industry and Information Technology (MIIT) recently published proposed new measures designed to regulate competition between internet information service providers and enhance supervision over the internet information service market, with comments due by Valentine's Day.

Overview

The MIIT has commenced consultation on the Provisional Measures for the Supervision and Administration of the Internet Information Service Market Order (Draft For Comments) (Draft Measures), seemingly in attempt to avoid further disputes similar to the recent conflict between Tencent Technology (Shenzhen) Limited and Beijing Qihoo Technology Limited (detailed below). The Draft Measures introduce a framework for the regulation of unacceptable behaviour by internet information service providers (Providers) in respect of their online information services and products, and mandates a dispute resolution mechanism. Prohibited activities include conduct deemed to be unfair competition, infringement of users' legal rights and failure to duly protect the private information of users.

While not directly referenced, certain provisions of the Draft Measures have been developed with reference to existing laws such as the PRC Anti-Monopoly Law, the Anti-Unfair Competition Law and the Consumer Protection Law (for example, provisions related to false propaganda and infringement of the consumers' right to choose). Whereas existing laws and regulations apply to all firms providing products or services in China, the Draft Measures specifically regulate Providers.

The draft measures are open for public consultation until 14 February 2011.

Background

The Draft Measures follow a high-profile dispute between Tencent Technology (Shenzhen) Limited, an internet service provider that operates the well-known instant messaging system known as "QQ" (Tencent), and Beijing Qihoo Technology Limited, renowned for its 360 line of security software (which includes software protecting internet user privacy and anti-virus software) (Qihoo 360).

The dispute arose on 3 November 2010 when Tencent announced its decision to make the use of QQ instant messaging service incompatible with the use of Qihoo 360's privacy or anti-virus software. Tencent also requested that users adopt Tencent's security software or other antivirus software in place of the 360 line of security software. Effectively, QQ users were forced to either uninstall QQ or 360's privacy guard.

The dispute was resolved on or about 10 November 2010, through mediation by MIIT together with two other ministries, and both Tencent and Qihoo 360 resuming their products' compatibility.

At the time, media commented that existing internet information service market regulations were vague and lacked guidance. Existing regulations predominantly refer to the PRC Telecommunication Regulations and the Administration Measures on Internet information Services, which generally state qualifications with which firms must comply to engage in the internet information services market. By contrast, the Draft Measures stipulate detailed provisions with respect to the administration of the internet information service market and competition between Providers.

Unfair competition

Five types of activities constitute unfair competition under the Draft Measures, including:

  • damaging the reputation of competitors by fabricating and disseminating false information or malicious rumours about competitors' legitimate products or services;
  • without reasonable justification, offering products or services that are incompatible with the legitimate products and services offered by other Providers or, where any incompatibility with existing products or services occurs due to non-human factors, failing to remind clients of such incompatibility or misleading or inducing clients to choose its products or services;
  • interfering with the operations of legitimate products or services installed in users' terminals provided by other Providers or, modifying contents or blocking information from the products or services offered by other Providers;
  • using any means to mislead, deceive, or compel users to uninstall or shut down other legitimate products or services; and
  • other activities contrary to the principles of fair competition.

Where a Provider queries the security or protection of private information or the quality of the products or service provided by other parties, such a Provider is required to report such conduct to a third-party organisation for evaluation. It is unclear what third parties will be authorised to provide such services. However, this approach eliminates a Provider's choice to independently conduct tests on queried products or services and publish its results. Further clarification on methods of review and establishment of objective standards by the relevant authorised third-party may be addressed in separate legislation in the future.

If a Provider is found to have conducted activities prohibited by the Draft Measures, the authorities may impose fines between RMB 100,000 and RMB 1 million or, in serious cases, suspend business operations.

Infringement of users' lawful rights and interests

Providers are prohibited from engaging in activities that will infringe users' legitimate rights and interests, including:

  • unilaterally refusing, delaying or ceasing to provide services to users without reasonable justification;
  • using any means to restrict users' ability to choose other Providers' products or services;
  • using false information to mislead or deceive users into accepting unfair service agreement terms or specific products of the Provider;
  • arbitrarily installing, operating, upgrading, or uninstalling software on users' terminals without users' consent or coercing users to adopt its internet information services;
  • not providing commonly-used installation methods or allowing executable code or other unnecessary files to remain after intentional un-installation;
  • without consent from users, altering browser or other key configurations, forcing users to visit particular websites or preventing access to the internet; or
  • other activities which will lead to infringement on users' right to knowledge or choice.

Furthermore, Providers must expressly inform subscribers when software has been bundled, provide obvious signs for closing pop-up advertisement windows and ensure that such windows do not reappear without proper reasons.

Fines between RMB 10,000 and RMB 100,000 may be imposed on Providers who violate these provisions. In serious cases, Providers may be ordered to suspend business operations.

Uncertainties in Draft Measures

No guidance has been provided as to what would constitute reasonable justification. Further, references are made to a large number of technology-related issues without supplementary explanation. For example, the extent to which a product or service would be considered "incompatible" to that of another or what would be considered a "commonly-used installation method" is open to debate. It is hoped that these uncertainties will be addressed through both the public consultation process and further details provided by the competent government authorities.

Dispute resolution among Providers

Where a dispute arises between Providers, the Draft Measures require that Providers engage in friendly consultation, industry association mediation or subject themselves to more formal proceedings coordinated by relevant government authorities.

Industry association mediation

Internet industry associations, which could include associations such as the Internet Society of China, are mandated under the new draft rules to establish institutions responsible for providing mediation services between Providers and to formulate and implement its own set of disciplinary rules. Mediations will then be conducted based on such rules, having regard to business ethics and the aim of protecting users' rights and sustaining a competitive internet industry.

Government coordination

Under the Draft Measures, MIIT and its provincial counterparts are now expected to supervise and coordinate the settlement of disputes between Providers. The authorities are to achieve this by providing fair and objective decisions (proffering resolution methods) to Providers with a view to promote the development of the internet industry, protect the legitimate interests of users and encourage innovation. Providers, in turn, are required to adopt the opinions delineated in the decision within a prescribed time period.

If considered necessary, MIIT and its provincial counterparts may appoint an authorised third party to conduct technical evaluations or seek the collective opinion of experts in relevant fields. Where either independently or through the use of approved third parties, the conduct of a Provider is found to have a negative social impact or an effect on safety management measures, MIIT and its provincial counterparts are authorised to ensure that any such negative impact is effectively addressed first before re-visiting the merits of the parties' dispute.

Notwithstanding the government's involvement, Providers in a dispute may settle matters themselves, however, they are thereafter required to file any such reconciliation measures.

Dispute resolution between user and Provider

Users may choose to address their complaints against Providers by submitting their grievance to the National Centre for Accepting Complaints from Telecommunication Users, who will then settle issues in accordance with the Provisional Measures for Settling the Complaints for Telecommunication Users. Alternatively, users may file a lawsuit against the Providers with the relevant people's court.

Conclusion

While on the one hand the proposed measures are linked with the recent Tencent dispute, they also highlight some important developments regarding internet regulation in China.

Firstly, they show the willingness of the authorities to intervene in commercial matters affecting consumers that have entered into the public domain. Secondly, anti-trust related rules will continue to be developed by sectoral regulators and not exclusively by the authorities primarily responsible for administration of the PRC Anti-Monopoly Law. That trend looks set to continue, particularly in sensitive sectors such as telecommunications and the media.

Providers concerned by the Draft Measures should take the opportunity provided by the MIIT to submit comments, although once regulations of this nature are published for public consultation it is likely that they will come into force in some form. Accordingly, internet service providers should monitor the development of the Draft Measures and commence steps to audit business practices to ensure that they do not act in such a way so as to offend the new draft regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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