China: Privacy, Data Collection, IPRs Infringement And Counterfeiting: The Legal Issues Behind Luxury Brands’ Usage Of Chinese Social Media

Last Updated: 5 August 2014
Article by Paolo Beconcini

To successfully enter the Chinese market, foreign luxury brands would need to define a proper strategy involving an effective use of social media. As the Chinese population becomes keener and keener to surf the internet and to access mobile-services, it is indeed crucial for foreign brands to go further the usual marketing campaigns and to start being present online. Definitely, social media, such as the popular WeChat and Weibo, are where brands should want to be in order to create actual awareness and to establish strong brand identity and image.

In the present comment, a few correlated issues will be thus discussed: firstly, the peculiarities of Chinese social media will be presented, revealing the most effective ways to benefit from them. Secondly, the problematic subject-matters of privacy and data collection will be analyzed, being these deeply connected to the usage of social media and the circulation of information about luxury brands. Lastly, the emerging phenomenon of e-commerce will be mentioned, representing the inevitable subsequent stage of luxury brands' presence on the web.

A. What to keep in mind: peculiarities of Chinese social media

As China's economy improves, the emerging middle class appear willing to "show off" their new wealth and this may definitely provide the luxury market with the needed potential to significantly grow. In this regard, it must be noted how luxury brands could greatly benefit from social media in order to effectively enter the Chinese market. However, China's market and social media present a few peculiarities which luxury brands would need to consider when planning their strategy to enlarge their business targeting Chinese consumers.

Advantages from using Chinese social media

Two are the main reasons for which luxury brands should plan to be actively present in Chinese social media. Indeed, social media are likely to be one of the -if not the- quickest ways to target a vast portion of the population, given their broad use by all Chinese and, especially, by the new generation who is culturally more attracted by Western luxury goods. Furthermore, being actively present on the web, brands would be able to reinforce their role in the so-called omni-channel retailing, a new phenomenon accompanying consumers in a 360̊ experience, as well as to increase their e-commerce and mobile commerce. The referred phenomenon of omni-channel retailing could be also seen as a potential means for fighting against counterfeiting, both since counterfeiters may not be able to respond to consumers' demand for the desired "luxury life-experience", and since it would allow the real brands to capture consumers' interest and, then, to directly lead buyers to purchase their goods through controllable selling channels (e.g. official website or actual store).

Profiles differentiating Chinese social media

Common and known social media like Facebook and Twitter are to be replaced with Chinese social media, being the former not accessible in China and being the latter more suitable for satisfying local consumers' demands and needs. Therefore, luxury brands' strategy should be planned accordingly, in order to take advantage of the features characterizing Chinese social media and, especially, in order to identify the most popular ones.

Currently, the top social media seem to be Weibo and WeChat: the former would allow brands to create their profile and, thus, to enhance their advertising and marketing by using Weibo's services (like posts, links' sharing, contests, etc.) and to improve their reputation among consumers; the latter would facilitate information sharing among consumers also thanks to fashion influencers -were they VIPs or others- who could help brands make circulate their name and, hence, capture the attention also of those potential consumers who would not otherwise look for fashion news themselves.

However, the strategy should be planned keeping in mind that Chinese consumers may react differently from consumers in other parts of the world so that the content on which the marketing campaign would need to focus may require some adjustments. For instance, in 2013 the most successful campaign was Burberry's which, in fact, not only made a large use of social media, but also managed to balance the brand's historical features with new profiles aimed at "localizing" the goods.

B. What to be aware of: privacy and data collection

Resorting to social media -and in general to internet services- would require to pay attention to further problematic issues stemming from China's peculiarities with respect to themes such as data collection and privacy, which have a direct reflection on how advertising and marketing could be planned and how invasive they could be. While these issues may be considered as central in the Western world, their relevance appears to blur in China where a complete legislation on such topics is still absent and where further aspects -especially censorship- mingle.

China's legal framework

Were the China's legal system to be critically analyzed, it would be noted how a single legislative act comprehensively dealing with privacy and data protection is still absent. And absent is also a national regulator specifically responsible for general personal information compliance matters, being the only authorities with some relevant competence for the discussed field the Ministry of Industry and Information Technology (MIIT), which regulates personal data collected and used in telecom and internet sectors, and the State Administration for Industry and Commerce (SAIC), which regulates consumer personal information.

Nonetheless, the first attempts aimed at implementing a regulation in the field of privacy and data protection can be observed. Indeed, in 2011 the MIIT issued Several Regulations on Standardizing Market Order for Internet Information Services, followed in 2012 by the NPC Decision, which would reflect and slightly refine the content of the MIIT Regulations at the legislative level. Lastly, also the 2013 Amendment to the Consumer Rights Protection Law could be here regarded as relevant since it includes a part focused on privacy requirements.

However, it could be noted how the various provisions related to privacy, data collection and usage, personal information security, etc. are very broad and generic in nature. In fact, the introduced provisions could be seen more as a set of principles rather than actual rules. Therefore, it would be difficult to consider such provisions as an accurate and complete regulation of the matter here discussed, but it would still appear necessary to resort to other branches of law (and especially to Tort Law) in order to "fill in the gaps".

The most relevant principles

If the NPC Decision (and the here reflected MIIT Regulations) targets all subjects collecting personal electronic information in the course of their business (namely, ISP-Internet Service Providers intended broadly as inclusive of SNS-Social Networking Services), and if the Consumer Rights Protection Law focuses on online shopping and consumer privacy, the above-listed acts present similar provisions with respect to privacy and data collection and usage.

The reiterated and fundamental principles governing the subject-matter of privacy and data collection are the followings: need to respect the principles of legality, legitimacy and necessity; need to explain to users/consumers the purpose, the method and the scope of information collection and usage; need to publicly state the rules according to which data are collected and used; need to collect the consent of the persons whose personal data are collected and used; need to adopt technical measures to ensure data security; need to implement the identification policy.

Noteworthy, as already mentioned above, these requirements are not explained in detail. For instance, the consent of users/consumers -although presented as necessary- is not further specified: consequently, the way consent is to be requested (if it is to be requested since nothing is said about implied or implicit consent which could be thus regarded as an open option) and obtained remains unregulated. Moreover, while users/consumers are recognized the right to inquire and correct the information about them, as well as to terminate the use and deregister from the service, no right of deletion appears to be granted.

A further aspect to be stressed is how the requirement of the identification policy recalls China's Government practice of censorship and surveillance over the contents published on the internet. It thus emerges how websites' managers would need to cooperate with the governmental agencies in monitoring what information is made available and by whom (so that they would also need to request users/consumers to use their real names, or to allow pseudonyms as far as the persons behind them can be identified). And indeed, ISPs are regarded as responsible for monitoring the content present on their websites, which must not include prohibited material (e.g. material contrary to the national interest or reputation, material apt to subvert the government, etc.). Such content -if discovered- must be removed and reported to the appropriate governmental agency.

Lastly, profiles that are generally taken into consideration in other jurisdictions are here absent. This is evident, for instance, in the fact that none of the provisions included in Chinese acts contains any reference to "sensitive data", which are thus undefined and -it might be said- constitute an unknown category.

A concrete example

The poor and weak legislation on privacy and data collection is reflected in ISPs and SNSs Terms of Use and Privacy Policy, which appear to contain statements very broad and vague in meaning.

For instance, WeChat would state that it uses users' information for the purpose of "providing, promoting and developing" its services: while this could satisfy the legal requirement of communicating to users the purpose of data collection and usage, this statement appears to leave quite wide discretional tools to WeChat. The same could be said for the paragraph dedicated to the possibility of sharing users' personal information with third parties, which would be only limited by "reasonable efforts to ensure that such third parties use this information in compliance with this policy" and by any possible further "instruction given to them including any appropriate confidentiality and security measure" implemented by WeChat itself. Lastly, WeChat -here analyzed as a mere example of Chinese social media- explicitly states how users' information would also be used to better select the relevant advertising (offering products and services also of third parties) to be made available to users, being direct marketing perfectly allowed, except for the new inclusion in the NPC Decision of consumers' right to opt out from direct marketing.

Final considerations

In light of the above, two main spheres of interest could be drawn when considering foreign luxury brands' strategy to enter the Chinese market.

On the one hand, in fact, the absence of rigid limitations would facilitate the setting up of effective advertising and marketing channels to reach the widest portion of potential consumers and, thus, to successfully enhance consumers' awareness of brands and to strengthen brands' attractiveness and appeal. Indeed, even when analyzing the provisions of the Advertising Law -drafted widely enough to cover cyberspace advertising- the only stricter requirement that may emerge is that ISPs need to verify the content of ads for accuracy, profile which again appears to be linked to the matter of censorship.

However, on the other hand, caution should be paid at what information luxury brands themselves introduce on the web. The referred lack of concrete restrictions in the circulation of information (apart from censorship) may present the drawback that competitors would be able to access brands' information and make an use of it which might not be completely "fair". Indeed, not only cases of unfair competition or actual IPRs infringement may take place due to abuses of brands' information, but also phenomenon of brands' reputation crisis due to competitors' acts may occur, even simply because of extensive campaigns or digital marketing, which would need brands to be ready to react.

C. What not to forget: e-commerce and the increased risk of counterfeiting

While the previous paragraphs have mainly focused on the use of internet and social media as means for making Chinese consumers familiar with foreign luxury brands and, hereby, for strengthening brands' attractiveness and consumers' loyalty forwards the named brands, a consequent issue to be analyzed is given by the possible advantages internet services may provide to luxury brands not only as marketing platforms, but also as selling platforms. Indeed, deeply connected to the above is the macro-theme of ecommerce (which could be here intended broadly as comprehensive of online as well as mobile commerce).

Although in China e-commerce is still developing and it cannot be said to be at a stage as advanced as in other Western countries, transactions on the web are increasing in number and in relevance. While some of the barriers which have delayed the boom of e-commerce may include an unsophisticated payment system as well as distribution or security issues, lately e-commerce has definitely become more and more popular also thanks to the creation of China-based platforms enabling B2B, B2C and C2C transactions (e.g. Tmall.com, Suning.com and Dangdang.com). However, when such transactions take place risks of IPRs violations may arise and this is why the Chinese Ministry of Commerce -in response to the market's needs- has implemented a regulation of e-commerce allowing administrative authorities to shut down illegal websites, namely those websites which, for instance, do not correctly state the origins of the sold goods.

Nonetheless, appearing e-commerce not always easy to monitor, what may especially interest luxury brands is how to effectively coordinate the use of Chinese e-commerce platforms (for taking advantage of their bright development) and their more secure official websites. An interesting example of successful strategy in this regard is provided by the brand Puma which, on the one hand, has made its products available on Tmall.com (the B2C e-commerce website owned by Alibaba), thus promoting awareness of its brand and capturing consumers' attention, but offering here only off-season goods; on the other hand, in fact, it has maintained an active official website where the newest information and the in-season products are available. This mixture could be seen as an effective way to balance the need of reinforcing brands' image among consumers, which could be well done being present on popular platforms, with the other crucial need of ensuring a better monitoring over the exploitation of brands' identity and rights.

D. Conclusions

The present study has aimed at providing luxury brands with a critical overview of those issues which may appear as the most relevant ones for successfully entering the Chinese market.

Indeed, the advantages stemming from a proper use of Chinese social media have been exposed. While certainly being actively present on such platforms would enable luxury brands to increase their popularity and attractiveness, luxury brands are to be aware of the peculiarities characterizing these same instruments in order to put into place effective strategies. Moreover, the problematic topics of privacy and data collection would need to be carefully considered: the lack of a complete and cogent regulation in China may definitely imply that luxury brands are to enjoy more flexibility when planning their marketing campaigns, but it may also expose them to IPRs infringement and unfair competition. Lastly, the analysis could not but conclude with a reference to the known and much discussed problem of online counterfeiting.

Notwithstanding the risky features that the Chinese market presents, with a solid awareness of the mentioned profiles and with properly planned strategies luxury brands could greatly benefit from being present on the Chinese web. The Chinese market offers significant opportunities to expand their business given the increasing interest of local consumers in luxury goods. And certainly, by being active on all major platforms, luxury brands would also be able to better monitor and protect their rights.

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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Authors
Paolo Beconcini
 
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