China: Intellectual property implications of the new e-commerce law (2019)

Last Updated: 23 May 2019
Article by Robin Tabbers

On the 1st of January 2019, China enacted new e-commerce legislation which is of interest to foreign brand owners who maintain an online storefront in China. This is the first comprehensive piece of legislation governing e-commerce to be enacted within China, and as such brings significant changes to the legislative environment. This legislation has a broad scope and encompasses multiple facets of e-commerce, such as the registration and licensing of e-commerce operators, electronic payments, e-commerce dispute resolution, and the taxation of e-commerce enterprises. This legislation also addresses other important aspects of e-commerce including consumer protection, data protection and cybersecurity, as well as the protection of intellectual property (IP).

Below are the most important IP features of this new legislation for foreign companies.

  1. Joint and several liability for platform operators

In a boon for IP owners, the new legislation specifically provides that an e-commerce platform operator will have joint and several liability along with the vendors, where a platform should know, that a vendor has violated intellectual property rights and fails to take the necessary action in removing the infringing goods from the platform. This is good news for IP owners who may wish to seek damages in addition to the cessation of the infringement, as previously it has been difficult to obtain payment from smaller infringing parties.

  1. Notice and take-down

The new law also provides a framework for "notice and take-down" procedures, whereby an IP holder can notify the platform of an alleged infringement, which then is obligated to prevent the trade of the infringed good pending investigation. The law refers to acting "promptly" to take the necessary measures after receipt of a take-down notice, however promptly is not defined, and platforms will likely create their own rules and standards for processing the notices.

  1. Counter-notices and reinstatement

There is also a provision for counter-notices which may be of concern to international brand owners; there is an obligation to the IP owner to respond to the counter notice by filing a case in the local competent court within 15 days of receipt.

  1. Fines for the platform

Upon receiving notice from the infringed party and when an e-commerce platform operator fails to take necessary measures in respect of IP infringements, the State Administration for Market Supervision may order them to rectify the situation within a set time. The legislation provides that failure to rectify by the deadline could expose the platform to a fine of between CNY 50,000 to CNY 500,000. In serious cases, a fine of between CNY 500,000 to CNY 2,000,000 may be levied.

  1. Erroneous and malicious notifications

The new law provides for penalties in the case of erroneous (damages awarded) or malicious notifications (punitive + damages). Yet there is some ambiguity with regards to the articles covering erroneous or malicious notifications, in that the legislation does not specify who bears the liability in the instance of an erroneous notification. The concern here is that when an international brand files a complaint they could be held liable if they submit an erroneous claim. This increases the importance of evaluating the merit of the claim and seeking legal assistance while doing so as to avoid potential liabilities.

  1. Constructive knowledge

The new law imposes liability where the e-commerce provider knew, or should have known, that relevant goods and services infringe the rights and interests of consumers or the intellectual property of others. This is similar to the "mere conduit" and "hosting" clauses in the EU Electronic Commerce Directive where an online service provider should only be liable if they are aware of the facts and circumstances of the infringing activity.

  1. Retention of transactional information

E-commerce platforms are now obligated to keep records of product and service information including transaction records for no less than three years. Any failure to keep such records will result in significant fines and suspension of operations.

These records have the potential to be vital in IP cases, however it is yet to be seen in practice whether the courts or administrative enforcement authorities have the power to order disclosure of such transactional information for the purpose of infringement proceedings.

The legislation does provide for e-commerce operators to hand over information to relevant authorities in the context of data protection, cyber security and tax, it is possible that this may also be the case in the context of administrative enforcement or court proceedings.

Conclusion

The general wording of some of the articles may be designed in such a way as to allow the courts flexibility in the application and interpretation of this legislation. Most of the provisions are not actually a significant departure from the previous laws, but rather a collation of existing laws under a single unified legislation. It is evident that the onus is being placed on the online platforms to do more to protect the interests of IP owners. The major e-commerce companies already have mechanisms in place to identify and handle counterfeits and have been making use of big data technology in an attempt to combat IP infringements already, but this e-commerce legislation may encourage an additional bit of vigour in their efforts.

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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