Ecommerce Law Raises Intellectual Property, Data Flow Concerns

By Patrick Lozada

China’s new draft ecommerce law, the first comprehensive policy governing the $630 billion online retail market, presents companies with new regulatory requirements related to consumer data, intellectual property, and licensure.

 

The draft law, formulated by the National People’s Congress Financial and Economic Committee in conjunction with relevant ministries, was released December 27, 2016 for 30 days of public comment. As with the previously released ecommerce principles, the draft designates four primary categories of businesses to be regulated: ecommerce operators (individual stores on platforms like Taobao and Amazon), third-party platforms, payment providers, and logistics service providers. An unofficial translation of the draft law can be found here.

 

Key provisions of the draft law include:

  • Intellectual property (IP) protection  The draft law contains some positive measures to combat IP infringement, including requirements for platforms to delete, censor, or terminate services for operators who violate IP laws. However, it also introduces a new counter provision that undermines IP rights holders’ ability to hold counterfeiters accountable for infringing behavior. Additionally, damages for IP infringement max out at 500,000 RMB ($75,000), which is too low to serve as a reasonable deterrent.   

  • Credit evaluation system   The draft mandates that platforms create a “credit evaluation system” for the public rating of ecommerce operators. It also proscribes behaviors relating to the fair operation of the system.

  • Definition of electronic contracts   The law sets out conditions for the issuance, fulfilment, and cancellation of ecommerce transactions. Under the law, cancellations can only be instigated by users. USCBC members indicate this could promote user fraud and limits indemnification for ecommerce platforms and sellers for machine or system error.

  • Business registrations   The draft requires ecommerce operators to register for a license and pay taxes. Many small operators run their businesses out of their residences, which cannot be used as a business address for licensing purposes. This might reduce the number of operators, decrease competition, and add licensing costs for small vendors, which will ultimately increase prices. This may also negatively impact the ecommerce platform operators because of a decrease in registered sellers.

  • Requirements for ecommerce platforms   Platforms are required to review and supervise store operators, make and enforce open platform rules, and allow store operators to easily withdraw from platforms.

  • Data storage and monitoring requirements   

    • Ecommerce platforms and payment providers are required to store consumer transaction data for three years and render that information to consumers upon request for free. They are also required to provide technical assistance to government authorities if requested. Additionally, express delivery companies must retain operational data into perpetuity.

    • Of particular concern to USCBC member companies are requirements for user and consumer data to be shared with unspecified government bodies. The law  does not specify the rules for sharing data or the purpose for transferring of ecommerce data to government bodies, which greatly increases regulatory uncertainty for companies.

    • The draft also calls for platforms to anonymize data before processing, creating challenges for service industries—such as express delivery—that require customer address, name, and other personal information to execute orders. The draft prohibits making service conditional on the collection of information from ecommerce consumers. But, in practice, personal information is required to complete an online transaction; without such information, it is impossible to provide service.

  • Postal inspection and delivery requirements  Delivery service providers will be required to verify waybills and refuse service if false information is provided. The draft also mandates compensation in the event of delay or damage and requires any change in service commitments to be publically announced.           

  • Penalties   The law sets fines for violations: one for relatively minor infractions (30,000 RMB to 100,000 RMB) and one for more serious infractions (100,000 RMB to 500,000 RMB). There are no criminal penalties for violations.

  • Cross-border ecommerce   While cross-border ecommerce is explicitly promoted, there is little clarity about product compliance and taxation issues.

 

USCBC advocacy for ecommerce changes

USCBC submitted article-by-article comments reflecting concerns from our member companies to the National People’s Congress, though no timeline for revision of the law has been set.   

Proposed cross-border ecommerce regulations, the implementation of which has been delayed for the past year, are slated to come into effect in 2018. China also recently released an ecommerce five-year plan with the goal of increasing annual online trading to 40 trillion RMB by 2020. The success or failure of this and other ambitious goals in the plan may hinge on the effective revision and implementation of the ecommerce law.