Quality Brands Protection Committee of China Association of Enterprises with Foreign Investment
Key Considerations and Suggestions on the
E-Commerce Law of the People's Republic of China (Draft)
Summary
This document outlines the key considerations and suggestions of the Quality Brands Protection Committee of China Association of Enterprises with Foreign Investment (QBPC) for the E-Commerce Law of the People's Republic of China (Draft) (hereinafter referred to as the "Draft").
Refer to the full QBPC report attached for details such as legislative recommendations on the relevant provisions of the Draft.
Foreword and Summary of Report
I. The healthy development of e-commerce is built on a law-based e-commerce environment, the effective control over online behaviors, such as sales of counterfeits, intellectual property right (IPR) infringement, and anti-competitive behavior, and the safeguarding of consumer rights and interests.
In November 2016, 10 ministries including the Ministry of Commerce formulated and issued the 13th Five-Year Development Plan for Domestic Trade Circulation ("Plan") based on the Outline of the 13th Five-Year Plan for the National Economic and Social Development of the People's Republic of China. This move is aimed at doing a good job in domestic trade circulation during the 13th Five-Year Plan period, accelerating the establishment of a modern circulation system, and giving full play to the fundamental and leading role of the domestic trade circulation in the national economy. The Plan proposes to push forward "Internet Plus Circulation" and vigorously develop e-commerce and modern logistics. The Plan also establishes a development goal of increasing the volume of e-commerce transactions and online retail sales to RMB 43.8 trillion and RMB 9.6 trillion at an annual average rate of approx 15% and 20% respectively by 2020. To achieve this goal, the Plan specifies the following main tasks: "promoting the development of online and offline integration", "accelerating brand development", "perfecting the legal system in the circulation field" and "better protecting IPR, improving the coordination mechanism for combating infringement and counterfeiting, investigating and punishing the production and sales of counterfeit and shoddy products according to law, and regulating market circulation order to improve the level of comprehensive supervision and law enforcement." The QBPC specifically offers these written recommendations to assist the Chinese government in fulfilling the above-mentioned tasks and achieving its development goals. The QBPC also wishes to take this opportunity to honor the transparent, open, and professional legislation and amendment process adopted by the National People's Congress for years.
II. The E-Commerce Law shall play a complementary role in China's ever-improving legal system for IPR protection (including relevant provisions of the Tort Liability Law) and shall not function as a special saw involving IPR infringement in E-commerce. The E-Commerce Law shall neither have precedence over nor conflict with the existing legal system.
Article 53 of the Draft stipulates that third-party e-commerce platforms shall adopt necessary measures such as deleting, shielding, disconnecting and terminating the transaction and services according to law in case of finding out any obvious infringement of IPRs. According to Paragraph 2 of Article 54, however, a third-party e-commerce platform shall promptly terminate measures taken if the operator on the platform submit declarations to the third-party e-commerce platform to guarantee that there exists no infringement. This renders the provisions of Article 53 null and void. According to Article 36 of the Tort Liability Law, an Internet service provider shall be subject to joint and several liability with network users when it fails to take necessary measures if it knew or should have known that users were utilizing its network to commit a tort against the civil rights and interests of others or following receipt of notice from the infringed party. The E-Commerce Law should neither precludes the application of the Tort Law nor conflicts with superior laws.
III. The Provisions in Paragraph 2 of Article 54 of the Draft Contradict with Main Tasks Specified in the Plan and Valid Judicial Documents and Regulations of Administrative Law Enforcement Departments Concerning IPR Protection in E-commerce. The Provisions also Run Contrary to Measures Taken by E-commerce Platforms to Protect the Legitimate Rights and Interests of Intellectual Property Holders. Operators on Third-Party E-Commerce Platforms May Also Take the Provisions as the Basis for Holding the Platforms Liable for Not Promptly Terminating the Measures Taken.
The provisions in Paragraph 2 of Article 54 of the Draft also conflict with judicial practice based on relevant judicial documents such as Beijing Municipal Higher People's Court's Guide on Hearings involving Internet IPR Cases and law enforcement acts of administrative departments for industry and commerce in accordance with the Tentative Measures for Administration of Online Commodity Transactions and Relevant Services. Therefore, the provisions should be modified. Furthermore, third-party e-commerce platforms currently do not ignore or terminate necessary measures taken because e-commerce operators involved in complaints makes non-infringement declarations. In fact, a well-known third-party platform has taken a great number of necessary measures to prove that it helps its intellectual property holders stop infringements by e-commerce operators. We have specifically asked some third-party e-commerce platforms how they would respond if the E-Commerce Law made it mandatory for them to terminate necessary measures taken once e-commerce operators concerned make non-infringement declarations. All the platforms told us that they would "continue to take necessary measures against the sale of any commodity using forged registered trademarks of any other party upon knowing this." We further asked whether the platforms would still stick to do so if the E-Commerce Law provided that they "shall terminate necessary measures taken in a timely manner." According to the provision, a third-party platform that fails to do so will violate relevant provisions of the E-Commerce Law and may even be sued if the failure leads to losses for e-commerce operators. We also asked these platforms how they would deal with evident IPR violations other than counterfeiting. The platforms basically failed to give clear answers and said they would comply with legal provisions and consult their legal counsel. Therefore, we can reasonably infer that Paragraph 2 of Article 54 of the Draft will serve as the basis for e-commerce operators involved in torts to file lawsuits against third-party e-commerce platforms if the platforms stick to necessary measures already taken after the receipt of the non-infringement declarations made by the operators. A famous large third-party e-commerce platform pointed out in its 2016 IPR report that it is faced with two challenges, that is, "lagging laws and regulations, difficulty in conviction and punishment, and low cost of violations" and "a secret encouragement of the sale of counterfeits given rampant trades in dark and murky industries." If Paragraph 2 of Article 54 of the E-Commerce Law allows allegedly infringing e-commerce operators to deprive third-party platforms of the right to take necessary measures by virtue of the operators' non-infringement declarations, this will greatly discourage third-party platforms from participating in the social combat against the sale of fakes online.
IV. E-commerce platforms shall report to public security organs themselves or along with right holders immediately After getting clues concerning suspected crimes of trademark infringement.
Paragraph 2 of Article 19 and Paragraph 2 of Article 20, respectively, provide that a third-party e-commerce platform shall report to and submit the allegedly illegal information to relevant departments in a timely manner if an e-commerce operator engages in business activities without obtaining an administrative license or sells goods or provides services in violation of laws and administrative regulations. Doubtlessly, third-party e-commerce platforms should report to public security organs once they learn clues about suspected crimes committed by e-commerce operators. Paragraph 1 of Article 108 of the Criminal Procedure Law of the People's Republic of China stipulates that "(a)ny unit or individual, upon discovering facts of a crime or a criminal suspect, shall have the right and duty to report the case or provide information to a public security organ, a People's Procuratorate or a People's Court." The Trademark Law of the PRC also has relevant provisions. For example, Article 61 provides that: "The administrative department for industry and commerce shall have the right to investigate into and punish the acts infringing upon the right to exclusive use of a registered trademark; if a crime is suspected to be constituted, the case shall be promptly transferred to the judicial departments for handling according to law." E-commerce business entities must fulfill these statutory obligations. In practice, many major criminal cases involving counterfeiting of registered trademarks and the knowing sale of goods bearing counterfeit registered trademarks are resolved simply because third-party e-commerce platforms promptly reported them to public security organs or together with relevant trademark holders. Therefore, it is suggested that Paragraph 2 be added to Article 53 of the Draft as follows: "Third-party e-commerce platforms shall promptly report to public security organs themselves or together with relevant intellectual property holders if they identify e-commerce operators suspected of committing crimes of trademark infringement."
V. Impact of Paragraph 2 of Article 54 of the Draft on International Economic and Trade Relations:
According to the list of 54 outcomes of the 27th China-U.S. Joint Commission on Commerce and Trade (JCCT) announced by the Ministry of Commerce in early January 2017, the 19th outcome mentions "Online Infringement of Intellectual Property Rights and Piracy ". The specific content is " The United States and China fully recognize the significance that enforcing against infringement and counterfeiting online has in protecting intellectual property rights and consumers, and fostering a fair competitive market. The two sides will strengthen cooperation with right holders and e-commerce platforms to actively and jointly promote the training of U.S. and Chinese small and medium-sized enterprises by e-commerce platforms on protecting intellectual property rights, to help them to use these platforms to foster international trade. Both sides will explore the use of big data and other new information technologies to enhance the capability for combating infringement and counterfeiting online. China will actively promote e-commerce-related legislation, strengthen the supervision over network infringement and counterfeiting. " The upcoming Ecommerce Law on which hopes of the China and the United States rest can be considered as part of efforts on the Chinese side to fulfill its commitments made at high-level meetings of the two countries. In view of this, the law is of great significance. As far as we know, in addition to corporate rights holders headquartered in Europe, America and Asia (including domestically-funded enterprises in China), European and American official agencies and chambers of commerce are all greatly concerned about various negative effects that Paragraph 2 of Article 54 of the Draft is very likely to produce. Hence, this shall be carefully taken into account and a timely improvement is required.
Overall, QBPC assumes that the current Draft fails to substantially improve existing deficiencies in protection for consumers and intellectual property holders. In fact, certain provisions of key articles, adopt new standards that will weaken existing IPR protection rules. This will possibly put great pressure on future rights protection efforts made by intellectual property holders as well as administrative law enforcement and judicial trial. The provisions will also result in a serious imbalances between the rights and obligations of intellectual property holders, consumers and e-commerce platforms.
With the rapid development of China's e-commerce, there is a rampant sale of counterfeit, infringing and shoddy goods online. In many cases, multinational/cross-border criminal organizations have acted in collusion to produce counterfeits offline and sell them online. How can e-commerce platforms turn a blind eye to infringement on their turf since they charge for their services? How can they terminate their necessary measures taken to stop infringement and leave disputes on infringement that could have been stopped for right holders and e-commerce operators on the platforms to resolve through civil actions or administrative investigation? And how can they allow infringement to continue and counterfeit and infringing goods to continue to be sold on the platforms that provide paid services before courts make final judgments or law enforcement authorities make decisions? This practice will not only severely infringe upon legitimate interests of ordinary consumers and intellectual property holders, but also seriously disrupt the order of China's market economy and the development of its credit system. The practice also runs counter to China's idea of building an innovative society and may even lead to trade disputes.
Unarguably, counterfeit, infringing and shoddy goods are rampant in the market and are closely associated with each other. Government departments and intellectual property holders have long been committed to fighting against counterfeit and shoddy goods online with significant resources. The situation, however, remains out of control.
The healthy development of e-commerce and IPR protection will benefit from each other. Without effective IPR protection, there cannot be a healthy or clean environment for ecommerce. With the introduction of the Ecommerce Law, the QBPC strongly recommends that the Standing Committee of the National People's Congress and relevant ministries conduct a comprehensive study and thoroughly understand the serious phenomena of the sale of counterfeit, infringing and shoddy goods in ecommerce, the difficulties in judicial trial and administrative law enforcement and useful efforts in the form of other laws and regulations and judicial practice to deal with these problems. In this way, provisions regarding IPR protection will be improved in a manner that is consistent with existing laws and regulations and judicial practice and can balance the interests of multiple stakeholders, providing a legal basis for the healthy and sustainable development of e-commerce in China.
Key Suggestions and Explanations
I. Articles 53, 54 and 55 of the Ecommerce Law Draft
1. Article 53 of the Draft stipulates that "Ecommerce business entities shall protect IPRs according to law and establish rules for protecting IPRs" and "adopt necessary measures" when they are "aware of" any infringement of IPRs by e-commerce operators on the platforms.
Suggestion (1): The first sentence should be changed to "E-commerce business entities shall establish rules and regulations to prevent infringement of the IPRs of others".
Justification: There is no legal requirement in China that requires third-party e-commerce platforms or e-commerce operators to "protect the IPRs of others." The most relevant provision is Article 36 of the Tort Liability Law which prohibits network users or Internet service providers from utilizing networks to commit a tort to others' civil rights and interests and imposes the obligation on ISPs to take necessary measures to stop infringements. This provision seemingly could not be interpreted as a legal basis for ecommerce business entities to "protect" the IPRs of others.