On Dec. 27, 2016, the Standing Committee of the National People’s Congress issued the Draft Ecommerce Law of the People’s Republic of China (the Draft) for public comment. As a top-down lawmaking effort to regulate the booming e-commerce market in China, the Draft lays out both a general framework and guidance for market players.

1. Definition of E-commerce and Operators

The Draft applies to e-commerce activities that occur within China or involve operators or customers within China. E-commerce is defined under the Draft as the operational activities of trading goods or services through the Internet and other information networks. The Draft classifies e-commerce operating entities, i.e., the operators, into two categories: third-party e-commerce platform operators (Platform) and other e-commerce operators. The Platform is defined as those who provide webpage space, virtual business site, transaction intermediation service, and information publication for other e-commerce operators.

2. Duties of Platform Operators

2.1 Special Duties applicable to Platform Operators

The Draft retains a separate section outlining duties that are exclusively applicable to Platform operators. For example, the Platform operators shall examine and supervise activities of participating vendors (i.e., vendors who trade on the platform) and their duties include reviewing and registering the background information of vendors and sanctioning those vendors committing illegal activities by giving a warning letter, suspending, or terminating the platform service pursuant to the service agreement and the transaction rules of the Platform. In addition, if the Platform also conducts “self-operated businesses,” i.e., trading goods or services that are purchased by itself, the Platform shall distinguish in a conspicuous manner those self-operated businesses and other participating vendors in order to not mislead customers.

2.2 Duties regarding Protection of Personal Data

The Draft emphasizes the importance of personal data protection by setting forth the following obligations of operators:

(i) The operators shall establish rules regarding collection and utilization of personal data and guarantee that such rules are accepted by users; in addition, any amendment to such rules must be pre-approved by its users.

(ii) The operator shall promptly respond to any user’s request for information regarding the user; if the user submits a request to correct or supplement any personal data, the operator shall promptly update according to the request.

(iii) If any statutory or contractual term of use expires, the operator shall delete, cease using, or destroy relevant personal data.

(iv) If exchanging shared personal data with others, the operators shall take necessary steps to ensure the data cannot be used to identify any specific person or his or her terminal device and that the data cannot be recoverable.

(v) Where the operator fails its obligation regarding personal data protection, the government authority may issue a sanction up to revocation of its business license.

(vi) With regard to cross-border activities, the Draft does not stipulate any specific obligation; instead, the Draft authorizes the state to establish a mechanism for storage, exchange, and protection of data in cross-border transactions.

2.3 Duties regarding IP Protection and Fair Competition

The Draft also emphasizes the importance of creating an orderly market with fair competition. The Draft addresses the issue from the following two perspectives:

(i) The Draft specifies certain duties of operators regarding IP protection. All operators shall establish rules regarding IP protection. Only Platform operators are obligated to take remedial steps including deletion, blocking, disconnecting, or terminating service if the Platform becomes aware of any IP infringement committed by the participating vendors. The Draft imposes a “messenger” duty upon the Platform operators regarding IP disputes against the vendors trading on its platform: when the Platform receives a complaint of IP infringement from the IP owner, the Platform shall promptly forward the complaint to the vendor concerned, and if the vendor makes an undertaking of non-infringement to the Platform, the Platform shall forward the undertaking to the IP owner and promptly cease the remedial actions against the vendors.

(ii) The Draft expressly prohibits certain activities that impair fair competition or the credit of other businesses, including: (a) use of business marks that are identical to or similar to another business’ well-known marks including their websites, domain names, and webpages because it is misleading to the public and confusing to the market; (b) use of electronic marks of government agencies or social organizations that is misleading to others; (c) inflating the reputation of itself or others by fabricating transactions, deleting negative comments, trading favorable comments by offering payment or other conditions; (d) damaging the reputation of others through malicious comments inconsistent with fact; (e) harassing, threatening, or forcing any counterparty to make, modify, or delete comments regarding the goods or services received; (f) tampering with or selectively disclosing the credit evaluation records of an operator.

3. Customer’s Right to Cancel an Electronic Contract

The Draft clarifies that a customer may cancel an electronic contract that is made through an automated transaction system when the customer makes an “input” mistake if the following conditions are satisfied: (i) the automated transaction system does not provide a solution to correct the input mistake; (ii) the customer has immediately notified the counterparty that an input mistake occurs; and (iii) the customer has not received substantial benefit or items of value from the counterparty. However, the Draft does not specify the meaning of “automated transaction system,” or what an “input” mistake may cover.

The Draft will be open for public comment until Jan. 26, 2017.

- The E-commerce Law of the People's Republic of China (Draft)

- 中华人民共和国电子商务法(草案)

- Issuing Authority: the Standing Committee of the National People’s Congress

- Date of Issuance: Dec. 27, 2016 / Deadline for Comment: Jan. 26, 2017