Recently, the State Administration for Industry and Commerce issued the Regulation on the implement of the Law of the People's Republic of China on the Protection of Consumer Rights and Interests (Consultation Draft) and solicited public comments on it. According to Article 2 of the Consultation Draft, this Regulation is not applicable when natural persons, legal persons and other organizations purchase, use commodities or accept services for the purpose of making profits. Obviously, this Article is set for professional investigator and once again makes the existence of professional investigator a big part of conversation.
The punitive compensation system set by the Law of the People's Republic of China on the Protection of Consumer Rights and Interests has given birth to professional investigator--a new interest group. A professional investigator is someone who buys fake products on purpose, complains to administrations or Consumers' Associations, or brings a lawsuit to the court with the intention to win financial compensation. As for the aims, a professional investigator is a professional claimant in essence.
According to Article 55 of the Law of the People's Republic of China on the Protection of Consumer Rights and Interests, if there is consumer fraud, the business operator shall compensate three times of the price paid. However, the definition of consumer fraud becomes a big problem in practice.
1. Cognizance of consumer fraud
As there is no clear definition of consumer fraud in the Law of the People's Republic of China on the Protection of Consumer Rights and Interests, different judgments are given in different case, resulting in great damages to the unity and authority of judicature.
There are two main analyzing standards in hearing cases related to professional investigators. The first is the objective standard, which directly equates unlawful behaviors of business operators with consumer fraud. For instance, once the labeling of products is illegal, the conducts of corresponding business operator will be deemed as consumer fraud. The second is the subjective standard. In accordance with this standard, the court shall not only examine whether there are illegal behaviors of the business operator, but also whether the business operator has an intention to fraud，whether the fraud of business operator has forced the false recognition and false expression of the one who buys the commodities.
From judicial practices, most cases adopt the first standard. As a result of which, the majority of professional investigator win the lawsuits and earn lucrative profits. The judgments of these cases always hold that consumers will be easily misled by the illegal behaviors of business operators, and, in order to strengthen the protection of consumer, such behaviors shall apply the punitive compensation system. In my opinion, the first standard has three defects, the first is it fails to analyze the composition elements of consumer fraud, instead, it easily equates administrative responsibility with civil responsibility. Second, it fails to examine whether the consumer is really misled or not; the third failing is that it never analyzes whether the purpose of purchase is really for daily life.
With the increasingly worsening anti-counterfeit chaos and the reflection of the whole society, the second standard begins to be popular. Most people ascribe the popularity to policy factors and social orientation. However, I think the second standard has its legal basis. According to Article 58 of General Principles of the civil Law of the People's Republic of China, Civil acts performed by a person against his true intentions as a result of cheating，coercion or exploitation of his unfavorable position by the other party shall be null and void. Article 68 of Opinions on Several Issues concerning the Implementation of the General Principles of the Civil Law of the People's Republic of China (For Trial Implementation). According to Article 54 of the Contract Law of People’s Republic of China, if a party induced the other party to enter into a contract against its true intention by fraud or duress, or by taking advantage of the other party's hardship, the aggrieved party is entitled to petition the People's Court or an arbitration institution for amendment or cancellation of the contract. The aforesaid articles clarifies the composition elements of a fraud：first, the cheating party has the intention of fraud; second, the cheating party implements the fraud; third, the cheated party is misled by the fraud；forth, the cheated party makes declaration of will due to the mistake。
In order to prove the third and forth composition elements, the subjective cognizance of the buyer shall be taken into consideration. As for professional investigators, they fully understand the behavior of business operators with the intention to make profits through lawsuits. Consequently, there is no possibility of any cognition error.
Now, those holding the first standard would question: how to prove the intention of professional investigators and whether there is cognition error? Actually, the possibility to prove the intention is independent of the composition elements of fraud. The former is a question of fact while the latter is about law qualitative. These two issues shall not be confused. Yet despite all that, judicial practices show that it is possible to prove the intention of professional investigators. I have once filed a civil lawsuit against a professional investigator, who bought the same product many times all around China and videotaped the purchasing process. After that, he sent the products for testing. Once the testing result showed that the product was fake, he would make a claim against the corresponding business operator. He even opened a micro blog to introduce his identity as a professional investigator as well as his experiences. Obviously, he knew the identification standards far better than the general public, which is a good proof of his identity as a professional investigator. Yet even so, we still call for an official standard for deciding the intention of purchase through legislation, judicial interpretation or even guidance.
2. Chaos and reflection
Objectively speaking, the second opinion is not only supported by laws but also involves policy metrics and social orientation. It reflects the wholes society’s rational reflection of professional investigators.
Nowadays, professional investigators’ initiatives are systematized and grouped. They have good organization and strict division. Through a conversation with a professional investigator, I learned that there are three roles in a professional investigator group: the first is those in front-line buy commodities, make complaints and file litigations-- they are the general professional investigators; the second is investors, who pay for the commodities purchased and get a set percentage of the compensations gained by lawsuits; the third is Think Tank, a group of people who provide guidance and give suggestions to those in the front-line, even including state organ personnel and college professors.
In order to make profits, large-scale enterprises and well-known brands become the primary targets of professional investigator. While those small workshops and businesses are ignored, the product quality of which is more alarming. The reasons of their complaints are mainly labeling flaws and superlative advertising expressions, which are irrelevant to product quality and food safety. Furthermore, some professional investigators even forge evidence and racketeering the enterprises.
Guided by for-profit groups and organizations, anti-counterfeit activities show a blowout growth. Statistics show that complaints of professional investigator from January to May 2016 in Shanghai are seven times that of 2014. According to media reports, among hundreds of consumers’ rights protection cases heard by Beijing Chaoyang Court, only one case is filed by a lawyer, and all the rest plaintiffs are professional investigator. Staff of administrative and judicial authorities spends most of their time and energy dealing with professional investigator. As a result, a lot of administrative and judicial resources have been wasted, making the goal of maintaining market order harder to achieve.
The initial intention of punitive compensation system is to better protect the interests of consumers and make up for the deregulation of governments. Notwithstanding, the system now becomes the profit-making tool of professional investigator--the opposite of the initial intention of legislation.
In the meantime, the conducts of professional investigators violate the principle of good faith. It’s hard to imagine how it would affect the social orientation if the court simply supports professional investigators and awards them high damages. Ultimately, it is government action rather than malicious prosecution that we should rely on to crack down illegal behaviors.
The good news is some courts’ attitude towards professional investigators has been changed now. In judicial practices, some courts has restricted the application of punitive compensation system and declared that know-fake-buy-fake behaviors shall not apply the aforesaid punishments. In March 2016, Chongqing Supreme People’s Court issued the Answers to Some Problems Concerning the Trail of Cases Involving Disputes over the Protection of Consumers’ Right, which expressly stated that: “If a consumer, knowing there is quality problem, purchases commodities or receives services and requests for punitive compensation, the people's court shall not uphold such request for violating the principle of good faith.
It remains to be seen whether Article 2 of the Regulation on the implement of the Law of the People's Republic of China on the Protection of Consumer Rights and Interests (Consultation Draft) will be kept in the final version, which, rules professional investigators out of the application scope of the Law of the People's Republic of China on the Protection of Consumer Rights and Interests.