The PRC E-Commerce Law (the “E-Commerce Law”) will take effect on 1 January 2019. It is China’s first comprehensive legislation in the E-commerce field and contains regulations on many aspects relating to E-commerce including the protection of intellectual property (“IP”) rights on E-commerce platforms. Below are some key issues concerning IP protection under the new E-Commerce Law.

1. Types of Operators under the Law

The E-Commerce Law applies to all E-commerce activities in the territory of the PRC. “E-commerce” is defined as business activities of selling goods or providing services through information networks including the internet. However, the E-Commerce Law does not apply to financial products and services and news information, audio and video programs, publications, cultural products, and other content services provided through information networks.

Under the E-Commerce Law, there are three types of E-Commerce Operators:

  •  “Operators of E-Commerce Platforms” refer to those who provide business related online sites, trading matchmaking and information release for traders to facilitate their efforts to conduct trading activities independently (e.g. the operators of online platforms such as Tmall);
  •  “Operators on a Platform”, namely sellers on E-Commerce Platforms (e.g. sellers on platforms such as Tmall);
  •  “Other E-Commerce Operators” refer to those who sell goods or provide services through their own websites or other network channels.

The E-Commerce Law provides for obligations of Operators of E-Commerce Platforms and procedures and actions which can be taken by Operators of E-Commerce Platforms in case of IP infringements.

2. Obligations of Operators of E-Commerce Platforms

  •  Operators of E-Commerce Platforms shall develop rules for IP protection and strengthen cooperation with IP right owners.
  •  Operators of E-Commerce Platforms shall take necessary measures towards IP infringement, i.e. take-down measures.

Normally, Operators of E-Commerce Platforms are not able to proactively detect each infringement on their platforms but can be notified through the notice-and-down procedure by the IP right owners.

According to Article 45 of the E-Commerce Law, where the Operator of an E-Commerce Platform knows or should have known that an operator on its platform infringes upon any IP right, it shall take the initiative to take necessary measures such as deletion, blocking or disconnection of links and termination of transactions and services. The E-Commerce Law explicitly adds the term “should have known” compared to the PRC Tort Law. The PRC Tort Law only stipulates obligations of the network service provider if the network service provider “knows” the infringement.Due to the lack of provisions for the situation that the network service provider does not actually know, but “should have known” the infringement, there was uncertainty about how to deal with this situation in judicial practice.

Since the E-Commerce Law does not provide a definition of the term “should have known”, the Answers of the Beijing High Court on Some Issues Concerning the Trial of Cases Involving Civil Disputes over Infringements upon Intellectual Property (“Answers”) issued on 28 December 2012 still need to be referred to. The Answers provide the following:

  1.  Before the transaction information of an alleged infringement is communicated to the public, the Operator of an E-Commerce Platform is presumed to know the infringement within its platform if the Operator of an E-Commerce Platform and the infringing operator on its platform cooperate in business operations or the Operator of an E-Commerce Platform directly gains economic benefits from the infringing transactions of the operator on its platform;
  2.  After the transaction information of an alleged infringement is communicated to the public, the Operator of an E-Commerce Platform is presumed to know the infringement within its platform if the infringing information is placed at plainly visible locations such as the homepage of the website, the homepage of any column of the website, etc, or the Operator of an E-Commerce Platform has manually edited, chosen or recommended such infringing information, and meanwhile, there is a confession of non-authorization from the IP right owner made by the infringing operator contained in the infringing information or a well-known product or service is sold at an unreasonable price.

3. Notice-and-takedown Procedure

The E-Commerce Law provides for a notice-and-takedown procedure at the legislative level for the E-commerce platform to deal with the disputes in relation to the IP.

(1) Steps of the Procedure

  •  Upon receipt of a notification from the IP right owner which includes the prima facie evidence proving the infringement has been committed, the Operator of an E-Commerce Platform shall take timely and necessary measures such as deletion, blocking or disconnection of links and termination of transaction and services, and then forward the notification to the concerned operator on its platform;
  •  The concerned operator who holds that no infringement has been committed shall give a declaration of non-infringement including the prima facie evidence to the Operator of the E-Commerce Platform;
  •  The Operator of the E-Commerce Platform shall forward the declaration to the IP right owner;
  •  If within 15 days after the forwarded declaration reached the IP right owner, the Operator of the E-Commerce Platform has not received a notification that the IP right owner filed a complaint or litigation, it shall promptly terminate the measures it has taken against the concerned operator on its platform;
  •  The Operator of the E-Commerce Platform shall publish the received notification, declaration and the results of handling the infringement in a timely manner.

(2) Prima Facie Evidence Required from the IP Right Owner

The E-Commerce Law makes it clear that prima facie evidence is required both for the notification from the IP right owner and the declaration from the concerned operator.

The E-Commerce Law explicitly provides that only prima facie evidence is required. However, what constitutes “prima facie evidence” is not clearly stipulated in the E-Commerce Law. Thus, we still need to refer to the Answers and the Regulation on the Protection of the Right to Communicate Works to the Public over Information Networks (2013 Revision, issued by the PRC State Council and effective on 30 January 2013) (“Regulation”), which lists the information that should be included in the notification from the IP right owner to the Operator of the E-Commerce Platform:

  •  name, contact information and address of the IP right owner;
  •  sufficient information to accurately locate the transaction information of the accused infringement, such as the link or webpage of the infringing information/work;
  •  evidence of ownership of IP rights;
  •  preliminary proof of infringement; and
  •  IP right owner's warranty to the authenticity of the notification.

(3) Non-Infringement Declaration of the Concerned Operator

As the E-Commerce Law does not provide a definition of the non-infringement declaration, for the information to be included, we still need to refer to the Answers and the Regulation:

  •  name, contact information and address of the concerned operator;
  •  sufficient information to accurately locate the transaction information of the accused infringement;
  •  proof of non-infringement; and
  • the concerned operator’s warranty to the authenticity of the declaration.

(4) Measures on Abuse of the Procedures

Under the notice-and-takedown procedure, it is easy for the IP right owner to exercise its right, which may result in the abuse of rights by the IP right owners impacting the normal business operation of the Operators of the E-Commerce Platforms and the Operators on the Platform. To avoid such abuse, under the E-Commerce Law, an IP right owner who gives wrong notice to the Operator of an E-Commerce Platform in bad faith is liable for punitive compensation. This is the first time that punitive compensation system is introduced in relation to E-commerce to deal with the malicious notifications.

According to Article 42(3) of the E-Commerce Law, in case of malicious notification the IP right owner is liable for twice of the damages caused to the Operators on the Platform due to such malicious notification.

4. Liabilities of Operators of E-Commerce Platforms

In general, according to Article 85 of the E-Commerce Law, any E-commerce operator who commits an IP infringement is subject to the consequences stipulated in the relevant IP laws. For Operators of E-Commerce Platforms, the E-Commerce Law has provided additional liabilities corresponding to their obligations with regard to IP protection.

(1) Administrative Liability

The E-Commerce Law strengthens the administrative supervision on the E-commerce industry. A fine will be imposed on the Operator of an E-Commerce Platform who fails to take necessary measures against IP infringement. The maximum amount of the fine is increased from RMB 500,000 to RMB 2,000,000 in the final version of the E-Commerce Law.

The relevant IP administrative authorities, i.e. CNIPA (China National Intellectual Property Administration) and its local counterparts can order the Operator of an E-Commerce Platform to take corrective actions within a specified period. If the Operator of an E-Commerce Platform fails to do so, it shall be fined ranging from RMB 50,000 to RMB 500,000, or, if the circumstances are serious, from RMB 500,000 to RMB 2,000,000.

(2) Civil Liability

Under the following circumstances, the Operator of an E-Commerce Platform is subject to joint and several liability with the concerned operator on its platform:

  •  Where the Operator of an E-Commerce Platform fails to take timely and necessary measures after having received the notification from the IP right owner, it shall be jointly and severally liable with the concerned operator on its platform for any increased part of the damage;
  • Where the Operator of an E-Commerce Platform knows or should have known that an operator on its platform infringes upon any IP right, and it fails to take necessary measures such as deletion, blocking or disconnection of links and termination of transactions and services, it shall be jointly and severally liable with the concerned operator on its platform.

5. Conclusion

The new E-Commerce Law is expected to have significant impact on the IP protection in the E-commerce field. It will likely improve the protection of consumers’ and IP owners’ rights and interests, bring more regulation and legal certainty into and further promote the development of the E-commerce industry. It is recommended for Operators of E-Commerce Platforms and Operators on the Platform to pay close attention to the new requirements and adopt necessary measures for compliance.