China Power

What China’s New E-Commerce Law Could Mean for IP Protection

Is China really cracking down on counterfeiters, or is the law more symbol than substance?

What China’s New E-Commerce Law Could Mean for IP Protection
Credit: Pixabay

Western calls for China to crack down on intellectual property (IP) violations long pre-date U.S. President Donald Trump’s trade war. Former President Barack Obama took an aggressive stance on protecting American intellectual property, and both the United States and EU have attempted to sue China in international courts. Nonetheless, Beijing has taken its time heeding these calls, following a gradual route to increasing protections for IP owners. The latest step in this process is the new e-commerce law, which was adopted in October of this year. The law reinforces previous efforts to discourage violations and hold violators accountable with adjustments made for the country’s booming online retail industry, but just how far the law will go to force reform in China’s e-commerce platforms remains to be seen.

China has growing cause for IP enforcement as its domestic industries develop technologies desirable to foreign companies, and its legal protections have largely reflected that. This new legislation, however, indicates a greater effort protect IP owners in its domestic markets, where e-commerce represents upwards of a quarter share of all retail sales. The express purpose for this shift is in part to protect Chinese consumers from counterfeit and even dangerous products.

Building on new punishments for IP violators announced earlier this year, the new law, which is set to go into effect January 1, 2019, appears to target accountability at the platform level in addition to discouraging counterfeit retailers. This mainly applies to platforms like Taobao and WeChat, which allow small independent vendors to create their own online stores and thus attract hordes of sellers with less than honest business practices. Under the new law, these websites will not only have to adjust rules for those posting products, they will also be held accountable for violations themselves in some cases.

While that might seem like a huge step forward for IP protection, the specific language of the law is vague, stating that the platform is accountable only if they “knew or should have known” of the violation. Furthermore, this is not entirely new law; in fact it is merely a codification of existing law established by China’s courts. This ambiguity raises questions about the motivations of a country whose laws are often more symbolic than substantive.

Given the current wording of the law, we should not expect that the courts will change their position on what constitutes a “should have known” situation of counterfeit. If there is to be any substantial change in platform enforcement, it will ultimately come from enforcement rules, which are yet to be drafted. Still, the law includes several other measures that could discourage vendors from posting counterfeit products such as requiring that business licenses be displayed, effectively quashing the anonymity of malicious sellers, and banning the deletion of comments that could help consumers and platforms to identify counterfeit products.

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Ambiguity in the law could be intended to give leeway to platforms that China views as a cornerstone of its economy. In ramping up enforcement, China is walking a fine line between protecting IP owners (and consumers) and putting excess pressure on e-commerce platforms, which already spend resources trying to stamp out counterfeit products for reasons related to reputation as much as covering themselves legally. Platforms mainly do this by enabling IP owners to report violations, but the burden of proof is placed on the owners, and that will continue to be the case under the new law. Moreover, the more concrete, if secondary measures of the law could provide platforms with greater means to find and remove illegal posts, but not necessarily greater incentive.

If China is serious about protecting IP, then the upcoming enforcement rules should define precisely when platforms should know about violations, and lay out specific guidelines for actively seeking out violators. Such measures could be costly though, and platforms will no doubt object and claim unfair burden. If history is any guide, the rules could easily fail to clarify platforms’ responsibilities, leaving the law as another reminder that the government is watching them, but otherwise maintaining the status quo.

Joe Knotts is a graduate of Beijing Normal University’s School of Social Development and Public Policy.