On August 31, 2018 the Standing Committee of the National People’s Congress (“NPC”) passed new regulations governing China’s e-commerce market. The passage of the legislation comes at the end of more than five years of drafts and negotiations with input from the country’s major technology companies. The new e-commerce law is set to take effect on January 1, 2019 and is predicted to have important effects on online transaction standards and protections for intellectual property. Despite the new requirements on e-commerce operators, the existing cohort of large internet companies is likely to benefit from the moat created by the new legislation.
At $1 trillion, China’s e-commerce market is the world’s largest and is set to continue its expansion. In the country’s largest cities, more than eighty percent of adults shop online. Indeed, with more than 800 million internet users—more than the United States and India combined—the domestic internet companies are among the world’s largest. Unsurprisingly, the new e-commerce law was largely influenced by the likes of Alibaba, Tencent, JD.com and other major internet companies. The resulting regulations, though stricter, benefit those operators with the scale to adequately police counterfeit products.
Article 42 provides “[w]here the intellectual property rights rights-holder feels that their intellectual property rights have been violated, they have the right to notify the e-commerce platform operator to take necessary measures such as deleting, blocking, disconnecting links, or ending transactions or services.” This provision directly addresses the longstanding problem of counterfeit goods sold on Chinese e-commerce platforms. The law imposes the duty that “[a]fter e-commerce platform operators receive notice, they shall promptly employ necessary measures and send the notice to the on-platform business; and where they do not promptly take the necessary measures, they are to bear responsibility for any increase in the harm joint with the on-platform business.” Commentators note that this may prove a larger burden on smaller online shopping platform operators that “do not have the same capabilities as China’s bigger players when it comes to identifying and removing counterfeit products.” Indeed, many of the larger players have already introduced internal procedures to address counterfeits. Currently, Alibaba monitors the listings on its Taobao Marketplace and Tmall “in real-time, using image and character recognition to identify listings that are likely to be hawking counterfeit goods.”
Though the new e-commerce law is not the ideal piece of legislation for the existing cohort of internet companies, the requirements and duties imposed on e-commerce platform operators likely creates sufficient barriers to entry for smaller operators. With the Chinese e-commerce market set to continue its rapid expansion, the current hierarchy of operators is likely to continue without the addition of major entrants.*
* Nicholas Orr is an Associate Editor for the Michigan Technology Law Review.