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China – Addressing The E-Commerce Market: Tentative Online Trading Procedures (Part 2).

5 December, 2013

 
 

2.4 Clarification And Increased Penalties For Real-Name Registration System


The Tentative Online Trading Procedures stipulate that all online service providers are required to verify the true identity of online vendors. For individual vendors who are eligible to register with the SAIC or its local branch, the AIC, the online service provider is required to build archives to record their true identities and to verify and update these archives on a regular basis. Other legal persons or organizations are required to register with the AIC and are required to prominently display or provide a link to their business license on their website.


The Draft Online Trading Procedures have clarified the above real-name registration system requirements, specifically stipulating that individual online vendors are allowed to engage in online transactions despite not having a business license from the AIC. However, they are only allowed to do so through a third-party transaction platform, and must register with the third-party transaction platform using their real names, thus giving the consumer greater protection and greater vendor ‘traceability’. Failure to abide by these provisions will attract a fine between RMB 10,000 and RMB 30,000.


2.5 Obligations Of Third-Party Platforms


Third party platform operators are also regulated specifically under the Draft Online Trading Procedures, thereby linking them to the Draft Transaction Rules Procedures. Third party platform operators are also required to be registered with the AIC. They are required to provide a sound online transaction environment and to protect consumers’ interests by:


a) adopting necessary technologies and measures to ensure that their platforms are secure, reliable and free from spam;
b) collating and supervising information on products and services sold on the platform. If the third-party platform finds that information posted by vendors is in violation of AIC rules, the third-party platform must report to the local AIC authorities and take measures to stop the vendor from posting misleading information;
c) taking appropriate action against vendors to stop activities that infringe the trade marks of third parties;
d) establishing a mechanism to resolve disputes between consumers and vendors. The third-party platform shall take all measures to assist consumers, including acting as mediator between consumers and vendors. If a consumer wishes to seek redress through other channels, the third-party platform must provide genuine registration information on vendors to consumers;
e) establishing a fair and objective consumer-generated review system, to allow consumers to rate the vendor and its products;

f) reporting to local AIC on any unlawful activity by vendors and actively cooperating with the AIC in the event of an investigation; and
g) establishing a special fund to compensate consumers when their legal rights are infringed.


In addition, a third party platform operator is under an obligation to enact transaction rules between the third party platform operator and vendors that clearly outline their respective rights, duties and obligations. This emphasis on transaction rules demonstrates a clear intent on the part of the Chinese authorities to delegate the duties of monitoring online trading activities to third party platform providers. The specific requirements regarding third party platform transaction rules are further detailed in the Draft Transaction Rules Procedures (discussed below).


2.6 Increased Punishments


The Draft Online Trading Procedures impose stricter monetary penalties than the Tentative Online Trading Procedures, namely:


a) the penalty has been increased from up to RMB 10,000 to an amount between RMB 10,000 to RMB 30,000 for any loss or mishandling of personal data1;

b) the penalty has been increased from up to RMB 10,000 to an amount between RMB 10,000 and RMB 30,000 for failure to cooperate with authorities in investigating violations by online vendors;
c) business operators providing a forum for consumers to review and post comments on goods and/or services must ensure the forums remain impartial and fair, otherwise a fine between RMB 10,000 to RMB 30,000 may be imposed on them;
d) those who receive benefits from online vendors to advertise products and services on their social media sites will be required to disclose the benefits received, otherwise a fine of up to RMB 10,000 may be imposed;

e) failure to display clearly the information pertaining to services or products including their names, categories, quantities, prices, quality, shipping fees, forms of payment and methods, and return or exchange methods may attract a fine up to RMB 10,000; and
f) failure by a third-party transaction platform to provide adequate transaction rules and management of its transaction platform may attract a fine between RMB 10,000 to 30,000.


The Draft Online Trading Procedures reinforce and clarify the obligations of third-party platform providers to monitor the trading behaviour of online vendors and protect data. The penalties imposed in the Draft Online Trading Procedures remain low. Perhaps, when used in combination with additional powers given to the SAIC to conduct investigations, seize products and shut down businesses, the Draft Online Trading Procedures may provide a greater stick to persuade business operators to comply with the new law.


Overall, however, the amendments made to the Draft Online Trading Procedures are not revolutionary. When viewed against the wider background of anti-competition, anti-corruption and data protection laws which contain more severe penalties, the Draft Online Trading Procedures itself may simply be seen as consumer-friendly legislation that does not pack much of a punch.


Having said that, the Draft Online Trading Procedures are not without value. A significant contribution of the Draft Online Trading Procedures is the clarification of the real-name registration system which addresses a serious issue with vendor identity and which represents one of the key elements for consumer protection in e-commerce. After-sales customer services have proved in practice to be particularly inadequate, as consumers who wish to return or repair products, launch complaints or receive technical support are often hampered by difficulties in identifying the original seller. The real-name registration system will hopefully create a credit and disclosure system to address problems that arise from counterfeiting, inferior product quality, misrepresentation, fraud, and other types of behaviour that may harm consumers. Further, the requirement for third-party platforms to establish transaction rules with vendors may provide an additional incentive to comply with the new legislation, as it gives thirdparty transaction platforms contractual powers to terminate registration agreements in the event the vendor has engaged in illegal activities.

 

1. Introduction

 

2. Aims of the Tentative Online Trading Procedures (Part 1)

 

3. Aims of the Tentative Online Trading Procedures (Part 2)

 

4. Online Retailing Conducted on Third-Party Platforms, Concluding Thoughts

 

End Notes:

 

1 The increased penalties for loss or mishandling of personal data are in
line with those set out in the Provisions, where they also range from RMB
10,000 to 30,000. Under the Regulating of the Internet Information Service
Market Several Provisions (规范互联网信息服务市场秩序若干规定) effective on
15 March 2012, Internet Service Providers will also be subject to a fine of RMB
10,000 to 30,000 for failure to safeguard the information uploaded by users, or
for modifying, deleting, disclosing and transferring personal information without
authorization.

 

Hogan Lovells

 

For further information, please contact:

 

Roy Zou, Partner, Hogan Lovells
[email protected]


Sherry Gong, Hogan Lovells
[email protected]


Stephanie Tsui, Hogan Lovells
[email protected]oganlovells.com


Andrew McGinty, Partner, Hogan Lovells
[email protected]

 

Hogan Lovells TMT Practice Profile in China

 
 

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