Published June 29 for comments, the third draft of the E-Commerce Law is making headlines as another step toward the reform of the mainland China e-commerce legal environment.
The law, meant to upgrade the e-commerce regulatory environment from being industry-regulation based (The Administrative Measures for Online Trading of January 26, 2014) to national-law based, has been closely followed by various industry stakeholders as well as companies with prospects to develop their online presence through e-commerce growth.
This article will cover two important developments of the third draft of the E-Commerce Law: the addition of pro-consumer provisions and of new articles addressing unfair competition.
Proceeding toward further consumer protection
Following comments made by various experts and industry stakeholders presented in Section 5 of the third draft revision report (in Chinese), concerns about misleading and damaging behaviors from e-commerce operators targeting customers were made. As a result, legislators pushed forth new pro-consumer provisions into the E-Commerce Law.
A unique addition to the third draft is the new obligation under Article 19 for e-commerce operators using consumer profiling for promoting products and services to supplement such recommended products or services with options that are irrelevant to the customer characteristic. This additional layer of consumer protection will have interesting effects on how consumer profiling will be used by e-commerce operators as it will be necessary to determine how many options should be irrelevant and how to present such irrelevant choices to the consumers. It would indeed make no sense to have in a list of 50 products, 49 recommended and the last one irrelevant to the customer. It also poses an intricate privacy issue as how to prove that an option offered to the customer is irrelevant without a complete profiling of the customer.
Taking the example of an e-commerce operator selling cosmetics. If the consumer profiling showed a preference for mascara products, would the addition of beauty masks in the recommended products be irrelevant to the consumer preferences? How should the e-commerce operator prove that beauty masks are indeed irrelevant at the time of consultation? What would happen if further study of the customer behavior can show that the product is indeed relevant? Such questions will hopefully be covered at a later stage of the legislative process.
Legislators also took aim at the practice of preventing contracts from being formed upon payment by the consumer through the addition of specific contractual clauses. Article 48 of the E-Commerce Law was supplemented with a second paragraph that renders illegal the inclusion of stipulations in standard contract terms stating that a contract is not formed by the payment from the consumer. If such clause was to be used under the new draft, it would be deemed as invalid, leading to the formation of a contractual relationship between the consumer and the e-commerce operator. This addition could be seen as an answer to e-commerce operators refusing to abide by the Contract Law by invoking this clause, therefore impeding on consumer’s contractual rights.
However, it is important to note that although the law is promoting pro-consumer behaviors from e-commerce operators, some concessions were also made. For example, a modification of Article 17 of the E-Commerce Law only requires e-commerce operators putting to end their e-commerce operations to make some public announcement 30 days in advance, against 60 days in the second draft. Such reduction of the announcement period will provide more flexibility to e-commerce operators, although it will impact customers by providing a shorter window of opportunity for actions toward the e-commerce operator.
Pushing forward a pro-competition market
As the deletion of Chapter IV, Section 2 on fair competition was noted from the first to the second draft of the E-Commerce Law, the addition of two articles on anti-competitive behavior to the third draft is notable.
By reaffirming in Article 22 that e-commerce operators gaining a dominant market position (i.e., through technological superiority, important users base, influence over relevant industries, the reliance of other operators, etc.) should not make abuse of such dominant market position to eliminate or restrict competition, the legislators made clear recent concerns over competition issues among e-commerce operators. This concern is made even clearer with the addition of Article 34, which states that an e-commerce platform operator shall not take advantage of its service agreement or transaction rules, or through other means to impose unreasonable restrictions on e-commerce operators. It shall also not make abuse of its position to add unjustified conditions to the deals, as well as prices, concluded on the platform by e-commerce operators with customers, as well as with other e-commerce operators.
Such additions to the E-Commerce Law are not surprising given the recent push for competitive behavior in mainland Chinafollowing the adoption of the 2017 Anti-Unfair Competition Law of the People's Republic of China on 4 November 2017. Furthermore, the new articles are echoing recent concerns of anti-competitive behavior in an industry that has reached a state of market saturation. Legislators, by reaffirming the importance of competition in the healthy development of the e-commerce industry, are making a clear attempt at thwarting the emergence of an industry where anti-competitive behavior could drastically slow down innovation.
When should the final version be expected?
Although we may be tempted to draw a parallel with the Cybersecurity Law which was adopted days after the publication of its third draft in November 2016, it is important to note that the Cybersecurity Law at the time did not include a period for comments, while the third draft of the E-Commerce Law is adjoined to a comment period spanning from 29 June 2018 to 28 July 2018. As such, it is unlikely that the law will be published in the coming days, while it is highly probable to see the law passed this year.
The final version of the E-Commerce Law is expected to mostly mirror the content of the third draft. If a few small modifications are expected to some articles to further define or widen some definitions, major changes between the third draft and the final version are unlikely. In view of the relative stability of the drafts between the second version and the third version, it is believed to be stable enough to support early compliance processes for companies with e-commerce operations.
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