China was preparing to pass a wide-ranging law that would hold ecommerce platforms run by Alibaba, JD.com and Tencent liable for fraudulent goods sold by vendors on their sites.
The draft legislation, to be reviewed on Friday by China’s rubber-stamp parliament, marked a shift in the approach regulators have taken in managing the country’s $1tn ecommerce market, which has been plagued by the sale of fake or substandard products.
“It seems pretty clear that up to now [platforms] have enjoyed the same sort of arrangement as YouTube, where if someone infringes on your copyright you don’t get to sue YouTube,” said Mark Natkin, managing director at Marbridge Consulting, a Beijing-based tech consultancy.
“Now [the law] seems to have expanded such that if there’s a problem with the product, or if it is fraudulent, platforms like Alibaba and JD.com become liable.”
Platforms such as Alibaba’s Taobao or Tmall currently have a notice and takedown policy for merchants that violate consumer rights or sell knock-offs. Vendors need to notify the platform of a fraudulent product, the company will investigate and take it down if needed.
By extending legal responsibility to the platform, Chinese regulators are hoping to close a loophole that has made preventing the sale of fraudulent goods a cat-and-mouse game, said lawyers.
“The target would be the bigger platforms. Actually the draft law also looks at relieving the obligations on some of the smaller vendors,” said Eugene Low, a Hong Kong lawyer.
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Industry players said some of the regulations would be tough to enforce. For example, ensuring sellers of healthcare products had the requisite qualifications, as proposed by the new rules, would be tough in a country awash in fake certificates.
A requirement to take immediate action against merchants upon receiving complaints would also be tricky, they said. Rivalry among merchants meant some use false accusations to attack their competitors. Ecommerce platforms currently take time to ascertain the veracity of claims before acting on them.
Alibaba declined to comment because the new regulations are still being considered by the law makers.
JD.com did not respond to requests for comment.
The draft legislation stops “bundling” in which a vendor adds services or products to a purchase — automatically including, say, airport pick-ups or insurance when customers buy flights. It also stops the practice of analysing a consumer’s previous browsing and shopping data to look for opportunities to raise prices.
“There will be an impact on what the platforms can do and more monitoring of merchants,” said James Gong, a senior associate with Herbert Smith Freehills, the law firm. “They will need more people to deal with complaints and fake goods and more careful dealing with personal information.”
China has not held back in directly criticising some of its largest companies for substandard products or behaviour perceived as unethical. An annual name-and-shame show held by state broadcaster CCTV regularly goes after both domestic and foreign companies in the name of consumer protection.
