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Measures for the Supervision and Administration of Online Transactions” are Rolled Out to Refine the Regulations for Online Markets

2021.03.24 DONG, Xiao (Marissa)、ZHU, Tong

In furtherance of the E-Commerce Law, China’s State Administration of Market Regulation (SAMR) released a draft version of Measures for the Supervision and Administration of Online Transactions for public comment on October 20, 2020, the official version of which was promulgated on May 15, 2021 (the “Measures”). The Measures,    when coming into force on May 1, 2021, will supersede the previous Measures for the Administration of Online Transactions enacted by the former State Administration of Industry and Commerce on January 26, 2014 and couple with the E-Commerce Law to regulate online markets. The Measures feature the following highlights:

I.Clarification of the Roles of New E-Commerce Operators

The Measures clarify the roles of e-commerce operators engaged in new models of online transactions, such as live streaming campaigns and social media platforms.

Article 7 of the Measures explicitly states that  providers of network services, such as social networking and live streaming, who provide business operators with online business premises and support services such as product browsing, order generation and online payment to facilitate online transactions, shall perform the obligations of e-commerce platform operators; and the duties of e-commerce operators operating through social media, live-streaming platforms or other network services shall be governed by and comply with the provisions that the Measures apply to operators on the platform. Article 20 of the Measures provides that a person who engages in online transactions via social media or live-streaming campaigns shall display the information or URL related to the actual business entity in a prominent manner.  Live-streaming service providers are required to retain e-commerce live-streaming videos for at least three years from the end of the live-stream.

II.Exceptions to Market Participant Registration

For exceptions to market participant registration, Article 8 of the Measures further defines the term “sporadic and small value transaction” stipulated in the E-Commerce Law to mean that an individual e-commerce operator will be exempt from the requirement for registration of market participant to the extent that their aggregate annual transaction volume is less than RMB 100,000; provided that the same e-commerce operator operates multiple online stores whether on the same platform or on different platforms, the transaction volume of each online store shall be calculated on a consolidated basis. Also, the term “labor services for the convenience of the public” is defined as the labor services that an individual renders via the Internet that are not subject to a license requirement in accordance with the law, including, among other things, cleaning, laundering, sewing, hairdressing, household moving services, key cutting, pipeline plumbing and appliance and furniture repair.

Article 12 of the Measures stipulates the general obligations of e-commerce operators regarding information disclosure, and further clarifies the content of the information disclosure and the specific timeframe for updating the disclosure, distinguishing whether the registration of the market participant is mandatory.

III.Introduction of Tougher Responsibilities for E-commerce Platform Operators

Articles 24 to 32 of the Measures further specify the obligations of e-commerce platform operators that the E-commerce Law imposes, particularly in regard to verifying the information of operators on the platform. It establishes an inspection and monitoring system, publicizing disciplinary actions taken against non-compliant operators on the platform and protecting the independent discretion of the operators on the platform to carry out business activities.

1.Information management for the operators on the platform

Under the Measures, e-commerce platform operators are obliged to verify, register and update at six monthly intervals information related to the operators on the platform (art. 24), submit such information to the provincial AMRs in January and July of each year (art. 25), provide technical support for the information disclosed by the operators on the platform (art. 26), and retain the identity information of the operators on the platform for at least three years from their exit from the platform (art. 31).

2.Implementing the inspection and monitoring system

In accordance with Article 29 of the Measures, an e-commerce platform operator is obliged to establish an inspection and monitoring system for operators on the platform and the information related to the goods or services they offer. Upon it becoming aware of any violation of the law by the operator on the platform, the e-commerce platform operator shall report such violation to the AMR at or above the county level where the platform is domiciled.

3.Publicizing disciplinary action taken against operators on the platform

In accordance with Article 30 of the Measures, the e-commerce platform operator shall, within one business day after deciding on disciplinary action, publicize information regarding the name of the online store operated by the non-compliant operator on the platform, the illegal conduct and the disciplinary action taken, until the expiry of such disciplinary action.

4.Protecting the operational rights of operators on the platform

Under Article 32 of the Measures, the e-commerce platform operator may not impose unreasonable restrictions or conditions on the business activities of operators on the platform, which include, among others:

(1)Obstructing or restricting operators on the platform from choosing to conduct business activities on multiple platforms by lowering the operators’ position in search results, removing products, restricting operations, blocking stores or increasing service fees, or limiting the operators to conducting business activities on a specific platform by improper means;

(2)Obstructing or restricting operators on the platform from selecting service providers in their sole discretion for providing courier, logistics or other support services; or

(3)Otherwise interfering with the operators on the platform to conduct their regular course of business in their own discretion.

IV.Strengthening Consumer Protection

The Measures improve the rules in the protection of consumer rights by protecting consumers’ personal information, prohibiting false advertising, banning any type of consent by default to product tying, posting a prominent notification of automatic renewal and standardizing contractual clauses. These rules apply to all types of e-commerce operators. In particular,

1.Protection of consumers’ personal information

On the basis of the Cybersecurity Law and other current laws and regulations, Article 13 of the Measures indicates that e-commerce operators shall not force or trick consumers to give consent to the collection and use of their information that is not directly related to business activities by using a one-time general authorization, authorization by default, bundling with other authorizations or the suspension of installation and use. In regard to the collection and use of sensitive personal information, the Measures provide that collecting and using sensitive information regarding personal biometrics, medical health, financial accounts and social media accounts shall obtain consent of the data subject on an item-by-item basis. Whether this provision implies that in addition to a privacy policy, multiple pop-ups or other method will be required to obtain the users’ consent to the above information separately and on an item-by-item basis, remains to be further specified.

2.False advertising

Article 14 of the Measures sets out particular types of false advertising, including: (1) creating fictitious transactions, fabricating customer reviews; (2) making a misleading display to put favorable reviews up front and unfavorable reviews behind, or failing to clearly and prominently distinguish reviews and feedback among different goods or services; (3) conducting fictitious marketing activities such as fictitious spot, false booking and false panic buying; and (4) fabricating traffic data such as clicks and attention, and fabricating transaction interaction data such as favorites and rewards. Further, e-commerce operators are prohibited from performing any confusing actions or damaging the reputation of their competitors by posting fake information.

3.Commercial marketing

In addition to obtaining consumers’ explicit consent for the purpose of sending advertisements or other commercial messages, e-commerce operators are also obliged under Article 16 of the Measures to offer a prominent, free and easy-to-operate opt-out option to consumers. If the consumer opts out, the e-commerce operator shall immediately cease to send any commercial message and shall not otherwise send it again.

4.Service renewal

Article 18 of the Measures provides that if the services are provided by means of an automatic renewal or auto-renewable subscription, the e-commerce operator shall give prominent notification to consumers five days before such automatic renewal or auto-renewable subscription takes effect, and shall offer prominent and easy-to-operate options to consumers for cancellation or change at any time.

5.Forced tying

Article 17 of the Measures bans the tying of goods or services by using the method of consent by default, and emphasizes that no options selected by the consumer in any previous transaction shall be set as the default for such a customer.

6.Standardized contractual clauses

Article 21 of the Measures expressly provides that the standardized contractual clauses shall not attempt to: (1) relieve, in whole or in part, the e-commerce operator of and from their responsibilities for repair, return or replacement, refund or compensation; (2) exclude or restrict the consumer from exercising their rights to request repair, return or replacement or claim for compensation and liquidated damages; (3) exclude or restrict the consumer from exercising their right to file complaints or reporting, request for mediation, apply for arbitration or bring suits in accordance with the law; (4) exclude or restrict the consumer from exercising their rights to change or rescind the contract under law; (5) specify that the e-commerce operators reserves the right to unilaterally or finally interpret the terms of the contract; or (6) impose other unfair or unreasonable provisions on consumers.

V.Strengthening Supervision and Management and Legal Responsibilities

The Measures strengthens the SAMR’s supervision and requires e-commerce operators to submit sales-related information on time (art. 22) and other e-commerce service providers to assist the department in investigating and punishing violations (art. 34). When investigating suspected illegal e-commerce transactions, the SAMR can take enforcement measures such as on-site inspections (art. 35) and conduct interviews and rectifications with the relevant persons in charge (art. 38). The Measures also implements credit supervision over e-commerce operators, which complies with the public-oriented industry characteristics of e-commerce and will effectively maintain the order of online transactions through joint punishment against subjects defaulting in social credit. (art. 37).    Articles 39 to 51 of the Measures stipulate the legal responsibilities of e-commerce operators under certain illegal circumstances, such as the refusal of e-commerce platform operators to issue materials related to the network business premises (art. 40), liability for violations of personal information protection, commercial promotion, or service renewal. (art. 41). In addition, the Measures comprehensively introduces a “safe harbor” platform liability system (art. 52). Only those who “know or should know” about the illegal activities of operators on the platform but fail to take the necessary measures shall be jointly and severally liable.  Nevertheless, for those involved in products and services relating to “consumer’s life and health”, platform operators should bear corresponding responsibilities if they fail to fulfill their obligations of qualification review or safety assurance and cannot be exempted regardless of whether they have taken necessary measures afterwards.

VI.Our Observation

The Measures includes online transactions carried out via social networking and live-streaming into the scope of e-commerce law application and elaborate in detail the obligations of various types of entities in online transactions stipulated in the E-commerce Law, by incorporating the features of online transactions in the digital era. From a corporate compliance perspective, all types of e-commerce businesses, including e-commerce platforms, operators on the platform and self-hosted e-commerce platforms, will need to perform compliance assessment as to whether their platform design, internal compliance system, trading rules, interface design and user terms and conditions comply with the Measures and make timely and appropriate adjustments. 

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