China’s draft e-commerce law may increase pressure on small platform operators to fight fakes

China’s draft e-commerce law may increase pressure on small online retail companies to fight the sale of counterfeit products on their platforms, as lawmakers aim to make internet retail site operators directly liable for such online transactions.

Part of the proposed e-commerce law, the latest draft of which was reviewed by China’s parliament last week, would make domestic online retail platform operators jointly accountable with merchants for selling any counterfeit goods online. Online merchants are currently solely liable when caught selling fake products.

Once passed, the e-commerce law looks to rid online sales platforms of fake goods and clean up the country’s reputation as a major source of knock-off merchandise.

It could also pose a greater risk of sanctions for the country’s smaller online shopping platform operators, which may not have the same capabilities as China’s bigger players when it comes to identifying and removing counterfeit products, according to Paul Haswell, a partner who advises technology companies at international law firm Pinsent Masons.

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“This [draft] legislation is almost certainly going to be passed,” Haswell said. “It puts the onus on the platform operators to better police online sales.”

He said the large e-commerce companies, such as Alibaba Group Holding and JD.com, “should be able to cope with the risks” because “much of what will be required by the new law has already been put in place by these major platforms”.

Alibaba declined to comment because the new regulations are still under review, according to a spokeswoman. JD.com did not immediately respond to inquiries about the draft legislation.

A spokeswoman for start-up group-buying deals platform Pinduoduo said the company has the same mechanisms to track and identify counterfeit goods online used by bigger platforms like Taobao Marketplace.

The proposed e-commerce law’s thrust against the sale of counterfeit goods followed separate programmes conducted by Alibaba and JD.com to take down fake product listings on their sites.

Alibaba monitors the listings on its Chinese e-commerce platforms Taobao Marketplace and Tmall in real-time, using image and character recognition to identify listings that are likely to be hawking counterfeit goods. Once the listings are flagged and identified as fraudulent, Alibaba can then remove these from the platforms.

A total of 240,000 online stores in Taobao caught selling fake goods were closed last year, according to Alibaba, which is the parent company of the South China Morning Post.

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New York-listed Alibaba removed 27 times more listings compared to takedown requests submitted by brands, according to the company’s 2017 annual report on intellectual property rights protection.

Some 97 per cent of the takedowns it conducted last year were processed before a single sale had taken place, the company said.

Alibaba has long grappled with the issue of merchants selling counterfeit products on its platforms. Critics had lambasted the company for being lax with intellectual property protection and accused it of not doing enough in battling piracy and counterfeiting.

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In April 2016, Alibaba’s membership in the International Anti-Counterfeiting Coalition was suspended less than a month after the firm joined the group, following the departure of brands like Gucci and Michael Kors which protested the inclusion of the Chinese firm in the coalition.

Later, the firm set up the Alibaba Anti-Counterfeiting Association, which has members that include Bose, Samsung Electronics, L’Oreal and Adidas.

Nasdaq-traded JD.com, China’s second largest e-commerce services provider, established its “JD Tracing and Anti Counterfeit Alliance” last year to promote how products in its supply chain are tracked from their source. Merchants on JD.com are fined if caught selling fake goods. JD.com said it also has a quality control department and third-party agencies do regular surveys of product listings.

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Tencent Holdings, which is a shareholder in JD.com, helps fight against knock-off merchants through the brand protection platform it has set up on WeChat, the popular Chinese mobile messaging-social network-payments-and services app with more than 1 billion users.

Hong Kong-listed Tencent also set up the Infringement Complaint E-Platform, a site where brand owners, intellectual property holders and users can file complaints of brand infringement.

Over 72,000 accounts involved in selling counterfeit products have been caught, imposed with penalties that include permanently blocking the accounts and removing the content, according to a WeChat report in March.

Haswell, however, said none of the measures against the sale of counterfeit goods that have been adopted by Chinese companies, big or small, are foolproof.

“All platforms play a game of cat and mouse with a small minority of sellers who wish to rip off the consumer,” he said. “There is always more to be done.”

Additional reporting by Iris Deng