Beijing uses the long arm of the law to fight fakes online
China has prepared a draft law that would hold e-commerce platforms liable for the sale of counterfeit goods by third-party vendors on their platforms. Notably, the draft law stipulates that e-commerce platforms that fail to expeditiously address brands’ concerns and takedown requests will be jointly liable for the losses of the rights holder.
We wrote several weeks ago about how counterfeiting is damaging Chinese brands and the nation's image globally. We don't expect that to change anytime soon, but if this draft law passes, China will take a significant step forward in its fight against fake goods.
E-commerce is the lifeblood of China's retail sector. Both legitimate sellers and counterfeiters increasingly do business online. Online retail sales passed the US$1 trillion mark in 2017, and now account for more than 30% of overall retail.
That's why legislation that holds e-commerce operators accountable for the infringement crimes of third-party vendors is a potential game-changer: Alibaba, Tencent and JD.com may have to make their platforms more resistant to counterfeiters. Identity verification that uses facial recognition could be a good first step. Sales of certain product categories that are heavily counterfeited, like sorghum wine, might need to be restricted to official brand stores.
Notably, the draft law expands the definition of "e-commerce operators" to include Tencent's ubiquitous WeChat messaging app. For counterfeiters aiming to discreetly do business, the closed nature of WeChat has been advantageous. Most accounts on WeChat are private. You have to be on someone's friends list to see what he or she is selling. But Tencent could require that all sellers register public accounts, removing the anonymity surrounding commercial transactions on WeChat.
In a June report, the business news site Caixin pointed out that the new law could have an outsize effect on smaller e-commerce platforms, which lack the resources to swiftly identify and remove fake-goods listings.