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Intermediary liability in China

Christian Peugeot, President of Unifab and marketing director of PSA, talks to Shaun Tan about China’s draft e-commerce law

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What do you think about the draft Chinese e-commerce law that came out last December?

China realized it is a key moment for law makers to regulate e-commerce. Therefore establishing a regulatory framework in China for governing online trade is an admirable ambition. Because, let’s face it, the scale of counterfeiting in China is still massive and it is reasonable to assume it will only get worse before it gets better. And online counterfeiting appears as one global, enormous and expanding problem.

Counterfeiters based in China are now shipping fakes directly to consumers overseas, thus making enforcement in the destination countries very difficult. [This] does not only concern…e-commerce platforms, but intermediaries such as social media, advertising service providers, payment services [and] shippers.

This phenomenon requires China to place even greater attention on the need for solutions to the problem itself.

If it is a fact that China is currently the main origin of counterfeit products seized at foreign borders; at the same time, China is becoming an extensive user of IP and building strong IP policies. We know that there is no real economy based on innovation without a strong IP system. IP protection is only useful when IP enforcement is transparent, predicable, effective [and] efficient.

This is why we believe that the…draft law…is a great opportunity for China to establish a…leadership position regarding the promotion of IP, the fight against counterfeiting, and the protection of both consumers and companies.

Why is the current legal framework, in which it’s up to brand owners to identify violations and take action, insufficient?

For a start, it is clear that the current legal framework is just not working. Proof is: counterfeiting just keeps growing.

The latest global surveys suggest the level of global trade in counterfeits has increased 80% in the last five years. Meanwhile, customs data and anecdotal reports suggest that China is the source of over 80% of fakes sold overseas.

It seems reasonable to assume that the value of counterfeits made in China and sold both domestically and internationally are valued in the hundreds of billions of euros…annually.

The main cause behind the latest increase in trade in fakes is the internet, which offers anonymity to vendors and where traditional methods of monitoring, investigation and enforcement have proved completely ­inadequate.

So once we know that, we have two [options]: we can either watch and do nothing, or we can find another way – one that encourages all actors to do more, including intermediaries.

Since the current standard of notice and take-down has proved ineffective and outdated, we hope that…future [drafts of the] e-commerce law will introduce a standard of proactive and preventive measures for online intermediaries. This appears to be a necessity on a global level, but first and foremost in China.

How can brands, anti-counterfeiting organizations, and consumer associations band together to resist or change this draft law?

We clearly need to do a better job of explaining to law-makers the challenges faced in the markets and in day-to-day enforcement. They need to understand the true scope of the problem and the consequences, both today and in the future, if effective action is not taken now.

It is true that in the past, counterfeiting and other related violations have provided employment and a method for local entrepreneurs to generate capital. However, the Chinese government, society and the economy in general are increasingly damaged by this business in a variety of ways, including:

•   lost tax revenues for national and local governments, and by extension sectors of Chinese society that benefit from this ­income;

•   harm to local industry, including large enterprises, SMEs and start-ups – all of which rely on an environment of fair competition in order to support their investments in new products. As suggested above, each dollar or yuan that goes to underground producers and traders in fakes means one less dollar or yuan for enterprises dealing in legitimate goods;

•   harm to workers caused by unsafe working conditions, denial of legally-mandated benefits from their employers engaged in counterfeiting, and the lack of job security;

•   promotion of criminality, generally, via the use of enormous profits generated from counterfeiting to fund other illegal activity;

•   harm to China’s reputation – globally and locally – for innovative and quality goods [and] security in investment.

I can’t imagine [that] once lawmakers get to know [these] facts that they won’t take all the measures they can, to really fight against it.

Foreign governments and companies will have to work more closely with Chinese policy makers, including through providing data on their experiences, technical expertise needed for research projects and suggestions that are firmly rooted in international practice.

What is going to happen to this draft law? There are rumours that the NPC has decided to redraft certain provisions. What do you expect to come of this?

We hope that the NPC will take on board the comments of all stakeholders and make significant changes to the existing draft of the e-commerce law. In tandem, we hope they will also take this opportunity to better understand the scope of the problem and the need for changes in other laws, as well as structural reforms that will better harness administrative enforcement [and shift] more resources to judicial enforcement, both civil and criminal.

We hope as well that the NPC will recognize that the problem for many industries is concentrated in a handful of cities and provinces, and that encouragement will be given to adopt appropriate action plans now to deal with these regions, and not wait years for new legislation to be introduced. This could, for example, be achieved through the introduction of pilot programs.

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