China’s Law Cracking Down on Fake Online Goods

Jan 24, 2019

From footwear and pharmaceuticals to apparel and automobile parts, 80 percent of the world’s counterfeit goods come from China.

The counterfeit and pirated products market is a $1.7 trillion per year industry, and it is projected to climb to $2.8 trillion and slash 5.4 million jobs by 2022, according to “The Economic Costs of Counterfeiting and Piracy.” The report was prepared by the International Chamber of Commerce’s BASCAP (Business Action to Stop Counterfeiting and Piracy) and the International Trademark Association.

To get a better handle on the counterfeit industry, China adopted new rules that aim to prevent the sales of knock-offs on online sites. The new law, which took effect on January 1, will make major players in the ecommerce industry, like JD.com, Alibaba, and Pinduoduo, responsible for merchant fraud by third-party vendors selling on their platforms. To date, these platforms have been hotbeds for other sellers to sell counterfeit products. The new law puts additional pressure on platforms to take action to prevent the sale of fake goods on their sites.

New Requirements Under China’s Rule

Under the law, which was passed in August, ecommerce platforms, individual and merchant sellers, as well as messaging sites, such as WeChat, are held legally responsible if fake goods are sold and no measures were taken to prevent the sale and protect the purchase from fraud. Prior the new requirements, individuals were only held responsible if they were found to be selling counterfeit items.

Additional Requirements Under the Law

Also, as a way to keep track of fraudsters and fake goods, platform operators also will have to keep at least three years of product and service information records. The law prevents platforms from putting “unreasonable” limitations, terms, or fees on its merchants.

Punishments for Breaking the Law

China’s new law also outlines a structure for notifying parties about fake listings and the process of promptly removing the sales. Platform operators face fines of up to 2m yuan, or nearly $300,000, for serious cases of intellectual property infringement where they fail to remove listings promptly.

What This Means

Considered one of the world’s largest e-commerce markets, it is worth more than $1 trillion, equaling about 40 percent of the globe’s transactions. To clean up its reputation as a major source of counterfeit products, it was imperative that Chinese take this action to curb counterfeit trade, even though e-commerce platforms had already taken some steps to fight the problem.

After complaints that the platforms were not take the initiative to prevent fraud, Alibaba, JD.com, and Pinduoduo, a newer, quick-growing e-commerce company, decided to take action.

Pinduoduo led the charge, announcing it had put a number of measures in place to stop the sale of knock-offs on its platform. It implemented a vetting system that uses customer comments, credit data from government sources, and business operation reviews to evaluate new sellers. Just these few steps resulted in Pinduoduo shutting down more than 125 sellers and removing more than 400,000 suspicious listings.

In Conclusion

China’s law will force online platform to better police third-party vendors or face the consequences. The new rules also will protect consumers from make fake purchases, which will result in better reputations for all.

If you are a merchant that sells online and you want to accept debit and credit cards, then consider applying for a merchant account with eMerchantBroker.com (EMB). It works with high-risk businesses, including those with no processing history and previously terminated accounts. The online application process is simple and easy.

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