By Richard W. Wigley King & Wood Mallesons’ IP Litigation Group
China is now believed to be the world’s largest online marketplace, as well as quickly gaining on the U.S. as the country with the largest overall retail marketplace. This growing retail marketplace, both for traditional “bricks and mortar” retailers as well as online retailers, presents both great opportunities and challenges. Chinese consumers are becoming increasingly demanding in terms of product quality, as well as at the same time increasingly transitioning from being traditional “bricks and mortar” retail consumers to online shoppers. These consumers have demanded certain protections when making purchases and, as expected, have often resorted to administrative authorities or the Chinese judicial system to seek protections of their rights, as well as compensation where appropriate.
In response to this changing consumer retail landscape, the Standing Committee of the National People’s Congress recently promulgated a Revision to the Consumer Rights Protection Law of the People’s Republic of China (hereinafter referred to as the “Revision”), where the Revision is to become effective on March 15, 2014. While the Revision affords additional protections to Chinese consumers, the focus of this analysis is upon how the Revision, in effect, “raises the bar” on retailers in China, in terms of their new or revised statutory obligations under the Revision, as well as potential increased liabilities should they be found to be offering products or services of inferior quality. Specific provisions of interest shall be examined, as follows.
Requirements for the “Return” Process
For online retailers, Article 25 of the Revision stipulates that goods may be returned within seven days from the date of receipt of the goods (without requiring the specifying of a reason) and, if so, the full price refunded. There are exceptions for certain types of goods (including custom-made goods, perishable goods, software downloads, and newspaper/periodicals), but any goods returned must be in “good condition”. The “shipping expenses for returned goods shall be borne by the consumer; [but] where there is an agreement between the business operator and the consumer, such agreement shall prevail.” As such, except for those products not protected, online consumers will have a seven-day period to evaluate the product and if they deem it, for whatever reason, unacceptable, they can return the product, at their expense, to the online retailer.
This raises the question of what is “good” condition upon return where, for instance, an article of clothing was worn a single time, then returned within seven days. What about a pair of shoes which were worn a single time, and which exhibited normal wear upon return? Article 25 notes, however, that the non-return of certain goods may be recognized if the consumer, based on the “nature of the goods”, confirms at the time of purchase that such non-return is applicable. Administrative and judicial authorities will have to further define such conditions. Online retailers can, of course, provide more liberal return policies at their discretion, such as longer return timeframes and/or free/supplemented return shipping. However, as Article 26 notes that retailers cannot through sales contracts use “standard clauses” to “restrict consumers rights”, online retailers would not be able to, for instance, contractually restrict the return period below seven days where the goods do not fall into one of the “exception” categories or by the specific “nature of the goods”.
Regarding return requirements for traditional retailers, under Article 24, a similar seven-day return period is defined, though the business operator may, under certain circumstances, be required to “bear the requisite transportation expenses, etc.” It should be noted that Article 23 defines a six-month return period for defective durable goods (such as a “motor vehicle, computer, television, refrigerator, air conditioner, washing machine, etc.”) or “renovation services”, and where the consumer has six months from receipt of the goods or services to seek repair/replacement and where “the business operator shall bear the burden of proof pertaining to the defect”. While durable goods often have a warranty period of six months or more, under the Revision they will clearly bear the burden of proving the good not defective. For many durable goods manufacturers/retailers, this six-month return period should not result in an additional burden. However, where this new statute may actually raise a significant number of disputes is in its providing additional consumer protection for “renovation services”. Such services are, by their nature, rife with issues relating to consumer satisfaction and the Revision provides a basis upon which complaints may be lodged within six month of the renovation.
Requirements for Protecting Consumer Information
The stipulations under Article 29 as they relate to online retailers are similar to those included in the Decision on Strengthening Online Information Protection (“Decision”), as adopted on December 28, 2012, though the Decision goes into much greater detail. However, the Revision applies to all business operators, including “bricks and mortar” retailers. As such, all retailers “must keep strict confidentiality of personal information of consumers collected by them” and, furthermore, “shall not send commercial information to consumers without their consent or request or when a consumer has explicitly rejected”.
Compensation Liabilities for Online Trading Platforms
The Revision contains the stipulation in Article 44 that if a consumer seeks compensation in relation to a defective good/service purchased through an online trading platform, said platform will be liable for the compensation if it “is unable to provide the true name, address and valid contact method of the seller or the service provider, the consumer may seek compensation from the online trading platform provider.” However, said Article further states that “the online platform shall have the right to recover the compensation from the seller or service provider.” As such, this places a real burden on such platforms to ensure that their seller/provider information is current and valid.
In addition, Article 44 stipulates that online trading platform providers should bear joint and several liability where there are or “should be aware that the seller or the service provider is using its platform to harm the legitimate consumer rights and interests, but failed to adopt the requisite measures….” Though such joint and several liability is addressed under various other P.R.C. laws for infringements online, the Revision does, under Article 44, specify those infringements carried out on online trading platforms, and, as such, placing upon them a specific burden to “adopt requisite measures”.
The Rise of Chinese Consumer Associations and “Public Interest” Litigation
Under Article 47 it is stipulated that “for acts which harm the legitimate interests of many consumers, the China Consumers’ Association [“CCA”] and consumer associations” either established on the provincial level or “centrally-administered municipalities” shall be able to bring suit before a People’s Court . A recent revision to the Civil Procedure Law of the P.R.C. (“Civil Procedure Law”) allows for such organizations to bring such suits where Article 55 therein states that “[f]or conduct that pollutes environment, infringes upon the lawful rights and interests of vast numbers of consumers or otherwise damages the public interest, an authority or relevant organization as prescribed by law may institute an action in a “People’s Court.” Such public interest litigation amounts to a variant of the “class-action” lawsuits as seen in foreign jurisdictions, but to date not prevalent in China. As recently noted by Zhang Jinxian, a senior Supreme People’s Court (“SPC”) Judge, “public interest litigation is very new to Chinese courts. We have only a general description in laws instead of applicable judicial procedure.” Judge Zhang further noted, however, that guidelines for judges in such cases are in development and that the SPC intends to work with the CCA to develop such guidelines.
Whereas the current rise in consumer products litigation in China is driven by a variety of factors, it would appear that the CCA will play a much greater role going forward in relation to claims brought by large numbers of consumers who all have claims regarding the same specific alleged defective products. With the ability of the CCA to now file such “public interest” lawsuits under the Civil Procedure Law and with the provision under the Revision stipulating the CCA’s role in bringing such suits, it is clear that once guidelines are developed in conjunction with the SPC, it is likely that, in due time, many online and traditional businesses in China will be faced with their first “class action”-type lawsuits.
Fines, Penalties, and Damages Compensation Guidelines
In terms of administrative penalties, under Article 56 the maximum fine has been increased from 10,000 RMB to 500,000 RMB and, those business operators who offer defective products/services could, in addition to the existing possibility of being “ordered to suspend business operations” and having its “business license … revoked”, would now face the possibility of being “blacklisted in the creditworthiness files by the agencies imposing punishment and announced to the public.” Furthermore, Article 57 stipulates that criminal liability may apply, where appropriate, though criminal liability for selling certain defective/sub-standard products already existed under the Criminal Law of the P.R.C.
The definition of what constitutes damages is, under Article 51 of the Revision, expanded to included “mental anguish”. Furthermore, under Article 55, damages compensation for fraudulent sales “shall be three times the amount of the price of the goods purchased by the consumer or the fee of service received by the consumer….” In addition, where the goods/services provided “cause death or severe health damages of consumers or aggrieved persons”, the damaged party shall have the “right to demand punitive damages of not more than two times the amount of losses.” Punitive damages have been allowed under the Tort Liability Law of the P.R.C., but the Revision provides the courts with guidance for such damage awards. Put these more liberal/generous damages guidelines together with the possibility of “public interest” lawsuits brought by the CCA on behalf of many consumers and this amounts to significantly enhanced legal risks going forward for certain companies which offer defective products and/or services.
In summary, the Revision not only provides additional protection for consumers in China, but it also places additional requirements upon both online and traditional retailers. With the stipulations of the Revision requiring that retailers allow consumers to return products (with the relevant stipulations), and placing substantially stiffer penalties/liabilities upon those retailers who do not comply with the various requirements of the Revision, the Revision indeed “raises the bar” for retailers and should help ensure adequate consumer rights protection in China.
Note: this publication is for informational purposes only and it does not in any way constitute a legal opinion.
 Serge Hoffman and Bruno Lannes, Bain & Company, China’s e-commerce prize, 1 (citing China Statistics Bureau and U.S. Department of Commerce) (2013) found at http://www.bain.com/Images/BAIN_BRIEF_Chinas_e-commerce_prize.pdf (last visited November 7, 2013).
 He Shan, China.org.cn, China becomes world’s 2nd largest retail market, July 5, 2013, found at http://www.china.org.cn/business/2013-07/05/content_29331612.htm (last visited November 7, 2013).
 National People’s Congress of the People’s Republic of China, Decision of the Standing Committee of the National People’s Congress on Revision of the Consumer Rights Protection Law of the People’s Republic of China, as promulgated on October 25, 2013, effective March 15, 2014.
 Id. at Art. 25.
 Id. at Art. 26.
 Id. at Art. 25
 Id. at Art. 24.
 Id. at Art. 23.
 Id. at Art. 29.
 National People’s Congress of the People’s Republic of China, Decision on Strengthening Online Information Protection, as adopted on December 28, 2012.
 Supra 3 at Art. 29.
 Id. at Art. 44.
 Id. at Art. 47
 National People’s Congress of the People’s Republic of China, Civil Procedure Law of the People’s Republic of China, Art. 55, as amended on August 31, 2012.
 Xinhua News Agency, Senior judge anticipates public interest litigation precedents, Global Times, October 30, 2013, found at http://www.globaltimes.cn/content/821478.shtml (last visited November 7, 2013).
 Zhou Wenting, China Daily, Court: Cases by consumer rights fighters rise, March 3, 2012, found at http://www.chinadaily.com.cn/china/2012-03/14/content_14836558.htm (last visited November 7, 2013).
 Id. at Art. 56.
 National People’s Congress of the People’s Republic of China, Criminal Law of the People’s Republic of China, Articles 149-50, adopted on July 1, 1979, revised on March 14, 1997 and effective October 1, 1997.
 Supra 3 at Art. 51.
 Id.at Art. 55.
 National People’s Congress of the People’s Republic of China, Tort Liability Law of the People’s Republic of China, Art. 47, as promulgated on December 26, 2009 and effective July 1, 2010.