On Jan. 6, 2015, China’s State Administration of Industry and Commerce ("SAIC") issued an announcement to solicit the second round of public comments on the draft of Interim Rules on the Administration on Online Mass Promotion of Goods and Service (《网络商品和服务集中促销管理暂行规定（征求意见稿）》) ("Draft Rules"). The first round of comments was closed on Dec. 8, 2014, and the deadline for submission of the second round of comments is Feb. 5, 2015. The following is a summary of the Draft Rules.
The New Concept of "Online Mass Promotion"
In contrast with online daily promotions by individual e-stores, the Draft Rules introduce a new legal concept of "Online Mass Promotion", which refers to the marketing campaigns organized by online platform operators ("Promotion Organizer") for e-stores ("Product Provider") to sell their goods or services. Compared with the first draft published on Nov. 25, 2014, the second draft no longer gives a safe harbor to the online promotions organized by the government or an industry association.
A prominent example of Online Mass Promotion is the "Double-Eleven Festival", also known as "Singles’ Festival", initiated by China’s largest e-commerce company Alibaba on Nov. 11 of each year. Along with the astonishing turnover of CNY57.11 billion (equivalent to USD 9.34 billion) in a single day, it is reported that Alibaba receives plenty of consumer complaints on delivery delay, poor quality and terrible customer service. The Draft Rules, if enacted as drafted, would impose certain responsibilities both on the Promotion Organizer and Product Providers to respond to consumers’ concerns over the above issues.
Responsibilities of Promotion Organizer
- Advance Announcement
Before any online mass promotions, the Promotion Organizer would be required to make an advance announcement on the period, method and rules of the promotions through a clear communication and at a prominent place on the website.
- No Unfair Restriction
The Draft Rules prohibit the Promotion Organizer from restricting any Product Provider from participating in other promotion activities. When the Promotion Organizer also acts as a Product Provider, it may not exclude other Product Providers from the online mass promotions.
- Monitoring E-stores
The Draft Rules further requires the Promotion Organizer to scrutinize the identities of Product Providers and monitor their promotion activities. The Promotion Organizer is obligated to keep the information published within the promotion period and record the release dates. Any exaggeration or fabrication of volume or turnovers is also forbidden by Draft Rules. Once the Promotion Organizer notices any non-compliance by the Product Providers, the Promotion Organizer is required to stop providing platform services to transgressors and publicize the non-compliance information.
- Prohibiting Certain Standard Terms
The most eye-catching provision is Article 9 of the Draft Rules, which was not included in the previous draft. Article 9 forbids the Promotion Organizer from using unfair or unreasonable standard terms and makes an explicit prohibition on the standard terms like "No Deposit Refund, "7-days Hassle-free Return Do NOT apply to Preordered Products," "Deemed as in Good Condition Once Purchased,” and additional restrictive conditions on return of purchased products. It is reported that Tmall, an internet platform operated by Alibaba, has already amended its product return policy according to the Draft Rules.
Responsibilities of Product Provider
- Publicizing Promotion Rules
Likewise, Product Providers are also required to publicize the period, method and rules of the promotions, as well as the essential information of the products and delivery arrangement through a clear communication and at a prominent place on their e-store. Nevertheless, Product Providers, UNLIKE the Promotion Organizer, do not have to make any advance announcement. They may publicize this information just during the promotion.
- No Denotation of Ambiguous Terms
In comparison with the previous draft, the SAIC removed several provisions similar to the existing rules, such as no denotation of "lowest price in the market (市场最低价)," "factory price (出厂价)," "wholesale price (批发价)," and "special offer (特价)". Even though they are deleted from the Draft Rules, we understand those requirements still apply to Online Mass Promotion because the existing rules are still valid and enforceable as general requirements.
- Timely Notification of "Out-of-Stock"
The SAIC stipulates several provisions tailored for Online Mass Promotions in the Draft Rules. For instance, the Draft Rules require the Product Providers to timely notify consumers when the products or services are out of stock. If the transaction is not concluded due to the Product Providers’ reasons, the Product Providers will assume civil liabilities according to the law.
- Requirements on Marketing Incentives
With respect to the gifts provided in the promotion, the Draft Rules provide that they are also subject to the "Three Warranties" to customers, i.e. to repair, replace or refund, if the law mandates a product warranty period. Moreover, the Draft Rules provide that the Product Providers are obligated to notify consumers of the usage conditions and time limits of credits, vouchers and coupons obtained by the consumers during the Mass Online Promotion. Unless entitling more rights or interests to consumers, any alteration on voucher and coupon policies are subject to the consent of consumers.