Noteworthy legal issues for internet platform enterprises

By Li Weiming, Tiantai Law Firm

Internet platform enterprises are emerging enterprises that use the internet as a medium, and have integrated platform-based business models. They have made great headway in a number fields such as medicine, finance and education, thus creating a business hotspot worthy of attention. This article provides a summary of legal issues that require the special attention of internet platform enterprises in their start-up stage.

李伟明, Li Weiming, Partner, Tiantai Law Firm
Li Weiming
Tiantai Law Firm

The platform-based business models should be further understood and well managed to meet qualification requirements

By their operating mode, most internet platform enterprises can be divided into two types – self-owned platforms, and third-party trading platforms. Whichever mode is adopted, the platform operator should first of all consider what qualification and eligibility are required by laws and regulations for the platform’s business operation.

It needs to pay attention to both the relevant regulatory provisions for internet platforms and those regulations in the specific industry of the platform business itself. It also needs to comply with such special industry regulations as the Measures of the Investigation and Punishment of Illegal Conducts Concerning Online Food Safety, the Administrative Measures for Online Diagnosis and Treatment (Trial), and the Administrative Measures for Internet Hospitals (Trial).

Attention should be paid to intellectual property planning for the platform, and protection measures should be put in place

Internet platform enterprises mostly draw online attention and get network access through their Apps, domain names, search keywords and other channels in the early stage, so it is necessary to protect the operation or brands of these enterprises by protecting their registration and domain names.

Generally speaking, internet platform enterprises, like those in other sectors, need the operator to register their company names, brands, logos, App icons, products and other important information as trademarks in advance, so as to prevent similar registration by others beforehand. Besides, since the domain name, as an important logo of an internet platform company, plays a weighty role for related identification, guidance, search and advertising, it is also an asset that must be registered and acquired by the company. Before a platform company can fully exercise prior rights, and resort to other means to build a firewall with search keywords and protected App names, it needs the platform operator to make plans and think in advance.

Data security and protection of personal information should be emphasised

It’s provided in article 1,034 of the Civil Code, which has recently been put into practice, that: “Personal information of a natural person is protected by law, and such information includes the person’s name, date of birth, identity document number, biometric information, address, telephone number, email address, health information, whereabouts, etc.”

In that way, personal privacy is highlighted and reiterated in the Civil Code. The Data Security Law (Draft) and the Personal Information Protection Law (Draft) have also been released successively. All those legal efforts indicate that China has further strengthened its protection of data security and personal information. Due to the fact that internet platform enterprises bring together many market players, and that various transaction data and personal information are under the control of multiple parties, it’s especially important for these platform enterprises to pay attention to the risks contained in the transmission, storage and reuse of such data, and to work out practical protection measures to strike a balance between business development and the protection of data security and personal information.

The characteristics of capital flow should be made clear to meet the requirements of industry regulations

During business operations based either on their own platforms or on third-party trading platforms, the basic legal relationships are relatively clear, and the transaction fund is kept independent of the platforms. However, in practice, there is a commonly seen payment means where a third-party trading platform is involved, which is: The consumer makes payment for a transaction to the platform first, and then the platform settles it with the merchant at a fixed period and amount, thus amassing a deposit of the transaction payments on the platform.

With this model, the platform operator – in the collection of the platform service fee for itself, of payments for merchants, and of other funds – needs to comply with relevant regulations like the Measures for the Administration of Payment Services by Non-financial Institutions, and obtain a licence for the payment business to avoid unauthorised operation of this business.

The platform-related employment relations should be clarified and risk boundaries set

Platform runners differ from each other in terms of their legal roles, status and responsibilities in human resource relations, whether a self-operated or a third-party trading platform is adopted. In the latter mode, the platform operator only provides a transaction venue, together with the matching service for the trading parties, and collects a platform service fee from the suppliers and demanders of labour.

Since it is not a direct participant in the transaction of labour supply and demand, the platform operator only assumes the responsibility of managing and controlling the platform, just like an online platform for moving service. However, in case a self-operated platform is involved, the platform runner and the labour provider may enter into a labour contract, or establish other contractual relationships, or they may form a legal relationship based on labour dispatch.

In practice, if there is an unclear agreement, or no clear agreement, between the platform runner and the labour provider, their legal relationship may be identified in different ways, resulting in different division of responsibility. That is the primary aspect a platform runner needs to clarify in its labour relationship management.

In conclusion, as an emerging business model, the internet platform-based economy carries various legal risks despite its vigorous development. Along with the advancement of China’s rule of law, legal risks will pose increasingly severe challenges to internet platform enterprises. Apart from the above-mentioned legal issues, these companies also face other legal challenges in advertising compliance, unfair competition and anti-monopoly measures. Platform operators, especially those in the start-up stage, need to pay sufficient attention to those legal issues when they are engaged in the operation of internet platforms, and in the expansion of business scale.

Li Weiming is a partner at Tiantai Law Firm

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