Philippines’ proposed ITA shakes up online retail

By Michael Ryan Natividad, ACCRALAW
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Online retail and other e-commerce services are now a mainstay of Philippine commerce. The exponential rise and consequent prevalence of online purchases are partly due to the covid-19 pandemic lockdowns that have constrained the consumer to stay at home. This holiday season, online platform Shopee reported that its “12.12” Christmas sale broke records, with about 12 million products sold in the first 24 minutes.

The growth in e-commerce transactions, however, also resulted in the apparent need for government regulation. Early last month, the Department of Trade and Industry reported that most transaction complaints they have received this year were related to online purchases.

retail
Michael Ryan Natividad Associate
ACCRALAW

On 24 November 2020, the House of Representatives approved, on its final reading, House Bill No. 7805, or the Internet Transactions Act (ITA), which seeks to ensure an effective regulation of commercial activities through the internet in the promotion of consumer and intellectual property rights, data privacy, fair advertising and competition. It is interesting to note that, in interpreting its provisions, the ITA commands that e-commerce activities should be treated equally to offline transactions.

Among the salient provisions of the ITA is the provision on extraterritorial application, where a person engaged in e-commerce who purposefully avails of the Philippine market shall be deemed as doing business in the country. The accessibility of goods and services to consumers in the Philippines is considered for this purpose.

This new presumption appears to modify the present criteria for the determination of doing business in the Philippines under jurisprudence and the Foreign Investments Act of 1991, which generally require the implication of continuity of commercial dealings and the performance of acts normally incident to, and in progressive prosecution of, the purpose and object of the entity.

Foreign entities covered by the ITA that do not have any real or legal presence in the country are required to notify the E-Commerce Bureau, a new body created under the ITA, for their inclusion in the Registry of Online Business, or they may designate a resident agent to receive notices on their behalf.

Due to the use of the conjunction “or”, it is unclear whether mere inclusion in the registry is sufficient to acquire jurisdiction over a foreign entity in the same way as in the service of process to a resident agent.

Another significant provision of the ITA is the requirement for all individuals engaged in e-commerce to register either as a sole proprietorship, a one-person corporation, a partnership, a corporation, or a co-operative. This appears to be a blanket requirement only limited by the coverage clause, which expressly excludes consumer-to-consumer transactions or one-off, petty, or occasional low-value transactions that are not made in the ordinary course of business of any party.

The ITA, however, does not provide as to how a transaction is deemed petty or low-value, and it appears these qualifications are left for further determination by administrative bodies. Non-registration is penalised by a fine equivalent to 100% of the amount of goods offered or sold, in addition to the confiscation of such goods.

Perhaps the most interesting feature of the ITA is the imposition of solidary liability upon the e-commerce platform with the online merchant in specific instances. The platform shall be liable only to the extent of civil damages suffered by the consumer as a direct result of the transaction.

One of these instances is when the customer’s loss or damage is the result of the platform’s failure to exercise ordinary diligence in complying with its own obligations under the ITA, which, as noted, is also deemed a criminal offence. It appears that the legislative intent is for the e-commerce platform to bear much of the onus of legal compliance.

The ITA, however, grants the platform reasonable defences against solidary liability, as when it has relied on the online merchant’s representations and warranties on the latter’s compliance with the law.

There is a need to protect the rights of consumers in online transactions, and this concern will likely be held paramount as the ITA hurdles the senate, where it remains pending as at the time of writing. The legislature must be cautious, however, so that the rights of the other stakeholders – the e-commerce platform, the merchant, and even the courier – are likewise amply upheld, considering that the greatest uncertainty caused by the ITA is whether it will result in overregulation and stifle growth.

(This article is for informational and educational purposes only. It is not offered and does not constitute legal advice or legal opinion.)

Michael Ryan Natividad is an associate in the corporate and special projects department of ACCRALAW

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