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Text | InternetLawReview

On July 29, 2024, about 200 small and medium-sized merchants gathered at Pinduoduo Temu's Guangzhou headquarters to protest because they were dissatisfied with the platform's high fines and payment deduction policies. Many merchants complained that regardless of whether it was the merchant's problem or not, as long as the buyer was dissatisfied, Temu would directly handle it as "refund only" and impose a fine of 2-5 times the payment on the seller. It is reported that the total fines imposed on the small and medium-sized merchants gathered was as high as 114 million, making it difficult for them to continue operating.

Temu is Pinduoduo's cross-border e-commerce platform, which was first launched in the United States in September 2022. It has the slogan "Shop like a billionaire" and pursues a low-price strategy. It has now rapidly expanded to 50 countries and regions including Canada, Europe and Australia. In the first half of 2024, Temu's sales reached about US$20 billion, which has exceeded its full-year sales of US$18 billion in 2023. The latest report released by Bernstein Research predicts that Temu's gross merchandise volume (GMV) in 2024 is expected to reach US$54 billion.

Temu's success should be a good thing for merchants on its platform, but why are merchants so angry about the Temu platform? Is the platform's policy bias towards consumers and "strict rules" for merchants a benefit or a disadvantage? How should the relationship between e-commerce platforms, merchants, and consumers revealed by "refund only" be interpreted and evaluated from an economic and legal perspective?

What is the actual relationship between e-commerce platforms, merchants and consumers?

Globalization and digitalization have prompted physical stores to transform into e-commerce platforms. E-commerce platforms satisfy consumers' desire to shop freely without geographical or time restrictions, and are being adopted by more and more consumers. At the same time, the large number of consumers and shopping demands on the platform have also attracted more and more merchants to settle on the platform, enriching consumers' product choices.

However,This method of online shopping has serious information asymmetry problems and also creates inequality in status.

Research has shown that more than half of Chinese consumers rely on online reviews to judge the quality of online shopping products. Therefore, fraudulent behaviors such as false reviews and data falsification by merchants can seriously damage the rights of consumers. E-commerce platforms control network interfaces, algorithm traffic and platform rules. A small move can determine whether a merchant exists and how much profit they make.

Yin Jiguo, professor of the School of Law at South China University of Technology and special expert of Internet Law Review, said:In front of e-commerce platforms, not only consumers are in a weak position, but many merchants (especially small and medium-sized merchants) are also in a weak position.。

In his new book Techno-Feudalism, Yanis Varoufakis, an economist and former Greek finance minister, gave a more profound interpretation of the relationship between platforms, merchants, and consumers, comparing them to the "feudal monarchs, small landowners, and tenants" under traditional feudalism.Merchants and consumers are all "working hard" for the platform; merchants who are dependent on the platform are well aware that their customer acquisition and business survival depend entirely on the single operation of the "cloud lord".

“This absolute control led by technology constitutes the foundation of technological feudalism.”

Figure: Technological Feudalism Relationship Diagram (Source: Technological Feudalism)

Professor Yin JiguoIt is pointed out that the platform’s dominant position may have an adverse impact on market competition, so the market supervision department is also formulating rules to limit the abuse of this advantage. On May 4, 2024, the Sichuan Regulatory Bureau issued aInterim Provisions on Anti-Unfair Competition on the InternetArticle 24 sets restrictive requirements for platforms to formulate rules and sign agreements with merchants:The platform cannot "impose unreasonable restrictions or impose unreasonable conditions" on merchants, and made a "bottom-line provision" in Article 4, namelyIt is not allowed to "use service agreements and transaction rules to impose other unreasonable restrictions or impose unreasonable conditions on transactions of operators on the platform"。

Do e-commerce platforms have the right to make a unilateral “refund only” promise to consumers and force merchants to refund?

Between e-commerce platforms and merchantsCooperation is usually based on a "standard contract" formulated by the platform。

Partner of Gaopeng Law Firm, special expert of Internet Law ReviewZou ZhiqingWhen merchants join the platform, they usually sign a "platform entry agreement or cooperation agreement" online. This type of agreement requires merchants to abide by the "platform rules" issued by the platform from time to time. That is, the platform rules are also part of the agreement and are binding on both parties. Therefore,The e-commerce platform's unilateral promise to consumers of "refund only" and its mandatory refunds to merchants are included in the above contracts and are theoretically legal.。

butFor standard contracts, it is also necessary to use the principles of public order and good morals, laws and regulations to evaluate their "reasonableness"。

Distinguished Associate Researcher of the Digital Rule of Law Institute of East China University of Political Science and Law, Distinguished Expert of Internet Law ReviewXu ZelinDr. believes thatIf these terms are unfair, unreasonable, obviously contrary to public order and good morals, contrary to business ethics, or the platform does not fully explain them to the merchants, then they may be deemed invalid.。

Lawyer Zou Zhiqing said,These agreements and platform rules of the platform are likely to contain some clauses that are unilaterally beneficial to the platform, or even some obviously unfair clauses.In theory, if merchants feel that the terms are unfair, they can ask the platform to modify them, or sue the platform to claim that the contract terms are invalid. But in practice, most sellers can only endure it silently, and some will choose to quit. For the platform, as long as new sellers continue to join, the impact of the original sellers leaving can be offset.

Professor Yin Jiguo believes thatThe one-size-fits-all "refund only" rule can be seen as a "tyrannical clause" because the rights and obligations of both parties are obviously unfair.: First, most small and medium-sized businesses lack the ability to negotiate and bargain with the platforms, so the interests of the businesses are not actually fully expressed and reasonably protected; secondly, although the "refund only" rule seems to protect consumers and is of public welfare, it is actually biased towards the interests of platform operators, because the platform can use this rule to attract more traffic and increase the platform's turnover and market share.

According to the Interim Provisions on Anti-Unfair Competition on the Internet,The "refund only" rule that completely sacrifices the interests of merchants is actually an "unreasonable restriction" on merchantsJudging from the currently public court rulings and mediation results on "refund only" cases, the courts mostly support the merchants, which also proves that this rule is unfair and unreasonable.

Where does the power for e-commerce platforms to “punish” merchants come from?

E-commerce platforms are transaction intermediaries between merchants and consumers. Merchants sign agreements with e-commerce platforms and sell goods on the platforms; consumers choose the goods they need through the platforms.In order for this business model to be sustainable and enter a virtuous cycle, the platform must also assume the responsibility of credit supervision, while merchants act as credit providers, and consumer reviews assist the platform in identifying the credit status of merchants.。

Although the government and other third-party institutions also bear regulatory responsibilities,The platform’s self-governance is a reflection of the self-regulatory strategy advocated by modern regulatory theory.。

therefore,In order to ensure the quality of platform products and service experience, it is necessary for e-commerce platforms to impose certain management and constraints on merchants.Dr. Xu Zelin said that Article 38 of the "E-Commerce Law" stipulates that my country's e-commerce platforms must abide by the "red flag rule" and "watchtower obligations."

“Red Flag Rule”This means that if the website or platformThe infringing content is obviousIt is like a red flag flying, but the e-commerce platform pretends not to see it and fails to take reasonable measures, so it should bear the tort liability;“Watchtower Duty”It means that forRelating to consumers’ life and healthThe e-commerce platform must assume the obligation of advance payment and security guarantee, which is actuallyThe highest degree of duty of care。

Lawyer Zou Zhiqing said that based on the current legal systemE-commerce platforms actually enjoy a certain degree of autonomy. However, this also places high demands on the compliance and compliance awareness of the platforms themselves.。

Should the power of e-commerce platforms to formulate rules and impose "punishments" based on them be restricted and regulated?

Based on the influence of the modern digital economy, although platforms, merchants and consumers are in a de facto economic inequality, in terms of legal relations,The three parties are still equal civil subjects. No one can impose obligations on them without their consent. This is a basic principle of civil law.。

Lawyer Zou Zhiqing said that when the platform enforces such rules, it is actually very similar to the nature of administrative law enforcement by administrative agencies, and can substantially dispose of the private property of merchants.In the process of "enforcing rules", platforms must abide by basic "procedural justice"That is, to investigate the facts of the violation clearly, provide basic evidence, give merchants an opportunity to defend themselves, ensure that the violation and the punishment are commensurate, etc.; for disputes between the platform and merchants, it is also recommended that there be a more economical and efficient third-party mediation mechanism in addition to litigation and arbitration.

Dr. Xu Zelin proposed that e-commerce platforms should follow four principles when formulating and enforcing rules, including:Fairness, transparency, rationality, flexibilityThe so-called fines, confiscation of deposits, removal of products from shelves, closure of stores, etc., should be based on rationality and legality.

But in practice, for the platform, formulating and enforcing self-interested platform rules is not only low-cost but also highly profitable, because fines are also an important part of the platform's revenue, and it is difficult for the merchant group to challenge these rules. If it is completely dependent on the platform to modify unreasonable rules on its own, it is likely to be a long and endless process.

Lawyer Zou Zhiqing believesPlatform policy is a dynamic game process, and it will generally evolve towards places with low costs, high returns or little resistance.：If the platform can obtain greater benefits through policies and the transaction costs are controllable, then the platform will have the motivation to continue to implement such platform policies. Even if the format terms are obviously unfair, the platform can usually continue to implement them for a period of time and enjoy the "dividends" in the process; the platform policy will not be adjusted until the cost of causing the platform to violate the law increases greatly and is greater than the benefits, such as after being subject to sufficiently authoritative external supervision.

The "refund only" policy is very beneficial to consumers and platforms, while the interests of merchants are absolutely damaged. At the micro level, it is more of a zero-sum game, which is tantamount to "killing the goose that lays the golden eggs." Platforms still need to return to their position as service providers, provide good matchmaking services and various technical services, and make reasonable money, rather than competing with merchants for profits.

Dr. Xu Zelin said that if the platform rules are obviously unfair and unreasonable and damage the legitimate rights and interests of merchants, they maySuspected of violating the E-Commerce Law, Anti-Monopoly Law and other laws, government regulators intervened and required the platform to make rectifications and revisions to maintain fair competition and healthy development of the market.

Professor Yin Jiguo also suggested thatMarket regulators can even directly regulate or guide the “refund only” rule to correct the imbalance of interests caused by the one-size-fits-all implementation of the rule.. Just like the "Anti-monopoly Guidelines for the Platform Economy" issued by the Anti-Monopoly Committee of the State Council in 2021, it directly defines and regulates behaviors such as "choose one of two" and "big data killing old customers".