Legal Compliance Challenges in China: Navigating Online Landscape

1. Web Site and eCommerce Legal Issues in China - excerpt The Localization Institute Managing Global Websites and eCommerce What You Need to Know to Tackle the Opportunities and Challenges of the China Market David A. Laverty InternationalCounsel March 28 - 30, 2006, San Francisco InternationalCounsel

2. Online Legal Issues in China • Online Compliance: Key Issues in China • What licenses, registrations and “web scrubbing” issues for informational web sites and e-commerce providers? • Enforcement of Online Agreements • Digital contracts and clickwraps for China e-commerce • Governing Law and Dispute Resolution • Planning for e-commerce disputes - China or foreign law, China or foreign courts or arbitration? InternationalCounsel

3. Localized Web Presences The Cross-Border Challenge InternationalCounsel

4. The Cross-Border Challenge Offering products and information online internationally • A company needs to adjust its web site and e-commerce strategy to comply with the laws of each country in which it does business • Some countries are viewing e-commerce and other web-based activities as a new form of business requiring separate and restrictive rules InternationalCounsel

5. The Cross-Border Challenge Does worldwide availability of web information require full legal compliance worldwide? • Localizing companies need a system to determine key compliance areas in key markets -- focus compliance resources on countries which are the prime targets for their products, services and information • Maximize opportunities to apply the highest acceptable common standard for these markets and minimize the need for separate versions of the web compliance content InternationalCounsel

6. Online Legal Issues in China Key Issues in China InternationalCounsel

7. Online Compliance: Key Issues in China • Licensing/Registration for Internet Content Providers • Restricted Internet Content • Is Web Site Content a Form of Publishing? • Another License for Providing “News”? 5. Regulation of Advertising 6. Consumer Protection 7. Privacy and Data Protection InternationalCounsel

8. Online Compliance: Key Issues in China National vs. Local Law in China: • China applies national laws as well as local laws from Beijing, Shanghai, Guangdong and elsewhere. • Local law may add to requirements at the national level • As with other laws in China, many Internet-related laws start at the local level, and are picked-up by the central government after a testing period InternationalCounsel

9. Online Compliance: Key Issues in China “The PRC government extensively regulates the Internet industry . . . . Internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be a violation of applicable laws and regulations.” InternationalCounsel

10. Online Compliance: Key Issues in China “This may disrupt our business, or subject us to sanctions, requirements to increase capital or other conditions or enforcement, or compromise enforceability of related contractual arrangements, or have other harmful effects on us.” Baidu IPO Prospectus, August, 2005 InternationalCounsel

11. Online Compliance: Key Issues in China 1. Licensing of Internet Content Providers A business license is required for commercial web sites in China (and registration for non-commercial sites), and the license or registration number must appear on the home page • China clarified in 2000 that internet content providers, which are referred to as “internet information service providers,” are required to obtain an operating permit or comply with filing procedures, depending on whether they provide services for compensation. State Council Order No. 292, Administrative Measures on Internet Information Services, September 24, 2000. InternationalCounsel

12. Online Compliance: Key Issues in China 1. Licensing of Internet Content Providers • “Operational Internet information services” are defined as “the provision of information, web page production or other services to Internet users through the Internet for compensation” • Internet activities relating to news, publishing, education, health care, pharmaceuticals, medical apparatus and instruments subject to separate approvals • The authorities must be notified in advance of making any changes in the type of services provided InternationalCounsel

13. Online Compliance: Key Issues in China 1. Licensing of Internet Content Providers • In March, 2005, further regulation for the registration of non-commercial Web sites - likely for Web sites where information is provided but e-commerce is not conducted. This would likely cover corporate promotional web sites which do not engage in e-commerce. Servers or Level of Activity in China? • At least for non-commercial sites, applies to “Internet information services provided by websites that can be visited by organizations or individuals within the PRCvia an Internet domain name or by websites that can be visited only via an Internet IP address.” Art. 5 InternationalCounsel

14. Online Compliance: Key Issues in China 1. Licensing of Internet Content Providers • Servers or Level of Activity in China? • Will the regulations apply even to web sites on servers outside of China? [See full PowerPoint presentation] InternationalCounsel

15. Online Compliance: Key Issues in China 1. Licensing of Internet Content Providers • www.apple.com.cn: 沪ICP备05024394号 • www.google.com.cn:京 ICP证050124号 InternationalCounsel

16. Online Compliance: Key Issues in China 2. Restricted Internet Content China specifies a broad range of prohibited content Dating to 1996, China has provided that individuals and entities shall not make use of the Internet to conduct specified activities [Continued in full PowerPoint presentation] InternationalCounsel

17. Online Compliance: Key Issues in China 3. Content as Internet “Publishing”? Many Internet content providers will also be subject to approval in order to engage in “Internet publishing” • “Internet Publishing” – “online dissemination [to] select, edit and process works . . . [and] post the same on the internet . . . for browsing, reading, use or downloading by the public” Art. 5, Administration of Internet Publishing Tentative Provisions, August 1, 2002 [Continued in full PowerPoint presentation] InternationalCounsel

18. Online Compliance: Key Issues in China 4. Another License for Providing “News”? • Only "Internet news providers" that have completed licensing and recordal procedures can distribute “news,” including on web sites. Administration of Internet News Information Services Provisions • "News information" is of the "current political affairs type," including reports and commentary on politics, economics, military affairs, foreign policy and other such public affairs . . . . . InternationalCounsel

19. Online Compliance: Key Issues in China 4. Another License for Providing “News”? • . . . . and "reports and commentary on unexpected incidents concerning society” • What about a reference to a natural disaster, a plane crash or even a major Internet virus attack? • Due to the risk of penalties and the shut-down of a site, it is said that the major Chinese portals have had little choice but to set up mechanisms to monitor prohibited topics InternationalCounsel

20. Online Compliance: Key Issues in China 5. “Advertising” - Liable for Yours and Ours? Requirements for “advertising” through a web site? Advertising Content • As in most countries, advertising must be truthful, lawful and not misleading.Advertisement Law of the People’s Republic of China, in force February 1, 1995. InternationalCounsel

21. Online Compliance: Key Issues in China 5. “Advertising” - Liable for Yours and Ours? Advertising Content Cannot, for example • use China's national flag, national emblem or national anthem • use terms such as "state-level," "top-level" and "the best" • obstruct public order or goes against good customs of society • have obscene, superstitious, frightening, violent or repulsive contents • is discriminatory with respect to ethnic group, race, religion or sex • Belittle the commodities or services of others • Violate special rules for products such as pharmaceuticals, medical apparatus, agrochemicals, food, alcoholic beverages or cosmetics InternationalCounsel

22. Online Compliance: Key Issues in China 5. “Advertising” - Liable for Yours and Ours? Advertising Content • With such broad coverage, is web site content about a company’s own product considered “advertising”? [Continued in full PowerPoint presentation] InternationalCounsel

23. Online Compliance: Key Issues in China 5. “Advertising” - Liable for Yours and Ours? Regulation of Advertisers and Advertising Publishers Advance Approval for Advertising Content - May Apply to Company Information on Web Sites [Continued in full PowerPoint presentation] InternationalCounsel

24. Online Compliance: Key Issues in China 5. “Advertising” - Liable for Yours and Ours? Regulation of Advertisers and Advertising Publishers Responsibility for Content of Third Party Advertising - May Apply to Banner Ads on Web Sites [Continued in full PowerPoint presentation] InternationalCounsel

25. Online Compliance: Key Issues in China 5. “Advertising” - Liable for Yours and Ours? Regulation of Advertisers and Advertising Publishers Advertising through Spam - New Controls • Internet e-mail in China which contains commercial advertising must contain “AD” or its Chinese equivalent at the beginning of its subject line. Art. 13(3), China ISC Common E-mail Service Rules, MII, effective March 30, 2006. • Such commercial e-mail cannot be sent to a party without the “clear consent of the e-mail receiver.” Art. 13(2). InternationalCounsel

26. Online Compliance: Key Issues in China 5. “Advertising” - Liable for Yours and Ours? Regulation of Advertisers and Advertising Publishers Advertising through Spam - New Controls • The Rules confirm that e-mail cannot contain prohibited content referred to above as prohibited advertising and contained in the PRC Telecommunications Regulations, Art. 57. Rules, Art. 11. • The Rules also prohibit the selling, sharing or exchanging of e-mail addresses collected through automatic collection or random combination. Art 12(2). InternationalCounsel

27. Online Compliance: Key Issues in China A Pause Here: A Content Compliance Tangle • Licenses for Internet Content Providers • Risks as Content Publisher • Is it also News Content? • What about Advertising Content? InternationalCounsel

28. Online Compliance: Key Issues in China 6. Privacy and Data Protection Many countries, use privacy and data protection laws to protect personal information. How about China? [Continued in full PowerPoint presentation] InternationalCounsel

29. Online Compliance: Key Issues in China • Consumer Protection Companies selling their products into China through their web sites should be aware of laws designed to protect consumers • China’s Consumer Protection Law - businesses must provide consumers with truthful information on merchandise and services, and not make misleading or false statements InternationalCounsel

30. Online Compliance: Key Issues in China 7. Consumer Protection • Must provide various types of information upon request of consumers, such as intended uses, functions, specifications, major components, manufacturing dates, inspection certificates, etc. [Continued in full PowerPoint presentation] InternationalCounsel

31. Compliance Strategy – Supplemental Issues • Recommendations for sites posting user messages • Defamation and slander issues • Intellectual property issues • Recommendations for contests/sweepstakes sites • Product restrictions/prohibitions • Product imports, labeling and export controls/licensing (including encryption standards) • B2B “Intranet”/Offline “Trading Partner Agreements” • Taxation • Competition/antitrust InternationalCounsel

32. Enforcement of Online Contract Terms User Acceptance of Site Ground Rules – Digital Contracts and “Clickwraps” InternationalCounsel

33. Enforcement of Online Contract Terms Is a Digital Contract Valid in China? If a user in China purchases merchandise through an online transaction, are the online terms and conditions enforceable? [Continued in full PowerPoint presentation] InternationalCounsel

34. Enforcement of Online Contract Terms Is a Digital Contract Enforceable in China? Online Offer/Acceptance – the "Clickwrap" Agreement [Continued in full PowerPoint presentation] InternationalCounsel

35. Contract - What Law and Dispute Resolution? China/Foreign Law? China/Foreign Courts or Arbitration InternationalCounsel

36. What Law and Dispute Resolution? Scenario: Sell goods or services online to a party in China. Will want to specify warranty, limit liability, protect IP etc. Foreign or Chinese governing law? 1. Chinese law allows parties to a contract with a "foreign element,” including if a party is a foreigner, to choose the law to be applied. Chinese law is mandatory in a few situations. [Continued in full PowerPoint presentation] InternationalCounsel

37. What Law and Dispute Resolution? Foreign or Chinese governing law? 2. If Chinese law is chosen, PRC Contract Law has important impact. [Continued in full PowerPoint presentation] InternationalCounsel

38. What Law and Dispute Resolution? Foreign or Chinese governing law? 3. Even if foreign law is chosen, may be overridden by mandatory PRC law provisions - particularly for standardized contracts aimed at consumers [Continued in full PowerPoint presentation] InternationalCounsel

39. What Law and Dispute Resolution? Foreign or Chinese dispute resolution? 1. Courts or arbitration? [Continued in full PowerPoint presentation] InternationalCounsel

40. What Law and Dispute Resolution? Example Provisions • McAfee Downloadable Software, Governing Law • Dell China, Both Consumer and Non-Consumer InternationalCounsel

41. I N T E R N A T I O N A L C O U N S E L An “In-House Equivalent” International Compliance Capability InternationalCounsel

42. I N T E R N A T I O N A L C O U N S E L An “In-House Equivalent” International Compliance Capability • Formed by Fortune 50 in-house international legal counsel to provide legal services to companies with business interests in multiple countries • Identifies and solves cross-border legal issues in Asia, Europe, Latin America and elsewhere, including web site content and e-commerce compliance InternationalCounsel

43. Address: Telephone: Facsimile: Web Site: E-mail: 200 South Wacker Drive Suite 3000 Chicago, Illinois 60606 312 236 5600 312 575 0602 www.internationalcounsel.com info@internationalcounsel.com David Laverty I N T E R N A T I O N A L C O U N S E L InternationalCounsel