New Law on Customer Data Protection in China Impacting Telecom and Internet Companies

by Davis Wright Tremaine LLP

The Rules Regarding the Protection of Personal Information of Telecommunications and Internet Users (the “Rules”) were adopted and announced on July 16, 2013 by the Chinese Ministry of Industry and Information Technology (the “MIIT”), and will take effect on Sept. 1, 2013. Spurred by the booming of the telecom and Internet business in China, the privacy risk that telecommunications and Internet users are faced with on a daily basis has become, unfortunately, greater than ever in recent years. The Rules, as the first regulation specifically formulated to protect the personal information in e-commerce applications, will become a guideline for all regulations under the MIIT regarding the protection of personal information in the field of e-commerce.

Before the announcement of the Rules, personal information protection regulations were never thoroughly discussed or deliberated at a national level in the legislature and were only briefly touched upon in general laws. For example, under the Chinese Tort’s Law, there are very general articles stipulating that people’s privacy interests are subject to protection and any person who infringes the privacy interest of others shall be found liable under the Tort’s Law. Moreover, under the Chinese Criminal Law, staff members in a telecom company who obtain customers’ personal information by using their position, and sell or illegally provide such information to others, may be sentenced to imprisonment of up to two years. Furthermore, whomever illegally obtains the aforesaid information by stealing or any other means may also be subject to such criminal penalty. However, because of the lack of applicable rules and interpretation, it is difficult for individual telecommunications and internet users to seek legal protection when their rights are being violated, and also difficult for e-commerce business operators to take precautions in compliance with the law.

The first general law regarding the protection of personal information in the field of e-commerce is the Decision on Strengthening the Protection of Online Information (the “Decision”), which was adopted by the Standing Committee of China’s National People’s Congress at the end of 2012. The Decision has laid out the general principles regarding privacy protection, but the penalties for violating the Decision and the specific duties for related governmental agencies and authorities remain unclear.

Due to the lack of penalties and control, the Decision was never taken into full effect, and day-to-day privacy violations seem to be on the rise in China. For instance, Internet users frequently receive unsolicited mails that are specifically addressed to them as if the senders have full access to their personal information. Often times it is because the telecom and Internet service providers disclosed such information to a third party. With the lack of supervision and law enforcement, the misbehaved service providers may easily get away after selling customer data to third parties.

The government now hopes that the Rules may control the problem and offer better protection to personal information. The principles of the Rules are consistent with that in the Decision, but set forth some regulatory provisions in greater detail. DWT has summarized, as follows, the new development that the Rules will bring about.

1. Entities subject to the regulation of the Rules
The Rules expressly limit the scope of entities subject to regulation. The Rules only apply to the telecom service providers (the “TSP”) and the Internet content service providers (the “ICP”).

According to relevant laws, TSP refers to entities which provide service by using wired or wireless electromagnetic systems, or photoelectric systems, to transmit, emit or receive speech, text, data, graphics or any other form of information. ICP refers to entities which provide information through the Internet to web users. Thus, for instance, any communication company, e-mail service provider, cloud computing company, or Internet connection service provider may be categorized as a TSP, while the entities running websites of any kind, or otherwise providing information to end users via the Internet, may be categorized as ICPs.
Since only the TSP and the ICP are subject to regulation under the Rules, any privacy infringement by individuals or by any non-TSP or non-ICP entity, is hereby not protected by the Rules. In other words, under such situations people may only claim their rights under the general laws as introduced above.

2. Scope of personal information under protection
Under the Rules, “personal information” refers to information collected by the TSP or the ICP during their service that can identify the users, or information regarding the use of service. Such information includes, but is not limited to: names, birth dates, ID numbers, resident addresses, phone numbers, account numbers, passwords and other kinds of information, which alone, or in combination with other information, can identify specific users. Moreover, the time and location of the user using certain service also fall within the “personal information” subject to the protection under the Rules.

3. Principles regarding the collection and use of personal Information
The principles of “legality, propriety and necessity,” as provided in the Rules regarding the collection and use of the personal information, is exactly the same with that in the Decision. In addition, the Rules provide that the personal information collector shall be responsible for the security of the collected information.

4. Key requirements regarding the collection and use of personal information
Some of the requirements set forth in the Rules are mere reiterations of the requirement listed in the Decision, including:

(1) Prohibition of collecting or using personal information before obtaining the users’ consent;

(2) Informing the users of the reason, measure and scope of the collection and use of the personal information; and

(3) Prohibition of divulging, changing, destroying, selling or illegally providing personal information to third parties.

Furthermore, the Rules provide some new requirements to regulate the TSP and the ICP. The ones listed below are especially worth paying attention to:

(1) The TSP and the ICP shall formulate and publish detailed rules regarding the collection and use of personal information, and post them at their service premises or on related websites.

(2) The TSP and the ICP shall not collect any personal information which is not necessary for the furnishing of their service, or use such information for any purposes unrelated to their service, or collect information through fraud, misleading, coercion or any other methods prohibited by law.

(3) The TSP and the ICP shall stop collecting or using the personal information upon termination of service, and shall upon such termination provide the users with an option to cancel their accounts; and

(4) In addition to informing the users of the reason, measure and scope of the collection and use of information as mentioned above, the TSP and the ICP shall also inform the users of the measures used to inquire or change their information, and the consequence of refusing to provide such personal information.

5. Responsibility to third-party contractors
Currently a lot of the TSP and ICP have outsourced part of their service to third party contractors. In this regard the Rules expressly state that the TSP or ICP shall supervise and manage such contractors and ensure their compliance with the Rules. For example, even if a cloud computing company outsources the cloud-saving service to a third party, this cloud computing company is still obligated to make sure that the collection and use of the customers’ personal information by such third party will not violate the Rules.

6. Safeguard measures
The Rules have required that the TSP and ICP shall adopt a series of measures to safeguard their users’ personal information, including but not limited to: establishing security management system and internal policies, exercising privilege management, keeping safe storage medium safe, inspecting the information management system, and keeping track of the operation record. Thus, the Rules offer a sufficiently detailed guideline to determine whether the TSP and ICP have established an effective safeguarding system.

7. Penalties
Penalties for violation of the Rules shall be limited to warnings and fines. The maximum amount of fine a regulatory administration is allowed to impose will be RMB 30,000. The Rules also provide that any violation thereunder shall be recorded into the Credit Files established and updated by the MIIT, which will also be made public.

End notes
The Rules have made significant progress in protecting the private information of telecommunications and Internet users by setting forth specific rules and policies to regulate the e-commerce market. However, the penalties thereunder are comparatively light considering the amount of damage any violation of the Rules may potentially cause. Thus the Rules alone may not be enough to deter all privacy infringing acts. We hope that in addition to the Rules more laws and regulations imposing civil or criminal liabilities proportional to the amount of damage caused in the field of e-commerce will be drafted so as to provide a clearer guide to e-commerce business operators and customers.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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