The rapid advancement of digitalization brought with it increased patronage for e-commerce. In April 2023, the Secretary of the Philippines’ Department of Trade and Industry (“DTI”) reported that the increase in online transactions globally resulted in 80% growth in suspected digital fraud attempts. Suffice to say that one of the pronounced effects of the rise of e-commerce is the consequent proliferation of e-commerce fraud. While the growth of e-commerce demonstrated its potential of transforming how businesses are conducted, it also highlighted the need for governments to put in place ethical, legal and regulatory frameworks to aid consumers and entrepreneurs in navigating this increasingly complex and evolving business landscape.
In the Philippines, Republic Act (“R.A.”) No. 11967 or the Internet Transactions Act of 2023 (“ITA”) was recently signed into law with the objective of regulating commercial activities through the internet. The goal is to ensure that consumer rights and data privacy are protected, innovation is encouraged, fair advertising practices and competition are promoted, online transactions are secured, intellectual property rights are upheld, and product standards and safety are guaranteed.
SCOPE OF THE LAW AND JURISDICTION OF REGULATORY ENTITY
In terms of application, the ITA applies to all business-to-business (“B2B”) and business-to-consumer (“B2C”) internet transactions within the mandate of the DTI where at least one of the parties is situated in the Philippines. The ITA defines an “internet transaction” as the sale or lease of digital or non-digital goods and services over the internet. The ITA is extraterritorial in scope in that it encompasses all e-commerce participants including foreign retailers which avail of the Philippine market to the extent of establishing minimum contracts herein, despite lacking physical presence in the country. The only transactions excluded from its coverage are online media content and consumer-to-consumer transactions.
Among the salient features of the ITA is the establishment of the E-Commerce Bureau under the DTI which would serve as the central authority responsible for policy formulation, compliance monitoring, regulatory gap identification, and consumer and business management in the digital space. The law also provides for the maintenance of an “Online Business Database”, a centralized public repository of digital platforms, e-marketplaces, and online merchants engaged in e-commerce in the Philippine. The ITA also introduces the development of an “E-Commerce Philippine Trustmark” in close collaboration with the private sector to increase the public’s trust and confidence in the safety and security of internet transactions.
In terms of regulatory jurisdiction, the ITA empowers the DTI to take appropriate action against violators of the law particularly those who misuse and abuse the internet in the conduct of commercial activities. Among the powers specifically granted to the DTI Secretary to effectively exercise his/her authority under the ITA include:
(i) The power to issue summons and subpoenas to alleged violators or witnesses for purposes of compelling attendance and production of documents in proceedings before the E-Commerce Bureau. The failure to comply with a subpoena ad testificandum or subpoena duces tecum issued by the DTI Secretary in due course may sanction the filing of a case for indirect contempt under the Rules of Court.
(ii) The power to issue compliance orders to require conformity with the ITA, the Consumer Act of the Philippines and applicable trade and consumer protection issuances promulgated by the agency.
(iii) The power to issue takedown orders directing the removal of a listing or offer on a webpage, website, platform or application, regardless of the intended nature of the transaction, when any of the following is present:
- sale or lease of goods or services which are prohibited or regulated under existing laws;
- sale or lease of goods or services subject of a cease and desist order issued by other government agencies;
- sale or lease of goods or services previously subject of a takedown order but which are subsequently reposted and reshared by the seller under investigation; and
- such other transactions online purporting to sell or lease goods or services that threaten public or personal safety or compromise financial or personal information.
Takedown orders have an effectivity of thirty (30) days unless extended or made permanent by a judicial order. Other regulatory government agencies may request from the DTI the issuance of a takedown order for the removal of product or service listings online that violate the laws, rules or regulations under their respective jurisdictions.
In accordance with procedural due process, the violator will be given an opportunity to be heard within forty-eight (48) hours from the issuance of the takedown order. The takedown order shall not only be directed against the erring e-retailer or online merchant, but also against the owner or operator of the e-marketplace or digital platform. A copy of the order will also be served upon entities whose cooperation would be required for reinforcement, such as, but not limited to, the internet service provider involved, and related payment gateways.
(iv) The power to establish a “blacklist” or a publicly accessible list of websites, webpages, online applications, social media accounts, or other similar platforms that fail to comply with a compliance order, or are subject of a takedown order or of a cease and desist order issued by an appropriate government agency, with details on the specific violation incurred;
Upon compliance or correction, the DTI, on its own initiative or upon request, shall remove the entry from the list without the need of a prior hearing.
To ensure that disputes are speedily resolved, the DTI shall develop and facilitate an alternative mode of dispute resolution for the benefit of all e-commerce participants.
RIGHTS AND OBLIGATIONS OF PARTIES TO ONLINE TRANSACTIONS
Of most relevance to online businesses and the consuming public, the ITA carefully outlines the rights, obligations and liabilities of all parties to internet transactions.
On the part of online consumers, they are enjoined to exercise ordinary diligence in their dealings with online merchants. If the transaction includes the delivery of purchased goods, the ITA provides that the online consumer shall not cancel confirmed orders when said items have already been paid for, or the goods are perishable in nature and are already in the possession of a third-party delivery service, or otherwise in transit to him/her, save only for the following circumstances:
- the consumer uses electronic payment and authorized the crediting of the amount despite cancellation;
- the consumer reimburses the third-party delivery service as a precondition for order cancellation;
- the transaction allows cancellation for a fee; or
- the parties agree otherwise.
In case of defect, malfunction or loss without the fault of the consumer, or failure by the merchant to conform with warranty or any liability arising from a concluded contract, the consumer may pursue the remedies provided under the Consumer Act.
On the part of e-marketplaces, they are mandated to ensure the integrity of the transactions taking place in their platforms. Preliminarily, they shall require all online merchants to submit their personal information prior to listing. They shall take the necessary precautionary measures to protect the data privacy of consumers and shall exercise diligence in requiring their merchants to indicate minimum specific information in their product and service offerings online. They shall prohibit the sale of regulated goods, unless necessary permits and licenses have been presented, and shall provide effective and responsive redress mechanisms for consumers and merchants to report users that violate the provisions of the ITA and other relevant laws.
On the part of online merchants and e-retailers, they are required to indicate the price of goods and services offered consistent with the provisions of the Consumer Act and shall ensure that the goods are received by the online consumer in the same condition, quantity and quality as described and stated. Whenever applicable, goods shall be delivered to consumers with their accessories and installation inclusions as may have been advertised. The goods shall also have the qualities and performance features deemed standard and normal for goods of the same type which a regular online consumer may expect given their nature. If the internet transaction involves the performance of a service, the online merchant or e-retailer shall ensure completion of the same in accordance with the contract. At the minimum, online merchants shall publish in their homepages their trade or business names, their place of business, and contact details. If the service being offered is connected with the practice of a regulated profession, the details of membership in any professional body or institution shall be duly reported. Online merchants are likewise required to issue paper or electronic invoices for all sales. They shall also have an efficient and accessible grievance machinery for purposes of handling complaints from their clients.
LIABILITIES OF PARTIES UNDER THE ITA
An online merchant or e-retailer shall be primarily liable for indemnifying an online consumer in a civil action or administrative complaint arising from an internet transaction.
The digital platform or e-marketplace that facilitated the transaction subject of the suit or complaint shall also be subsidiarily liable in the following instances:
- it failed to exercise ordinary diligence in performing its obligations under the ITA;
- it failed to act expeditiously in disabling access to goods or services that infringe on another’s intellectual property rights or is the subject of a takedown order by an appropriate agency; or
- it failed to provide the contact details of the online merchant lacking legal presence in the Philippines.
It must be noted however that digital platforms are not to be held liable for the consumer’s reliance in good faith on an online merchant’s representations, warranties, or submitted registration documents notwithstanding that the information in them are later found to be spurious or inaccurate. A digital platform can be solidarily liable if it fails to act expeditiously in removing access to goods or services appearing on its platform that are prohibited by law or are imminently injurious or dangerous.
PENALTIES UNDER THE ITA
In consonance with the regulatory authority of the DTI, the ITA provides for the penalties for violations of its provisions, including the imposition of administrative fines, the takedown or permanent removal of listings on any website, webpage, online application, or any similar platform, and the blacklisting of non-compliant online businesses.
Online merchants that sell, lease or allow the sale or lease of goods or services, whether digital or not, that are imminently injurious, unsafe, or illegally done through the internet shall be punished under the relevant laws and regulations that prohibit such act. In addition to the penalties provided under the Consumer Act, online merchants who are found guilty of deceptive, unfair, or unconscionable sales practices using the internet shall be penalized with fines ranging from a minimum of PhP20,000 for the first offense to a maximum of PhP1,000,000 for the third and subsequent offenses. Online merchants, e-retailers, e-marketplaces or digital platforms who willfully defy a takedown order shall be penalized with fines ranging from a minimum of PhP20,000 for the first offense to a maximum of PhP1,000,000 for the third and subsequent offenses.
Online consumers that violate their rights and obligations as laid down in the ITA shall also be imposed a fine ranging from PhP100 to PhP1,000, in addition to the value of the goods or services subject of the transaction. Online merchants, e-marketplaces and digital platforms that violate their rights and obligations under the ITA shall suffer the penalty of a fine ranging from PhP5,000 for the first offense to PhP100,000 for the third and subsequent offenses.
As a final note, the ITA is a welcome development in the government’s ongoing efforts in ensuring adequate protection for merchants and consumers in the e-commerce space. With the DTI’s increased authority to effect compliance with the provisions of consumer laws, a more robust and sustainable e-commerce environment in the country is envisioned to be better fostered.
Richard Henrick I. Beltran is Partner at the Corporate and Commercial Law Department of Villaraza & Angangco. Richard heads the Banking and Finance, Capital Markets, Fintech and Financial Services practice groups of V&A. He also advises on foreign investments in the Philippines and has assisted multiple clients engaged in e-commerce.
Ma. Andrea V. Naguit is an Associate at Villaraza and Angangco. She was admitted to the Philippine Bar in 2023 and joined the Firm at the same year.
For inquiries on matters related to Philippine law, please contact ri.beltran@thefirmva.com or info@thefirmva.com.