Republic Act No. 11967 or the Internet Transactions Act of 2023 (“ITA”) was finally signed into law last 5 December 2023, regulating electronic commerce in the country to safeguard consumer rights and data privacy, encourage innovation, promote competition, secure internet transactions, uphold intellectual property rights, ensure product standards and safety compliance, and observe environmental sustainability.
As mentioned in my previous article Internet Transactions Act May Soon Become Law, the ITA applies to business-to-business and business-to-consumer internet transactions (including internet retail of consumer goods and non-financial services, online travel services, digital media, digital financial services, and online delivery) where one of the parties is situated in the Philippines. It does not however apply to online media content and consumer-to-consumer transactions, which are between end-users done for personal, family, or household purposes, and not done in the ordinary course of business.
Foreign entities who engage in e-commerce must pay close attention to the ITA because of its extraterritorial application. If such foreign entity avails of the Philippine market to the extent of establishing “minimum contacts” in the country, then it becomes subject to applicable Philippine laws and regulations even if it does not have any legal presence in the country.
The ITA does not define what “minimum contacts” is, but the Philippine Securities and Exchange Commission in SEC-OGC Opinion No. 17-03 dated 04 April 2017 already had the occasion to apply the Sliding Scale Test to determine if a foreign corporation had “minimum contacts” in the Philippines. This Sliding Scale Test is based on the premise that “the likelihood that ‘personal jurisdiction’ can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet”. At the end of one scale are “passive” websites, which are only used to post information therein and at the other end are “active” websites, which generate sufficient business over the internet to establish personal jurisdiction.
The ITA identifies five parties to internet transactions: (1) online consumers; (2) digital platforms; (3) E-marketplaces; (4) E-retailer and (5) online merchant, and outlines their respective rights, obligations, and liabilities.
Online consumers must exercise ordinary diligence in any internet transaction. They are prohibited from cancelling confirmed orders when the goods have already been paid for, or the goods are perishable in nature and are already in the possession of third-party delivery services or are otherwise in transit. In case of defect, malfunction, or loss without the fault of the online consumer, and without the failure of the online merchant or e-retailer to conform with the warranty or liability that arises out of the contract, the online consumer may pursue the repair, replacement, or refund of the goods, as well as avail the remedies that are available under Republic Act No. 7394 (Consumer Act of the Philippines) and any existing relevant laws.
E-marketplaces and other digital platforms must disclose the identity of the persons on whose behalf the e-commerce transaction is made. They must also require all online merchants, whether foreign or Filipino, to submit pertinent information that would sufficiently identify such persons prior to listing with their platform such as the names, addresses, and contact details of online merchants together with at least one valid ID for individuals or business registration documents for juridical entities. They also need to clearly indicate basic information regarding the goods being sold, particularly, its name and brand, its price, a description thereof, and the condition of the product.
E-marketplaces and other digital platforms are required to provide an effective and responsive redress mechanism where online consumers and online merchants may report users on the platform that are deemed in violation of relevant laws especially because online consumers need to first exhaust the platform’s internal redress mechanism prior to the filing of a complaint before any court or appropriate government agency or before resorting to alternative dispute resolution. Like online consumers, e-marketplaces and other digital platforms are required to exercise ordinary diligence in performing their obligations.
Digital platforms that do not retain oversight over the consummation of the transaction must also exercise ordinary diligence in the performance of its obligations under the Act. These types of digital platforms must require online merchants to indicate the name and brand of the goods or services it offers, its price, its description, its condition, and the online merchant must submit contact details. These types of digital platforms must also maintain an updated list of accounts that make use of its platform for internet transactions.
Meanwhile, e-retailers and online merchants must indicate the price of goods and services in accordance with Art. 81 of the Consumer Act of the Philippines or the price tag requirement. E-retailers must publish its information on its homepage such as, but not limited to, its corporate and business name, the address of its physical shop, and its contact details. They must also ensure the integrity, functionality, compatibility, interoperability, and fitness for the purpose for which they were intended of the goods purchased and received by the online consumer. Where the transaction involves the performance of a service, e-retailers and online merchants must ensure that it is completed in accordance with the contract and as advertised. E-retailers are also required to provide an efficient redress mechanism for handling complaints from their client. The ITA does not provide for the degree of diligence that e-retailers and online merchants must observe, but under Philippine law that which is expected of a good father of a family shall be required if the law or contract does not state the diligence which is to be observed in its performance.
E-retailers or online merchants are primarily liable in civil actions or administrative complaints arising from internet transactions. On the other hand, e-marketplaces and digital platforms shall be subsidiarily liable to the online consumer in a civil action or an administrative action for the damages that are the direct result of the internet transaction that it facilitated. But if the e-marketplace or the digital platform shows that it relied in good faith on the representations, warranties, and registration documents of the online merchant, it shall not be held liable under the ITA. If the e-marketplaces or digital platforms fails to act expeditiously in removing or disabling access to goods or services that are prohibited by law, imminently injurious, unsafe, or dangerous then they become solidarily liable.
The ITA requires the promulgation of the implementing rules and regulations within 90 days from its effectivity. Together with its IRR, the ITA will hopefully help build trust between online merchants and online consumers to promote and maintain a robust e-commerce environment in the Philippines.
This article was written under the supervision of Mr. Senga Fukutaro of Uryu and Itoga and will be published in Japanese in 『海外ビジネス最前線』.