In recent, it has aroused public concern that the well-known security software firm, Kaspersky, was reported by CCTV, the Chinese state television, that its sales agents are likely to be fraudulent to the customers.
“Weekly Quality Report”, a program on CCTV, reports that some agents of Kaspersky trick customers to buy security software of Kaspersky by using ads which kept displaying a false virus warning. When the computer users are normally surfing the Internet, a pop-up ad appears to warn them that many serious threats such as viruses and Trojan horses are found in this computer and the computer system will be seriously damaged if the loopholes fail to be repaired in time. Because of worry about such viruses, many computer users spend RMB 20 buying the security software. In fact, such warning is just a trick to induce computer users to buy the security software. Ironically, when the customers visit the same web again after purchasing the recommended security software the virus warning still appears.
After the program is broadcasted, Kaspersky declared that the said sales agents cheated not only customers but also Kaspersky. And Kaspersky has already filed a lawsuit against such sales agents.
As below our website will analyze how Kaspersky,one of the leading security software firms, to resolve the credit crisis and the fraudulent behaviors of its agents suffered in China this time. The core issue we concern is whether Kaspersky can be exempted from liability for its agents’ fraudulent activities.
First of all, we should clarify the agency legal relationship between Kaspersky and its agents. And we will separately analyze the following various circumstances.
The first instance is the agents operating the software with the property owned, in which the agents buy the software from Kaspersky first, and then sell it to customers. In other words, the relationship between Kaspersky and its agent is a pure sales contractual relationship. Actually Kaspersky has no legal relationship with its agents’ selling the software, and Kaspersky is just a victim in this case.
The second instance is the agents having no ownership of the software and selling the software on entrustment, the relationship is either direct agency or indirect agency by China laws and regulations.
The agency is divided into direct agency and indirect agency, and the difference is that a direct agent trades with the relative parties in the name of principal, while an indirect agency trades in its own name. But the principal shall bear all the liability hereby produced. The legal basis for direct agency was provided in the General Principles of Civil Law of People’s Republic of China (“GPCL”), and indirect agency was defined as “Commission Contract” in Contract Law of People’s Republic of China (“Contract Law”).
In the Kaspersky case, according to the report of the TV program, customers buy the security software in the website which is not an official website of Kaspersky, and the payee is an ads company, the operator of the website, which actually is not a direct agency. And whether it is an indirect agency depends on whether the contract signed by and between Kaspersky and its agent agrees buyout operation or sales agency and the price is controlled by Kaspersky. It is believed that the evidences submitted by Kaspersky to sue its sales agents are helpful for us to learn the truth. And our website will pay attention to the following developments of this case.
Of course the key point in this case is whether Kaspersky fully aware of its agents’ fraudulent activities or does it even indulge the misconduct or not. If the answer is “Yes”, then Kaspersky shall take relative legal responsibility, regardless of the relationship between them is buyout operation or agency.
First, according to Protection Law of Consumers’ Rights and Interests of People’s Republic of China, once a fraudulent activity was discovered, the business operators shall increase the compensation for customers’ losses, two times the costs paid by customers for purchase. It‘s commonly known as “to compensate one and return one”.
Second, a license granted by the government is necessary for a company to operate security software in China. According to the Regulations of the People’s Republic of China for Safety Protection of Computer Information Systems issued by the State Council and Administrative Measures on Computer Virus Prevention issued by the Ministry of Public Security, if Kaspersky had participated in this case directly or indirectly, its annual inspection for its business license and software licenses will be negatively effected.
Third, if the fraud in this case is serious enough to be regarded as a defraudation crime specified in the criminal law. The company alleged guilty of defraudation may be fined, while the person in charge of the company may be imposed a restriction on freedom.
Author: Mr. Huang Mengren
Attorney-at-law of DeBund Law Offices
Co-author: Mr. You Yunting
Founder & Editor-in-Chief of Bridge IP Law Commentary
Partner & Attorney-at-law of Shanghai DeBund Law Offices
Email: Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,
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Bridge IP Law Commentary is a website focus on the introduction of commercial laws in China, especially the intellectual property laws. All the posts here are our original works. And all news or cases referred here are from public reports, and our comments or analysis are of due diligence, neutrality and impartiality, representing our own opinions only and are our original works. You may contact us shall you have any opinions or suggestions.
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