Taking On China’s Platforms: The growth of Chinese e-commerce platforms has been mirrored by increasing IP infringement
With the exponential development of the Internet and the rapid growth of e-commerce, online shopping platforms have occupied the dominant position in the market. In China, data released by the National Bureau of Statistics show that online retail sales nationwide reached RMB 1.1 trillion (US $164 billion) in 2019, and online retail sales of physical (i.e., non-virtual, non-services) goods was RMB 852.9 billion (US $127 billion).
It is estimated that online retail sales of physical goods have contributed over 45 percent to the growth of total retail sales of consumer goods in China.
Predictably, IP cases related to online shopping platforms have proliferated. China has published a series of laws and regulations to resolve intellectual property (IP) disputes related to online shopping platforms, including Regulations on the Protection of Right of Dissemination via Information Network (2006) (the Regulation); Tort Liability Law of the PRC (2010); and the E-Commerce Law of the PRC (2019). Following these laws, Chinese courts issued guidelines on infringement related to e-commerce.
With the implementation of the E-Commerce Law, there have been many public opinions shared about the “notification and deletion” rule and legal liability for online platforms. Below, we share our analysis of the same.
The ‘Notification and Deletion’ Rule
Under the “notification and deletion” rule, also known as the safe harbor principle, if a rights owner believes its rights have been infringed by the online links, it has the right to notify the online shopping platform to take necessary measures such as deletion, blocking, disconnection, and termination of transactions and services.
The leading online platforms have established online IP complaint-handling mechanisms based on the notification and deletion rule. Amazon.com Ltd. has established an online intellectual property (IP) complaint channel, the Amazon Brand Registry, to help rights owners with brand management and IP protection.
Alibaba.com also operates an IP protection platform committed to providing one-stop IP protection solutions for global IP rights owners.
With the implementation of the E-Commerce Law, the notification and deletion rule has been refined. Under this rule, when the rights owner notifies the platform and files the complaint, the platform deletes the links and notifies the respondent. The respondent can submit a counter-claim. The platform will transfer the counter-claim to the complainant and inform the complainant that it has the right to file an administrative complaint or litigation within 15 days.
If the complainant files the administrative complaint or litigation, the deletion decision will be sustained. Otherwise, the deletion measure will be terminated.
Previously, some Chinese online platforms would delete the links and restore them only when the respondent submitted a counter-claim that failed to prove non-infringement. The online platform had the discretion to handle complaints. From the perspective of the rights owner, the new notification and deletion rule prior to the counter-claim is better and in line with the rights owner’s expectation for stopping infringement immediately.
In our view, deletion of infringing links without substantive examination of the online platform has strengthened the rights protection for IP owners. At present, Alibaba is adopting this pre-deletion process.
Online Platform’s Liability
The other important issue is the legal liability of the online shopping platform. In China’s judicial practice, it has been commonly acknowledged that the online platform is liable if there is a finding of infringement.
In the trademark infringement case Yi Nian (Shanghai) Fashion Trading Co. Ltd. v. Du And Zhejiang Taobao Network Co. Ltd., which was among the top 10 typical cases of IP protection of 2011 released by the PRC Supreme People’s Court, Taobao Company received multiple complaints from Yi Nian Company against Du. However, Taobao Company deleted only the product that Yi Nian complained about.
It did not take other necessary and effective measures to avoid Du’s repeated infringement. Taobao Company continued to provide network services for Du despite its awareness that Du’s behavior constituted trademark infringement. Therefore, Taobao Company was found to be jointly liable for repeated and continuous infringement for failing to take adequate measures to end the infringement.
According to Article 45 of the new E-Commerce Law, “knowing or should know that the operators in the platform violate IP rights” and “not taking necessary measures” are the bases when judging whether the platform should be jointly liable for infringement. If the platform receives a notification from the rights owner but does not take effective measures to stop the infringement, the platform would be considered as “knowing” of the infringement.
“Should know” emphasizes the platform’s duty to pay attention to these issues. For example, failure to establish rules for the protection of IP rights, failure to verify the qualifications of operators such as “flagship store” and “specialty store,” etc., would be considered as a failure to perform the duty of attention obligations. In that case, the platform would be liable for infringement.
In the litigation cases we handle for clients, when we choose to include the online platform as the co-defendant, the main consideration is the platform’s contribution to the jurisdiction and its joint liability for damages.
Legal Risks When Enforcing Rights on Platforms
When enforcing IP rights on online platforms, the rights owners should be cautious about the legal risks. Under Article 42 of the new E-Commerce Law, if the notification sent by the rights owner is incorrect and results in damage to the respondent, the rights owner should take legal responsibility for the damage.
If the incorrect notification is found to have been sent maliciously, damages can be doubled. In practice, if the judicial or administrative authorities recognize that the respondent did not infringe, the rights owner’s notification will be deemed as an incorrect notification.
“Malicious notification” refers to an act in which the rights owner knew it had no right to send the notification, or knew the basis of notification was insufficient, but sent it anyway, thereby causing damage to the respondent.
In practice, many rights owners are aggressive when enforcing rights on online platforms, and always conduct large scale sweeps and take-downs on popular platforms. As mentioned above, such actions may expose the complainants to legal risk. Therefore, when enforcing your IP rights on online platforms, we recommend that clients appoint an IP professional to handle such cases to avoid unnecessary legal risk.