IP protection responsibilities for e-commerce platforms

2012/5/24By Liu Chunquan, Attorney with Panocean Law Firm Shanghai, Deputy Director of the Policy and Law Committee of the China Elect,[Trademark]

Currently, with the development of e-commerce, the IP rights holders, mostly brand owners, have been launching continued litigation strikes against e-commerce companies, and some consumers have also been filing a large number of complaints because they have purchased counterfeits or defective products. Under pressure from the two sides, countries have, by way of legislation or judicial precedents, put in place some fundamental principles in the IP protection for e-commerce companies. However, with the surging volume of e-commerce transactions, conflicts continue to be prominent. Therefore, it is necessary to further clarify specific rules on rights and obligations in the IP protection for e-commerce companies in a bid to balance the reasonable interests between IP rights holders, e-commerce companies and the public.

 

I. Types of E-commerce Participants

According to the current e-commerce practice, there are three traditional types of e-commerce, namely, Business-to-Business (B2B), Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C). With the emergence of such companies as Tmall, the three types tend to integrate and co-exist. The three types can be sub-classified into online trading platform service providers (meaning operators providing third-party e-commerce platform services, such as Taobao, Alibaba, eBay Eachnet), operators of online transactions (meaning operators which have their own e-commerce platforms, such as Dangdang, Amazon and 360buy and intra-platform operators (meaning operators on e-commerce platforms, such as sellers on the Tmall and Taobao stores). They are the major e-commerce participants, but they differ in areas of specific business scopes, charges and degrees of violations, and thus it is difficult to adopt a uniform standard to measure and demand their IP protection responsibilities.

It is generally held that e-commerce companies should be obliged to protect IP rights on the basis of the relevant national legislation, called “appropriate attention” or “duty of care” by some and “regulatory responsibility” by others. This article adopts “reasonable duty of care” in this regard.

 

II. IP Protection Obligations and Reasonableness of Different Types of E-commerce Companies

According to the survey data and subsequent observations in our push for e-commerce legislation in Shanghai in 2006, IP infringement and complaints in the e-commerce domain arise mostly from C2C platforms, in other words, IP infringements have been rampant among intra-platform operators, followed by self-employed operators, and other B2B services only accounting for a small proportion. Media reports in recent years on e-commerce and IP is mostly consistent with and confirms the above analysis.

In the early development of Chinese e-commerce, the eBay Eachnet e-commerce platform, like current Taobao stores, took an absolutely dominant position in the C2C market. Some of the lawsuits at that time had also established some basic principles in e-commerce IP protection. Among these lawsuits, a relatively important one was the case of Ying Juanli v. eBay, in which the Supreme People’s Court held that “(1). In an online deal, the website that provides the transaction platform and parties of the transaction has established a brokerage relationship, and thus the website assumes obligations as a broker in the contract law. For example, the website is obliged to report truthfully to the parties’ matters in relation to conclusion of the contract and shall not intentionally conceal important related facts or provide false information. If the website violates these obligations, it shall shoulder relevant legal liabilities. (2). If a party enters into an online sales and purchase contract through the transaction platform of the website, but does not actually perform the contract and later the party, based on the personal information of the counterparty provided by the website, makes a phone call and enters into a different sales and purchase contract, the new contract has nothing to do with the website. If either party suffers economic losses as a result of performance of the new contract, the website is not liable for the losses.”

The judgment was rendered after the judge visited the eBay Eachnet platform and learned that the company had put in place a working mechanism relating to IP protection, which, if complied with, could achieve the purpose of protecting IP rights. However, it was not workable for the e-commerce platform to review one by one the vast amount of information. Therefore, the legal nature of third-party e-commerce platforms is closest to the brokerage relationship in the existing laws. This has basically ruled out the possibility of direct liabilities arising out of infringement on the platform.

Certainly, exclusion of the possibility of direct infringement liabilities does not mean exclusion of other liabilities. Third-party e-commerce platforms may possibly commit “contributory infringement” or “indirect infringement” for infringement activities on their platforms. The duty of care between different e-commerce participants should be analyzed to determine indirect infringement in order to see whether the alleged infringement has constituted indirect infringement.

So far, independent third-party C2C e-commerce platforms charge no fee (originally eBay Eachnet charged a fee, but it was later negated by Taobao) because of the large number of intra-platform operators and vast amount of information on the platforms. Therefore, it is not reasonable to order indiscriminately platform operators to be responsible for the infringing activities on the platforms.

A reasonable approach is that such platforms should establish and implement reasonable IP protection policies and enforcement mechanisms to ensure that the relevant infringing pages can be timely removed or appropriately tackled upon receipt of complaints from rights holders. We note that a Shanghai district court ruled that Taobao committed infringement for allegedly repeated sales of counterfeits by a Taobao store, which may be the first publicly reported case of a third party e-commerce platform held liable for indirect infringement.

It is worth noting that if the ruling is based on Taobao’s user agreement, which provides that it may take measures to close the store if repeated infringement has been discovered, it will be debatable as to whether it is appropriate to find for indirect infringement on the ground of Taobao’s own user agreement. Even IP law enforcement agencies are required to abide by law. Considering that Taobao and its store owners have established contractual relationships from the legal perspective, currently there have been no laws or regulations enacted to draw a boundary between rights and obligations of platform providers in administrating e-commerce activities.

If prior contracts fail to grant Taobao the right to close the infringing store after repeated infringement, then Taobao should not arbitrarily shut the store, otherwise it may breach the contracts and will be held liable for the breach. If Taobao provides in the user agreement or transaction rules that it may take measures to close the store if the store owner has been discovered to have committed repeated infringement, which has set a contractual basis for Taobao’s IP protection mechanism by making full use of the contract rules, it will be a precise demonstration of emphasizing and utilizing laws and rules. Therefore, the reason and ground in the ruling of Taobao assuming liabilities seems to be insufficient on the basis of such rules.

In view of serious IP infringement activities on Taobao stores, the author also agrees that the duty of care for the platform operators should be strengthened through legislation. According to the Legislation Law of the People’s Republic of China and other laws and regulations, the author holds that the court will not proceed until the Ministry of Commerce or other competent commerce department releases the relevant polices, or if the court identifies, at its sole discretion, several instances of infringement committed by a store, the store should be closed, thus establishing precedents and rules through adjudicated cases.

In drafting the Service Norms for Third-party E-commerce Transaction Platforms which was later issued by the Ministry of Commerce, the author, together with other participants, had proposed the following rule:

“A third-party e-commerce platform operator shall notify the complainee upon receipt of an infringement complaint, and shall remove the allegedly infringing information if the complainee admits infringement or fails to make a reply within 5 days. If the complainee does not admit infringement, and the operator holds that no infringement has been committed on the basis of the evidence in the complaint, the operator must provide the complainant with registration and contact information of the complainee, so that the complainant and the complainee may settle the dispute through consultation or legal means.”

This rule factored in complaints made in bad faith and circumstances where the complaint may not be certainly established, and was considered reasonable by most experts after lengthy discussions at seminars. However, because this proposal did not comply with Article 36 of the Tort Liability Law, the rule had to be modified in the final version.

Third-party e-commerce platforms also have a business type which has commercial companies as main operators, such as the Tmall. The platforms charge their users and thus their reasonable duty of care should be higher than that of the third party platforms such as Taobao stores.

Self-employed operators (B2B or B2C), such as 360buy.com and Amazon.com, should have the same reasonable duty of care as traditional shopping malls as they sell products and issue invoices in their own name, similar to the traditional shopping malls. If their suppliers or partners do business in a unified brand on the platform, it will be better for their customer service and IP protection to be unified as well, otherwise, there will be circumstances where customers and rights holders would find it difficult to seek remedies.

Intra-platform operators (such as sellers of Taobao stores and Tmall) also bear the same legal obligations as traditional shopping malls in their sales, but they are liable for direct infringement only when they themselves engage in counterfeiting, otherwise, they should be liable for indirect infringement. If they are able to provide a legitimate source of the products, they may stop selling the products without making any compensation in accordance with the third paragraph of Article 56 of the Trademark Law.

In summary, if we compare e-commerce with traditional business, a C2C platform (Taobao store) is similar to a marketplace, where the administrators are obliged to protect IP rights, but the obligation should not be too high; B2B, B2C platforms, which are similar to supermarkets or online “Department Stores,” should have a relatively higher duty of care because they charge store owners; intra-platform operators (stores or sellers) are similar to stores in shopping malls and have the reasonable duty of care in acceptance of products (reviewing respective licenses related to the products in accordance with law and checking sources thereof), otherwise they should be legally liable.

 

III. Bases and Insufficiency of Existing Legislation

The main bases of network disputes in the existing legislation, such as the well-known Safe Harbor Principles and Red Flag Rule in the legal profession, are mainly determined by Regulations on Protection of Information Network Transmission Rights which fall into the system of copyright law and thus cannot be applied directly in IP cases under the Trademark Law, Patent Law and the Unfair Competition Law. Currently Article 36 of the Tort Liability Law is the main article applicable in network IP protection beyond copyright in the e-commerce. This article, which has been specially targeting network disputes, has lagged far behind the practice ever since its release.

Law against Unfair Competition has limitations due to historical reasons, but the basic principle as set forth in Article 2 has been one of the legal bases for disputes having difficulty in finding specific bases.

Network-related judicial interpretations of the Supreme People’s Court are the main bases in dealing with network issues. The adjudicated cases and historical experience in the area of copyright have provided useful references in the protection of trademarks and other IP rights.

Legislation and normative documents from some governmental departments, such as Service Norms for Third-party E-commerce Transaction Platforms issued by the Ministry of Commerce on April 12th, 2011 (the norms are national standards set by a governmental department and are not mandatory), can also be used as references in settling e-commerce disputes.

 

IV. Some Suggestions for E-commerce Companies in Designing IP Protection Systems

In e-commerce practice, trademark infringement is the major type of IP infringement, followed by part of the design patents and unfair competition between websites. According to cases and practice so far, it is usually very difficult to identify actual infringers. Therefore, IP rights holders often bring e-commerce platform operators to court, and it is of much importance in determining joint and several liabilities of the platform operators.

In several legislative research projects in which the author has had a role, there have been proposals of “recommended background real name system” on the basis of the e-commerce reality so far, which were upheld by Online Transaction Administration (Draft) from the Ministry of Commerce. The Draft was not promulgated for many reasons. Later, the State Administration for Industry & Commerce of the People’s Republic of China directly released the Interim Measures for the Trading of Commodities and Services through the Internet and directly introduced the real-name system. In any case, e-commerce companies are basically obliged to establish and implement IP protection systems, and provide information about allegedly infringing suppliers or registrants. Secondly, third-party e-commerce platforms, if they charge a fee, should increase their responsibilities in IP examination and protection in addition to the basic obligations above. Fee-based platforms such as Tmall should examine the certification of qualification, administrative licenses related to products and IP authorization documents. Cooperative stores or intra-platform operators should, as traditional sellers, exercise reasonable care in accepting supplies and examine the certification and IP authorization documents; otherwise, they should bear the responsibility as traditional stores in accordance with law.

(Translated by Wang Hongjun)

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