Criteria of Infringement Liabilities in E-Commerce Service Providers

2011/02/22,By Feng Gang Acting Presiding Judge of the IP Division of the Beijing No.2 Intermediate,[Copyright]

I. The Teachings of the Case
The issue of the case is how to determine the criterion of infringement liabilities of e-commerce service providers. The key in determining this issue often lies with the determination of the fault of the service providers. The focus of the examination should not be on purpose but on fault. Moreover, the fault should not be of a general type but of a specific type; the fault should not be in the sense of a specific business model (service model) but in the sense of a specific act. The fault here should be specific, pertinent and concrete in individual cases.
II. Case Synopsis
The trial court found that the China Friendship Publishing Company (CFPC) has exclusive publication rights of the book Notes on Grave-Digging (IV) (in Simplified Chinese). Additionally, Yang Hailin, an individual seller on maintained by the Zhejiang Taobao Network Co., Ltd. (Zhejiang Taobao), sold, without permission from CFPC, the alleged infringing books Notes on Grave-robbing (IV on, and the price was much lower than that of a genuine copy.; Zhejiang Taobao administered free registration on and charged no fees to sellers who sold their products; Furthermore, Zhejiang Taobao had verified Yang Hailin’s name and personal ID number; and that the address and telephone number that Yang provided for registration corresponded to those used in the express mail when selling the alleged books.
III. The Rulings
The court of first instance held that CFPC enjoyed the exclusive right to publish the Notes on Grave-robbing (IV). Yang Hailin’s act of selling the said books infringed CFPC’s exclusive right and therefore, Yang should assume liability for infringement. Under the principle of reciprocity of rights and obligations, Zhejiang Taobao, in the process of providing information platform service, had correspondingly the duty of examination, i.e., the duty to examine the aptitude of the sellers who release business information on the trading platform. However, it had no obligation to examine beforehand whether the quoted price of the commodities on the trading platform was too low or whether the quality of the commodities was acceptable. It was only obliged to remove the allegedly infringing materials in a timely manner after the right holder raised claims backed up by evidence. Zhejiang Taobao failed to fulfill its examination obligation of any form and thus was negligent for Yang’s infringement and should bear corresponding liability for infringement. The court of first instance ruled that the defendants Yang and Zhejiang Taobao compensate plaintiff CFPC 2,000 Yuan for damages within 30 days as of the effective date of the judgment and dismissed the plaintiff CFPC’s other claims.
On appeal, the court of second instance was of the opinion that Zhejiang Taoba, as an e-commerce service provider, had checked out the individual seller Yang Hailin’s real name and ID number. Since there was no requirement in the current laws and administrative regulations that a  service provider had the obligation to distinguish various situations, Zhejiang Taobao’s failure to require Yang to provide the certificate of business aptitude did not violate the relevant provisions. With respect to Yang’s registration as Taobao’s individual seller, Zhejiang Taobao by fulfilling its duty of reasonable examination with follow-up measures; nor was it contributory infringer under the laws and regulations since it did not facilitateYang’s infringement.
The court ruled: 1. the decision below be vacated; 2. Yang Hailin compensate CFPC in an amount of 2,000 Yuan for damages; and 3. all other CFPC’s claims are dismissed.
With the rapid development of network technology, the applications of network have become increasingly widespread and have penetrated into all aspects of the society. Correspondingly, network-related disputes increased and became more complicated day to day. Among them, copyright infringement involving network have in judicial practice demonstrated the characteristics of large quantities, multiple types as well as becoming more complicated in technology and law. It is worth noting that in the current judicial practice of internet copyright infringement cases, there emerged inconsistencies in certain scope and certain degree as to the qualitative criteria of the cases. The core issue lies in how to determine the fault of network service providers. Coincidently, those who hold the opposite opinions tend to base their conclusions on defendants’ specific business model (service model). In the opinion of this author, the discussion of this issue can start from the principle of technology neutrality and it is needed to conduct theoretical research to clarify matters and find the underlying cause of things and correctly guide the judicial practice.
1. Types and criteria of service provider infringement liabilities
a. Types
Network service providers (NSPs) are often classified as Internet Content Providers (ICP) and Internet Service Providers (ISP). It is worth noting that there are no bright lines between ICPs and ISP.s As a practical matter, many network service providers often upload information from themselves and from others as well. In the former case, they are the ICPs, while in the latter they are ISP.s. Strictly speaking, it is only the specific act that can decide whether one acts as an ICP or ISP, and it is only in this circumstance that the distinction is meaningful. It should also be noted that an ICP and ISP are not necessarily companies; they may also be individuals. Theoretically, an ICP, in particular, may be any netizen.
b. Criteria for distinguishing an ICP from an ISP and for determining infringement liabilities
The Measures for the Administrative Protection of Internet Copyright provides that an “Internet content provider (ICP)” shall mean an Internet user who publishes relevant contents on Internet. The “publish” as mentioned here mainly refers to “upload,” also including “reprint,” but excluding “automatic redirect,” “automatic storage,” “link,” “search,” “provide space for information storage,” etc. “The Internet information service provider (ISP)” refers to the subject who, in accordance with the directions of an Internet content provider (ICP), provides automatically via the Internet such functions as uploading, storing, linking or searching the content of the works and audio and video products.
There exist great controversies regarding the criteria of infringement liabilities in China’s academic circle. The author is of the view that with respect to the issue of network service providers’ infringement, fault liability should generally be applied, with assumptive fault in special cases, but not no-fault liability in any case. As to the doctrine of fairness liability, it is just a rule for assessing damages, not a rule for establishing liability.
Regarding the issue of ICP infringement liability, there is in theory and practice a consensus on presumptive fault. The constituting elements of presumptive are no different from those of fault liabilities, being: actual injury, infringing act, causal link and negligence. Plaintiff needs to prove the infringing act, the fact of injury and causation, and raise the presumption of negligence by shifting the burden of proof to defendant. If the defendant can successfully rebut the presumption, negligence is denied; otherwise, negligence is established.
As for the issue of the determination of negligence, “the duty of reasonable care” should be used as a standard. The author thinks that the “duty of reasonable care” of ICPs may differ in different circumstances and should be determined in accordance with the cognitive level of an ordinary netizens and the professional network companies but should be lower than that of the publishing houses. The scope thereof usually includes whether there exist obvious contradictions between the content and signature of the work, whether the right holder of the work is consistent with the provider of the work, and whether the provider of the work has obtained permission from the right holder, etc.
Another issue worth studying is that in the event that the defendant disproves negligence on her part, infringement shall certainly not be established. Yet, whether the plaintiff has the right to unjust enrichment claim is worth consideration. In terms of the publishing houses, the answer is yes. See Paragraph 3, Article 20 of the Interpretation of the People’s Supreme Court Concerning the Application of Laws to the Trial of Civil Disputes of Copyright.
(2). Criteria of ISP infringement liability
The network technology itself has the feature of extensive, random and free connection. “Phases” and “levels” in information dissemination characterize computer networks. In fact, this process goes through any information dissemination. What is emphasized here is that since the information dissemination process in computer network falls in technology into completely different phases or levels and the “contributions” of the subjects at different phases or levels to the completion of the information dissemination are different, thus resulting in their different rights and obligations. Hence, compared with the usage mode in a non-network environment (or traditional environment), the usage mode in a network environment has the characteristics that there are multiple disseminating subjects and they are at different “levels” and generally have no mutual intent. That is, the dissemination of works in networks often involves multiple Internet information service providers at different disseminating levels and besides, there is often no intention liaison among them.
Consequently, the author concludes that fault liability principle should apply to ISPs. It consists of four elements: fact of injury, illegal act, causation and subjective fault.
2. The doctrine of technical neutrality
In the Copyright Law, the doctrine of technical neutrality has its special meaning. It is also called “the substantial noninfringing use,” which means that the defendant is immune from infringement liability if the product or service she provides can be used for both legal and illegal purposes. This doctrine is derived from the case Sony Corp. of America v. Universal City Studios, Inc., decided by the US Supreme Court in 1984. Therefore, it is also referred to as the “Sony rule.”
The US Supreme Court introduced in this case the “staple article or commodity of commerce” of the patent law. This principle was stipulated in Article of 271(c) of the US Patent Act. It states that “Whoever sells a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.” It can be seen from this provision that the act constituting contributory infringement as mentioned in the Patent Act must meet the following requirements: (1) the existence of direct infringing act, i.e., the exercise of patent right without authorization, for example, making or selling a patented product; (2) subjective intent, i.e., knowing that the product sold by oneself will be used exclusively for infringing another’s’ patent rights; (3) the implementation of contributory act, i.e., the act of selling, promising to sell or importing the main components of a patented product; (4) the object is an article, which is used exclusively for the manufacture or alteration of the patented product and has no other purpose but infringement.
3. Application of technical neutrality in judicial practice
Though the doctrine of technical neutrality requires the circumstances in which defendants assumed liability for infringement, in copyright infringement disputes involving network, the defendants often asserted it as a defense against liability. Meanwhile, this doctrine often made judges, during the process of free evaluation of evidence through inner conviction, pay too much attention to the comments on the specific business model (service model) of the defendants rather than the comments on the specific act of the defendants. The author has read many written judgments representing two opinions.
The first opinion is that: (1) in China’s current network reality, most films and television programs and musical compositions were uploaded to networks without consent from the right holders; (2) it was known to most netizens, let alone professional network service companies; (3) the network service companies earned great profits by making use of others’ works and the right holders, however, cannot get their reasonable part. Against the foregoing background, this opinion maintains that the specific business model (service model) of the network service providers who provide films and televisions programs and musical compositions is primarily used for infringing purposes, which is known to these online service providers. The defendants, as long as providing the ranking list or the recommended content on their websites, should be barred from entering the “safe harbor” and held liable for tort damages without regard to whether the works involved are in the ranking list or the recommended content.
The second opinion, under the banner of technology neutrality principle, maintains that though the defendant’s specific business model (service model) can be used for infringing purpose, it can also be used normally for noninfringing purpose, i.e., “the substantial noninfringing use.” Therefore, the defendant can enter the “safe harbor” under the principle of technology neutrality and is exempt from tort liability. As the author sees it, the theory of the first opinion is based on “substantial infringing use”. That is, as long as the defendant’s specific business model (service model) can be normally used for infringing purpose, the defendant is liable for tort damages. This is the “reverse use” of the technology neutrality principle. The second opinion is completely contrary to the first opinion, but may lead to the “misuse” of the doctrine of technical neutrality. It can be seen that the doctrine encountered a difficulty here, namely, when the defendant’s specific business model (service model) can be used normally for both infringing purpose and noninfringing purpose. How is the defendant’s liability determined? The business models (service models) encountered in the judicial practice is often of both infringing use and noninfringing use. Is the basis for determining the defendant’s liability limited merely to uses?  
4. Correct understanding and application of the doctrine of technical neutrality
To solve the foregoing tough issues, it is necessary to have a correct understanding and application of the doctrine of technical neutrality. The doctrine considers not only uses. It has other constituting elements. The most important, in the view of this author, is fault. The focus of examination should be on fault rather than on uses; the fault should not be of the general sense but of the specific sense; the fault should not be in the sense of the specific business model (service model) but in the sense of specific act. The fault here should have specificity, pertinence and concreteness of individual cases. In copyright infringement disputes involving network, the determination of fault is often embodied in the determination of the “knowing” and “should know.”
a. What is known or should be known?
The author often encountered “complaints” from ISPs in judicial practice. They complained that though they know the work involved was very famous and its owner would not upload it during a certain period, they had no knowledge that the content involved had been in existence in the information storage space provided by them. Some ISPs expressed that even though they selected, organized and edited the content and even made a “ranking list”, they should not be held to meet the element of “knowing” or “should know” if the ranking list did not contain the involved works.
The author believes that the content that is known or should be known to the ISPs who providing information storage space should be of certainty in the sense of individual cases, i.e., the certainty of the content involved and the certainty of the services involved. Specifically, two aspects should be covered: first, knowing or should know that the content involved existed in the information storage space the ISP provided; second, knowing or should know that the content involved was of high probability of being uploaded illegally.
b. Criterion for judging “knowing” and “should know”
“Knowing” is the subjective state that network service providers are clearly aware of the above situations. “Should know” is the subjective state that network service providers who work as professional service providers should know the above situation in light of the specific circumstances involved.
c. Common evidence for judging “should know” in judicial practice
With regard to the involved content in the information storage space ISPs provided, “should know” can be determined from ISPs’ acts, such as organization and editing and recommendation. However, as far as the author can see, it is only when the specific edited or recommended content contains the involved work that the ISP can be held “should know”. In terms of the high probability that the involved content may be uploaded illegally, “should know” can be determined if the involved content was of high popularity or if the service was provided during the period that the involved content was broadcast hotly or shown in cinemas.
d. The application of the present case
For the case at hand, Zhejiang Taobo, who worked as an interactive computer service provider, is different from the market subjects, i.e. the market business units, who collect rents by letting the business premises such as counters and stalls to the leasees to wholesale or retail commodities, operate, and manage the whole market. First, they involve different categories of commodities. The commodities on are large in quantity and various in categories. With the exception of the commodities whose circulation are clearly prohibited or restricted by laws and administrative regulations, all other commodities can be circulated via online trading platforms. Yet, the markets in the real world can only circulate commodities of certain categories approved by the relevant departments and the quantities of commodities are very limited. Second, the situations of the sellers they involved are different. There are individual sellers and business sellers on websites. The individual sellers are large in number and complicated in situation, including individually owned business and individuals who sell their own items, while the sellers in the real market must be the market operators conforming to the relevant regulations and the number of sellers is very limited. Third, the scope and content they examine are different. As to business sellers, the content examined by Taobao include business license for enterprise as a legal person, business license, business license for individually owned business, etc. As regards individual sellers, there are no requirements in the current laws and administrative regulations that interactive computer service providers have the obligation to distinguish the individual sellers’ various situations. Thus, it is OK that the interactive computer service providers merely examine the individual sellers’ real names and ID numbers, whereas the market operators in real world need to examine the business license for enterprise as a legal person, business license, business license for individually-owned business and other materials of all their sellers. Zhejiang Taobao, who worked as an interactive computer service provider, verified the individual seller Yang Hailin’s real name and ID number. Under the current laws and administrative regulations, Zhejiang Taobao did not violate the relevant provisions. Zhejiang Taobao’s contention that it had no legal obligations and ability to examine individual sellers and cannot define and determine whether an individual seller had business purpose and that it had fulfilled its duty of reasonable examination is of legal basis and should be upheld.
5. Conclusion
The doctrine of technical plays a role in encouraging technology development, balancing the interests of various parties and promoting social well-being. However, stressing the doctrine in isolation may wrap those who infringe upon others’ rights by making use of new technologies in a new aura of legitimacy, thus damage the social order and public interests. The courts, in deciding individual cases, should give more concerns about the legality of specific actions rather than the legality and even the morality of the business model (service model). At the level of judicial policy, the criterion for fault should allow the majority of network service providers to enter the “safe harbor” rather than the opposite. Only in this way can it be more beneficial to the guarantee of the authority and effectiveness of the laws and the enhancement of the guiding role and dynamic role of justice to the society. On this premise, increasing compensation for infringement and focusing strength to combat serious infringing acts to better balance the competing interests of various parties and thereby promote the gradual formation of the social atmosphere favorable to the construction of an innovative country.
                                  (Translated by Zhang Meichang)

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