Legislation & Policy

Zhejiang Province Higher People’s Court No. 3 Tribunal: Guidance on the Determination of IP Trials Involving Online Trade Platforms

SIPS Knowledge, Legislation and Policy

Chapter 1 – Basic Principles
  1. In the course of trials for intellectual property cases involving e-commerce platforms, we must adhere to the basic value orientation of “strict protection” and at the same time properly handle the relationship between intellectual property owners, e-commerce platform operators, operators within the platform and public interest to realize a balance of interests among all parties.
  2. Following the principle of “parity of authority and responsibility” ( 权 责 一 致 ), respect should be given to the boundaries of e-commerce platform operators giving them a certain degree of autonomy; the behavioral boundaries of e-commerce platform operators should be ascertained, reasonably defining their legal responsibilities with the aim of promoting the healthy development of Internet-related industries.
  3. There should be adherence to the concept of collaboration in network governance, strengthening of the organic connection between judicial protection and administrative law enforcement, mediation and arbitration, encouragement of all parties to jointly participate in promoting governance and share in the e-commerce market management system.
Chapter 2 – General Rules
  1. The following factors should be considered where the People’s Court determines whether the e-commerce platform operator’s behavior in a case is providing platform services or developing its own business:

(a) information on the product page indicating the seller’s identity, or labeling on the product page such as “self-run” (自营) or “run by others” (他营);
(b) the seller’s information marked on the actual product;
(c) the seller’s information marked on transactional documents, such as invoices.

In the event these three types of information above regarding the seller are inconsistent, it should normally be determined that each relevant entity has jointly engaged in sales activities, except when the seller indicated on invoices are legally authorized by tax authorities to issue invoices on behalf of the [actual seller].

  1. In cases of infringement of intellectual property rights, where the plaintiff purchased an infringing product through an e-commerce platform, the place of delivery of the product purchased is neither the place where the contract is performed, nor the place where the infringement has taken place; therefore, the place of delivery of the product purchased shall not be considered for the purpose of determining jurisdiction.
  2. The act of selling infringing products through an e-commerce platform is not an “Act of Information Network Infringement” (信息网络侵权行为) as stipulated under Article 25 of “The Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China” (《最高人民法院关于适用〈中华人民共和国民事诉讼法〉的解释》), and therefore jurisdiction should not be determined based upon the place of residence of the infringed [party].
Chapter 3 – Notices and Take-Downs
  1. E-commerce platform operators should establish unimpeded channels for intellectual property complaints and reasonably publish them on their websites.
  2. “Notices” issued by the intellectual property owners should include the following:
    1. The identity and contact information of the intellectual property owner (and its entrusted agent);
    2. Information or URLs that can accurately identify the alleged infringing products, services or contents;
    3. Prima facie evidence of infringement, including evidence of ownership and evidence of the existence of the infringement.
  1. “Counter-notices” submitted by operators within the platform [sellers] should include the following:
    1. Subject information, such as the name and contact information of the counter-notifier;
    2. URLs of the products, services or contents where termination of necessary measures is requested;
    3. Prima-facie evidence of non-infringement.
  1. Both notices and counter notices should be sent in writing, and the notifier and the counter-notifier shall be responsible for the authenticity thereof.
  2. E-commerce platform operators may within the legal framework, and based upon their own verification requirements, the types of intellectual property rights involved and the actual situation of industrial development among other factors, request clarification and refinements to the actual requirements for notices and counter-notices and publish them in a timely manner.

For notices involving patents, e-commerce platform operators may require intellectual property owners to provide an infringement comparison; for those involving design and utility patents, e- commerce platform operators may also request that intellectual property owners provide a patent evaluation report or written decision following a request for a declaration of invalidity of a patent right.

  1. Requirements for notices and counter notices issued by e-commerce platform operators shall not set unreasonable conditions or obstacles for parties to enforce their rights according to law, such as imposing additional conditions unrelated to the content of the notices and counter notices or imposing excessive demands for prima facie evidence.
  2. E-commerce platform operators should check the contents of notices and counter-notices to determine whether key formal documents are in place and reject notices that obviously do not constitute intellectual property infringements and counter-notices that obviously cannot prove the legality of the conduct of the party receiving notice.

When the People’s Court determines whether a case falls under the category of “obvious” as abovementioned, it should consider the average judgment capacity of e-commerce platform operators, not judging from the perspective of an intellectual property law professional.

In the event an e-commerce platform operator chooses to raise the examination standards for notices and counter notices, it shall bear legal responsibility resulting from its wrongful examination.

  1. The types of “necessary measures” to be applied by e-commerce platform operators after receipt of a qualified notice includes but is not limited to: deletion, blockage, disconnection, termination of transactions and services, freezing of the notified party’s accounts or requesting the notified party to pay a bond.
  2. The People’s Court should determine whether e-commerce platform operators have taken reasonable necessary measures based on the “principle of proportionality”, taking into actual consideration including but not limited to the following:
    1. the likelihood that an infringement is taking place;
    2. the seriousness of the infringement;
    3. the impact [of enforcement] on the interests of the counter-notifier [seller];
    4. the technological capability of the e-commerce platform.

Where the notified party has intentionally infringed the intellectual property rights of others on multiple occasions, the e-commerce platform operators shall take measures to terminate transactions and services.

  1. When determining whether the necessary measures taken by the e-commerce platform operators are “timely”, consideration shall be given to factors such as the level of difficulty in determining the infringement, the specific types of necessary measures, among other factors, with the aim of making a comprehensive evaluation.
  2. In the event an e-commerce platform operator determines that a notice does not meet (its) requirements, it shall provide feedback to the notifier regarding the verification results together with reasons such that the notifier can amend the notice.

Where a further notice is sent by a notifier which has previously been processed and bears no difference from the prior notice, the e-commerce platform operator may not process it.

Chapter 4 – Regarding Determination of E-commerce Platforms Liability
  1. For an e-commerce platform operator to be held responsible for acts of intellectual property infringement by vendors within their platform, [the operator] must know or should have known about [the infringement].
  2. In the event an e-commerce platform operator knew or should have known of the infringement activities on its platform but failed to take necessary measures in a timely manner, even if the rights owner has not sent a notice, the e-commerce platform operators should also be held jointly and severally liable for direct infringement.

In the event an e-commerce platform operator knew or should have known of infringing activities on its platform but took necessary measures in a timely manner after receipt of notice from the rights owner, it shall only be held jointly and severally liable for losses of the rights owners before it took such necessary measures.

In the event an e-commerce platform operator knew or should have known of infringing activities on its platform and did not take necessary measures after receipt of notice from the intellectual property owner, it shall be held jointly and severally liable for all of the losses of the rights owners.

In the event an e-commerce platform operator did not know or should not have known of infringing activities on its platform but did not take necessary measures in a timely manner after receipt of notice from the rights owner, it should be held jointly and severally liable to additional loss attributable to the platform operator.

  1. The People’s Court shall determine whether an e-commerce platform operator is at fault based on a combination of the type of intellectual property rights involved and other specific circumstances of the case; consideration in this regard shall not be given to whether the e- commerce operator knew or should have known of the existence of certain infringement activities based solely on its prior monitoring of the legality of transaction information in accordance with relevant management regulations or mere awareness of the possibility of intellectual property infringements on its platform.
  2. “Know” refers to the subjective state of the e-commerce platform operator actually knowing of infringing activities.

After receipt of a qualified notice from the rights owner, the e-commerce platform operators should be regarded as knowing the existence of infringing activities. The People’s Court should not conclude that the e-commerce platform operators subjectively did not know solely based on rightsholders’ failure to send notices or inadequate notices; [rather] the receipt of notices from administrative departments, receipt of consumer complaints, and so forth, can also qualify as evidence that they knew the presence of infringing activities.

  1. “Should have known” refers to the subjective state that the e-commerce platform operators should notice or should have noticed but did not notice the presence of infringing activities.

In the event it is determined that the e-commerce platform operator should have known, the People’s Court should primarily consider its reasonable duty of care in protecting the intellectual property rights of others; if the e-commerce platform operator did not perform or was negligent in meeting its reasonable duty of care within its ability and range of foreseeability, it should be determined that this constituted “should have known”.

  1. The reasonable duty of care relating to the protection of intellectual property rights by e- commerce platform operators does not include a general obligation of proactive monitoring; but if the following conditions are met, the People’s Court may rule that the e-commerce platform operator has not fulfilled its reasonable duty of care:
    1. Failure to fulfill statutory obligations related to intellectual property protection, such as establishing intellectual property protection rules, verifying entry registration information of registered operators, among other things;
    2. Failure to request submission of a trademark registration certificate or related authorizations when a seller applies to enter the platform as a branded “flagship store”, “specialty store” operator, among others;
    3. Failure to adopt effective technical measures for infringement monitoring that had been widely available by the time an infringement occurred, such as failure to directly filter out links with wordings such as “counterfeits”, “high-quality imitations”, among others, and failure to prevent the re-listing of infringing pages after a complaint has been successfully established, among others.
  1. An e-commerce platform operator is subject to a higher duty of oversight when it recommends goods or services spontaneously by creating best-selling lists, promoting hot pick products, etc.

An e-commerce platform operator is generally not subject to a higher duty of oversight if it offers real time sales rankings, personalized notices and so forth which adopt reasonable automation technologies; but e-commerce platform operators should be held responsible for the burden of proving the fact and reasonableness of it adopting such automated technical means.

Chapter 5 – Wrongful Notices and Bad Faith Notices
  1. “Wrongful Notices” refers to an act where a notifier sent out a notice in a mistake that causes losses to the notified party. Where judicial or administrative authorities rule that the actions of the notified party did not constitute infringement, this shall qualify as a wrongful notice by the notifier.
  2. In the event a notified party requires the notifier to bear civil liability for a wrongful notice, it may bring a general civil tort action.
  3. “Bad faith notices” refers to an act where the notifier sent a notice regardless of the fact it knew it has no right to file a notice or the notice lacks sufficient evidentiary support, thereby resulting in losses to the notified party.
  4. In order to determine the existence of “bad faith” by the notifier, primary consideration should be given to whether the following conditions exist:
    1. Whether the notifier forged or altered evidence of ownership of rights;
    2. Whether it knew the status of rights was unsettled or flawed;
    3. Failure to retract the notice in a timely manner after learning it is wrongful;
    4. Providing fabricated verification results;
    5. Reasons in support of a notice conflict with those supporting a prior notice of the same kind.
  1. In the event a notified party requires the notifier to bear civil liability, it not only can bring an action based on unfair competition, it can also bring a general civil tort action, thereby making the notified party eligible to request the notifier to double its obligation to pay compensation under Article 42(3) of the E-Commerce Law (电子商务法).
  2. The amount of compensatory damages resulting from wrongful notices or bad faith notices should be calculated based on the actual losses of the notified party; in the event the actual losses cannot be determined, it may be calculated based on the benefits from infringement obtained by the notifier; in the event both of the abovementioned two methods cannot be determined, the People’s Court should make a decision based on the specific circumstances of the case.

The amount of compensatory damages should include reasonable expenses paid by the notified party to stop acts of infringement.

  1. The actual losses suffered by the notified party due to wrongful notices or bad faith notices includes loss of profits, loss of goodwill and recovery of costs, among others.
  2. Loss of profits mainly refers to the decrease in profit from sales by the notifier due to measures such as deletion, blocking, and disconnection of related links, among others.

Loss of profits can be calculated based on the average monthly turnover before removal of the link, the average profit margin of the industry, calculated in combination with the duration of the measures taken.

The higher the previous sales volume of the deleted links, the more weight should be put on the changes in the store’s overall turnover which resulted from the deletion of the links; this specifically can be based upon various factors, including changes in total sales amount of the store of the notified party within the period of time before and after the notice, the average profit margin of the industry, the duration of the measures taken against the related listings, among others.

  1. Loss of goodwill refers to the losses resulting from damage to the credit score of the for the notified party resulting from punishments by the e-commerce platform operator against the notified party’s related listings or store as a result of a notice.
  2. Recovery of costs refers to the additional expenses, such as promotional fees and technical service fees, among others, incurred by the notified party to eliminate the adverse effects resulting from a notice.

Recovery of costs can be determined by reference to the corresponding fees paid by the notified party previously to promote the links or stores. In the event of uncertainty, the People’s Court shall make a discretionary decision based on the fees general paid by the notified party to eliminate the
adverse effects, such as traffic loss and reduced user loyalty resulting from punishments imposed by the platform in the context of internet-traffic-driven economy.

  1. In the event where a notified party reminded the notifier in writing to bring a lawsuit, and the notifier did not bring a lawsuit within one month after receipt of the reminder or within two months after issuance of a written reminder, the notified party can bring an action seeking a declaration of non-infringement.
  2. The notified party may apply to the People’s Court for pre-litigation or interim injunctions and request the Court to order the notifier to withdraw the notice or prohibit the notifier from continuing to issue notices.

In an intellectual property lawsuit brought by the notifier, the notified party can also apply for interim injunctions.

  1. The key factors for examination of the abovementioned injunction requests brought by a notified party being bad faith notice are:
    1. the degree of bad faith of the notifier;
    2. the level of impacts on the notified party’s store caused by the act of bad faith notice of the notifier;
    3. whether not taking injunctive measures will cause more harm to the notified party than the harm to the notifier if injunctive measures are taken;
    4. whether taking preservation measures will cause harm to the public interest.

Translation by SIPS.

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