There are clear indications that Chinese government authorities are taking more concerted actions to address online infringements of IP rights, as illustrated by new campaigns targeting counterfeiting and patent violations, as well as new regulatory measures to restrict online trading in health-related items. Of greatest potential interest is the Action Plan just announced by the National Leading Group.
Meanwhile, Chinese courts are also issuing more progressive decisions that help to clarify the duty of care of trade platforms in responding to complaints by IP owners. While not legally binding, these decisions may help to encourage more constructive cooperation between brand owners and trade platforms in enforcement work. These decisions – summarized below – may ultimately be codified in a planned judicial interpretation by the Supreme People’s Court (SPC).
Finally, the trading platforms themselves are reluctantly acknowledging the scale of the problem, with Alibaba recently announcing a three-strike rule to deal with repeat infringers.
Amended Trademark Law and Implementing Regulations
Article 56(5) of the recently revised Trademark Law expressly provides for secondary liability for trademark infringements where a party “intentionally… provides facilitating conditions, thereby assisting another to infringe”. Article 75 of the amended Implementing Regulations clarifies that (among other things) provision of an online commodities trading platform can also give rise to secondary liability.
While these new provisions do not introduce new obligations for trade platforms, they clearly help to emphasize the legislature’s concerns over trademark violations online.
Draft Rules on Online Sales of Health-Related Products
On May 14 2014, China’s Food and Drug Administration (FDA) issued proposed draft regulations that will cover online sales of food, health food products, cosmetics and medical equipment. Under the proposed rules, manufacturers and wholesalers will be prohibited from selling directly to consumers. Further, traders that are permitted to conduct online marketing of those products will need to obtain permits from the FDA. The rules also provide for stricter control over false advertising in online trade.
SAIC Campaign and National Leading Group Action Plan
The State Administration for Industry and Commerce (SAIC) issued a notice on June 12 2014 announcing the state of a new enforcement campaign targeting online counterfeiting. Emphasis will be given to electronic goods, children’s goods, auto parts, clothing, cosmetics and agricultural goods.
Further, the National Leading Group for Fighting IPR Infringements (NLG) announced an online anti-counterfeiting action plan on June 18. Under the Action Plan, from June of this year, agencies are to focus on a range of objectives, including:
- Supervising key websites and e-commerce platforms;
- Shutting down illegal websites;
- Warning and educating business operators and consumers; and
- Encouraging information sharing and cooperation between sectors, regions and law enforcement agencies.
The Action Plan’s full scope is too broad to cover in depth in this article, but the following are of particular interest:
- enhanced focus on cross-border enforcement initiatives to halt online infringements, with Customs, China Post and the Ministry of Public Security meant to work with each other and corresponding agencies outside China;
- development of advanced technology to improve authorities’ enforcement capabilities and create an effective e-commerce supervision network, tracking and tracing technology, etc; and
- improving internet governance, regulations and standards, including through the development of judicial interpretations on issues unique to online enforcement, such as evidence collection processes, and fixing gaps in relevant laws and regulations.
Relevant agencies are to develop detailed implementation plans by the end of June, carry those plans out through the end of the year, and provide the NLG with a report summarizing results and lessons learned by the end of December. Brand owners would be wise to take maximum advantage of opportunities created by the Action Plan. With a clear onus placed on authorities to demonstrate results, we anticipate agencies will be hungry for sightings and reports of online infringements that will help them to put runs on the board.
SIPO Patent Campaign
On May 16 2014, The State Intellectual Property Office (SIPO), announced the commencement of a five-month campaign to support complaints by patent owners in their efforts to have advertisements for infringing goods taken down by Chinese trade platforms. The campaign encourages local intellectual property offices (IPOs) to assist by providing advice and instructions to trade platforms to take down offending ads where infringements are deemed clear, and also to mediate disputes where the existence of an infringement is less clear.
At the close of the campaign, SIPO will undertake a review of results from the campaign to better understand whether and how SIPO should address online patent infringement.
Recent court holdings involving online trade platforms
- IP owners are not required to give detailed reasons to claims of infringement, provided that the circumstances of online transaction make it clear the seller’s goods are infringing (E-Land (Shanghai) Clothing Trade LLC v Zhejiang Taobao Internet LLC (2013).
- The safe harbor defense which permits trade platforms to avoid liability if they remove infringing offers may not be applied where the infringers are repeat offenders. Platforms will need to do more than just delist infringing sales each time they pop up. Stronger actions should be taken, including termination of the infringer’s account.
- In the past, trade platforms have taken a very strict approach to takedown notices, often rejecting them based upon immaterial errors. Recent decisions are now encouraging platforms to be more flexible in their requirements and to help verify information needed to support take-down requests (Zhejiang Pan-Asia E-commerce LLC v Beijing Baidu Internet LLC (2012).
- The standard to determine whether a trade platform bears “fault” includes constructive knowledge – not just actual knowledge (Beijing Sanmianxiang Copyright Agency v Beijing Qihoo Tech LLC (2014), Beijing Qike Fantasy IT LLC v Guangdong Aufei Cartoon Culture Inc (2014); Shanghai Wenqin Recreation LLC v Zhejiang Taobao Internet LLC (2012), Shanghai HeweiTang Medical Deveices LLC v Zhejiang Taobao Internet LLC (2012), Hangzhou Guxiu Clothing LLC v Zhejiang Taobao Internet LLC (2010).
Alibaba announces a new three-strike rule
On June 16 2014, Alibaba announced that it would be introducing a three-strike rule to strengthen the deterrence against repeat offenders on its Alibaba and Aliexpress platforms.
Under the new program, sellers will be issued a warning letter following the first strike. Second-time offenders will have their listings removed for seven days. Following the third violation, Alibaba will close the account (or storefront) of the infringer, and the company or individual concerned will be banned from opening future accounts.
The new program is not expected to be extended to the more controversial Taobao.com and Tmall platforms.
The timing for the three-strike program is likely motivated in part by encouragement from the national government to take more effective action, and also by the impending listing of Alibaba on the New York Stock Exchange.