China: IP reshapes e-commerce strategies

Last Updated: 18 January 2012
Article by Xianjie Ding and Di Yao King

New developments in e-commerce regulation bring the issue of intellectual property infringement and the liability of e-commerce operators to light. A landmark case in China removed the defence of the "Safe Harbor Principle" for the first time, and should serve as an admonition to online platforms

The rise of e-commerce in China

In 2011, the e-commerce business in China underwent major changes. After significant amounts of private equity (PE) investments and many successful initial public offerings (IPOs) on the New York Stock Exchange (NYSE) or NASDAQ, e-commerce operators have increased resources to develop their business strategies. They are no long playing a neutral role by providing a merely technical and automatic processing of the data (for example, merely providing space for a blog, etc.) but marketing aggressively as a real internet value-added service provider (for example, providing services in building up or optimising a member's own website, etc.). This change in role will lead to great legal challenges in the future in the area of trade mark infringements committed on an e-commerce operator's platform. This article will introduce two high-profile online trade mark infringement cases in both the EU and China, and offer an analysis of the implications on the development of e-commerce.

L'Oreal v. eBay: Active role, no exemption

In 1998, the Digital Millennium Copyright Act (DMCA) in the US created a safe harbor for e-commerce operators against copyright liability so long as they adhered to and qualified for certain prescribed safe harbor guidelines, and promptly blocked access to allegedly infringing material (or removed such material from their systems) if they received a notification claiming infringement from a copyright holder or the copyright holder's agent (generally known as the "Safe Harbor Principle"). On May 22 2001, the EU passed the Copyright Directive (EUCD), which addresses some of the same issues as the DMCA. Recently, a long awaited decision by the Court of Justice of the EU (CJEU) made it clear that the Safe Harbor Principle does not apply to all e-commerce scenarios and it is tightening e-commerce operators' liability of IP infringement committed on their platforms.

One of the principal areas of the L'Oreal v. eBay case concerned the liability of e-commerce operators for infringements committed on their platforms. The court found that e-commerce operators may be responsible for trade mark infringement carried out by users on their platform if they play an "active role" in facilitating the infringing activities.

Specifically, the court noted that the general exemption of secondary liability only applies to service providers that have acted neutrally by providing a merely technical and automatic processing of the data. However, where the service provider has played an active role such as giving it knowledge of, or control over, those data, or providing assistance intended to optimise or promote certain offers for sale, it would not be subject to the general exemption.

Moreso, even if the e-commerce operator plays a neutral role, it would not be exempt from liability if:

  1. it has actual knowledge of illegal activity;
  2. it is aware of facts or circumstances from which the illegal activity or information is apparent; and
  3. having obtained such knowledge or awareness, fails to act expeditiously to remove or disable access to this information.

In conclusion, the CJEU made it clear that e-commerce operators should be responsible for trade mark infringement carried out by users on their platforms if they played an "active role" in facilitating the infringing conduct or if it had actual knowledge or awareness of illegal activities.

Preceding the L'Oreal v. eBay case, the Gucci America v. Frontline Processing case is still under trial before the United States District Court Southern District of New York on whether a credit card processing company shall assume contributory trade mark infringement because it brings services to the public for a website trading counterfeiting goods, which it should have known about.

PRC practice: A tougher government and IP regime for online IP infringement

Clarity from new rules

On April 21 2011, the Ministry of Commerce, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the General Administration of Customs, the State Administration for Industry and Commerce, the General Administration of Quality Supervision, Inspection and Quarantine, the General Administration of Press and Publication (National Copyright Administration), and the State Intellectual Property Office jointly released the Circular of Further Pushing Forward the Crackdown on Intellectual Property Right Infringement and Manufacturing and Sale of Passing-offs and Inferior Products in the Online Shopping Sector (关于进一步推进网络购物领域打击侵犯知识产权和制售假冒伪劣商品行动的通知) (Circular).

The Circular not only requests serious investigations from government departments but also clarifies the responsibilities of online shopping platforms for the first time. According to the Circular, the major actions e-commerce operators are required to do are:

  1. tighten the market access of business operators and commodities to be traded;
  2. establish the trademark and patent inquiry system;
  3. adopt technical means to screen information on IP rights infringement, and manufacturing and sale of knock-offs and inferior products;
  4. improve information publication, identification, trading, payment making, logistics, after-sale service, dispute resolution, advance compensation, process monitoring and other assurance mechanisms;
  5. establish a daily 24-hour online inspection system;
  6. investigate and eliminate hidden dangers in time;
  7. handle violations of regulations and laws; and
  8. report the symptoms, trends and dangers of serious problems in a timely manner.

E-land v. Taobao: Taobao can no longer rely on the Safe Harbor Principle

In China, the "Notice-removal principle" stipulated in Article 23 of the Regulations on the Protection of Rights to Information Network Communication (信息网络传播权保护条例) creates a similar safe harbor for e-commerce operators in China, which is often quoted by many e-commerce operators to escape from trade mark infringements committed on their platforms. However, the E-land v. Taobao case cuts through the principle for the first time as the court found that Taobao was apparently aware of the counterfeiting information and was reluctant to stop the illegal activities.

The E-land v. Taobao case is the Chinese version of the L'Oreal v. eBay dispute. The No. 1 Shanghai Intermediate Court followed a brand-owner friendly approach by ruling that Taobao was responsible for trade mark infringement carried on by an individual on the Taobao.com platform.

The most controversial issue of the case was whether Taobao was still assumed to be jointly liable for trade mark infringement activities that were conducted again after Taobao had forbid it. The court found that although Taobao had deleted the infringing information, it would still be held responsible for taking further necessary actions to stop the infringement if the individual continued to sell counterfeit goods on Taobao.com. Apparently, Taobao was aware of the illegal activities and instead of stopping them, it turned a blind eye. Thus, Taobao constituted joint liability for trade mark infringement.

Implications for e-commerce

For almost every e-commerce operator today, its e-commerce business is no longer a neutral vehicle engaged solely in the technical processing of data. Every operator takes initiatives to build up their relations with users, exerting control over the user's data, either public or private, and providing assistance in promoting users' sales. Providing these value-added services is definitely the future of the e-commerce business model in this fiercely competitive market. Unfortunately, this business model will also lead to high legal risks if the operators do not figure out clearly how to deal with possible IP infringers on their platforms.

E-commerce operators are advised to:

  1. Be ready for responsibility: Be prepared to take on more responsibilities when it comes to the IP protection of brand owners. This is particularly pertinent where e-commerce providers are actively involved in the services it offers to its users.
  2. Conduct a self-investigation and analysis: Conducting an investigation on your own business model and analyse whether you have played an active role in promoting services that have a high risk for IP infringement.
  3. Establish a supervision system: Set strict market access for users who are your potential "active role" service acceptors.
  4. Collaborate with brand owners: Collaborate with brand owners to jointly survey for IP infringement activity and share this cost.
  5. Prepare for court hearings: E-commerce operators should prepare themselves to assume more liability, including injunctions imposed against them. They should also take steps to restrict future infringement activities and be well-prepared for future litigation.
  6. Employ public relations: Avoid being misjudged as a counterfeiting platform by engaging in appropriate public relations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions