With the rise of e-commerce and online trading, online platforms are increasingly exposed to claims of intellectual property ("IP") infringement. Their visibility and deep pockets often make them a more worthy target as compared to individual users of platforms, whose obscure identities and business scale seldom justify protracted legal proceedings.
This article examines two recent cases where IP infringement claims were brought against online platforms. These two decisions reflect the contrasting views of the Hangzhou Internet Court ("Chinese Court") and the Hong Kong Court of First Instance ("CFI") towards an online platform's level of care and contributory liability for IP infringement.
In the landmark decision of Shenzhen Qice Diechu Cultural Creativity Co., Ltd. v Hangzhou Yuanyuzhou Technology Co., Ltd., the Chinese Court held in April 2022 that Chinese NFT platform operator Bigverse was liable for copyright infringement for allowing a seller to mint a non-fungible tokens ("NFT")1 from artwork stolen from the plaintiff, Shenzhen Qice Diechu Cultural Creativity Co., Ltd. ("Qice").2
In Mary Kay Inc and Others v Zhejiang Tmall Network Co, Ltd and Others, the CFI held that there was no triable issue on whether the Tmall and Taobao entities were jointly liable as online platform operators for alleged trade mark infringement and passing off committed by individual sellers on the platforms.3 The plaintiffs' applications for leave to appeal against the CFI's decision was dismissed by the CFI in July 2021 and recently by the Court of Appeal in March 2022.4
The Qice decision
This decision is the first public ruling on NFTrelated lawsuits in China. The Chinese Court held that, as the operator of a platform focusing on NFT transactions, Bigverse failed to check if the seller who minted an NFT featuring a chubby tiger was not the rightful owner of the underlying artwork but had instead stolen the identical artwork from Qice.
The Chinese Court held that Bigverse contributorily infringed Qice's right of dissemination through information networks.5 Bigverse was ordered to destroy the infringing NFT by sending it to an inaccessible address. In terms of monetary compensation, Bigverse was ordered to pay RMB 4,000 (approx. USD 600) for Qice's economic loss and reasonable expenses of evidence collection and legal fees.6
Key takeaways from the Qice decision concerning online platform liability are as follows.
NATURE OF THE PLATFORM
The Chinese Court held that Bigverse specialized in providing NFT trading services while its registered users created the NFTs. Given its trading model and service content, the Chinese Court defined Bigverse as an internet service provider ("ISP") rather than an internet content provider.
The Chinese Court noted that Bigverse was different from an ordinary ISP, which provided automatic access or transmission services, information storage space, searching or linking services.7 In determining the obligations of Bigverse, it was necessary to take into account all circumstances, such as special features of the NFT trading model, technical characteristics of NFTs, and the degree of control Bigverse exercised over the platform.
NOT AN ORDINARY ISP
Generally, an ISP is protected by the safe harbour rule and is not obliged to actively review and take down infringing content unless and until it is put on notice of the potential infringement.8 However, the Chinese Court noted the following features of Bigverse and held that its obligations exceed those of an ordinary ISP:-
- An NFT platform should be well aware that only the copyright owner or licensee of the underlying work is allowed to mint an NFT of that work.
- Given the use of blockchain and smart contracts in NFT transactions is meant to enhance the safety and certainty of the transactions, any defect in the title of an NFTs and its underlying works will undermine the intended safety and certainty and affect the rights of the copyright owner.
- All data generated in NFT transactions are stored on the Bigverse platform, with Bigverse controlling the entire minting and transaction process.
- Bigverse was not confronted by a massive amount of content to review, so it had a higher degree of control over the content.
- Bigverse profited directly from the minting of NFTs on its platform, and received a commission for every transaction.9
The above factors led the Chinese Court to hold Bigverse to a higher level of care than ordinary ISPs.
As a result, in addition to an ISP's general noticetake-down obligation, the Chinese Court noted that Bigverse should also implement an effective IP review mechanism of the NFTs listed by, for example, examining the manuscript or copyright registration certificate of the underlying works and requiring sellers to guarantee their copyright ownership or licence. The review should rule out any evidence that obviously does not support copyright ownership or licence, and should lead an ordinary reasonable person to believe in a "general possibility" that such rights existed.
CONCLUSION
Under the Civil Code of the People's Republic of China, an ISP is jointly and severally liable with a user if the ISP knows, or should have known, that the user is infringing on the civil rights or interest of another person through the ISP's services and the ISP fails to take necessary measures, such as deleting, blocking or disconnecting the infringing content.10
The Chinese Court found that Bigverse did not conduct any vetting before an NFT was uploaded. After an NFT was uploaded, Bigverse only conducted copyright registration searches for conflicting rights; since copyright registration is not mandatory in China, the scope of vetting was clearly very limited. Further, the Chinese Court considered the underlying artwork in question to be obviously infringing, since it bore the original artist's Weibo watermark. Regrettably, Bigverse neither queried the seller about the watermark nor contacted the artist about the suspicious work.
The Chinese Court concluded that Bigverse failed to discharge its vetting obligations and to cease the infringement in a timely manner when it ought to have known of the infringement. Bigverse was therefore liable for contributory infringement of Qice's copyright.
The Mary Kay decision
BACKGROUND
The plaintiffs are a US cosmetics group Mary Kay Inc. ("Mary Kay") engaging in the production and marketing of skin care and cosmetic products through the "direct-selling" or "network-marketing model", whereby authorized direct sales representatives market Mary Kay products to individuals who then enroll themselves as representatives to enjoy a larger discount for the products.
Mary Kay sued two Mainland China companies that were found selling genuine but unauthorized Mary Kay products on Tmall outside of the "direct-selling" model for trade mark infringement and passing-off ("Individual Sellers"). In addition, Mary Kay also sued three Tmall and Taobao entities (collectively, "Alibaba") as joint tortfeasors with the Individual Sellers.
NO JOINT TORTFEASANCE
The decision at first instance concerned Alibaba's applications to set aside an order granting leave to serve the writ out of jurisdiction and to oppose Mary Kay's default judgment applications against the Individual Sellers.
In the setting-aside application, the CFI found no serious issue to be tried in respect of Mary Kay's claims against the Individual Sellers for trade mark infringement. The removal of product lot codes on the product packaging did not preclude the Individual Sellers from being entitled to rely on the exhaustion of rights defence. There was also no serious issue to be tried in respect of passing-off since there was no misrepresentation made by the Individual Sellers.
It followed that Alibaba could not be liable as joint tortfeasors. Nevertheless, the CFI proceeded to rule on Alibaba's secondary contention that: even if there were serious issues to be tried against the Individual Sellers, Alibaba was not liable because it was only providing the service of neutral online platform operators.
Agreeing with Alibaba that the present case shared many similarities with L'Oreal SA v eBay International AG, 11 the CFI held that the joint tortfeasance claim could not possibly succeed:-
- A joint tortfeasor must have procured the infringement, whether by inducement, incitement or persuasion. There was no evidence of authorization or procurement by Alibaba of any alleged infringing acts of the Individual Sellers. Mere provision of online platforms to the Individual Sellers was not sufficient.
- It must also be proved that the joint tortfeasor had acted in a way which furthered the commission of a tort by another person (in this case, IP infringement) in pursuance of a common design. Mary Kay failed to identify the alleged common design between Alibaba and the Individual Sellers, let alone adduce evidence of such design.
- Alibaba was not under a legal duty or obligation to prevent IP infringement. There was nothing in Alibaba's platform policy which could be said to favour or encourage infringement. In fact, Alibaba had taken active steps to require sellers to submit documents to show that the products to be sold are genuine. It also had a notice-takedown procedure to deal with complaints from brand owners. The fact that Alibaba may have benefited from the Individual Sellers' acts did not make it liable.
It is worth noting that in addition to platform liability, the Mary Kay case also examines at length various issues of the exhaustion of rights defence to trade mark infringement, jurisdiction and the problem of forum shopping, as well as material non-disclosure in Mary Kay's application for service out of jurisdiction.
Hong Kong Copyright (Amendment) Bill 2022
The Copyright (Amendment) Bill 2022 ("2022 Bill") was published on 27 May 2022 and is currently under consideration by the Bills Committee, after which the Legislative Council will debate and vote on it. The 2022 Bill proposes to introduce safe harbor provisions to limit the liability of online service providers12 for copyright infringement caused by users on their platforms, on conditions that the service provider:13
- Took reasonable steps to limit or stop the infringement as soon as practicable after receiving a notice of alleged infringement, becoming aware that the infringement has occurred, or becoming aware of the facts or circumstances that would lead inevitably to the conclusion that infringement had occurred;
- Did not receive, and is not receiving, any financial benefit directly attributable to the infringement;14
- Accommodated and did not interfere with the standard technical measures that are used by copyright owners to identify or protect their copyright works; and
- Designated an agent to receive notices of alleged infringements and supplies the agent's name and contact details on its service.
To the relief of service providers, the 2022 Bill also confirms that they are not required to monitor their services or actively seek facts that indicate infringing activity, except to the extent consistent with standard technical measures of copyright owners.15
Conclusion
The Qice decision signals the Chinese Court's desire to cultivate a legal landscape that is favorable to IP rights holders as well as the development of the NFT industry. This aligns with the buzzing NFT market in China, and China's initiative to become a "powerful IP nation" by enhancing the standards of IP creation, application, protection, management and services.16
In contrast, the Mary Kay decision reflects a relatively pro-platform approach and confirms that such platforms are not under a legal duty to prevent infringement. This approach is codified in the safe harbor provisions in the 2022 Bill, which given the broad definition of "service providers", would appear to apply equally to traditional e-commerce platforms, such as eBay and Alibaba, as well as NFT platforms. Brand owners and NFT platforms should pay attention to the judicial and legislative developments in this space and adjust their infringement monitoring and enforcement policies accordingly.
Footnotes
1 In China, the term "digital collectibles" is used instead of "NFT" to minimize association with cryptocurrency trading and mining, which are banned in China.
2 No.1008 [2022], First, Civil Decision, 0192 Zhejiang, Hangzhou Internet Court
3 Mary Kay Inc. and Others v. Zhejiang Tmall Network Co., Ltd and Others (20/05/2021, HCA2406/2017) [2021] HKCFI 1403
4 Mary Kay Inc. and Others v. Zhejiang Tmall Network Co, Ltd and Others (15/07/2021, HCA2406/2017) [2021] HKCFI 2153; Mary Kay Inc. and Others v. Zhejiang Tmall Network Co, Ltd and Others (15/03/2022, CAMP301/2021) [2022] HKCA 360
5 Article 10(12), Copyright Law of the People's Republic of China
6 Article 54, Copyright Law of the People's Republic of China
7 Articles 20 to 23, Regulation on the Protection of the Right to Communicate Works to the Public over Information Networks
8 Article 1195, Civil Code of the People's Republic of China; Article 23, Regulation on the Protection of the Right to Communicate Works to the Public over Information Networks.
9 Article 11, Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in Hearing Civil Dispute Cases Involving Infringement of the Right of Dissemination on Information Networks
10 Article 1197, Civil Code of the People's Republic of China
11 L'Oreal SA v eBay International AG [2009] RPC 21
12 A "service provider" is defined as a person who, by means of electronic equipment or a network, or both, provides, or operates facilities for, any online services (Proposed Section 65A(2) under Clause 47 of the 2022 Bill; proposed Section 88A under Clause 56 of the 2022 Bill)
13 Proposed Section 88B under Clause 56 of the 2022 Bill
14 In determining whether a service provider is receiving a financial benefit, the court may take into account all circumstances of the case, in particular, the industry practice among other service providers that are providing a similar service to which the infringement relates, and whether the fee for the online service is for, and the value of the online service lies in, providing access to the infringing material. However, such financial benefits exclude one-off set up fees and flat periodic payments that are charged on a non-discriminatory basis. (Proposed Section 88A under Clause 56 of the 2022 Bill)
15 Proposed Section 88B(5) under Clause 56 of the 2022 Bill
16 Guidelines for Building a Powerful Intellectual Property Nation (2021-2035) issued by the State Council of the People's Republic of China dated 22 September 2021
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