What Legal Risks for Cloud Storage Providers in China?

By Luo Yanjie

Recently, the 115 net disk (the “115.com”,Alexa Rank No.519), a famous cloud storage service provider (the “provider”) in mainland China shut down the sharing function of its product, and that has drawn the attention from the public media. With the shut down, the external network user could no longer download the resources from 115.com links, but 115.com replied that such a measure is to prevent the copyright risk and an action shall be taken sooner or later. Other main cloud storage providers in China like Dbank of Huawei, Kuaipan of Kingsoft (HKEX: 3888), the Vdisk of Sina (NASDAQ: SINA) still provide the content sharing service, and so far we have got no news whether they will follow 115.com in the future. Then what risks may online disk providers face for copyright infringement? The following are our opinions on it.

I. The Safe Harbor Principle is applicable for Cloud Storage.

The online disk provider is actually the normal ISP, and by the Protection Regulations on the Right to Information Communication by Networks (the “Regulation”), such a provider is classified as the provider of information storage space on the internet. As to the infringement liability, it is mainly regulated by Article 22 of the Regulation:

“Article 22 Under the following circumstances, a network service provider that provides information storage space to a service object or provides works, performances, or audio-visual recordings to the public through the information network, shall not be liable for compensation:

1. Having clearly mentioned that the information storage space is provided to the service object, and also having publicized the name, contact information, and web address of the network service provider;

2. Having not altered the work, performance, or audio-visual recording provided to the service object;

3. Having not known and having no justified reason to know that the works, performances, or audio-visual recordings provided by the service object have infringed upon an other’s right;

4. Having not directly obtained economic benefits from the service object’s provision of the work, performance, or audio-visual recording;

5. After receiving the notification from the owner, having deleted the work, performance, or audio-visual regarded as infringing on the right of the owner according to the provisions of this regulation.”

According to the above regulations, generally, unless there is evidence pointing to the provider’s refusal to delete content after the notice has been sent by the right holder, or it is known that the claimed elements, like uploading the sharing link or encouraging the user to upload the pirated works, the provider shall not be liable for the infringing content. That is the so-called Safe Harbor Principle.

Moreover, I do not support the notion of demanding prior examination by the provider, namely the element to be considered when judging whether they are aware of the infringement, or not.

The reasoning for this is that the provider is only supplying the storage space with no instruction or guideline on the uploading or sharing by the users. On the other hand, it’s fairly impossible to examine the sheer quantity of information processed on the provider’s platform every day. Besides, in a similar industry, such as video portals, no statutory examination demands are made to determine the legitimacy of the uploaded video. Therefore I could find no way for providers to conduct that examination on greater quantities of more complicated information.

II. The difference between Cloud Storage Provider and video portals

From the aspect of copyright, both the provider and the video portal are the internet storage space service provider in essence, who shall enjoy the Safe Harbor Principle. Yet, we may also see the following two differences:

1. The only service in video portal is video sharing, thus raising it to a higher due diligence obligation on infringement checking; meanwhile, the online disk may be stored with any data or files, and the diverse service leads to a lower care duty on the infringement.

2. We may see the navigation or recommendation on the front page of video portals, but the online disk provider will not be involved in the communication of the contents.

As discussed above, the online storage provider shall take the infringement liability only when it’s known or shall be known of the misfeasance. So for this reason, the actual risks over the head of the provider who takes a lower duty of care shall be less than those of video portals, namely in few situations they will be judged as “shall be known”.

III. The possible legal risk to online disk providers in the future

In May of this year, the Supreme People’s Court issued the Exposure Draft of Judicial Interpretation on Hearing Disputes of Network Information Communication (the “Judicial Interpretation”), and the document in our mind may bring a heavier copyright obligation to ISP’s after coming into effect. Among its regulations, “reasonable measures taken on repetitious infringement by the ISP” is the only standard when deciding the infringement liability taking, and that will no doubt produce a dramatic effect on the provider. Allow for the diversity of the uploaded information to the online space, after the effect of the article, the provider may spend a huge amount on human resources to delete the infringing content after the notice from the right holder.

IV. A bigger policy risk

At present, the risk from “policies” against terrorism, violence, pornography should be the greatest concern of providers, rather than the copyright risk. All the content is uploaded by users who may change the name of the file to hide the sensitive information, which will necessarily require a more rigorous supervision and create a greater obstacle to the operation. The policy making is more of CPC’s consideration and no legislature should be favored when anticipating the policy risk. That may be the main reason why 115.com’s sharing is closed to our understanding.

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