—Interpretations on Solutions to Several Issues in Hearing E-Commerce IP Infringement Cases

(By Luo Yanjie) In recent years, E-Commerce in China has thrived along with the development of online shopping. According to some news reports, the volume of the transactions from 360buy.com totaled more than RMB sixty billion Yuan, and Suning’s online sales achieved a comparatively paltry RMB 18.336 billion Yuan. With respect to Taobao.com and its affiliated websites, their business gains have vastly superseded all other rivals. By November 2012, Taobao.com and Tmall had sales of over RMB 1000 billion Yuan, which is almost three times that of Bailian Group, Suning and Gome’ s annual income in 2011 combined. The aforesaid three companies are currently the top three retail chains in China.

However, behind the incredible development of e-commerce, a grey area exists. Despite China having placed more and more importance on IPR protection, in the sphere of e-commerce (especially platforms created specifically for e-commerce) knockoff brands, pirated books or videos, and counterfeit consumer goods in general are ubiquitous. Even with regulating laws in place, they are rarely enforced. The present reality has troubled copyright holders, because it is difficult to cite a specific legal standard or basis for taking action. Specifically for this reason, the Beijing High People’s Court issued the “Solution to Several Issues in Hearing E-Commerce Infringing IPR Cases” (“Solution”), which are the first official documents published by a judicial organ to guide the hearing of IPR cases arising out of e-commerce. Although the Solution has only been adopted in Beijing, we believe it will eventually become a guide of sorts for similar cases nationwide. Today and tomorrow, we will discuss with our readers IPR infringement liability issues pertaining to e-merchants based on past cases and laws.

I. The Various Types of E-Merchants

The Solution divides e-merchants into two main types: self-running and non-self-running (namely, those involved with e-business platforms). The features of self-running e-merchants are those that provide specific transaction information and engage in the actual transaction or sale; in contrast, the non-self-running e-merchants only supply transaction information through the online platform (like Taobao, Tmall, etc.) and do not actually engage in the transaction. In order to better illustrate the two main types of e-merchants, one may consider the first type as those similar to 360buy.com or 51buy.com, whom sell products directly to the consumers, and the buyer in the transaction would directly enter into a contract with the e-merchant. The second kind of e-merchant includes those similar to Taobao.com or Paipai.com, whom only play the role of bridging the seller and buyer and whom do not involve themselves directly in the transaction. The Solution provides different regulations governing the two types of e-merchants, and we will explain the differences in the following post.

II. Ways of Assuming Liability  

The reason we make a clear distinction between these two types of e-merchants concerning ways in which they assume liability is because the ways under which liability may be found depend upon the ways IPR infringement occurs. The details are as follows:

1. A self-running e-merchant shall assume direct liability for IPR infringement

Under the operating model of the self-running e-commerce platform, the e-merchant is actually the product seller, and therefore, under such situations, the e-merchant shall assume direct liability as to the legitimacy of the IPR issues related to products it sells. If it is determined that a product sold by the e-merchant constitutes IPR infringement, that direct liability is assumed, and the next step is to decide whether to pursue the manufacturer of the offending goods.

It shall be especially noted that, on some self-running e-commerce platforms, there may be third parties engaged in the selling of products. This is not quite the same as some more traditional e-commerce platforms (like Taobao.com, for example) because consumers are unable to determine whether the products they purchase are from a third party, or whether information related to goods is adequate and accurate. For example, in a case filed by a consumer against 360buy.com, involving an issue with the return of a product purchased on the platform, 360buy.com argued that it only functioned as a platform. Under this line of reasoning, 360buy.com stated that all the transaction activity, including product delivery, invoicing, and payment collection was conducted by a third party. The Shanghai Pudong People’s Court, in hearing the case, held that the e-merchant did not disclose sufficient details regarding the subject of the transaction in standard terms, and that the party assisting in concluding the transaction may be considered a party to the contract of sale. In determining the obligations of the seller in this type of business, the Court held that the main obligations are carried out jointly by 360buy.com and the third party, and therefore it could determine 360buy.com to be a direct seller of the product at issue in the transaction. Because 360buy.com was held to be a “direct seller,” the Court decided it should also assume legal liability. Although this particular case is really quite typical in terms of consumer rights issues, the Pudong Court’s opinion can also be applied in IPR disputes. Pursuant to this line of reasoning, if an e-merchant fails to disclose or indicate the product sold on its platform is from a third party, it shall assume direct legal liability for the product sold.

The above opinions are highlighted in the Solution. As provided in second paragraph of Article 3:

“In the event an e-commerce platform operator fails to indicate the accused infringing information or relevant transaction are mainly from or by third parties using its network, it may be presumed the transaction is carried out by the operator.”

2. Indirect Infringement Liability for E-Merchant Platforms

As described above, an e-merchant platform does not engage directly in transactions between sellers and purchasers; rather, it only provides the platform itself, as well as any technological support arising out of use of the platform. Once it is determined there are infringing products for sale on the platform, the e-merchant is not the directly contributing to the infringement, and therefore may only assume indirect liability for its failure to exercise its obligation to take reasonable due care. In other words, unlike self-running e-merchants, even if there are infringing products, the operator of an e-merchant platform may not necessarily be involved in infringing activity.

The Solution, in this case, has explicitly stated the above opinions, and according to Article 6:

“In circumstances where an online seller provides information of an accused infringing transaction or transaction by means of an e-commerce platform operator’s service, and then consequently damages the IPR of others, the seller shall assume infringement liability, including any compensation. In circumstances where an operator of an e-commerce plantform is aware that an online seller has used its network to infringe others’ IPR, and yet no necessary measures have been taken to prevent it, the operator shall assume joint liability for compensation with the offending online seller for the damages caused subsequent to its awareness of the infringement.”

In tomorrow’s post, the author will continue this discussion over the standards or elements to be considered in determining the assumption of liability of e-merchant platforms.

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You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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