China: A challenge on the rise

The Internet has transformed and continues to transform traditional business practices in China. When China’s biggest online business service supplier, Alibaba Group, was listed on the New York Stock Exchange in September 2014, its market value topped $230 billion on the first day. However, this story has two sides. In January 2015 the State Administration of Industry and Commerce (SAIC) published the results of its monitoring of online trading. Once again, it was Alibaba – more specifically, its subsidiary www.Tabao.com – which came top. However, this time it was because of the high number of counterfeit goods being sold through the platform.

The number of online IP disputes appearing before the courts is also continually increasing. Judicial practice is being challenged in several areas – in particular, online trademark infringement and various unfair competition and domain name disputes between competitors in China’s rapidly developing markets.

Legal framework

The following laws and regulations govern online IP disputes in China:

• the Unfair Competition Law 1993;
• the Regulations on the Protection of Computer Software 2001;
• the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Laws to the Trial of Civil Dispute Cases over Domain Names of Computer Network 2001;
• the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Involving Copyright 2002;
• the Administrative Measures for the Internet Domain Names of China 2004;
• the Regulations on the Protection of Computer Software and Network Copyright Information Network Transmission Right 2006;
• the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Involving Unfair Competition 2007;
• the Copyright Law 2010;
• the Regulations on the Protection of Rights to Information Network Communication 2013;
• the Trademark Law 2013; and
• the Copyright Law Enforcement Regulations 2013.

Domain name disputes

A domain name registration will qualify as a trademark infringement in the following circumstances:

• A third party has registered a domain name which is the same as or similar to another party’s registered trademark;
• The domain name at issue is used commercially to designate goods or services; and
• This use will likely cause confusion among the relevant public as to the source of the goods or services.

Identifying infringers

It is common for the owner of a website, the actual operator and the point of contact to be different legal entities, making it difficult to identify the infringer.

Rights holders considering action should first search website recordal information and then analyse this thoroughly, using professional investigation tools. In addition, useful information can be retrieved from the judicial judgment data system. If this still does not yield results, rights holders should consider filing suit against all suspected parties. This should not result in any negative consequences for the rights holder, while the defendant’s evidence during litigation together with the opportunity to cross-examine should reveal the real infringer.

Internet service providers

Article 23 of the Regulations on the Protection of Rights to Information Network Communication establishes that where an internet service provider (ISP) provides any searching or linking service and removes links to any infringing work, performance or audiovisual product after receiving notice of this from the rights holder, it shall not be held liable for compensation. However, if the ISP is aware or should have known that works, performances or audiovisual products to which it provided hosting or linking service infringe copyright, it shall assume liability for joint infringement.

ISPs can be divided into content providers and storage space or link providers. The former are directly responsible for any infringing content based on their duty of care, while the latter (eg, platforms such as www.alibaba.com and www.taobao.com) merely have an obligation with regard to infringement. Storage space or link suppliers can be held jointly liable for copyright infringement only when they fail to delete infringing content within a reasonable period of receiving a cease and desist letter. In practice, the ISP’s level of responsibility may influence the choice of jurisdiction, which is obviously key to any lawsuit. Rights holders should therefore determine which category the ISP in question falls into before initiating any legal action for potential infringement or counterfeiting.

Jurisdiction

Given the lack of boundaries in cyberspace, the issue of jurisdiction in online IP disputes is well worth exploring. According to the Supreme Court, jurisdiction should be located where the infringement took place – this can include the place where the infringement was committed physically, the place where the infringing consequence took place or the place where the defendant is domiciled. If it is impossible to confirm any of these – or if the infringement took place outside China – then the location of the computer terminals or other facility containing infringing content can serve to determine jurisdiction.

In Rui De (Group) Company (Ruide) v Dong Fang Information Service Limited (Dongfang) Ruide filed suit before the Beijing Haidian District Court, claiming that Dongfang had copied the overall typesetting, colours, patterns, column sets, column titles, and programs of its website, which damaged its reputation and led to a fall in web traffic and to lost business.

Dongfang opposed the Beijing City Haidian District Court’s jurisdiction, but its opposition was refused by the first and second-instance courts. Donfang argued that the Intermediate Court of Sichuan Province Yibin City, where it was domiciled, should have jurisdiction. It argued against jurisdiction being where Ruide’s network server or computer terminals were located because the infringement did not take place when users visited Ruide’s website. Technically speaking, when a user visits a webpage, the page is downloaded to his or her computer by digital transmission technology through its remote computer or server, and when temporarily stored on the random access memory of the user’s computer before being displayed on the browser. Thus, the site is visited or copied only when the terminal computer or network server is entered. In this case, only Dongfang had entered Ruide’s terminal computer or network server in order to copy its website, which meant that the Beijing City Haidian District Court had jurisdiction in this case.

According to Article 5 of the Interpretation of the Supreme Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Involving Copyright, with regard to a joint action against multiple defendants where the infringement was committed in several different places, the plaintiff may choose the place where the infringement committed by any one of these defendants occurred as jurisdiction. If the action has been filed against only one of the defendants, the court in the place where that defendant committed the infringement shall have jurisdiction.

Preliminary injunctions

Factors that will influence a court when it comes to issuing preliminary injunctions – including pre-filing litigation and pre-hearing injunctions – include the need for the injunction, any evidence that irreparable damage will occur unless an injunction is issued and the balance of interest between the application and the public.

In Letv v Funshion TV (2014), which involved a dispute over information communication, Letv applied for a preliminary injunction before the hearing. Letv enjoyed rights to information network communication, as well as broadcasting rights, over the programme I am a Singer. Funshion TV re-broadcast the programme without authorisation, prompting Letv to file suit.

After filing suit, Letv applied for a preliminary injunction and lodged security with the court. Letv claimed that if Funshion’s behaviour were not prohibited immediately, it would cause serious damage to Letv’s advertising revenues, considering the timeliness of the programme. The Beijing City Haidian District People’s court issued a preliminary injunction, ruling that Funshion TV should cease broadcasting the programme immediately in view of the timeliness of the programme, the possible damage to Letv and the fact that Funshion TV could not demonstrate that it had any right whatsoever to broadcast the programme.

Conclusion

There has been a sharp rise in online IP disputes, as more and more companies do business on the Internet. If disputes do arise, it is crucial that companies confirm the cause of action and choose a favourable jurisdiction – which is mostly related to correctly identifying the defendant(s) – before commencing legal action. Preliminary injunctions are an effective way to avoid irreparable harm and courts appear increasingly willing to grant these. Further, whereas the statutory limit of compensation for copyright infringement is set at Rmb500,000, the limit of statutory compensation for trademark infringement is set much higher, at Rmb3 million, according to the Trademark Law. Compensation awards in cases involving trademark infringement are therefore usually much higher than those in cases involving only copyright infringement and unfair competition. Given this, it is highly recommended that IP disputes be filed on the basis of trademark infringement where at all possible.

Celia Y Li
Partner
[email protected]

Celia Y Li was admitted to practise as an attorney at law in 2000. Before joining Kangxin Partners PC, she worked at the Hebei Provincial High Court. Ms Li’s familiarity with the legal protection of IP rights and the judicial process ensures a high success rate for her cases. Ms Li also specialises in litigation relating to patent and trademark infringements, where she investigates and deals mainly with administration, unfair competition, arbitration and customs.

Alice Li
Paralegal
[email protected]

Alice Li received her master’s degree in IP law from Renmin University of China in 2014. She also completed the National Taiwan University’s summer programme in international economic and trade law. Ms Li has rich internship experience in IP issues, having worked in courts, a procuratorate and the top five law offices, including on domestic and foreign matters as well as IP agency. Her areas of specialty include IP strategy consultancy, litigation issues, trademark disputes and domain name disputes.