29 April, 2012

 

Legal News & Analysis – Asia Pacific – China – Intellectual Property

 

According to the "E-commerce 12th Five Year Plan" released by the Ministry of Industry and Information Technology, the nation's top industry regulator, China aims the value of its e-commerce sales to reach 18 trillion yuan (US$2.86 trillion) by the end of 2015, four times the 2010 level. Although China is still classified as an emerging market, it already has the world's largest internet population and may also have the largest population of online shoppers by 2015.
 
However, there is concern that the country lacks strict regulations and supervision of online service providers and, as the Government encourages more companies to move their businesses online, the PRC authorities have been under increasing domestic and international pressure to improve protection for both consumer and IP owners. In May 2010, the State Administration for Industry and Commerce issued the Interim Measures for the Administration of Online Commodities Trading and the Relevant Services (网络商品交易及有关服务行为管理暂行办法) (the "Interim Measures") (effective from 1 July 2010) to "procure further and healthy development of internet trading". The Interim Measures imposed certain obligations on internet traders and online service providers (OSPs) (including those providing online trading platforms) and were regarded as an important step forward in the regulation of internet trading and the protection of IP rights online.
 
The Interim Measures required anyone wishing to engage in internet trading and relevant services to provide "real-name identification". A natural person needed to provide genuine information as to his identity such as a name and address. A legal person registered with the local administrative department of industry and commerce, needed to make public information relating to its business licence, or to provide a link to its business licence in a conspicuous place on its homepage or website. Operators of online trading platforms have a duty to examine and keep records of this information which should be updated at regular intervals. Real-name registration was intended to help expose the identity of any potential infringers and to improve enforcement by giving the relevant AICs instant access to the real identity information of infringing traders.
 
The Interim Measures made clear that online traders and OSPs must abide by the Trademark Law, the Anti-Unfair Competition Law, the Provisions on the Administration of Enterprise Name Registration and other laws, regulations and rules, and not to infringe the registered trademarks, enterprise name, trade secrets or other rights of third parties, or to damage the goodwill or reputation of other business operators.
 
In addition, OSPs were required to establish an inspection and supervision system to monitor trading activities on its platform. If an OSP discovered a potential infringement, it should report it to the local AIC and promptly shut down the online shop involved if necessary. If, and when, an infringement is found by the AIC, the OSP should cooperate with the AIC and provide the infringer's registration data to the AIC. The OSPs are required to keep the registration information and transaction data of online traders for two years after the trader ceases operation and transaction records for two years after a transaction is concluded.
 
An OSP is required to take the necessary means to protect the exclusive rights of others including registered trademarks and enterprise name rights. This means that where a rights-owner has evidence to prove that any business operator on an online trading platform has violated its/his exclusive trademark rights, or has committed an act of unfair competition, the OSP shall take the necessary measures in accordance with the Tort Liability Law. This means that, the rights owner may give notice of an infringement to the OSP requesting it to delete or block relevant infringing links.
 
An OSP failing to take the necessary steps on receipt of such a notice will be jointly and severally liable with the infringer for damages. Currently, most of the major online trading platforms have already put into place their own procedures for handling IP infringement.
 
On 21 April 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 and the State Intellectual Property Office of the People's Republic of China (PRC) jointly issued a Circular of Further Pushing Forward the Crackdown on Intellectual Property Right Infringement and Manufacturing and Sale of Counterfeits and Inferior Products in Online Shopping Sector (the "Circular").
 
The Circular clarifies the responsibilities of online shopping platforms for the first time and requires them to have in place certain mechanisms, including:
 
  • establishing measures for verifying the identity of online traders;
  • rules for approving products trading on their platforms;
  • systems for checking ownership of trademarks and patents; and
  • adopting technological measures for filtering and removing materials and information relating to the manufacture and sale of counterfeit products, IP infringement and inferior products.
 
The Circular was addressed to various government departments and authorities to raise their awareness and urging them to rigorously enforce the relevant laws and regulations against IP infringement and counterfeiting on online shopping platforms. It is an indication of the Government's concern that piracy and the sale of counterfeit products will harm the interests of consumers and damage the credibility of the internet in China.
 
Shortly afterwards, on 10 May 2011, the Beijing Copyright Bureau issued the Interim Guiding Opinions on the Protection of Information Network Dissemination Rights (the "Guiding Opinions") (effective from 1 August 2011). The Guiding Opinions follow the main principles set out in the Regulations on the Protection of Information Network Dissemination Rights (the "Internet Dissemination Regulations") which have been in effect since July 2006. For example, Article 13 of the Internet Dissemination Regulations provides that the copyright administrative authorities may require OSPs to hand over the names, contact details, internet addresses, etc. of the suspected infringing users when investigating suspected infringement.
 
One of the criticisms of the Internet Dissemination Regulations is that it does not provide sufficiently clear guidance on the handling of online IP infringement. Through the Guiding Opinions, the Beijing City Copyright Bureau provides further detail and specific requirements for the implementation of OSP's responsibilities in this regard.
 
The Guiding Opinions require that upon receiving notice of infringing material from an IP proprietor, the OSP shall immediately delete the corresponding infringing material or hyperlinks. If the volume of infringing material or hyperlinks involved is substantial, or the circumstances of the case are relatively complicated so that the infringing materials and hyperlinks cannot be deleted immediately, the OSP shall delete such infringing material or hyperlinks within 24 hours. If the OSP is not able to meet this deadline, it shall inform the IP proprietor in writing.
 
Upon receiving notice of infringing material from an IP proprietor in relation to television or internet live broadcasts of sport events, artistic performance, etc., the OSP shall immediately delete the corresponding infringing material or hyperlinks. Again, if the circumstances are relatively complicated so that the deletions cannot be carried out immediately, the OSP shall delete the infringing material or hyperlinks within 1 hour, failing which it shall inform the IP proprietor in writing.
 
It is particularly interesting to note that the Circular specifically requires the relevant administrative authorities in Zhejiang, Shanghai and Shenzhen to urge the three most popular online trading platforms: Taobao.com, Eachnet.com and Paipai.com to report to the administrative authorities explaining how they handle complaints of infringement received in relation to traders operating on their platforms.
 
The Guiding Opinions clearly impose a "reasonable duty" and certain responsibilities on OSPs to put in place the necessary technical measures to prevent unauthorised copyright works from being uploaded to their platforms. It is not the first time that the term "reasonable duty" appears in Chinese rules, regulations, or even in Court judgments. However, the extent to which OSPs and other internet intermediaries should be responsible for infringing activities on their service platforms is an issue with which other countries are still struggling. It remains to be seen how the "reasonable duty" of OSPs will be interpreted by the authorities and the People's Courts.
 
There are also no provisions for penalties to be imposed on OSPs in the event of failure to comply with the Guiding Opinions. Aggrieved parties may have to look to the Interim Measures and Internet Dissemination Regulations for possible administrative penalties against OSPs.
 
In relation to copyright infringement, the existing law provides that where an OSP disseminates internet content with actual knowledge that the content is infringing, or if the OSP does not have knowledge, but fails to take the requisite steps to remove the infringing materials once notified by the copyright holder, the OSP will be jointly liable with the content provider. The Interim Measures also apply to infringement of other IPRs. In the recent case of E-land v Taobao, the No 1 Shanghai Intermediate People's Court found Taobao liable for trade mark infringing activities carried out on its platform. Taobao was held jointly liable for such trade mark infringement since Taobao was aware of the illegal activities but, although it deleted the infringing links, it failed to take the necessary measures to prevent such activities.
 
Conclusion
 
The Beijing City Copyright Bureau clearly wishes to strengthen the practical effectiveness of the Internet Dissemination Regulations. However, the Circular only applies to Beijing so its effect may still be limited. Since the Guiding Opinions and Circular do not have the same authority as law, administrative regulations or ministerial rules, they are not binding on the People's Courts. It is thus too early to comment how influential they will be on the decisions of the Courts. However, according to the Ministry of Commerce, since the release of the Circular, a number of online shops selling infringing products on Taobao.com and Eachnet.com have been closed down.
 
In addition to IP infringement, the huge growth in e-commerce gives rise to other issues that need to be addressed by the PRC authorities. According to recent reports in the China Daily, one of the largest online traders well-known for "group buying", was sued by angry customers for failing to honour its contracts to provide sightseeing packages that had been sold at the incredibly low price of RMB1 per person.
 
It has been argued that general guidelines rather than detailed regulations are adequate at the infancy stage of e-commerce in China. As China's e-commerce market is predicted to surpass the size of the US market in the next few years, the above measures are indications of further regulation of online trading.

 

 

For further information, please contact:

 

Annie Tsoi, Partner, Deacons

annie.tsoi@deacons.com.hk

 

 
 
 
 

 

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