China promulgated an electronic commerce law on August 31, 2018, effective, January 1, 2019. Of interest to intellectual property rights (IPR) holders, the law makes e-commerce platform operators potentially jointly and severally liable with IP infringers and enables the relevant administrative department (e.g., the China National Intellectual Property Agency (CNIPA)) to fine platform operators up to 2 million RMB (~$291,000) for failure to protect IPR. The law also formalizes a mechanism for IPR disputes on e-commerce platforms.
Per Article 45 of the law, if a platform operator knows or should know that an operator doing business through its platform is infringing IPR but fails to take the necessary measures, such as deleting, blocking, disconnecting, and terminating transactions or services, the platform operator and operator (infringer) will be jointly and severally liable.
Similarly, per Article 42, if a platform operator is informed of IPR infringement but fails to promptly notify related operators, the platform operator and related operators shall be jointly and severally liable for damage caused by the delay. However, an actual time limit for notifying related operators is not given but may be listed in forthcoming implementing regulations of the law.
The new law codifies current court practice under Article 36 of the Tort Liability Law. It does, however, continue to leave open for interpretation the meaning of “knows or should know” and “promptly notify”. The courts have addressed the knowledge and notification standards in a few recent cases[i], but we would expect the issuance of additional clarification in implementing regulations or judicial interpretations in the near future. Stay tuned.
In addition to joint liability, a relevant administrative department (e.g., CNIPA) can order platform operators to make corrections within a specified time limit for violations of Articles 42 and 45. If the platform operator fails to correct within the specified time limit, the department can fine the platform operator from 50,000 to 500,000 RMB. If the violation is grave, the fines can be 500,000 to 2 million RMB. However, time limits and what is a “grave” violation are not defined in the law.
IPR Disputes Mechanism — the “Notice and Take-down Rule”
The new law also codifies a version of the existing “notice and take-down rule” introduced by the Beijing Higher Court in 2012 by requiring that a platform operator check the merits of a complaint before taking necessary measures. Article 42 requires that a platform operator take timely reasonable measures if prima facie evidence of prior rights and infringement are presented. Article 62 also introduces an explicit obligation for platform operators and online merchants to truthfully produce evidence in dispute resolution proceedings against both platforms and on-platform merchants (addressing the problem of evidential hold-outs in administrative enforcement and infringement litigation).
To address the issue of take-down complaints filed in bad faith, Article 42 introduces “multiple damages” for take-down notices that are filed in bad faith and cause damage to platform sellers. This provision is vague on its face and will, of course, require additional clarification.
The provision that is most worrisome to brand owners is Article 43, which provides that brand owners must file civil or administrative complaints with the relevant enforcement authorities/courts within 15 days of receipt of a seller’s “counter notice’ from the platform. The law does not provide a standard for determining the validity of a seller’s counter notice, nor does it provide an obligation on the platform to assess whether the notice has a reasonable basis (and was not filed in bad faith). In addition, the 15-day filing deadline will be next to impossible for foreign brand owners satisfy in light of the fact that they must obtain notarized and legalized documents (e.g., Powers of Attorney, etc.) in order to file complaints with the relevant local enforcement authorities, and failure to meet the deadline could result in the re-posting of infringing content pending the acceptance of enforcement measures by administrative authorities.
The electronic commerce law should make platform operators more responsive to IPR complaints due to potential joint liability imposed on the operators, but the law introduces a number of issues that will require additional clarification by the authorities.
[i] In Discovery Communications, LLC v. Zhongshan Tansuo Outdoor Gear Co., Ltd. et. al, case number: (2015) Jing Zhi Min Chu Zi No. 1227, the Beijing IP Court imposed a positive obligation on JD.com to confirm the strength of a seller’s purported trademark rights, and it found that JD.com was jointly liable with the infringer for failure to make a reasonable examination of the infringer’s qualification to operate a shop on the platform.