Chinese IP IT Law. Take-Down of Counterfeit Products


Scientific Essay, 2015

40 Pages, Grade: A


Excerpt


Contents

List of Abbreviations

1 Introduction
1.1 E-commerce and Counterfeit Products in China

2 Informal Take-Down of Counterfeit Products
2.1 Legal Basis
2.1.1 Introduction
2.1.2 IT Communication Regulation
2.1.3 Chinese Tort Law
2.1.4 Conclusion
2.2 Take-down Notice in Practice
2.2.1 General Consideration
2.2.2 Alibaba’s IT Policy
2.2.3 Formal Proceedings for Take-Down of Counterfeit Products
2.2.4 Timing
2.2.5 Fees
2.3 Good Faith Take-Down
2.4 Conclusion

3 Formal Take-Down
3.1 Administrative Actions
3.1.1 Scope, Purpose and Goals
3.1.1.1 SAIC
3.1.1.2 NCA
3.1.1.3 SIPO
3.1.1.4 Costs
3.2 Preliminary Injunctions in Court Proceedings
3.2.1 Legal Basis
3.2.3 Proceeding
3.2.2 Requirements

Appendix
A Emails from Alibaba
B Frontpage AliProtect
C AliProtect Complaining
D Flowchart Alibaba

List of Abbreviations

illustration not visible in this excerpt

1. Introduction

1.1 E-commerce and Counterfeit Products in China

The business with counterfeit products is booming[1] and has been described as the ’’crime of the 21st century”[2]. The BASCAP has conducted an investigation on behalf of the ICC with the aim, amongst others, to estimate the economical effect of counterfeiting on a worldwide basis[3]. This investigation came to the conclusion that ”the total value of counterfeit and pirated products” reached $455 billion - $650 billion[4] in 2008 and is expected to reach $1,220 trillion - $1,770 trillion[5] in 2015.

According to the WCO, the PRC accounts for 71% of all seized counterfeit products worldwide in 2013 (46.6% for China and 24.7% for Hong Kong)[6]. The 2013 seizure statistics from the U.S. shows that the PRC is accountable for 93% of all seizures in terms of value in the U.S. (China for 68% and Hong Kong for 25%)[7].

These numbers clearly show that the PRC takes a leading role in the business of counterfeit products, which has also been reported in newspapers[8]. With the emergence of e-commerce businesses, the distribution of counterfeit products has even been further facilitated on an international level[9] and a prominent example is Alibaba Group Holding Limited (herein called Alibaba)[10]. This company rose to international fame based on two reasons: (1) The wide media coverage regarding counterfeit products sold on their e-commerce platforms[11] and (2) the IPO of September 18, 2014 on NYSE which was the biggest U.S. IPO in history and has raised $21.8 billion[12].

In the meantime, Alibaba is also facing pressure in its home country by SAIC[13]. SAIC released a report[14] showing that 40% of all products bought online in the Chinese domestic market are fakes[15]. Furthermore, Alibaba’s Taobao was confronted with a number of 63% of counterfeit products on its e-commerce platform[16]. Since the IPO of Alibaba, there has been an increasing number of reports regarding investors who are planning class actions against Alibaba for not disclosing all relevant information in its listing prospectus (i.e. the sale of counterfeit products and|or its illegal business(es))[17].

IPR holders that suffer from IPR infringements on Chinese e-commerce platforms usually have the following ’’short term” goals:[18]

- immediate cessation of the sales of counterfeit products; and
- indemnity claims.

and the following ’long term” goals:[19]

- achieve a ’deterrent effect” by criminal prosecutions of the wrongdoers; and
- reduce the export and production of counterfeit products.

This paper intends to cover measures available to immediately stop the infringer by achieving a take-down of the counterfeit products from Chinese e-commerce platforms. As such, this paper only covers take-down notices on the example of Alibaba and in a summary manner administrative enforcements as well as preliminary injunctions. This paper does not address any aspects of criminal enforcement or liability.

2 Informal Take-Down of Counterfeit Products

2.1 Legal Basis

2.1.1 Introduction

China became a member of the WTO in December 2001[20]. Since then, China has revised its IP laws in order to comply with the WTO requirements, however, critics argue that China should further increase its efforts[20][21]. Generally, Chinese IP laws offer protection consistent with the requirement of TRIPs[22], however, enforcement is still an issue in China and is sometimes described as being at an "embryonic state”[23].

2.1.2 IT Communication Regulation

China has enacted a regulation for the take-down of copyright products called "Regulations for the Protection of the Right of Communication through Infor­mation Network" (herein called RCIN). RCIN 14 stipulates that the IPR owner may request the ISP by a written notification "to remove the work, performance or sound or video recording, or" the link. Additionally, RCIN 15 requires the ISP to make (1) such a removal promptly and (2) to inform the wrongdoer at the same time.

By following these requirements, according to RCIN 23, the ISP will bear "no liability for compensation [unless] it knows or has reasonable grounds to know that the" said works were infringements. This procedure is called "notice- and-take-down" as stipulated in the DMCA[24]. In order to be effective, RCIN 14 requires the notification to be in writing (i.e. "telegram, telex, facsimile, elec­tronic data exchange, electronic mail", etc. based on Article 11 of the Chinese Contract Law)[25]. Furthermore, According to RCIN 14, the IPR holder must include the following information in his request:

-"name, contact means and address of the right owner";
-"title and network address of the infringing work [..] which is requested to be removed or to which the link is requested to be disconnected; and"
- the "primary poof of the infringement."

These conditions according to the RCIN must be fulfilled, otherwise, the takedown notice may not be binding on the ISP[26]. Naturally, the ISP is not forced to comply with the notification, however, it would subject itself to liability and therefore has no incentive to ignore such a writing[27].

When putting the RCIN and the Chinese Copyright Law (herein called CL) side by side, it seems not to be entirely clear what kind of ’’works” are pro­tected under the RCIN. According to RCIN 1-3, the regulation was formulated ”in accordance with the [CL] for the purpose of [, amongst others,] protecting the right of communication through information networks”. However, the two regulations differ in the description of protected IPRs. Whereas RCIN 2-3 only lists the terms (1) work (without further definition what ”work” is), (2) per­formance and (3) sound or video recordings, CL 3 uses the term ”works” as a catch-all phrase and defines it as works of (1) ’’literature”, (2) ”art”, (3) ’’natural sciences”, (4) ’’social sciences”, (5) ’’engineering and (6) technology”. However, it is highly unlikely that the legislator wanted to differentiate the terms in the two regulations based on the following arguments:

1. RCIN 1-3 specifically refer to the CL as being the foundation of the reg­ulation; and
2. RCIN reiterates several times that the right holders are protected by the CL.

Therefore, conclusion must be drawn that the term ’works” in the RCIN is a referral to the CL and the examples provided in the RCIN are not to be understood as being exhaustive (which would make no sense when considering the undefined term ’works” in the RCIN) but merely exemplary and therefore, the two regulations protect the same IPRs.

Owners of IPRs may not only suffer damages based on copyright, but also on trademark and patent violations. At first sight, the RCIN seems not to be applicable to trademark and patent cases. However, RCIN 14 is also applied by chinese judges in trademark cases[28]. In practice, however, Chinese judges primarily focus on the question whether the ISP has removed the links to the counterfeit products in a timely manner and thus avoid referring or citing the respective regulation(s)[29]. This was the case in E-land v. Taobao where the

court first looked to whether Taobao had removed the links to the counterfeit products and then determined whether Taobao was liable[30].

As a result, it may be assumed that the courts in China will apply the RCIN not only to copyright but also to trademark cases. With the same argument, the applicability may be extended to patent cases.

2.1.3 Chinese Tort Law

Similar to the RCIN, TL 36 provides that the victim has the right ”to notify the [ISP] to take such measures as deletion, block or disconnection”. Here again TL also stipulates that, ”if, after being notified, the [ISP] fails to take necessary measures in a timely manner” or ”knows that a network user is infringing upon a civil right or interest of another person [...] and fails to take necessary measures, it shall be jointly and severally liable for any additional harm with the network user”.

It has been argued that TL 36 has extended the safe harbor rules to trademark, patent ”and even the right of publicity (moral rights)”[31], however Chinese courts rarely apply this provision because its meaning is not sufficiently clear[32].

Amongst others, the terms “notice” and “knowledge” have not been defined yet and its exact meaning is still debated amongst scholars[33]. Therefore, in practice, the RCIN and the TCNI are applied[34].

2.1.4 Conclusion

China has adopted a notice-and-take-down procedure in order to remove counterfeit products from Chinese e-commerce platforms. Although not entirely clear which regulations apply to different IPRs, the ISPs have a strong incen­tive to remove products after having received a take-down notice in order to avoid liability. And indeed, many Chinese e-commerce platforms have set up procedures to remove counterfeit products from their sites (e.g. the Alibaba Group, JD, etc.)[35].

2.2 Take-down Notice in Practice

2.2.1 General Consideration

The take-down of counterfeit products can generally be split into the following three steps:[36]

1. Delivery of documents to the ISP. These papers should proof (1) the IP owner’s existence and (2) the IPR to the IP;
2. Verification of the documents by the e-commerce platform; and
3. Submission of a take-down request (provision of links).

The law firm Harris & Moure, pllc, has repeatedly reported that if all prerequisites are fulfilled, Chinese e-commerce platforms usually remove the products in question[37], however the respective policies must be followed ”to the letter”[38].

In any case, it is advisable to have a Chinese speaking advisor available who is familiar with Chinese IP laws[39].

As a site note, it shall be mentioned that it is advisable to have registered the respective IPR in China[40]. This would not only facilitate the take-down request but also a potential litigation. Last but not least, having the IPRs registered in China is a requirement on some e-commerce platform in order to send a take-down notice (Alibaba does not have such a requirement)[41]. Therefore, registration in another country is usually not an option[42].

2.2.2 Alibaba’s IT Policy

Alibaba has basically two different platforms for IPR protection in place. The platforms Alibaba.com, AliEpress.com and 1688.com are combined under the AliProtect platform whereas the platforms Taobao.com and TMall.com are com­bined under the TaoProtect platform[43]. It is important to distinguish between these platforms because the IPR policies and the jurisdictions as well as applica­ble laws differ[44]. For the purpose of this paper, only the Alibaba.com platform is considered.

Alibaba.com has a total of 33 different policies in place[45]. However, only a few include provisions regarding IPR infringements:

- ’’Terms of Use”[46]: Constitutes the contractual foundation between Alibaba.com and its paid customers. Section 1 specifies that the use of
the -ites is additionally subject to ”any other rules and policies that Alibaba.com may publish from time to time” and thereby saying that the other 33 policies are part of the entire agreement.
- ’Intellectual Property Rights (IPR) Protection Policy”[47] (herein called AlibabaIPP): This is the main policy regarding IPR infringements and includes the following two documents: (1) ”AliExpress Intellectual Property Rights Protection Policy”[48] and (2) ’’Enforcement Actions for Intellectual Property Right Infringement Claims”[49]. The latter two ad­dress the IPR infringer.
- ’’Product Listing Policy”[50]: Contains in Section 1 the statement that the posting or selling of ”any item that is restricted or prohibited by a federal, state or local law in any country or jurisdiction” is forbidden. Furthermore, Section 39 states that ”the listing or sale of unauthorized (pirated, duplicated, backup, bootleg, etc.) copies of software programs, video games, music albums, movies, television programs, photographs or other protected works is forbidden”.

The AlibabaIPP is of a contractual nature and therefore, without agreeing on Alibaba’s terms and conditions, it is not possible to benefit from it nor mak­ing use of it (at least Alibaba would not be bound to it). However, this is not further problematic because Alibaba.com offers a free registration on its website which also requires to accept the ’’Intellectual Property Rights User Agreement”

(herein called IPRUA)[51]. The acceptance of the IPRUA may come with certain disadvantages or confusions. Section 2.1 of IPRUA states that the agreement includes ”any rules that Alibaba has issued or may from time to time issue in the future for the AliProtect”. By stating this, it is not entirely clear whether this means that policies and terms of Alibaba from part of the contract. This is specifically problematic when considering the liability waivers in Clause 8.7 of the Terms of Use and Clause 3.6 and 6 of the ”Free Membership Agreement”[52]. Clause 3.6 of the Free Membership Agreement states that ”Alibaba.com is not responsible, and shall have no liability to it or anyone else for any material posted by such Member or third parties, including fraudulent, untrue, mislead­ing, inaccurate, defamatory, offensive or illicit material and that the risk of damage from such material rests entirely with each Member”. If clause 2 of IPRUA really means to include any terms and policies, the IPR holder may waive his rights to claim damages. The case becomes even more convoluted if the IPR holder is also a customer of Alibaba, meaning that he agreed explicitly to the ”Free Membership Agreement” and|or the Terms of Use. In such a cir­cumstance, a defence to nevertheless hold Alibaba liable will become even more difficult.

Furthermore, by agreeing to the IPRUA, the IPR holder also agrees to Clause 14 IPRUA regarding place of jurisdiction which says that for complaints on the China website, the laws of China and, in the case of complaints on the International website, the laws of Hong Kong are applicable; ”and any dispute arising thereof has to be submitted to the exclusive jurisdictions of Hangzhou Xihu District People’s Court in Zhejiang Province as the first instance court and the Hong Kong courts, respectively”. This circumstance may be material for the IPRs holders as there may be sound reasons why a Chinese venue and Chinese law are preferable compared to other jurisdictions or laws. However, this and the liability waiver issue could be addressed to some extent by cancelling the IPRUA after the unsuccessful filing of a take-down notice. Furthermore, the validity of the liability waiver is doubtful when considering the applicable Chinese regulations.

Clause 2 of the IPRPolicy clearly states that the ’’listing of counterfeits, replicas, or other unauthorized items” are strictly prohibited and are subject to removal. Therefore, the listing of such products is considered to be a breach of contract. Strangely, Alibaba has not reserved the right to immediately cancel or suspend the account of the wrongdoer. Such an account suspension may only be possible after repeated violation of the IPRPolicy (IPRPolicy 3). On the other hand, Clause 4.1 of the Terms of Use contains the right to cancel or terminate one member account in case of concurrent registrations of two or more accounts by the same member. Other than that, according to the same clause, ’’Alibaba has only the right to reject users’ application for registration for any reason”. As a result, even though the posting of counterfeit products is strictly forbidden, Alibaba would only cancel the membership if repeatedly done so and therefore, considers this to be less severe than the opening of two accounts. Nevertheless, Alibaba has enacted a very formal penalty system for users who post counterfeit products on Alibaba[53].

2.2.3 Formal Proceedings for Take-Down of Counterfeit Products

labeltab:facilitate In order to facilitate the understanding of the take-down process, Alibaba has posted a flowchart which basically consists of seven steps (see Figure 5 in Appendix D).

According to IPRPolicy 5, IPR holders have to use the AliProtect website[54] platform (see Figure 3 in Appendix B) to file IP infringement claims. This page is basically a SPOC for all IP related complains.

After having registered or logged-in on AliProtect, a user can take the first step and submit the required documents for the claim (see step 1 of Figure 5 in Appendix D). The information to be submitted can be divided into the following three categories (see Figure 4 in Appendix C):

1. IPR details;
2. IPR documents; and
3. Identification of complaining party.

[...]


[1] e.g. COOKS [23], et passim; Denis [26].

[2] Denis [26].

[3] Economics [29], page 1.

[4] Economics [29], page 6.

[5] Economics [29], page 50.

[6] WCO [64], page 66 (number for China corrected).

[7] Security [54], page 10.

[8] e.g. Turnage [61]; Chaudhry and Zimmerman [18], page 27; Fraud [31].

[9] Commission [24], page 3-23 with various further references.

[10] Clover [22].

[11] e.g. Chu [20]; Clover [22]; Schuman [52].

[12] Krantz [41].

[13] Tejada [59].

[14] Huang [39].

[15] Millward [47].

[16] Huang [39]; Millward [47].

[17] Chiem [19]; Wire [67]; Weigel [65]; Online [49].

[18] Law [42].

[19] Law [42].

[20] WTO [68].

[21] Zhao [73], page 197.

[22] Torremans, Shan, and Erauw [60], et passim.

[23] e.g.Zimmermann [74], page 627 with background information.

[24] Wan [63], page 651.

[25] Wan [63], page 651; and TCNI 13.

[26] Wan [63], page 652.

[27] Wan [63], page 652; RCIN 23.

[28] Decision [25], cited after Ying [71], page 549; this is commonly described as a”safe harbor rule” see Ying [71], page 549.

[29] Ying [71], page 549.

[30] Decision [25], cited after Ying [71], page 549.

[31] Xiao [69].

[32] Di and Zhankai [27], page 123 et seqq, cited after Ying [71], page 550; Li and Jin [44], page 84.

[33] Ying [71], page 549.

[34] Li and Jin [44], page 84.

[35] Harris [36].

[36] Harris [36]; Helpdesk [37].

[37] Harris [34]; Harris [36], Harris [35].

[38] Harris [36].

[39] Harris [36].

[40] Harris [36]; Helpdesk [37]; FBCS [30].

[41] Harris [36]; Helpdesk [37]; FBCS [30].

[42] Helpdesk [37].

[43] Group [33], see graphic at lower end of the homepage.

[44] Group [33].

[45] Aliexpress.oom-Center [13].

[46] Alibaba.com-Terms [12].

[47] Alibaba.com-IPR [8].

[48] Alibaba.com-IPPolicy [7].

[49] Aliexpress.com-Enforcement [14].

[50] Alibaba.com-Listing [9].

[51] Alibaba.OOM-IPAgreement [6]; see also HELPDESK [37].

[52] Alibaba.oom-Membership [10].

[53] ÄLIEXPRESS.COM-ENFORCEMENT [14].

[54] see tab 22 above.

Excerpt out of 40 pages

Details

Title
Chinese IP IT Law. Take-Down of Counterfeit Products
College
The University of Hong Kong  (Law)
Course
LL.M
Grade
A
Author
Year
2015
Pages
40
Catalog Number
V333733
ISBN (eBook)
9783668238527
ISBN (Book)
9783668238534
File size
752 KB
Language
English
Keywords
chinese, take-down, counterfeit, produtcs
Quote paper
Martin Grod (Author), 2015, Chinese IP IT Law. Take-Down of Counterfeit Products, Munich, GRIN Verlag, https://www.grin.com/document/333733

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