Chinese Courts Target Good News for Trademark Owners?

In April 2012, the Supreme Court of the People’s Republic of China published a collection of the most important decisions issued in 2011 regarding the protection of intellectual property.

Precedents are not binding in China. However, the decisions selected by the Supreme People’s Court (which has occurred since 2007) have great weight and authority.

One of these decisions concerns This is a very popular website of the Alibaba Group for the on-line sale (B2C) of a wide range of products.

A company (E. Land International Fashion (Shanghai) Co., Ltd.), the exclusive licensee of a trademark for garments (“TEENIE WEENIE”), is suing both a seller of garments using this trademark (Du Guo Fa) and Zhejiang Taobao Internet Co., Ltd., the company which manages The claimant declares that the respondents are selling counterfeited products. The claimant also requests that they are to be held jointly responsible.

The proceedings at the inferior court were filed before the Basic Level People’s Court of Pudong New District in Shanghai. The First Intermediate People’s Court of Shanghai has upheld this decision.

Both the inferior court judge and the judge of the superior court have rejected Taobao’s defence claims that: (i) it was not aware of the fact that the products were counterfeited, and (ii) whenever requested, it has always removed the pages with the counterfeited products from its website.

The inferior court declares that it is not sufficient that Taobao removes the information regarding counterfeited products from its website upon request of the intellectual property owner, in order to avoid any legal liability. Indeed, if Taobao’s client (i.e. the on-line seller) continues to use the website, thus breaching other parties’ intellectual property rights, Taobao must take the initiative, independently, to adopt additional measures to put an end to such unlawful activities. According to the court, Taobao could have adopted the following measures: publicly condemning the on-line seller’s unlawful activities, downgrading the seller’s “trustworthiness rate” (information available on the website), limiting the use of the website (e.g. by prohibiting the seller from selling certain products) and, as a last resort, banning the on-line seller from using the website.

The First Intermediate People’s Court of Shanghai, as the superior court judge, has rejected Taobao’s appeal against the inferior court’s decision. The superior court’s reasoning is in line with that of the inferior court, i.e. although Taobao was aware of the unlawful conduct of the on-line seller, it intervened only when requested to do so by the trademark licensee. Furthermore, Taobao did not eradicate the problem by banning the on-line seller from using its website.

On the other hand, there are two aspects of this decision that may weaken its effect:

  • in this case, the trademark licensee has lodged an enormous number of complaints with Taobao. For instance, from 23 February 2010 to 14 April 2010, the licensee has reported 153.277 infringements (among which Taobao has cancelled 127.742). We hope that, in similar cases, the judges will not require the same number of complaints before establishing Taobao’s (or other on-line selling websites’) responsibility;
  • the compensation granted to the trademark licensee is very low, i.e. RMB 3,000 (around Euro 380). In China, often the compensation granted for the infringement of intellectual property rights is very low and not adequate to the losses.

This is a very important decision because Taobao usually intervenes and removes the web pages containing counterfeited products only if requested to do so by the intellectual property owner. This request has to be repeated each time the on-line seller offers counterfeited goods for sale. The decision in question obliges Taobao, given the above conditions, to adopt radical measures to interrupt this unlawful behaviour of the on-line seller.

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