Setting precedents in IP law

The Court noted that Qihoo 360 and Tencent have mutually competitive relationships in the online service, user and advertising markets. This is despite different focuses with Qihoo 360 engaged in online protection and Tencent in online messaging. Before the 3Q dispute, defending parties argued their non-competitive relationship with the plaintiff in the online market, because their products are not competitive in nature. However, considering the statement from the Court, competitive relationships in the future will be held in a more general perspective.

The court also upheld that QQ's privacy protection software is legal, if its evaluation or statement is true and correct. According to the Court, on the one hand the law allows market players to operate software, which interacts with other software operated by its competitor. On the other hand, the law only prohibits operations that violate the rights or interests of the competitor.

It is interesting that among the listed Top 10 IP Cases, including the 3Q dispute, there are four cases relating to online activities. Since the online industry is one of the most advanced sections of the economy, and will continue its rapid growth, cases and disputes arising from online businesses will play a big role in future IP cases.

Jihong Chen, Zhong Lun Law Firm, Beijing

Landlord liability on the web

Taobao Trademark Infringement Dispute/淘宝网商标侵权纠纷案

Korean fashion company E-land owns the trademark Tennie Weenie. E-land filed seven complaints to taobao.com regarding distribution of fake clothing by an online shop owned by Du Guofa. The court found that Taobao failed to take sufficient measures to stop infringement. In its decision, the court stated that taobao.com should bear civil liability, including compensation of Rmb10,000 ($1,580) for joint infringement with Du.

The case has attracted much attention since the Court released its judgment. This is the first time a Chinese court has held a commercial platform provider like Taobao liable for online transactions of infringing products. Before the case, multiple attempts from international brands to pursue legal liability of commercial platform providers (CPP) ended in failure, including Puma v Taobao in 2006 at Guangzhou Intermediate Court.

E-land v Taobao creates a series of standards to increase the accountability of commercial platform providers. While CPPs have no general responsibility to monitor or control online IP infringement, they are liable to remove content quickly upon receiving complaints from trademark owners with evidence. Otherwise, they are not exempt from joint liability. CPPs can ask individual online shop owners to remove infringing goods. However, if the goods are not removed, CPPs must take sufficient measures to stop infringement, like closing accounts, otherwise they are still liable.

Listing the case as one of the Top 10 represents a new trend in applying greater responsibility to CPPs. It underlines that providers have to take action as soon as trademark owners complain and if necessary close online shops run by repeat infringers. Providers have the technical capabilities to shut down online shops and monitor repeat infringers. Failure to comply may result in joint legal liability between the CPP and shop owner.

The SPC chose this case from almost 10,000 court decisions issued by various levels of courts in 2011. They are conveying a strong signal to commercial platform providers over their liability during the complaint and settlement procedures. The case also encourages brand owners to protect their marks by negotiating with providers or taking legal action when providers fail.

Charles Feng, Wan Hui Da Law Firm and Intellectual Property Agency, Beijing

Learning to mediate

Baidu MP3 Copyright Dispute /百度MP3搜索著作权纠纷案

This dispute centres on the search lists and rankings provided by the Chinese search engine Baidu, which links to and offers music for listening and downloading. Universal Music, Warner Music and Sony Music sued Baidu for infringing the communication rights of their music over the internet.

The record companies lost before Beijing First Intermediate People's Court, which held that Baidu's search lists and rankings were dictated by its users' search instructions and that it would be difficult for Baidu to know that particular links provide infringing music.

The case was appealed and settled with the participation of the mediation centre of the Internet Society of China. The settlement involves the conclusion of licensing arrangements under which the record companies licensed over 500,000 songs for downloading on Baidu's website in return for Baidu paying royalties.

Baidu is no stranger to music copyright lawsuits. Back in 2005, the search engine successfully fended off a similar claim brought by a group of record companies, including Universal Music and Warner Music. Baidu faced a different fate in 2010 when it was held to have infringed the copyright in music lyrics in a lawsuit brought by the Music Copyright Society of China.

Several other search engines and online platforms have also received complaints for infringing music copyright, like Alibaba and Yahoo, with mixed outcomes. These cases highlight that despite China having introduced a statutory right of communication of copyright work online and a notice-and-take-down-framework, lawsuits of this nature against internet intermediaries remain highly fact-sensitive, with a fair degree of uncertainty in the outcome.

This is perhaps why the SPC heralded the latest Baidu case as a landmark decision in 2011. The case demonstrates the potential value of mediation in IP disputes. Instead of having a court ruling touching on tricky issues of law and facts, aggrieving one if not both parties, the settlement represented an arrangement acceptable and certain to both sides. The settlement also benefits the users as well, which no doubt appeals to the authorities. It will be interesting to see whether, following the success of the Baidu dispute, the mediation centre of the Internet Society will play a more active role in future online IP disputes. The mediation centre was set up in 2007 shortly after Baidu defended the previous lawsuit brought by Universal Music and others.

The Baidu case is also significant from a commercial perspective and China can use it to demonstrate its efforts to promote licensed music online. According to a report by the International Federation of the Phonographic Industry, record companies derived about 71% of their revenue in China from digital channels in 2010. However, legitimate digital sales in China still only amounted to $94 million in 2009, as compared with $7.9 billion in the US and US$142 million in Thailand. The report further points out that 99% of the music found online in China is illegal. Coupled with the fact that Baidu is by far the largest search engine in China in terms of market share (over 80%), China no doubt wants to send a message that it is taking active steps.

It will also be interesting to see how this case may affect the development of music licensing societies in China. At present, the Music Copyright Society of China serves as a collecting society for literary and musical copyright, and the China Audio-Video Copyright Association for audio-video copyright. The licensing schemes of both societies cover the right of communication over the internet, so these societies could potentially play a more extensive role in administering licensing schemes for online use of their members' work, as well as enforcing their members' rights.

Eugene Low and Kenny Wong, Mayer Brown JSM, Hong Kong

Wine makers toast victory

Lafite Trademark Dispute/“拉菲”商标纠纷案

French wine manufacturer, Societe Civile De Chateau Lafite Rothschild sued Shenzhen Jinhongde for trademark infringement and unfair competition. Both Changsha Intermediate People's Court and Hunan Higher People's Court held that Jinhongde infringed Lafite's exclusive right of use for the Chinese trademark Lafite and constituted unfair competition.

Through the judgment, the courts recognised the Chinese translation corresponding to Lafite as a specific name for a famous commodity. This recognition is a solid legal basis for further IP protection under the Lafite trademark in China.

While Lafite in Chinese characters has not been registered in China, many infringers have registered similar marks. Lafite relied on Article 5.2 of the PRC Anti-unfair Competition Law (中华人民共和国反不正当竞争法) and asked the court to recognise Lafite as a specific name for a famous commodity. They also asked the Court to find the similar Lafite mark used by Jinhongde as confusingly similar and order Jinhongde to cease use constituting unfair competition.

All Lafite's pleadings were affirmed by the court. This is a landmark case for IP protection, which enables Lafite to seek protection in future infringement cases through these judgments. It also shows that the Chinese characters of a mark do not have to be registered in order to affirm confusingly similar status and unfair competition from the courts.

Zhang Yazhou, Unitalen Attorneys at Law, Beijing

Keeping cool

Air Conditioner Remote Comfortable Sleep Mode Patent Dispute/空调器“舒睡模式”专利侵权纠纷案

Zhuzhai Gree Electrical Appliances and Guangdong Midea Air Conditioning Equipment are major competitors in the home air conditioning market. Gree is the owner of an invention patent for certain methods of controlling air conditioners. It sued Midea for patent infringement in the Zhuzhai Intermediate People's Court and obtained a permanent injunction against Midea and monetary damages of Rmb2,000,000 ($315,180). Midea appealed to the Guangdong Higher People's Court. In affirming the lower court's judgment, the Higher Court ruled that it is proper to draw an adverse inference against Midea for failing to produce complete information on its infringing sales and profits where they only produced limited evidence. The Higher Court also agreed with the Lower Court's finding that storing data in the random-access memory (RAM) of a remote control chip is equivalent to storing data in a memory chip, even though they are not the same.

The SPC selected this case primarily because the Court drew an adverse inference against the defendant for producing incomplete information. Failing to produce complete evidence to rebut the plaintiff's initial evidence is significant and may have a profound impact on civil litigation beyond IP disputes.

China's legal system subscribes to the notion that those who assert a claim must prove it. As such, the burden of proof generally resides with the claimant. The Supreme People's Court Several Provisions on Evidence in Civil Proceedings (最高人民法院关于民事诉讼证据的若干规定) provides the legal basis for drawing an adverse inference against a party for withholding evidence. Article 75 of the Provisions provides that courts can deduce that a disputed fact is established if one party proves that the other party has evidence relevant to the fact but refuses to produce the evidence. This case exemplifies how courts rely upon Article 75 in determining patent infringement damages.

In this case, Gree sought to prove its economic losses through evidence of lost sales and the appraised value of the patent in suit. As requested by Gree, the Lower Court ordered Midea to produce evidence of sales and profits for all the accused infringing air conditioners to rebut Gree's damages evidence. However, Midea only produced figures relating to the sales and profits of one accused infringing model. The infringing profits for that model were Rmb477,000 ($75,170). After it was established that there were four infringing models, the court inferred that the infringing profits for each of the three remaining models was at least Rmb477,000, for each model. Factoring in the plaintiff's costs to sue, the Court decided to award damages of Rmb2,000,000.

In China, the average damages award in patent infringement cases is about $20,000 or less. This is primarily due to the lack of discovery – typically, plaintiffs are unable to prove infringing profits. If the mechanism of drawing an adverse inference in this case is widely adopted, China is likely to see more cases with higher damages awards. This certainly would make patent infringement litigation slightly easier.

Benjamin Bai, Allen & Overy, Shanghai