Background

Article 57.6 of the Trademark Law provides that:

"Any of the following acts shall be an infringement of the exclusive right to use a registered trademark... (6) to intentionally provide a person with convenience... or facilitate such person's infringement of the trademark of another person."

The Internet, with its online marketplaces, constitutes a type of convenience provided to vendors looking to sell products online.

However, an internet service provider shall be found liable for infringement only if the provision of such convenience is intentional.

Article 36 of the Tort Law provides that an internet service provider shall bear joint and several liability with users that commit infringement on its platform if the service provider:

  • is clearly aware of such infringement (because it has received notification of it); and
  • takes no reasonable measures to end the infringing activity.

This is commonly referred to as the 'safe harbour' principle, under which an internet service provider is not responsible for transactions on its network unless, once informed, it continues to tolerate them. The service provider must remain neutral in the sense that once notification of infringement is received, it cannot side in favour of the user and refuse to take action.

In order to attract users, some service providers publish rules and offer guarantees that aim to reassure customers that the products for sale on their platforms are authentic.

For example, JD San Bai Liu Shi Du E-commerce Co Ltd (JD) published rules stating that it verifies the legal status of vendors that wish to open so-called 'flagship stores' on its platform. According to the rules, if a vendor wants to use the name "Flagship Store of [brand name]", it may do so only if:

  • the brand name is a registered or applied-for trademark;
  • the vendor's company or the legal representative of the vendor's company is the trademark owner; and
  • the word 'official' is not used if the vendor is only an authorised dealer.

Facts

Discovery Communications, LLC (DCL) is one of the world's leading media and entertainment companies, and operator of the internationally famous Discovery Channel. It is also the registered trademark owner of the DISCOVERY and 探索 (Chinese transliteration of 'discovery') marks in Class 41, covering television programme production services. Following the global impact of the Discovery Channel, DCL launched an outdoor brand and registered the trademark DISCOVERY EXPEDITION in China in Classes 18 and 25, covering bags and clothes.

After launching the Discovery Expedition brand into the Chinese market, DCL found that the company Zhongshan Discovery Outdoors Products Co Ltd had been using the following trademarks on outdoor products:

  • DISCOVERY ACTIVE;
  • ;
  • ;

  • 探索 (Chinese transliteration of 'discovery'); and

  • 探索户外 (Chinese transliteration of 'discovery outdoors').

Moreover, Zhongshan Discovery had opened an online store under the name "DISCOVERY探索户外官方旗舰店" (translated as 'official flagship store of discovery outdoors') on JD's online platform.

In July 2015 DCL sent a cease-and-desist letter to JD requesting cessation of the infringement and closure of the store. However, JD did not respond positively. Therefore, DCL brought claims against Zhongshan Discovery and JD before the Beijing IP Court based on the infringement of its trademarks.

DCL drew attention to JD's rules regarding the opening of flagship stores and claimed that by publishing such rules, JD had assumed a duty of care and indirectly guaranteed that all products sold on its platform by flagship stores were genuine.

In response, JD argued that it had verified that Zhongshan Discovery had applied for the trademarks 探索户外 and DISCOVERY ACTIVE ; therefore, it had fulfilled its examination duty. JD also argued that, after DCL filed suit, it had taken the reasonable measure to cease the infringement by closing the store. Thus, it should not bear joint and several liability with Zhongshan Discovery.

Decision

The court agreed that, strictly speaking, under Article 36 of the Tort Law, JD had taken measures after being officially informed of the infringement committed on its platform by Zhongshan Discovery.

However, the court affirmed that JD remained jointly and severally liable. It ruled that the precaution in the rules which held that a store can be named as a flagship store with a trademark that is only applied-for and not yet registered did not constitute a valid defence. The court indicated, on the one hand, that only a registered trademark confers the exclusive right to use and that the filing of a trademark application does not guarantee its approval. On the other hand, given the high reputation of DCL's trademarks, JD should have assumed a higher level of examination duty.

Therefore, the court found that JD's actions constituted 'contributory infringement' (ie, assisting a person in committing a tort) under Article 9 of the Tort Law. As such, JD must bear joint and several liability for the infringement committed on its platform by Zhongshan Discovery.

On July 20 2017 the court ordered Zhongshan Discovery to pay damages of Rmb3 million, of which JD must take joint and several liability for Rmb100,000.

Comment

The court concluded that if JD published the flagship-naming rules, it had to guarantee consumers that the products sold on its platform were genuine. The aim was to attract more consumers. However, by publishing the rules, JD endorsed its vendors and lost its strictly neutral position. Therefore, the safe harbour principle indirectly defined by Article 36 of the Tort Law did not apply. After all, one cannot state that "I guarantee that the sellers on my platform sell genuine products" and then reverse this position to "I did not know that they were selling infringing products" when caught.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact He Wei at Wanhuida Peksung by telephone (+86 10 6892 1000) or email ([email protected]). The Wanhuida Peksung website can be accessed at www.wanhuida.com and www.peksung.com.