Time has witnessed fundamental changes of consumer patterns due to the popularity of Internet and the quickening pace of life in recent years. It is a common sense that it would take several hours to go to a retail department store to select a piece of clothing worthy of a thousand yuan. Therefore, more and more people have become more willing to buy inexpensive goods online at home due to wider choices and lower prices there. Acute businessmen think it is a good opportunity to sell goods online one after another. Consequently, related legal disputes have arisen from time to time, particularly the rapid growth of cases involving the registered trademark and copyright. How to resolve these disputes? How to apply the law in these cases in trial? What are the differences between these virtual online malls and actual department stores? All these questions need to be studied and resolved.

The type and characteristics of online vendors

(1) The website sells goods to consumers in its own name directly; the website’s operators are just like the seller, which is similar to an “internet content provider” (ICP) in cases involving network copyright. In other words, the website sells goods to customers directly instead of providing information storage space to others people, i.e. the Business to Consumer (B2C) platform. 360buy.com is a good example in this regard. It is like a department store or supermarket in real life. Another vivid example in this respect is Gome.com. All these sell products to customers directly and issue invoices to them in theirs own names although they sell many kinds of goods. Therefore, these websites are sellers from a legal perspective.

(2) The website does not sell directly, but instead acts as a mall, providing services only for information storage while goods are sold by online sellers who get a cyber space by lease agreement i.e. Consumer to Consumer (C2C) platform. Under this business model, the website provides super vision and management over the site available to the online sellers, but does not sell directly to the customers. Those who rent the cyber space are the real sellers. Taobao.com is a typical example in this regard. These online malls are similar to the network service providers for information storage space. These virtual malls are similar to walk in malls that rent shelf space or small stores for a rental fees and supervise and manage these merchants in real life. The major difference is that physical malls rent space to sellers in a physical location so that customers can buy products and take them home. Online Malls rent cyber space in a non-physical location on the website to online sellers so that customers can buy products online and have them mailed to their home. Therefore, these websites are often considered brokers from a legal perspective.

How the court applies the law

There is no unified legal norm to regulate e-commerce in China at present. All cases of IP infringements related to online sellers are handled by court in accordance with the General Principles of Civil Law of the People’s Republic of China (GPCL), the Opinions of the Supreme People’s Court on Several Issues concerning the Implementation of the General Principles of the Civil Law of the People’s Republic of China (For Trial Implementation) (GPCL interpretation), the Tort Liability Law of the People’s Republic of China (Tort Liability Act), the Trademark Law of the People’s Republic of China (Trademark Law), the Copyright Law of the People’s Republic of China (Copyright Law), other laws and regulations, and the basic principles of the Civil Law.

Wang Zhuo

It can be seen from the above that there are many similarities between retail stores (B2C) and online malls (C2C) and the actual department stores or malls. Then, should the same standard be applied in cases involving online malls as in those involving actual ones? Should there be any differentiation between the two types of online malls in the consideration of liability? The detailed analysis on these questions is as the following.

The application of law for online retailers (B2C)

The first kind of online mall with 360buy.com as example has the same legal status as that of department store, supermarket and other actual retail seller. They are all sellers. Where it necessary to make a judgment whether they should bear the liability or not, the court shall review whether the seller can provide a legitimate source of purchase or not, and whether the supplier has received authorization from the owner of the trademark, copyright and other obligees. In accordance with the Trademark Law, a party shall not be held liable for damages where he or it unknowingly sells goods that infringe upon another party’s exclusive right to use a registered trademark but is able to prove that he or it has obtained the goods lawfully and is able to identify the supplier. By the legitimate source of purchase, the court usually considers whether the seller can adduce the sales contracts, invoices, and other purchase documents or not. In addition, the court usually requires the seller, particularly those sellers over a certain size, to review whether their suppliers claim to have obtained authorization from the owners of trademark right or copyright according to principle of reciprocity between rights and obligations under the Civil Law.

Beijing Chaoyang District People’s Court made a judgment in favor of Shanghai Parker Pen Co., Ltd. in trademark infringement against Shuangjing Supermarket of Beijing Lhok Co. Ltd. as following:

Whether Lhok has committed trademark infringement against Parker’s trademark rights hinges on the questions of whether it has sold any products that bear infringing trademarks rights of Parker Pen. In light of Parker’s determination that the products are a passing-off, under protest of Lhok, who has failed to prove that its products were from Parker, the products must be found to be a passing-off of Parker’s. Under such circumstances, Lhok may be relieved from liability of damages only if it can show that as a seller, it sold the products without knowing that they were infringing products, and also that it legitimately purchased the products by identifying the supplier. Lhok submitted its pooling contract with Beijing Kanglexin Stationery Co., Ltd. and Kanglexin’s documents as proof that it purchased Parker Pens from Beijing Laiying Chuangye Stationary Co., Ltd. Lhok had every reason to doubt the possibility of infringement because the purchasing price was significantly lower than the normal market price of the Parker Pen. However, Lhok neither raised any question, nor required the pooling unit and supplier to provide evidence of the right to trademark in order to conduct the necessary review. Therefore, the court finds that Lhok cannot be deemed as a seller which unknowingly sells goods that infringe upon another party’s exclusive right to use a registered trademark. Lhok had subjective fault, consequently its acts constitute infringement upon the exclusive right of Parker Pen to use a registered trademark, and that Lhok shall bear the legal responsibility to stop the infringement and compensate for the loss.

The method for the handling of the foregoing case was followed by courts when hearing the cases involving dangdang.com and 360buy.com. In consideration of whether or not they should bear the legal liabilities for the goods directly sold by them in their own names, the courts focused on the issue whether the online malls could submit the documents from legal suppliers or not and whether or not the online malls reviewed the suppliers’ authorization documents. Such kind of online retail sellers (B2C) shall bear the civil responsibility to stop infringements and are exempted from the damages where they can present evidence to prove their legal purchasing source and reasonable review of the suppliers’ authorization documents.

The application of law for online malls (C2C) There is another business model similar to the operation of a mall in real life. Under such business model, the mall rents the counter or store space to merchants instead of selling goods to the customers directly. Those who rent the space are the retailers that sell goods to the customers. Silkstreet.com.cn is a good example in this regard; whose operator is Beijing Silkstreet Clothing Co., Ltd. (Silkstreet). Silkstreet is the manager of the Silkstreet clothing market. It rents space to merchants through lease contracts for their direct sale of goods to customers.

Taobao.com is similar to Silkstreet in business model. Both Taobao.com and Tmall.com rent a certain volume of information storage space to merchants. The minor difference between them is that Tmall.com’s lessees are all enterprises (the so-called B2B model) who shall pay for technical support fee and security deposit, whereas Taobao.com’s lessees are mainly ordinary individuals (the socalled C2C model) who just pay a very small amount of fees in comparison with the amount paid by the merchants to Taobao.com and these individuals need not to pay the trading commission and technical support fee. Therefore, the two are different in that Tmall.com adopts a model of B2C and Taobao.com adopts the C2C model. However, both are network service providers which are not engaged in directly selling goods to customers and provide information storage space for enterprises or natural persons to sell goods to customers. The merchants shall pay additional technical support fees and a 2% ～ 5% commission from each transaction to Tmall.com. The online retailers that do not opt in to the Tmall.com model do not pay these fees and commission to Taobao.com. Will the difference affects the legal status of Taobao.com and Tmall.com? Does it mean that Tmall.com shall undertake a higher duty of care? Both Silkstreet and Taobao.com sell no goods to customers directly in a legal sense. Therefore, they are not sellers under the law and their acts do not constitute direct infringement. There is no legal provision for indirect infringement under China’s law. The joint infringement under General Principles of Common Law (GPCL) may be the closest legal concept in China. However, the precondition for joint infringement liability is the existence of direct infringement and the failure of oblige for the joint infringement to perform their duties of care. Therefore, such kind of subjects shall bear liability for infringement provided that they intentionally assist with the direct infringement; namely, they help the manufacturers to produce or the sellers to sell products involving infringement upon other’s registered trademark rights or copyright. The Beijing Higher People’s Court ruled that the Silkstreet should bear legal liability in the case of Beijing Silkstreet Clothing Co., Ltd. (as Silkstreet) v.Huang Shanwang (merchant) and Chanel Inc., Ltd. (Chanel, the owner of trademark right). Its legal reasoning is as following: As to the question that whether Silkstreet has an obligation to stop the infringement upon the exclusive right to registered trademark in time in the Silkstreet market: Firstly, Silkstreet signed a lease contract with Huang Shanwang to rent its counter to the latter as his business place on the condition that the latter paid the money for lease and as a bond. It also can be seen from the lease contract that Silkstreet enjoyed rights and undertook obligations under the contract. By rights, Silkstreet provides the unified operation and management of the Silkstreet market, decides the business hours, species, range, and etc. related to the market, makes appropriate adjustment according to the changes of the market, and supervises the latter’s business activities. By obligations, Silkstreet should maintain the market order, stop the violations and report violations to the relevant administrative departments under the contract. Secondly, Silkstreet provided a business place for Huang Shanwang. It reasonably should have known that the act of deliberately providing convenient conditions in warehousing, transportation, mailing, concealing, etc. for any act that infringes on another person’s right to exclusive use of a registered trademark shall be an infringement of the right to exclusive use of a registered trademark. Therefore, Silkstreet should reasonably have known that there was infringement on Chanel’s registered trademark upon the receipt of the latter’s attorney opinion and should have stopped the infringement in the market as a consequence in a timely and effective manner. Otherwise, it shall bear the respective legal liability. However, Silkstreet neither made timely contact with Chanel’s attorney after receipt, nor adopted effective measures to stop the selling of goods involving infringement, which made it possible for Huang Shanwang to continue to sell these goods for a period of time. It can be inferred that Silkstreet had an intention of and subjectively provided convenience for Huang Shanwang’s infringement. Therefore, it can be concluded that Silkstreet shall bear the legal liabilities such as stopping the infringement, providing compensation, etc...

Similar to the judgment for the foregoing case, Beijing No.2 Intermediate People’s Court ruled that the acts of Taobao.com constituted joint infringement in the case of China Friendship Publishing Co., Ltd. v. Yang Hailin et Zhejiang Taobao Network Co., Ltd. (Taobao.com). Its legal reasoning was as follows:

The Internet platform is different from counters in department store in that there are a large number and kinds of commodities for dealing. The sellers can be divided into personal and business sellers on Taobao.com. There are huge numbers of personal sellers on Taobao.com. They are business individuals or persons who sell nothing but their own articles. The situation is very complicated. Hence, there shall be different obligations and contents for consideration. As for sellers engaged in businesses, Taobao.com shall review their business licenses and other documents. When it comes to personal sellers, Taobao.com shall review nothing but their real name and ID numbers because there is no specific provisions under the current laws and administrative regulations from which network platform provider has obligations to differentiate all conditions. Therefore, Taobao.com did not request Yang to provide proof of his business qualification, which is not in violation of relevant provisions. Meanwhile, laws and administrative regulations only clearly specify the goods of noncirculation and restricted circulation and has no provisions that the network platform providers shall review whether the price fixed by the sellers is significantly lower than the market price or not. Therefore, Taobao.com’s omission to Yang’s selling of the plaintiff’s books at a price significantly lower than the market price shall not be deemed as joint infringement. Furthermore, Taobao.com promptly removed the information suspected of infringement upon receipt of the plaintiff’s warning. Thus, Taobao.com has performed its reasonable duty of reviewing and remedial obligations after infringement. Taobao.com has not provided convenience for Yang’s infringement upon other’s IP under the law and administrative regulations.

In addition, the Shanghai Huangpu District People’s Court made a similar decision in the case of E.land Fashion (Shanghai) Co.,Ltd. v. Wu et Zhejiang Taobao Network Co., Ltd. for the defendants’ infringement upon the plaintiff ’s exclusive right to use a registered trademark.

Something could be learnt from these cases. When considering the legal liabilities of those providing space for sales to customers, such as the Silkstreet, which leases counters to merchants for selling goods, and Taobao.com, which provides information storage space for merchants for selling goods, the court usually adopts the same standard. When judging whether or not those providing space for sellers meet their performance of duty of care, courts inquire into whether they know of the infringements in market, regardless of virtual or real market, and still take no active measures to stop such infringements.

This is similar to the newly established principles under the Tort Liability Law. It is also similar to the principle of safe harbor adopted by the court in hearing network infringement upon copyright to protect the network service providers. In other words, such market service providers shall not bear joint and several liabilities if they take active measures to stop the continuance of infringement upon the receipt of the notice from the qualified obligee. Otherwise, they shall bear the joint and several liabilities because of their lack of duty of care.

What liability should Tmall.com bear?

As mentioned earlier, the Tmall.com merchants pay additional technical management fees and a 2% ~ 5% commission from each transaction to Tmall.com, whereas the Taobao.com sellers do not.

Therefore, Tmall.com acquires economic interests from each transaction directly and can not satisfy the substantial requirement of not acquiring direct economic interests under the principle of safe habor. Thus, it can not be exempted from liability according to the element of notice and deletion according the principle of safe habor. The author thinks that Tmall.com shall be deemed as the seller renting its network space for the selling of goods. It should bear a higher duty of care. It should review whether the enterprises on Tmall.com have obtained legal subject qualification, have legal sources for their goods as well as the suppliers’ authorization. In other words, Tmall.com should be deemed as the co-seller of the enterprises on Tmall.com. Therefore, Tmall.com should not use its deletion of the concerned information after the receipt from the notice of the obligee as an effective defense where the enterprises renting its cyberspace sell goods infringing upon other’s exclusive right to use a registered trademark or copyright. Under such circumstances, the selling enterprises should bear a joint and server liabilities with Tmall.com if they fail to review the suppliers’ authorization and cannot prove the legitimacy of their purchase. Therefore, Tmall.com should be held to a higher duty of care in comparison with Taobao.com.

Conclusion

As the various so-called online malls can be divided into merchandize sellers and network service providers for network information storage according to their difference in business models, all shopping falls into two categories. In other words, their legal liabilities cannot be simply judged by their B2C or B2B models in operation. It should be judged by their role in the selling of goods. That is to say, their legal liabilities depend on their status as a goods sellers or network information providers. Where it is similar to 360buy.com as a direct goods seller, it should actively review the supplier’s authorization and its legitimacy of its purchasing. Where it is similar to Taobao.com as a network service provider for information storage space, it should take active measures to stop the selling of the goods in the virtual market involving infringement upon the receipt of the notice from the obligee.

Tmall.com is a special market player. It acquires a proportion of commission from each transaction although it is mainly responsible for providing information storage space. Thus, it should carry a higher duty of care in comparison with those online malls which only provides information storage space and draws no commission. This duty of care is somewhat similar to that applied to online malls which directly sell goods, represented by 360buy.com. The difference between them is that 360buy.com itself is a seller; whereas Tmall.com is a co-seller with the enterprise which renting Tmall.com’s network space.

There is no complete and unified e-commerce law in China at present. The court has to apply the GPCL and GPCL interpretation, the Tort Liability Law, the Trademark Law, other IPR laws, the basic principles of civil law and etc. Time has witnessed that the online vendors have become involved in IP disputes, product liability, the protection of customer’s rights and interests, and other legal questions in operation in recent years. These legal questions shall not be avoided by e-commerce websites in operation. Therefore, a complete and unified e-commerce law will not only be conducive to the judicial settlement of concrete disputes, but also help the e-commerce websites be aware of their rights, duties and legal liabilities. In conclusion, a complete and unified e-commerce law will be beneficial to a better operation of the online sales by way of reducing legal risks in operation and a better protection of the legitimate rights and interests of general customers as well.

(Translated by Yuan Renhui)