Reverse injunctions
Bad-faith trademark squatters
Competent courts


This article explores recent case law relating to online infringement in China.(1)

Reverse injunctions

Chinese courts have tackled the issue of abusive takedowns by allowing online sellers to seek a court injunction to cease takedown actions or restore removed links (known as "reverse injunctions").

Xu Chunshan v Tian Qinghong, Liu Yanbo and Shandong Shibo
On 4 September 2019, Xu Chunshan, an online seller of donkey-hide gelatin cake (a traditional Chinese tonic), applied to the Yuhang District Court for a pre-trial injunction, requesting the court to order the three defendants to immediately cease their takedown actions against his online shop on Taobao.com.

The Court organised an urgent hearing and supported Xu's claim on 16 September 2019, confirming the following:

  • Tian Qinghong was also an online seller of donkey-hide gelatin cake and was a direct competitor of Xu.
  • Tian had filed, in total, 17 takedown notices based on her alleged copyright in respect of the cakes' packaging; however, Xu suspected that the copyright certificates had been forged.
  • Liu Yanbo and Shandong Shibo had filed a further six takedown notices against Xu's online shop; however, the copyright registration information provided was inconsistent with that recorded at the Copyright Office.
  • Evidence showed that Tian, Liu and Shandong Shibo had obvious connections: they had used the same agent to preserve their infringement evidence, they had shared the same email address and they had used the same internet protocol address when filing the takedown notices. Therefore, by using partially altered or forged ownership, publication and authorisation certificates, as well as other materials, to file copyright infringement complaints against Xu's Taobao store several times, the three defendants had successfully removed Xu's product sales. They had thus eliminated a competitor, gained a competitive edge and seized market share. Such bad-faith complaints were suspected of jointly constituting acts of unfair competition.

The Court considered that failure to take injunctive measures would cause irreparable harm to Xu for the following reasons:

  • Autumn and winter are peak sales seasons for donkey-hide gelatin cake. National Day, New Year's Day, Spring Festival and the e-commerce platform's "Double Eleven" and "Double Twelve" promotional days all took place during autumn and winter. If no injunctive measures were taken, it would affect sales and result in sales losses for Xu.
  • The loss caused by the takedown would be irreversible. Online sales are different from offline sales. The ranking of a sale is the result of continuous advertising input, the accumulation of sales volume and positive consumer ratings, which directly affect the probability of successful transactions. Once removed, all the advantages associated with the particular sale are gone and cannot be restored.
  • According to Taobao's rules, once an infringement complaint is established, in addition to removal from the auction, it often triggers penalties such as downgraded store ratings, restrictions on the release of goods or denied access to marketing opportunities, which would affect the sales of the entire store.

Finally, by taking into account the lengthy trial period for unfair competition disputes between the two parties, to balance the interests of both sides and with reference to the peak sales season of the goods involved, the Court decided that the injunction prohibiting the defendants from filing a takedown complaint had to remain valid until the end of February 2020.

Bosheng Plastic v Lian Rui Company
On 11 December 2019, Bosheng Plastic sued Lian Rui Company for selling mops on Tmall that allegedly infringed its utility model patent and claimed several million yuan as damages. Lian Rui Company challenged the validity of Bosheng Plastic's utility model before the China National Intellectual Property Association (CNIPA).

On 10 April 2020, the Ningbo Intermediate People's Court affirmed the utility model infringement, ordered Lian Rui Company to pay 3.16 million yuan as damages and ordered the immediate removal of the infringing link from Tmall. Lian Rui Company appealed to the Supreme People's IP Court (the unique appeal court for all patent-related cases).

In the meantime, on 9 September 2020, the CNIPA issued a decision invalidating Bosheng Plastic's utility model. Bosheng Plastic appealed to the Beijing IP Court.

As the "Double Eleven" date (Alibaba Group's famous shopping festival, when an online seller's sales figures may account for more than half of its annual turnover) was approaching, and in view of the serious challenge concerning the validity of the utility model invoked by Bosheng Plastic, on 4 November 2020 – during the appeal procedure – Lian Rui Company requested the Supreme People's Court to order Tmall to restore the mop sale link within 48 hours, due to the urgency of the situation.

After an online hearing, the Supreme People's Court decided that:

  • Tmall had to immediately restore the alleged infringing auction link;
  • 6.32 million yuan in Lian Rui Company's Alipay account had to be frozen as a bond; and
  • if, after the link was restored, the total sales of the alleged infringing products exceeded 12.64 million yuan (twice the bond sum), Lian Rui Company had to ensure that 50% of the exceeding part remained in its Alipay account and not withdraw it until a final decision was rendered.

The Supreme People's Court explained that this ruling weighed up the interests of each party to the dispute as follows:

  • The online seller could operate as usual during the "Double Eleven" period, avoiding irreparable harm to its interests.
  • In order to protect the interests of the rights holder, a bond had been posted.
  • The ruling alleviated the potential liability of the e-commerce platform operator in restoring the alleged infringing link – this decision could serve as a point of reference for courts handling similar disputes in the future.

Bad-faith trademark squatters

In addition to reverse injunctions, Chinese courts have in recent years gradually developed a consistent practice of dismissing infringement cases filed by bad-faith trademark squatters. The courts have also sided with rights holders and e-commerce platforms and ordered bad-faith squatters to pay damages.

Bayer v Li Qing
In May 2015, an individual, Li Qing, filed and obtained Class 3 registration in July 2016 for two device marks (Figures 3 and 4) mimicking the distinctive part of Bayer's copyrighted designs (Figures 1 and 2) used on its Coppertone sunscreen products.

Figure 1: Bayer's first copyrighted design

Figure 2: Bayer's second copyrighted design

Figure 3: Li's first registered trademark

Figure 4: Li's second registered trademark

Starting in September 2016, Li targeted distributors and small and medium-sized vendors on Taobao that were offering to sell Bayer's Coppertone sunscreen products using the copyrighted designs by repeatedly filing takedown notices with the platform operator. The complaints resulted in the removal of the products' sale links and degraded ratings for the vendors. Li also sent cease and desist letters to Bayer's dealers, demanding cessation of infringement and negotiation for damages, even threatening to resort to criminal, administrative enforcement or court action if the recipients did not comply. After failing to intimidate Bayer into buying his trademarks, Li launched numerous complaints against 121 Taobao vendors and offered to withdraw his complaints if the vendors agreed to pay damages.

In 2017, Bayer initiated two actions against Li Qing before the Yuhang District Court, seeking a declaratory judgment of non-infringement, the cessation of the unfair competition acts and the payment of damages.

In its judgment of 8 March 2018, the Court cited article 2(1) of the Anti-unfair Competition Law and observed that where a litigious act breaches the good-faith principle and recognised business ethics, such act constitutes unfair competition.

The Court ascertained that:

  • there was sufficient evidence to prove that Bayer was the copyright owner of the Coppertone sunscreen designs, which pre-dated the application of Li's trademarks;
  • Bayer's use of such copyrighted designs did not infringe Li's exclusive right to use his registered trademarks; and
  • based on his bad-faith trademark registration, the defendant, by exploiting unfair means, had undermined Bayer's competitive edge and profited from the process, which constituted an act of unfair competition.

The Court also ordered the cessation of Li's unfair competition acts and the payment of 700,000 yuan as compensation for Bayer's financial losses.

Taobao v Beijing Weihai
On 4 June 2018, Beijing Weihai filed a takedown notice with Taobao against an online seller and submitted a judgment rendered by the Chaoyang District Court of Beijing affirming that the online seller had infringed its trademark. Taobao removed the alleged infringing auctions and imposed other penalties on the seller according to its internal rules. However, this was not the end of the story. The online seller protested the penalties and provided evidence showing that the judgment had been forged.

Taobao initiated a civil action before the Beijing Internet Court, contending that Beijing Weihai's malicious complaints had severely damaged its business environment, encroached on its managerial interests and caused economic losses, and that Beijing Weihai should therefore bear tort liability.

On 31 March 2020, the Court rendered a decision supporting Taobao's claims. In the judgment, the Court ascertained that:

  • by submitting forged judicial documents, the defendant had induced the plaintiff to delete the online seller's sale and to impose other punitive measures against the seller, causing damage thereto;
  • such an abusive complaint had also severely affected the plaintiff's normal business management interests and objectively increased the plaintiff's management expenses;
  • the plaintiff's punitive measures, which were ascribed to the defendant's false complaint, could result in a court action or an administrative complaint filed by the online seller, which could jeopardise the plaintiff's good will; and
  • the defendant's false complaint had presented the plaintiff with a conundrum. The plaintiff was forced to be more stringent in assessing takedown notices to protect legitimate online sellers. However, stricter criteria would in turn impede rights holders' valid delisting requests, contravening the platform's objective of strengthening IP right protection.

Competent courts

In principle, an infringement civil action may be lodged at the place where the effects of the infringement are produced. This should include the place where the goods – ordered online – are delivered. However, in several decisions, the Supreme People's Court has denied the possibility to start litigation at the place where the online purchased goods are delivered. The rights holders' choice of competent court is therefore limited to courts where the e-commerce platform operators are located (eg, the Hangzhou Court for Alibaba, the Beijing Court for JD and the Shanghai Court for Pinduoduo). However, these courts are usually heavily overloaded, which may result in a very time-consuming legal process.

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

Endnotes

(1) This article is part of a series on online infringement in China. For the first article in the series, please see "Online infringement in China – legislation update".

This article first appeared in Anti-counterfeiting and Online Brand Enforcement: A Global Guide 2021, a supplement to World Trademark Review, published by Law Business Research - IP Division. To view the guide in full, please go to www.WorldTrademarkReview.com.