China patent: How will the new E-commerce Law affect online patent protection?

October 19 2018

China just passed the long-awaited E-commerce Law, which will be effective from January 1 2019. While consumer protection is a key focus of the E-commerce Law, the new law represents some recent movement regarding IP protection in China.

With the rapid growth of online commerce, IP owners increasingly consider asserting patent claims against online vendors and online platforms, in addition to the usual claims of trade mark or copyright infringement. Will the new E-commerce Law make any difference to that situation?

Notice-deletion has been adopted by most platforms for years. According to the previous judicial interpretation, online platforms must take down products or services when they believe there is a relatively high possibility of infringement based on the preliminary evidence provided by the right holders.

In practice, the platforms will evaluate the possibility of the existence of infringement and only take action on claims with a high possibility of infringement. Compared to trade mark and copyright, which are relatively easily evaluated by the platforms, patent issues are much more complicated. The platforms normally react negatively to takedown notices for patent infringement citing as a reason the fact that patent issues are beyond their capability. They ask parties to submit disputes to court. With the new law, this situation will probably be improved. The wording of the new law seems to require that platforms take necessary measures upon receipt of notice from right holders with preliminary evidence of infringement. Any failure to act promptly will subject the platforms to penalties of up to US$30 million. The online platforms will be jointly liable with the vendors for extra loss suffered by the IP owners if they fail to take the requisite remedial action.

However, it is clear that the new law could lead to potential abuse of the complaint system by IP owners. The law imposes quite significant liability on right holders concerning notice. It states that right holders will be subject to civil liability if they send incorrect notices that cause harm to the operators on the platforms. If the incorrect notices are sent out in bad faith, the right holders will pay double damages. This provision may have a chilling effect and increase the concern of patent right holders when faced with potential online patent infringement.

The law requires online platforms to transfer the notices from the claimed infringers, which should contain preliminary evidence of non-infringement. If the platforms do not receive notice of a filed lawsuit or complaint within 15 days, they shall cease measures against the claimed infringers. This may limit the effect of notice-deletion, impose a higher burden on the right holders, and increase the amount of infringement lawsuits filed in the courts.

The new law imposes joint liability on online platforms. Online platforms will have joint liability with infringers when they have knowledge of the existence of infringement and do not take any necessary measures. Though many courts believed that platforms should also be held jointly liable when they "should have known" of the existence of infringement, it was not clarified by the laws or regulations. The new law clearly imposes joint liability on platforms when they "should have known" of the existence of infringement but did not take necessary measures. This should lower the evidence requirements for right holders to some degree, as they only need to prove the possibility of knowing. What counts as "should have known" may still be subject to future judicial interpretations.

The law requires ecommerce operators to distinguish their self-run product/service from those of other sellers, and they will be liable for products/services marked "sold by the platform". In a precedent in 2016, a customer sued JD.com for fraud because of the quality issue of a product marked "sold by JD". However, the court rejected the plaintiff's claim because the invoice showed the product was sold by another company. According to the contract between the provider and JD.com, JD.com did not provide the products, but only provided service as an online platform and was not involved in the trade of products. Therefore, even though the product was marked "sold by JD", JD was not the actual provider of the product and therefore was not the eligible party of that case. Under the new law, that case would probably have a different decision.

Notably, social media platforms like wechat and douyin are now implicated in this new law. Social media providers will be under the same scrutiny as the traditional B2C platforms like Alibaba and JD.com. The requirement of official business registration for individual sellers probably would provide an effective method of access for rights holders to sellers' identities.

The E-commerce Law also covers many other aspects, like privacy protection, the security of online payment, data trade and public data sharing. It not only has a significant impact on online enforcement, but also imposes legal requirements on right holders. The interpretations of some clauses are controversial, and must still be clarified by regulations, judicial interpretations and case precedents. Patent owners should definitely pay attention to the interpretation and execution of the new law in order to enhance online patent protection and ensure they stay on the right side of the rules.