Shanji FANG 
Chinese attorney-at-law

 
Forewords

With the vigorous development of the e-commerce economy, e-commerce platforms have evolved into an important battle field for IP right enforcement. However, due to various reasons including complexity of the Internet platform, the IP registration system and trademark squatting, malicious complaints centered on IP rights are not uncommon to see. To obtain unlawful benefits, some business operators file complaints against his competitors out of bad faith by making false statements, forging certificates and squatting trademark. While for the business operators being complained, to resume operations in a short period of time, they have no choice but to settle with malicious complainants. Such malicious complaints not only seriously disrupt the normal business activities of other business operators, but also disturb the normal business order of the platform and the fair and orderly market competition environment.

This article, in combination with current judicial practice, briefly introduces the countermeasures that can be taken in response to frequent malicious complaints about IP rights on e-commerce platforms.

I. Status quo of containment of malicious complaints on e-commerce platforms

In order to contain malicious complaints on e-commerce platforms, Article 42 of the E-Commerce Law that came into effect on January 1, 2019 not only adds a counter-notification procedure to the existing “notify-delete” rule, but also provides the legal liability for erroneous notifications and malicious notifications, wherein it is prescribed that if the erroneous notification causes damages to business operators on the platform, civil liability shall be borne in accordance with the law; if the erroneous notice is sent out of bad faith and causes losses to the business operators on the platform, the liability for compensation shall be doubled.

Moreover, to deal with the malicious complaints centered on IP that are frequently filed on e-commerce platforms, which damages the operation order of platform and waste judicial resources, the Supreme People’s Court (hereinafter referred to as “SPC”) issued the Opinions on Comprehensively Strengthening the Judicial Protection of Intellectual Property Rights on April 10, 2020 (Court Released [2020] No. 11). It is emphasized that the proper trial of Internet infringement of intellectual property rights disputes and malicious complaints, and unfair competition disputes should not only exempt the responsibility of the party sending erroneous off-shelf notification in good faith in accordance with the law, urge and guide e-commerce platforms to actively perform legal obligations to promote the healthy development of e-commerce, but also investigate the legal responsibilities of abusers, malicious complaints, etc., to reasonably balance the interests of all parties.

This guidance of the SPC shows that the judiciary will implement stricter regulations on malicious complaints about IP rights on e-commerce. Malicious complainants will be severely cracked down, whose legal responsibility will be even investigated. The judiciary will punish malicious litigation and regulate the order of IP litigation to create an honest and trustworthy business environment.

In addition, in judicial practice, in order to contain malicious complaints, major e-commerce platforms not only improve the rules of the platform, but also actively cooperate with legitimate business operators to defend their rights and combat malicious complaints. Local courts also stated that they would severely punish those who initiate judicial cases concerning malicious complaints.

Therefore, the legislation and judicial practice in recent years have provided business operators on the e-commerce platform with an effective legal environment against malicious complaints about IP rights. Although malicious complaints and malicious competition may not be completely contained, the rights protection mechanism for the operators who suffered from malicious complaints will gradually be improved, which is conducive to creating an honest and trustworthy business environment.

II. Countermeasures and suggestions on malicious complaints on e-commerce

In practice, how to fight back against malicious complaint on e-commerce platform? Generally speaking, e-commerce platforms, e.g. Tmall, decide to maintain the current situation or take necessary measures including deleting, blocking, or disconnecting links, and terminating transactions and services in accordance with its platform’s IP complaint handling rules base on the complainant’s materials and the respondent’s materials. However, once the complainant brings an IP infringement lawsuit, e-commerce platforms would usually take the measures such as deleting the sales link, while business operators who are subject to complaint can only wait for the result of lengthy litigation to obtain relief, and they often lose the best marketing opportunities and suffer huge losses.

In order to make sure that the business operators subject to complaint can protect its legitimate rights and interests in a timely and effective manner, the author proposes the following suggestions on how to fight back against malicious complaints on the e-commerce platform.

1. Make fair use of the preservation mechanism of litigation

The civil procedure law and the judicial interpretation of the SPC have explicitly stipulated on the content of the preservation mechanism for litigation, including property preservation, evidence preservation, behavior preservation, etc. In practice, these preservation measures are often taken by right holders in right enforcement. That is, if the IP right holder discovers the infringement act of others and the irreparable losses will be caused if such act is not stopped timely, he can apply to the people’s court for behavior preservation and request the accused infringer to stop producing and selling the accused infringing products prior to or during the litigation. If the evidence related to the alleged infringement act or the evidence related to the profit gained from the infringement is likely to be lost or difficult to obtain, evidence preservation can be applied before the court; in order to obtain compensation, the preservation of the property of the accused infringer can be applied before the court.

The number of malicious complaints on e-commerce platforms is increasing, many of which are filed to disrupt the normal marketing of competitors by using the complaint mechanism of e-commerce platforms, and the party being complained would often find themselves in a passive position. Even if it is affirmed as non-infringement through litigation or other means in the end, since litigation procedure takes a long time, the best sales opportunity on e-commerce platform would be missed, which can only be remedied by acquiring compensation afterwards.

In response to the malicious complaints frequently occurred in practice, local courts have also made innovations to the preservation mechanism of litigation. In the Judgment (2019) Su 01 Civil First No. 687, Nanjing Intermediate People's Court adopted “reverse behavior preservation” for the first time to effectively curb malicious complaints on e-commerce platforms. In this case, because the right holder complained to the e-commerce platform and then sued the seller on the platform based on infringement of its IP rights, the platform disconnected the sales link of the related goods. However the seller insisted that the product should not constitute an infringement, and appealed to the court after his negotiation with the platform failed, requesting the court to order the e-commerce platform to restore the sales link in advance. Nanjing Intermediate People’s Court made the ruling to restore the deleted link in advance, after comprehensively reviewed the facts and legal requirements, including the possibility of infringement of the goods sold, whether it would cause irreparable damage to the seller, the seller’s guarantee, and whether deleting or restoring links would harm the public interest, etc..

This case was called as the first “reverse behavior preservation” case in China by IP industry, which caused positive repercussions in the industry. Later, in the cased heard by the People's Court of Yuhang District of Hangzhou, the court once again approved the application for reverse behavior preservation in its Judgment (2019) Zhejiang 0110 Behavior Preservation No.1. The People's Court of Yuhang District held that being fully aware of having no right to notify or the basis for the notification was insufficient, the notifying party still sent the notification, thereby causing damage to the respondent, which constitutes the “malicious notification” behavior stipulated in the E-Commerce Law. In response to “malicious notification” behavior, the respondent can apply to the court for pre-litigation behavior preservation or behavior preservation pendente lite, requesting the court to order the notifying party to withdraw the notification or prohibit the notifying party from continuing to send the notification. By judging the factors such as the degree of malice of the notifying party, the degree of influence of the malicious notification on the respondent’s store, whether or not the damage caused to the respondent if no behavior preservation measure is taken exceeds the damage caused to the notifying party if the behavior preservation measure is taken, and whether the preservation measures would harm the public interests, the court made the ruling, ordering the notifying party to immediately stop the act of filing IP infringement complaint with Taobao Company against the applicant’s Taobao store.

By referring to the judicial practice of “reverse behavior preservation” by local courts, the SPC issued The Guiding Opinions of the Supreme People's Court on the Trial of Civil Cases Involving Intellectual Property Rights on E-commerce Platforms (hereinafter referred to as “Guiding Opinions”) on September 10, 2020, which clarified the provisions of “reverse behavior preservation” and the content and procedural requirements of this preservation method by issuing judicial interpretation.

According to paragraph 2 of Article 9 of the “Guiding Opinions”,

In urgent situation, if the e-commerce platform operator does not immediately restore the product link, the notifying party does not immediately withdraw the notification or stop sending the notification, etc., the legitimate interests of the business operator on e-commerce platform will be irreparably damaged, the operator in the platform may apply to the people's court for preservation measures in accordance with the legal provisions mentioned in the preceding paragraph.

According to the above regulations, to apply for reverse behavior preservation against the malicious complaints on e-commerce platforms, the following conditions must be met:

(1). Limited to “urgent situation”

The party applying for preservation needs to prove that its application for reverse behavior preservation is under an “urgent situation”. To adduce proof for “urgent situation”, it can be referred to Article 6¹ of The Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in Examination of Behavior Preservation in Intellectual Property Dispute Cases, for instance, if the product involved in the case is seasonal; or is in the peak sales season; or in the case of large-scale promotion activities on e-commerce platforms, if malicious complaints are not stopped in time, the product links of the applicant’s store will be deleted or permanently deleted during the complaint period, store traffic will be reduced, sales revue will drop precipitously, causing significant economic losses to the applicant.

(2).The applicant’s legitimate interests may suffer “irreparable losses”

The abovementioned regulations made no emphasis on the need to prove that the other party constitutes malicious notification, but it must be proved his own legitimate interests will be irreparably damaged without the reverse behavior preservation. Therefore, the proof should focus on whether one's own interests are legal and may be irreparably damaged. Regarding whether one's own interests are legal, it is necessary to examine whether the infringement accused by the complainant can be established. To adduce proof for “irreparable losses”, it can be referred to Article 10² of The Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in Examining Intellectual Property Disputes and Behavior Preservation Cases, for example, if the product link is deleted due to the alleged infringement, it may miss the best sales opportunity; or even if it is found later that it is caused by malicious complaint by the right holder, the link’s ranking and traffic attraction capability will be significantly influenced when the link is restored; or the infringement penalty has a significant impact on the store’s sales; the competitiveness is weakened; the market share will be reduced, etc..

2. Investigate the tort liability of the malicious complainant

In addition to utilizing reverse behavior preservation to make sure that their sales could return to normal, operators subject to malicious complaints can also proactively take legal measures to investigate the tort liability of malicious complainants. In practice, for malicious complaints and malicious litigation, the following methods can be considered for relief.

(1). Obtain relief on the basis of Anti-Unfair Competition Law

At present, on e-commerce platform, malicious complainants make use of copyright registration, design and utility model which only adopt formal examination, or a large number of preemptively registered trademarks, and file complaints out of bad faith or through other low-cost illegal methods to disturb others' lawful business operations, and then gain illegal profit. If the acquisition of the right itself is illegal, the subject recorded in the certificate of right is not the real right holder. Then the interests of real right holder and other lawful operators will inevitably be harmed by using such a right certificate to file complaints. For such malicious complaints, protection can be obtained based on the Anti-Unfair Competition Law.

In judicial practice, with regard to malicious complaints on e-commerce platforms, the courts have affirmed the unfair competition in accordance to Article 2 of the Anti-Unfair Competition Law. For example, in the Judgment (2016) Zhejiang 0110 Civil First No. 11608 ruled by the People's Court of Yuhang District of Hangzhou, the court held that the defendant clearly knew that the preliminary conclusion of the patent right evaluation report made by the patent administration department of the State Council on the patent involved was “all the designs fail to meet the requirements for granting patent”, but tampered with the conclusion of the patent evaluation report, and used the altered evidence to maliciously complain to the e-commerce platform against similar products sold by the plaintiff, resulting in the deletion of the product link involved in the case, which violated the recognized business ethics, prevented the plaintiff from carrying out normal business activities and causing losses, thus unfair competition was established.

Because Article 2 of the Anti-Unfair Competition Law is a provision in principle, the following factors need to be considered when claiming unfair competition based on this article:

1). Whether there is a competitive relationship between the malicious complainant and the respondent

2). Subjective malice of the malicious complainant

3). The rights of other lawful operator are damaged objectively

4). Disrupt the normal market operation order

In addition, in judicial practice, there are precedent cases where the malicious complaints were identified as unfair competition of commercial defamation in accordance with the provisions of Article 11 of the Anti-Unfair Competition Law. For example, in the Judgment (2019) Liao 02 Civil Final No. 1083, the defendant argued that it had complied with Taobao’s complaint rules without spreading and disclosing the reason for the removal of the product, so he did not constitute commercial defamation. The court held that the article did not restrict on the means of dissemination of false facts. The so-called “dissemination” means spreading and disseminating. Commercial defamation only requires transmission of false facts to a third party in a certain way and its behavior mode is to spread relevant information to the outside with the spreader as the origin, while the specific approach can be varying and the transmission methods can be diverse, which mainly emphasizes the infringer's source responsibility for false facts and public features of the behavior effect. If the spreader spreads the fabricated false facts to a specific target and has a substantial impact on the business activities of the party, it can also constitute commercial defamation. Taobao is the leading e-commerce platform in China. The result of the defendant’s complaint to Taobao’s intellectual property platform covers the entire platform, directly cutting off the public’s access to the plaintiff’s products involved on Taobao, which, compared with the traditional dissemination of false facts, the scope of influence is wider, the damage consequences are greater, and the effect is immediate. Moreover, the directness, immediacy and destructiveness of such behavior are more prominent. Consequently, from the perspective of argumentum a fortiori, the defendant’s repeated complaints have the public features required by the spreading behavior, which has constituted commercial defamation.

Although the abovementioned case was based on the provisions of Article 11 of the Anti-Unfair Competition Law to stop malicious complaints, the factors considered by the court when applying this article are almost the same as those in the case applied Article 2. Therefore, in practice, a business operator who has suffered a malicious complaint can claim both Article 11 and Article 2 according to the circumstances of the case. However, if the court applies Article 11 to determine unfair competition, Article 2 will not be applied again since it is a provision in principle.

(2). Obtain relief by filing a lawsuit for the damage liability caused by the maliciously initiated lawsuit

As mentioned earlier, in order to make e-commerce platforms delete links and put more pressure on them, some operators also filed malicious lawsuits while attacking competitors through filing malicious complaints. For such malicious litigation, a lawsuit can be filed to request for compensation.

When China revised the “Regulations on the Causes of Civil Cases”  in 2011, it officially included the “disputes over liability for damages caused by maliciously initiated IP litigation” as a category of disputes for compensation claims against malicious IP litigation. According to the “Research Report on Malicious Litigation Issued by No.3 Chamber of the Supreme People’s Court (2004)”, malicious litigation generally refers to “the act of instituting a civil action with no factual basis and justifiable reasons for the purpose of damaging others, thus causing the opposite party to suffer losses in the litigation.”

The Judgment (2015) Beijing IP Civil First No. 1446 pointed out that the following elements should be met at least when a specific act of filing litigation is to be determined as a maliciously initiated IP lawsuit:

1) A party has made a request in the form of filing an IP lawsuit, or threatened to file a certain request.

2) The party who made the request has malice.

3) Actual damages are caused.

4) There is a causal relationship between the act of filing an IP lawsuit by the party who made the request and the damages.

In current judicial practice, most of the malicious litigations involving IP rights occurred in the field of patent. In the field of patents, although many wrongdoers, by taking advantage of a system that has no-substantial examination on utility models and design patent, file complaints after obtaining unstable rights, it cannot be simply determined that the right holder’s enforcement of rights is malicious just because a patent has been invalidated. According to the “Guidelines for the Determination of Patent Infringement”  issued by the Beijing Higher People’s Court, if a malicious complainant obtains a patent right in bad faith in the following ways, and the enforcement of the patent right causes losses to others, it can be regarded as an abuse of the patent right, and his liability for compensation shall be investigated:

● Apply for patents and obtain patent rights for technical solutions in the technical standards such as national standards and industry standards that the patentee clearly knows before the application date;

● Participants in the formulation of technical standards such as national standards and industry standards apply for patents and obtain patent rights for technical solutions of others that are known in the course of drafting and formulation of the above standards;

● Knowingly apply for patent and obtaining patent rights for the product that has been widely manufactured or used in a certain area;

● Use methods such as fabricating experimental data, fictitious technical effects, etc., to make the patent in question meet the granting requirements provided by the Patent Law and obtain the patent right;

● Apply and obtain patent right in China for the technical solutions disclosed in patent application documents published outside the Chinese territory.

In addition, in patent infringement litigation cases, the patent right may not definitely be stable or its scope may change due to invalidation procedure stipulated by the Patent Law that the patentee could delete, merge claims and delete technical solutions in this procedure. Therefore, to determine whether it constitutes a patent infringement lawsuit filed out of bad faith, the specific behavior of the patentee in the invalidation procedure and his behavior features in subsequently filed patent infringement litigation will be taken into consideration. For example, in the Judgment (2015) Beijing IP Civil First No. 1446, the defendant voluntarily abandoned the method claims in the patent in question during the invalidation procedure, and then claimed method patent infringement. The court found that there was no factual basis and the basis of rights, and the defendant had bad faith.

In the trademark field, malicious litigation is basically closely related to trademark cancellation or invalidation. But similarly, the cancellation or invalidation of trademark rights is not a direct reason for malicious litigation, and it must also be combined with whether the plaintiff knows that his claims in the litigation lack factual and legal basis and whether he has an improper litigation purpose to damage the other party's legal rights and interests. If a lawsuit is legal only formally when it is filed, but in fact violates the principle of good faith and the plaintiff knows that he does not have the relevant intellectual property rights in essence, and still takes the purpose of infringing the legitimate interests of others, it should be regarded as a malicious lawsuit, for example the trademark on which the litigation is based is a preemptive registration that has been previously used by others and has certain influence; the plaintiff knows the fact that would result in invalidation of the trademark, such as the trademark contains a special sign and generic term being absolute grounds for invalidation, or copyrighted work of others or prior trademark used by others in China with certain influence; the purpose of his registration of the trademark is not to use but to seek profit by other people's toil through trademark assignment at a high price; agent or representative registers the trademark of the principal or the representative in his own name, or knows other’s trademark through contract, business relationship or other relation. In order to register the trademark, the trademark is not used in the name of the registered agent, but in the name of the registered agent or the other person for the purpose of trademark registration or other business relations.

To sum up, whether it constitutes a malicious complaint or a malicious litigation, in addition to the situation where it really lacks the basis of IP rights, it also includes the situation where the initiator knows that he will lose the existing IP rights basis. To make the judgment on this situation, the evaluation of initiator’s subjective status when applying for IP rights and other factors need to be taken into consideration.
 
Summary

Online IP complaints are an effective means for IP rights holders to stop infringements in a relatively short period of time, but the enforcement of legal rights and the prevention of abuse of rights should strike a balance. With the development of national legislation and judicial practice, malicious complaints and malicious litigation involving IP rights will be further contained. Every right holder should use legal means to defend his own rights, and legitimate business operators who have suffered malicious complaints or malicious litigation should also actively safeguard rights under the framework of legal protection, so as to jointly promote the orderly development of the Internet industry and e-commerce.

¹Article 6: Where there is any of the following circumstances, if the failure to take action preservation measures immediately is sufficient to harm the interests of the applicant, it shall be deemed to be an "urgent situation" as stipulated in Article 100 and Article 101 of the Civil Procedure Law:
(1)The applicant's trade secrets are about to be illegally disclosed; (2)The applicant's personal rights such as publication rights and privacy rights are about to be infringed; (3) The intellectual property rights at issue are about to be illegally disposed; (4) The applicant's intellectual property rights are being or will be infringed in the exhibition and other occasions with strong timeliness; (5) Hot programs with strong timeliness are being or about to be infringed; (6)Other situations that require immediate behavior preservation measures.

²Article 10: In an act preservation case of intellectual property and unfair competition disputes, if one of the following circumstances exists, it shall be deemed as “irreparable damage” as stipulated in Article 101 of the Civil Procedure Law:
(1) The respondent’s act will infringe upon the applicant’s personal rights such as goodwill, publication rights, and privacy rights, and cause irreparable damage; (2) The respondent's act will cause the infringement to be difficult to control and significantly increase the applicant's damage; (3) The respondent’s infringement will cause the applicant’s relevant market share to decrease significantly; (4) other irreparable damage caused to the applicant.