New SPC Guiding Opinion on E-Commerce and IP

On September 12, 2020, the Supreme People’s Court issued its new “Guiding Opinion on the Trial of Civil Cases of Intellectual Property Rights Involving E-Commerce Platforms”  关于审理涉电子商务平台知识产权民事案件的指导意见 (the “Guiding Opinion”).

This Guiding Opinion explicitly references China’s E-Commerce law.  A translation is available here. I previously discussed the drafting of that law here.  As best I can tell this document was not anticipated in the SPC’s JI drafting agenda of earlier this year.    That is likely because strictly speaking a “Guiding Opinion” is not a judicial interpretation.  As one observer has noted: “These notices and opinions encourage judges to make decisions, or local courts to explore new mechanisms based on their attitudes. The SPC will sometimes formulate official judicial interpretation based on the judicial practice after these documents are published.”

The Guiding Opinion should further help implement obligations set forth in Section 1 (E) of the Phase 1 Trade Agreement regarding “Piracy and Counterfeiting on E-Commerce Platforms”, although It is not a specifically enumerated “deliverable” in that Agreement.  The Phase 1 Agreement does include a number of specific reforms that the US and China agreed to, including “extend to 20 working days the deadline for right holders to file a judicial or administrative complaint after receipt of a counter-notification”; “ensure validity of takedown notices and counter-notifications, by requiring relevant information for notices and counter-notifications and penalizing notices and counter-notifications submitted in bad faith” and  that “China shall provide that e-commerce platforms may have their operating licenses revoked for repeated failures to curb the sale of counterfeit or pirated goods.”  These reforms may be reflected in other legislative or judicial acts.

In the absence of a complete translation, I offer here one provision regarding implied knowledge of infringement by an e-commerce platform in the Guiding Opinion ,which is likely intended to help implement Arts. 38, 41, 42 and 45 of the E-Commerce law:

“电子商务平台经营者存在下列情形之一的,人民法院可以认定其“应当知道”侵权行为的存在:

  (一)未履行制定知识产权保护规则、审核平台内经营者经营资质等法定义务;

  (二)未审核平台内店铺类型标注为“旗舰店”“品牌店”等字样的经营者的权利证明;

  (三)未采取有效技术手段,过滤和拦截包含“高仿”“假货”等字样的侵权商品链接、被投诉成立后再次上架的侵权商品链接;

  (四)其他未履行合理审查和注意义务的情形”

“The People’s Court may determine that an e-commerce platform operator ‘should be aware of’ the existence of infringement under the following circumstances:

1) Failure to perform legal obligations such as formulating intellectual property protection rules and reviewing the operating qualifications of operators on the platform;

(2) Where there is no review of the proof of rights of operators whose store types on the platform are marked as “flagship store”, “brand store”, etc.;

 (3) Failing to adopt effective technical means to filter and block infringing product links containing the words “high imitation” and “fake goods”, and links to infringing products that are re-listed after the complaint is established; and

(4) Other circumstances where reasonable review and care obligations are not performed.”

What constitutes “effective technical mean to filter and block” or  “reasonable review and care” are key issues in the Guiding Opinion and for the future.  This Guiding Opinion offers some concrete examples. As technology evolves in such areas as machine learning and recognizing of fake products and fake product purveyors, the concepts of “effective” and “reasonable” may necessarily evolve.  These changes in technology could impose greater technical and financial obligations on e-commerce platform operators. As I recall, the evolving nature of these technologies was discussed about a decade ago by the late Prof. Guo Shoukang and hosted by AmCham on e-commerce liability, and it remains true today. 

Terms such as “effective” and “reasonable” in the Guiding Opinion offer an opportunity for the courts to flexibly address newly emerging challenges as they arise.  These general concepts are also in synch with a trend towards greater flexibility by the Chinese courts in addressing emerging legal and technical challenges in China.  As with the definitions of “bad faith” which are also described in the Guiding Opinion Arts. 6, 8 and 10 for platform business operators  and rights holders providing notifications and counter-notifications of infringement, the concept of “implied knowledge” is part of a broader effort to incorporate “good faith” -type obligations into Chinese IP and civil law generally. 

Please send in any corrections or comments.

Supreme People’s Court Releases Trade Secret JI

On September 11, 2020,the SPC released its trade secret JI on civil enforcement of trade secrets.  Here is a link to a Chinese text comparing the final version with the draft released for public comment.  The USPTO unofficial translation of the prior draft is available here.

While we wait for the translations and commentaries, Article 14, which is newly inserted, caught my eye:

“第十四条  通过自行开发研制或者反向工程获得被诉侵权信息的,人民法院应当认定不属于反不正当竞争法第九条规定的侵犯商业秘密行为。

 前款所称的反向工程,是指通过技术手段对从公开渠道取得的产品进行拆卸、测绘、分析等而获得该产品的有关技术信息。

被诉侵权人以不正当手段获取权利人的商业秘密后,又以反向工程为由主张未侵犯商业秘密的,人民法院不予支持.”

A rough translation is:

“14. When the alleged infringer obtains information developed its own R&D or through reverse engineering, the People’s Court shall determine that these are not violations of trade secrets pursuant to the provisions of Article IX of the Anti-Unfair Competition Law.

 Reverse engineering referred to in the preceding paragraph refers to the disassembly, mapping, analysis, etc. of products obtained from public channels through technical means to obtain relevant technical information of the product.

When the alleged infringer obtains the right holder’s business secrets by improper means, and thereafter claims that the business secrets have not been infringed on the grounds of reverse engineering, the People’s Court shall not support [this defense].”

This language replaces proposed Article 8: “Where the alleged infringer asserts that it has obtained the alleged infringing information by means of research and development, transferee, license, reverse engineering,
inheritance, etc., the alleged infringer shall provide evidences to prove so.”

The more thoughtful approach in this final text should reduce the viability of defenses based on changes to technology made by the alleged misappropriator which had subsequently given rise to overly broad reverse engineering defenses in China.  A similar case was presented in an earlier case: Chongqing Long Life Xinxieli Chemical Company Ltd vs. Hu Xiantang et al. (重庆长寿新协力化工有限公司等诉胡宪堂等侵犯商业秘密纠纷案). The court noted in that case that “the illegal obtaining of trade secrets and its subsequent modification still is a trade secret infringement.” (本院认为,首先,被告东荣公司通过非法手段获取了涉案商业秘密,不管其是直接实施还是略加改进后再实施,其行为的侵权本质并未改变。即非法获取并实施商业秘密是侵权行为,对非法获取的商业秘密进行改进同样是侵权行为。) (2010) 渝一中法民初字第00055号).  US law tends to focus on unauthorized access rather than use of the unauthorized information.  Adoption of this change may also bring China a step closer to US practice.

SAMR Releases Draft Trade Secret Rules for Public Comment

On September 4, 2020, the State Administration for Market Regulation (SAMR) released Draft Trade Secret Protection Rules for public comment  [商业秘密保护规定(征求意见稿)] including an accompanying explanation. Comments are due by October 18, 2020. 

SAMR announced its intention to draft these rules in its 2020 legislative work plan.   As with the earlier rules that these supersede, they are directed towards handling of trade secret administrative enforcement by SAMR.  The earlier rules had been criticized for only providing protections for Chinese citizens and not foreign nationals in Article 2, which provided that  “the term ‘rights holder’ in these regulations refers to citizens, legal persons or other organizations that have ownership or use rights over trade secrets according to law. ” 本规定所称权利人,是指依法对商业秘密享有所有权或者使用权的公 民、法人或者其他组织.  This apparent discrimination against foreigners was identified to the Chinese delegation at the WTO in 2002. See WTO, IP/C/W/374, Sept. 10, 2002, “Review of Legislation” at p. 44.   These new rules appear to be far more comprehensive, and do not carry the same regrettable language about citizens. 

Statistics generally show a low level of utilization of the trade secret administrative enforcement mechanism.  In 2011, for example, the State Administration for Industry and Commerce yearbook (predecessor agency to SAMR), revealed that SAIC had only brought 57 administrative trade secret cases, with 2, 579 RMB in average fines (about $390.00) (SAIC Yearbook, at p. 855).  Notwithstanding this low level of utilization of the administrative enforcement system and discriminatory language in the earlier rules,  improving administrative enforcement of trade secrets was agreed to bilaterally in the 2012 Strategic and Economic Dialogue, by which China committed to place trade secret protection in the “2012 Annual Work Plan of the State Council Leading Group on Intellectual Property Enforcement.”  About that time, the State Council Leading Group had been especially active in coordinating and improving administrative enforcement.  One problem posed by this commitment is that trade secret enforcement is especially not susceptible to the kind of investigations of virtual or physical markets that SAMR (or SAIC) have historically excelled in.  It is therefore not surprising that despite the commitments by China in the Phase 1 Agreement on several IP-related special administrative campaigns involving various markets, the trade secret provisions focus on civil and criminal enforcement.  Perhaps the caseload will increase with the additional powers granted to SAMR and the increased focus on trade secret enforcement by China.  However, many people, including myself, believe that trade secret protection may be best handled by the courts.  Moreover, if the subject of the trade secret infringement involves technology, the IP courts may be best equipped to handle those matters.

Aaron Wininger has written a useful general overview of the draft which is available here.