– (2020) ZuiGaoFaZhiMinZhong 933
By Ice Tang from Junlong Law Firm
The Supreme Court recently handed down a ruling ((2020) ZuiGaoFaZhiMinZhong 933, hereinafter referred to as “the 933’ case”), finding that in an intellectual property infringement lawsuit, the E-commerce platform seller is entitled to a reversed act preservation ordering the platform to reinstate his or her selling listing or account. This ruling did not come out of nowhere, but amid increasing and controversial concerns with IP infringement conflicts involving E-commerce platforms, like TaoBao, Tmall and JD.
An act preservation order is an injunction sought by an applicant before the court to demand the respondent to act or refrain from an act accordingly. In general judicial practice, particularly in the area of IP infringement disputes, the moving party for an act preservation order is usually the allegedly infringed party, i.e., the plaintiff. However, in the 933’ case, the moving party was not the plaintiff, but the accused infringer, i.e., the defendant, instead, trying to convince the court to order the E-platform to reinstate the suspected listing. That’s how a “reversed” act preservation got its name.
The reversed act preservation order granted in this case is the first of its kind. Prior to the case, if the defendant sellers wish to request the platforms to resume their listing or re-connect the selling links, they need to file the motion as a Plaintiff. Put it another way, they need to bring a counter-lawsuit against the plaintiff, for example, anti-fair competition lawsuit, or a declaratory action. Hence, it turns out rather difficult and time consuming to seek the motion in IP infringement conflicts.
This issue triggers more and more controversies and is gaining larger attentions of the law industry. We believe that the 933’ ruling from the Supreme Court will have a significant impact on similar IP infringement conflicts to come, especially those involving an E-commerce platform.
Background of Case
Bosheng Corporation (hereinafter referred to as “Bosheng”), the owner of a utility model patent titled “a flat mop cleaning tool with a new barrel structure”, brought a patent infringement lawsuit against Lianyue Corporation (hereinafter referred to as “Lianyue”), alleging that the cleaning tool Lianyue was selling over Tmall, the famous E-commerce platform in China. Upon hearing the case, Ningbo Intermediate Court found that the defendant infringed the plaintiff’s patent at issue, and consequently ordered Tmall to immediately delete the listing or disconnect the sales link of the accused infringing product. Subsequently, Tmall removed the relevant link. Lianyue, unsatisfied with the judgement, appealed the case to the Supreme Court.
It is worth noting that during the first instance, Lianyue brought a parallel patent invalidation proceeding before the Patent Reexamination Board, and did not get an administrative decision until the second instance, which declared the whole patent invalid. Bosheng was planning to appeal the administration decision to the Beijing IP court.
Lianyue then filed before the Supreme Court a motion for an Act Preservation Order, requesting that Tmall Company be ordered to immediately reinstate the listing and re-connect the sales link on “Tmall.com”. Surprisingly, the Supreme Court granted the motion within only 26 hours on the basis that Lianyue agrees to put a bond. Finally, both parties agreed to a settlement to eventually put the conflicts to rest.
Summary of the 933’ Judgement
In the ruling, the Supreme Court stated that the following three aspects need to be considered before granting or denying the motion for reinstating the listing:（1）whether the defendant is entitled to file the motion; (2) Whether it is appropriate to reinstate the listing; and (3) if it is appropriate, how to determine the proper amount of bond.
（1）whether the defendant is entitled to file a motion for act preservation
Regarding “Act Preservation”, Article 100 of Civil Procedure Law of the People’s Republic of China has the following provisions:
“[f]or a case where, for the conduct of a party or for other reasons, it may be difficult to execute a judgment or any other damage may be caused to a party, a people’s court may, upon application of the opposing party, issue a ruling on preservation of the party’s property, order certain conduct of the party or prohibit the party from certain conduct; and if no party applies, the people’s court may, when necessary, issue a ruling to take a preservative measure. A people’s court may order the application to provide security for taking a preservative measure and, if the applicant fails to provide security, shall issue a ruling to dismiss the application. After accepting an application, a people’s court must, if the circumstances are urgent, issue a ruling within 48 hours; and if it rules to take a preservative measure, the measure shall be executed immediately.”
It is clear from the above that the law does not intend to limit the party moving for an act preservation measure to the plaintiff only. The Supreme Court then particularly pointed out that in IP-related infringement disputes, particularly when an E-commerce platform gets involved, it is of greater importance to allow the sellers to file an act preservation order, because E-commerce has become their mainstream selling channel, and it will help to balance the legitimate rights of the IP owner, the E-commerce platforms and the sellers, and enhance the well-being of the free market.
So far, laws and regulations have clearly lay down the obligations of the E-commerce platforms involved in an IP infringement conflict, including Article 36.2 of the Tort Law and Article 42 of the E-commerce Law, which require the platform to remove the listing or disconnect the Internet link, and terminate the transaction and services when the platforms receive a prima facie IP infringement notification from the IP owner. However, there are no laws, regulations or judicial interpretations as to under what circumstances the E-commerce platforms shall, upon the request of the sellers instead, reinstate the listing or resume the transaction during the litigation. Consequently, it is not uncommon that some IP owners take advantage of this law blank to file bad-faith complaints against their competitors especially when big sales seasons or occasions are approaching, for example, “6.18” and “11.11” sales occasions. There is no doubt that the removed listing or disconnected selling links will cause irreparable harm to the sellers. Therefore, they shall be given the right to seek remedy before it is too late, and so the court has obligations to at least examine the motion against Article 100 of the Civil Procedure Law and related judicial interpretations, rather than simply denies the motion based on the false experience that it is always the plaintiff that is qualified as the moving party.
Notably, the patent at issue has been invalidated. Although there is chance that Bosheng, the patent owner, may appeal the decision to a higher court for final review, the patent at issue is at least subject to high risk of being voided.
（2）Whether it is appropriate to reinstate the listing
The Supreme Court set forth a four-prong test for determining whether it is appropriate to reinstate the seller’s listing:
1) Whether the moving party has facts and legal basis to support his motion;
2) Whether irreparable harm will be caused to the moving party if the motion is dismissed;
3) Whether the IP owner will suffer from greater loss when the motion is allowed as compared with the loss that the defendant would suffer if the motion is denied; and
4) Whether the listing, when reinstated, will impair the public interests.
As regards to the first prong, the Supreme Court supported the motion on the grounds that the patent at issue was invalidated, and that the first-instance court has already frozen the defendant’s Alipay account with a balance of 15 million, which puts the defendant’s normal business operation under adverse effects and risk. Therefore, the defendant has factual and legal basis to motion for resuming the listing.
As regards the second prong, “irreparable harm” will be established if one of the following circumstance is met: 1) personal rights of the moving party, for example, the business reputation, will be irreparably harmed; 2) the moving party will lose market advantage or business opportunities, which would hardly be cured even if the court granted a large monetary damage.
Specific to this case, the Supreme Court noticed that up to the filing of the case, the defendant has sold over 600,000 pieces of the accused product, which means not only that the accused product enjoys great popularity, but also that the accused products are popular hits in the Tmall platform search. Removal or disconnection of the listing, especially when “11.11” shopping festival is coming, will undoubtedly deprive the seller of the market share and business opportunities.
As regards the third prong, the Supreme Court stated that there are plenty of products of similar kinds on sale in the market, so it appears that Bosheng’s products would not be totally replaced if the defendant’s listing is resumed. Besides, the defendant agreed to pay the bond suggested by the Supreme Court determined, which equals to the balance of his Alipay account and the profit the defendant will make from the resumed sales. Therefore, the defendant seems to have to put up with greater loss when the motion is dismissed.
As regard with the fourth prong, the public interests under consideration of a patent infringement lawsuit generally include public health, environmental protection and other critical social interests. The accused cleaning product obviously does not fall into any of the above categories.
(3) How to determine an appropriate amount of bond for this case
The Supreme Court said that an act preservation measure shall be both reasonable and effective. Specifically, an amount is deemed appropriate when the bond makes sure that the judgement can be enforced and meanwhile does not hinder the respondent from proceeding with its normal business as well as eliminating the needs of the moving party to pay an exceedingly high security amount to file the motion. The Supreme Court suggested that a Court take into consideration of the possible loss caused to the IP owner by resuming the listing, and make sure that the owner has a way to obtain remedy from the extra harm. On the other hand, the court shall properly calculate the profit which the moving party may earn when his listing is resumed, so as not to freeze too much of the defendant’s asset to jeopardize the defendant’s normal business operation. Specific to this case, considering the first-instance court has already frozen Lianyue’s property worth of 3160,000, the Supreme Court decided, as an appropriate bond, 50% of the resumed sales amount on the grounds that the contribution rate of the patent to the overall product, the costs and the management fees related to the continued sales need to be deducted from the sales amount.
Significance of the Judgement
The 933’ judgement sets a cornerstone for cases of the similar kind. Firstly, it sends out a clear message that Article 100 of the Civil Procedure Law does not rule out the accused patent infringer as a moving party for any act preservation order. The reasoning is three-fold. Firstly, the defendant, though accused of infringing an IP, can have its legitimate rights harmed during the litigation. Second, it is stipulated in the law that the party receiving an IP infringement complaint can voluntarily initiate a declaratory action before the court if the complainant fails to file a lawsuit within a reasonable time period from the party being complained receiving the complaint. In a declaratory action, the accused party, as a plaintiff initiating the declaratory lawsuit, undoubtedly enjoys the rights to an act preservation measure. There is no reason the defendant should be deprived of the same rights in an IP infringement lawsuit. Last, granting the defendant the rights to motion for act preservation helps to balance the rights and obligations of both litigators in the litigation. If the defendant needs to file a counterclaim or a different infringement lawsuit in order to realize his rights in act preservation, it will heavily increase the cost of the litigation.
Among the Supreme Court’s reasoning, the dynamic bond which the Supreme Court established for the first time is of particular significance and is believed to affect similar IP cases to come.
The Supreme Court afterwards issued “Guiding Opinions of the Supreme People’s Court on Trial of Civil Cases Involving Intellectual Property Rights of E-commerce Platforms”, which stipulates, for the first time, in Article 9 the reversed act preservation procedure in the field of intellectual property rights in e-commerce. The sellers on the platform are allowed to initiate a lawsuit against an IP owner filing a bad-faith IP infringement complaint over the platform. If the sellers choose to file a reversed act preservation motion in any case (the plaintiff or the defendant), they can put the Complainant as the respondent in the motion, requesting the Complainant to withdraw the Complaint or refrain from any continued complaints, or put the E-commerce platform as the respondent, asking the platform to resume the listing.
(A photo from the Supreme Court showing the Supreme Court Staff receiving a Pennant from Lianyue)
photo from the Supreme Court