Before handing over power-of-attorney to third party brand protection agencies, brand owners need to carry out effective due diligence. It is also worthwhile for them to guard against the tendency of weakening IPR protection by Alibaba and other platforms at the excuse of “malicious” complaints.

In early February, Alibaba announced that it would no longer process IP violation complaints from an IP agency called Hangzhou Wangwei Technology. According to Alibaba, Wangwei has filed thousands of complaints, of which more than 60% since 2015 have ended up being withdrawn after counter-appeals from merchants.

The blocking of Hangzhou Wangwei is part of a wider campaign of Alibaba against the so-called malicious complaints. Alibaba has accused several IP agencies for filing false accusations about the sale of fake goods and intellectual property violations on its online shopping platform, calling for merchants to boycott those agencies. Alibaba claims that 24% of all complaints it receives are deemed “malicious” and “a drain on the group’s efforts to stamp out counterfeits”.

Although these warnings are not aimed at brand owners, which shall not be regarded as a setback in Alibaba’s IPR protection efforts, the action against the “malicious’ agencies may divert the attention of the platforms from IPR protection.

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As the first implementing rules for the Cybersecurity Law, the Draft Measures define the framework for the Chinese cybersecurity review system, which may impose significant influence on entities’ digital assets and future IT solutions. Related entities are suggested to closely monitor its development.

On Saturday, February 4, the Cybersecurity Administration of China (CAC, also translated as China Internet Information Office) released the Security Review Measures for Network Products and Services (Draft) (“Draft Security Review Measures”). Please see attached the courtesy translation by AnJie and the CAC website (http://www.cac.gov.cn/2017-02/04/c_1120407082.htm). Public comments are due March 4, 2017.

Preliminary Analysis:

The Draft Security Review Measures appear to implement elements of the National Security Law and Cybersecurity Law. The 16 articles address some of the most challenging concepts and issues in the cybersecurity review mechanism stipulated in the Cybersecurity Law.

Highlights include:

1. The purpose of the Draft Security Review Measures is to enhance “securable and controllable level of the network products and services”, ensure the safety of the supply chain and implement the National Security Law and Cybersecurity Law. (Art. 1)

2. Art. 2 and Art. 11 deal with the scope of application. Art. 2 generally stipulates that “important” network products and services concerning the “national security and public interest” should be subject to security review. Art. 11 further specifies that the network products and services purchased by Critical Information Infrastructure (CII) operators should go through security review as long as “it may impact national security.” (Art. 2, 11)

Comment: Art. 35 of Cybersecurity Law only requires security review for CII related products and services. However, Art. 59 of the National Security Law requires security review for “foreign investment…that affect or may affect national security, construction projects that involve national security matters, and other major matters and activities to effectively prevent and resolve national security risks.”

There may be a legal question as to whether the Draft Security Review Measures are effectively expanding the scope of the security review beyond the law.

3. The security review is to focus on four kinds of risks endangering “security and controllability,” including (1) instability, (2) threat to supply chain integrity, (3) illegal data retention, and (4) abuse of user dependency (the risk that providers may conduct unfair competition and harm users “by taking advantage of dependency of the users”). (Art. 4)

Comment: Some of these “risks” may exceed the scope of cybersecurity.

4. The CAC will align with other government departments to establish a Network Security Review Office and engage experts. Third parties certified by the CAC will undertake particular reviews. (Art. 5, 6, 7, 8, 12, 13)

Comment: This may raise concerns regarding the competency and neutrality of third parties conducting security review activities.

5. The finance, telecom, and energy sector regulators will conduct security reviews separately, while security reviews in other sectors are to be organized by CAC. (Art. 9)

6. The party and government agencies, as well as “key industries” should place a priority on procuring network products and services which have passed security review and should not procure products and services that have failed to pass security review. (Art. 10)

Comment: The scope of “key industries” is unclear.

7. The Network Security Review Office will have the authority to issue a security evaluation report on the security level of relevant providers on an ad hoc basis. (Art. 14)

Comment: It may be worth considering whether such reports may expose providers’ trade secrets or other legitimate interests.

We believe this new initiative will have a bigger impact on foreign app stores, which will face more stringent censorship. Foreign entities may need to pay attention to the developments to ensure smooth distribution and operation of its apps.

On January 13, 2017, the Cyberspace Administration of China (CAC) issued the Notice on Initiating Recordation of Internet App Stores (“Notice”). As of January 16, 2017, all app stores must file for recordation with the provincial-level cyberspace authority according to the Notice, a measure to implement the Regulations on the Administration of Mobile Internet App Information Services (“Regulation on APP”) issued by CAC in mid 2016.

According to the CAC spokesperson, the initiative aims to identify and crack down such violations as distributing illegal information, infringing online users’ rights and endangering public security on apps.
All app stores must record for start of operation, modification of recorded items and termination of operation. App stores refusing recordation, providing false information, or having severe violations in operation will be penalized according to law.

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The proposed legislation remains staying at high level rules, without imposing real enforcement effects on the platforms such as Alibaba. Nonetheless, there are some encouraging articles entities may leverage on, such as those concerning IPR protection, which, though, are not strong enough in our opinion. Running on-line stores, entities may also need to pay attention to the articles providing personal information protection obligations for Platforms.

The draft E-Commerce Law (the “Draft”) is open for public comments till January 26, 2017. The law aims to regulate the e-commerce market, and protect the legitimate rights and benefits of various parties in the e-commerce transactions.

The Draft is not changed much from the version submitted to the NPC for review. One notable difference is that financial products and services as well as audio-video programs and internet publishing are excluded from the law.

The key highlights of the Draft are summarized as follows:

The Scope and Definition

E-commerce is widely defined as “business activities involving products or services transactions through information networks such as the Internet”, which means e-commerce transactions taking place through mobile Internet are included as well. Additionally, products refer to both tangible and intangible products. The law applies to e-commerce activities within the territory of China and cross-border as well.

E-Commerce Operators and Third-Party Platform

The Draft expressly states the distinction between E-Commerce Vendor (“Vendor”) and E-Commerce Third-Party Platform (“Platform”) and stipulates their respective obligations.

For vendors, the Draft Law clearly provides obligations they should undertake. For example they must show their business licenses in visible places on their homepages. They are not allowed to charge consumers an express logistics service fee higher than what is offered by the professional express logistics service providers, or to restrict consumers from choosing their preferred express logistics service providers.

For Platforms, the Draft expressly mandates that Platforms should be obliged to review the Vendors on their platforms, and provide them with stable and safe services. Platforms are also required to formulate open and transparent transaction rules, make public important information, and record transaction logs.

E-commerce Transaction Safeguard

  • Intellectual property rights protection: Not only Vendors but also Platforms are obliged to protect intellectual property rights. Platforms must take necessary measures in accordance with laws and regulations upon intellectual property rights holder’s notice. These positive elements are then weakened by such provisions that rights holder must shoulder civil liabilities of wrongful accusations IP infringement. And once the accused Vendor submits a statement to the platform guaranteeing that no infringement has taken place, the platform should terminate the measures in a timely manner and inform the rights holder so it can seek remedies through administrative or judicial ways. Although the most severe penalty for Platforms fail to fulfill their IPR protection obligations could be the suspension of business license, the penalty is generally not sufficiently biting as there are no corresponding enforcement measures provided in the Draft.
  • Personal information protection: The Draft provides that e-commerce business entities can collect personal information of the consumers only against lawful, justifiable and necessary need, and with the consent of the consumers. Platforms must set up a mechanism to guard against leakage, loss, damage or destruction of consumers’ personal information.
  • Protection of fair competition: Acts of unfair competition are expressly prohibited by the Draft, including domain name abuse, fake and misleading links, attacks or invasions to other company’s network, unauthorized use of electronic signs to mislead people, and inappropriate restricting transactions.
  • Prohibition of illegal credit rating: the Draft clearly prohibits acts disrupting e-commerce credit rating including enhancing one’s reputations through fictitious transaction, deleting adverse evaluations, making compensations or other conditions in exchange for favorable evaluations, forcing the other party to the transaction to make, modify, and delete evaluations against its wills, and publishing untruthful credit rating information.
  • Consumer protection: the Draft emphasizes the protection of consumer rights by such requirements as authenticity of product information, product and service quality guarantee, transaction rules, standard rules, consumer rights protection deposits, as well as online dispute settlement mechanism.

Cross-border e-commerce

The Draft encourages cross-border e-commerce by claiming to set up a supervising and regulatory mechanism adaptable to e-commerce with electronic customs clearance, duty collection, commodity inspection and quarantine.

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The long-awaited Supreme Court’s trademark judicial interpretation -“Provisions of the SPC on Certain Issues Related to Trials of Administrative Cases Involving the Grant and Confirmation of Trademark Rights” (“Provisions”) – has been just published in January 2017 and will enter into force on March 1st , 2017. The new Provisions address the outstanding challenges and issues in relation to trademark registration and enforcement, including bad faith trademark registration, well-known mark, and mechanizing rights. The Provisions contain some articles favorable to trademark owners’ future enforcement actions.

The highlights include:

Ex officio review of defects in TRAB’s decisions by the court:

  • Art. 2 of the Provisions clarify that in principle, the court should only review the claims raised by the plaintiff. But if there are obvious defects in a TRAB decision, the court may adjudicate on the issues ex officio, after hearing the opinions from both parties.

Criteria for the distinctiveness of 3-D trademarks:

  • The threshold for registering 3-D trademark seems to be raised a bit higher. Art. 9 of the Provisions stipulates that “Even the shape of the 3-D trademark is originally designed or first used, it does not necessarily create inherent distinctness.” The long-lasting and broad use seem to be a must for registering the shape of the products as a 3-D trademark. The wording is consistent with our understanding of the current rules.

Extended scope of prohibiting trademark agents and representatives from hijacking trademarks

  • Art. 15 and 16 of the Provisions offer broader applications of Article 15(2) of the Trademark Law, e.g., listing 5 types of situations which fall into the definitions of “agents and representatives”. If the applicants are relatives of the agents and representatives, bad faith would be presumed.

Presumption of the ownership of copyright

  • Article 19 of the Provisions provides practical means of proving the ownership of copyright. The design drafts, manuscripts, consignment contracts etc. could be used for presuming the existence of existing copyright. The prior trademark gazette or certificates could also be seen as initial evidence.

Protection of titles of copyright works as well as names and images of fictional characters

  • Article 22 of the draft Provisions offers protection to the titles of copyright works as well as names and images of fictional characters, under the condition of “notoriety” and likelihood of association. The rules may contribute to clarification of the scope of “mechanizing rights” protection.

Protection of personal names

  • Article 20 of the Provisions defines the conditions for protecting personal names, which requires the stable “association” between the person and the names. This is consistent with SPC’s opinion reflected in the “Jordan” case. Also, the Provision extends the protection of personal names to nicknames, pen names, translated name and the like.

Criteria for defining “bad faith” of well-known trademarks

  • Article 25 of the Provisions further defines the conditions to identify “bad faith registration” of well-known trademarks.

Procedural issues are also touched upon in the Provisions.

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Alibaba is trying to prove its continuing efforts in fighting counterfeits, as it has been put back to the Notorious Market List. Brand owners may evaluate the effectiveness of the “Big Data Anti-Counterfeiting Alliance” and see if it benefits their online enforcement programs.

On 16th January, Alibaba Group announced the establishment of “Big Data Anti-Counterfeiting Alliance” with 20 international brands including Louis Vuitton, Huawei, Samsung, and Mars. The Alliance aims to leverage big data technologies to strengthen the global fight against counterfeits.

From September 2015 to August 2016, the law enforcement agencies in China have shut down 675 counterfeit manufacturing and sales spots thanks to the Alibaba Big data technologies, which identify suspected fake merchandise sold online by evaluating unit price and purchase frequency. Alibaba work with the brands to verify the authenticity, and report counterfeit information to the police to locate the infringers.

According to Jessie Zheng, Alibaba Chief Platform Governance Officer, Alibaba will prioritize technical support to alliance members and involve them in the rulemaking process, as well as implementation and evaluation of the anti-fake campaigns. Through the Alliance, member companies can also coordinate directly with the police, the quality inspection, and industry and commerce authorities.

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 Authored by Mr. He Jing (hejing@anjielaw.com) and Ms. Lyu Pei (lvpei@anjielaw.com) at Anjie Law Firm

Precis: Ground-breaking decisions have made merchandising rights a useful tool in the battle against bad-faith trademarks

Many rights holders have had frustrating experiences when it comes to fighting bad-faith trademark squatters in China. However, several recent cases have made use of a highly effective new weapon: the merchandising right. 

In a trademark opposition case involving the famous film *Kung Fu Panda* (*Gao Xing (Zhi) Zhong* No 1969 (2015) 高行 (知) 终字第1969号), the Beijing High People’s Court confirmed in its final judgment that DreamWorks Animation SKG, Inc. (“DreamWorks”) enjoyed prior merchandising rights over KUNG FU PANDA and rejected an attempt by a third party to register this mark.  

The case sparked extensive debate because merchandising rights are not explicitly set out in Chinese law. A number of people have expressed serious concerns that the judges in these cases are making laws rather than interpreting them. 

However, despite this controversy, the judgment has been hailed as an innovative attempt to secure more comprehensive protection for rights holders. In a broader context, innovation has been heavily promoted in China at all levels as a driver for economic, political and cultural development. The judicial support for merchandising rights seems to echo this policy. Given this, a discussion on merchandising rights is timely not only because they are so relevant to the ongoing battle against bad-faith trademarks, but also because they offer a cutting-edge perspective on ongoing legal reforms in China.

Authored by Mr. He Jing (hejing@anjielaw.com) and Mr. Liu Liangyong (liuliangyong@anjielaw.com) at Anjie Law Firm

The Supreme Court of China released a new set of judicial interpretations governing the patent infringement lawsuits in March, which has entered into force on April 1 2016. The new judicial interpretation is intended to further enhance and clarify the way patent infringement lawsuits are done in China. Before going into the details, it may helpful to note that the Supreme Court is taking active steps to ensure the courts are playing dominant roles in handling patent disputes, as the State Intellectual Property Office is openly calling for more powers to enforce patents through administrative routes. The dual-track enforcement system in China, which was never given too much attention the past, is somehow a topic in today’s China patent world. Some aspects of the new rules clearly give the courts a bigger say in driving the patent litigation proceedings. 

The new rules made by the Supreme Court addresses a wide scope of issues, such as claim construction, impact of validity proceeding, design patent protection, determination of damages, standard essential patents.

Authored by Mr. He Jing (hejing@anjielaw.com) and Mr. Hou Lei (houlei@anjielaw.com) at Anjie Law Firm

The drafting process of various China IP misuse guidelines, circulated by National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC), have taken up lots of attention in recent months.  The multiple editions of the drafts, which are all made public to local and global legal community, attracted rounds of discussions and submissions among professional groups and government agencies.  At the same time, the access to the other two draft IP misuse guidelines, being drafted by State Intellectual Property Office (SIPO) and Ministry of Commerce (MOFCOM), is restrictive.  Now, it is believed that all the work drafts of the IP Misuse Guidelines have been sent, if not, will soon be sent to the State Council Anti-monopoly Commission for review and consolidation.  We may anticipate something for public comments later this year.  

The intensive drafting work has contrasted with somewhat less aggressive antitrust enforcement activities involving IP in China.  People may wonder whether China intends to make some adjustment through such rule-making process, or this is simply silence before next storm.  

This article is intended to examine the motivations, the history and current status of the China IP Misuse Guidelines that are being made by multiple regulatory authorities.  In particular, we will compare the two key drafts that are drafted by NDRC and SAIC in order to reveal something that signals what may come into being in the future.  One interesting finding is that SAIC somehow regains attention and comes out as an equally important force, in formulating the IP misuse guidelines.  All the attention that were given to NDRC, partly due to its enforcement decisions, may prove to be not so justifiable.    

 Authored by Mr. He Jing (hejing@anjielaw.com) and Ms. Dong Xue (dongxue@anjielaw.com) at Anjie Law Firm

The Draft Amendment to Anti-Unfair Competition Law (AUCL) has long been awaited and discussion on its proposed  revisions is now heating up. Drafted by the State Administration of Industry and Commerce (SAIC) and released by State Council for public opinion  until March  25 2016,  this Draft Amendment has substantially revised 30 of the 33 provisions and touched  on a wide range of issues, including commercial bribery, trade dress, trade secrets, antitrust, administrative enforcement and compensation thresholds.

AUCL has always been a crucial weapon for intellectual property rights owners to stop infringement and freeriding activities, and this Draft Amendment would also have material impact on IP enforcement. Historically, trade secret cases are among the most difficult battles to win, due to too high criminal thresholds, inconvenient transfer from administrative to criminal proceedings and insufficient safeguard measures for trade secrets disclosed in enforcement proceedings among various other reasons.