Judicial Review of Pre-litigation Preservation of Actions for Online Unfair Competition

— Zhejiang Taobao Network Co., Ltd. v. Shanghai Zaihe Network Technology Co., Ltd. and Zaixin Software (Shanghai) Co., Ltd.: Dispute over Application for Ceasing Intellectual Property Infringement Before Litigation (I)

The Applicant Taobao.com submitted an application for pre-litigation preservation of actions on October 23, 2015, stating that it is the owner and actual operator of Taobao.com (www.taobao.com), and the Respondent Zaihe is the owner and operator of the website B5M.COM (www.b5m.com), so both of them are online trading platforms and they are direct competitors. Zaihe offered on its official website B5M.COM the download of web page plug-in B5T, which the Respondent Zaixin develops and provides technological support. When any user who has installed the plugin uses mainstream browsers such as IE, Baidu, Sogou, etc. to do shopping on Taobao.com, the advertisement bar and search bar of B5M.COM will appear on Taobao.com pages, and links of “Cash Reduction” or “RMB 1 off by scanning with B5M,” etc. appear in a conspicuous manner near the price on the product details page. By clicking the link, the user will skip to the web page of B5M.COM, and can complete the trading process including placing orders and payment on the website.

The Applicant believed that the Respondent Zaihe committed unfair competition as it sought illegitimate interests by taking advantage of the popularity and reputation of the brand Taobao.com, robbing the commercial interests that should be enjoyed by the Applicant and bringing great negative evaluation to Taobao.com’s image in the market. As the developer and technical service supporter of the plug-in B5T, the Respondent Zaixin did not fulfill the duty of care and provided assistance for Zaixin’s unfair competition. Thus it should bear joint liabilities. In order to prevent the two Respondents from continuing to commit unfair competition, the Applicant carried out a security upgrade to Taobao.com, but the technical measures were cracked by the two Respondents. Later, the Applicant reported to the Shanghai Pudong New Area Market Supervision Administration and requested the administrative authority to deal with the unfair competition conducted by the Respondents. The case was put on file. However, the Respondent is still madly committing unfair competition. According to statistics, from July to August 2015, the Respondent accessed Taobao.com for more than 53.06 million times by embedding the plugin B5T into Taobao.com; users clicked the link embedded by B5M.COM by mistake on the pages of Taobao.com for over 79.59 million times, which robbed the huge commercial interests originally belonging to the Applicant and resulted in the expected loss of income of Taobao.com as much as over RMB 100 million. Given the time needed for trying unfair competition cases and processing reported administrative cases, as well as the commercial promotion activities planned by the Applicant for the “Double Eleven” period, failure to stop the unfair competition of the two Respondents in time will inflict irreparable harm on the Applicant. Accordingly, the Applicant applied to the court for ordering the two Respondents to stop unfair competition against the Applicant with the web page plug-in B5T.

The Applicant submitted the website B5M.COM and its filing, the Respondents’ commitment of the alleged infringement behaviors, complaints from Applicant’s users, netizens’ discussions on Taobao Forum and other third-party websites, and the notarial certificate of evidence preservation for the number of the monitored clicks on B5M.COM signs on the Applicant’s website, the Applicant’s materials reported to Shanghai Pudong New Area Market Supervision Administration, the answer of the Administration to the report that the case was put on file and other evidence, and provided security.

[Judgment]

Pudong New Area People’s Court of Shanghai held through trial, the pre-litigation preservation involved in the case should meet the following conditions: (1) The Applicant may win the lawsuit; (2) Irreparable harm may be caused to the Applicant without any preservation measure; (3) The adoption of preservation measure will not harm public interests. (4) The Applicant provides a valid security. In this case, the evidence provided by the Applicant can preliminarily prove that the issuer of the plug-in B5T is the Respondent Zaixin; and the Respondent Zaihe made signs including “Cash Reduction” appear on Taobao.com’s shopping pages by embedding the plug-in B5T into Taobao.com’s shopping pages, thereby guiding users trading on Taobao.com to B5M.COM and entering deals with the Respondent Zaihe. In view of the above, first of all, Taobao.com and B5M.COM are both shopping websites, and they are director competitors. The above-mentioned behavior of Zaihe gave it the chance to trade with users by taking advantage of the Applicant’s platform without paying for publicity or promotion, thus being suspected of improperly utilizing the popularity and user base of Taobao.com. Therefore, the behaviors of the two Respondents may constitute unfair competition. Secondly, the transaction volume on Taobao.com is huge, and the “Double Eleven,” which is known as a shopping carnival, was coming soon. Failure to stop the above-mentioned alleged infringement in time may cause irreparable harm to Applicant’s competitive advantage and market share. Finally, the adoption of preservation measures would not harm public interests, and the Applicant had provided a valid security. In summary, the case meets the conditions for pre-litigation preservation of actions.

On October 24, 2015, Pudong New Area People’s Court of Shanghai made the (2015) PJZ No. 1 Civil Ruling: the Respondents Shanghai Zaihe Network Technology Co., Ltd. and Zaixin Software (Shanghai) Co., Ltd. immediately shall stop embedding the plug-in B5T into Zhejiang Taobao Network Co. Ltd.’s shopping pages

Afterwards, the two unsatisfied Respondents filed a reconsideration on the following main grounds: 1. The website B5M.COM operated by Zaihe does not sell goods, but provides registered members with subsidies for freight and price reduction after shopping on Taobao.com, Tmall and other shopping websites, so it’s not in a competitive relationship with Taobao.com. 2. The plug-in B5T is developed by Zaixin. The website B5M.COM provides purchasing services for registered members who voluntarily install the plug-in, so the purchase of the members is actually the transaction between them and shopping websites such as Taobao.com. Thus it doesn’t harm the merchants’ interests. Instead it has contributed to the shopping volume of Taobao.com due to its subsidies for registered members. 3. As an emerging industry, the Internet encourages small and medium-sized enterprises to operate legally. Granting injunction before the trial of the case doesn’t conform to public interests.

As for the Respondent’s grounds for reconsideration, the court held that, according to the existing evidence, in addition to commodity information search service, the website B5M.COM also provides purchasing services for the commodities appearing on the website, showing that the website is a shopping website. Whether the commodities are directly supplied by the website operator or the website provides the so-called purchasing services do not affect the determination of the website’s nature. Therefore, there is a competitive relationship between the parties in this case. The reconsideration applicant’s behavior of embedding the plug-in B5T into Taobao.com’s shopping pages easily lead users to misunderstand the relation between B5M.COM and Taobao.com and may constitute unfair competition. Accordingly, the above grounds for reconsideration are not supported.

Pudong New Area People’s Court of Shanghai organized a hearing on November 5, 2015, and made a reconsideration decision on the spot, rejecting the application for reconsideration from Zaihe and Zaixin and affirming the original ruling.

[Case Study]

I. China’s legal provisions on pre-litigation preservation of actions

Act preservation is also known as temporary injunction. The term “injunction” is transplanted from Anglo-American law and means an order made by the court to require the party to take or not to take a certain action. Temporary injunction is a system in which the court orders the parties to take certain actions or prohibit them from taking certain actions before making a final judgment on the case. Temporary injunctions are referred to as “Provisional Measures” in Article 50 of the TRIPs Agreement. In order to meet the requirements for joining the World Trade Organization and complying with the TRIPs Agreement, China’s Patent Law amended in 2000 and the Trademark Law and the Copyright Law amended in 2001 all provide the system of stopping infringement before litigation, and the Supreme People’s Court subsequently introduced relevant judicial interpretations. However, there is no such regulation for unfair competition. With the revision of the Civil Procedure Law in 2012, the act preservation system was uniformly stipulated, and the scope of application was extended to the entire field of civil procedures. According to the stage in which the application is filed, act preservation is divided into pre-litigation preservation of actions and mid-litigation act preservation. This is the first case in which a court made the decision of granting pre-litigation preservation of actions against suspected unfair competition in e-commerce after the new civil procedure law prescribed the act preservation system.