Keywords

1 Introduction

The new era of e-commerce (EC) has changed the way we conduct business affairs. First, the rapid development of innovative technologies has promoted the global economy to an era dominated by knowledge and information. Secondly, fast exchanges in investment and technical transfer have created a boundary-free global economy. Lastly, the rapid development of the Internet and e-commerce has radically changed the pattern of traditional economic activities.

Meanwhile, in the rapid changing and highly competitive global market including e-commerce market, intellectual property right (hereinafter IPR) management has already become the most important topic while facing the challenges from competitors. How enterprise could practice the best knowledge strategy and integrate IT platform to facilitate the ability of managing intellectual assets are the critical issues nowadays. Therefore, this article introduces IPR protection and the development of e-commerce in China at first, and then, it discusses the importance of IPR management and some IPR management strategies for enterprises. Finally, this article brings forth the conclusion with the hope to promote innovation in China in the e-commerce era.

2 IPR’s Protection in China

Since the 1980s, China has developed a body of laws and regulations on IPR protection, namely the Copyright Law, Patent Law, Trademark Law, and Regulations on the Protection of Layout-Designs of Integrated Circuits and administrative regulations for the implementation of these laws. Upon accession to WTO, China became a signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) and amended the related IPR laws to provide a stronger and wider scope of protection for IPR holders.

However, given the country’s vast geography and population and its rapid economic growth, implementation and enforcement of IPR laws remains weak. In recognition of this, the central government has stepped up to its efforts in IPR protection. As early as in 2003, the Chinese government instituted the Mechanism of Regular Communication and Coordination with Foreign-Invested Enterprises to further improve the enforcement of IPR protection and the foreign investment environment. In August 2004, a high-power National Working Group of Intellectual Property Protection was established under the aegis of the States Council. Recently, after more than three years of preparation work, the revised PRC Patent Law (“New Patent Law”) was finally promulgated on December 27, 2008, and will enter into force on October 1, 2009.

With concerted efforts from all parties concerned, improvements in IPR protection can be achieved, but this will be a gradual process. Foreign investors are well advised to develop a more proactive approach in IPR and brand protection in China, such as forming allies with all stakeholders, including domestic enterprises (Coppers 2005).

3 The Development of EC in China

3.1 Overall Situation

Since the first e-mail is delivered over the Great Wall by Internet on September 20, 1987, the history of development of the e-commerce has had over 20 years. China’s fast-growing population of Internet users has risen to 298 million after passing the United States in 2008 to become the world’s largest, a government-sanctioned research group said (China Daily 2009). Besides, the market research company IDC has published a white paper about China’s e-commerce industry, and it states the total trade scale of China’s e-commerce industry reached RMB 1.951 trillion yuan in 2008, increasing over 20 % compared with the RMB 1.608 trillion yuan in 2007, forming a big contrast with the macroeconomic downturn. Of this revenue, e-commerce that targeted individual consumers increased by about 30 %. The report further points out that China’s e-commerce industry will maintain a rapid growth in the next five years and by 2010, its total trade is expected to reach RMB 3.22 trillion yuan (IDC 2009).

3.2 Current Legal System Concerning EC in China

On June 25, 2007, the National Development and Reform Commission (NDRC) with The State Council Informatization Office of PRC (now incorporated in MIIT) jointly published The Eleventh Five-Year Plan on E-commerce Development. Thereafter, many local governments began to set up new service mechanism to improve the development of e-commerce. As early as on May 8, 2001, the Former President Jiang Zemin pointed out in the opening speech of the Fortune Global Forum 2001 in Hong Kong that “China will work hard on e-commerce, accelerate the process of informatization, and support enterprises in applying modern information network technology and international co-operation and exchanges.” Chinese government has always paid much attention to the development of e-commerce.

In order to achieve the goal of the “Eleventh Five-Year Program,” in the following years, Chinese Government had further promoted the development of e-commerce and created a good development environment in the field of technology, network, commerce, and legal rule. These policies, laws, and regulations concerning taxation, tariff, e-payment, electronic signature, identification authentication, network intellectual property rights, etc., will be stipulated, which are suitable to the development of e-commerce.

Inter alia, as the only law related to e-commerce in China currently, the Electronic Signature Law effective on April 1, 2005, was to boost electronic business, which for the first time legalizes increasing electronic deals. Also, the issuance of “Electronic Payment Guideline” by People’s Bank of China on October 26, 2005, provides policy authority for e-commerce macroenvironment’s perfection and advancement.

3.3 IPR Laws and Regulations Related to EC in China

In China, the dispute between the holder of domain name and the owner of trademark is the major issue. Other trademark protection issues in cyberspace are seldom reported in China. Recently, the People’s Court in Beijing and Shanghai has issued a number of decisions in high-profile domain name dispute cases involving foreign companies such as Ikea, P&G, and Dupont. In all three cases, i.e., Ikea v. Guowang, P&G v. Guowang, and P&G v. Shanghai Chenxuan, the owner of the trademark won; however, the basis for the decision seems straightforward, logical, and reasonable, but it relies more on the spirit of the underlying Chinese law, i.e., the principle of “fairness, honesty and credibility” provided by Clause 1, Article 2 of the Law against Unfair Competition rather than its terms.

In all, China’s current trademark legislation and competition legislation also prohibits “passing off” and has regulations on well-known trademarks, like Lanham Act in the USA, but the legislation was drafted without consideration of domain names. Thus, it is difficult to find a specific provision in this legislation that would prohibit use of a domain name. In order to provide more effective trademark protection on the Internet, the new amendment should address these issues seriously.

While cases involving conflicts between domain names and trademarks are still in their infancy in China as elsewhere, China’s administrative bodies have not been slow to grapple with the difficult legal issues. On February 14, 2006, the China Internet Network Information Center (CNNIC) promulgated a new version of the CNNIC Domain Name Dispute Resolution Policy (CNDRP), which governs disputes relating to “.cn” domain names and all Chinese domain names (CNNIC domain names). The new CNDRP came into force on March 17, 2006. The CNDRP provides a set of efficient and cost-effective procedures for resolving ownership disputes involving CNNIC domain names.

According to Article 8, to succeed, the complainant in a CNDRP proceeding must satisfy three conditions: (a) The disputed domain name is identical or confusingly similar to the complainant’s name or mark, (b) the disputed domain name holder has no legitimate interest in the domain name, and (c) the respondent has registered or has been using the domain name in bad faith. While these basic tenets remain the same under the 2006 Policy, certain new rules highlighted below will make the recovery of CNNIC domain names more difficult.

The 2006 Policy contains three key changes. First, if a domain name has been registered for more than two years, a CNNIC dispute resolution service provider will not accept a CNDRP complaint to protect the stability of domain name registrant’s right and legitimate interest. Second, mere registration for the purpose of selling, renting, or otherwise transferring a CNNIC domain name by itself is no longer sufficient proof of bad faith. Such acts must be done with a view to obtain unjustified benefits from the complainant or its competitors to constitute bad faith. Third, a respondent is presumed to enjoy rights and legitimate interest in the disputed domain name if, prior to receiving a complaint, it has made bona fide, legitimate or fair use of the same, or it has come to be known by the disputed domain name even if it has acquired no corresponding trademark right.

Besides, three cases separate from the Courts of China in Beijing, Guangzhou, and Shanghai in 2008 have again raised questions relating to keyword advertising programmers. The issue at stake is whether the purchase or sale of keywords that constitute the whole or part of another party’s registered trademark can be classified as trademark infringement under Chinese law.

Among them, the Shanghai district court at the outset examined the fact pattern regarding “keyword advertising” or “sponsored links” involved in Jijia case, and eventually held in the plaintiff’s favor and awarded damages of Rmb100,000 to Jijia. In the other case from Guangzhou Baiyun District, the court found Google innocent of trademark infringement in the context of a keyword service.

Ironically, in an even earlier case, another large search company, Baidu, had confronted the completely opposing stand of Shanghai No. 2 Intermediate Court. The Shanghai Court concluded that in the case where a third party used another’s trademarked words without authorization, Baidu did not duly perform its duty of care and hence should be imposed with a civil liability. In addition to the injunction order, the Court awarded damages of Rmb50,000 against Baidu for its joint infringement.

The examination of the three cases above reveals that the Chinese courts have not yet reached consensus on issues including the duty of care of a search engine which provides a keyword service, and the application of joint infringement theory to relevant cases. In the absence of guidance from a higher level, some lessons can be learned on the basis of court practices observed until now in China (Hong 2009).

Article 10 of the Copyright Law amended in 2001 specifies the sixteen rights of a copyright owner. Inter alia, added as a new kind of property to the copyright owners in accordance with WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT), the right of communication through information networks is the right to communicate to the public a work, by wire or wireless means in such a way that members of the public may access these works from a place and at a time individually chosen by them [See Art.10 (xii)].

On May 18, 2006, China State Council issued the Ordinance on the Protection of the Right to Network Dissemination of Information (the Ordinance) and took effect on July 1, 2006. The Ordinance sets forth regulatory guidelines for the protection of the “right of communication over information networks” in respect of text, images, performances, sound recordings, video recordings, and other works in which copyright subsists (collectively, works). One significant aspect of the Ordinance is that it addresses the legal uncertainty highlighted in a 2005 lawsuit involving illegal MP3 downloads (i.e., Shanghai Busheng Music Culture Media v. Baidu case. On September 16, 2005, the People’s Court of Haidian District in Beijing ordered Baidu to pay Ұ68,000 to Shanghai Busheng for unauthorized downloads of 46 songs), namely the legal liability of Internet service providers (ISPs) that provide search engine or linking services which indirectly allow Internet users to access copyright-infringing works. Thus, the Ordinance stipulates, for the first time in China, some of the specific liabilities that ISPs could face for providing online search and Web-linking services and sets forth guidelines for ISPs to follow in order to avoid such liability.

According to Art.15 of the Ordinance, ISPs will not be liable for infringing the right of communication if the providers ensure the prompt removal of infringing content and any links thereto upon receipt of an infringement notice with supporting evidence from a copyright holder. If the individual or entity that was providing that work issues a “non-infringement statement” with supporting evidence, then the ISP must promptly repost the relevant content or link upon receipt (See Art.17).

Therefore, Baidu met the chance to turn its fate around in another case. On November 7, 2006, in IFPI v. Baidu case, Beijing’s First Intermediate Court ruled that Baidu’s service, which provides Web links to the music, does not constitute an infringement as all the music is downloaded from Web servers of third parties.

4 IPR Management Strategies for Enterprises in the e-Commerce Era

4.1 The Importance of IPR Management

IT Researcher Kevin Zhu at University of California-Irvine Graduate School of Management once pointed out that companies that want to take advantage of the opportunities posed by e-commerce will have to do a better job managing dynamic pricing strategies, intellectual property rights, and partnership relationships. By developing their management techniques in those areas, traditional manufacturing firms will improve their standing with high-tech firms. Inter alia, UC Irvine found the management of intellectual property rights is critical to e-business success. Examples of intellectual property accomplishments by e-commerce firms include the patents obtained on www.Priceline.com’s reverse auction and www.Amazon.com’s 1-Click shopping system. Using an e-business patent has become the weapon of choice for Internet giants, with a series of patent cases between powerhouses determining who can—and who cannot—use certain e-commerce shopping technologies (Vigoroso 2001).

4.2 IPR Management Strategies

According to the discussion above, this article suggests that some strategies be adopted by the companies for meeting various techno-legal requirements pertaining to IPR protection in cyberspace.

4.2.1 Enterprises Should Attach Much Importance to Technology Advancement and IPR Protection

Some unimaginable technologies before Internet rose to power have emerged nowadays just as the spring bamboos after raining and overthrown the rule of game of traditional industries. For example, MP3 music format broadcasting and P2P/BT file sharing and swapping software made the music and movie industries confronting tremendous challenges. Even though most of the litigations brought by US big record labels or movie companies against ISPs or software companies worldwide had prevailed, yet the whole music and movie industry went down gradually to the bottom ever since 2000 and the revival of prosperity seems fairly remote. This is simply owing to companies’ IPR protective means inadequate with technology improvement.

Whereas, in another aspect, the upheaval of business method patent, ever since Signature Financial Group, Inc., obtained the patent of the business model of financial management and accounting calculation of mutual fund, www.Amazon.com, www.Priceline.com, and www.Doubleclick.com have utilized business method patent separately to accuse their competitors intending to block them outside the wall, hence has arisen another wave of IPR possibly caused by IPR over protection to some degree.

Nevertheless, based on the captioned explanation, we can realize the gigantic impact of technology advancement toward IPR management in the e-commerce era. This is also one of the most important challenges to IPR management personnel.

4.2.2 Enterprises Should Transform Employees’ Knowledge and Experience to Corporate Assets

“Employee is an enterprise’s biggest asset!” This proverb reveals much more meaning in the knowledge economic age. While employee holds the strongest production tool—knowledge, which is the enterprises’ biggest asset—but from the lawyer’s point of view, such asset should be more or less depreciated. Once the employee leaves his job, such knowledge will also be moved away. Therefore, the above-mentioned proverb cannot be spoken out freely from anxiety while lacking sound legally protected employment relationship, because if there is no clear right of asset, how can an enterprise have any claim on such asset? This also belonged to part of IPR management.

Besides, after the right of asset is made clear, we shall see how to utilize the asset effectively. Right now, the very prevailing “knowledge management (KM),” viewed from the lawyer, is to transform employees’ knowledge to corporate intangible assets, less an enterprise loses its valuable resources owing to employees’ departure or something happened.

4.2.3 Enterprises Should Take Care of Both Information Transmission and Protection of Themselves

In the e-commerce era, no matter employees or consumers have the opportunity to take charge of more information than ever, and enterprises also would like to utilize such way of information transmission to stimulate employees to innovate and bestow employees power of decision making by various layer, and increase consumers’ confidence toward the whole enterprise. However, as enterprises look up information transmission, they should not forget that giving information to the suitable person at appropriate time is the correct method of use.

It is believed that how an enterprise controls the circumstances related to information transmission and utilization is a big challenge to information technology (IT) and legal personnel. For instance, the attached file brought by e-mail may be one of the quickest channels to cause IPR loss, whereas whether monitoring employees’ e-mail should be allowed or not has been a controversial issue so far. Also, taking trade secret protection as an example, via e-mail the R&D documents, efforts, direction, discussion paper, etc., can be sent to the competitor’s enterprise and through enterprise’s customer service center direct line, some secret related to enterprise’s development can be overheard, not to mention revealing enterprise’s operational secret by MSN or QQ.

In fact, such incidents rely one enterprise’s drawing up precise rules of Internet usage and IPR protective guideline to meet the trend of information fast transmission and information control ability enhancement.

4.2.4 Enterprises Should Adapt Themselves into Technology and Legal Environment Changes

How an enterprise adapts themselves into technology and legal environment change is no longer solved by setting a unit or a managerial system, but is a prompt response toward the captioned change by the enterprise’s decision-making status. Presently, every country in the world is in an effort to add or modify IPR and trade laws and regulations. In the near future, relevant rules will be necessarily reshuffled within a great range adding the borderless character of e-commerce; enterprises cannot isolate themselves from foreign IPR’s development.

It is possible that a newly risen service filled with lots of commercial opportunities today becomes illegal activity because of change of rules. It is also probable that a highly profitable industry becomes nonprofitable at all under competition owing to deregulation. Those are something that enterprises have to pay attention particularly to engage in IPR management.

Besides, every country’s including China’s court in practice continually makes judgments against Internet or e-commerce disputes including copyright infringement by www.MP3.com, Napster and Grokster, trademark infringement by domain name cybersquattering, deeplink and metatags, and copyright infringement and trespassing by data mining, etc. Taking StreamCast case as an example, a US judge has said that the Morpheus software produced by StreamCast breaks the law in September 2006. The ruling is another victory for the entertainment industry, which has had a string of recent victories and concessions. Just weeks ago before StreamCast judgment, Sharman Network—owner and provider of Kazaa software—settled with Universal, Sony BMG, UMI, and Warner, four international big labels for $100 million (File-sharing software firm loses US case 2006).

In addition to P2P software companies, music- and movie-publishing companies, StreamCast case is looked attentively in particular by companies developing P2P transmission technology. This is because when e-commerce-related regulation is unclear or its development step lags behind, the court’s judgment will be the best reference to define various legal issues. To meet changes of legal environment (from ambiguous to clear and definite is also a kind of change) and proceed enterprises’ operational and managerial as regarding IPR management is also a very important issue.

For example, viewing the increasing maturity of P2P technology, Google bought YouTube at an amazing price on the latter half of 2006. Contemporarily, YeMusic.com—a subordinate of Yahoo!—and online music P2P leading Web site Kuro in Taiwan reached settlement. Kuro officially transformed to become legal online music provider. Besides, Oracle criticized computer software patent award unjust in the one hand, but when such patent system has become operational in reality, Oracle also began to apply software patent immediately in order not to fall behind. Those facts told us there are few absolutely unchangeable strategies in the e-commerce era. Companies which can meet technology and legal environment’s fast change will be the last survivor.

5 Conclusion

Over the past 20 or more years, China has created IP laws that generally adhere to international standards. As Premier Wen Jiabao points out, “IPR protection is not only for the need of establishing international creditability and broadening international cooperation, but more importantly, for the need of stimulating innovation within China. The protection of IPR is, in essence, the respect for labor, for knowledge, for talents and for creation (Yi 2007).” Thus, as to Chinese enterprises, it is indispensable for them to have IPR management strategies to enhance their competitive leverage so as to catch up all potential opportunities in the e-commerce era.