Recently, lawyer Jieqiong Zhu, the director of J's Law Firm, shared lawyer practice courses at Shandong Lawyers Association via online, and lectured the administration and judicial procedures of IP lawsuits of the foreign-related e-commerce, taking China-US as examples.

I. Background Introduction

Since 2012 or so, some American law firms are dedicated to represent IP (usually trademark rights) right holders to initiate infringement litigation in many places in the United States against Chinese mainland e-merchants on eBay and other e-commerce platforms. In a single anti-counterfeiting litigation of a certain brand, there are 1549 defendants within the territory of China (calculated by websites and e-commerce platform accounts), and the court ultimately awarded $200 million in damages by default judgment.

These cases are characterized by that the plaintiffs are well-known foreign brand names; the defendants are mostly Chinese small and micro enterprises and individual businesses with poor ability to respond to lawsuits; and the causes of action are mostly trademark infringement and copyright infringement. The e-commerce platforms involved in the cases include Amazon, Alibaba (the International site or AliExpress), DHgate etc., and the courts of jurisdiction include the Federal District Courts of Northern District of Illinois, Southern District of Florida, and Southern District of New York, etc. These courts all ultimately ordered the defendants to pay damages by default judgment.

II. IP Risks Facing Chinese Cross-Border E-Commerce

First is the bias in China's cross-border e-merchants' understanding of U.S. law and judicial practice. Chinese e-merchants defendants often mistakenly believe that the U.S. judicial process is always lengthy, complex and inefficient; however, according to U.S. judicial practice, when the defendant fails to respond to a lawsuit, the court may try the case through a set of efficient and effective judicial procedures such as temporary injunction-preliminary injunction-summons-default judgment. Second, Chinese cross-border e-merchants often follow the trend of sales on the Internet and unconsciously assume that "others" are acting as gatekeepers, lacking a clear understanding of whether the products they sell are infringing. In addition, in the U.S. judicial practice, three times the punitive damages can be awarded for such infringement cases, and for intentional trademark infringement, the statutory damages can be as high as $2 million. And Chinese cross-border e-merchants do not have sufficient recognition of such compensation standards.

III. Jurisdictional Rules in China and the U.S.

1. Jurisdictional Rules of the U.S. Courts

The issue of IP infringement by Chinese e-merchants involves only in personam jurisdiction under the U.S. law, not in rem jurisdiction or quasi in rem jurisdiction. Therefore, only in personam jurisdiction is discussed here.

According to the U.S. judicial practice, in personam jurisdiction has extended to any individual or entity with "sufficient minimal contacts" with the forum State, as long as the specific action does not violate the traditional notions of fair play and justice. However, the claim must arise on the basis of the contacts and the claim to a specific in personam jurisdiction must be reasonable.

The criteria for "sufficient minimum contacts" is that the defendant has consciously engaged in conduct that allows the defendant to consciously avail itself of the right to conduct activities in the place of jurisdiction, thereby triggering its protection under the law.

Thus, a sale of a product into Illinois, or even the suggestion of the merchant's clear intent to sell the product into Illinois, could result in Illinois courts having in personam jurisdiction over the seller.

The reasonableness of a claim of in personam jurisdiction can be judged by the following five rules: first, the burden on the defendant to litigate in the forum; second, the interest of the forum in having jurisdiction over the case; third, the plaintiff's interest in litigating the case in the forum; fourth, the compatibility of interstate interests and jurisdictional sovereignty; and, fifth, the federal judicial sovereignty, that is, not violating the due process clause of the Fourteenth Amendment to the Constitution.

These jurisdictional principles make it possible for a U.S. court to exercise jurisdiction over individuals and organizations anywhere in the world, in any country, as long as the individuals and organizations have "sufficient minimum contacts" with the jurisdiction of the relevant U.S. court.

A cross-border e-merchant that consciously sells to U.S. users is likely to satisfy the conditions for a U.S. court to exercise jurisdiction, even though it has never set foot in the U.S. or established any organization there.

However, there have been attempts by defendants to challenge said jurisdiction based on the following two factors.

(1) Claiming that there was no "conscious use", for instance, a claim that there was a "fishing expedition" by the plaintiff, or that the defendant's sales was extremely low (e.g., only one or a few pieces, or only displayed on the shelves but not sold), etc.

(2) Proposing a motion of Forum Non Conveniens. With respect to the issue of forum non conveniens, the court considers such factors as the location of potential witnesses, the location of relevant evidence and records, the unreasonable hardship to the defendant, the fact that the plaintiff has a sufficiently large number of alternative jurisdictions, the efficient use of judicial resources, the choice of law applicable to the dispute, issues of public policy, the location where the cause of action arose, the status of the parties (including the parties' financial capacity), the motivation of the person who made embarrassed, and the juridical and political conditions of the foreign jurisdiction, etc.

The cross-border e-commerce infringement litigation is a good fit with respect to these factors, for example, the Chinese e-merchants being sued are often small and micro enterprises or even individuals with weak financial capacity, which makes it difficult to litigate in the U.S., whereas the plaintiffs are well-known companies with strong financial capacity and most likely have subsidiaries in China, and therefore have the ability and convenience to file lawsuits in China.

However, for the U.S., out of consideration of state and federal judicial sovereignty, the above factors may have little impact on the U.S. courts, and also, there may be issues with the application of the U.S. law in Chinese courts. Thus, in practice it is very difficult for cross-border e-merchants to shake the jurisdiction of the U.S. courts over cross-border e-commerce infringement lawsuits.

2. Jurisdictional Rules of Chinese Courts

Article 25 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China (Legal Interpretation [2015] No. 5) provides that "the place where the information network infringing acts is carried out includes the location of the computer and other information devices that carried out the infringing acts sued for, and the place where the infringement results take place includes the place of the domicile of the infringed person." However, the Court pointed out that "the information network infringing acts" provided in Article 25 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China do not include the sale, offer for sale of infringing products on the Internet. In the case of IP infringement disputes involving the sale, offer for sale of infringing products on the Internet, the domicile of the infringed person has no practical relevance to the case, and should not be determined as the place where the infringement results occurred, nor should it be used as the connection point for determining the competent court.

Therefore, according to the Chinese judicial practice, where the Internet sales constitute infringement, the jurisdiction should lie with the place connected to the defendant or the e-commerce platform. Thus, for the Chinese cross-border e-commerce platform being sued, there is a possibility that the Chinese court will have jurisdiction over the relevant case.

IV. Judicial Procedure

Taking the cross-border IP infringement lawsuit as an example, the basic procedure of civil litigation in the U.S. courts is as follows:

Step 1: Plaintiff files a complaint.

Step 2: The plaintiff applies for a temporary restraining order (TRO) to freeze the store and payment platform account of the accused e-merchant. The TRO is generally valid for a period of no more than 14 days without a hearing or even notice to the respondent, and is intended to effectively prevent the respondent from transferring property or destroying evidence after learning of the news.

Step 3: Plaintiff proposes a motion for requesting a preliminary injunction. This step is to ensure that the preliminary injunction issued after the hearing fits seamlessly into the TRO, and the court will notify the defendant of the hearing, which is the defendant's first opportunity to actively intervene in the case.

Step 4: Issuance of summons, defendant's defense and response. The defendant is usually required to file a response within 21 days, during which the defendant can file various motions (jurisdictional objections, improper forum, objections to service, etc.). This is followed by disclosure of evidence, where each party can ask the other party to provide as much evidence and answer as much questions as possible.

Step 5: Schedule to hold a court and make a judgment. The court makes the judgment in about a month and a half after receiving the complaint, and the damages ordered may be from 100,000 to 2 million dollars.

If the defendant fails to response to the court within 21 days, the court will enter a default judgment based on the plaintiff's motion for default judgment, and the process is complete, with the funds in the defendant's frozen payment platform account being withdrawn as compensation.

V. Solutions and Countermeasures

Due to the weak awareness of legal and IP rights of China's cross-border e-merchants and the differences in the national conditions and judicial environment of China and the U.S., Chinese merchants in such litigation is often in a passive position. In this regard, how should Chinese merchants respond effectively?

1. Responses of the Chinese e-commerce individuals

Chinese e-merchants need to raise their awareness of IP protection, exercise a high degree of self-discipline, and familiarize themselves with the representative trademarks in their own industry in order to prevent infringement of others' IP rights. Once sued, they should actively respond to the lawsuit, not ignore it, seek timely help from professionals to avoid trial by default, and actively negotiate with the plaintiff's attorney for a settlement in the litigation to stop the loss in time.

2. Countermeasures from government departments and industry associations, as well as institutional countermeasures

Government departments may strengthen the supervision on the cross-border e-commerce, strictly carry out the two-way enforcement of China Customs, and investigate and deal with the infringing products as far as possible before they are out of the country or on the shelves. When litigation occurs, powerless and weak small and micro e-merchants may invite industry associations, third-party assessment organizations or even government departments to issue "amicus curiae" argumentations. At the same time, the liability insurance or merchant mutual insurance system may be introduced to joint efforts for resolving the legal risks of IP cases. Also, as mentioned above, the jurisdiction of Chinese courts over relevant cases can also be considered. For instance, Chinese cross-border e-merchants can file the affirmation of non-infringement lawsuits domestically to counter infringement lawsuits outside China.