2011 Top 10 IP Cases in China's Software Industry
By Research Group of China IP (China IP)
Updated: 2012-10-30

1. Key points: cooperation on online games, high compensation

Korea Company Claimed Three Million Yuan for Infringement upon Its Game Cabal Online Case summary: On October 25th, 2011, the Shanghai No.2 Intermediate People’s Court delivered the first instance judgment upon the ESTsoft Corp. (Korea) v. Moliyo Digital Entertainment Limited (Shanghai) case over infringement upon software copyright, requiring the defendant to cease infringing activities immediately and pay the plaintiff three million yuan (including reasonable fees) in compensation for the economic damages.

The plaintiff ESTsoft Corp. (ESTsoft) is the copyright holder of the online game Cabal Online while the defendant is its authorized operator in mainland China. According to the agreement between the plaintiff and the defendant, the defendant was only entitled to operate the game for two years, commencing on the date when the commercial operation began. The agreement provided that if the defendant achieved a gross income of over 200 million yuan in the first year, the authorization would be extended to three years automatically. However, the defendant failed to earn more than 200 million yuan during the authorized two years. The plaintiff then notified the defendant of the end of the agreement, but received no reply from the defendant.

Thereafter, not only did the defendant continue to operate the game, it also adopted various technical measures to keep the plaintiff from controlling the game and logging onto the servers which were controlled by the defendant. The court entrusted an accrediting body to verify the plaintiff ’s claims and concluded that the acts of the plaintiff were in line with the industry requirement. Therefore, the court rendered a decision in favor of the plaintiff against the defendant.

Expert comments: Chinese companies operating online games often choose to cooperate with foreign companies in order to increase profits. However, this mode has also aroused many disputes. Some of the disputes are caused by infringements generated by violating contracts similar to the above case. Some are generated because some foreign companies think that the games developed independently by Chinese companies infringe upon their copyright.

2. Key point: compensating reasonable expenses according to the Berne Convention

Shenzhen Company Pays 1.16 Million Yuan in Compensation for Infringing upon the Copyright of Siemens PLM Software

Case summary: I-tooling Manufacturing Group (IMG), a well known Shenzhen molding company, used pirated software NX for a long time and at a large scale, and caused Siemens PLM Software huge economic loses. After several failed contacts aiming at solving the problem, the right holder filed a lawsuit with the Shenzhen Intermediate People’s Court. According to the plaintiff ’s requirement, the court enforced litigation evidence preserving measures on IMG, and discovered that many computers in its Design Department were installed with pirated NX4 and NX6. The court made the first trial decision on October 27th, 2011, holding that the plaintiff was the copyright owner of the disputed software NX4 and NX6, and therefore was protected by China’s law according to the Berne Convention. The court pointed out that IMG infringed upon the plaintiff ’s copyright by copying and using the disputed software for commercial purpose without authorization, therefore demanded that the defendant cease the infringing activities immediately and compensate the plaintiff 1.16 million yuan for its economic losses.

Expert comments: T h i s j u d g m e n t protected the right holder’s interests sufficiently and was a breakthrough compared with the results of former similar cases. Considering that the upper limit of compensation provided in China’s current Copyright Law (half a million yuan) was not enough to recuperate the right holder’s loses, the court decided that a larger sum of reasonable expenses should be paid to the plaintiff separately. In addition, the effective work of preserving evidence, the positive meditation and the efficient judgment demonstrated China’s strong legal protection for the interests of right holders and the order of market competition.

3. Key point: new form of software copyright infringement

Unauthorized Use of The Beijing News “Chinese Newspapers” App Pays100,000 Yuan in Compensation

Case summary: In August 2010, The Beijing News found that its formats and contents were used without authorization by a n i Pad App c a l l e d “Ch i n e s e Newspapers,” which provided the readers with a real-time renewal electric version of The Beijing News . Soon afterwards, The Beijing News authorized its Internet company Pai Bo Online to deliver a demand letter to Beijing Minesag e Technology Co., Ltd. (hereinafter referred to as Minesage, the developer of the infringing app), requiring it to stop the infringing activities immediately. Minesage ignored the requirements of the demand letter and continued its infringing activities. Pai Bo Online filed suit and asked the court to demand it to cease the infringing activities at once, apologize publicly and compensate the plaintiff for its economic losses. In August 2011, the Haidian District People’s Court delivered a first instance judgment, held that the app “Chinese Newspapers” had constituted copyright infringements, and therefore should cease the infringing activities immediately and compensate the plaintiff 100,000 yuan for its losses.

Expert comments: Yuan Zhenfu, Standing Deputy Director of SHIPA, stated that the typical significance of this case lies in that as smartphones develop, this new kind of infringement may become a new trend. This case has reference meaning for the coming right-upholding activities of the traditional media. There were also cases in the past where direct links, which enabled users to read related contents on the infringers’ websites directly without any need to visit the official websites of the infringed printed media, as declared unfair competitions on the ground that they used the plaintiffs’ resources improperly.

4. Key point: font enterprise’s demand is not supported

Founder’s Lawsuit against P&G Dismissed Again, the Original Judgment Was Affirmed

Case summary: In December 2010, Beijing Founder Electronics Co., Ltd. (Founder) appealed to the Beijing No.1 Intermediate People’s Court after its lawsuit against Procter & Gamble (P&G) was dismissed by the Haidian District People’s Court. Recently, Beijing No. 1 Intermediate People’s Court made a second instance ruling affirming the dismissal of the lawsuit again and sustaining the original judgment. It is the second time that the court said “no” to charging royalties for single words in a font library. According to the court, for Founder to legally prove that the behavior of P&G constituted copyright infringement, it must prove that the facts in the case satisfy all the following conditions simultaneously: (1) the disputed words “飘柔” (the Chinese name of Rejoice) constitute a copyrighted work; (2) Founder owns the copyright of “飘柔” ; (3) P&G’s behavior is deemed as copying and publishing the disputed words “飘柔”; and (4) the copying and publishing work of the appellee has not been licensed by the appellant. The said licensing includes both express licensing and implied licensing. Taking all existing factors into consideration, the court stated that the action of the appellee was actually permitted by the appellant, so whether the other conditions are met or not will not change the fact that P&G did not infringe upon Founder’s copyright.

Expert comments: The ruling of the court is essentially based upon a critical fact in this case: the disputed words “飘柔” applied on the so-called infringing products were designed by NICE Company (NICE) using the legal version of Founder’s “倩” style font library under the authorization of P&G. According to the facts in this case, NICE is deemed as having been entitled to conduct advertising designs with specific single words in the font, and permit its clients (P&G in this case) to copy and publish the design work. Therefore, the appellee’s disputed conducts should be deemed as permitted by the appellant.

5. Key point: copyright of single words in font libraries being admitted

Copyright of Single Words in Font Libraries Being Admitted Judicially

Case summary: In August 2011, Nanjing Intermediate People’s Court in Jiangsu Province delivered the first instance ruling on the Beijing Han Yi Ke Yin Information Technology Co., Ltd. (Han Yi) v. Frog Prince (China) Daily Chemical Co., Ltd. and Fujian Shuangfei Daily Chemical Co., Ltd.case over copyright infringement. The court held that among the seven Chinese words in the defendants’ two trademarks “城市 宝贝” and “笑巴喜,” six were of unique design characters and under copyright protection. The defendants’ commercial use of these words constituted copyright infringement and they were ordered to bear relative responsibilities. The court therefore ruled that the two defendants cease infringements immediately and stop selling products with the disputed trademarks. In addition, the two defendants were ordered to pay compensation of 76,000 yuan to Han Yi for its economic losses and reasonable expenses.

Expert comments: Founder and Han Yi are two major font enterprises in China, and both of them have been digging in the industry for nearly 20 years and developed market appealing font libraries respectively.

However, due to various historical reasons, the majority of their designs are being used without licensing. Suffering from rampant piracy, their operations have been rather difficult. In recent years, as China’s IP protection policies strengthened, the font enterprises began to uphold their rights actively. However, whether single words in font libraries could enjoy copyright protection has consistently been the focus of disputes in the industry. This is the first case in China in which single words in font libraries were subjected to copyright protection.

6. Key point: the standard for similar trademarks

Kingdee Wins Administrative Dispute against the Trademark Appeal Board over the Latter’s Rejection of Trademark Reexamination

Case summary: Ki n g d e e S o f t wa r e (China) Co., Ltd. (Kingdee) applied for the registration of “友商网Youshang.com” trademark and design to the Trademark Office of The State Administration for Industry & Commerce of the People’s Republic of China (Trademark Office) on October 9th, 2007. The Trademark Office rejected the application on the ground that Kingdee’s trademark request was similar to two reference registered trademarks of similar service “商友世界www.13911.com,” “商友SHANG YOU” and their designs (No. 3368578). Kingdee appealed to the Trademark Appeal Board seeking reexamination, but the request was denied.

Kingdee therefore filed an administrative litigation with Beijing No.1 Intermediate People’s Court against the Board itself, seeking review of the Board’s decision to deny reexamination. After the court session, Decision No. 36477 was issued, which overruled the Trademark Appeal Board’s decision to deny review. The Board was ordered to reexamine the disputed trademarks. The Trademark Appeal Board appealed to the Beijing Higher People’s Court. The Beijing Higher People’s Court held that the focus of this case was whether the disputed trademark was similar to the reference trademarks. After comparison and deliberation, the Beijing Higher People’s Court concluded that the trademarks were very different in overall appearances, composing characters and other factors.

The Beijing No.1 Intermediate People’s Court decision was upheld and as a result the Court ruled that the trademarks were not similar. Therefore, the appeal was dismissed and the original judgment was affirmed.

Expert comments: This case reflects the principle that the courts and the Trademark Appeal Board have different standards in determining similar trademarks. The disputed trademark and the two reference trademarks were all composed by Chinese words, English words and designs. The Trademark Appeal Board made the decision based solely upon the similarity of the Chinese words and therefore reached the conclusion that the trademarks were similar without giving due consideration to the other two elements. However, the court held that all the elements should be taken into consideration. The differences are generated basically from various standing points. The examiners of the Trademark Appeal Board acted in line with the Standards of Trademark Review, in which the standards of determining similar trademarks are static, fixed and rigid; while the courts took the stand of commonplace citizens who would analyze and judge based on common sense and take the trademarks as a whole. Therefore, the standards adopted by the courts are more scientific, precise and flexible.

7. Key point: IP issues in GEM Listing

17 Lawsuits over Copyright Infringement in 2011 May Harm Baofeng.com’s IPO

Case summary: According to the GEM IPO report released by the China Securities Regulatory Commission in April 2012, there are a total of 5 Chinese Internet companies seeking for GEM IPO, including Baofeng.com, which once shocked the whole industry by being sued by four companies within a single day in 2009. According to reports, last year alone 17 lawsuits were filed against Baofeng.com. It seems that the IPO road of Baofeng.com will not be smooth. Right holders, including Shanxi Film Studio Co., Ltd., Beijing Hualu Baina Film & TV Co., Ltd., Poly Film Investment Co., Ltd., etc..., sued Baofeng.com for providing online broadcast service of films and TV series for commercial purpose without legal authorization. Since Baofeng.com has repeatedly infringed upon their copyright, many right holders required that Baofeng.com should eliminate the infringing contents and pay due compensation. Baofeng.com compensated the right holders for more than half a million yuan for unauthorized contents in 2011 alone.

Expert comments: Today, the copyright issue may become a major barrier in Baofeng’s road of GEM IPO.

8. Key point: criminal crime

Typical Network Copyright Infringement Case in Heilongjiang Province Concluded, Two Defendants End up in Jail

Case summary: According to Heilongjiang Press and Publication Administration, in March 2012, the Lingdong District People’s Court in Shuangyashan City concluded the first instance trail of the ZT Online copyright infringing case which was reported on March 15th, 2011. Defendants Liu Li and Yu Yang constituted copyright infringement.

Liu Li was sentenced to three years imprisonment and ordered to pay a penalty of 200,000 yuan; Yu Yang was sentenced to two years imprisonment (two years’ probation), and ordered to pay a penalty of 125,000 yuan. The case was a rather typical case uncovered during Heilongjiang’s 2011 special campaign of combating IP infringements and counterfeits. The trial process was supervised by the National Copyright Administration of the People’s Republic of China, the Ministry of Public Security of the People’s Republic of China, the Supreme People’s Court and the Supreme People’s Procuratorate of the People’s Republic of China, among other bodies and interested parties.

Expert comments: Defendants Liu Li and Yu Yang set up unofficial servers through the network to obtain commercial profits without the authorization of the right holder, operated the game illegally in the form of membership, and spread copyrighted computer software to the public. The conducts of the two defendants constituted copyright infringement and their illegal income was huge. The court therefore rendered above average criminal judgments according to relative provisions in China’s Criminal Law.

9. Key point: enterprise end users using pirated software

Using 42 Pirated Microsoft Software, Newsmy Deemed as Constituted Copyright Infringement Case summary: Beijing Newsmy Ideal Digital Technology Co., Ltd. (Newsmy) is an influential hi-tech company in China. In December 2009, Microsoft filed a complaint with the Beijing Culture Law Enforcement Agency, claiming that Newsmy was using several versions of pirated Microsoft software. The Agency therefore delivered an administrative penalty decision in July 2010, requiring Newsmy to stop the infringing activities and pay Microsoft 26,000 yuan in compensation. However, Newsmy continued its infringing activities afterwards. After several failed negotiations, Microsoft brought a lawsuit against Newsmy in Beijing No.1 Intermediate People’s Court. On January 18th, 2012, the court made the first instance decision, holding that the defendant constituted copyright infringement by using 42 sets of pirated Microsoft Windows and Microsoft Office software. The court demanded that Newsmy should stop infringing immediately and compensate Microsoft 410,000 yuan (including litigation fees).

Expert comments: This is the first time that Microsoft brought a lawsuit against an enterprise end user of pirated software.

Enterprise end users using pirated software are the most commonplace form of infringement. Purchasing a set of official software only entitles the user to install them on one computer. If the user installs them on more than one computer, the conduct is a violation of the license agreement, and therefore constitutes copyright infringing.

10. Key point: challenging network hegemony

The Court Partly Supports Zhengzhou User against Microsoft’s “Overreaching Clauses”, Challenging the Network Hegemony

Case summary: Guo Li, a citizen of Zhengzhou City of Henan Province, bought an official version of Windows XP for 750 yuan, only to find that if he refused to accept the End User License Agreement, he could not continue the installment.

Guo Li therefore sued Microsoft in the Beijing No. 1 Intermediate People’s Court, asking the court to invalidate 28 articles in the Agreement, and demand Microsoft to make a public apology. In July 2011, Beijing No.1 Intermediate People’s Court delivered the first instance ruling, holding that 4 articles in the Agreement should be invalidated for enabling Microsoft to avoid responsibilities, but rejected Guo’s other requirements.

Expert comments: Why do these companies set such over reaching clauses while they knew clearly the legal provisions? The answer is that they know that although these clauses are invalid theoretically, they will still be assumed as valid until a complainant files suit and a court determines their invalidity. Should any dispute arise, if the counter party fails to doubt the validity of the agreements, these clauses may serve as references for the final judgment. Even if the validity problems arise, under the current status of the law, the judgments may still differ from court to court. From this point, common computer users and network users are still in an unfavorable position. This case is, to a certain extent, a common case because this problem is rather common. Consumers should learn from Mr. Guo and challenge these unfair articles in time so that they will not become victimized by a hidden rule in the industry or software agreement.

(Translated by Monica Zhang)

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