Sep 19, 2024 | Infringement Liability of Online Sales Platforms (OSPs)
1 As we enter the 21st century, online sales platforms (“OSPs”) have been rapidly developing like spring buds after the rain. By the 2020s, shopping through OSPs has become a part of people’s daily lives, and this trend is expected to continue to intensify. If OSPs sell infringing products, should the owner of intellectual property rights hold the OSP or the underlying sales store behind the OSP liable (“Issue”)? The author wishes to analyse this issue from different perspectives of intellectual property law.
Copyright
2 If the copyright of the relevant product belongs to the copyright owner, the copyright owner may allege that the OSP has infringed its copyright. According to Sections 30 to 34 of the Copyright Ordinance (Cap. 528), if the OSP continues to “knowingly” sell and distribute infringing goods, the OSP may be liable for copyright infringement. In other words, as long as the OSP stops selling the infringing products within a reasonable time after receiving a notice/warning from the copyright owner, such as halting the relevant advertisements, the OSP will have a defence against the allegation of copyright infringement.
3 To support the development of internet commerce, the Hong Kong Government also implemented the Copyright (Amendment) Ordinance 2022 on 1st May 2023, which to a certain extent further protects OSPs. Through the new legislation, copyright owners need to provide the necessary copyright information to OSPs through a designated mechanism for the copyright notice/warning to be valid. This new copyright law greatly assists the business development of OSPs.
Trade Mark Registration
4 According to Section 18 of the Trade Marks Ordinance (Cap. 559), if the OSP uses in the course of trade or business a registered trade mark without authorization, the OSP may be liable for infringing that registered trade mark under the Trade Marks Ordinance. In Hong Kong, whether the OSP had knowledge of the infringement is not a defence to the infringement allegation.
5 Therefore, OSPs need to be cautious in handling infringement allegations of trade mark owners. Usually when trade mark owners discover that an OSP is using an infringing trade mark, they tend to first issue a warning letter to the OSP. Thus, OSPs should cherish this opportunity to inquire into the infringement allegation and avoid being drawn into a protracted and expensive litigation battle.
6 Most OSPs have an “indemnification mechanism” with their customers. This means that if an OSP is involved in an intellectual property infringement allegation or even litigation when assisting a sales store in selling its products, and incurs losses, the sales store is required to indemnify the OSP. Although the OSP may be the first target of the intellectual property infringement complaint, the OSP can still recover the relevant losses from the customer of the sales store through the indemnification mechanism.
Patent
7 In Hong Kong, patents can be divided into 2 types: the first is invention patents, and the second is design patents. If patent owners wish to allege patent infringement, they usually first purchase and inspect the said infringing products through the OSP. After obtaining professional advice, the patent owner will issue a warning letter to the OSP and/or the sales store behind the OSP. Given that the OSP is a participant in the sale of the infringing products, its liability is no different from that of the underlying sales store. Therefore, the OSP needs to handle the infringement complaint within a reasonable time after receiving the patent owner’s warning letter, and have a clearly binding indemnification mechanism document in place with its customer sales store.
8 From the above, it can be seen that if an OSP is accused of selling infringing products, its legal liability is not significantly different from that of its underlying customer sales store. Therefore, the OSP should establish a good and sound mechanism to avoid infringement. In the event that it is unable to avoid infringement, the OSP should establish a contractual indemnification mechanism to be able to seek compensation from its customer sales store.
9 On the other hand, owing to the legal liability of OSPs as mentioned above, intellectual property rights owners could also use warning letters through the OSP to intercept infringing products.