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Commentary onChina’s 1st Cloud Service Provider Case For IPR Infringement Liabilities Aliyun vs. Locojoy
2019-07-15 Published by:Editor

Commentary onChina’s 1st Cloud Service Provider Case For

 IPR Infringement Liabilities Aliyun vs. Locojoy

By Cathy Wu


We have noticed that the Beijing Intellectual Property Court (“Beijing IP Court”) as an appellate court issued a judgement, Aliyun Computing Co., Ltd. (“Aliyun”) v. Beijing Locojoy S&T Co., Ltd (“Locojoy”), on June 20, 2019 in favor of Aliyun, a cloud storage service (“Cloud Services”) provider.  This appellate court’s judgement has raised lots of attention in the TMT industry and legal community as it revoked the first instance judgement, which found Aliyun guilty for its infringement on Locojoy’s copyright.  Therefore, we summarized the appellate court’s judgment for reference.


I.Case Brief

In Aliyun Computing Co., Ltd. (“Aliyun,” the appellant as a defendant in the first instance) and Beijing Locojoy S&T Co., Ltd (“Locojoy,” the respondent as a plaintiff in first instance), Locojoy is the copyright holder of an online game “I am MT online.”  It came to Locojoy’s attention that a copycat game called “I am MT Chang Shuang Version” (free and cool version in English) was stored in Aliyun server.  Locojoy filed a lawsuit against Aliyun, requesting the court to order Aliyun to disconnect the infringing linkage, cease its cloud lease service and compensate for its loss caused by Aliyun’s infringement.  The first instance court held Aliyun jointly liable for infringement according to Article 36 of the Tort Law on the ground that Aliyun failed to take necessary measures upon its receipt of the notice from Locojoy.

 

However, at the appellate stage, the appeal court held that Aliyun who offers cloud server lease services in this case does not belong to any of the four types of Internet Service Providers (“ISP”), namely a network service provider, automatically providing the access service, transmission service, caching service and information storage service, as stipulated under the Regulations on the Protection of Rights to Information Network Communication (the “Regulations”). Therefore, the trial court was to apply Article 36 of the Tort Law to this case, instead of the Regulations.  The “Notice” sent by Locojoy was an “unqualified” notice under the relevant laws and regulations.  Aliyun did not violate any laws for not taking necessary measures as requested by Locojoy.  Accordingly, the appellate court revoked the first instance judgement and dismissed all Locojoy’s claims against Aliyun.

 

II.   Analysis of Core Issues 


1.  Nature of entity of the cloud server lease service provider

The appellate court holds that the cloud server lease service provided by Aliyun was DIFFERENT from the information storage space service for the following reasons:

(1)   in terms of technical features, the service provided by Aliyun in this case is a typical IaaS-Infrastructure as a Service, and a cloud server lease service provider is technically incapable of controlling the specific contents stored in its server;

(2)  in terms of laws and industry regulations, the cloud server lease service and the information storage space service belong to different categories of regulations and are issued with different licenses according to the standards of market access and regulatory classification of the telecommunications industry adopted by the relevant authority (The Classification Catalog of Telecommunication Services published by the Ministry of Industry and Information Technology). Furthermore, subject to the relevant national standards and industry ethics (Information Security Technology - Security Guide of Cloud Computing Services), the cloud server lease service provider is strictly obliged to ensure security, keep confidential and protect privacy for its users;

(3)   in terms of service level, the cloud server lease service belongs to a bottom-level network technology service.

In addition, according to the analysis of technical features and industry regulatory rules, the cloud server lease service is DISTINCT from the automatic access service, auto transmission service and automatic caching service. Therefore, Aliyun DOES NOT BELONG TO any of the four types of ISP under the Regulations, but an ISP under Article 36 of the Tort Law.


2.  Standards for deciding whether a notice is reasonable

The appeal court mainly took into account the following factors in its examination of legitimacy of the notice sent by Locojoy:

(1)   The “Notice” should provide a precise location to make the ISP fully aware of the infringing information uploaded by others to its network

(2)   The “Notice” shall be legitimate and reasonable both in form and in content subject to applicable provisions of the Regulations and judicial interpretations;

(3)   The “Notice” shall have a guidance function by clearly notifying the ISP and providing infringement proof and relevant explanation.


3. Necessary measures to be taken by an ISP

The appellate court also held that even if the ISP has received a notice, it shall take measures compatible to its technical management capability and function subject to its general and reasonable judgement based on relevant information. Given the institutional origin and initial value of the “notice plus taking necessary measures” rule, the infringement complaint and necessary measures under the Internet environment shall be reasonably matched.  Even if a qualified notice has been received, Aliyun shall not be directly held liable to take measures of “notifying, blocking and disconnecting” equivalent to “shut-down” of its server.  The “necessary measure” should be identified under the principle of prudence and reasonableness in combination of the infringement scenarios and features of the industry.  If an ISP has timely “forwarded” a qualified notice, such ISP shall be exempted from the liability for not taking necessary measures.  The current developments of the cloud computing industry require that the ISP not be subject to overly stringent standards for duty of care in offering cloud server lease services.

 

III. Our Commentary

The appellate court judgment settled the dispute inChinaregarding the liability for the cloud server lease service business, setting up a sort of guidance for future judicial practice on similar cases.  However, this judgment was not given by the Supreme Court, and cannot represent the unified opinion of judicial practice.  As of now, the Supreme Court has not provided any related guidance, so there is not yet a clear standard on this type of case involving determination on cloud computing service liabilities.

 

The appellate judgment failed to cite any legal authority when it revoked the trial court’s decision.  We noticed that the appellate court took into consideration of many factors of consideration including but not limited to technical characteristics, laws and regulations, industry regulations and level of service, when granting the judgment.  However, it failed to cite any legal authority directly applicable to this case.  Instead, the courts excised its own discretion while revoking the trial court’s decision.

 

In addition, in terms of the overall judicial attitude, the courts are more likely to hold that: if the requirements concerning necessary measures and exemption conditions for infringement on the part of cloud server lease service providers are too strict, it will undoubtedly result in large amounts of corporate resources devoted to prevention of legal risks, which will increase costs of operation and heavily impair industry development.  If service providers are required to delete data or close their servers based merely on an infringement notice and preliminary evidence from the rights owner, users’ faith in the provider’s normal operation and data security would be severely impacted, which will impede overall industry development.

 

In providing Cloud Services, Cloud Service providers may consider the following when responding to similar issues in the PRC:

 

1. Examine and assess the content and scope of its cooperation with clients as a Cloud Service provider.  A Cloud Service provider can provide services for clients including but not limited to: cloud database, big data analysis, cloud computing, CDN, domain name resolution, cloud communication, and other internet services required by various internet product/service operators.  Based on the specific content and scope of cooperation between parties, one can discern whether the Cloud Service provider is likely and able to determine if its client’s act constitutes infringement.  For example, if the client has encrypted their own data information, the Cloud Service provider cannot decrypt the information without the client’s permission.  Therefore, an examination of cooperation content is not only helpful for the Cloud Service provider’s self-assessment of its legal status, but also the premise for discussing issues such as whether the “safe harbor” principle can be applied, the extent of duty of care, the timeliness of response measures, and the necessity for response measures, etc.

 

2. Establish a standard system for examining and verifying qualification of the rights owner’s notice.  In the situation where Cloud Service providers enjoy the “safe harbor” principle, the qualification of the rights owner’s notice is a premise for determining whether the Cloud Service provider took timely and reasonable responsive measures.  Complete evidence of rights and evidence of infringement provided by the rights owner, and even more, the basis, analysis, and method used for determining infringement, is clearly helpful to the Cloud Service provider’s judgment-making. Contrariwise, an unclear scope of rights, or an unclear scope and positioning of the infringing content, is detrimental to a timely judgment made by the Cloud Service provider.

 

3. Assess the status of responsive measures taken as a Cloud Service provider.“Satisfactory” necessary measures must be both “timely” and “necessary” at the same time. In this case, the court indicated that if the rights owner gave a timely and qualified notice, Aliyun should have taken certain measures within a reasonable time frame, such as relaying the notice to its client and requiring the client to respond to the notice, which would exempt Aliyun from liability for compensation.  However, to “block or disconnect the linkages” is equivalent to “shut-down” the server, which has a major impact on clients.  Therefore, Cloud Service providers should consider the infringement scenario and industry characteristics, and adhere to the principle of prudence and reasonableness.  Hence, the timeliness and necessity of reasonable measures taken by Cloud Service providers should be specifically analyzed and comprehensively judged based on factors including: its role, function, controlling and executive power in its specific business model, the accuracy of the notice, the type and content of the intellectual property right, the difficulty of infringement judgment, and other factors.


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