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What to Do When Chinese Internet Companies Meet Foreign Injunctions?

Sun, 13 Jun 2021
Categories: Insights

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To Obey, Or Not to Obey? A Chinese court skillfully stated that it did not consider unrecognized foreign injunctions in the case of Shenzhen Hongshang Leather Products Co. Ltd. (2017).

Although no clear rule has been established yet in China, a Chinese court skillfully stated that it did not consider unrecognized foreign injunctions in Shenzhen Hongshang Leather Products Co. Ltd. v. Alibaba Group, (2017) Zhejiang 0108 Min Chu No. 1791((2017)浙0108民初1791号).

In this case, Alibaba was issued with an injunction by a US court because a Chinese exporter of its International Station was suspected of committing acts of infringement. Alibaba complied with the injunction and stopped providing service to the exporter.

In September 2017, the People's Court of Binjiang District, Zhejiang Province delivered the first-instance judgment, requesting Alibaba to resume services to the exporter.

I. Case background 

Shenzhen Hongshang Leather Products Co., Ltd. ("Hongshang Company") is a company selling leather products in China. Alibaba is a well-known online trading platform that provides cross-border e-commerce services through Alibaba International Station.

On 10 Mar. 2016, Hongshang Company and Alibaba signed a supplier service contract, stipulating that Hongshang Company would use Alibaba International Station to set e-stores, publish information concerning the company and products for sales, and agree to abide by the provisions of the agreement on intellectual property protection.

Afterward, Hongshang Company was sued by a brand owner in the US for trademark infringement. The US court issued an injunction to Alibaba, stating that Hongshang Company was ordered to stop all infringements and infringing commercial activities due to suspected infringement issues, and requiring Alibaba to close Hongshang’s Alibaba international station account and to stop providing services to Hongshang Company.

On 21 Feb. 2017, Alibaba closed Hongshang’s Alibaba international station account and froze Hongshang's international Alipay account.

On 29 Mar. 2017, Hongshang Company filed a lawsuit against Alibaba with the People's Court of Binjiang District, Zhejiang Province (“Binjiang Court”), requesting to restore the link to its Alibaba international station account.

On 25 Sept. 2017, the Binjiang Court issued the (2017) Zhejiang 0108 Min Chu No. 1791 Judgment, supporting Hongshang Company’s claim.

II. Court views

The court held that Alibaba should deal with the cooperation with Hongshang Company in accordance with their contract.

According to the contract, if Hongshang Company was complained by a third party that it had infringed on intellectual property rights and failed to provide evidence within a reasonable period required by Alibaba, or it provided evidence within the aforementioned period but failed to fully prove its claim, Alibaba has the right to immediately terminate the contract in advance.

However, Alibaba failed to present evidence to prove that the Hongshang Company was complained by a third party for infringement of intellectual property rights, so it should bear the consequences of not presenting sufficient evidence.

Therefore, the Binjiang Court supported Hongshang’s request for Alibaba to restore the store link.

III. Our comments

In this case, the Binjiang Court avoided both the question of whether Alibaba should comply with an injunction issued by a foreign court, and the question of whether Hongshang Company had infringed on intellectual property rights.

In fact, it was not because Alibaba has no right to terminate the contract in advance that the Binjiang Court supported the plaintiff’s claim to restore the store link. Instead, it was due to insufficient evidence that Alibaba provided for its early termination of the contract.

However, the following issues are still worthy of attention.

Question 1: Can foreign court injunctions be enforced in China?

Should Alibaba, a company headquartered in China, enforce a US court’s injunction to terminate its agreement with a Chinese company signed in China?

According to the PRC Civil Procedure Law, foreign judgments should be enforced after they are recognized in China. So far, several US judgments have been recognized and enforced in China, but it takes several months or even one year or more to complete the process. Foreign courts may be reluctant to spend such a long period of time to apply for recognition of their injunction.

The injunction is not binding in China until it is recognized. If multinational companies such as Alibaba initiatively apply to enforce the injunctions issued by foreign courts in China to ensure the legitimacy of their overseas operations, will the Chinese courts consider the practice as a violation of China’s judicial sovereignty?

In this case, the Binjiang Court clearly avoided this issue. However, its judgment requesting Alibaba to restore the link indicated that it did not support Chinese companies’ enforcement of foreign court injunctions in China.

For Chinese multinational companies, the strategy they may adopt in the future is to avoid risks by setting exemption clauses in contracts signed with customers.

For example, they may clearly stipulate in the contract that if a foreign court issues an injunction, the Chinese enterprise has the right to terminate the contract. In this way, the Chinese courts have to support the termination of the contract by Chinese companies based on this clause.

Question 2: Can foreign court injunctions be used as evidence in China?

In this case, Alibaba provided the Binjiang Court with an injunction from the US court as evidence to prove the legality of its actions.

The Binjiang Court did not adopt the evidence on the grounds that the injunction was a photocopy and could not prove its authenticity.

However, how will the Binjiang Court deal with the evidence if it is the original version?

According to the provisions of PRC civil evidence, evidence formed outside of China should be notarized by the notary of the country where it is formed, or go through the certification procedures stipulated in the relevant international treaties.

Therefore, if Alibaba fails to perform the certification procedures, the Chinese courts may still deny the admissibility of the injunction as evidence.

 

Contributors: Guodong Du 杜国栋 , Liu Qiang 刘强

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