Legal Responsibility of Internet Shopping Mall Operators for Trademark Infringement by Vendors

Even if a dispute arises between the users and the stores of an internet shopping mall (hereinafter referred to as “the mall”), the mall operator is generally not held responsible towards the users, except in a few exceptional cases.

So, is there a situation where the mall operator can be held responsible if a store within the mall commits an infringement of rights? We will discuss a court case that debated whether or not the mall operator also bears responsibility for trademark infringement when such infringement is established by the exhibitor.

Case Overview

The plaintiff in this case is an Italian corporation responsible for managing the trademark rights of “Chupa Chups”. The plaintiff argued that the display or sale of products labeled with “Chupa Chups” by six vendors on Rakuten Market infringes on their trademark rights and constitutes unfair competition by using the product display (Japanese Unfair Competition Prevention Act, Article 2, Paragraph 1, Items 1 and 2). Therefore, they claimed that not only the vendors but also Rakuten, the mall operator, should be held responsible, and demanded an injunction and payment of damages.

In the first instance, the court rejected the plaintiff’s claim, stating that the principal of the sale (buying and selling) of products registered on the Rakuten Market vendor page is each vendor on that page, and the mall operator is not the principal (Tokyo District Court, August 31, 2010 (Heisei 22) judgment). Dissatisfied with this, the “Chupa Chups” side appealed.

Issues in the Appeal

The parties did not dispute that the seller, who is the direct seller of the product in question, is liable for trademark infringement. The main issues were whether Rakuten Market, which is not the direct seller, is also liable for trademark infringement, from the following two perspectives:

1. Is trademark infringement limited to cases where the trademark is ‘used’?
2. Can a site operator who is not a seller also be a ‘subject’ of trademark infringement?

These were the two points.

Chupa Chups’ Claim

The plaintiff, in regards to the first point of contention, stated:

“It is typical for trademark infringement to occur when someone uses the same trademark without permission. However, any other similar actions that harm the distinctiveness of the registered trademark and prevent the identification of the designated goods or services are also subject to injunction as trademark infringement. Furthermore, if the perpetrator acts intentionally or negligently, they should clearly be liable for damages.”

Intellectual Property High Court, February 14, 2012 (2012)

They argued that trademark infringement is not only when the trademark is ‘used’, but also when actions are taken that ‘harm the distinctiveness of the registered trademark and prevent the identification of the designated goods or services’.

Regarding the second point of contention, the plaintiff pursued Rakuten’s responsibility as follows: Rakuten Market selects the information to be provided, provides search results in its own format, provides product information as products within Rakuten Market, and instructs sellers to create data in a suitable format. Thus, it is the main body of the display, performing essential actions in the display of products.

Furthermore, Rakuten Market accepts product purchase applications from customers, receives them, transfers them to sellers, sends ‘order confirmation emails’ to customers, transfers product delivery information to sellers, and sends card information directly to the card company for approval when making payments with credit cards. Without these actions, the transfer of the products in question would be virtually impossible. Therefore, Rakuten Market is also the main body of the transfer, performing essential actions in the transfer of products, they argued.

Additionally, Rakuten Market collects a ‘system usage fee’ based on a percentage of 2-4% of the seller’s sales, effectively receiving a distribution of the sales price of the products sold. They are not in a neutral position between the seller and potential buyers, but are selling together with, or through, the sellers, they argued.

Rakuten’s Argument

On the other hand, Rakuten argued that for Dispute 1, even if it does not fall under the “use of a registered trademark”, the plaintiff’s claim that all acts that “damage the distinctiveness of a registered trademark” constitute trademark infringement deviates from the wording of the provisions of the Trademark Law (Japanese Trademark Law), and has no basis in positive law. According to Article 36 of the Trademark Law, the subject of an injunction request is a “person who infringes or is likely to infringe on the trademark rights,” Rakuten argued.

For Dispute 2, Rakuten reiterated its argument from the first trial that its role in the market is to provide a “place” for sellers to list their products and conduct transactions with customers. The listing of each product is ultimately done by each seller, and Rakuten Market earns a commission as a usage fee for the place when a transaction is completed.

Furthermore, when a seller opens a new store, Rakuten Market conducts a certain review based on its terms and conditions, but this is merely a review from the perspective of whether the business operator is suitable as a partner to provide the “place” called Rakuten Market. Once the store opening is approved, the seller can freely list and sell products on their own store page without obtaining individual prior approval, and only by the procedures carried out by each seller. Rakuten does not have the authority to list products in the market or delete listed products, and it is impossible to prevent the listing of specific products on Rakuten Market in advance due to system limitations, Rakuten argued.

Rakuten also argued that the commission for the defendant in the first trial at Rakuten Market is 2-4% of the sales of the concluded sales contract, which is close to the rent rate (about 5-10% of sales) in the lease contract of a real shopping mall, and is even lower. Therefore, it cannot be considered a margin rate based on the assumption of responsibility as a seller.

Judgment of the Appeal Court

The Intellectual Property High Court, regarding the first point of contention,

stated that although the Japanese Trademark Law (商標法) stipulates acts considered as infringement in Article 37, trademark rights are the exclusive rights to use the registered trademark for the designated goods or services (Article 25 of the same law). The trademark right holder can “demand the cessation or prevention of the infringement against those who infringe or are likely to infringe their trademark rights” (Article 36, Paragraph 1 of the same law). Therefore, it should be possible to consider the subject of the act from a social and economic perspective, not only when the infringer is “using” as defined in Article 2, Paragraph 3 of the Trademark Law. It should be said that there is no need to interpret that trademark infringement occurs only when it falls under the explicit provision regarding indirect infringement (Article 37 of the same law), just because the Trademark Law has placed the explicit provision.

As above,

the court indicated that trademark infringement is not limited to “use” and accepted the claim of “Chupa Chups”.

Also, regarding the second point of contention, the operator of the webpage (mall operator) is,

• Even if they are the operator, when they specifically recognize and accept that the products offered by the store infringe on a third party’s trademark rights, they may become an accomplice in violation of the law.
• The operator has a business contract with the store and earns business profits such as store fees and system usage fees.
• When the operator recognizes the existence of trademark infringement, they can take measures to avoid the consequences, such as deleting content and suspending the store, according to the contract with the store.

Considering these circumstances, regarding the operator’s responsibility,

When the operator becomes aware of the trademark infringement by the store or when there are reasonable grounds to believe that they could have known, unless the infringement content is removed from the webpage within a reasonable period of time thereafter, the trademark right holder can make a claim for injunction and damages against the webpage operator for trademark infringement, just as against the store, after the expiration of the above period.

As above,

it was decided. However, in this case, since Rakuten Market deleted everything within a reasonable period of 8 days from when they became aware of the trademark infringement and corrected it, it cannot be said that they illegally infringed on the trademark rights, and it was also not considered an unfair competition act, so the appeal was dismissed.

Web operators, when they receive a notice of trademark law violation from trademark right holders, etc., should promptly investigate the existence of the infringement. As long as they fulfill this, they will not be liable for injunction or damages due to trademark infringement. However, if they neglect this, they may be held liable for these, just like the store.

Summary

The Intellectual Property High Court’s ruling in the “Chupa Chups” case was based on the management and control of the vendors on Rakuten Market. However, it indicated that if a mall operator does not promptly respond to trademark infringement after becoming aware of it and leaves it unattended, the operator itself may be held responsible. Therefore, it is important to be cautious.

Guidance on Measures by Our Firm

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