(2017 Top Ten Typical Cases) Shanghai Hantao Information Consulting Co., Ltd. vs. Baidu Inc. et al. over Unfair Competition

Shanghai Hantao Information Consulting Co., Ltd. vs. Baidu Inc. et al. over Unfair Competition

[Case Brief]

Appellant (Defendant in the original trial): Baidu Inc. (“Baidu”)

Appellee (Plaintiff in the original trial): Hantao Information Consulting Co, Ltd. (“Hantao”)

Defendant in the original trial: Shanghai Jietu Software Technology Co., Ltd. (“Jietu”)

Hantao is the operator of Dianping.com (website: www.dianping.com). Dianping.com provides services to network users including merchant information, consumer reviews, special offers and group purchase, and has accumulated a database of consumer reviews on merchants. According to the User Agreement of Dianping.com, any user’s acceptance of this agreement shall be deemed that the user actively, freely and exclusively transfers the property right in any information of any form published by the user on the site at any time and any other transferable rights that the user shall be entitled to as a copyright owner to the operator of Dianping.com for free, and that the user grants Dianping.com the right to file a separate action against infringement by any entity and obtain compensations.Baidu used many comments from Dianping.com in its Baidu Maps and Baidu Knows.

Hantao argued that Baidu, by virtue of such acts, replaced Dianping.com as the provider of the services, attracteda lot of users and clicks in a short time, thus snatching the market share of Hantao, reducing Hantao’s competitive advantage and transaction opportunities and causing huge losses to Hantao. Baidu’s acts violated the recognized commercial ethics and the principle of good faith and constituted unfair competition, so Hantao filed an action to the court, requesting the court to order Baidu to stop unfair competition, eliminate effects and compensate for losses. Baidu argued that it was not in competition with Hantao and it used the information reasonably, which did not constitute unfair competition.

 

[Adjudication]

Shanghai Pudong New Area People's Court held that there was competitive relationship between Hantao and Baidu, and that Baidu used a great deal of information from Dianping.com in its Baidu Maps and Baidu Knows without permission. By doing so, Baidu substantially took the place of Dianping.com to provide users with information, caused damage to Hantao, which was illegitimate and constituted unfair competition; therefore, the court made a judgement to order Baidu to stop unfair competition and pay RMB 3 million to Hantao as compensation for economic losses and RMB 0.23 million as reasonable expenses. Baidu refused to accept the judgement and instituted an appeal. Based on the notarial evidences presented by the parties in the first instance, Shanghai Intellectual Property Court further investigated and found out that among 1,655 merchants extracted by Baidu Maps in the presence of a notary, more than 35% of the reviews of 1,278 merchants were from Dianping.com. The reviews of 276 merchants were 100% from  from Dianping.com, more than 75% of the reviews of 508 merchants (excluding those that used 100%) were from Dianping.com, and more than 50% of the reviews of 104 merchants (excluding those that used more than 75%) were from Dianping.com. 1,055 merchants in catering industry used 86,286 reviews from Dianping.com, averaging 81 reviews per merchants; 402 merchants in non-catering industry used11,330 reviews from Dianping.com, averaging 28 reviews per merchant. All reviews were displayed in full text and ranked top in the page. In full consideration of factors, including whether Baidu’s acts had positive effects, whether Baidu’s use of the information involved exceeded the necessary limit, the impacts of the act of information use beyond the necessary limit on the market order, whether the “vertical search” used by Baidu influenced the judgement of the legitimacy of competition, Shanghai Intellectual Property Court held that although Baidu’s acts provided more choices to consumers to some extent, the use of a great deal of information in full text exceeded the necessary limit, severely harmed Hantao’s interests, destroyed the market order of fair competition, and constituted unfair competition. Therefore, the court  rejected the appeal and affirmed the original judgement.

 

[Comment]

This case involves the determination of whether the unauthorized use of information gathered by others in the Internet environment is legitimate. Information is not statutory object of right. If some results of labor are not covered by a statutory right, we shall not take it for granted that the unauthorized use or utilization of such results constitutes “free riding” and “gaining without efforts” as defined in the Anti-unfair Competition Law, because “free copying” and the use or utilization of information that is not covered by a statutory right is a basic public policy and the foundation for technology and business mode innovations; otherwise, a “right to the result of labor” would be actually established. However, with the development of information technology industry and internet industry particularly in the context of “Big Data”, information has unprecedented value and an increasingly number of market entities invest heavily in the collection, sorting out and mining of information; unlimited permission to market entities in the unauthorized use or utilization of information obtained by others through heavy investment will discourage business investment and be detrimental to industrial innovation and honest operation, and eventually damage the healthy competition mechanism. Therefore, market entities shall follow recognized business ethics and use it within a reasonable scopewhen using the information obtained by others .

Business ethics are recognized ethical principles of conduct that have developed over long period of business practices, while various business rules in emerging markets including the internet market are on the whole at the stage of exploration with unclear boundary of rights and interests for market entities. An act that has damaged the interests of other competitors may have positive effects such as promoting market competition and improving consumer welfare. There has been no consensus in the market community on whether some new competitive behaviors violate the business ethics. In judging whether relevant acts of an operator in using other’s information violate the business ethics and disturb the market order of fair competition, on the one hand, the characteristics of information sharing and interconnectivity in the industrial development and internet environment should be taken into account; on the other hand, consideration must be given to the interests of those that obtain information, those that use information and the public, i.e., the property input in information obtaining, the right of free competition in information use and the interest of the public to enjoy free access to information; the boundary of behavior shall be based on the balance of interests. Only when the boundary between proper and improper information use is accurately defined, can the balance of fairness and efficiency be reached, and thus the legislative purpose of free and fair market order of the anti-anti-unfair competition law be realized. The definition of such boundary shall not resort entirely to subjective moral judgement, but shall take into account all above elements, with relatively objective examination of whether an act disturbs the market order of fair competition.

In this case, Baidu’s innovation in business mode did have positive effects, while Hantao had taken great efforts in obtaining the information involved and had the rights and interests protected by law; under such circumstance, the interests of both parties shall be balanced. However, Baidu, by capturing and displaying a great deal of information in full text from Dianping.com through search technology, substantially took the place of Dianping.com to become the provider of relevant services. Baidu’s expected positive effects and the losses it caused to Dianping.com were inconsistent with the principle of balance of interests. Furthermore, Baidu could take measures that would cause less damage to Hantao and to some extent realize positive effects. Shanghai Intellectual Property Court held that Baidu’s use of the information involved exceeded the necessary limit. Such act not only damaged the interests of Hantao, but also might hinder other market entities from investing in information gathering, which destroyed the industrial ecology and had certain negative impact on the competition order. What’s more, the kind of behavior exceeding necessary limit might damage the interests of potential consumers.

 

Index

First instance: Shanghai Pudong New Area People's Court (2015) PMS(Z)CZ No. 528

Members of collegiate panel: Xu Jun, Xu Genhua, Shao Xun

Second instance: Shanghai Intellectual Property Court (2016) H73MZ No. 242

Members of collegiate panel: He Yuan, Chen Yaoyao, Fan Jingbo

 

Prepared by: Fan Jingbo

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