Authored by Dixon Zhang and Claudia Yun of Fangda Partners

Landlord liability is not a new concept under the PRC law.  It is noteworthy that the concept of landlord liability has experience development and evolvement within these few years.

Landlord’s Joint Liability

According to Article 130 of the General Principles of the Civil Law, if more than two people jointly conduct infringing activities which cause damages to others, they should bear joint liabilities.  In view of IPR protection, under the 1999 Regulation of Guangdong Province on Investigating and Penalizing Illegal Activities of Manufacturing and Selling Counterfeit or Inferior Commodities, providing services to others for manufacturing and selling counterfeits or inferior commodities may be penalized by governmental authorities.

Pursuant to such laws and regulations, if landlords knowingly provide premises, storages or other facilitation to IPR infringers for conducting infringing activities, they may be held bearing joint liabilities of infringement together with the IPR infringers.

Before the 5 luxury brands’ actions against Silk Street Market in 2005, Shenzhen Intermediate Court has already decided a case confirming landlord’s joint liabilities with the infringer.

"BANDAI" is a registered trademark owned by Bandai Co. Ltd. ("Bandai").  In May 2003, Shenzhen Baoan Administration for Industry and Commerce ("AIC") raided the factory of K-mark Industrial Limited (Shenzhen) ("K-mark Shenzhen") for infringing on "BANDAI" trademark.  A considerable amount of apparel printing toy machines bearing "BANDAI" trademark assembled by Chen Yuanqiong (the factory director of K-mark Shenzhen) were found on the site.  According to the investigation by AIC, and such counterfeit BANDAI machines were produced as entrusted by another company, Jun Yu Trade Co. Ltd. ("Jun Yu"). 

Later, as the owner of "BANDAI" trademark, Bandai (representated by Fangda Partners) brought a civil action against K-mark Shenzhen, Jun Yu and Chen Yuanqiong for infringing trademark with Shenzhen Intermediate People's s Court ("Court").  During the litigation, K-mark alleged that the assembling of the fake printing machines was conducted by Chen Yuanqiong as a personal activity instead of a corporate activity.

However, besides confirming the infringement and liabilities of Jun Yu and Chen Yuanqiong, Shenzhen Intermediate Court also confirmed that K-mark Shenzhen directly facilitated Chen Yuanqiong's infringing production by providing her with rented premises, 25 employees and working uniforms and certificates for such employees.  Therefore, even K-mark Shenzhen had charged for the aforesaid facilitating services, it was still attributable to damaging Bandai's rights and should bear the corresponding civil liabilities in this case. 

The joint liability of landlords in IPR infringement cases was further illustrated in the 5 luxury brands’ lawsuits against Silk Street Market in 2005.  After the two instances trial, both Beijing No.2 Intermediate Court and Beijing High Court confirmed that Beijing Xiushui Street Garment Market Company Limited, the landlord of Silk Street Market, should bear the joint liabilities with the individual vendors in the market for their knowingly providing premises and facility to the vendors for selling the counterfeits.

Landlord’s Independent Liability

Although the 5 luxury brands’ lawsuits against Silk Street Market were regarded as landmark cases pursuing landlord’s liability, in such cases the landlord was pursued joint and several liabilities only. 

There comes the question: can landlord be pursued IPR infringement liability independently?  Actually, the PRC laws and regulations have already given the clear answer to this question:

According to Article 50 of the Regulation for the Implementation of the Trademark Law of the People’s Republic of China, intentionally providing facilitation conditions such as storage, transportation, mail or concealment, etc. to trademark infringers shall constitute trademark infringement under the PRC Trademark Law.  That means landlords can be held bearing trademark infringement liabilities independently if they knowingly provide facility to trademark infringers.

 This doctrine is firstly confirmed in the LV vs. Chaowaimen Case, where, Beijing Chaowaimen Shopping Mall Co., Ltd. ("Chaowaimen"), the landlord of the Chaowaimen Shopping Mall in Beijing was found providing premises to vendors for selling fake LV bags in April 2006.  

About half a year prior to Chaowaimen's opening for business, a Beijing Market Ban Notice ("Beijing Market Ban Notice") was issued by Beijing AIC, prohibiting any sale of counterfeits bearing "LV" brand within Beijing City.  Although posting the Beijing Market Ban Notice in its market, Chaowaimen keep on knowingly providing its vendors premises and facility to sell goods counterfeiting LV's trademarks.

LV sent a C&D letter to Chaowaimen and conducted notary purchase at Chaowaimen before and after sending the C&D letter.  The lawsuit was brought by LV (represented by Fangda Partners) against Chaowaimen after LV found that counterfeit LV bags were still being sold in the Shopping Mall even after the C&D letter was sent.

The judgment of this case confirmed that Chaowaimen, as the landlord of the vendors operating in the Chaowaimen Shopping Mall, has the right and obligation to monitor the category and quality of the goods sold by the vendors.  In particular, Chaowaimen should be obliged to cease and eliminate the activities of selling counterfeit product in the market timely.  

As confirmed by the Beijing No. 2 Intermediate People’s Court, even after receiving LV's warning letter, the sale of counterfeit LV products was still rampant.  The notarized purchase of counterfeit products for the second time showed that there were still lots of vendors selling counterfeit LV products in the Chaowaimen Shopping Mall.  This showed that Chaowaimen's negligence in monitoring its vendors was rather serious, thus it should be deemed providing facility to the vendors to sell counterfeit products.  Such activities per se infringe on LV's registered trademark right. 

The judgment was regarded as a full legal victory of LV in its pursuit of landlord liability.  In this case, LV sued the landlord directly without dragging any of the vendors which had sold counterfeit LV products into the litigation.  However, the Court still directly imposed liabilities against the landlord and ordered a decent amount of compensation.  Also, Chaowaimen had to expel 9 vendors which had sold counterfeit LV products out of Chaowaimen under pressure.

The success of the Chaowaimen case was followed by The North Face Apparel Corp. (represented by Fangda Partners)’s lawsuit against landlord of Silk Street Market in Beijing.  Like in the Chaowaimen case, The North Face Apparel Corp. also conducted notarization purchase of counterfeit clothes before and after sending the C&D letter to the landlord of Silk Street Market.

The judgment (currently under appeal by the landlord of Silk Street Market) also confirmed that as required by the Beijing Market Ban Notice, landlord of Silk Street Market should fulfill their responsibility of supervising and administrating the vendors in its market.  As landlord failed in checking the source of goods sold in its market and the relevant authorization documents from the brand owners, Beijing No. 2 Intermediate People’s Court ruled that the landlord had provided facilitation to the sale of the fake THE NORTH FACE clothes.

Silk Street Market had once been held for bearing joint and several liabilities for the vendors' selling of counterfeits in the five luxury brands vs. Silk Street Market Case in April of 2006.  However, this case had succeeded in making another progress, i.e. as the landlord, Silk Street Market was held independently liable for its provision of convenience for tenant vendors' sale of fake The North face jackets.

Landlord’s Criminal Liability

There was no clear answer on whether landlord can be prosecuted for IPR infringement till the promulgation of the Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate Concerning Some Issues on the Specific Application of Law for Handling Criminal Cases of Infringement upon Intellectual Property Rights ("Interpretation") in 2004.  

According to this Interpretation, whoever knowingly provides loans, funds, bank accounts, invoices, certificates, licenses, production and operation places, as well as facility and assistance in producing, storing and import-export agency services shall be deemed an accomplice in the crime of infringing on intellectual property.  This Interpretation gives the legal ground for pursuing landlord’s criminal liabilities in IPR infringement cases.

Landlord was pursued criminal liability in the famous Huangpu Customs Case.   The case started from a criminal action against Zhang Huai and other individuals who were found manufacturing, distributing and exporting refurbished "NOKIA", "PHILIPS" and "MOTOROLA" branded mobile phones in Luogang District of Guangzhou City.   The underground warehouse in this case is located in Guangzhou Free Trade Zone, which is rented from Guangzhou Tianmaxing Warehousing Co., Ltd. ("Tianmaxing"). 

In the Judgment, besides convicting the crime of trademark counterfeiting of Zhang Huai and other counterfeiters, Beijing No. 2 Intermediate People’s Court also ruled that since the Manager of Tianmaxing had clear and full prior knowledge that the above counterfeiters rented its bonded warehouse for refurbishing and illegally assembling mobile phones but still intentionally provided the premises and other facility conditions to the counterfeiters such as storage, customs clearance and transportation services, he should also bear the corresponding criminal liability for infringing registered trademarks.

The case judgment drew numerous media coverage and gained great socoal influence.  This is a case where the landlord was convicted by knowingly leasing the premises to the counterfeiters with prior awareness of the counterfeiting activities and providing facilitation conditions, after the Interpretation came out in the late of 2004.  

From the above cases, it can be seen that China is making substantial developments in pursuing landlord liabilities within these four years.  We look forward to seeing Chinese government taking more fierce actions against IPR infringers in China.