By Grace Guo and Lily Liu 

July this year, Shanghai Fengxian District People 's Court (the Court) ruled in the very first case of an e-commerce platform suing its online seller in China, i.e. Taobao vs. YAO. The Court ordered the defendant, YAO, to pay a compensation of RMB 100,000 and an additional RMB 20,000 as reasonable costs.

Since January 2015, YAO started its online business on the plaintiff's e-commerce platform "Taobao.com" selling pet food. Taobao and YAO signed an agreement called the Taobao Platform Information Protocol, in which YAO guaranteed that it would not sell infringing products or fake products on Taobao's platform, and that YAO would be held responsible for compensation, etc. if it were to breach the agreement.

In June 2016, Taobao discovered that YAO was selling fake "ROYAL CANIN" branded cat food during an anti-counterfeit campaign by the brand owner. The value of the fake products had reached the threshold for criminal prosecution, so Taobao handed over the relevant case information to the local PSB for criminal prosecution.

Taobao then sued YAO for breach of contract and jeopardizing its business reputation.

The Court supported Taobao's claims. Regarding the amount of compensation, the Court calculated a number of RMB 100,000 after considering the selling period, price of the products and profits made. A reasonable cost of RMB 20,000 was also granted as the agreement made it clear that the breaching party is obligated to afford such indirect losses.

Taobao has been actively cooperating in criminal IP cases, but this is the first known case  where Taobao sued its seller for compensation. We believe this case demonstrates Taobao's effort in anti-counterfeiting. However, we are wondering if Taobao one day will extend this breach of contract claim to their daily takedown actions, in which case the number of counterfeit sellers is likely to be effectively reduced.