Shanghai Lujinsuo Internet Financial Information Service Co., Ltd. v. Xi'an Luzhitou Software Technology Co., Ltd.

China IP,[Trademark]

Shanghai Lujiazui International Financial Asset Exchange Co., Ltd. & Shanghai Lujinsuo Internet Financial Information Service Co., Ltd. v. Xi'an Luzhitou Software Technology Co., Ltd.

 

Lower Court Docket No.: 11133, first instance (初), civil case (民), (2019) Shanghai Pudong New Area People's Court (沪0115) 

SUMMARY OF THE ARGUMENT

When an internet rushing buy service uses technical means to provide users of the target platform with an unfair rushing buy advantage, which destroys the established rushing buy rules of the target platform and deliberately bypasses its regulatory measures, causing serious damage to the user stickiness and business environment of the target platform, it shall be deemed to have constituted unfair competition.

STATEMENT OF THE CASE AND FACTS

Plaintiff: Shanghai Lujiazui International Financial Asset Exchange Co., Ltd. ("LUFAX") and Shanghai Lujinsuo Internet Financial Information Service Co., Ltd. ("LUp2p.com").

Defendant: Xi'an Luzhitou Software Technology Co., Ltd. ("Luzhitou")

The plaintiff, LUFAX, is a well-known Internet-based wealth management platform, and LUp2p.com is the former's wholly-owned subsidiary. Both Plaintiffs have financial service websites and mobile applications, with the trading of debt transfer products being a popular service. To purchase the debt transfer products, members of the two Plaintiffs have to often log on to the aforementioned websites or mobile applications and frequently refresh and follow the information of the debt transfer products. The Defendant was the provider of the software "LUFAX purchase tool". By installing and running the software, users could automatically purchase the debt transfer products based on preset conditions without having to follow the information of the products released by the two Plaintiffs on their platforms, and could complete a transaction before the members who made purchases manually.

The two Plaintiffs argued that the unfair competition act carried out by Luzhitou had damaged the competitive advantages accumulated by the two Plaintiffs through years of operation, resulting in the loss of members, the decline of attention to the products, and the damage to the goodwill of the two Plaintiffs, which had caused large losses to the two Plaintiffs. Accordingly, the two Plaintiffs requested the court to order the Defendant to stop the latter's unfair competition act, eliminate the impact and compensate the Plaintiffs a total of RMB 500,000 for economic losses and reasonable costs. The Defendant argued that: there was no competition between the Plaintiffs and the Defendant, and that the core of the rushing buy service provided by the Defendant was to make it more convenient for users to purchase the debt transfer products of the two Plaintiffs' platforms under the premise of the users' authorization; the rushing buy service neither prevented users from logging into the two Plaintiffs' platforms normally to carry out transactions nor did it affect the normal purchase behavior of other registered users of the two Plaintiffs' platforms. The Defendant thus requested the court to reject all the claims proposed by the Plaintiffs.

After hearing, the Pudong Court held that operators, in their providing online rushing buy services, should follow the provisions of Article 12 of the Anti-Unfair Competition Law and not use technical means to hinder or disrupt the normal operation of internet products or services legally provided by other operators by manipulating users' choices or in other ways. In the event that the Internet rushing buy service is not within the scope of the types of behaviors explicitly listed in the Internet-specific article of the Anti-Unfair Competition Law and is thus applicable to the underwriting clause of the article, consideration should be given to whether it is unfair in addition to whether it would cause damage to the target platform and users of the rushing buy service.

The Defendant's behavior of providing rushing buy services through operating software caused serious damaging consequences to the Plaintiffs: first, the impairment to the interests of platform traffic. The rushing buy service resulted in a decrease in the frequency of user visits to both Plaintiffs' platforms, which in fact reduced the opportunity of both Plaintiffs to present other financial products. Second, the deprivation of potential trading opportunities for users. The rushing buy service changed the distribution of the proceeds of the debt transfer products among the users of the two Plaintiffs' platforms, which resulted in the reduction in the opportunity interests of a significant number of users. Third, the destruction of the business environment of the platforms. The rushing buy service would affect investors' confidence, which both Plaintiffs' platforms have relied on the most, resulting in a reduction in user stickiness and an exodus of the investors and capital to other investment channels.

Also, the rushing buy service in question in the case was clearly unfair. On the one hand, the rushing buy service has subverted the rules of both Plaintiffs' platforms, which has undermined the fair basis for the rushing buy of the products. The overall success rate of the rushing buy was heavily leaning in favor of users who had used the rushing buy service, causing the complete missing of the basis for fair competition among users. On the other hand, the rushing buy service in question deliberately circumvented the monitoring and regulation mechanism of the two Plaintiffs, reflecting the subjective intent of the Defendant's act.

Therefore, the rushing buy service of the Defendant has used technical means to provide users of the two Plaintiffs' platforms with an unfair rushing buy advantage, which has hindered the normal operation of the rushing buy business of the two Plaintiffs' debt transfer products, caused damages to the overall interests of the two Plaintiffs and the platform users, and unfairly destroyed the business environment of fair competition of the two Plaintiffs' platforms, constituting unfair competition, and such act should be given a negative evaluation under the Anti-Unfair Competition Law. Therefore, according to law, the court ordered the Defendant to stop its unfair competition act, publicly eliminate the impact and compensate the two Plaintiffs a total of RMB 500,000 for economic losses and reasonable expenses.

ANALYSIS

The fintech industry has been developing in recent years, and fintech products launched through online platforms have been widely welcomed by users. However, they have also given rise to various kinds of online rushing buy services. How to evaluate and regulate, according to the Anti-Unfair Competition Law, online rushing buy services as market competition behaviors implemented by operators is not only relevant to the protection of the competitive interests of fintech enterprises and of the interests of consumers as investor users, but also important for the maintenance of the business environment of financial platforms.

The verdict of this case has received wide attention from the industry and has been comprehensively reported by the CCTV Finance Channel, People's Court Daily, people.cn and other media. After the verdict was announced, the Plaintiffs sent a letter a banner to express their gratitude, and the Defendant also said that they were satisfied with the verdict and took the initiative to fulfill the content determined by the effective judgment. This case was named as one of the "50 Typical Intellectual Property Cases of Chinese Courts in 2020" and of the "2020 Top 10 Cases of Judicial Protection of Intellectual Property of Shanghai Courts", and the judgment document was named as one of the "2020 Top 10 Excellent Judgment Documents of Shanghai Courts". 

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