On April 26, Shanghai Intellectual Property Court made the judgment of the second trial on the unfair competition case between the Appellant (Shenzhen Juwangshi Science and Technology Co., Ltd., hereinafter “Juwangshi”) and the Appellee (Beijing iQIYI Science and Technology Co., Ltd., hereinafter “iQIYI”). The appeal was rejected and the original judgment was upheld. Juwangshi was ordered to compensate iQIYI for the financial loss of RMB 300,000 and reasonable expenses of RMB 60,000 plus an announcement on the homepage of its official website for 72 hours continuously to eliminate the influence. To this point, the domestic first unfair competition case arising from video aggregation and hotlinking was concluded. iQIYI, the Plaintiff of first instance claimed that it was the legitimate operator of the network video platform “iQIYI”, which aimed to provide free videos inserted with ads for users and make profits relying on the advertising fees from advertisers. However, the VST software developed by the Defendant Juwangshi steered clear of the cinemads when playing videos from iQIYI, which reduced the exposure of ads that advertisers delivered to iQIYI as well as iQIYI’s popularity among users, thereby hurting the interests of iQIYI. Besides, since the software aggregated videos from lots of large well-known video sites (including the Plaintiff), iQIYI’s website traffic and player downloads declined while Juwangshi didn’t have to pay expensive royalties. Considering that Juwangshi’s act had seriously disrupted the normal business order and infringed the legitimate rights and interests of iQIYI, iQIYI lodged a complaint to the People's Court of Yangpu District, Shanghai. In the first instance, the People's Court of Yangpu District held that the Plaintiff, iQIYI encrypted its videos and didn’t disclose the Key value. As an Internet video provider, iQIYI made profits by providing free videos inserted with ads for users or ad-free videos for paid users. In this case, the Defendant Juwangshi took advantage of iQIYI’s Key to steer clear of iQIYI’s cinemads, presenting an indirect way to remove the cinemads and objectively enabling the users to watch videos without cinemads. That is to say, the adblock claimed by the Plaintiff was resulting from the Defendant’s technical means, and exactly what it was pursuing. The nature and development of Internet was interconnection and interworking. Therefore, Internet linking through legal and proper methods wouldn’t constitute unfair competition. iQIYI’s advertising revenue depended on the frequency and days of ad servings. If VST played iQIYI’s videos via legal and complete links, allowing iQIYI’s ad statistics system to clearly count the ads delivered by VST, it will expand iQIYI’s popularity and influence to some extent instead of hurting its legitimate interests. However, if VST provided complete links to iQIYI’s ads and videos by decrypting its Key, which seemed to present complete contents to the users but actually preventing iQIYI’s ad statistics system from counting the ads delivered by VST. It extended the serving cycle of ads charged by CPM or reduced the revenues within agreed periods, and lowered the daily servings of ads charged by CPD, thus damaging the legitimate interests of iQIYI and constituting unfair competition. The Defendant Juwangshi without paying royalties and bandwidth costs, diverted some users unwilling to watch the cinemads and pay subscription fees to the Plaintiff through its VST software, thereby reducing iQIYI’s advertising revenue and users accordingly. In view of this, the People's Court of Yangpu District held that iQIYI and Juwangshi were competitors and Juwangshi’s act to steer clear of iQIYI’s cinemads and play the videos directly by technical means constituted unfair competition. Therefore, it was ruled that the Defendant, Juwangshi shall pay to iQIYI RMB300,000 yuan for the losses incurred and reasonable expenses of RMB60000 yuan, plus an announcement on the homepage of its official website for 72 hours continuously to eliminate the influence. Juwangshi appealed to Shanghai Intellectual Property Court against the first instance judgment. Juwangshi argued that the Key used by VST software was publicly available on the Internet, which could be used by any third party to steer clear of iQIYI’s cinemads and play the videos directly, rather than what iQIYI claimed and the court of first instance believed that Juwangshi decrypted iQIYI’s verification algorithm to get the effective Key. Besides, Juwangshi didn’t subjectively and intentionally steer clear of iQIYI’s cinemads to play the videos directly. The ads and videos couldn’t be fully presented because of insurmountable technical issues. Thus it requested Shanghai Intellectual Property Court to revoke the original judgment. After the hearing, Shanghai Intellectual Property Court held that in this case, Juwangshi failed to provide relevant evidence to support his argument that the Key used by VST software was publicly available. Instead, its evidence proved that iQIYI encrypted the videos provided. Juwangshi decrypted iQIYI’s verification algorithm and got the effective Key to generate SC value for requesting playing videos, thereby steering clear of iQIYI’s cinemads and playing the videos directly. Such act encroached iQIYI’s lawful business activities, therefore the appeal grounds were not adopted. In addition, Juwangshi allowed its users to watch iQIYI videos by technical means without paying royalties and operating costs, which were borne by iQIYI in fact. Despite paying all the costs, iQIYI suffered loss of business interests due to declined users and ad clicks. Juwangshi should know it would harm others to benefit itself when using the technology. However, it still did so subjectively and intentionally, encroaching iQIYI’s lawful business activities, thus the grounds of appeal were unjustified. To sum up, Shanghai Intellectual Property Court made a final judgment on April 26, 2016 that, the original judgment was made based on clearly ascertained facts and correct application of laws. Therefore, the appeal was dismissed and the judgment of first instance was affirmed. It was the first time that Chinese court deemed video aggregation and hotlinking constituted unfair competition.