By Li Zhongsheng King&Wood Mallesons’ Intellectual Property Group
1.Introduction
More than 30 years have passed since China took a substantial leap forward in the judicial protection of intellectual property (IP); opening up policy and updating trial practice.
After joining the WTO, the IP legislative department was widely regarded as the most internationalized department in the Chinese legal system with regular changes made to its laws and judicial interpretations (including the Patent Law, the Trademark Law, the Copyright Law and the Law against Unfair Competition).
Looking at these legislative changes now, there are several principles that stand out:
The joint protection of both IP rights holders and the public interest – the legislation focuses on balancing the interests of investors, developers and the public. It aims to encourage innovation, promote development and protect IP rights simultaneously.
The consideration of both international legislative trends and domestic conditions – the legislation captures learnings from countries with more complex legislative structures, and adapts these within the context of China’s current economic environment.During the process of judicial protection, China’s legislative body tries to meet the functional and protective requirements of different intellectual properties based on their features and characteristics. This allows it to adapt to the international and domestic factors that affect Chinese businesses in both economic and social development, and also satisfies consumer demand for cultural advancements and scientific innovation.
The combination of legal stability with adaptability – on one hand, the legislation and modification process aims to maintain legal stability and guarantees the consideration of consumer demand while still protecting the authority of law itself. On the other hand, it also focuses on promoting the benefits of abolishing potential problems in time to stimulate further legislative advancements.
In terms of market participants, the economic entities’ abilities to create, use, protect and manage their IP are gradually advancing. Chinese companies are realizing the importance of investing in innovation and the application of IP. Meanwhile, legal awareness is also rising rapidly, reducing visible IP infringement cases to a large degree. Not only are they gradually learning to use IP to gain a dominant position in the marketplace, they are also starting to focus on protecting their own IP; learning to apply skills in IP enforcement in the accumulation of experience from previous successful proceedings.
The past two years have seen an increase in the number of law suits filed by Chinese IP rights holders against foreign corporates, making it a prominent weapon for businesses in a competitive marketplace. With this increase, Chinese IP litigators are becoming increasingly mature in their legal knowledge and competence, providing effective security for IP enforcement in China.
As for judicial work, a large group of judges specializing in IP law have been recruited, bringing with them a wealth of experience which is only strengthening further with each case. So far, IP tribunals have been established in higher courts and intermediate courts in large cities, and IP courts in Beijing, Shanghai and Guangzhou. 82 intermediate courts have jurisdiction over patent cases, 44 over new varieties of plants, 46 over layout designs of integrated circuit and 41 over trademarks. Meanwhile, 159 local courts have jurisdiction over common IP cases.
Judges used to apply strict literal meanings when ruling, but now they exercise their capabilities to control the overall trial proceedings. They now form a comprehensive opinion based on legislative intents, judicial policies, international standards, case facts, infringer’s degree of fault and more, applying the law’s requirements to each individual case.
2. Judicial protection of IP in Chinese courts in 2014
a. Initiate innovations in systems and mechanisms
When it comes to the development of China’s economic society, the implementation of a national IP strategy, and the objective need for judicial protection on intellectual property, Chinese courts play an active role in IP legislative reform promoting and encouraging innovations in their own trial system and the management of IP law actively and effectively.
Courts aim to improve their existing IP trial system by establishing IP courts in which specialists are gathered to produce the best legal outcome. Additionally, the number of basic courts with jurisdiction over general IP cases has increased moderately and the trinity of civil, criminal and administrative trial is promoted. On the one hand, the courts strive to maintain a unified scale and a stable criterion for law enforcement. On the other hand, with the help of trial trinity (experimented in 5 higher courts, 49 intermediate courts and 69 local courts so far), trial efficiency has been increased and a professional IP trial system has been established.
b. Further promote the consistency of legal application and enforcement standards
Based on the objective need of judicial practice, the courts summarize nationwide IP trials and identify typical or complex cases by issuing judicial interpretations and the Supreme Court’s annual report, and replying to questions on typical cases. This provides consistency in the application of national standards including fact-finding, the distribution of the burden of proof and legal application. They also further promote consistency in a combination of ways outlined below.
Firstly, the courts bear in mind the importance of accuracy in the first instance, as it serves as the swiftest form of legal justice for both parties and avoids further disputes. They will continue to improve their working systems and pay more attention to the coordination and guidance on related IP cases so as to maintain the consistency of judicial standard.
Secondly, the courts focus on the stability and predictability of the application of IP laws so as to guarantee procedural justice and transparency, and provide a stable level of expectation for stakeholders. This avoids problems caused by inconsistent judicial standard and creates a high-quality environment for law enforcement, investment and competition.
Thirdly, the courts value equal protection and consistent law enforcement while resisting local and departmental protectionism by establishing exclusive jurisdiction, improving designated jurisdiction and strengthening supervision.
Lastly, the courts properly exercise the principle of “mediations first, combine mediations and judgments”. Since IP cases are usually highly technical, courts will sometimes guide clients to choose mediations as a way to settle disputes, e.g. entrusting mediations, expert mediations and industry mediations. But if clients or related industries have a strong request for explicit judicial ruling, then settling disputes by court judgments is preferred in order to provide future legislative guidance.
c. Encourage communications between domestic and foreign courts
The judicial protection of IP in China did not begin until recently, thus courts and judges do not traditionally community with their Western counterparts. In order to align with China’s political and economic status, the legislative bodies must open up to the outside world and initiate effective two-way communication.
Chinese courts have therefore suggested that they themselves should fully grasp the influence of international IP judgments and that China as a whole should be more involved in IP on the international stage and actively express its opinions. More specifically, Chinese courts ought to participate in international conversations about IP protection, learn from complex international cases and share their achievements in law enforcement.
3. Characteristics of judicial protection policy of intellectual property in Chinese courts in 2014
a. Determine the degree of IP protection by the characteristics and requirements of the rights. The degree of protection of copyright should be based on the value of the works. The protection policy ought to keep up with the development pattern of the new “internet” business and the new infringement types derived from it so as to clarify disputes and principles.
The scope and strength of protection of patent rights should take into account the industry’s demand and the level of complexity in its innovation. For pioneering inventions with a high degree of innovation, large investment on research and development, and outstanding market effect, the law provides them with a higher degree of protection and wider range of equivalent protection.
As for trademark protection, the court should refer to the judging standard of similar trademarks and similar products based on the identifiability, prominence and popularity of the trademark. Well-known trademarks with high prominence and popularity should be given stronger and wider of protection.
b. Give harsher punishment on copyright infringement. The court should distinguish an idea from an expression, and define the range of copyright protection in its entirety. If internet users or service providers display the work of the copyright owners online without permission, their behavior will be deemed as infringement to the right of communication on an information network. If internet service providers instigate or help their users commit acts of infringement on the right of communication on an information network through services like providing information storage spaces, search engines or links, it will be deemed as joint infringement.
Besides strengthening copyright protection on the internet, the law should also preserve conditions for internet technology innovations and business pattern development. Strict boundaries should be drawn between the acts of the direct provider of works under infringement and those of the internet service providers. Those internet service providers whose behaviors are in accordance with legal liability exemption conditions are free from liability for damages. Even if their behaviors do not fully accord to such conditions, the above rule still applies as long as they are faultless. The court should stand by the legislative value of the principle of “notice and removal”. The purpose, on one hand, is to prevent the standards for internet service providers from being set too low, making the principle inapplicable; on the other hand, it is to stop them from abusing the “notice and removal” principle and acting reluctantly against the third party using their websites for infringement.
c. Use the right way to determine patent infringement. When interpreting the scope of patent protection, attention must be paid to the limitations of the invention. The court should get hold of all the judgment rules in determining patent infringement on inventions and utility models, including comparisons of all technical characteristics, estoppel and contribution. It should also complete the application conditions for equivalent infringement to prevent its random use or improper extension of the scope of application. Additionally, the court should get hold of the judgment rules in determining patent infringement on designs, with common customers of the products being the judging subject, the distinctiveness being the core, and the similarity or approximation of the whole visual effect being the fundamental standard for a valid infringement. If the defendant argues that his technology can be arrived by combining an existing technical solution noted in a prior art document with common knowledge, his defense should be favored, as this is also deemed as valid prior-art defense.
d. Be prudent when applying injunctions to prevent behaviors of abusing patent right. Since an injunction acts like a double-edged sword, several requirements should be met before applying it. To start with, injunctions apply to cases with clear facts and infringement behaviors that are easily determined, not those which cannot be determined without complicated technical comparisons. Also, injunctions can only be issued to cases with concrete evidence and explicit infringement (literal infringement rather than infringement under the DOE) to a certain degree. When judging whether the damage is irreparable to the applicant, the court should focus on assessing whether the damage can be remedied by monetary compensation and whether there is reasonable expectation that it is enforceable.
Additionally, the property guarantee offered by the applicant should be sufficient and effective enough to offset actual damage possibly caused by a mistakenly applied injunction. Procedural justice should also be served and the court should introduce necessary procedures like hearings before issuing injunctions. The likelihood of infringement and the effects of injunctions can be ascertained more accurately by means of gathering opinions from applicants and respondents.
Courts need to stop patents rights and injunction abuses before trial effectively. For those who are fully aware that the patent right belongs to prior art yet still issue warnings to rightful implementers with bad faith, or those who misuse right of action, injunction or property preservation, causing damages to the counterpart, the court should grant the compensation request from the victim based on the principle of “anti-vexatious litigation”.
e. Strengthen the protection of trademarks. The purpose of trademark protection is to effectively distinguish product origins through establishing the protection boundary of marks, so as to prevent behaviors of embezzling business reputation in pursuit of illegal personal interests.
The distinction between similar trademarks and similar trademark elements needs to be handled properly. Normally, if the trademark elements are similar overall, then the trademark can be deemed similar to each other. If not, and the plaintiff’s trademark enjoys obviously higher popularity than that of the defendant, then the court can compare the main identification parts to determine the level of similarity.
The court needs to take into full account the relevance of the registered product, not only referring to the classification dictionary of similar products, but also considerable factors such as the function and application of the product, its production sectors, distribution channels and target customers so as to correctly identify similar products in the sense of the trademark law. If the plaintiff’s trademark has been used and gained certain popularity, it is especially important to consider the relevance between the two similar products. The court also ought to draw a clear boundary for trademark protection. If both trademarks have gained high popularity and their coexistence was formed for historical reasons, the court needs to make a comprehensive judgment based on their history of use, the cognitive state of the public and the user’s subjective purpose, consider the current market pattern and prevent simply mistaking similar trademark elements as similar trademarks.
Infringement only occurs when the defendant uses identical or similar signs in the trademark sense. Those who use identical or similar signs reasonably for the sake of describing or explaining the features of their products or service should be deemed as fair use.
The purpose of protecting well-known trademarks lies in properly expanding the protection scope for them. The court should consider the legislative intent for protecting well-known trademarks, effectively direct both parties to apply relevant protection systems properly, and prevent relevant parties from abuse of pursuit in the recognition of a well-known trademark. If one party’s advocate meets certain requirements, such request should be granted so as to avoid improper barriers to well-known trademark protection.
f. Crack down on infringement upon trade secrets and protect the environment for innovation. When the right holder provides advantageous evidence to prove confidentiality, the trade secret shall be deemed as existing. Also provided that the right holder is able to prove the trade secret is identical to alleged infringer’s information in essence, as well as the infringer’s accessibility to such information, it can be presumed that the infringer acquires trade secrets by unlawful actions. All independent technical units and systematic integration which fulfill the requirements of trade secret protection can be a subject matter protected by law. The measures of hearing and cross-examination concerning trade secret suits should be improved: when the evidence involving trade secrets is provided, the cross-examination is only open to both parties’ attorneys rather than themselves, and the attorneys will be required to sign a non-disclosure guarantee letter.
g. Protect the prior right effectively, according to good faith and recognized commercial code. The court shall accept all cases on civil disputes between trademarks or trade names and prior rights, including situations where the defendant changes the registered trademark in practical use or uses trademark beyond its approved scope of commodities. For those cases involving registered trademarks which copy, imitate or are translated from the prior well-known trademarks, the lawsuits shall also be accepted by the court.
Even with lawful procedures like industrial and commercial registration, if the practice does constitute trademark infringement or unfair competition, it shall be deemed as trademark infringement or violation to unfair competition law. Where an enterprise name registered abroad causes damage to the private interest within the Chinese jurisdiction, it shall be recognized as infringement. Where the enterprise name constitutes infringement against the prior trademark right by its prominent usage, it should be deemed as trademark infringement. When a pertinent portion of an enterprise name is similar with a trademark and causes confusion with customers, if this portion is not used prominently, it shall be deemed as violation to unfair competition law. For well-known enterprise names and abbreviations of names with market popularity, they should be deemed as enterprise names to be protected. Parties who commit trademark infringement by using the enterprise name shall be ordered to cease the usage or be limited to certain means or scope of usage. If a party unlawfully uses a registered trademark which enjoys high popularity in its company name, and the customers will be misled even if this trademark is used in an improminent way in its company name, it shall be ordered to stop usage or change its company name based on the plaintiff’s requests.
h. Use of the experiences from previous monopoly lawsuits to prevent possible infringement. Firstly, the court must analyse the rules for defining the relevant market in questions, so as to accurately identify the scope of competitors and potential competitors, the market share and concentration of business in the relevant market, as well as the impact in the competitive environment based on the undertakings’ market positions and behaviors, so as to make judgment on the defendant’s dominant market position.
Secondly, where the defendant abuses its dominant market position by setting prices overly high or discriminately, bundled sale, setting unfair conditions for transaction, and etc., it shall be deemed as infringement. Thirdly, the burden of proof shall be allocated properly based on the monopoly type. As to monopolistic agreements which have evident intention of eliminating or limiting competition, the affected parties shall not bear the burden of proof. Fourthly, when the plaintiff reports the monopoly action to the Anti-monopoly Administration, its statutory limitation shall be suspended. Provided that the monopoly action causes losses upon the plaintiff, the finding shall be to stop its infringement and pay the damages.
i. Fully exploit the remedial effect of judgment to curb infringement effectively. First the alleged infringement should be stopped immediately based on the party’s claim, facts and actual needs. When the plaintiff provides clear scope in the claim with adequate evidence, given the fact that the plaintiff is not able to exhaustively list all models or types of infringing products yet, or after the suit being filed, the defendant changes models, types or etc. to evade the strike, these unlisted or newly created models still fall into the scope of judgment ruling for stop of infringement. The judgment should also include destroying the infringing products, moulds and gauges solely used for producing infringing products.
Secondly, if the judgment to stop infringement may cause severe effects on any party’s interest, public interest, or the judgment cannot be enforced in practice, the ruling shall not be to stop infringement. Some alternative remedies are able to be given, such as more sufficient compensations, license fee etc. Thirdly, after the judgment is effective while the defendant is ordered to stop infringement, if the infringing party fails to execute the effective judgment and continue infringement actions, the right holder could request for enforcement against the other party from the original court. Also the right holder may bring up a new lawsuit with regard to the new infringing facts.
j. Compensate the damage caused by infringement and raise the threshold for infringement. When determining the damages, courts should properly exploit the evidence rule and principle of advantageous evidence, make full use of the doctrine of spoliation, so as to reduce the right holder’s burden to proof and assure their full extent of compensation. Courts should actively direct the parties concerned to calculate the compensation amount by adopting the method of either losses incurred from infringement or profits derived from infringement, and avoid as much as possible the simple application of statutory compensation.
Where the specific amount of losses incurred from the infringement or profits derived from infringement is difficult to prove but there is evidence that the aforesaid amount is obviously greater than the upper limit of statutory compensation, the court shall reasonably determine the amount of compensation over the statutory upper limit by considering all the evidence in the case. Unless otherwise provided for by law, in the application of statutory compensation, the reasonable cost for rights protection shall be calculated for compensation separately.
In the application of statutory compensation, courts shall, as much as possible, expound the various discretionary factors which are actually considered to make the final compensation results reasonable and credible. Pay attention to the comparability in calculating the amount of compensation according to the licensing fee, and take into consideration the differences regarding implementation methods, time period and scale between regular licensing and infringement. As a principle, monetary damage collected in an infringement case should be reasonably higher than royalty. For severe infringement in bad faith, the compensation shall be determined as one to three times of the amount above.
k. Streamline the litigation procedure and strengthen the right to sue. For foreign-related cases, after expressively authorized by a right holder, the lawyer shall bring up a lawsuit on the behalf of the right holder under his name so the overseas parties are not required to affix their signatures or seals to the complaints. Except some specific matters which must be attached with notarization based on requirement of laws, other overseas evidence in proof of its authenticity in other reasonable means can also be accepted.
If a party manufacturing or planning to manufacture products is warned of infringement by an IP holder, and subsequently provide evidence of non-infringement to request the right holder to file an infringement lawsuit or withdraw the warning, but the right holder fails to either initiate a lawsuit within a reasonable period or withdraw the warning, the party could file a declaratory lawsuit.
In patent infringement litigation, when the defendant requests for declaration of invalidation of the patent involved in the case within the response period, the court shall determine on whether to suspend the lawsuit considering the stability of patent right and other actual circumstances. If the Patent Re-examination Committee declares the invalidation of the patent prior to the civil judgment being rendered, the patent right holder’s lawsuit can be dismissed according to the actual circumstances. Where the decision of invalidation of the patent is overruled in the administrative litigation proceedings afterwards, the patent right holder can bring up again another civil lawsuit.
This article was originally published on the official website of King and Wood Mallesons. Visit kwm.com for more information.