Chinese Courts Strengthens IP Protection in Current Global Economic Crisis

On April 21, 2009, Chinas Supreme Peoples Court (Supreme Court) circulated an Opinion on Several Issues Concerning Trial to Intellectual Property Cases in the Current Economic Situations (Opinion) under Documentation Fa Fa (2009) No. 23 to local peoples courts at all levels, guiding them to effectively try intellectual property (IP) related disputes. In the Opinion, the Supreme Court expressively emphasized that juridical protection to IP must be further strengthened and may not be lessened in the current economic downturn. For this purpose, the Supreme Court has designed certain new rules and systems to strengthen protection to trademarks and patents, and further perfected IP litigation systems so as to improve Chinas trading and investment environment. These new rules and systems have greatly enriched the current Chinese IP regimes. Foreign companies having business operation in China shall acquaint themselves with these changes so as to restructure their IP strategy and get their IP effectively protected in China.
Background
Chinas economy has maintained a rapid and stable development in the last two decades. However, affected by the current global economic crisis, the Chinese economy is continuously slowing down at the moment. The changes of international and domestic economic situations have given new challenges and requirements to the trial to IP related disputes. In such situation, the Supreme Court requested local peoples courts at all levels to closely watch these changes and the new operation situations of enterprises under the current global economic crisis. Furthermore, in the National Peoples Congress held in March, 2009, many representatives affirmatively appraised the peoples courts on juridical protection to IP, but also brought out many proposals on effectively protecting and enforcing IP. In order to effectively implement these proposals and the Outline of the National Intellectual Property Strategy , which puts forth a strategic aim that China shall, by 2020, have a high level in creating, utilizing, managing and protecting IP, as well as to get IP trial to serve for effective response by Chinese enterprises to the global economic crisis, the Supreme Court issued the Opinion to give a general guideline to local courts at all levels to effectively try IP related disputes.
Economic crisis often accompanies with scientific innovation, which can, in turn, significantly drive for economic development and prosperity. To strengthen IP protection in the current economic situations plays an important role in effectively promoting scientific innovation, revolution and economic development. For this purpose, the Opinion is dedicated to strengthen IP protection and promote innovation.
Certain Patent Protection Rules Established
In the Opinion, the Supreme Court has requested local courts at all levels to carefully study the revised Patent Law , attach importance to patent trial and improve patent trial skills and level as an important work. To strengthen patent protection, the Supreme Court has designed some specific principles and methods for determining patent infringement. The Opinion has also perfected patent claims interpretation rules and infringement comparison determinant standards. According to the Opinion, when interpreting patent and utility model claims and defining their protection scope, it can not simply define the patent protection scope to the literal meanings of the claims, or permit the claims to function as a flexible technical guide. The technical characteristics specified in the independent claims shall be brought into the comparison scope of the technical characteristics. The Opinion has further adopted the doctrine of estoppel in determining patent infringement. Any material renunciation or restriction made by the patentee during the patent confirmation procedures shall not been protected in the claim scope. When hearing patent cases, peoples courts shall strictly examine and review the infringers deraignment and determine the infringement liabilities according to law, reasonably recognize prior rights, but support prior art deraignment according to law. Foreign companies shall familiarize themselves with these new established rules when drafting patent documents.
Strengthening Trademark Protection
1. Juridical Policy on Trademark Protection Perfected
In the former practice, when determining trademark infringement, peoples courts will consider whether any confusing exists between the infringing mark and the registered mark. Now this practice has been abandoned. According to the Opinion, unless reasonable use can be established, any use of mark which is the same or similar as the registered trademark on the same products without authorization of the owner of the registered trademark is an infringement, regardless of lacking any confusing between the two marks. Furthermore, when determining the similarity of the trademark and the products, peoples court will also consider the extent of the distinctive characteristics and the market knowingness of the registered trademark. The more distinctive and more widely known in the market, the broader and the stronger protection will be given to the registered trademark. The applicant shall attach importance to this and design distinctive marks for registration so as to get stronger protection.
In order to provide stable protection to registered trademark and avoid causing difficulties to the normal operation of enterprises, the Opinion prohibits peoples courts from cancelling registered trademark at will, particularly, those trademark of which the registration was long, and relatively widely known in the market. However, this does not mean no litigation can be initiated against the registered trademark. If the registered trademark conflicts with the prior property rights of other copyrights or enterprise names, however, the registered trademark is not cancellable because of the expiry of the mandatory period for opposition before granting registration to the trademark, the owner of the copyrights and enterprise names may still initiate infringement litigation against the registered trademark within the statute of limitations . However, in such situation, peoples court will not order the registrant to stop using such registered trademark. From this point, foreign investors doing business in China shall closely monitor its enterprise name or copyrighted work from being registered by others as trademark and actively apply for cancellation within the mandatory opposition period.
2. Actual Use of Registered Trademark and Civil Liability
The owners actual use of the registered trademark is very important for economic compensation against the infringer. According to the Opinion, if the registered trademark has not been actually used for commerce, the civil liability for infringing such trademark will be mainly limited to cease of infringement. The factor that the registered trademark has not been actually used for commerce shall be considered in the course of determining economic compensation. Except the reasonable costs for stopping the infringement, normally, the compensation will not be based on the amount of profits which the infringer has obtained from the infringement if the owner does not have any actual losses or other damages. Most importantly, if the owner does not intend to actually use the registered trademark, but just take it as a tool for claiming compensation, peoples courts will not support their claims for compensation. Further, when the registered trademark has not been used successively for three years , the owners compensation claim will not be supported either. Therefore, the owner of the registered trademark shall keep the mark in force and have actually used it after registration.
3. Identification and Protection to Well-Known Trademark
The Opinion has strictly limited the scopes and conditions for identifying well-known trademark at will, but strengthened supervision to the identification of well-known trademark. According to the Opinion, whether a mark is well-known or not is not a precondition for determining the infringement thereon, or when the registered trademark can be protected through identification of the scope of similar products, peoples courts shall not identify the registered mark as well-known trademark. However, peoples courts shall strengthen protection to those well-known trademarks complying with the laws. For this purpose, the Opinion requests that the hearing of cases involving well-known trademark shall be extended to the competent peoples courts having jurisdiction, normally the intermediate peoples courts or above levels. Since Chinese laws provide overall protection to well-known trademark, some enterprises may try to cause infringement happen to their registered mark and then apply with peoples courts to indentify their mark as well-known trademark. To avoid this, the Opinion requests peoples courts to rectify those cases involving identification of well-known trademark through fabricating evidence or through other illegal procedures. Obviously, though the Chinese law provides overall protection to well-known trademark, however, the condition, scope and procedures for such identification is strictly regulated by the Opinion.
4. Conflict between Enterprise Name and Registered Trademark
Since, in practice, registered trademark is often used by some enterprises to register as corporate name, the Opinion provides some guideline for handling their conflict. According to the Opinion, even an enterprise name has been legally registered with the competent company registry authorities, however, such corporate name has materially constituted infringement to registered trademark or unfair competition, peoples courts shall make judgment that the registration of such corporate name is a trademark infringement or unfair competition. Moreover, such judgment shall not rely on the administrative decision as a precondition, and the juridical procedures shall not be ceased, waiting for administrative decision. Even more, when an enterprise name has been legally registered overseas, if its use in China violates Chinese laws and disturbs Chinese market orders, such oversea registration can still be determined by peoples court as trademark infringement or unfair competition. This imposes an obligation for foreign investors doing business in China of not violating the PRC Trademark Law when choosing its enterprise names overseas. This avoidance can be achieved through conducting trademark search before registering its enterprise name.
In case trademark infringement is established by an enterprise name, the civil liabilities thereof include cease of continuous use of the enterprise name or restriction to the method and scope of the use of the enterprise name, depending on the specific situations. If an enterprise improperly uses a registered trademark which enjoys a relative high reputation as its corporate name and causes confusing in the market, peoples court shall order the enterprise to cease or change the use of such corporate name, upon the request of the trademark owner. To avoid this, foreign investors is again advised to conduct trademark search, when choosing its enterprise name, to see whether the corporate name it intends to use conflicts with any prior registered trademarks.
Perfecting IP Litigation Rules to Improve Trading and Investment Environment
In order to strengthen IP protection and provide more remedies, the Opinion has simplified the former litigation routines. According to the Opinion, any attorney who is expressively authorized by the IP owner to initiate litigation on its behalf can initiate legal proceedings in the name of the IP owner. Considering the inconvenience of overseas IP owner, it is not required that the overseas IP owner must sign on the complaint before litigation. Moreover, the Opinion has established and perfected the following rules to strengthen IP protection:
1. Non-Infringement Confirmation Litigation System
In order to avoid owners abusing their IP rights, the Opinion has established a non-infringement confirmation litigation system. According to the Opinion, in the following two situations, those who are accused of IP infringement may actively initiate non-infringement confirmation litigation against IP owner, requesting peoples court to confirm that they do not infringe the IP in question:
(1) The IP owner has issued them warning letters claiming that they have infringed his IP, but the IP owner has failed in initiating litigation according to law within reasonable time limit ; and
(2) When a company is or is ready investing and constructing factory facilities for business operation, it has received warning letters or other threats from the IP owner claiming that the company has infringed his patent rights. Then the company being accused actively requests the IP owner to confirm that their business operation activities do not infringe the patent rights of the owner, and further, in a reasonable manner, provides all information and materials necessary for the confirmation, however, the IP owner fails in responding or refuses to respond to such request within reasonable time limit.
Foreign companies shall keep in mind of timely initiating litigation against the infringer after sending warning letters to the infringer, otherwise, the infringer may actively request the court to confirm non-infringement. Of course, foreign companies may also make full use of this system when they are accused of IP infringement and the IP owner fails in timely responding to the non-infringement confirmation request.
2. Prudence in Ordering Preliminary Injunction
Though preliminary injunction is an effective and timely remedy for IP owner in the event of IP infringement, however, it can also possibly cause damages to the enterprises being accused. To seek for a balance, the Opinion requests peoples courts to prudently issue preliminary injunction order. According to the Opinion, preliminary injunction order only applies to those cases of which the factors are clear and infringement is obvious. When determining whether the infringement will cause unremediable damages to the applicant, peoples court shall specially consider whether the damage can be made up through monetary compensation, which shall also be reasonably enforceable. Before granting preliminary injunction order, peoples court shall also consider the survival conditions of the defendant, not getting its production and operation into difficulties due to improper preliminary injunction against it. In patent infringement, if the defendants infringement could not be easily established until further review and complex technology comparison, peoples court is not suitable to issue preliminary injunction order. Further, when the defendant has already separately initiated non-infringement confirmation litigation or requested for invalidation to the patent in question, peoples court shall review the factors and reasons for preliminary injunction requested by the applicant and prudently take any preliminary injunctive measures. The Opinion has further provided remedies to misuse of preliminary injunction. For instance, the applicant shall compensate the losses suffered by the defendant due to the preliminary injunction where (i) the applicant fails in initiating litigation within time limit ; (ii) the application is wrong; or (iii) the application is purported to prevent the defendants material business operation, such as the marketing of new products, and causing the defendants market interests seriously damaged. Obviously, peoples court has taken a prudent attitude towards preliminary injunction.
3. Main Remedies towards Infringement
In IP infringement, sometimes, immediate cease of infringement is more important than other remedies, such as compensation. The Opinion has attached a great importance to cease of infringement as an essential remedy. Considering the owners claims, the particulars of the case and the actual need for cease of infringement, peoples court may order the infringer to destroy the special materials and tools for producing counterfeited products, however, a precondition is that the destroy is necessary, and matches with the seriousness of the infringement, not causing any further unnecessary damages. If cease of relevant activities will cause material unbalance between the concerned parties, or damage social public interests or it is not actually enforceable, peoples court may order compensation as an alternative to the cease of the relevant activities. Particularly, where the IP owner surrenders himself to infringement for long and is remiss in protecting his rights, and it will cause material unbalance between the concerned parties if peoples court orders ceasing relevant activities, peoples court may prudently consider of not ordering cease of such activities. However, this does not affect court to order reasonable compensation.
In IP infringement, the compensation is normally based on the amount of the profits the infringer has benefited from the infringement, or the losses the owner has suffered from the infringement. In case the profits and the losses are difficult to calculate, a mandatory compensation cap will apply. Since the mandatory cap is relatively low, in order to strength IP protection and improve investment environment, the Opinion has advocated of using the profits or losses as the basis for compensation, but trying to avoid using the mandatory cap. When the profits or losses are difficult to calculate, however, it is evidenced that the foresaid amount is obviously higher than the mandatory cap, peoples court shall reasonably determine the compensation above the mandatory cap, considering all the relevant evidence. Even when applying the mandatory cap, unless it is otherwise proscribed by law, the reasonable costs and expenses for stopping the infringement shall also be separately compensated. All this reflects the courts determination to strengthen IP protection.
Conclusion
In order to provide a more favorable investment environment and help enterprises to actively respond to the current global economic crisis, the Supreme Court timely issued the Opinion to guide the local peoples courts at all levels to effectively try IP related disputes. The Opinion has reflected the change of the Supreme Courts attitude towards IP protection in the current economic situations. As a whole, the Opinion has strengthened protection to patent and trademark, particularly the protection to well-known trademark. The Opinion has also established certain new rules and systems, particularly the non-infringement confirmation litigation system, which have greatly enriched the current Chinese IP regimes. Some of these new rules are favorable to foreign companies doing business in China, while some are not. Therefore, foreign companies shall acquaint themselves with these changes and timely adjust their IP protection strategies in China.
ABOUT THE AUTHOR: Bill H. Zhang
Bill H. Zhang is the managing partner of China Sunbow & Associates with rich experience in cross-border transactions involving China, particularly on corporate and commercial matters, such as mergers and acquisitions, direct investment, corporate governance and compliance, restructuring and reorganization, labor and employment, and dispute resolutions, as well as on intellectual property transactions such as patent and trademark prosecution, enforcement, dispute resolution, infringement analysis, due diligence, license and transfer. He has advised many multi-national companies on merging and acquiring Chinese enterprises, making investment, resolving commercial disputes in China and represented them to register, prosecute and enforce various trademarks, patents and copyrights in China.