On October 22, 2013, the Supreme People’s Court (SPC) held a press conference in Beijing to announce 8 leading intellectual property (IP) court decisions. The cases are all made by local courts in different cities and involved the granting of preliminary injunctive orders, reduction of the burden of proof on IP owners and an increase in the amount of compensation in civil cases, and intensified criminal penalties. Almost all the claimed progress in the announcements relates to what has been asked for by foreign business communities.
While it is worthwhile to remind that China is not a case law country, it is encouraging to see the new progress made in IP enforcement, which could be used as good precedents for IPR owners to push for more courts to follow.
The Supreme People’s Court has been passionate in using “representative” IP cases to establish good practices for the local IP judges to follow. In the past few years, the Court published a series of decisions that it concludes every April as precedents. The publication of leading cases this October is somewhat unexpected. It seems that the Court wishes to use these cases to communicate to the public and business community about what is considered as positive changes in IP enforcement.
Highlights of these decisions related to civil enforcement are as follows
The SPC highlighted the recent decision released by the Shanghai First Intermediate People’s Court that granted Eli Lilly preliminary injunctions against an ex-employee in a trade secret case. Lilly successfully obtained interim injunctive relief (behavior preservation) from a Shanghai court against an ex-employee that allegedly downloaded confidential business documents, in violation of the signed confidentiality agreement between the two parties. This is almost the first time that companies took advantage such types of interim injunctive relief in a trade secret case after China amended its civil procedure law recently.
This opens up bigger hopes for IPR owners to ask for more interim injunctive relief in patents, trademark or copyright cases.
Easing the Burden of Proof
Two years ago, Premier Wen Jiabao of China vowed to lower the burden of proof in civil IP cases as a way to improve IP protection, as there has been a strong consensus that it is extremely difficult for IPR owners to investigate and obtain conclusive evidence of IP infringement. In the press conference, the Supreme Court encouraged the local courts to apply presumptions and shifting of burden of proof to infringers. It was said that if the IPR owner has made reasonable efforts to collect proof of infringement but has been unable to obtain sufficient proof and there is also a greater likelihood of infringement in light of known facts and business practice, the courts will no longer require the IPR owner to provide conclusive proof. Instead, the burden of proof will be allocated to the alleged infringer. If the alleged infringer cannot provide proof to the contrary, the infringement will not be established based on presumption.
The SPC highlighted this in the Ashland “water-in-water method for producing polymer dispersion” invention case where presumption was used to identify patent infringement of the product manufacturing process. The Suzhou Intermediate People’s Court held that because the defendants were former Ashland employees and had had access to Ashland’s patented production process but were unable to provide evidence to the contrary, the defendants’ actions constituted patent infringement.
If this trend is taken up by other courts, IPR owners will be able to better protect their IP even in cases where there is substantial difficulty in providing probative evidence, such as matters that involve method claims or trade secret infringement claims.
What is also interesting is that the Supreme Court also referred to a development where courts have started to ease up on the requirements for notarization and legalization of overseas evidence. Except in special matters where legalization is required under the laws, the courts are starting to support the use of reasonable alternatives to establish the authenticity of overseas evidence. This will ease the burden on foreign parties, preventing evidence from being dismissed solely due to procedural notarization or legalization issues.
Higher Level of Awarded Damages
Increase of damages in IP lawsuits seems to be a main theme these days in China. The new trademark law just tripled the cap of statutory damages from RMB 500,000 to 3 million RMB. The Supreme Court’s announcement reiterates the same. Courts have started to allow the use of economic analysis, evaluations, financial accounting, and other professional analytical methods in calculating damages. The Court stressed that local courts have become more aggressive in exercising discretion to award damages when infringers who possess evidence have refused to provide it. Courts are allowed to use their discretion to decide on a fair and reasonable amount of compensation in a situation where evidence is hidden by the other party and may also award a higher amount of compensation. In one case, there was insufficient evidence to directly prove the amount of actual loss but the court used the audit report and other relevant evidence to determine the amount of damages and to allow the rights holder to obtain the maximum compensation amount for the losses suffered. In another case, the infringer possessed evidence of infringement but refused to provide it to the court. The court presumed that the profit from the other three products was not less than the profit from the first and used their discretion to increase the infringement fines.
Enforcement of Court Decisions
The Supreme Court stated that in order to reduce the risks of repeat or continued infringement, courts have ordered the destruction of machinery, especially special materials and tools used to commit the infringement, and changes to enterprise names where the use of the company name constitutes trademark infringement or unfair competition.
What is also interesting is the use of civil sanctions to demand compliance with court orders, according to the SPC announcement. The Court pointed to a BMW v. Guangzhou Century Baochi Clothing Ltd. trademark case where the local court imposed harsher civil sanctions against infringers who had committed willful and repeat infringement. The court took into account various factors and held that Gaungzhou Century Baochi Clothing had committed serious and malicious infringement and had gained huge profits. Accordingly, Guangzhou Century Baochi were ordered to pay RMB 2 million in compensation for the economic losses and were, in addition, ordered to pay RMB 100,000 in civil sanctions.
Intensified Criminal Sanctions against IP Criminals
The SPC listed two examples of criminal cases where criminal fines of up to a record high of RMB 20-30 million have been imposed in trade secret and trademark counterfeiting cases. The Aster Graphics Company Limited case is the largest trade secret violation case so far in China and the amounts of illegal turnover and penalty involved are also the highest in China IP sanction history. All defendants were sentenced to years of imprisonment and a fine of RMB 37 million, the largest fine ever. The Zong Liangui and 28 people counterfeiting of registered trademarks case also featured an incredibly large fine of RMB 27 million. Both cases were used to demonstrate the court’s determination to intensify criminal sanctions in the effort to increase IP protection and deter further infringement.
There may be debates as to whether foreign parties may pull off the same kind of victories in similar situation. Many of the positive developments in these cases require the proper exercise of discretion and a higher level of sophistication and openness among judges. The judges’ lack of experience, possible local protectionism, and heavy caseloads at local levels may block IPR owners from easily taking advantage of these best practices. It is probably the time for IPR owners to review the new changes and decide when it is time to take actions.