Opinion on Several Issues Concerning the Serving of the Main Objective When Handling Intellectual Property Trials in View of the Current Economic Situation

As China Law Update has previously noted, the Chinese government has made a concerted effort in the past few years to formulate policies and laws that will in time reshape the nation's economy, supporting industries that provide higher-paying jobs and foster technological innovation. That broad goal was stated clearly in the Compendium of China's National Intellectual Property Strategy, which was issued by the State Council in June 2008: Develop China into "a nation with an internationally top level of creating, using, protecting and managing [Intellectual Property Rights] by 2020." Now the Supreme People's Court (SPC) has issued the Opinion on Several Issues Concerning the Serving of the Main Objective When Handling Intellectual Property Trials in View of the Current Economic Situation (IP Trials Opinion), which provides broad—albeit often vague—guidance to Chinese courts about handling all types of intellectual property disputes. Despite the reference to the global economic crisis in the title, much of this guidance has more to do with that broader national goal: Intellectual property, the IP Trials Opinion notes, "is a strategic resource in a nation's development and is a central factor in enhancing international competitiveness."

This opinion is, in fact, the second recent interpretation by the Supreme Court on matters involving intellectual property. In last month's issue of China Law Update, we summarized the SPC's Interpretation of the Supreme People's Court on the Application of the Law Concerning Several Issues Regarding the Trial of Civil Disputes Related to the Protection of Well-known Trademarks.

Much of what is contained in the lengthy (6200 words in English) IP Trials Opinion is not new. Perhaps most noteworthy is the opinion's explicit statement that courts need not grant an injunction, even when infringement of intellectual property rights has been proved, if an injunction would "significantly harm the interests of one of the parties," is "contrary to the public interest," or "would be impractical to enforce."

What constitutes "the public interest," of course, will be known only with time and the experience of court decisions. So too, more broadly, only time and experience will determine the practical impact—if any—of the IP Trials Opinion.

Patent Protection

In December 2008, the Standing Committee of the National People's Congress approved a series of major amendments to the Patent Law of the People's Republic of China. (See China Law Update, February 2009.) Those amendments take effect on October 1, 2009. The IP Trials Opinion broadly directs Chinese courts to understand and emphasize implementation of the revised Patent Law. The actual instructions, however, are so vague and general (i.e., "the interpretation of claims should not only give fair protection to patentees but also ensure that the public is given reasonable legal stability") that it's difficult to predict how courts will interpret the SPC's guidance.

Trademark Protection

Reiterating the principles outlined in the Interpretation of the Supreme People's Court on the Application of the Law Concerning Several Issues Regarding the Trial of Civil Disputes Related to the Protection of Well-known Trademarks (instructing courts, for example, not to grant "famous brand" designation if a dispute can be settled without doing so), the SPC sets goals of "improving judicial policy towards trademarks, strengthening trademark protection and promoting the fostering of proprietary brands."

But again, the actual instructions are broad and vague.

Conflicts of Laws

Where both a specific intellectual property law (whether related to patents, trademarks or another subject) and the Anti-Unfair Competition Law of the People's Republic of China cover a topic, the dedicated law shall prevail. The Supreme People's Court says the Anti-Unfair Competition Law, which took effect in 2003, "is not to be used to broaden protection . . . and thus hinder free and fair competition."

On the other hand, the SPC says, "A high degree of importance is to be attached to the implementation of the Anti-Monopoly Law, and various types of monopoly disputes are to be duly tried in accordance with the law so as to put a halt to monopolistic acts, safeguard fair competition and provide a free and liberal environment for enterprises to establish and grow their businesses."

Improving the Intellectual Property Litigation System

The SPC instructs lower courts to protect the right to sue, and in particular not to place overly strict demands on overseas rights holders so as to effectively undermine that right to sue.

One item of note in this section is the SPC's instruction to enhance the system for allowing those who have been accused of infringement to later seek an affirmative court declaration of non-infringement: Where an intellectual property owner issues a warning of infringement to a suspected infringer but fails to initiate a lawsuit within a reasonable period of time as specified in law, the suspected infringer may initiate a lawsuit to apply for confirmation that it did not, in fact, infringe upon that intellectual property right.

Pre-Trial Injunctions

The section of the IP Trials Opinion that has drawn the most attention discusses the use of pre-trial injunctions; the SPC calls for the "prudent use" of such remedies, mainly "in cases where the facts are relatively clear and infringement easy to determine."

On the subject of injunctions, the Supreme People's Court also says:

• Where an IP owner claims irreparable damage, courts should consider whether monetary compensation would suffice.
• A respondent's defense of "public interest" is to be "stringently examined," and accepted generally in cases that involve public health, protection of the environment or "other material public interest."
• Where a respondent's actions in a patent dispute do not constitute "literal infringement" and require further trial investigation, the court should not grant a pre-trial injunction.
• While courts can order the destruction of tools and other materials as well as infringing products when it is a matter of "genuine necessity," in some cases courts may resolve disputes by taking "substitute measures such as [awarding] greater damages or economic compensation."

Damages as a Deterrent to Infringement; Actual Versus Statutory Damages

Whenever possible, damages are to be based on either the losses incurred because of infringement, or the profits gained by the infringing party, rather than statutory damages. Where actual damages are difficult to calculate but there is evidence that the damages are greater than statutory limits, courts should set damages at "a reasonable amount" above those maximum statutory limits.

Damages should also, the SPC says, be "appropriately higher than normal royalties."

Equal Protection for Foreigners . . . While Enhancing China's "Intellectual Property Capabilities"

The IP Trials Opinion clearly instructs courts to provide equal protection to both local and non-local parties, as well as foreign and Chinese litigants, "opposing any form of protectionism." One goal, the SPC says, should be to "increase [China's] level of openness toward the outside world."

On the other hand, the IP Trials Opinion envisions courts as having a role in promoting China's national interest, instructing them to "pay attention to safeguarding state interests and economic security, incentivize and promote proprietary innovation and enhance China's overall intellectual property capabilities and international competitiveness."

Improved Coordination and Communication

The IP Trials Opinion calls for improved communication and coordination between and among courts, with the goal of "standardizing judicial acts and maintaining a uniform rule of law." To achieve those goals, the SPC calls for an improved system of guidance for courts and the use of "typical precedents."

Where different courts are handling related cases, the court that accepted the case on a later date is responsible for actively initiating communication and coordination with the other court so as to avoid the rendering of judgments that conflict with each other.