Lower litigation costs or higher level of courts

Rouse
Evelyn Luo
[email protected]

Since the Supreme People's Court (SPC) issued its first notice granting several district courts the right to hear intellectual property cases, it has been enlarging the scope of the district courts that hear those cases. In a recent notice, the SPC revised the monetary standards for allocating first instance IP civil cases to different levels of the people's courts. This effectively means that more cases will be heard by the lower district courts, giving rise to concern as to their ability to deal with those cases effectively.

According to the revised rules, district courts that have been granted the right to hear IP cases will be able to do so on cases with a monetary claim of less than Rmb5 million (US$732,204). But, if the parties reside within the jurisdiction of the higher court or intermediate court above that district court, they can hear cases between Rmb5 million and Rmb10 million. Cases involving patents, plant varieties, integrated circuit layout designs, and the recognition of well known trade marks are excluded.

The higher people's courts can hear cases with monetary claims of over RMB200 million (US$29.3 million), or, if the case involves foreign parties or parties from Hong Kong, Macau or Taiwan, of between Rmb100 million and Rmb200 million. But higher courts in different provinces have the right to determine the specific standards in their own province. According to another notice issued by the SPC, a total of 92 districts from 17 provinces have been appointed to hear IP cases and the standard for accepting the case varies from Rmb500,000 to Rmb5 million.

In general, district courts will become the most common courts for IP right owners to seek remedies. Yet the maturity of the IP tribunals in district courts still remains an issue and expansion of the number of first instance district courts hearing IP cases could negatively affect right owners in the short term.

Due to a lack of IP experience of some district court judges, IP owners must work harder to explain both the nature of the rights and also the law. Yet judgments with mistakes could still be made, leading to the need to appeal to the intermediate courts. For instance, although district courts in Guangdong Province have been granted the right to hear IP cases since 2004, in the author's own experience, when an unfair competition case was filed with a district court in Guangzhou in 2008, the court had little grasp of unfair competition and the judgment contained a number of errors.

Thus, while right owners may circumvent district courts by increasing the size of their monetary claims to the level of intermediate courts, that also means higher litigation fees which are based on the size of the claim. Given that the mean damages award for various types of IP case in China ranges from Rmb70,000 (US$10,250) – Rmb100,000 (statistics available from www.ciela.com.cn), in many cases it may be pointless to make large claims (and pay expensive court fees) for this size of outcome.

The chart above shows how much court fees plaintiffs must pay to intermediate courts under the revised rules if they claim an amount large enough for the intermediate court jurisdiction.

In Beijing, if rights owners want an intermediate court to hear the case instead, the first instance litigation fee for an IP case is Rmb46,800 (calculated by the lowest standard for an intermediate court to accept an IP case above the district court's jurisdiction). In Shandong Province, the fee is Rmb30,800 and in Shanghai City and Guangdong Province the fee is Rmb22,800. What makes things worse is that some courts split cases by products or rights. If more than one product or right is in dispute, the courts split them regardless of the fact that the products are infringing the same right, or the rights are in the same product. That could increase the litigation fee to an astonishing amount.

Lower litigation fees, or a higher level of court? It's an unfortunate decision to make. We hope that in the near future, the quality of lower level IP courts can catch up with their rate of expansion.