Decoding the top IP cases

It is that time again – the Supreme People's Court (SPC) has cherry-picked 30 of the IP opinions handed down last year for its Annual Report on Intellectual Property Cases (2013). The report also extracted 39 doctrines from these important precedents. These will be more or less binding on the lower courts despite China being a civil law jurisdiction. This is the sixth annual report released by the SPC since 2008. It is a safe bet that most of the precedents will be widely followed in the years to come, if they have not been already. This is particularly true for the six cases where the SPC reversed the lower courts' decisions.

The guidance provided by the report is not just relevant for IP litigators. Some are also important for IP prosecution attorneys. For instance, in one patent invalidity case directed to a rear derailleur gear, the SPC urged the State Intellectual Property Office (SIPO) to set up corresponding response procedural rules allowing an applicant to fix an invalid claim, if it is invalid only for containing new matter decided by a court to be directed to the "non-inventive portion" of a patent. In a trademark case concerning fashion department store Bonneterie's flower logo, the SPC affirmed the doctrine that, for the same applicant, a senior trademark can potentially extend its commercial value to related junior trademarks through use.

While these thirty cases are invaluable to practitioners, they do not answer all the most pressing questions. In particular, no case touches on the issue of the interaction of preliminary injunctions proscribed in IP laws and the so-called act preservation newly adopted in the 2013 amended PRC Civil Procedure Law. IP lawyers are still waiting for the issue to reach the SPC. Among all thirty cases, there are only two copyright cases and one trade secret case, all of which deal with relatively minor issues.

Clarifying Article 33

The so-called rear derailleur case was a patent invalidity trial dealing with the new matter regulations. The law is clear that no new matter can be added to a patent application through an amendment, or, as the PRC Patent Law states, no amendment can exceed the original scope. Traditionally, it has been interpreted strictly and mechanically to reduce the risk of an applicant sneaking new matter into an application with an earlier filing date. But the rear derailleur case showed that a closer look may be necessary before any amendment is declared to be new matter, even if it is not supported verbatim by the texts of the original application. The SPC pointed out that “the scope specified in the original written specification and written claim” as stated in Article 33 of the Patent Law encompasses not only what the original application literally discloses but also what one of ordinary skills in the art can deduce from it. One skilled in the art can consider both texts and drawings in the original written description to ascertain the scope of the original application.

The SPC did not stop there with the skilled person analysis. It went on to state that even if Article 33 does not literally distinguish amendments directed to the “inventive portion” and “non-inventive portion,” the legislative intent underlying it indicates that the contribution of an invention in its entirety to the prior art should not be ruined solely because some amendments made to the “non-inventive portion” exceed the original scope. The SPC went as far as urging SIPO to set up corresponding procedural rules in patent invalidation proceedings, which affords a procedural solution for patentees to fix the non-inventive new matter problem by restoring the application to its original status.

Doctrine of equivalents

The SPC analysed the doctrine of equivalents (DOE) again in this year's annual report through the so-called hot water bag case. This time the doctrine was related to the order of steps in a method claim. The SPC found that by switching step 10 with step 11, the defendant simplified the operating process, saved time and improved overall efficiency, which constituted a material and substantial change in terms of the technical effect. In reversing the lower court's decision, the SPC held that this change took the accused method outside the scope of the DOE.

The SPC also identified that the holding is consistent with the donation doctrine. Anything disclosed but not claimed goes to the public domain and the patentee cannot recapture that through the DOE. In particular, the SPC stated that “the people's court will not uphold a technical solution disclosed in the specification or the associated figures but not within the scope of the claims, if the patentee attempts to recapture the technical solution into the scope of the patent protection.”

First-to-file weakened

The Bonneterie decision may have compromised the first-to-file system in the PRC Trademark Law. Bonneterie Cevenole holds a flower logo trademark. The SPC overruled the decision of the Trademark Review and Adjudication Board (TRAB) by adopting the doctrine developed by several lower courts, that the recognition of the same applicant's various registered trademarks can be radiated and extended to trademarks filed later, though subject to certain conditions such as the commercial use of the senior trademarks.

Bonneterie registered two flower logo trademarks, one senior and one junior to the trademark relied on by Baume & Mercier in its trademark cancellation application. Baume & Mercier challenged Bonneterie's junior trademark. Interestingly, the SPC did not decide the validity of the trademark-at-issue by simply analysing its similarity to the cited trademark. Instead, it looked at the extensive and continuous commercial use of Bonneterie's senior trademark, and found that the junior trademark can inherit it, essentially pushing the filing date of the junior trademark all the way back to the senior's. The SPC concluded that the commercial use gained relatively high recognition among the relevant public, and, therefore, the public could easily and objectively distinguish Bonneterie's disputed trademark from Baume & Mercier's cited trademark.

The inherited benefit is limited, however. The SPC stated that permitting the existence of a disputed trademark would only limit the scope of the cited trademark's exclusive right and would not limit the right owner's right to exclusively use its trademark. This case has given such hints on how to broaden the scope of rights for well-known trademark owners. One can imagine how difficult the trademark clearance search will be in the future, as it may be necessary to inquire into the use of other parties' trademarks in the search. The Beijing Higher People's Court has already codified the doctrine in its Guidance for Trademark Validity Administrative Cases at the beginning of this year.

Intent to use

In the Haitang Bay case, the SPC again held that when a trademark applicant registers the trademark without real intent to use, its application is unreasonable and unfair to the public. The conduct of massive trademark squatting can interfere with the trademark registration system, impair the public interest and misappropriate public resources in an unjust manner. The SPC affirmed that trademarks registered this way will be deemed as invalid trademarks “acquired by any other unfair means” as specified in Article 41.1 of the Trademark Law.

In particular, the cancellation request against the disputed trademark in the Haitang Bay case was filed within five years of its registration. So TRAB, the appellate court and the Beijing Higher People's Court all relied on the prior right clause in Article 31 in cancelling the trademark. The SPC, however, did not comment on the Article 31 issue, but instead affirmed the decision differently. It directly applied Article 41.1 – a statutory bar to trademark registration. This decision resembled the SPC's seminal decision on the Futaba case several years ago, where it cancelled the trademark on the same grounds.

Another case known as the Men are from Mars, Women are from Venus case concerns trade dress. The SPC has clarified the meaning of the uniqueness requirement for trade dress. In particular, it emphasised that trade dress, like trademarks, identifies the source of the commodity. To a certain extent, it is similar to the distinctiveness requirement for trademarks, and has nothing to do with novelty or creativeness, which are legal concepts for patents. The SPC emphasised that no defendants should benefit by creating any defence on the ground that the trade dress at issue lacks novelty or creativeness.

Liability for infringement

Regarding the enforceability of liquidated damages, the SPC reversed the lower court's decision in the wheel alignment device case involving a utility model patent. The SPC held that a people's court can determine the amount of damages based on the agreements entered by and between the infringer and the patentee in an infringement action, even if Article 65 (the damages statute) of the Patent Law specifically explains how to calculate damages. Finding the amount of damages based on contractual claims does not automatically contradict Article 65, as the parties are free to agree on the damages within the scope of their autonomy. This kind of agreement can be made either before or after the infringement takes place. The only requirement seems to be that the amount of the liquidated damages has to be reasonable.

Procedural and evidence rules

It is interesting to note that the SPC has stressed many issues that concern the procedural and the evidence rules. With regard to counterclaims, the SPC stated that even though a claim and its counterclaim do not arise from identical facts and/or legal relations, any potential counterclaims that have a nexus with the claims at hand are allowed. The SPC's reasoning emphasises the purpose of the counterclaim mechanism, which is to reduce parties' burdens and save judicial resources. The SPC seemed to imply that trial judges should have more discretion to take on both permissive and indispensible counterclaims, as long as it is efficient to do so.

Regarding the new-evidence rule, the SPC has stated that if the focus of the dispute changes after the evidence production period closes, it is only fair that the parties are provided with an opportunity to submit additional evidence under the new evidence rule. While this makes a lot of sense, the SPC did not clarify its implementation. Traditionally, many courts do not decide the focus or key issues of a case until the trial. It is not clear whether courts will have to identify the key issues much earlier in a case or identify them after the trial begins and give parties more time to submit additional evidence.

More clarification

There are a few more procedural issues worth mentioning. The SPC has made it clear that foreign opinion should not be excluded or accepted automatically. In specific cases, whether to adopt an expert opinion offered by a foreign appraisal body is premised on the examination of the material facts. Otherwise, courts will serve as a rubber stamp to foreign appraisal bodies. The SPC also explained that the place of infringement is the place where the infringement directly caused harm, as opposed to simply the plaintiff's domicile. Finally, in patent infringement disputes regarding manufacturing methods for making known products, it can be presumed that the accused infringer has used the patented method if the plaintiff can come up with preliminary evidence.


Yan Wang and Zheng Wang, Fangda Partners, Beijing


More from CLP:
Supreme People's Court, Annual Report on Intellectual Property Cases (2013) (Abstract)
Enforcing your rights – IP Focus
Implementing Regulations for the PRC Trademark Law (Revised)
Opinion: New trademark rules leave owners unprotected
PRC Trademark Law (3rd Revision)
Why China's trademark enforcement still needs reform
Is the new trademark law a missed opportunity?
The golden rules of trademark strategy
Protecting your brand under the new rules – IP Focus