A brief review of the Supreme People's Court's 2017 Annual Report on Intellectual Property Cases

Among all the intellectual property cases that the SPC presided over in 2017, the SPC identified 42 distinct legal issues from 33 decisions. While China is a civil law country where codified statutes serve as the primary source of laws, the judiciary, led by the SPC, has been making an effort to attach greater significance to court decisions and provide better guidance for future disputes. It has become a tradition of sorts for the SPC and for some provincial high courts to compile lists of representative decisions from their jurisdictions each year for publication. Due to the SPC's role as the apex court in the country, its list is understandably the most read and analyzed by litigants and legal professionals.

The cases cited in the annual reports are understood to be designated by the SPC to have certain precedential value. Through the annual report and other efforts, the SPC intends to regulate and unify inconsistent practices by the lower courts, address new and complex legal issues, and help litigants obtain similar and predictable outcomes for future cases. In practice, litigants have referenced decisions from the annual reports to support their respective arguments in trials, and the reasoning and judgments from these decisions have played an increasingly important role in deliberations by lower court judges. With the 2017 Annual Report, we expect to see more predictable decisions from the lower courts that are in line with the SPC's reasoning and analyses.

In the following section, we will review three cases from the 2017 Annual Report to provide an insight as to how the SPC is trying to achieve its goals.

1 . THE RED CAN TRADE DRESS CASES

There has been a long standing dispute between two herbal-tea beverage companies, Guangdong Jiaduobao Beverage Food Co, Ltd (Jiaduobao) and Guangzhou Pharmaceutical Group Co, Ltd (Guangzhou Pharma), concerning the right over the “王老吉” trademarks and related trade dress. The Red Can Trade Dress Cases (comprising of Guangzhou Pharmaceutical Group Co, Ltd v T Guangdong Jiaduobao Beverage Food Co, Ltd., (2015) Min San Zhong Zi No.2 and (2015) Min San Zhong Zi No.3) in the 2017 Annual Report originated from the parties' competing claim over the ownership of the “red can-yellow characters” trade dress. The trade dress was made popular by Jiaduobao when it was marketing and selling the “王老吉” brand of herbal tea beverages. After Jiaduobao's licensing of the “王老吉” trademarks were terminated, both parties claimed to be the rightful owner of the trade dress. Subsequently, Guangzhou Pharma filed infringement cases against Jiaduobao with the Guangdong High Court seeking an injunction and damages for Jiaduobao's continuous use of the trade dress.

After the Guangdong High Court ruled in favor of Guangdong Pharma in the first instance, Jiaduobao appealed the cases to the SPC. Due to extensive media coverage, as well as the popularity of the trade dress, these cases have garnered wide attention from the public. The legal issues involved are also significant as the cases pitted the original owner of the trade dress against the party who made the trade dress a household name and many leading experts in the field have joined in the discussion prior to the SPC decisions.

In its decisions, the SPC overturned the first instance judgment and rejected Guangzhou Pharma's infringement claims. In a departure from the Guangdong High Court's focus solely on statutory interpretation and application, the SPC instead based its decision partly on the good faith of the parties and consumer welfare. The SPC noted that both companies had used the trade dress for a long time and contributed a great deal to the success of the trade dress. Due to its unique and complex history, consumers have generally attached the trade dress to both companies through the good faith efforts of both companies. Taking this into consideration, the SPC held that both companies are the owners of the trade dress.

To reach the decision, the SPC afforded greater importance on the principles of fairness and protection of public interests over a rigid interpretation of the statutory right over the trade dress. Many applauded the SPC's pragmatic approach to strike a balance among the interests of Guangzhou Pharma, Jiaduobao, and the consumers of the product. But others pointed out that the decision did not provide sufficient clarification to the market and plant the seed for future disputes. It has been reported that Guangzhou Pharma has sought a retrial for the SPC decisions and the disputes between these two rivals are apparently far from over.

2 . THE “金戈铁马” CASE

In Xiaodong Cao v Yunnan Xiaguan Tuocha Tea (Group) Co, Ltd., (2017) Zui Gao Fa Min Zai No.273, the trademark infringement was filed by Xiaodong Cao (Cao), an individual and owner of the trademark “金戈铁马”, against the Yunnan Xiaguan Tuocha Tea (Group) Co, Ltd (Xiaguan Company), a company that sold tea leaves with the package labeled with the “金戈铁马” mark. While Cao was the legal representative of a local tea company, the defendant in this case was a much larger company and more well-known in the tea market. The Yunnan High Court on appeal rejected Cao's infringement argument and held that Xiaguan Company's use of the “金戈铁马” marks does not cause consumer confusion. In particular, the Yunnan High Court pointed out that, as an established company, Xiaguan Company had no incentive to freeload on Cao's reputation and goodwill.

The SPC granted a retrial and reversed the High Court's decision. The SPC noted that the owner of a trademark not only has the right to prohibit others from using it on identical or similar goods, but it also has the right to use the trademark to establish an association between itself and the trademark. In this case, Xiaguan Company's use of the “金戈铁马” trademark made it difficult for Cao to establish an association between the trademark and his own goods or services. Regardless of whether the Xiaguan Company brand is more popular or whether Xiaguan Company acted in good faith, Xiaguan Company's trademark use took away the trademark's function to identify the source of the goods and resulted in harm to Cao.

The doctrine of reverse confusion is at the center of the “金戈铁马” case because the infringement claim is leveled by a smaller, less powerful user against a much larger, more established rival. It is worth noting that another reverse confusion case was included in the 2016 SPC Annual Report with a different outcome. In Hangzhou Aopu Bath and Kitchen Technology Co, Ltd v Zhejiang Modern New Energy Co, Ltd and etc, (2016) Zui Gao Fa Min Zai No.216, the SPC supported the alleged infringer in a reverse confusion situation, and held that the protective scope of the asserted trademark should be consistent with the trademark owner's contribution. The SPC apparently took a different approach in the “金戈铁马” case by focusing on the trademark owner's right to associate the trademark with its products and services, rather than on the alleged infringer's contribution to the existing reputation of the trademark. Therefore, although reverse confusion cases were included in two consecutive annual reports by the SPC, the issue is far from settled as it is apparent that the SPC is also struggling with competing interests in these types of cases.

3 . THE MARKUSH CASE

A Markush claim (see Beijing Wansheng Pharmaceutical Co Ltd v Patent Reexamination Board of State Intellectual Property Office, (2016) Zui Gao Fa Xing Zai No.41) is mainly but not exclusively used for chemical inventions. It uses a structure to represent a group of “functionally equivalent” chemical entities allowed in one or more parts of the compound. It is a single claim defined by multiple alternative elements according to the Guidelines for Patent Examination issued by the State Intellectual Property Office. But the decisions of the patent office and courts have been inconsistent with regard to patentability and protective scope of the Markush claims.

Likely to address the uncertainty surrounding the Markush claims, the SPC identified a patent invalidity case in the 2017 Annual Report concerning a patent owned by Daiichi Sankyo Co Ltd (Daiichi Sankyo). The patent titled “Process for preparing pharmaceutical composition for the hypertension's treatment or prevention” contains Markush claims where the Patent Reexamination Board (PRB) upheld the validity in an invalidity challenge. The case then progressed through the courts with the Beijing No.1 Intermediate Court and Beijing High Court reaching different conclusions on the validity of the Markush claims. The SPC then accepted the PRB's petition for retrial.

The SPC noted that the scope of a Markush claim is subject to strict interpretation due to its nature as a generalized combination scheme, regardless of the number of variables and combinations that can be included. In this case, although different formulas result in different drugs, the drugs should be equivalent in their effectiveness and be able to achieve all their intended purposes. A Markush claim therefore should be considered as a collection of Markush elements with common property and effect, rather than a collection of compounds independent from each other.

In this case, the SPC again tried to strike a balance between the interest of the patentee and that of the public. Due to its strong generalization ability, once granted, a Markush claim can potentially cover a broad range compounds. On the one hand, Markush claims are needed for patentees to adequately describe their inventions; on the other hand, an unchecked monopoly with Markush claims will harm the public by taking away all the compounds from the public domain. Consideration of both factors will likely offer guidance to the SPC to support the application of Markush claims while at the same time apply strict interpretation rules.

In summary, these three cases encapsulate the ambitious goal of the SPC to unify judicial practice around the country and at the same time tackle difficult legal issues. The SPC is expected to continue this practice and also encourage other prominent courts around the country to take similar actions. Like many issues in China, the impact of this system is also changing but it is certain that judicial decisions will play an increasingly important role in shaping the legal framework in China.

 Fang Qi, Partner

 Melanie Zheng, Associate

 Fangda Partners, Beijing