Annual Review on Intellectual Property Legislation and Practices

The amendment for the Anti-Unfair Competition Law (反不正当竞争法) became effective on April 23, 2019 (2019 Anti-Unfair Competition Law).  As expected, a large part of the amendment codifies judicial practice in dealing with various types of unfair competition disputes that were non-existent when the old law was enacted.  For example, the amendment expands the scope of identifiers that a company uses for its products or services, and also clarifies that all confidential commercial information can be potentially asserted as trade secret.  "Electronic intrusion" was also added as an act of infringement in trade secret disputes.

With respect to the Patent Law (专利法), the draft amendment was released on Jan. 4, 2019 (2019 Draft Patent Law Amendment) (专利法修正案 (草案)), although there has been no word on when it will be officially adopted.  The changes in the 2019 Draft Patent Law Amendment are quite comprehensive covering a broad range of issues, such as extending the term of design patents to 15 years, adding up to five years to the term of drug patents, introducing punitive damages for willful infringement, and specifying the burden of proof in civil cases.  With the issuance of the IP Protection Opinion, further changes may be added to the 2019 Draft Patent Law Amendment to implement some patent-related policy initiatives in the IP Protection Opinion.  The legislature may also pass the current draft if it believes some of the implementations are premature at this stage.

…the new law prohibits mandatory transfer of technology as a condition precedent for foreign companies conducting business in China, an issue that had been subject to considerable criticism before the amendment

Another major piece of legislation that was amended this year was the Foreign Investment Law (外商投资法).  With passing of the new law, several laws that supported foreign investments in the past 30-plus years were repealed, including the Sino-Foreign Equity Joint Venture Law (中外合资经营企业法), the Wholly-Owned Foreign Enterprise Law (外资企业法), and the Sino-Foreign Cooperative Joint Venture Law (中外合作经营企业法).  As far as intellectual property is concerned, the new law prohibits mandatory transfer of technology as a condition precedent for foreign companies conducting business in China, an issue that had been subject to considerable criticism before the amendment.  Similar changes were also made to the Regulations for the Administration of Technology Import and Export (技术进出口管理条例).  The changes would surely be welcomed by foreign companies and alleviate their concerns about loss of control over their intellectual property in China.

Establishment of the SPC IP Tribunal

The jurisdiction rules for IP cases are complex, consisting of subject matter (i.e. an IP case can only be filed with a court with jurisdiction over the subject matter), territorial (i.e. only courts at the defendants' domiciles or places of infringement can hear the case), and hierarchical elements (i.e. a plaintiff can potentially bring the trial case from an intermediate court to a high court by raising the damage claim).  While these rules have been subject to frequent changes, few are more significant than the establishment of a new IP tribunal within the Supreme People's Court (SPC IP Tribunal) at the start of 2019.

The new SPC IP Tribunal consolidates all appellate jurisdictions from the regional high courts for technology-related cases involving invention patents, utility models, new plant species, integrated circuit layout designs, trade secrets, computer software copyrights and monopoly issues.  Combined with the change of jurisdiction threshold for regional high courts by which all IP cases with a damage claim lower than Rmb5 billion will stay with the intermediate courts, it would be extremely rare for the regional high courts to have any technology-related IP cases on their dockets moving forward.

If the academic discussions leading up to the establishment of the SPC IP Tribunal offers any guidance, the new SPC IP Tribunal is expected to take a pro-IP owner stance, provide a unified standard for legal issues within its jurisdiction and elevate the quality of decisions.  Notably, the SPC IP Tribunal took actions to raise its profile, such as organizing an "Intensive Sentencing Week" in the period between Dec. 9 and 13, 2019, during which it released a group of decisions.

Development in Judicial Practice

In 2019, an interim decision for an IP case was affirmed by the SPC for the first time.  In Valeo Systemes d'Essuyage v. Xiamen Lukasi Car Accessories Co., Ltd. et al., the Shanghai IP Court creatively issued a judgment on the issue of infringement only, without addressing the damages issue, so that the losing party could appeal the infringement part of the decision to the SPC IP Tribunal before the full case is concluded at the Shanghai IP Court.  On March 27, 2019, the SPC IP Tribunal affirmed through a public hearing (see (2019) Zui Gao Fa Zhi Min Zhong No. 2).  This is viewed not only as an affirmation of the Shanghai IP Court's judgment, but also as an endorsement of the interim decisions by trial courts.  Moving forward, it is expected that there will be more interim decisions, but the standard for issuance still needs to be developed.

Courts also have shown greater acceptance to preliminary injunctions in 2019.  This is mainly propelled by the Supreme People's Court, Provisions on Several Issues Concerning the Application of the Law in Reviews of Act Preservation Cases in Intellectual Property Disputes (最高人民法院关于审查知识产权纠纷行为保全案件适用法律若干问题的规定) that became effective on Jan. 1, 2019.  With clearer guidance on the legal standard, courts have likely issued more preliminary injunctions on IP issues in 2019 than any preceding years.

Litigation in the coming years will also be impacted by Several Provisions on Evidence in Civil Procedures (关于民事诉讼证据的若干规定), which were released by the SPC on Dec. 26, 2019.  This document brings forth some of the most significant changes to evidence rules since the previous version, which was introduced in 2002, and the new rules cover all stages of evidence collection, presentation, and examination, as well as the court's role in reviewing admissibility and allocating burden of proof.

Increase in Damages Awards

While various amendments have different emphases, they have been consistent in raising the bar for damages awards.  As shown in the table below (the 2014 draft amendment for the Copyright Law (版权法) is added for comparison purposes), all proposed amendments or amended laws have raised the threshold in statutory damages and introduced punitive damages for willful infringement.

Courts also have handed down increasingly higher damages awards in the recent decisions.  Based on data published by the Jiangsu High Court, among all cases litigated before the courts in the Jiangsu Province from 2016-18, only 24 IP cases received more than Rmb10 million in damages awards.  Among these 24 cases, 18 were decided in 2018.  Such a trend can also be seen from similar researches conducted by the Guangdong High Court and the Zhejiang High Court.

While the official data for 2019 are not yet available, it is likely that 2019 will be another record-breaking year as far as the damages awards in IP cases are concerned.  Many of the high-award cases result not only from detailed calculation of the infringer's gains or the rights owner's losses, but also from the court's consideration of the infringer's bad faith and the infringement's impact on market competition.  More frequent occurrences of cases with high damages awards would also help judges feel more comfortable with giving greater weight to these factors in their cases.  With the new amendments that both set a higher bar for damages and offer stronger protection for IP owners, it is expected that this trend will continue.

Shifting the Burden of Proof

The general rule of producing evidence in Chinese litigation is "a litigant shall produce evidence to prove every single element of its claims".  While there are some statutory exceptions to this general rule, the scope of the exceptions is very limited.  In practice, it is fairly common that a rights owner may not be able to obtain all the evidence to prove infringement and damage on its own, and this has created headaches for the rights owner and, in some situations, prevented the rights owner from pursuing enforcement actions.

The 2019 Draft Patent Law Amendment, 2019 Trademark Law and 2019 Anti-Unfair Competition Law answered the call with articles that specifically allow judges to order alleged infringers to provide documents and information under their control such as account books and financial records

In the past a few years, judges have taken steps to expand their involvement in the evidence production process.  While Chinese judges can play the role of a fact finder, statutory codification of the judges' power in allocating burden of proof is badly needed.  The 2019 Draft Patent Law Amendment, 2019 Trademark Law and 2019 Anti-Unfair Competition Law answered the call with articles that specifically allow judges to order alleged infringers to provide documents and information under their control such as account books and financial records.  Courts in cases involving other forms of IP would certainly take a similar approach.

Furthermore, the new Several Provisions on Evidence in Civil Procedures released in December 2019 specifically provide that a litigant can petition for an order to compel the opposing party to turn over certain documents or information.  The court would have considerable discretion to decide whether to grant the petition and how many documents or how much information that the opposing party would need to provide.  Generally, the petitioning party would have to show that he or she requested documents or information that cannot be obtained through public sources and are highly relevant to certain elements of its claim.

While the number of frivolous litigation cases is still small, it is worth noting that the 2019 Trademark Law specifically addressed this issue

Allegation of Frivolous Litigation

More and more IP infringement disputes also elicit push backs from the alleged infringers in the form of allegation of frivolous litigation.  For example, many soon-to-be-listed companies have encountered allegations of infringement.  Such lawsuits can derail their IPO hopes in some instances, as they potentially call into questions the sustainability of their business models.  Lawsuits can also be filed between competitors in the market, with many companies seeking to use their IP to gain a competitive advantage.  For the alleged infringers, some have complained about unfair competition and frivolous litigation in response.

While the number of frivolous litigation cases is still small, it is worth noting that the 2019 Trademark Law specifically addressed this issue.  In one of the most high profile cases in this category (see (2018) Yue 03 Min Chu No.170), the Shenzhen Intermediate Court held that Laidian's various infringement lawsuits, administrative complaints, and public statements against Jiedian, one of its main competitors in the market for shared mobile power supply, constituted unfair competition and frivolous litigation.  This is despite the fact that Laidian had been on the winning side in several of the infringement lawsuits.  It remains to be seen what impact the Shenzhen Intermediate Court's decision in the Jiedian v. Laidian case may have on the jurisprudence for frivolous litigation.

CONCLUSION

Several high profile IP legislative and judicial actions took place in 2019.  It is certainly possible that some issues that have been overlooked may turn out to have a great an impact on the development of the IP laws.  Overall, 2019 has been truly a busy year for many in the IP field and it will also herald more changes to come.