Overview of IP litigation in China

Recent years have witnessed a steady increase in intellectual property (IP) litigations in China. According to the RPC Supreme People’s Court, in 2016, first instances of IP civil cases increased by about 24.8% nationwide. Statistics show that copyright cases, trademark cases and patent cases respectively account for 63.7%, 19.9% and 9.1% of the IP civil cases received by the courts in 2016, while IP disputes over technology contracts and unfair competition account for smaller percentages.

Furthermore, according to the head of the Beijing IP Court, Su Chi, the Beijing IP Court received 9,191 cases in 2015, 10,600 in 2016, and 12,000 in the first eight months of 2017, representing an explosive growth. The reason behind this phenomenon is that right holders are more active in seeking judicial protection in light of the enhanced level of infringement crackdown and increasing amount of damages awards. Therefore, it is reasonable to expect that IP litigations will continue to increase in China.

With the continuing technology development in China, innovation-oriented industries such as telecommunication and micro-electronics, internet service and life sciences gradually stand out as key players in the Chinese market. In addition, frequent IP litigations in these industries are also making a remarkable difference in IP legislation and the judicial practice in China. IP litigations in these industries vary from patent disputes, which commonly arise among high-tech companies, to software copyright disputes and unfair competition disputes. Leading domestic companies and multinational enterprises in these industries have traditionally been attaching great importance to their IP portfolios and litigation strategies, while some emerging companies can be pushed to the brink of collapse by a single IP litigation.

Overall, recent developments in the IP legal framework demonstrate China’s ongoing efforts to improve IP protection and encourage technology innovation. First, active legislative efforts contribute to the improvement of legal framework. For example, with the purpose of increasing the level of patent enforcement, Article 27 of the Interpretations of the Supreme People’s Court on Issues Concerning Application of Law in the Trial of Patent Infringement Dispute Cases (II), which took effect in 2016, provides a shift in the burden of proving infringer’s illegal gains when calculating infringement damages. Specifically, once infringement is found, the court may order the infringer to produce accounting books and financial documents, and the infringer should bear adverse consequences if it fails to comply with the court order. Besides, legislative authorities have been issuing draft amendments to IP laws in succession, such as the fourth amendment to the PRC Patent Law (draft for review) and the draft amendment to the PRC Unfair Competition Law (second draft for review), in order to address remaining issues in judicial practices. Also, with the establishment of specialized IP courts and IP tribunals, the quality, efficiency and consistency of IP adjudications have also been improved a lot. Chinese courts are becoming more inclined to introduce technical investigators into IP cases involving complicated technical issues, which can increase the efficiency and accuracy of technical appraisals. In addition, consistent with the overall trend of IP protection enhancement, Chinese courts are becoming more willing to issue high damages awards for right holders that can establish a clear infringement case.

While the IP legal framework in China has been undergoing improvements, such challenges as uneven enforcement and procedural barriers still exist. At the same time, infringers in China are becoming increasingly sophisticated. They often exploit legal loopholes, seek to invalidate IP rights and design ‘legitimate’ ways to get around punishment. Therefore, it is essential for companies, and especially innovation-oriented companies, to develop and maintain an integrated IP protection strategy.

For plaintiffs in pursuit of compensations for infringement on their legitimate rights, the most important thing is to collect probative evidential materials and properly present them at trial. Take patent infringement cases for instance, the court will assess infringement based on the claims of the patent being infringed and the actual nature of the infringing product. This assessment is quite technical and generally requires the physical products, photographs, specifications and patent claims to be in place. Therefore, companies should engage experienced IP lawyers for website notarization, notarized purchases and other evidence preparations. Furthermore, notarized purchases can also work to establish jurisdictions in a preferred venue that demonstrates a better record of IP enforcement and fewer local connections with the suspected infringer.

When filing a lawsuit, plaintiffs can pursue interlocutory remedies such as a preliminary injunction, evidence preservation or property preservation. Although these remedies have not been easy to secure in the past, IP courts are beginning to take a more positive attitude towards them.

With respect to IP protection in routine business operation, companies should monitor potential infringement by regularly checking websites that are frequently used as distribution platforms for counterfeit products. In addition, companies can regularly review distribution networks for market entry opportunities for counterfeit products. Sending representatives to trade shows to identify counterfeit goods is also a good monitoring approach. After discovering infringing activities on the internet, companies can work with e-commerce websites or internet service providers to take down relevant websites, delete links and remove infringing products.

Companies can also issue cease and desist letters to infringers to request cessation of an infringement or negotiate licence agreements. However, cease and desist letters can also alert infringers of the situation. Therefore, it is better for companies to work with IP lawyers to collect and preserve evidence before sending cease and desist letters to suspected infringers. If communications do not work out, companies can engage IP lawyers to help enforce IP rights through civil, administrative or criminal channels.

With promoting innovation being one of the key strategic policies in China, the country’s IP protection is enhanced with the development of IP laws and regulations as well as the improvement of the judicial environment. In order to obtain and maintain competitive advantages in the Chinese market, companies should develop tailored IP strategies and follow relevant legislative updates. In case of any IP infringement disputes, companies should take enforcement measures effectively and undertake a well-designed litigation strategy to pursue the best possible outcome.

Helen Cheng is a partner at Zhong Lun Law Firm in Shanghai. She can be contacted on +86 21 6061 3058 or by email at helencheng@zhonglun.com

Zhang Shuman is an associate at Zhong Lun Law Firm in Shanghai. She can be contacted on +86 21 6061 3154 or by email at zhangshuman@zhonglun.com