Late last month the SPC published a list of eight model cases (Dianxing Anli,典型案例).  The cases highlight some important new trends in the court, and also suggest directions that the court is headed in with regarding to publishing cases.  Here are the cases and our analysis:

1.  Eli Lilly v. Huang Mengwei (黄孟炜) – preliminary injunction order for theft of trade secrets (Shanghai).  This case adopted provisions in the Civil Procedure Law Revision (effect Jan 1, 2013) making preliminary injunction orders available for all civil remedies.  The case involved the misappropriation of trade secret documents by a departing employee of Eli Lilly.  This summary is especially important as the case may not otherwise be available to the public due to its containing confidential information.  As noted elsewhere in this blog, the US-China Business Council, as well as other organizations and governments have placed pressure on China to improve its trade secret regime, including making provisional remedies available, as they are in other IP-related cases.  The Supreme People’s Court also issued a useful study on this topic. By disseminating this case, the court has assisted the public in understanding the basis of preliminary injunction order in trade secret matters and helped to address foreign complaints.

2.   Foshan Haitian Flavoring & Food Co., Ltd. (佛山市海天调味食品股份有限公司) v. Foshan Gaoming Weiji Flavoring & Food Co., Ltd. (佛山市高明威极调味食品有限公司) – trademark and unfair competition case. This case in Foshan, Guangdong involved misappropriation of the brand of the Haitian company, “Weiji” (威极).  Weiji Company, the infringer, used industrial brine in the production of soy source.  When this scandal was exposed, sales of Haitian Company, a household manufacturer of soy source and the lawful holder of the Weiji trademark, dropped dramatically. Weiji Company’s action was determined to be illegal under the unfair competition law and Weiji was obliged to change its company name.  Although Haitian failed to prove direct losses, the Court held the infringer to be liable for Haitian’s advertisement fee and other expenditures for eliminating negative effect of the scandal to minimize Haitian’s loss.  As in other IP-related cases, an exacerbating factor seems to have been consumer harm.  In addition, the case appears to be addressing problems of unfair competition/company name misappropriation, which has often been a difficult area in China’s IP regime.

3.  BMW v. Guangzhou Shiji Baochi Apparels Ltd.(广州世纪宝驰服饰实业有限公司) – trademark and unfair competition. According to Article 56 of the PRC Trademark Law, when the exact amount of the infringer’s benefits derived from the infringement and that of the loss caused by such infringement are hard to determine, the current ceiling for the compensation to the trademark owner is 500,000 RMB. However, in the BMW case, the Beijing High People’s Court upheld an award of 2,000,000 RMB in TM infringement damages due to the infringer’s apparent bad faith, the length and benefit of infringement, BMW’s renowned reputation and BMW’s efforts to eliminate the negative effect of this infringement. Moreover, the Court also punished the infringer with a 100,000 RMB civil sanction and gave a judicial suggestion to SAIC (State Administration for Industry and Commerce) for a nation-wide investigation of this infringement. This case is significant in part because of a more active role by the court to address willful infringement, which has been incorporated into China’s newly revised Trademark Law.  Moreover, the court is seeking to integrate both civil remedies and administrative/criminal remedies.  China’s courts have the authority, which is rarely used and which I have long advocated for, to refer matters to criminal investigation in appropriate circumstances.  This case may anticipate a more active role for the courts in addressing willful infringement.

4.  Zhuhai Geli Electrical Co., Ltd. (珠海格力电器股份有限公司) v. Guangdong Meidi Refrigeration Equipment Co., Ltd. (广东美的制冷设备有限公司) – presumption of infringement in invention patent litigation.  In this case, both parties are renowned Chinese electrical appliance enterprises. Geli claimed that the technological solutions applied in four types of Meidi air conditioners infringed its invention patent. There was no dispute that one of the four types of air condition infringed Geli’s IP right. The defendant failed to distinguish the remaining products with the infringing one.  The Guangdong High People’s Court shifted the burden of proof to Meidi and held the remaining three types of Meidi products to be infringing.

5.  Ashland Licensing and Intellectual Property LLC  (亚什兰许可和知识产权有限公司) v. Beijing  Ruishibang Fine Chemistry Technology Co., Ltd.(北京瑞仕邦精细化工技术有限公司) and Wei Xingguang – infringement of manufacturing process. While it is hard to prove infringement of a manufacturing process, Ashland, the patent owner, and its Chinese licensee secured 15,000,000 and 7, 000,000 RMB compensation respectively under the Court-hosted mediation.  In this case the patented manufacturing process is a method to produce a certain industrial chemical that has a specific customer group and is impossible to obtain from the open market.  The plaintiff had no access to defendants’ manufacturing process. However, considering that the main technical and management staff of defendant companies had had access to the patented manufacturing process as the licensee company’s former employees, Suzhou Intermediate People’s Court determined that the defendants production of that certain chemical constituted infringement based on a burden of proof reversal.

6.  Beijing Ruibang Yonghe Technology and Trading Ltd. (北京锐邦涌和科贸有限公司, Ruibang) v. Johnson & Johnson Medical (Shanghai) Ltd. and Johnson & Johnson Medical (China) Ltd.  As many observers know, many local IPR tribunals and the SPC IPR Tribunal are also authorized to handle antitrust cases.  This minimum resale price maintenance case is highlighted as the first anti-monopoly case under Chinese AML where plaintiff won and the first case in China that involved a vertical monopoly agreement. The plaintiff, a former distributor of J&J, won a bid at a price lower than the minimum resale price fixed by J&J in the distribution agreement. In response to plaintiff’s breach of contract, J&J terminated plaintiff’s distribution rights, cut further supply and refused to renew the distribution agreement. Plaintiff claimed that such price fixing provision violated the AML in respect of a vertical monopoly agreement. The Shanghai High People’s Court held J&J liable for the distributor’s normal revenue losses, 530,000 RMB.  The Count held that J&J’s minimum resale price provision excluded or at least restricted competition in relevant market, and that J&J’s actions were monopolistic in nature.  For watchers of how American companies fare in litigation in China, this case along with Huawei/Interdigital suggest that foreign companies may be a focus on AML investigations.  However the Eli Lilly and Ashland cases, amongst others, also demonstrate increasing success in IPR-related litigation by the same tribunals that hear IPR cases.

7.  Jiangxi Yibai Electronic Technology Co., Ltd. (江西亿铂电子科技有限公司) , Yu Zhihong, and others  – criminal trade secret case.  A 37,000,000 RMB penalty made this case the largest business information trade secret criminal case in China, and may be a harbinger of harsher punishment in this area. In 2011, one the defendants established a manufacturing company called Yibai along with several sales companies. These companies sold $7,659,235.72 of competing products based on misappropriated information from Saina Technology Co., Ltd. The prices and sales channels of these products were all set on the basis of Saina’s operational information that the four defendants obtained through their previous employment at Saina in violation of their non-disclosure duty. Zhuhai Intermediate People’s Court sent the four individual defendants into jail.  This case was also marked as a model for Guangdong province’s pilot program of intellectual property cases “three tribunals in one”, where civil, administrative and criminal IP jurisdiction are combined.

8.   Zong Liangui and Huang Li’an  and 26 other individual defendants – criminal trademark counterfeiting case.  In November 2007, the defendants founded a factory to manufacture and sell fake cooking oil with registered trademarks “Jin Long Yu”(金龙鱼) and “Lu Hua”(鲁花). Meanwhile, the factory was also involved in trafficking of counterfeit “Jin Long Yu” and “Luhua” labels. The remaining defendants included workers of this factory, who participated in such production knowingly and obtained illegal earnings, and retailers of the fake cooking oil.  [d2] This case in the Henan High People’s Court resulted in a total penalty of 27,040,000 RMB. The case also highlights the importance of piercing the corporate veil in criminal IPR matters, as well as the role of the combined civil/criminal/administrative IP tribunals in the courts.

While many of these cases are of great interest in their own rights, there also remains the broader question of what is the significance of the courts publishing cases?  For some time there has been interest among academics and business people in the United States in a greater adherence in China to case law.  There appears to be some interest in the court as well in having their cases to gain greater legal significance, beyond that of adjudicating the case in dispute.  Back in 1981, the National People’s Congress formally delegated the authority to the SPC and the Supreme People’s Procuratorate to promulgate Judicial Interpretations (JI) – to interpret laws in the course of their work.  As in traditional civil systems, Chinese courts are not supposed to interpret law; JI’s provide a basis for the courts to interpret laws in the form of a statutory type document, typically based on actual judicial experience.  However the tribunals in the SPC have not confined themselves only to JI’s to guide lower courts and help insure greater predictability in decision-making.

United States interest in Chinese case law has manifested itself in the “China Guiding Cases Project” underway at Stanford University.  The SPC’s guiding cases are intended to guide the courts in judicial decision-making in all adjudicated areas.  The advisory board of Stanford’s project includes several IP notables – including Chief Judge Kong of the SPC IPR Tribunal and Chief Judge Rader of the Federal Circuit.  The American Intellectual Property Law Association has a similar interest in model cases, with its China Precedents Project, in which “significant Chinese IP cases will be selected, reviewed, translated, commented on, and posted in a database available to AIPLA members.”  However, the application of cases in China’s judicial system remains controversial in light of the limitations places on the court in interpreting the law.

It is clear that the use of precedents in China at this time is quite different from the United States.  Among the most obvious reasons are that these cases are a small group selected by the courts themselves.   In the usual practice of courts, they are not to be cited.  Moreover, they are inferior to Judicial Interpretations.  The context of the release of these cases may also be important.  For example, these cases were released around October 22, by IPR Deputy Chief Judge Jin Kesheng (金克胜) at a press conference.   These eight cases follow relatively closely on the heels of  model criminal IP cases announced by the Supreme People’s Procuratorate in September.  These cases may also be read to suggest that the SPC Civil IPR Tribunal is not to be outdone by the Procuratorate, particularly as they have shown the importance of higher civil damages and punishments, successful experiments in combining civil, administrative and criminal cases in lower level courts, improvements in civil procedures, an enhanced focus for trade secrets, the use of burden of proof reversals for patent protection[d3] , and other issues that are of timely, and even international importance.

There are many other types of instructional IPR cases that national and local courts issue have published, typically around the time of IP week (around April 26) each year – leading one to wonder what the relative value of these different kinds of cases are.  For example, SPC or its IPR Tribunal now publishes “innovative cases”, “big cases” and “typical cases.” Some local courts also publish similar cases.  And of course, there are the SPC’s guiding cases. According to relevant guidance “Senior Judges Chat about the Chinese Characteristics of China’s Case Guidance System” (大法官畅谈中国特色案例指导制度) on the SPC’s website, the legal power of these typical cases is different from that of guiding cases. It is at judges’ discretion to decide whether or not to follow these cases or to take them as reference in trial. These typical cases have no express binding power.  Nonetheless, these Senior Judges point out that China is evolving its own approach towards the role of cases in guiding its judiciary.

If these cases are intended to be instructional in nature, I also wonder if the case summaries indeed correspond to the actual facts of the case, or are the facts selected to make the point clearer in light of China’s current needs.  If so, the use of exemplary cases would follow a long tradition in Chinese society including model workers, model party members, and perhaps dating back to Confucius, who looked to “rectify names” (正名) and believed that the proper use of names would improve society: “When punishments are not properly awarded, the people do not know how to move hand or foot. Therefore a superior man considers it necessary that the names he uses may be spoken appropriately and also that what he speaks may be carried out appropriately.” (Analects, Legge, trans.)

Apart from this positivistic value, the cases may also present an opportunity for particular agencies to spotlight on their own accomplishments, such as the role of combined civil, criminal and administrative tribunals in these cases in these “typical” cases.  In light of their positivistic value, the case summary and its instructional nature may be of greater precedential impact than the case itself.  If however, their primary function is not to bind other courts.  Indeed, if they are not binding, it may be some time before Chinese lawyers are arguing before a judge about whether a particular case is “on point”, or can be “distinguished” like a common law lawyer.

Photo: Moot court before the Court of Appeals for the Federal Circuit at US-China Joint Adjudication Conference, May 2012 at Renmin University, Beijing.  The attorney representing the USPTO at this joint moot court was former Solicitor, now Judge at the CAFC, Hon. Ray Chen.

(rev. Nov. 13, 2013, Jan. 18, 2016)