Wuhan and Anti-Suit Injunctions

Wuhan, China is currently a destination jurisdiction for anti-suit injunctions (ASI) and anti-anti-suit injunctions (AASI).  Although the first AASI was issued in a Wuhan maritime case in July 2017, the IP judiciary started to more seriously consider ASI’s. The ramp-up occurred around the time of a conference that I attended in China in mid-January of 2020 on the subject of ASI’s.  At that conference, Chinese judges noted that the Civil Procedure Law (Article IX, Sec. 100) regarding “action preservation” would encompass anti-suit injunctions and that ASI’s should be issued by the Chinese courts. Subsequent to that conference, an ASI was issued by a Wuhan court in the Xiaomi v. Interdigital case, which was followed by an AASI from the Delhi High Court in India (discussed in the excellent blog of Yang Yu and Jorge Contreras).  This December, Samsung also filed a suit against Ericsson in Wuhan and obtained an ASI to counter Ericsson’s earlier-filed suit against Samsung in the Eastern District of Texas.  Today, December 28, 2020, the Eastern District of Texas granted an AASI against Samsung in response to an ex parte  motion of Ericsson filed on the same day (Ericsson Inc. v. Samsung Electronics Co., Ltd, Civil Action No. 2:20-cv-380-JRG) (the “Order”).

Ericsson is seeking to resolve a FRAND dispute with Samsung. Ericsson publicly filed its case in Texas on December 11, 2020.  Ericsson first became aware of the Wuhan lawsuit on December 17, 2020.  Ericsson claims that the Wuhan suit was secretly filed on December 7, 2020 and was hid from Ericsson for ten days. Samsung sought an ASI from Wuhan on December 14, 2020.   Ericsson had “no advance notice of the Wuhan antisuit injunction until the moment it was issued” on Christmas morning, December 25, 2020. Ericsson’s request for an AASI, styled as an “Emergency Application for Temporary Restraining Order and Anti-Interference Injunction Related to Samsung’s Lawsuit Filed in the Wuhan Intermediate People’s Court of China”  was filed on Dec. 28, 2020, the Order was issued shortly thereafter on that same day.

Please note that I have not yet seen copies of any of the Wuhan filings.  I am accepting all its allegations for purposes of this blog as true.

The facts alleged do not present an unusual situation.  They are similar to other cases in China where the lack of transparency had been leveraged for strategic advantage and a case was prosecuted at an odd time in an odd court.  The Veeco case, for example, involved an injunction issued “without providing notice …  and without hearing”  in order to undermine a foreign proceeding.  The case was also filed at less well-known for court for semiconductor related litigation that had gained a recent reputation for issuing preliminary injunctions, As in the Samsung case, the Chinese court also had little relationship with either of the parties. Relief was also granted by the Chinese court against a US party within days of a US holiday.   A similar issue involving non-transparency arose with respect to the Inter Digital case.  Issues involving the actual date of filing of a “secretly” hidden case have also arisen from time to time, particularly under former civil procedure rules which permitted courts to avoid disclosing a filing of a case until 10 days after the case had been formally “established” and thereby led to suspicions of backdating of case filings.   

The ASI issued by the Wuhan court bars Ericsson from (1) seeking injunctive relief on 4G and 5G SEPs around the world; (2) seeking a FRAND adjudication anywhere other than Wuhan; and (3) seeking an AASI.  To counter this ASI, Chief Judge Gilstrap’s AASI: restrains Samsung from seeking injunctions that would impair the jurisdiction of the US court or from filing lawsuits or administrative actions to enforce or defend its United States patent rights; indemnifies Ericsson; and requires Samsung to provide Ericsson with copies of all court papers in the Wuhan matter.

At one time Chinese courts generally ignored ASI’s.  However, as I have previously noted, it is now “wrong to assume that Chinse courts take a strictly ‘hands-off’ attitude towards foreign proceedings.”  ASI’s are increasing.  There are, however, certain systemic problems and strategic considerations that should be considered by China in granting ASI’s.

Among the procedural challenges are the lack of transparency in China’s civil procedure and preliminary injunction practice, including problems concerning service of process, and special rules that apply to foreign service of process.  The problem of lack of transparency in preliminary relief in China is one that I have discussed several times in this blog. There are also inherent strategic advantages in China’s expedited civil process that may mitigate against issuance of an ASI. A Chinese court can reach a decision well in advance of most foreign courts and leverage its automatic injunction to help compel settlements, thereby averting the need for an ASI in some instances.

Substantive adjudication is also impaired by notions of judicial sovereignty  and overly aggressive jurisdictional reach.  Judicial sovereignty has become an increasing concern of China’s leadership, but it is not the same as comity, which seeks to minimize the impact of one court’s decision on another court’s legitimate interests.  Ericsson sought to address comity concerns in its motion by noting that the Wuhan suit’s claims were a subset of the US court action.  Ericsson argued that it was “not asking this Court to stop Samsung from proceeding in the Wuhan suit. Rather, Ericsson is asking this Court to order Samsung not to further pursue or enforce injunctions from other courts that would interfere with the jurisdiction of this Court.”  Foreign courts that directly or indirectly seek to restrain or adjudicate matters involving US patent validity or infringement are likely to raise serious concerns with US judges about comity.  Chief Judge Gilstrap addressed this issue by reaffirming the primacy of his court in the AASI in ensuring that Ericsson has the ability “to enforce or defend its United States patent rights.”

This case may present another example where a perceived lack of due process in a court proceeding provides no advantage in the court of public opinion or before non-Chinese judges.  In the Inter Digital case, the Delhi District court, similarly noted in its AASI decision that the Wuhan case “appear[s] to have been less than fair, not only to the plaintiff, but also to this Court.”

Lilith Games v. uCool – Seeking Preliminary Relief in the US

Attached is the order denying a preliminary injunction in Lilith Games v uCool (N.D. Cal., Sept. 23, 2015).  According to the order of Judge Conti, Lilith is a video game developer that released the game Dao Ta Chuan Qi (translated as “Sword and Tower”)  in China in February 2014. Lilith holds Chinese copyright registrations in Sword and Tower’s source code and alleges that it owns the copyrights to that code pursuant to Chinese copyright law. Sword and Tower has enjoyed great commercial success, and as of August 2014, was the leading game in Asia.   Defendant uCool is a video game marketer who allegedly obtained access to Lilith’s copyrighted software code for Sword and Tower and used it to create its own game, Heroes Charge , which it published in the United States in August 2014.

Lilith filed this case in March 18, 2015, four months after talks with uCool had broken down. Lilith argued that a four month delay was justified because Lilith is a small start-up  and was reluctant to become involved in costly litigation until it was necessary, although the court noted “It is unclear what Lilith means by ‘small start-up,’ particularly given that Lilith owns the most popular game in Asia.”

There are a few interesting points in this case worth comparing to Chinese practice:

  1. Application of Law and Recognition of Evidence: The court determined that Lilith “owned valid Chinese copyright registrations and therefore has provided prima facie evidence of copyright ownership under Chinese law.” In addition, it was “undisputed that Lilith is the entity that filed for and obtained the copyright registrations and that these registrations expressly list Lilith as the copyright owner. Thus, Lilith was the developer of the Sword and Tower source code and the copyright for Sword and Tower consequently belongs to Lilith.” The court also noted that “Lilith brings its copyright infringement claim under the Berne Convention, an international agreement governing copyright.”

The court directly  applied Chinese copyright law and the Berne Convention, which are rather unusual.  To its credit, there was no evidence that the court required notarized and/or consularized documentation, as might be required of a US company submitting similar evidence in China.   

  1. Regarding copying, the court concluded that “a finder of fact is likely to conclude that the source code for Heroes Charge is substantially similar to the source code for Sword and Tower,”and that “the evidence shows that the games are almost identical from the user’s standpoint, with only minor modifications.”

Although the court noted that Lilith sought to apply the Berne Convention, the court’s determination of copyright infringement appears squarely based on US practice.  Screen shot comparisons can be found here.

  1. In its trade secret analysis the court noted that “Lilith’s efforts to maintain the confidentially of its source code, while not as rigorous as they could have been, were sufficiently reasonable to maintain the code as a trade secret. Lilith keeps its source code on a secure server and limits access only to those employees who need it to perform their duties. Lilith also encrypts the Sword and Tower source code so that it cannot be easily deciphered. Although Lilith failed to secure confidentiality agreements from all of the employees that had access to the code, Lilith has presented evidence to show that these employees understood Lilith’s code to be confidential business information. Further, there is no evidence to suggest that any of these employees disclosed the code to a third party.”

Difficulties in demonstrating that a trade secret owner has established appropriate measures to protect the confidentiality of a trade secret are one of the obstacles in trade secret litigation in China.   The court’s approach is not unreasonable given that there appeared to be adequate procedures in place, and any gap in protection was not a cause of the leak of confidential information.

  1. Preliminary Injunction “E-Bay” Factors

Although the court determined that there was a strong likelihood that Lilith would succeed on the merits, it denied the motion for a preliminary injunction.  In the court’s view Lilith could not demonstrate that there was adequate imminent injury, either by reason of reputational injury in a market where it had little presence or by difficulties in developing that market through an exclusive distributorship.  The court took note that eight months had passed from when Lilith discovered the alleged copying to when it filed for a preliminary injunction. The court’s apparently suspicious view of Lilith’s argument that it was a small start-up, which accounted for the delay, may also have been a factor in this determination.

These cases are part of a growing trend of Chinese companies using the US courts to address claims of infringement by Chinese, US or third country actors.  There are also several obvious comparisons in recent Chinese cases to this one.  The case may be compared to the preliminary injunction granted by the Guangdong IP court in Blizzard Entertainment and NetEase versus Chengdu Qiyou Limited, involving a US rightsholder.  In that case, I noted the importance of having an active licensee as a co-plaintiff to succeeding in a preliminary injunction matter; the lack of an active licensee may have been a problem with the US case in demonstrating irreparable harm due to difficulties in obtaining an exclusive licensee. 

This is the second recent case brought by a Chinese company seeking a preliminary injunction in the US courts for copyright infringement.  In the earlier CCTV case, the Chinese plaintiffs were granted a preliminary injunction applying US law.    As I noted in the CCTV cases, had the US court applied Chinese law it might have found that no copyright infringement existed at least with respect to sports broadcasting.

Another comparison is with the   Eli Lilly v. Huang Mengwei (黄孟炜) case, where a preliminary injunction was granted in China for a trade secret matter.  However, that case was publicly discussed but never published.  The Lilith case is published, according to US practice, with confidential information removed.   

Perhaps the most interesting comparative aspect of the Lilith case was the delay in initiating litigation by the plaintiff.  Had this case been tried in China, the delays in seeking preliminary injunctions might have been more problematic in light of the expectations of tight time frames, where litigation and IP matters change in “a New York minute.”    After all, in eight months, most IP litigation has been finally adjudicated.

 

The World of Injunctions: Guangzhou Makes Its Mark

According to various press reports, on March 9, 2105, the Guangzhou Specialized IP court issued a preliminary injunction in a copyright matter, Blizzard Entertainment and NetEase versus Chengdu Qiyou Limited (“Seven Games”),Beijing Fenbo Times Internet Technology Co., Ltd (“Rekoo”) and Guangzhou Dongjing Computer Technology Co., Ltd (“UCWeb”), regarding developing, operating, distributing and disseminating over the internet the game titled Everyone WarCraft: War of Draenor (formerly known as Chieftain Thrall: The expedition of WarCraft). The injunction calls for the above named defendants to cease reproduction, distribution and/or online dissemination of this game.

Eric Roeder, General Counsel of Blizzard is quoted in the media as saying “We welcome the efficient and timely injunction of the Guangzhou IP Court based on Chinese…It provides a fast and effective remedy and fully demonstrates the determination and power of the Chinese courts to protect intellectual property…”

The case is notable for three factors

A) Its rarity. According to the Supreme Peoples Court, in 2013, there were 88,583 first instance civil IP cases, yet there were only 11 cases in which a preliminary injunction was accepted, and, according to the Court, “77.78%” were “granted approvals.” (Note: I can’t quite figure out how many of these 11 were granted approvals based on this percentage).

B) The importance of having an active licensee. From press reports, it appears that Blizzard and Netease have had a multi-year licensing relationship. As Chinese licensees become more interested in US content and establish collaborative relationships, I expect we will also see more strategic and path breaking judicial decisions.   As Eric Priest has discussed in his work, one approach to dealing with high piracy may be finding business models that work for licensor and licensee.

C) Political timing. The desire of the newly established Guangzhou IP Court to show its authority may  have been a positive factor in this case being acepted and the relief granted.  Although preliminary injunctions remain rare, there appears to be an interest in clarifying procedures and, one hopes, in increasing their availability.  In another important development, on February 26, 2015, the SPC issued a draft Judicial Interpretation for public comment on Act Preservation [Preliminary Relief] Measures in IP and competition civil cases. The measure seems to be directed to preliminary injunctions, but may also have an important impact on asset and perhaps evidence preservation matters. Comments are due March 30. Attached is an unofficial translation.