Reviewing the 2017 SPC Report on IPR Judicial Protection: The Generalities and the Exceptions

There have been a number of empirical reports in recent weeks on China’s IP system. In this blog, I look at the annual Supreme People’s Court 2017 Report on the Situation Regarding Judicial Enforcement of IPR in China  (中国法院知识产权司法保护状况) which was released during IP week (the “Report”).

According to the Report, 2017 saw a major increase in IP litigation in China.  There were a total of 237,242 cases filed and 225,678 cases concluded, with an increase of 33.50% and 31.43%, respectively, compared to 2016.

First instance cases increased by 47.24% to 201,039.  Patent cases increased 29.56% to 16,010.  Other increases were in trademarks (37,946 cases/39.58%); copyright (137,267/57.80%); competition-related cases (including civil antitrust cases of 114) (2,543/11.24%).  Two counter-cyclical numbers stand out:  technology contract cases dropped by 12.62% to 2,098, and second instance cases increased by only 4.92% or 21,818 cases. Note that disaggregated numbers for civil trade secret cases are not disclosed in the Report, but are presumably included under “competition” cases.

Comparing dockets with the United States, in 2017 United States courts heard 4,057 cases patent cases, 3,781 trademark cases, and 1,019 copyright cases, according to Lex Machina.  The biggest margin of difference between the US and China was clearly in copyright cases.  Chinese courts heard 134.7 times more cases than the United States. However, Chinese copyright cases are less likely to be consolidated amongst different titles, claims or causes of actions, which can inflate the statistics  — although I doubt to a 100 or more fold level.

Administrative cases, the majority of which are constituted by appeals from the patent and trademark offices, showed an overall increase while patent validity cases decreased.  Administrative patent appeals dropped 22.35% to 872 cases, while administrative trademark cases increased to 7,931 cases, or by about 32.40%.  The drop in administrative patent cases is particularly notable in light of the increased activity in patent prosecution and patent licensing.  By comparison the numbers of Inter Partes Reviews undertaken by the USPTO during 2017, according to Lex Machina, were 1,723, in addition to 9 cases involving covered business method patents.

The SPC did not offer disaggregated reversal rates of the PRB and TRAB in its data; combined patent and trademark cases included 964 cases involved  affirming the administrative agency decisions; 150 involving a change in the administrative decision; 5 cases involved a remand for further review; and 24 cases were withdrawn.

Criminal IP cases have also continued to decline.  There were 3,621 first instance criminal IP cases in 2017, a decline of 4.69%.  Among those 3,425 involved trademarks (-3.93%) and 169 involved copyrights (-13.33%).  There was also a decline of 35% in adjudication of criminal trade secret cases to only 26 cases.  The decline in criminal cases since 2012 (when cases totaled over 13,000) especially in copyrights and trade secrets is odd as Chinese leadership has in fact recognized the need for deterrent civil damages, including punitive damages and criminal trade secret

The five provinces that receive the most IP cases continued to grow in influence. Beijing, Shanghai, Jiangsu, Zhejiang and Guangdong saw an aggregate increase of 56.63% in IP cases, to 167,613 and now constitute 70.65% of all IP cases filed in China (p. 6).  Guangdong alone saw an increase of 84.7% to 58,000 cases and Beijing trailed behind at 25,932 cases with an increase of 49.2 percent.  Other less popular destinations also saw dramatic increases.  Jilin province had an increase of 210 percent, while Hunan and Fujian each saw increases of 73.8% and 73.14%.

Settlement and case withdrawal rates also changed in 2017.  Shanghai had the highest reported rate of the big five at 76.31%, while the inland province of Ningxia had an overall rate of 88.46%, including a 100 percent rate where litigants accepted judgments without appealing  服判息诉 (!).

The SPC also reported supporting 11 cross-district IP tribunals in Nanjing, Suzhou, Wuhan, Chengdu, Hangzhou, Ningbo, Hefei, Fuzhou, Jinan, Qingdao and Shenzhen.  In addition, 10 provinces or autonomous cities established a system of combining civil, criminal and administrative jurisdiction over IP cases in their IP tribunals in the first half of 2017.  As noted however, despite this change in judicial structure, there was a decline in criminal enforcement and in some administrative appeals in 2017 overall (p.11).

The Report also notes that the SPC is actively supporting research on establishing a national specialized appellate IP Court (p. 10).   The SPC also actively participated in the providing comments on other draft laws, and devoted some effort to the revisions of the Anti-Unfair Competition law, including meeting three times with the legal affairs committee of the NPC, as well as numerous phone calls   According to the Report, the “majority of the opinions proposed were adopted into law” which leaves the question of what was not adopted.  One possibility may be the removal of a specific provision treating employees as “undertakings” under the revised AUCL.  In fact, I have heard that some NPC legislators are continuing to push for a stand-alone trade secret to further improve upon the revised AUCL.

The Report also points to several research projects undertaken by provincial courts.  Amongst those of interest are: a research project on disclosure of trade secret information in litigation in Jiangsu; a report on using market guidance for damages compensation of Guangdong Province; a report on standards essential patents in Hubei; and a research project of the Beijing IP Court on judicial protection of IP in international competition.

Regarding transparency, the Report notes that the SPC has published all of its cases on the Internet, however similar data is not provided for other sub-SPC courts (p. 16).

In international affairs, the Report notes that the SPC has participated in the discussions on the proposed treaty on recognition and enforcement of foreign civil judgments (p. 17), in the China-European IP dialogue, and has sent people to the annual meeting of INTA, amongst other activities.  No mention is made of US government engagements (p. 17).  This omission may be due to current political sensitivities.  Nonetheless, due to the increasing number of cross-border disputes and the need for better understanding of both our judicial systems, I believe judicial engagement with Chinese courts would continue to be a fruitful enterprise.  Indeed, Berkeley hopes to host a program on cross-border IP litigation with Tsinghua University Law School later this year.

Finally, while we are on the subject of the courts, I commend Susan Finder’s recent blog on how to translate court terminology.   I hope I have not departed too far here from her excellent suggestions!

Across the Fault Lines: Chinese Judicial Approaches to Injunctions and SEP’s

As has been noted in the media, on April 26, 2018, the Guangdong High People’s Court (GHC) promulgated the Trial Adjudication Guidance for Standard Essential Patent Dispute Cases (the “Guangdong Guidance”). The Guangdong Guidance adhered to the basic framework of Beijing Higher Court’s (BHC) Guidance for Patent Infringement Determination 2017 (the “Beijing Guidance”) which itself appears quite similar with the basic framework set forth by Court of Justice of the European Union (CJEU) in its decision for Huawei v. ZTE, as well as in the recent decisions of Iwncomm v. Sony (see abridged English translation from the Comparative Patent Remedies blog here) in Beijing and Huawei v. Samsung in Shenzhen.  Taken together, these approaches depart from prior Supreme People’s Court (SPC) practices, and embody a “fault-based” conduct-evaluation framework. The Guangdong Guidance further suggests that courts which apply the fault-based conduct-evaluation framework may rely on a comparable license approach than other approaches to determine FRAND royalties.

At First the FRAND Licensor Is Barred from Seeking an Injunction

The earliest Chinese court’s attitude about determining injunctive relieves and royalties for standard-related patent infringement case can be found in the reply letter issued by the SPC on July 8, 2008 to the Liaoning High People’s Court (LHC).  The SPC instructed the LHC that once a patent holder participated in the standard setting process and agreed to have its patents adopted in the standard, the court shall deem the patent holder as having consented to license its patents to anyone who implements the standard.  The patent holder can charge the standard implementer for royalties, which, however, shall be less than the usual amount of royalty if a standard were not involved. The court would also implement the promise of a patentee to license on a royalty-free basis.

Subsequently, on October 16, 2013, the GHC upheld the Shenzhen Intermediate Court decision of Huawei v. InterDigital. In this case, the Chinese court held that once an implementer had indicated its willingness to conclude a license, a FRAND encumbered SEP owner shall have the obligation to make a FRAND offer to the implementer. The key to determining whether the offer was FRAND is the evaluation of the royalty rate. Their opinion may also be read to suggest that the courts might reject a FRAND-encumbered SEP owner’s petition for an injunction when an implementer expressed it willingness to conclude an agreement. However, the court did not address how to determine whether an implementer is willing to negotiate.

The SPC Picks up the Fault Factors First

On March 21, 2016, the Supreme People’s Court of China promulgated the Judicial Interpretation on Several Issues Regarding Legal Application in the Adjudication of Patent Infringement Cases II (the “Patent JI II). Article 24 of the interpretation stipulated that the Court shall not support the SEP owners’ petition for a permanent injunction if the SEP owner intentionally acted against its FRAND commitment made in the standardization process during the negotiation of licensing conditions with the accused infringer, and the infringer was not at “obvious fault” during the licensing negotiation. Paragraph 2 of this Article also provides that in determining licensing conditions, a court shall, in accordance with FRAND principles, comprehensively consider the contribution of the innovation and its role in the standard, the situation in the technical field of the standard, the nature of the standard, the scope of exploitation of the standard, the related licensing conditions and other factors. This Interpretation thus introduced the fault-based idea into Chinese courts’ consideration of whether to issue an injunction in a SEP related case. The types of standards referred by Article 24, according to its language, are limited to non-mandatory national, industrial and local standards. The promulgation of Patent JI II opened the gate for the Chinese courts to view FRAND obligations as imposing certain conduct behavior on both the SEP owner as well as the standard implementer.

One year later, with the promulgation of the Beijing Guidance, the BHC extended the fault-based test for determining an injunction from the SEP owner to the standard implementer. In the Beijing Guidance, BHC attempted to structure a more complete and balanced framework for SEP injunctions. Article 150 of the Guidelines stipulated that both parties shall negotiate in good faith during the SEP licensing negotiation. Article 152 of Beijing Guidance targets the situation in which both parties were not at obvious fault. It provides that if the infringer duly submitted the amount of royalty it offered or a deposit no less than that amount to the court, then the court shall not generally support the SEP owner’s petition for a permanent injunction. Article 152 also detailed the situations where the court can determine the SEP owner disobeyed its FRAND obligation. These principles were also articulated in Article 13 of the Guangdong Guidance with some difference in detail. Article 153 of the Beijing Guidance targets the situation in which the SEP owner disobeyed its FRAND obligation and simultaneously the accused infringer was also found acted at obvious fault during the negotiation. It provides that the decision to grant an injunction shall be based on which party is more blameworthy for the break-down of the negotiation. Article 153 also enumerated the situations by which a court can determine that the accused infringer acted at obvious fault, which is also articulated by Article 14 of the Guangdong Guidance with some difference in details.

The complete general principles of deciding whether to issue permanent injunctions in SEP involved infringement cases was firstly laid out in the decision for Iwncomm v. Sony by BHC on March 28, 2018. The court reiterated that in a SEP licensing negotiation, both parties should negotiate in good faith. The decision to enter a permanent injunction should be based on which party is to blame for the break-down in negotiations by considering the performance of both parties during the process of negotiation as well as the substantial terms offered to conclude the agreement. The court enumerated four general situations:

  1. If the SEP owner intentionally acted against its FRAND commitment which led to the break-down of the negotiation, and the infringer was not at “obvious fault”, the court shall not support the SEP owner’s petition for permanent injunction;
  2. If the SEP owner was not at “obvious fault” during the negotiation, and instead, it was the infringer that at “obvious fault”, the SEP owner’s petition for permanent injunction shall be supported by a court;
  3. If evidence indicates that both parties were not at “obvious fault”,and the infringer duly submitted the amount of royalty he offered or a deposit no less than that amount to the court, the court shall not sustain the SEP owner’s petition for permanent injunction;
  4. If both parties are found acted at fault, the decision of whether to grant an injunction depends on an assessment of the faults of both parties.

Comparing these principles with the language in the Beijing Guidance, where the SEP owner acted at obvious fault while the accused infringer did not, it appears that submitting a deposit to a court is no longer the premise for the court to deny an injunction request. The deposit is only specifically required in the situation where both parties were not at “obvious fault.” In Iwncomm v. Sony, Sony, the accused infringer, was found to be intentionally engaging in delaying tactics and was therefore at obvious fault.  The BHC upheld the Beijing Intellectual Property Court’s decision of granting a permanent injunction. This case was also discussed in the Comparative Patent Remedies blog,

Huawei v Samsung And the Shenzhen Court Flexes its Muscles…

On January 4th, 2018, about two months before BHPC came to its conclusion on Iwncomm v. Sony, the Intellectual Property Division of the Shenzhen Intermediate People’s Court granted injunctions against Samsung in two separate decisions in Huawei v. Samsung. After detailed examination of the performance of both parties in the past licensing negotiation process and the court mediation process, the court then found Samsung was at “obvious fault” and that it acted against FRAND principles. Thus, a permanent injunction was granted. The court also ruled that in the light of the different nature of SEP and non-SEP cases, the two parties are allowed to continue negotiating licensing terms after the judgment, and the injunction will not be enforced on the condition that the parties reach an agreement later or Huawei consents not to enforce it.

The court’s injunction absent licensing-decisive negotiations or the probability of Huawei’s decision not to enforce the injunction was the basis for Judge Orrick’s Anti-Suit Injunction in the US counterpart case that enjoins Huawei from enforcing the Shenzhen Court’s injunction.

In Judge Orrick’s view, his court was the first to hear the case even if it were not the first to decide it, upon the petition of the same party (Huawei), and any decision to enjoin activity in Guangdong would undercut the possibility of a global settlement, which is the basis of Huawei’s claim before his court. Unlike the Chinese courts to date, Judge Orrick does undertake a lengthy comity analysis to justify his decision. Judge Orrick’s decision stands in stark contrast to another, earlier Shenzhen decision, Huawei v InterDigital (2013) which determined that InterDigital’s seeking an injunction (exclusion order) at the USITC was an abuse of its rights as a SEP holder, and arguably showed no deference to a previously initiated US litigation. Judge Orrick may have been taking prophylactic measures to ensure that US courts retain jurisdiction over disputes, and to deny a Chinese party “two bites” of the apple by undercutting a case that the Chinese plaintiff initiated at essentially the same time as a Chinese litigation.

The Guangdong Guidance was promulgated with all of the foregoing Chinese cases and judicial practices in mind. Article 10 of the Guidance explicitly reiterated that whether a permanent injunction is granted shall depend on whether the SEP owner or the implementer was at fault. Article 11 provides that when deciding whether the parties were at fault comparing with ordinary business practices, the factors that a court shall consider include: (1) the entire history of the negotiation; (2) the timing, tactic and content of negotiation of the parties; (3) the cause of deadlock, and; (4) other facts. Article 12 generally restates the principles of whether granting a permanent injunction set forth by the BHC in Iwncomm v. Sony. Article 13 and 14 followed the basic idea and structure of Article 152 and 153 of the Beijing Guidance for conduct-evaluation for both parties with some differences in detail.

Article 13 provides that if the SEP owner’s conduct met any one of the following situations, a court may determine the SEP owner disobeyed its FRAND obligation. The situations include: a SEP owner who (1) did not notify the implementer, or notified the implementer but didn’t list the scope of the patent in dispute according to the ordinary business practice; (2) did not provide the implementer with explanatory claim charts, patent lists and other patent information according to the ordinary business practice after the implementer had clearly expressed its willingness to negotiate the license; (3) did not provide the implementer with licensing conditions and the method of calculating the royalty, or provided obviously unreasonable licensing conditions, which result in failure to reach an agreement; (4) did not reply to the counter party within reasonable time; (5) impeded or interrupt the negotiation without justifiable reasons, and; (6) practiced other conduct at obvious fault.

Article 14 enumerates the situations that the court may determine an implementer disobeyed its FRAND obligation accordingly. The situations include an implementer who (1) refused to receive the negotiation notice from the SEP owner, or did not respond to the SEP owner within a reasonable time after it had received the negotiation notice; (2) refused to sign a confidentiality agreement, and thus led to a deadlock in negotiation; (3) did not make a material response to the SEP owner within a reasonable time after the SEP owner had provided explanatory claim charts and patent lists; (4) did not make a material response to the SEP owner within a reasonable time after the SEP owner offered its licensing conditions; (5) provided obviously unreasonable licensing conditions, which resulted in failure to reach an agreement; (6) delayed to or refused to negotiation without justifiable reasons, and; (7) practiced other conduct at obvious fault.

While the Chinese fault-based conduct-evaluation frameworks borrowed ideas from the CJEU’s decision for Huawei v. ZTE, the starting point of the Chinese framework is in different from the CJEU framework. The direct objective of CJEU framework was to answer the question whether a SEP owner’s action for seeking injunction breaks EU competition laws, specifically the Article 102 of TFEU. Logically speaking, courts that follow the CJEU’s framework do not need to answer whether an injunction should be granted. On the other hand, the Chinese framework directly addresses whether an injunction should be granted without reference to antitrust principles.

A Break With Tradition and A Rush to Change?

After these various developments, it can be said that Chinese courts now view the FRAND commitments as a universal principle binding both the SEP owner and the implementer. This approach leaves open where the implementors’ obligations of negotiating in good faith come from and when and how such obligations are triggered. Historically, Chinese courts also do not consider the infringer’s state of mind when deciding whether to issue a permanent injunction, nor are such standards part of the Patent Law (Art. 118, 134) or the General Principles of the Civil Law of the People’s Republic of China (Art. 179 ) or the more recent General Rules of the Civil Law of the People’s Republic of China. The framework introduces new judicial doctrines to determine a permanent injunction into Chinese patent law practice, which is also atypical for Chinese legal practice.  However, as China is currently considering introducing punitive damages in next revision of the patent law, fault-based factors may become more important and, indeed, fault factors involving punitive damages and an implementer’s state of mind in SEP negotiations could conceivably overlap.

It also worth noting that the judicial evaluation of royalties still plays an important role in this fault-based conduct-evaluation framework.  In determining whether an offer or a counter offer are FRAND, the court may rely much more on the comparable license approach. Article 18 of the Guangdong Guidance provides that in determining SEP royalties, the methods a court may refer to include: (1) comparing the comparable licenses; (2) measuring the market value of the SEP in dispute; (3) comparing the licensing information of comparable patent pools, and; (4) other methods. Last but not least, Article 16 of the Guangdong Guidance also confers the courts with the jurisdiction of setting royalties beyond its jurisdictional territory under one party’s petition as long as the counter -party does not file an objection or the objection is found to be unjustified.

Chinese courts’ approach appears to reflect the increasing global experience in adjudicating FRAND-encumbered patent infringement matters.  The fault-based approach also helps address the problem of Chinese implementers delaying in taking licenses and using the FRAND obligation as a sword to deny a patentee access to judicial relief, at possible risk of a licensor being on the receiving end of an antimonopoly action.  The approach also appears to reflect Chinese, and especially Guangdong-based companies, rapidly growing role as both a patent implementer and a contributor to important emerging standards, such as 5G. Nonetheless it is concerning that the pioneering cases noted here ruling in favor of a licensor acting in good faith and being entitled to obtain injunctive relief have all occurred where the licensor was Chinese (Iwncomm v Sony, Huawei v Samsung).    This is a scenario not that different from what some observers thought was the problem behind the President taking the unusual step of denying relief to Samsung in the Apple vs Samsung 337 litigation in the US – the binary observation is that it seems to be easier to make precedent eroding/strengthening IP rights when the party adversely affected/benefitted is foreign/domestic. For previous information about the Obama administration’s refusal on USITC’s order, please see here, here, here, here and here.

Written by Yabing Cui, LLM of Berkeley Law 2018 and Ph.D. Candidate of Peking University Law with the the assistance of Mark Cohen.  Yabing can be contacted at cuiyabing@berkeley.edu.

Summarizing the SPC’s 2015 White Paper

 

WP_20160420_005China releases much of its IP data in April, on the margins of World IP Day (April 26).  This year there have been important conferences summarizing these reports in advance of their release, including reports from the Supreme People’s Court on IP litigation, as well as white paper reports on specialized IP courts in Beijing, Shanghai and Guangdong.  In addition, there are SPC reports on fifty model cases and 10 big IP casesThe Western media has also reported on some of these reports, as have state run media in Chinese and in English.   This blog has reported on SPC whitepapers and model cases for some time.  As in prior years many provincial courts, such as Hubei, are also reporting out white papers of various kinds, as have IP and administrative agencies, such as Beijing municipality.

As in prior years, interpretation of the data, particularly for the foreign business community, can be challenging.  Here is my digest of the SPC’s important 2015 White Paper:

Foreign Cases Are a Shrinking Share

Perhaps the most dramatic national news from the official national data involving foreigners is that in 2015 foreign related IP cases dropped 22% in absolute numbers from last year, despite an overall increase of 7.2% of total decided IP cases. The total number of civil cases involving foreigners was 1,327.   As a consequence, foreign related IP civil cases as a share of total cases dropped from 1.9% (2013), to 1.8% (2014), to 1.2% (2015).   By contrast, total administrative cases in 2015 were 10,926, of which 4,928 were foreign or about 45%, continuing the trend of an outsized foreign administrative presence, with an undersized infringement role.

Data from other sources also casts some doubt on the “foreign-related” data in the SPC’s report.  The Shanghai IP courts reported that approximately one in six lawsuits received involved an overseas party, with most pursuing trademark or patent infringement claims.  A newly set up database company, IP House, also reported that over 20% of the IP litigation in Beijing involved foreigners.  Former SIPO Commissioner Tian Lipu also cast doubt on data suggesting that the amount of foreign-related IP litigation is under 5%, in a letter to then USPTO Director Kappos.  Conflicting data on foreign-related cases is likely due to the manner of reporting.  Although there is no official explanation I know of, I believe that foreign-related cases are likely those cases reported as foreign related for purposes of suspension of mandatory time frames for adjudication under China’s civil procedure law.  However, litigation commenced by a foreign invested entity in China may be characterized by the SPC as a domestic case.

Another explanation may be that the high level of foreign-related administrative cases may be due to the centralization of IP prosecution in the headquarters of many foreign companies which file these cases in the name of the parent company.  After China’s patent office or trademark office grants the right, the foreign company might then transfer the rights to the subsidiary.  This transfer is validated by the high percentage of related party IP licensing activity which US census also reports. I have not, however, seen any studies that seek to correlate foreign licensing activity, foreign investment and foreign-related litigation, which might support this hypothesis.

As I have noted elsewhere, comprehensive data must, however, await publication of the relevant source cases or data by the SPC and other courts.

IP Cases Continue to Grow Overall

The shrinking reported foreign share contrasts with the rapid growth of IP cases in China.  The SPC reported that newly reported first instance IP cases increased to 130,200, up 11.73% from 2014.  Total cases adjudicated were 123, 059, an increase of 11.68%, of which 101,324  were civil cases, an increase of 7.22%.  Administrative cases adjudicated constituted 10, 926, an increase of 123.57%, most likely due to changes in China’s trademark law which establish a more direct role for the courts.   Criminal cases adjudicated were 10,809, maintaining their slightly decreased level since 2013 (the SPC report notes that the cases are “stable” 同比基本持平)。

Patent Cases Continue to Grow

The SPC reported that patent and licensing cases continued grow, and that they increasingly involved complex areas of technology, with an increase of 22.1% to 13,087 cases.   However, I have not yet seen a breakdown of cases by type of patent or technology type which fully documents this observation.  The data appears too general at this point, considering that perhaps 2/3 of China’s patent cases involve unexamined utility models and designs of varying technological complexity, the relatively small share of licensing disputes, and the reality that many software and unfair competition cases may in fact involve high technology cases (but may not otherwise be reported as such).

Unfair Competition Cases on the Rise

The SPC report shows that unfair competition cases have increased, including those involving the internet and software technologies. Civil cases increased to 2,181, with antitrust cases increasing to 156. The total increase was 53.38%. Trade secret cases have not yet been separately reported out. They are generally a significant share of this relatively small portion of the IP docket. In 2009, for example, there were 1,282 cases under the Law to Counter Unfair Competition in the courts, of which 253 involved trade secrets.

What the Data Suggests on Courts Foreigners May Want to Pay Attention To

A foreigner traveling to China who is considering where to bring a case, or risks of being sued in a particular venue, should not consider all court as equally well situation.  The Beijing courts, for example, clearly play a key role in foreign related IP adjudication. As administrative cases are overwhelmingly located in Beijing, the Beijing IP court hears perhaps 80% of the combined civil/administrative foreign docket.

In addition, the SPC reports that Beijing, Shanghai, Jiangsu, Zhejiang and Guangdong accounted for 70 percent of the first instance IP litigation of all types. Shanghai is also a good place to engage, as it has the SPC has established an international exchanges base there. Indeed, the Shanghai white paper also reported out on its exchange activities, including singling out a significant conference last year with the US Court of Appeals for the Federal Circuit. Still, several courts are assuming increasing importance, and some may pose defensive risks and opportunities for foreigners.   Jiangsu’s docket increased by 38.71%; the docket in Tianjin increased by 50.41%. Anhui saw an increase of 101.26%, while courts in Shandong, Shaanxi, Hunan and Helilongjiang all saw increases of over 30%.

Just as the specialized IP courts were releasing their white papers, the SPC reported that NPC delegates from a number of provinces had been asking to establish their own IP courts in their region, and that the SPC would report out in August on these proposals.  In my opinion, these requests reveal the problem of this otherwise noble experiment in specialized IP courts: if multiple regions have specialized IP courts at the intermediate level, then efforts to insure national unity in reduce local protectionism in IP litigation through a national appellate court may be compromised. However, it is also important to note that these specialized IP courts would replace specialized IP tribunals – a significant difference from US trial court litigation, which  involves courts of general jurisdiction.

At the same time as these papers were being released, a judicial delegation from China was engaging with US federal and state judiciary to discuss the role of IP courts and possibility of future cooperation (see picture above by me from the Wisconsin Supreme Court).  I also believe that we can expect more discussion on these important issue in the months and years ahead.

Patent Litigation, Local Protectionism and Empiricism: Data Sources and Data Critiques

Professors Brian Love, Christine Helmers and Markus Eberhardt have recently co-authored an article Patent Litigation in China: Protecting Rights or the Local Economy?.  The article has been excerpted in the IAM,  discussed on Prof. Don Clarke’s Chinalaw listserve and is also set to be published in 18 Vanderbilt J. Ent. & Tech. L. (2016).  It has created a bit of a stir.

The authors seek to counter certain generalizations regarding the nature of China’s IP (utility patent) enforcement environment.   They bring to an English language reader many useful observations regarding the patents that are being litigated, favored locations for litigations of different technologies, and that local protectionism is not apparent in the litigated cases that were studied.  What has most attracted attention, however, is something that really should not have:  foreigners win cases.  This is not new news and probably oversimplifies what the data suggests.  The conclusion itself reflects mostly on the lack of knowledge of the West on China’s IP system.  Indeed, I personally believe that a review of all available data would likely lead to a different conclusion on how foreigners win cases and the nature of Chinese “local protectionism.” Unfortunately, by relying primarily on English language secondary sources, an incomplete database and data that is over five years old, the article doesn’t address why foreigners bring so few cases when they are winning and what are the factors that contribute to success or failure.

I have divided my observations on this article into three parts: (a) why foreigners winning cases is “old news”; (b) what litigant behavior and the databases likely say about “win” rates; and (c) manifestations and data on local protectionism.

  1. Win Rates as Old News

The authors suggest that they are the “first large-scale empirical study of patent litigation in China” and that “empirical study of Chinese patent enforcement is virtually non-existent.”

In fact, there are a wealth of surveys on foreign “win rates”胜诉率 in the Chinese IP courts, most of which draw upon a larger sample than the 471 patents cases used by the authors, which included only 49 cases with foreign plaintiffs and 29 cases as defendants — a rather small sample.

Here’s a random survey of prior studies on foreign win rates that I found in preparing this review of the article.

 

1.According to a press report of a Shanghai news conference, the success rate for foreigners in first instance IP trials was 84.6% for the 447 cases filed in Shanghai from 2009-2013.

2. Of the 2,691 cases adjudicated in the Beijing Number 1  Intermediate court for the period 2006-2010, foreigners had a full or partial win rate of 55.2%.

3.A newspaper report on success rates for foreigners on IP cases in Zhejiang  reported success rates of 95% for 2013 out of 85 foreign cases adjudicated that year, with rates as high as 99% in 2010.

4.  A sample of 350 foreign-related cases conducted by the Guangdong High Court in 2010 to the first half of 2013 of 1272 cases filed (not including Taiwan, Hong Kong and Macau), revealed success rates of 70-80%, with relatively low settlement rates of 10-20%.  Foreign cases constituted about 2.25% of all IP cases.

5.  A study of the leading cases discussed in the gazette of the Supreme People’s Court for the 30 year period from 1985 to 2014 reported a success rate in the 33 foreign cases (out of 157 cases filed) of 73%, with foreigners playing the role of plaintiff in two-thirds of the cases.

6.  A study reported by the renowned Judge Sun Hailong in Chongqing in 2015 noted that for the period of 2003 -2007 the success rate for Chinese litigants was 5.78%.   This report also challenges the notion, that “inland provinces”, such as Sichuan, are somehow hotbeds of local protectionism, which the authors of the Love study noted has “little empirical evidence… to support or refute.”

7.  The Shanghai Number 2 Intermediate Peoples Court reported for the period 2006-2010, that the success rate for foreigners on IP cases was 86.3% of the 80 cases heard.  Foreigners were plaintiffs in 94.5% of the cases filed.

8.  In an English language September 27, 2012 letter of SIPO Commissioner Tian Lipu to USPTO Director Kappos, SIPO also points to analyses it conducted of foreign win rates, noting that in the 800 foreign cases surveyed from a number of different provinces (including inland provinces), foreign companies on average stood a better chance of winning their cases than Chinese parties, with foreigners winning all design patent cases in Guangdong.  The study notes that in Shanghai foreigners were more likely to appear as defendants and their win rate was 59% compared to 52% for domestic defendants   When foreigners acted as plaintiffs in Shanghai, their win rate in first instance cases was 77.8% versus 59.3% for domestic parties.

The above data, in general, supports all of the conclusions of the authors, except for the notion that their study is path breaking.  The notion that foreigners win patent cases in China is not new news. However, I differ with the implicit conclusion that local protectionism or other challenges hardly exist…

(2) What the Databases Say About Win Rates and Empirical IP Research in China

The authors reliance on some rather old cases in the CIELA database (www.ciela.cn) actually may be said to undercut their conclusions.  CIELA catalogues approximately 30,000 IP cases for the period 2006-2014.   This is a fraction of the total cases filed during this period.    In 2014 alone, there were 133,863 IP cases accepted by the courts, of which patent cases constituted 9,648 and administrative patent cases were 539.  CIELA especially lacks in settled cases and cases litigated after 2011 (article, fn. 23).  Indeed, the small sample of invention patent cases selected by the authors in a multiple year period was about 1/20 of the numbers of patent cases in 2014 alone

Because China’s IP policies change quickly compared to the United States, recent samples can be very important.  In using data prior to 2012, the authors chose to ignore many recent developments, which could have affected their conclusions  These include the expiration of the National IP Strategy and a new plan for 2014-2020, a lack of data on the IP Courts, and the lack of reference to administrative patent litigation.   The growth of administrative patent enforcement litigation may be the most disruptive of this study as SIPO, heard 35,884 patent administrative enforcement cases in 2015, up 46.4% from 2014, of which 14,202 were patent infringement cases, and 21,237 were patent passing off cases.   The Love study sample pales in comparison to these numbers. Unfortunately, we know very little about the disposition of these cases.  Moreover enhancing administrative patent enforcement appears to be a current priority of SIPO, including in proposed amendments to the patent law.

The authors’ data however might also be compared with other, more recent and comprehensive sources.  A competing commercial database, Darts IP, offers considerably more cases, especially recent cases. Here is what I understand that Darts collects on Chinese civil patent litigation compared to CIELA:

Ciela Total Civil Patent cases Darts IP Total Civil Patent Cases
2007 699
2008 531
2009 566
2010 631 1516
2011 852 1719
2012 736 2067
2013 271 1755
2014 0 2490
2010-2014 Total 2490 9547

 

The DARTS IP decisions also include data on provisional relief and settlements, as indicated above, which CIELA does not as fully report.

Nonetheless, I believe the honor of the largest judicial database likely belongs to the courts themselves.   Chinese judicial databases have become increasingly more comprehensive.  As Susan Finder has noted on her Supreme Peoples Court Monitor Blog, the SPC has recently upgraded its case database, to include over 14,000,000 separate documents and has become a “a rich source of understanding how the Chinese court system is operating, through (for example) a focused search of a  specific type of case…”.  Chinese judges have told me that the largest collection of cases involving patent infringement at this time likely belongs to another judicial database, the IPR court decision database.  Whatever their respective holdings, I believe that judicially-maintained databases will be increasingly useful in undertaking the kinds of empirical analyses that are needed, including analyses of the fairness and independence of the Chinese judiciary.  One early effort in using these databases was Xin He and Su Yang’s important article on the handling of civil law suits in Shanghai.   “Do the ‘Haves’ Come Out Ahead in Shanghai Courts?, Journal of Empirical Legal Studies, Vol. 10, Issue 1, pp. 120-145, 2013 ), which analyzed 2,724 adjudication decisions in Shanghai to reach their conclusions that “stronger parties not only win more often, but also do so by a large margin.” This article did not focus on “local protectionism”, but its conclusions suggest that bias persists in less visible forms than simple discrimination against outsiders.  I do not believe that IP is an exception to other forms of civil litigation in terms of political pressure.

Finally, there is the problem of database selectivity, which was also discussed on Don Clarke’s list serve, and is acknowledged by the authors.  The reasons for the high win rates are likely to be buried in other data, including the very low percentage of cases in China that are foreign related, which has resulted in a high degree of self-selecting of cases that foreigners bring.  Moreover, many important cases in China have simply not been published, among them the landmark first instance case of Chint v. Schneider, which resulted in the largest patent damages (for a utility model) in China’s history, and the important first instance antitrust case of Huawei vs. Interdigital, both of which involved foreigners who lost.  Finally, the CIELA database has its own weaknesses in terms of focusing on China’s key courts.  For example, CIELA records only two patent infringement law suits from the Supreme People’s Court (with a 50% “win” rate), which is hardly the situation for China’s most important court.

(C) Local Protectionism

Local protectionism, as the authors point out, has long been a concern to foreign rights holders in China.  However, what constitutes local protectionism, other than a fear of the foreign and unknown, has rarely been defined.  The authors define local protectionism in value-terms, such as “bias”, “corruption” and “lack of impartiality” especially in China’s inland provinces.   It is equally clear that local protectionism is not merely a foreign concern.  Chinese officials have also repeatedly complained about local protectionist barriers of various kinds, including in IP enforcement.

I do not believe that local protectionism is only question of where a party is located, but rather, consistent with Xin He and Su Yang’s view, the political power and influence that a local company may have on the local judiciary or other enforcement officials.  Local protection also is not necessarily an issue of whether one is forced to litigate in a remote inland province, as the authors suggest, and which the articles I cite at the beginning of this review (which include data from inland provinces) refute.  At its base local protectionism derives its influence from a locally employed and appointed judiciary.  In fact, a well-connected foreign company which has many employees may have significant local influence in a given Chinese locality, which is also dependent on the employment and taxes provided by that foreign entity.   Thus, foreign companies may also benefit from local protectionism – or at least to a degree.

I believe that most foreign rights holders, facing the uncertainties of a legal culture that bears the opprobrium of being “local protectionist” would actually file their cases in jurisdictions where they are likely to benefit from the most local protectionism possible.  The article appears to corroborate this when it notes, that “foreign entities appear in the data more often as patentees than accused infringers.”  However, further studies would be useful to corroborate linkages between industrial interests, R&D, and patent litigation in China.

Local protectionism may be influenced by local interests.  However, as the authors note, IP litigation in China tends to be clustered.  However, such clustering can be a double-edged sword.  Local judges who are more familiar with a particular technology or industry, may also be more sympathetic and knowledgeable about a given technology, as much as they may be inclined to favor a domestic litigant.

One place the authors might have looked at to validate if local protectionism is the basis for plaintiff’s filing of cases would be to compare cases involving the same parties or same set of facts.  For example, one might look at appellate reversal rates of judgments rendered in favor of foreigners.    Earlier (unpublished)  studies I conducted on the CIELA data shows a dramatic shift away from foreigners’ favor when they appeal their favorable first instance decisions, with about a 30% foreign win overturn rate on appeal, compared to 17% for domestic plaintiffs.  The data below needs to be updated but nonetheless gives a sense of general trends.

The data might be compared with data on the Court of Appeals for the Federal Circuit.  For example,  Janicke and Ren found no statistically significant evidence of bias against foreign parties in Fed Circuit, in which 26 percent involved foreign defendants accused of patent infringement. See: See Paul M. Janicke & LiLan Ren, Who Wins Patent Infringement Cases? 34 AIPLA Q.J. 1, 9 (2006).  Other cases of this nature include: Kimberly A. Moore, Xenophobia in American Courts, 97 NW. U. L. REV. 1497,1499 (2003); Trimble, Foreigners in U.S. Patent Litigation: An Empirical Study of Patent Cases Filed in Nine U.S. Federal District Courts in 2004, 2009, and 2012 (17 Vand. J. Ent. & Tech L . ).  Still another fruitful area of comparison is in reviewing decisions by different courts on counterpart foreign patents, or on technology that is the subject of trade secret litigations in different jurisdictions, to determine if there is a bias towards one country or another.

Another way of approaching local protectionism is to be less empirical and instead look at national policies and anecdotes that suggest there may be unchecked bias.  For example, the appointment of judges by local people’s congresses for a term could suggest local favoritism. Recent national judicial policies which favor courts “vigorously” asserting jurisdiction in international matters, and “restricting foreign parties to litigation from leaving China” can create significant risks for foreign litigants.  Many academics and officials have expressed growing concerns over due process rights for foreigners in Chinese IP litigation.  In addition, there have been several high profile cases in the United States which have which have suggested that the Chinese government may be actively intervening in cases.  In at least one case (Huawei vs Interdigital) a Chinese judge has urged Chinese companies to aggressively use Chinese  antitrust law to address “technology roadblocks in China and overseas” (华为公司善于运用反垄断法律武器进行反制,值得其他中国企业学习。…国内企业,在突破技术壁垒为自己赢得发展空间上,要大胆运用反垄断诉讼的手段. ). There are also telling cases such as the matter of Hu Zhicheng, an engineer, who was involved in a patent dispute with his former business partner turned competitor.   Investigators allegedly tried to force him to sign rights to his US patents to the former business partner, and subsequently jailed him for 17 months for alleged commercial theft.  Prosecutors later withdrew the commercial theft case.  He was not released until June 2013.

One of the oddities of practicing Chinese IP in Washington, DC is that it exists at the intersection of both IP law and Chinese legal studies.  Both of these areas have benefitted enormously from empirical research to support sounds academic analysis, business strategies and government policies.  China’s legacy of state planning has also made much of the debate in China about IP policies highly data-oriented.  However, much of the discussion in the West on Chinese IP has been less empirically-dependent.  This study of Profs. Love et al, is one important step in deepening domestic awareness of how many of our assumptions need empirical support and further research.  The need for such empirical research was one of the reasons that the USPTO set up a China Resource Center, which is an important part of USPTO’s international plans.   I believe we have just started on a long journey of accessing and analyzing the increasingly rich area of empirical analysis of China’s IP environment.

Please send any corrections or edits to this blog to me at chinaipr@yahoo.com.

Update (July 12, 2016):  Jacob Schindler at IAM reported on July 4, 2016 that, according to a Chinese judge, foreign litigants in the Beijing IP Court had a 100% win rate in civil IP cases in 2015.  The win rate for all plaintiffs was 72.3%.

Of course, the issue remains: if the win rate is so high, why is the percentage of foreign related cases so low? As pointed out in this blog, one reason may be that foreigners self-select cases which they believe they have a very high chance of success.

Beijing Higher People’s Court Recognises “Merchandising Rights” as Tool to Fight Bad-faith Applications

Authored by Mr. Zhao Kefeng (zhaokefeng@anjielaw.com) and Mr. Han Jinwen (hanjinwen@anjielaw.com) at Anjie Law Firm, first published November 3, 2015 and reprinted by permission.

In a recent trademark opposition case involving the famous film Kung Fu Panda , the Beijing  Higher  People’s Court  has confirmed that DreamWorks Animation SKG Inc had prior “merchandising rights”  in the name  of the film and refused to register  the trademark KUNG  FU PANDA.  DreamWorks’ success highlighted the possibility of using merchandising rights to block bad-faith trademark applications in China.
This case is a typical example of pirated trademarks and the facts were simple. A Chinese individual applied for the registration of the trademark KUNG FU PANDA for “car steering wheel covers” in Class 12. DreamWorks filed an opposition against the application as producer of the film Kung Fu Panda. The main ground for the opposition was that the trademark infringed its prior “merchandising rights”.
DreamWorks’ success did not come easily. In the opposition and following appeals, the China Trademark Office, the Trademark Review and Adjudication Board and the Beijing Number 1 Intermediate People’s Court all decided that “merchandising rights” were not among the “legitimate rights” pursuant to the Chinese laws and did not uphold the opposition.
However the Beijing Higher People’s Court disagreed. The court held that the name of a movie or movie character with a high reputation shall benefit from “merchandising rights” if the following conditions are met:
1. the relevant public identifies the name of the movie or character with a particular business entity;  and
2.   the business entity may derive  additional commercial value  or business opportunities from such identification/affiliation.
The judgment also specified essential factors when determining the scope of protection of Merchandising rights: fame and the likelihood of confusion. It was suggested that the courts should evaluate whether the registration and use of the pirated trademark on the designated goods  or services may cause damage  to the real rights owner by taking away trading opportunities.
The judgment is significant as it is the first time that “merchandising rights” have officially been recognized as a type of “prior rights” that can be used to block bad-faith trademark applications. Article 32 of China’s Trademark Law stipulates that a trademark should not infringe any prior rights owned by a third party. The current practice recognizes that “prior rights” include trade names copyright, design patents and the names of famous persons, but merchandising rights had never been  included – until now.
In fact, the Kung Fu Panda case is not the first case in which an IP rights owner has fought for the recognition of merchandising rights.  In an earlier similar opposition case against the trademark 驯龙高手 (‘how to train your dragon’ in Chinese) the Beijing Number 1 Intermediate People’s Court  upheld the opposition by confirming that DreamWorks had “legal interests” in the movie  name, but insisted that “merchandising rights” were not “prior rights” for the purpose of Article  32. In 2011, in a cancellation action against the trademark CRAYON SHIN-CHAN, the Beijing Higher People’s Court confirmed the cancellation of the mark on the grounds of bad faith, without any comments on merchandising rights.  In other earlier cases, the Chinese courts had ruled against infringers who had copied the name of a movie or movie character on the grounds of “unfair competition”.
There is no doubt that the present case is a welcome development in the battle against pirated trademarks. The judgment means that rights owners have an additional weapon to crack down on trademarks that copy or imitate the names of famous movies, characters, actors or songs.
What is interesting, though, is that the case itself is still being debated in China.  After the judgment was published, some scholars questioned whether judges were in fact “making” the law, because “merchandising rights” have not been  recognized by the Chinese  laws. The debate is likely to continue for a while, and IP owners should  keep monitoring the issue.

A Deeper Dive Into the Jurisdiction and Role of Specialized IP Courts

deeperdive

As we previously reported the NPC’s Standing Committee established three Specialized IP Courts in Beijing, Shanghai, and Guangzhou.  The Supreme People’s Court and the cities’ High Courts are now in the process of implementing the NPC’s decision.

On November 3, 2014, the Supreme Court issued a decision and held a news conference outlining the jurisdiction of the Specialized IP Courts of Shanghai, Beijing, and Guangzhou. The court detailed the Specialized IP Courts’ jurisdiction over cases of first instance, over different types of IP cases, and over IP right authorization and verification.

The Specialized IP Courts have jurisdiction over three types of cases:

1.  Civil and administrative cases involving patents, new plant varieties, layout designs of integrated circuits, technical secrets, computer software and other technology cases; 2.  Administrative cases involving copyright, trademark, and unfair competition against the administrative action of the State Council department or above the county level departments; and 3. Civil cases involving the affirmation of well known trademarks.

The Specialized IP Courts will review civil and administrative IP cases challenging the judgment of lower courts. Additionally, the Higher People’s Courts, where the Specialized IP Courts are located, will review appeals against the judgment of the Specialized IP Courts.   Probably the two most important impacts of the jurisdiction of the courts in terms of its impact upon foreigners aspect of the jurisdiction are the jurisdiction of the Beijing Specialized IP Court over appeals over patent and trademark office final decisions and jurisdiction over well-known marks

Foreigner-related cases constitute a large percentage of these appeals from the patent and trademark office while the infringement cases brought by foreigners are about 2% of the docket.  According to various press reports, the overall share of administrative cases brought by foreigners in Beijing hovers near 50%.  Interestingly, in January of 2014, Beijing had already divided its intermediate IP court into two divisions one of which would hear patent appeals and the other would hear trademark appeals.  This experiment, which likely was intended to anticipate one national IP court like the Federal Circuit in the United States,  has necessarily become short-lived.  Nonetheless, in its jurisdiction over patent and trademark appeals, the Beijing Specialized IP Court does retain jurisdiction that is in many ways similar to the Federal Circuit’s  “administrative” jurisdiction over the USPTO.

I do not have precise current data on foreign-related well known mark cases.  However, well known mark status has been of concern to foreign brand owners for some time.  Former China Trademark Office Director-General An Qinghu 安青虎published an extensive analysis in English in 2005 on recognition of well-known marks in China, including the various circumstances by which foreign well known marks have been recognized, which as I recall from prior personal review of that article, was intended in part to address the concern of foreigners over how well-known marks were being protected in China  As DG An noted at that time “Among the 153 well-known trademarks affirmed by SAIC or Trademark Review and Adjudication Board, 132 are registered by Chinese registrants …, 21 by foreign registrants …” (fn. 7), and “SAIC had affirmed some well-known trademarks  in objection decisions in the 1990s, most of which were registered by foreign registrants.” (final endnote).  I do not have current data on well known mark ownership by foreigners.

The Beijing, Shanghai, and Guangzhou Specialized IP Courts have different focuses and differing impact upon foreigners.  As noted, the Beijing court is distinguished by its largely administrative docket.  The Shanghai and Guangzhou courts will deal with hear comparatively more civil IP cases and will hear relatively fewer administrative cases, mostly involving administrative enforcement decisions.  Guangdong has the largest IP docket in China although not the largest foreign-related docket.  Guangdong’s handling of intra-provincial IP disputes could become a model for a national appellate IP court.  Interestingly, an important and rapidly rising part of the overall IP docket in Guangdong involves online infringement owing to the large Internet business community in Guangdong.  However online copyright is not part of the Guangdong Specialized IP Court’s jurisdiction, despite many of those cases involving different regions of China and their rapid rise and complexity.  For example, from 2010-2013, the online infringement docket in the Pearl River Delta of Guangdong increased from 4058 to 9449, increasing from 21% to 38% of the overall IP docket.

The Supreme People’s Court also issued guidance regarding the selection of judges for the Specialized Court.  The judges can be selected either from those judges engaged in IP or related trials, or the judges can be selected if they have the same qualifications and conditions and are engaged in law practice, legal research or are law teaching professionals.

  1. A judge should also have the following qualifications: more than 6 years of relevant trial work experience; a bachelors or higher degree in law; a strong capacity for leading trials and drafting judgments; and Senior judge qualifications.
  2. The standards for other legal professionals as judges of the Specialized IP Court are referenced in further comments.

The candidates for the president of the Specialized Court are appointed by the city’s People’s Congress Standing Committee. The new President of the Beijing IP Court, Su Chi 宿迟, and his deputies, Chen Jinchuan 陈锦川 and Song Yushui 宋鱼水 appear to have such credentials.  Indeed, as if to underscore my analysis on the importance of Beijing to foreigners, the press reports  also underscore their experience in adjudicating foreign-related disputes.

Beijing’s Specialized IP Court will also include “Technology Experts,” (技术调查官)  who will help resolve technology issues that come up in the cases.  The High Court pointed to Taiwanese and Japanese courts that make use of such officials, noting that in those courts the Technology Experts are senior officials.  However, the SPC has also cautioned that the courts should not rely on such experts exclusively.

Here are three charts that demonstrate the jurisdiction of the Specialized IP Court in Beijing, Shanghai, and Guangzhou. See also the Chinese version.

Written by Mark Cohen with the support of Marc Epstein and Yao Yao from Fordham Law School.

Specialized IP Courts Established in Beijing, Shanghai and Guangzhou; Song Xiaoming New Chief IP Judge

According to Xinhua, on August 31, the NPC passed legislation establishing specialized IP courts (http://news.xinhuanet.com/politics/2014-08/31/c_1112298943.htm) (“Decision of the NPC Standing Committee on Establishing Specialized IP Courts in Beijing, Shanghai and Guangzhou”)

As indicated, the courts are to be established in Beijing, Shanghai and Guangzhou.    Some basic aspects:

1.  The types and numbers of cases are to be decided by the SPC

2.  The court will hear technically complex first instance civil matters and administrative appeals (patents, technical trade secrets, plant varieties, semiconductor layout designs, etc.).

3.  The Beijing IP court will hear first instance appeals of validity / invalidity decisions of State Council IP agencies (patent office, trademark office, etc.).

4.  The courts will have cross-territorial jurisdiction for the types of  cases determined by the SPC noted  in the first paragraph above within three years.

5.  The court will also hear appeals from first instance trademark and copyright cases that originate at the basic level court in its municipality.

6.  Appeals of first instance decisions of the specialized IP courts will go to the high court of the province or city where that court is located.

7.  The specialized IP courts will be supervised by the SPC, the local high court and, “according to law”, the procuratorate.  Note that  no specific procuratorate – national or local is indicated.

8.  The President ( 院长) of the local IP court will be decided  and appointed by the local people’s congress.

9.  The Vice President of the court, chiefs of tribunals and adjudicating judges will be decided by the President and subject to appointment by the local people’s congress.

10.  The SPC will report on the implementation of the IP courts to the National Peoples Congress three years from now.

11.  The specialized IP courts are established as of August 31, 2014.

There are clearly some additional details and kinks to be ironed out.  For example certain copyright cases can be as technologically complex as patent cases;  there is no legal definition of “technical” trade secret as opposed to trade secrets involving business information; having the heads of these specialized courts be appointed by local people’s congresses may also continue to result in significant local protectionism; cross border jurisdiction for first instance cases for the courts could also result in cross border jurisdiction of the local high court, which could also increase local protectionism.  As I have noted several times before, I am unclear if anti-monopoly  cases qualify as “技术秘密等专业技术性较强的” (technologically complex, technically specialized) cases.

It  also appears likely to me that these courts would also be first instance courts for trademark and copyright cases which involve foreigners.  Such cases are typically now filed in the intermediate court or higher.  The NPC decision notes only that the specialized courts however have jurisdiction over appeals from the basic level courts which heard trademark and copyright cases.  As foreigners do not file cases in the basic courts, the specialized IP courts may be their courts of first instance.   知识产权法院所在市的基层人民法院第一审著作权、商标等知识产权民事和行政判决、裁定的上诉案件,由知识产权法院审理.  One question that arises is whether these courts would then also have cross border jurisdiction – which could then make them an effective tool in dealing with cross border counterfeiting and piracy involving foreigners and others.

The decision does further commit Beijing city to hearing administrative and civil IP cases in one specialized court, which is likely a good development for foreigners who bring many administrative cases.   If the Beijing IP court were granted jurisdiction over all cases where there is a validity challenge to a patent or trademark anywhere in China,  it could also result in a significant efficiency in the Chinese system.

These first instance specialized courts for technically complex cases will still be subject to review by at least one, possibly two appellate courts.  In this respect, the reform may be less like the Court of Appeals for the Federal Circuit, which established one national patent appellate court.  Rather, it appears to mostly be a reform of first instance adjudication, which might include consideration of venue, jurisdiction, consolidation of cases and further training of judges.

In a contemporaneous development, according to the People’s Daily (http://rmfyb.chinacourt.org/paper/html/2014-09/01/content_87088.htm?div=-1), Kong Xiangjun孔祥俊 is no longer head of the No. 3 (IP) Division of the SPC.  He has been replaced by Song Xiaoming 宋晓明, formerly chief judge of the No. 2 Civil Division.  Kong had  reportedly been scheduled for promotion and was working in SIchuan for the past several months.  It is unclear to me where Kong is next headed.