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.

Supreme People’s Court Releases New Patent JI For Public Comment

On June 1, the SPC released a new draft judicial interpretation on patent validity litigation for public comment (最高人民法院关于审理专利授权确权行政案件若干问题的规定(一)[公开征求意见稿]).  Comments are due within a month.  The Chinese draft is found here.  Here is a translation provided by the Anjie law firm.

The draft should be of interest to foreign companies, who frequently challenge final decisions of the Patent Review Board at the Beijing IP Court. According to data published by the Beijing IP court, in 2013, nearly 35% of the administrative patent cases involved foreigners.   According to the SPC’s report on IP litigation for last year (to be further discussed in a future blog) there were 872 such adminsitrative patent cases in 2017,a decline fo 22.35% from the prior year.

One provision directly addresses post-filing supplementation of data in chemical patents.  The draft seems to suggest that post filing experimental data will be accepted when there is an different technical effect for review that is  “directly and unambiguously” disclosed in the application.  On first read, this seems to be a narrower view than the revised patent examination guidelines which look to whether the data can be obtained from the original application (补交实验数据所证明的技术效果应当是所属技术领域的技术人员能够从专利申请公开的内容中得到的).   Western pharmaceutial companies reportedly still are having difficulties having post-filing data accepted by SIPO and the courts, despite several years of engagement on this issue.  Here is the relevant paragraph fromt the proposed JI:

datasupplementation If Please send me any comments on this provision or – even better – if any organizations or companies want to share your formal comments on the JI, I would be happy to post them here.  (rev. 6/21/2018 to include link to translation)

April 24 – May 7, 2018 Summary

1.NPC Standing Committee Releases 2018 Legislative Plan. The NPC Standing Committee (NPCSC) on Friday released its annual legislative plan for 2018. As usual, the plan is divided into two sections—the first listing specific legislative projects slated for discussion at the NPCSC’s remaining five sessions in 2018, and second setting forth general guiding principles for its legislative work this year. The plan divides the legislative projects into three categories: (1) those for continued deliberation (that is, those carried over from 2017); (2) those for initial deliberation (that is, bills first submitted in 2018); and (3) preparatory projects.

Below is a list of laws and amendments that implicate IP matters:

E-commerce Law 电子商务法: passed under initial deliberation and is set for continued deliberation. December 2016 draft, October 2017 draft. 

Patent Law (Revision) 专利法(修订): set for initial deliberation in June. Draft released for public comments by the State Council in December 2015.  There have been several blogs previously on the drafting process and controversial issues.

Foreign Investment Law 外商投资法: set for initial deliberation in December. Draft released by the State Council for public comments in January 2015

The 2018 legislative plan also includes a list of preparatory projects, most of which won’t be submitted for deliberation this year. That list includes an Atomic Energy Law and Export Control Law and revision/amendments to Copyright Law.

2. New initiatives released by SIPO on World Intellectual Property Day. During a press conference for the World Intellectual Property Day, Shen Changyu, head of SIPO, made remarks of new initiatives planned by SIPO. According Shen, China is revising its Patent Law and establishing a punitive damages system for intellectual property infringement to increase the cost of illegal behavior and create a deterrent effect. In addition, China pledged to establish more intellectual property protection centers, in addition to the 19 intellectual property protection centers established nationwide. Meanwhile, SIPO planned to release a working guide for Anti-Monopoly law in the field of intellectual property. Should SIPO move ahead with this project, it may be an indication of an increased role for it in the newly reorganized government structure which it shares with China’s antitrust agencies.

As reported before, SIPO and other IP agencies are under reorganization. According to Shen, after the reorganization, SIPO will become the world’s biggest IP office. The new office will have 16000 staff, with 11000 patent examiners and more than 1500 trademark examiners.

3. China’s top court rules in favor of Dior in trademark case. In a judgement on World Intellectual Property day, China’s Supreme Court ruled in favor of Dior in a suit against the Trademark Review and Adjudication Board after a multi-year court battle. The board wrongly rejected a 2015 application by Dior to register a trademark of its tear drop shaped J’adore perfume bottle, the top court said in a statement on its website. Alert blog readers may remember that the Michael Jordan trademark case was similarly held on World IP Day in 2016.

4. Shanghai seizes U.S.-made microchip equipment over IPR. At the start of 2018, Chinese company Advanced Micro-Fabrication Equipment Inc (AMEC) learned that U.S. equipment suspected of infringing the company’s patents would arrive at Shanghai Pudong International Airport. Shanghai customs authorities then seized the suspected products, Jiefang Daily reported on Friday, citing customs officers. Customs suspended the clearance of the products worth 34 million yuan ($5.36 million). With Customs’ involvement, the U.S. company, whose name was not revealed, negotiated with AMEC. The two sides agreed to settle the dispute by offering cross licenses to each other. Chinese media reported that the case is a rare but important example of using Chinese Customs remedies to address imports of products infringing a Chinese patent to effect a cross-license.  The case appears to be a settlement of a long running dispute between Veeco Instruments of Plainview, NY and AMEC, which was reported in the western press, including the trade press, and also involved invalidity challenges, US court cases and an infringement law suit in Fujian province.   According to the western press on December 7, 2017 the Fujian High Court had granted AMEC’s motion for an injunction prohibiting Veeco Shanghai from importing, manufacturing, selling or offering for sale to any third party infringing an AMEC patent in China (revised June 4, 2018).

Other:

A summary of SPC’s IPR Report 2017 was released, but the whole report will be released in hard copy soon. Here’s the link to the summary.

More on Guiding Cases, Precedents and Databases…

stanfordcase

Judge Liu Yijun from Beijing IP Court spoke on the application of China’s IP Case Guidance System in Beijing IP Court.

 

As we have previously reported, one of the latest development in China’s IP law is to build an IP cases system, which is being implemented in part as a case experiment at the Beijing Intellectual Property Court. Thanks to the continuing efforts of the Stanford Guiding Cases Project (SGCP) under the leadership of Dr. Mei Gechlik, a number of experts including Judge Liu Yijun from Beijing IP Court, recently spoke at a seminar at Stanford University to discuss current status and application of the IP cases system.

The IP Cases System is one of several efforts to achieve more uniform application of law, encompassing such initiatives as national level “guiding cases” and other cases used for instructional or other purposes by national and local courts. Susan Finder’s blog had several posts about overall use of cases in China, including how Supreme People’s Court (SPC) uses case law to guide lower courts and the China’s evolving case law system in practice.

According to Judge Liu at the Seminar, the Beijing IP Court is set to establish a principle that “subsequent cases should be adjudicated in accordance with effective judgements and rulings of prior similar cases.” At the current stage, judges of the Beijing IP Court are required to abide by effective judgements and rulings of the Court as well as upper-level courts that are applicable to the pending case. Meanwhile, judgements and rulings of prior similar cases from other courts at the same level should be referenced by judges adjudicating the pending case.

Judge Liu noted that parties are encouraged to submit prior effective judgments and rulings and lawyers in response, are actively submitting more and more cases. At the end of 2016, the Beijing IP Court used prior effective judgements or rulings in 763 cases. Cases were submitted 657 times by parties, and voluntarily invoked by judges in 106 instances. Of those 763 cases, over 200 followed prior judgements, about 80 were distinguished on the basis of different facts, and the rest, around 480, were treated as completely irrelevant or not submitted via appropriate procedures. When this data is compared to the 8,111 cases concluded by the Beijing IP Court in calendar year 2016, the case citation rate was 9.4% of all cases, which was a big increase compared to the citation rate of 2.1% that we calculated in this blog for the first ten months of  2016.

This IP Cases System can be accessed through an IP cases and judgments database (IP Case Database). In its trial version, we found 186 typical cases (典型案例), over 240,000 judicial judgments (裁判文书), laws and regulations (法律法规), intellectual property/legal index codes (知产码) (see www.faxin.cn) , opinions (观点), books (图书), journals (期刊), and review documents and decisions from Patent Reexamination Board of SIPO and SAIC Trademark Review and Application Board (两委文书). Many of judicial judgments included in the IP Case Database are a subset of judgments on China Judgements Online, which has over 35 million of judgments in total and over 260,000 judgments in the IP area. IPHouse (知产宝), another IP cases and judgments database, has recently told us that it has increased the total number of IP judgements on its database – their website lists around 350,000 cases, but we have heard that it is as high as 400,00. This is well in excess of the official China Judgments Online or the IP Case Database. The additional cases have reportedly been made available through direct outreach to various local courts.

These 186 typical cases in the IP Cases System are currently all trademark related cases, decided between 2000 and 2016. A majority of those cases (112 cases) are actually SPC’s guiding cases, and only a small part are cases from High Court or Intermediate Court (11 cases from High Court in different provinces and 23 Cases from Intermediate Court). Among cases from Intermediate Courts, cases from the Beijing IP Court dominate.

 

Panelists at the seminar at Stanford University suggested that all typical cases will go through a review process before posted to the database, which consists of review by experts, editing, and final review and release. But panelists at that seminar also noted that judges made the decision of which cases to be included in this database. It is unclear what criteria are used by judges and what judges’ role is through the case review process. To the extent that cases go through a curatorial process, they may also run the risk of being altered to serve particular doctrinal purposes – an issue that may have arisen with respect to other cases that have been considered model or guiding cases.

As for the quality of those cases and judicial judgments, key words search of some well-known doctrines in IP law returns very limited number of results on the IP Case Database.  For instance, a search of the doctrine of equivalents (等同原则) returns zero typical cases, which might be because no patent typical cases are included yet, and search of principle of good faith (诚信原则) gives nine typical cases (primarily for trademarks). A search for cases adjudicated by well-known judges returns similar results, with only one typical case adjudicated by Song Yushui (宋鱼水), who currently sits on the Beijing IP Court as its Vice President and was recently confirmed as an alternative delegate to the Central Committee of the CPC. Similarly, same key word search of the judicial judgments in the IP Case Database yields more results, but still relatively small compared to total number of judgments included. A search of doctrine of equivalents gives 81 judgments, search of principle of good faith returns 312 judgments (around one-third on trademarks, one-third on anti-unfair competition, and the rest on everything else) and 74 judgments are adjudicated by judge Song Yushui. Compared to another legal database pkulaw.cn (北大法宝), which combines cases and judgements, the same key word search returns significant higher number of cases and judgments (337 for doctrine of equivalents, 455 for principle of good faith and 255 adjudicated by Judge Song Yushui). Such discrepancy raises questions of whether the IP Case Database is currently comprehensive or easily searchable.

One distinct feature to be noted of the IP Case Database is that each typical case has been given an indicator of whether the case should be followed or just referenced.

My overall impression: cases are cited more frequently in Beijing IP Court and the case experiment will continue. It seems that the Beijing IP Court intends to attract attention and application of the IP Cases Database and make it a national tool in the near future. However, at the current stage, it is not clear whether their database has the ability to gain significant usage among the IP law community. Of particular importance is whether more cases, particularly patent and copyright cases, will be included, and when that will happen remains unknown.

This blog has been prepared by Fan (Emily) Yang, JD Candidate, University of California Berkeley, 2019, with editorial assistance from Prof. Mark Cohen.  The views expressed are the author’s own.

 

 

 

Of Trade Secrets, Section 337, AUCL Reform and Evidence Production

When faced with trade secret misappropriation, the United States International Trade Commission can provide a forum for U.S. companies faced with unfair competition resulting from the misappropriation, even if the “theft” occurs entirely in China and/or a misappropriated process is used in China to manufacture a product imported into the United States.  In Certain Cast Steel Railway Wheels, Certain Processes for Manufacturing Or Relating To Same and Certain Products Containing Same, 337-TA-655, Amsted Industries Inc. which licensed certain confidential manufacturing technology to two Chinese companies, Datong ABC Castings Co. (DACC), and Xinyang Amsted Tonghe Wheels Company Limited (Tonghe), claimed the respondent, TianRui Group Co. Ltd, had poached employees from DACC and Tonghe and stolen from them materials and other proprietary information sufficient to establish an identical, competing manufacturing line.  The ITC found a violation of Section 337 and issued a ten-year exclusion order.  On appeal of this landmark case, the U.S. Court of Appeals for the Federal Circuit held that the ITC has jurisdiction to reach trade secret misappropriation that occurs entirely abroad, so long as there is a nexus between the misappropriated trade secrets and the imported product.  Tianrui Group Co. v. ITC, 661 F.3d 1322, 1337 (Fed. Cir. 2011).  Interestingly, in that instance, the Chinese dometic authorities aligned with the United States.  Because railway wheels must be certified for use in China (as is the case in the U.S.), the Chinese Ministry of Railways declined to certify the Tianrui wheels until the U.S. matter was concluded.  The willingness of the Ministry of Railways to decertify Tianrui’s wheels while an ITC action was pending stands as an important contra-factual that suggests the relationship between trade secret theft in China and Chinese domestic industrial policy may be overstated.

More recently, in Certain Rubber Resins and Processes for Manufacturing Same, 337-TA-849, the ITC found a violation of Section 337 based on trade secret misappropriation that occurred entirely in China.  In that case, the Chinese authorities had ruled that there was no trade secret misappropriation in both civil and criminal proceedings.  In Sino Legend Chemical Co. v. International Trade Commission, 623 F. App’x 1016 (Fed. Cir. 2015), the respondents sought to overturn Tianrui, arguing that the ITC does not have jurisdiction to reach misappropriation taking place entirely abroad and that the ITC should have deferred to the Chinese authorities as a matter of comity.  In a nonprecedential judgment, the Federal Circuit affirmed the Commission’s finding.  On September 30, 2016, the respondent in the ITC case, Sino Legend, filed a petition for certiorari asking the U.S. Supreme Court to overrule TianRui, arguing that Section 337(a)(1)(A) contains no clear indication that it should apply extraterritorially and barring the importation of goods made using trade secrets misappropriated in China constitutes the impermissible regulation of conduct occurring overseas.  As an indication of how important this matter is to the Chinese government, in a rare filing, the Ministry of Commerce submitted an amicus brief supporting certiorari.  On January 9, 2017, the Supreme Court denied the certiorari petition.  Thus, U.S.-based companies can continue to turn to the ITC as a viable alternative for relief from trade secret misappropriation taking place in China.  Equally problematic, however, was the willingness of China’s judiciary to misconstrue the 337 decision as a victory for the Chinese defendants and to deem a lower court case as a model case while a related case was still pending on appeal to the court.  This case has also been an important counter-contra-factual indication regarding the relationship between trade secret theft in China and independence of the cour

How does this relate to legislative reform of the Anti-Unfair Competition Law in China?

China is currently revising its AntiUnfair Competition Law, which is the foundational law for trade secrets.  An important first step in addressing trade secret theft in China was the recognition that trade secret protection is a proper subject of the civil code in recent amendments to the civil code; i.e., that is not simply a matter of market regulation but of theft of a private property rightThe inclusion of trade secrets in the revisions to China’s general principles of the civil code was advocated in this blog, and also noted as appearing in an earlier draft.  The SPC, including Madame Tao Kaiyuan, were also involved in providing expert opinions on the draft.  The NPC comments on  the recent proposed revisions of the AUCL specifically calls out the important role of the SPC in revising the most recent draft of the AUCL, and note that civil compensation should assume a primary role in enforcing the anti-unfair competition law generally (善民事赔偿责任优先、与行政处罚并行的法律责任体系。不正当竞争违法行为首先损害了其他经营者的合法权益,需要民事赔偿优先,调动其他经营者制止不正当竞争行为的积极性。)  The primacy of civil enforcement is also found in Article 20 of the draft law itself with a clarification that a business operator who violates the law shall “bear civil liability” and that civil liability shall take priority over fines (Article 30).  I believe these efforts reflect some of the momentum generated by the SPC’s highly useful report, focusing on civil enforcement of trade secret.  Also of note is that at about the same time as that report, the US China Business Council outlined a number of the evidentiary problems in trade secret cases in its proposals for Chinese trade secret reform (2013), including burdensome notarization procedures, procedures which risk further disclosure of confidential information, difficulties in cooperation with the police, etc

The inclusion of trade secrets as a civil right was accomplished with civil code revisions adopted on March 15, 2017, with an implementation date of October 1, 2017.  (中华人民共和国民法总则)。  Article 63(5) includes trade secrets as a subject of intellectual property rights protection:

第一百二十三条 民事主体依法享有知识产权。知识产权是权利人依法就下列客体享有的专有的权利:    (一)作品;    (二)发明、实用新型、外观设计;    (三)商标;    (四)地理标志;    (五)商业秘密;    (六)集成电路布图设计;    (七)植物新品种;    (八)法律规定的其他客体。

Section 337 and the New Trade Secret Regime?

How do these reforms in trade secret litigation interact with US Section 337 procedures? Issues involving production of evidence between the US and China can be at the heart of many IP cases, but are especially critical in trade secret cases.   While some reforms have already been made in China, such as availability of preliminary evidence preservation measures in trade secret cases, the removal in the recent draft of the AUCL of a provision in an earlier draft that would have provided for a modest burden of proof reversal in trade secret matters is also troubling:

“Where the rights holders of trade secrets can prove that information used by others is substantially the same as their trade secrets and that those others had the capacity to obtain their trade secrets, those others shall bear the burden of proof to show that the information they used came from lawful sources.” (proposed Art. 22)

As the coauthor of this blog, Jay Reiziss, points out in his attached presentation to my recent class at Fordham, difficulties in gathering evidence have often been critical to use of Section 337 proceedings.  US Administrative Law Judges have granted motions to use the Hague Convention, such as where a foreign government formally weighs in (Switzerland indicated that it would cooperate with such a request (Certain Sintered Rare Earth Magnets, Inv. No. 337-TA855, Order No. 8). However other cases have determined that Hague Convention procedures would not be timely due to compressed ITC schedules (Certain Hardware Logic Emulation Systems, Inv. No. 337TA-383, Order No. 65).  Because of the threat of adverse inferences, there have also been several instances where Chinese respondents have reluctantly permitted plant tours to accommodate discovery requests (Certain R-134a Coolant, Inv. No. 337-TA-623.  FlexsysAmerica v. KumhoTire U.S.A., 5:05-cv-156 (N.D. Ohio)  Issues involving obtaining timely production of evidence have also appeared in other cases, notably the Gucci/Tiffany cases in the Second Circuit.

Even if the AUCL may not provide enough support for evidence production in China, the SPC has identified several bottlenecks in cross-border adjudication of disputes, including “hearing cross-border cases–service of process to overseas parties; obtaining evidence crossborder; determining facts that have occurred abroad; determining and applying foreign law”, which suggest that future cooperation with US courts may also improve.   Hopefully, as China improves its mechanisms to obtain foreign evidence and if it takes more proactive stances towards cross border cases, towards allowing production of evidence China, and as it improves its civil system, foreigners will be less reluctant to bring IP cases, especially trade secret cases, in China. In the meantime, it appears that the ITC and U.S. civil actions will continue to play a very important role in driving evidence based decisions on trade secret infringement involving China

 

Coauthored by Mark A. Cohen and Jay Reiziss.  This blog represents the authors’ personal views only and should not be attributable to any client, employer or any third party.

 

 

 

 

 

 

 

Spring Time for IPR Case Law in China?

Guidingcase.jpgRecently, there have been two important developments involving IP-related guiding cases and precedent that shed light on these different approaches of the Supreme People’s Court, which is in charge of guiding cases, and the Beijing IP Court, which is looking at the role of precedent in China’s court system.  But first some background:

One of the most important continuing efforts on guiding cases is the Stanford Guiding Cases Project (SGCP), which is under the able, enthusiastic and collaborative leadership of Dr. Mei Gechlik.  The SGCP recently hosted a lively seminar at American University to discuss the latest developments, with a keynote by Judge Sidney Stein of the Southern District of New York (picture above).  In addition to the Stanford project, Susan Finder has written about guiding cases in her excellent blog and other postings, Jeremy Daum wrote an excellent recent article on the actual use of guiding cases, and of course there is this blog and others, in addition to  academic articles and recent  SGCP research.

Another significant development in exploring a system of case precedent is the research base established with the approval of the Supreme People’s Court at the Beijing IP Court.  The ecosystem evolving around that research base appears to me to be more practice oriented than theoretical.  As an example of this practice-oriented approach, the IP court is looking at the role of amicus briefs to ensure the interests of non-parties are heard, or en banc rehearings to reverse prior precedent.  A small, but important step in soliciting third party opinions has already been undertaken by the Beijing IP Court in a case involving trademark agents.

Among the two contrasting recent developments  Regarding the guiding cases project, on March 9, the Supreme People’s Court released 10 IP-specific guiding cases; nine of these are civil and one is criminal. The cases span all relevant IP laws, including copyright, trademarks,patents, plant varieties and antitrust.  Here is a link to a Chinese summary of the cases, and a  machine translation of these summaries (source: IPRdaily.cn, google translate).  I assume that the SGCP will do a professional translation of these in due course.  According to the SPC press conference, IPR-related guiding cases now constitute 23% of the total number of guiding cases.

Nonetheless, recent citation data  suggest that there has been little uptake of guiding cases in actual case decisions, as Jeremy Daum’s article points out in his posting:

“Guiding Cases are almost never referenced: Over a five-year period, Stanford found a total of 181 subsequent cases, and PKU found 241. To provide a frame of reference, Chinese courts complete trial of well upwards of 10,000,000 cases per year…

50% of the guiding cases were never referred to at all

Almost half of the references found were to a single case; GC #24. …That case concerns traffic  accidents,…”

If one compared the nationwide references to guiding cases using, as an example, the 561 opinions referencing a guiding case out of 8,723,182 cases on the China Judgments Online website for 2016 (using a simple keyword search to “guiding case”), the citation rate would be about  0.0006%.

These developments on IP related case law at the SPC might be compared to the data in the January 10, 2017 report of Beijing IP Court.  The Beijing IP court cited 279 case precedents in 168 cases since the time the precedent base was established in 2016 until October 2016.  Cases were cited 121 times by parties, and judges undertook their own effort to cite cases in 47 instances.  In total, 117 cases relied on precedent in their decisions.  Of the 168 cases, there were 51 instances where cases were not relied upon due to a difference in facts.  There was no instance where a reversal was obtained of an earlier precedent.  Of the cases cited, 31 were from the SPC, 132 from High Courts (including 117 from Beijing), and others were from local courts.  If this data was further compared to the 8,111 cases concluded by the Beijing IP Court in calendar year 2016, the citation rate was a minimum of 2.1% based on the data provided through October, which is considerably higher than the guiding cases effort.

My impressions: the data from the Beijing IP Court suggests that the bar is using cases in its briefs, and the court is looking at these cases and exploring how to handle them as part of an overall system including amicus briefs, en banc review and other mechanisms.  The SPC’s guiding cases project is a more intensely curated project that also addresses a much larger national challenge in introducing a new way of developing law to civil law educated judges and the bar.  The comparisons between the two experiments are inexact as the Beijing IP court sits in one of China’s wealthiest cities, with a well-educated bench and bar, a sophisticated IP environment and considerable foreign (including American) interaction.  It is not surprising that nationwide uptake of a precedent system using a limited number of  guiding cases for a vast judicial system is more theoretical and slower than the one taking place at the Beijing IP Court using the 100,000 plus IPR cases that are adjudicated nationwide each year.

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