Supreme People’s Court Annual Report Shows Continued Meteoric Growth in Litigation and Increasing Professionalism of the Court

It is IPR Week in China, and once again there will be a flurry of reports that were presumably embargoed by Chinese agencies for the festivities of the week.  It’s a bit of an ironic week, since IPR Week is followed in the United States by the Section 301 Report of the US Trade Representative, which means that most of the data released this week has not been made available to the US government in time for its consumption for the Section 301 Report.

One of the more interesting reports is the Supreme People’s Court report on IPR protection, which has been released in English and Chinese for some years now.  It is available here in Chinese and English.

This year’s report is particularly detailed and appears to build upon concerns and critiques raised by many over the years.  In this context, I believe the hard work of individuals like Chief Judge Rader, the annual visits of Intellectual Property Owners, concerns about the general commercial rule of law developments, and my own sporadic inquiries on various issues are also helping the SPC to look into trends that impact foreigners, as well as to collect information on local trends.

Here are some highlights:

Civil IPR Cases Continued Their Meteoric Growth.  There were 87,419 civil IPR cases in 2012, an increase of 46% over 2011.  Copyright cases and trademark cases both increased by approximately 53% to 53,848 and 19,815 respectively.  Patent cases showed a more modest growth of 24%. Technology contracts remain disproportionately small, with an increase of 34% to only 746 cases.  Antimonopoly cases numbered 55, and antiunfair competition cases (which include trade secrets) numbered 1123, a drop of 1%.  This drop in unfair competition cases in the face of escalating IP cases generally and an increased interest in trade secret matters, suggests to me that the anti-unfair competition law needs revision to become more relevant to today’s market in China.

Provisional Measures are Still Under Utilized.  Of the nearly 90,000 civil IPR cases, there were only 27 applications for a preliminary injunction, with a grant rate of 83%.  There were 320 requests for provisional evidence preservation and 74 cases for provisional evidence preservation, with grant rates of 97% and 95% respectively.

Criminal Cases Showed an Even More Rapid Growth.  According to the report, there was an increase of 130% in judicial adjudication of criminal IPR cases, to 13,104 cases.  Infringement cases numbered 7840 cases, of which 4664 involved trademark infringement matters.  The remaining cases appeared to involve IPR infringements that were prosecuted under non-IPR laws, such as illegal business operations. Some of these non-IP laws carry more severe penalties.  This data also shows the impact of the efforts made by the State Council Leading Group in dealing with infringements and substandard products.

Administrative Cases Also On the Rise. There were 2928 IPR administrative appeals last year, an increase of 20% from 2011.  Patent cases increased to 760 (16%) and trademark cases increased to 2150 (22%).   I believe that most of these cases are appeals of patent and trademark validity decisions by the relevant administrative agencies.  Relatively low growth in administrative appeals in the light of rapidly increasing patent and trademark filings and infringement cases, may reflect the difficulty of reversing administrative agencies.

Foreigners Play a Diminishing Role in Civil IPR Litigation, But a Significant Role in Administrative Litigation on IPR Validity.  There was an increase of 8% in 2012 in foreigners using the civil IPR system, or 1,429.  However, as a proportion of total civil IPR litigation, foreigners dropped from 2.2% to 1.6%.    If current trends continue, I expect that foreigners will be less than 1% of the civil IPR docket in the next few years.    By contrast, foreigners constituted 47% of administrative cases, for a total of 1,349.   The large foreign share of administrative cases underscores the importance that foreigners attach to obtaining relevant rights, even if they are reluctant to enforce these rights, and also suggests that the foreign community should continue to engage the Beijing Intermediate and High Court on these important issues.   The introduction in this year’s report of information on foreign utilization of the administrative system is a welcome set of data.

Transparency and Commercial Rule of Law Are Improving.   The report notes that 47,422 IPR cases had been posted on the Supreme People’s Court case network through year-end 2012, which is still a fraction of the total numbers of cases.    Another challenge that needs to be faced is finding a way to make these cases more easily searchable.  The report also highlights numerous provincial-level local initiatives in improving IPR adjudication, on a range of issues such as electronic evidence, karaoke copyright disputes, notarization of evidence, etc. which is a useful listing of otherwise hard to get local initiatives.  Another useful data point is that the overall judicial settlement rate of IP cases last year was 70%.  As some have expressed concern about undue pressure to settle, comparative data on settlement rates in prior years might have been useful.    It might also be useful in future years if the court provided more data to compare with general civil law developments, such as the availability of provisional measures in the civil procedure law, comparisons to trends in contract disputes generally, and comparisons to overall civil and criminal litigation trends.

The report also notes that the SPC has been actively involved in commenting on the revisions to the IPR laws now underway, as well as responding to requests from lower courts on various research projects.  Considering the expansion in administrative enforcement in recent years, the constructive engagement of the courts on enforcement matters should be helpful to developing more balanced policies.  Also, simultaneously with the court’s release of its white paper, it announced the 10 leading cases in China, 50 typical cases and 10 innovative cases.  The innovative cases involved new legal issues and new thoughts on the application of law.  As there is no IPR-specific case that has yet been announced by the Supreme People’s Court in its Guiding Cases Project these cases are likely to be of greater influence.

The report also gives a shout-out to the highly successful Federal Circuit Bar Association program of May last year, which had over 1,200 attendees, 240 Chinese judges, over 200 US attendees, and seven federal circuit judges in attendance including Chief Judge Rader.

At a meeting hosted on April 22 by the US Chamber of Commerce, speakers noted that the IPR tribunal is once again looking at the possibility of establishing a specialized IP court in China, an issue that was previously flagged in the National IPR Strategy Outline of some years ago.  In this context, the report also discusses the numbers of IPR judges, IPR tribunals, experiments in combining civil, criminal and administrative adjudication, and background of the judges.

The report provides a useful snapshot of an increasingly influential, busy and complex IPR adjudication system in China.

“Case Filing” In China’s Courts and Their Impact on IP Cases

In my experience over the past decade and in talking to local IP courts in China, the IPR judges have for the most part been very forthcoming, knowledgeable and engaging.  However, their colleagues in the Case Filing Division (立案庭) (“CFD”) have operated in a much more opaque way, typically not willing to meet at all, despite their playing a critical role in certain WTO / TRIPS obligations of China, such as granting/denying preliminary injunctions, and preliminary evidence or asset preservation measures (“provisional measures”) (TRIPS Art. 50).  The CFD of a court is more than a court clerk or docketing officer, the CFD actually operates to accept or deny cases, typically without handing down written decisions of any kind.

The opaque nature of the CFD was highlighted more generally in some recent postings on China Law Net, hosted by Prof. Don Clarke.  Dr. Liu Nanping and Michelle Liu recently authored an article on the significance of the CFD.[1]  The article argues, generally without the benefit of the much smaller quantity of data from IPR-related cases, that a right to justice can often be taken away by the CFD before ever reaching the courtroom for trial. In theory, the CFD was designed to filter disputes for resolution through other channels, thereby limiting the judges’ power and controlling court jurisdiction.  In practice, however, it has been found that the division often abuses its discretion, including by pushing off controversial cases.  The authors point out that the CFD rejects cases that should have passed the initial threshold and leaves litigants with reduced channels to pursue justice.

Case filing became especially important after China joined the WTO, as decisions on provisional IP civil measures are initially sent to this division.   As China does not yet afford these provisional measures in other civil cases, the experience of the CFD in handling these matters was likely limited or non-existent before WTO accession.  Regrettably, the statistics to date show only a limited number of these measures actually being made available to rights holders, and call into question whether use of the CFD is the optimal means for China to fully make this right available to litigants.

China’s statistics in this area are confusing:  they show a high “grant” rate of accepted cases involving provisional measures – but they don’t reveal how many cases were rejected by the CFD, since such cases were deemed to have never been “filed”.  This “pre-screening”, I believe, contributes to the high grant rate. A more revealing data point is made by comparing the numbers of such provisional measure cases with the total number of IP cases filed.  The incidence of such cases is very low, most likely because the cases never appear on the docket.   If one were to look at the grant rates alone, one might think that China had particularly robust preliminary injunctions in all IP rights.  In 2009, 85.42% of pre-trial preliminary injunction applications admitted in IP cases were granted.  The number is especially striking because in US practice, preliminary injunctions for patents are rarely granted.  China also showed even higher grant rates for other provisional measures: 98.72% of admitted applications for pre-trial preservation of evidence were granted and 100% of admitted applications for pre-trial preservation of property were granted. In 2010, the grant rates for these provisional measures were 89.74% for preliminary injunction applications, 97.46% of preservation of evidence applications, and 97.41% for preservation of property applications.

A more revealing data point is made by comparing the numbers of such provisional measure cases with the total number of IP cases filed.  In 2009, there were 59 pre-trial preliminary injunction applications, 237 pre-trial preservation of evidence applications, and 56 pre-trial asset preservation applications admitted amongst a total of 30,626 IP-related civil cases admitted at first instance. In 2010, 55 pre-trial preliminary injunction applications, 294 pre-trial preservation of evidence applications, 126 pre-trial asset preservation applications were admitted amongst a total of 42,931 IP-related civil cases admitted at first instance. The high grant rate undercuts the reliability of the overall data: if preliminary injunctions, evidence and asset preservation measures were so readily available, why then did only 0.12% of the civil IPR cases “request” preliminary injunctions, 0.68% of the cases involve evidence preservation, and 0.29% of the cases request asset preservation?

If one compares China to the United States, the rate of grants is likely higher than that of the U.S. for similar types of motions, but the actual number of cases considered by judges is dramatically lower. Moreover, if US experience is a guide, one would expect different grant rates for different types of provisional measures, depending in part on the right being asserted and the context of the case.  Preliminary injunctions in patents are likely to be rare, because of the technical difficulties in adjudicating patent cases and the hardship that might be imposed on an industry if the preliminary injunction was improperly granted.  For example, in the US, traditionally the likelihood of winning of a plaintiff winning in a patent case were 51.45%, versus 85% in trademarks and 75% in copyright.  Patent cases are also generally more complex to adjudicate, making them less amenable to preliminary injunctive relief.  According to one database, patent cases last 417 days on average, compared to 265 for trademark and 331 for copyright.  Because of the significant potential impact on an industry if a patent injunction were granted, injunction rates for final judgments were 30% for patents, versus 48% for trademarks and 21% for copyright (this data was based of FY 2000 data, from a now-defunct database run by Cornell University).  The mean award for patents is $1,759,345, while that of trademark cases is $484,428 and copyright was $837,525.

This U.S. data shows that patents, copyright, and trademark cases are not equal in damages, the length of time to adjudicate or availability of injunctive relief. In China, based on data from http://www.Ciela.cn, in 2008, the average damage award for patent, copyright, and trademark cases were 402,277 RMB, 17,912 RMB, and 88,444 RMB respectively; the duration for the respective types of cases were 8 months, 5 months and 6 months; injunction rates were 74%, 69%, and 85%.  Taken together, these indicate that there are major differences in damages and relief based on right and type of right at stake, which is to be predicted based on the nature of the right and the experience of other countries such as the United States.

It is likely that all types of provisional evidence and asset preservation measures for trademarks and copyrights should be higher, particularly as a remedy to dealing with commercial scale or willful infringement in China, and also because of the difficulties parties have in otherwise obtaining evidence from their adversary due to an absence of discovery-type procedures.  Unfortunately, China often comingles provisional measure data for all rights, making it impossible to determine if China is more readily granting those forms of relief in cases where it is more necessary, or more easily adjudicated.   This lack of distinction adds to the difficulties of evaluating the opaque CFD.

Preliminary evidence preservation measures can be especially critical when evidence is ephemeral, such as in the on-line environment.  Considering the rapid increase of civil copyright cases, the high incidence of on-line copyright cases in China today, as well as the lack of discovery type procedures for all civil cases in China, one would expect a very high incidence of preliminary evidence preservation measure requests and grants.

Apart from the opacity of the case establish division, there are potentially other explanations. Victims wanting a quick remedy, including preservation of evidence, may file administrative trademark or copyright cases.  Administrative agencies can also issue orders stopping infringement, which are enforceable in their administrative district.  These administrative remedies may decrease the burden on the civil courts to seize assets.  In the United States, first amendment rights may also limit the desire of courts to grant injunctions, and instead favor higher damage awards.  Another explanation is that the unclear division in China between when civil and criminal remedies may also drive rights holders to use criminal remedies in appropriate circumstances, as the police can seize evidence even more effectively than the courts. This has been the developing trend in trade secret cases, where lack of discovery proceedings and the need for expeditious action, frequently drive rights holders to use a criminal remedy when a civil remedy might have been adequate for similar actions in the United States.

Another observation that may be drawn from this data is that IPR cases offer a useful window with which to view other general rule of law developments in China.  The transparency and enforcement obligations in TRIPS and other agreements can especially help to drive reform in other areas as well.  Where civil IPR remedies and the enforcement obligations in TRIPS help to establish international standards for their fair and equitable adjudication, such standards might help lift to the standard for all litigants.

Updated: June 29, 2018 with minor typographical changes.


[1] Nanping Liu & Michelle Liu, Justice Without Judges: The Case Filing Division in the People’s Republic of China, 17 U.C. Davis J. Int’l L. & Pol’y 283 (2011)