The SPC’s “Top Two” Dueling IPR Cases

The Supreme People’s Court (SPC) recently released its ten top cases for IP week at the end of April.  Perhaps the most striking was that the high profile trade secret case in Shanghai that was lost by the SI Group of Schenectady, NY.  Here is a rough translation of the summary of that case by the SPC:

“Fifth, the dispute involving resin patent infringement trade secrets. SI Group and SI Chemical (Shanghai) Co., Ltd. and Hua Qi (Zhangjiagang) Chemical Co., Ltd., Xu Jie appeal against a trade secret dispute.

[Summary] SI Group and SI Chemical (Shanghai) Co., Ltd. jointly claimed that technical information regarding SP-1068 were trade secrets of the SI Group that had been taken over by the defendant Xu Jie, who was formerly an employee of the SI Chemical (Shanghai) Co. When Xu Jie resigned from that company to work at the defendant Hua Qi (Zhangjiagang) Chemical Co., Ltd. (“Huaqi”), Xu Jie allegedly disclosed the two plaintiffs’ trade secrets to Huaqi which used them. The two plaintiffs requested the court to order the defendants to stop the infringement, eliminate the effects, and compensate for the economic loss of 2 million RMB.

The Shanghai Second Intermediate People’s Court entrusted a technical appraisal expert which concluded that that technical information of Huaqi on production of SL-1801 product, as well as patents involved, are not the same substantive technical information and dismissed the plaintiffs’ claim. The two plaintiffs refused to accept the appeal. The second instance court dismissed the appeal and upheld the original verdict.

[The meaning of this typical case] In the trial of a trade secrets infringement case, the court must not only safeguard the rights of people who are claiming trade secret protection, they should also pay attention to the balance between the interests of the parties, regulate fair competition between the parties, and maintain the market’s legitimate order.  In the course of comparing the technologies in the current case, the court of first instance conducted a rigorous, regularized technology appraisal process, and the appraisal body issued a highly professional appraisal report.”

To me, this was one of several “dueling” trade secret cases in the past several years – some of which involved civil, criminal or administrative litigation.  Some also involved high profile political attention, and some also involved conflicting decisions between China and foreign countries.  In this case, there are several “dueling” elements.

The SPC’s assessment of the technical appraisal is itself subject to some dispute in this matter.  According to press reports as well as company announcements, a prior technology verification effort of the trade secrets in China, which was conducted at the behest of the police, had confirmed that the technical information was confidential in nature and that there was a similarity between the plaintiff and defendants’ manufacturing processes.

Another, more important, “dueling” element is that the  US International Trade Commission (the “Commission”) reached a contrary decision to the Chinese courts.  As stated at page 46 of the eighty-eight page Commission decision: “This is classic misappropriation of trade secrets, with copying down to the thousandth decimal place.“ (page 46),  The Commission  also determined that the public interest was not adversely affected by this remedy, and that principles of comity did not preclude it from issuing a decision that is contrary to the holding of a Chinese court (http://www.usitc.gov/press_room/documents/337_849_ID.pdf).

A third dueling element was in the media.  The Chinese press reported that the USITC had found no infringement, when in fact the USITC had not altered its finding of infringement but instead altered the remedy.  The Commission determined that it would issue a limited exclusion order of the infringers’ products, rather than a general exclusion order. Specifically, the Commission determined that the following respondents were in violation:

Precision Measurement International LLC of Westland, Michigan; Sino Legend (Zhangjiagang) Chemical Co., Ltd. Of Zhangjiagang City, China; Sino Legend Holding Group, Inc. of Kowloon, Hong Kong; Sino Legend Holding Group Ltd. of Hong Kong; Red Avenue Chemical Co. Ltd. of Shanghai, China; Shanghai Lunsai International Trading Company of Shanghai City, China; Red Avenue Group Limited of Kowloon, Hong Kong; and Sino Legend Holding Group Inc. of Majuro, Marshall Islands.

The Commission issued a “limited exclusion order for a period of ten (10) years prohibiting the unlicensed importation of rubber resins made using any of the SP-1068 Rubber Resin Trade Secrets that are manufactured by, for, or on behalf of violating respondents or any of their affiliated companies, parents, subsidiaries, licensees, contractors, or other related business entities…

This was hardly the finding of “no infringement” that the Chinese press claimed.

Some explanation of the political importance of this case may also be found in the next “top” case (no. 6) listed by the SPC, the Shenzhen Intermediate Court decision in Huawei vs InterDigital, involving a FRAND license.  Unlike the SI Group case, the SPC did reference the initiation of the ITC action by InterDigital as part of its description of the background of this case.  In the Huawei case, as I previously noted, the Shenzhen Intermediate Court viewed the filing of a USITC action where there was a corresponding FRAND commitment as an actionable violation of China’s antimonopoly law.    Both the SI Group and Huawei cases involved concerns about the market: the court viewed the SI case as regulating fair competition, while one of the Huawei cases involved a claim under China’s antimonopoly law.  To a foreign observer, these two cases suggest that the Chinese courts may be sending a decision about its resolve to fight back against Commission 337 determinations involving foreign companies.

Why then the decision by the SPC to list these two cases as “top 10” cases?  Both Susan Finder in her Supreme People’s Court Monitor blog hand I have previously written about the development of guiding and model cases in China.  Publishing of these cases may also be intended more for pedagogical purposes than to bind the courts.  In 2013, these two cases where Chinese courts took decisions adverse to ITC decisions constituted twenty percent of the top 10 cases published by the court.  This can be compared to the less than two percent of Chinese IP cases that had a foreign element in 2013 – in essence, these SPC is calling attention to high profile statistical outliers.  The cases could suggest a disproportionate interest in matters where foreign companies are defendants, where IP “abuse” is alleged, where market factors need to be balanced, or where there are concurrent Commission actions.   Or are these two “dueling cases” just coincidences?

Revised with minor stylistic changes: March 14, 2019

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Survey on Choice of Governing Law in China-Related Contracts

This is from Susan Finder via the Chinalaw listserve:

Practical Law China has prepared a brief survey on choice of governing law in China-related contracts.  Practical Law China would be very grateful if you could take a bit of time to complete the survey. It will share the results of the survey.  Here is a direct link to the survey http://practicallaw.chinagoverninglaw.sgizmo.com/s3/.

 

My take: This is one of the issues that I think is under-studied involving IP and tech transfer to China.  It has been my suspicion that many foreign licensors of technology may choose foreign law in order to avoid onerous provisions of China’s tech transfer regime that restrict grant backs of improvements and mandate access to foreign markets.  In addition, it appears that Chinese courts may not always honor foreign choice of law contracts.  This is an initial step in further understanding how choice of law issues are handled.

By the way, Susan also hosts the Supreme People’s Court blog – http://supremepeoplescourtmonitor.com/, which is an excellent resource.