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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US-China IP Cooperation Dialogue Report Released

The “US-China IP Cooperation Dialogue Report” was released last week. The Report was prepared by experts from both the US and China, including co-chairs Professor Liu Chuntian of Renmin University and Joseph Papovich, former Assistant US Trade Representative. I was an also a member of the expert committee, first as an academic with Fordham Law School, and later as an advisor when I returned to USPTO, in an otherwise private sector initiative.

The Report reflects the consensus reached during several days of meetings among this experienced team. Here are some of its suggestions:

  1.  Civil Enforcement: the Report urges greater use of precedents through a guiding case system, experimenting with amicus briefs for important cases, expanding evidence preservation and preliminary injunctions, and greater civil deterrence in damage awards.

  2. Criminal Enforcement: the Report calls for adjustments to the criminal enforcement system and an expanded and stable role for criminal IP enforcement.  The US experts sought greater clarity over “for profit” requirements in criminal IP convictions, while the Chinese side believed that current judicial practice will ultimate reduce these difficulties.  Both sides agreed that criminal enforcement should be directed towards repeat offenders, large scale criminal activity, and cross-border criminals.  In addition, officials should be encouraged to increase the volume of criminal prosecutions.  Authorities should also consider plea bargaining and proportional criminal fines, as well as criminal settlement and victim-offender reconciliation.  Victims’ compensation (fudai) claims should also be allowed.  Specialized IP enforcement teams and specialized prosecutors were suggested, as well as clearer IP criminal investigation guidelines.

  3. Customs: Greater support of Chinese customs, with more resources, and more engagement with foreign countries.

  4. Copyrights: The experts supports the 2012 Supreme Peoples Court Judicial Interpretation on intermediary liability and commended the court’s openness in accepting outside comments and evaluating foreign practices.  Both sides also encouraged foreign companies to more aggressively use legal remedies to stop infringement.  While China has made significant improvements in end user piracy, the necessity of criminal liability was also underscored.  The experts also believed that live sports programming should be protected under China’s copyright law, and expanded protection should be afforded to technological protection measures.

  5. Trademarks: The experts expressed support for SAIC’s efforts to address online sales of counterfeit goods, and urged the SPC to consider leveraging its experience in dealing with secondary liability in the copyright context to the trademark context, in order to encourage more cooperation between platform owners and brand owners.  The experts also urged the CTMO to adhere to the principle of good faith TM registrations to deal with squatting, and to expand cooperation with express mail services to deal with global counterfeiting organizations.

  6. Patents: The experts agreed that the courts should continue to play a central role in adjudicating patent cases.  The experts also suggested that China should consider centralized jurisdiction over patent cases to ensure specialization and predictability.  If a centralized patent court cannot be established, the experts considered that the SPC might wish to reduce the number of courts that hear patent litigation cases from the current 89.  The experts also expressed their concern about the low rate of injunctive relief for invention patent cases, and consider means of improving evidence collection, particularly in process patent cases.  The experts also discussed Article 26.3 of the Patent Law (enablement), and problems with retroactive application of examination guidelines and restricting data supplementation.  In evaluating appeals from the PRB to the Beijing courts, some experts also pointed to low reversal rates by the courts, and too much involvement by PRB officials in the court’s decision making process, which can impair impartiality.  The experts also recommended a study on the impact of the short statute of limitations (two years) in China on protection of patent rights.  The Chinese side also thought that foreigners also need better protection and planning for litigation in China.

  7. Trade Secrets: The experts agreed that theft of trade secrets, whether the victims are foreign or Chinese, is “not tolerable.”   The experts further noted that trade secret theft “harms business value and destroys trust” and that trade secret cases can have a big impact on “sustaining the growth of R&D facilities and technological collaboration in China.”  The experts pointed out that parties in trade secret disputes need to be given a fair opportunity to discover key facts and to examine evidence.  Police officers should be able to conduct undercover investigations (Criminal Procedure Law, Art. 51).  Chinese experts also cautioned that criminal prosecutions may be abused and that in some cases the civil and criminal results of the same trade secret cases have had conflicting results.

This eight page bilingual Report is a very useful read for policy makers in the United States and China.  What is perhaps even more important is that it was a joint collaborative effort, which showcases the potential for future cooperation on IP policy efforts.

The Door Opens Wider on Administrative Enforcement Transparency

ImageThe State Council recently promulgated its notice of its “Trial Opinion” on Making Publicly Available According to Law Information on Administrative Penalties Concerning the Production and Sale of Fake, Counterfeit and Sub-standard Goods and Intellectual Property Infringement (Guo Fa No. 6,  Feb. 19, 2014).   The Chinese and a machine translation are also available here.

I previously blogged about the drafting of this Trial Opinion, including the background of earlier controversies involving the United States and China when China refused to reveal information about pending administrative cases, see: Through A Glass Less Darkly: China’s March to Administrative Enforcement Transparency.   Here are a few of the key points of this Trial Opinion:

A) First, as its name suggests the initial focus is on fake, counterfeit and sub-standard goods.  While IP infringement is also a part of this effort, traditionally the amount of enforcement against substandard goods is greater than IP.   This seems to be the continued focus.  The opening chapeau mentions as the first goals of this regulation “to protect consumer interests” and to “maintain the market order for fair competition.”  The chapeau does not mention that protecting the legitimate rights of IP holders is a specific goal.   

It is also unclear if certain IP-related offenses are included in the scope of this regulation, such as illegal business operations by manufacturing or selling of illegal publications and antitrust matters, particularly those that involve Article 55 of the Antimonopoly Law regarding abuse of IP rights.

B) The Trial Opinion also has a substantive commitment regarding IP enforcement: administrative agencies, “in principle” should conduct their enforcement actions in an “ex-officio” (self-initiated) manner.  The distinction between ex-officio and enforcement on complaint has historically been a problem in certain jurisdictions, as administrative officials may feel less compelled to provide information on cases if they had “self-initiated” cases than if they were responding to a complaint (Art. 1.1).

C) The Trial Opinion sets forth specific requirements regarding the information that much be disclosed, such as the name of the offending party, their legal representative, legal basis for the punishment, and person(s) who decided the case. (Article 2). 

D) County level officials and above ae responsible for directly implementing this Trial Opinion (Article 3).  For IP-related offenses, this is likely to impose the highest burden on SAIC, as it is the largest IP-related agency, and has offices at sub-county levels.

E) Generally disclosure is principally to be made via the Internet.  In most cases disclosure should be made within 20 days after the punishment decision.  However, if the decision involves public health and safety, it should be made immediately available (Art. 4)

D) Information that should not be disclosed include trade secret information, government secrets and information that involves privacy concerns (such as involving the physical location of individuals and their phone number) (Art. 5).  Chinese practice of not disclosing in its entirety cases that involve “trade secrets” may make it exceedingly difficult to understand how trade secret and many other IP cases are handled, particularly at a time when the IPR Leading Group is considering a trade secret enforcement campaign.

It is hoped that, over time, China will publish administrative and civil cases that remove relevant confidential information.  The current civil practice seems to involve not publishing cases and sometimes having cases discussed in the press by enforcement officials.  This was practiced by judges who have written articles that discussed Huawei vs. Interdigital, an antimonopoly civil case.   This approach can have the unfortunate consequence of giving the public the impression that an undue amount of power has been given to the enforcing official to disclose the nature of the case on the regulator’s own terms. 

In general, the Trial Opinion shows a commitment to greater transparency of administrative agency, and appears to be occurring in tandem with efforts to improvement transparency in the courts.   While it took 90 days for this Trial Opinion to be made public, another important step in transparency would be to make public a State Council opinion on improving administrative-criminal IPR enforcement coordination (September 12, 2012).  The latter opinion appears to have markedly improved criminal IPR enforcement within China, and may have been referred to obliquely in Article 2.5 of the Trial Opinion as it requires public disclosure of administrative punishments for cases that are referred to criminal prosecution. 

Rev: Jan 16, 2017