On July 7, 2016, the PRC Supreme People's Court ("SPC") held its annual conference on adjudication of IP disputes, with attendance by judges from across the country. The purpose of this annual conference is for judges to exchange ideas and information based on their experience last year, and also for the high court to check if its policies installed in the last year have been faithfully implemented and if the local courts have any feedbacks.
As a routine, and also as the most important event of this conference, the associate justice of the high court in charge of IP cases, Tao Kaiyuan, gave a speech laying out a number of important policies and rules. Some of the policies and rules are a summary or rephrase of policies and rules the court has recently made while others are fresh.
Below is a summary of the policies and rules in Justice Tao's speech which we believe IP stakeholders should notice in their operation in China. They cover many of the basic issues of IP laws, including damages, preliminary injunction, evidence and procedures.
Section I. General policies
1. More assertive role in administrative lawsuits
Statement: Courts should perform a full review of the legality of actions by the administrative agencies (including IP validity actions or administrative enforcement actions), and are not strictly restricted by the parties' claims.
Comments: This shows SPC's attitude of gradually deviating from the traditional deference to administrative agencies (particularly to the trademark and patent offices in validity actions) to a more assertive role. This could have a greater practical implication in administrative lawsuits out of the Trademark Review and Adjudication Board's decisions, where the courts may exercise more discretion to introduce ex officio legal grounds that were not raised by the parties.
2. Predominance of judicial standard and practice
Statement: Court shall proactively urge administrative agencies to move closer to judicial rules in terms of evidence collection, evidence examination, validity standards and infringement determination, so as to achieve better consistency.
Comments: This shows SPC' impatience with various practices by the trademark and patent offices that are overly rigid or simplistic. This is also in line with SPC's ongoing drafting of judicial interpretations on patent and trademark registrability and validity issues (SPC's judicial interpretations in the IP areas used to be focused on infringement and enforcement).
3. Encouragement for substantial damages when appropriate
Statement: Calculation of damages should take into consideration both the market value of the infringed IP right and the infringer's subjective behaviors, so as to achieve the dual purposes of compensation (primary) and penalty (secondary).
Comments: In connection with the specific rule 2 stated below, SPC's attitude is very clear that local courts should be bolder to grant substantial damages to the extent evidence allows.
4. Encourage of preliminary injunctions
Statement: The court should timely grant a preliminary injunction when the conditions are met. When assessing the potential irreparable harms to the right owner, the court can consider negative influence on the right owner's market reputation by the alleged infringement, disruption to the right owner's first-strike advantage and possibility of expelling a legitimate business from the market.
Comments: The specific factors given by the SPC may make local courts more confident to issue preliminary injunctions. This policy statement may have an immediate effect on local courts when trademarks, copyright and design patents are enforced, as shown in a number of recent high-profile cases.
Section II. Specific Rules
1. Conflict with prior rights
Rule: The court can reject the plaintiff's claims in an infringement action on the grounds of abuse of rights if the plaintiff acquired his right in violation of the principle of honesty and credibility or in infringement of another's legitimate prior rights. When the owner of a legitimate prior right sues a defendant for infringement or unfair competition on the grounds that the defendant's acquisition and exercising of an IP right infringes that prior right, the court can adjudicate the dispute after making clear factual findings, and the result of an administrative proceeding is not a prerequisite and there is no need to suspend the lawsuit pending the ongoing administrative proceeding.
Comments: This rule will enable local courts to make faster rulings even if there is a conflict of rights issue without the need to wait for the result of the administrative proceeding on the conflict. This is welcome to legitimate right owners in actions against right pirates or free riders.
2. Damages and compensation for legal fees
Rule: Courts may award damages above the market value of the infringed IP rights against repeating or wilful infringers. If the right owner has submitted partial evidence on his loss or the infringer's illegal profits that is sufficient to derive partial data needed for damages calculation, the court should award discretionary damages as long as it is possible. Unless a law stipulates otherwise, the court shall separately calculate compensation for the plaintiff's legal fees.
Comments: SPC now explicitly encourages adoption of the so-called "discretionary damages" which are usually above the upper limit of statutory damages, when evidence on record can lead the court to a comfortable estimate for the damages, even if the evidence is not sufficient to make an exact calculation (where in the past courts were almost certain to grant an amount below the upper limit of statutory damages).
3. Doctrine of rebus sic stantibus
Rule: Courts should apply the doctrine of rebus sic stantibus appropriately. If the administrative decision invalidated a trademark or patent right but a fact underpinning the decision goes out of existence during the administrative lawsuit, and if upholding the administrative decision will be obviously unfair to the right owner, the court can nullify the administrative decision.
4. Shifted burden of proof
Rule: If a party has tried its best but is still unable to produce a particular piece of evidence, and there is evidence showing that the opposing party possesses that piece of evidence but he refuses to provide it without justification, the court can make an inference that the fact to be proven by the piece of evidence is true. If a party intentionally destructs, conceals or forges evidence, obstructs or resists an evidence preservation order, or hinders a witness to give testimony, the court can make an inference that the fact to be proven by the evidence or witness is in his disfavor. The court should firmly punish according to the law bad-faith conducts of destructing, concealing or forging evidence, obstructing or resisting an evidence preservation order, or hindering a witness to give testimony that are in serious violation of the principle of honesty and credibility.