China’s Supreme People’s Court (“SPC”) has recently published its list of top 10 IP cases for 2015. One of 2015’s top 10 cases (the Blizzard Entertainment preliminary injunction case, see number 8 below) was handled by Hogan Lovells, and the case on the merits is currently still pending. China’s highest court started its annual selection of the most influential Chinese IP cases in 2007 in an attempt to promote ‘a precedent system with Chinese characteristics’. The inclusion of these cases in the SPC’s list means that the SPC considers them authoritative, and good examples that it encourages to follow, without obligating any court or authority to do so (i.e. China remains a civil law system in which precedents are not binding). The SPC was followed in this attempt by many of the regional appeal courts, the Higher People’s Courts, such as the Guangdong Higher People’s Court, whose top 10 IP cases for 2015 you can find here.

In its top 10 IP list for 2015, the SPC selected 4 patent cases, 3 trademark cases, 2 copyright infringement cases and 1 license agreement case. The 2015 list contains significantly more patent cases than in the 2014 top 10 IP cases list, where only one patent case was selected.

Please find our summary of the selected cases for 2015 below:

1- Shi Jia Zhuang Shuang Huan Automobile Incorporation v Honda Motor Co., Ltd. (Declaratory judgment of non-infringement of a design patent and use of C&D letters, SPC)

Honda sent cease & desist letters to Shuang Huan and its distributors, claiming that a product design used by Shuang Huang infringed upon Honda’s design patent. In response, Shuang Huan filed a request for a declaration of non-infringement, accompanied by a claim for damages arising from Honda’s allegedly abusive C&D letters. Honda in turn filed a patent infringement procedure against Shuang Huan. In the patent infringement case, the SPC held –on final appeal- that Shuang Huan’s product design did not fall into the scope of protection of Honda’s design patent. In the declaratory procedure on the other hand, the SPC held that Honda violated its reasonable duty of care by continuously sending lengthy C&D letters to Shuang Huan’s distributors, in which Honda made extensive allegations (including details about its pending infringement litigation and its claims made there), yet failed to disclose any pertinent information allowing the distributors to ascertain their legal position. The SPC therefore held that this behavior constituted an infringement of the principles of fairness and good faith under the Anti-Unfair Competition Law. The SPC finally awarded RMB 16 million (about 2.5 million USD) in damages to Shuang Huan. This case is seen as a precedent on the legality or abusive character of C&D letters.

2- Grohe AG v Zhe Jiang Gllon Sanitary Bath Articles Co., Ltd. (design patent infringement, SPC)

Grohe claimed that Gllon’s product design copied its design patent covering a hand-held shower nozzle. The SPC held that Gllon’s design of the spraying surface of the head was similar to the racetrack-shaped surface of the shower head shown in the Grohe’s patent. However, the SPC held that the overall impression made by the designs -including the surface around the nozzle, the handle and the joint connecting the nozzle with the handle- is that they are substantially different from the point of view of the relevant consumer. In particular, the button on the handle in Grohe’s patent which controls the water flow, is absent in Gllon’s product, which distinguishes it even more from Grohe’s design, because the button’s decorative value was held to have a significant influence upon the consumers’ perception of the overall appearance of the product.

The importance of this case lies in the fact that in this case, the SPC established the standards for distinguishing design features from functional features. In particular, the key element in determining whether a feature is functional is not whether it is indispensable for the object’s function, or to overcome technical limitations. The key element is whether the ordinary consumer would consider the design determined by a technical function. It is not necessary to consider the aesthetic value of the design for this assessment.

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3- Weihai Jia Yi Kao Household Electronics Co., Ltd. v Zhejiang Tmall Network Co., Ltd. et al. (contributory patent infringement by e-shop operator, Zhejiang Higher People’s Court)

Jia Yi Kao, the patentee of an invention patent protecting an infrared cooker, claimed that products sold by a third-party seller on the B2C e-shop Tmall infringed its patent, and that Tmall had failed to take down those products after receiving Jia’s take-down notice. Upon appeal, the SPC held that the take-down notice was sufficiently detailed and that an accompanying statement regarding the exact technical features that fall into the scope of protection of a patent is not necessary. The court held that take-down notices must only include information such as the name of the patentee, the title and number of the patent and information on the asserted infringing product and the infringer. The court held that when an ISP receives such take-down notice, it is obligated to either take the products down directly, or forward the notice to the actual seller of the infringing products. The court held that Tmall failed to forward the take-down notice from Jia Yi Kao to the seller, thereby causing further losses. Tmall was therefore held jointly and severally liable for the further losses amounting to RMB 50,000 (or USD 7,500).

4- Guangzhou Xing He Wan Industrial Development Co., Ltd. et al v Jiangsu Wei Fu Group Construction Development Co., Ltd. (Trademark infringement, balance of interests, SPC)

Xing He Wan owned the “星河湾” (“Xing He Wan”) word and device marks for real estate services in Nice classes 36 and 37, and developed commercial buildings named Xing He Wan. Xing He Wan brought an infringement procedure against Wei Fu for its use of “星河湾花园” (“Xing He Wan Garden”) as a name for commercial buildings. Upon final appeal, the SPC held that commercial buildings are similar to real estate agency and construction services. The SPC therefore held that Wei Fu’s use of the similar sign “星河湾花园” on its buildings could lead to consumer confusion, and that Wei Fu therefore infringed upon Xing He Wan’s trademark. However, since the SPC had to balance the interests of the public and residents in the disputed buildings with the interests of the trademark owner, it ordered Wei Fu not to use “星河湾” for any unsold or new buildings, yet allowed buildings that had already been sold to keep their name. This has been a murky area, but this judgment highlights both the possibility for the courts to tailor the remedies they impose on the basis of a balance of interests of all stakeholders, as well as the importance for real estate developers to register their marks in the key classes, namely, Classes 36 and 37.

5- Beijing Zhong Chuang Oriental Education Technology Co., Ltd. v Beijing Haidian Qihang Test Training School, et al. (Trademark infringement and prior rights, Beijing IP Court)

Zhong Chuang, the exclusive licensee of the “启航学校Qihang School” trademark covering education services, claimed that the Qihang Test Training School infringed upon its trademark by using a logo including “启航考研” (“Qihang Test for Admission to Postgraduate Schools”) in its logo used for training services, books and tests for admission to postgraduate schools. However, the Beijing IP Court held that the Qihang School started to use the “启航” logo in 1998 (i.e. before the filing date of the Qihang School mark), and held that it had also obtained sufficient fame before the filing date. Therefore, the Court held that the Qihang School held a valid prior right in the “启航” logo, and could continue to use it within its original scope with additional marks to clearly differentiate it from the disputed trademark. The most significant aspect of this case is that the SPC clarified the concrete application of the prior use defence under the new trademark law, including the relevant moment in time at which the prior use must start, the concrete application of the “certain fame”-requirement for prior use, as well as the extent to which the prior use is allowed to continue (i.e. only within its original scope of use, expansions of the scope of use are not allowed).

6- Shanghai Pafuluo Stationery Co., Ltd. v Shanghai Yi Xiang Stationery Co., Ltd. et al (Trademark license agreement, Shanghai Higher People’s Court)

Pafuluo, the exclusive licensee of the “Pimio” word and device mark and other marks owned by Picasso International, claimed that Yi Xiang knew about Pafuluo’s exclusive license agreement with Picasso (“Senior License”), and yet obtained another exclusive license from Picasso (“Junior License”) before the expiration or termination of the Senior License. Pafuluo therefore requested the court to invalidate the Junior License, on the ground of bad faith of the parties to the Junior License. The court refused to invalidate the Junior License as it held that it is not illegal to try to obtain an exclusive license to compete in the market, and because the grant of the Junior License does not reach the threshold for “collusion”, which is a ground for invalidation of a contract under the Contract Law. Yi Xiang’s bad faith merely meant that it knew of the existence of the Senior License. The court further held that, although the Junior License remains effective between Picasso and Yi Xiang, Yi Xiang cannot use the trademarks licensed under the Junior License because the Senior License was registered with the Trademark Office, and Yi Xiang is not a bona fide third party.

7- Chen Zhe v Yu Zheng et al (Copyright infringement; Beijing Higher People’s Court)

Chen Zhe, the well-known author of the play script titled “梅花烙” (“Mei Hua Lao”) published in 1993, claimed that Yu Zheng’s play script for a TV series titled “宫锁连城” (“The Lost Daughter”, a.k.a “Gong 3”) published in 2014 plagiarised her work. Upon appeal, the court held that substantial portions of the script for The Lost Daughter were indeed copied from Mei Hua Lao, even though parts of The Lost Daughter’s plot are more complicated, and even though the copied portion was not very large compared to the size of the whole script. One of the decisive elements was that The Lost Daughter even contained some of the mistakes in Mei Hua Lao’s storyline (three sisters mentioned in the original plot were accidentally omitted from the script). The Court therefore granted an injunction to stop the dissemination of the TV dramas based on The Lost Daughter and awarded RMB 5 million in damages to Chen Zhe. The significance of this case lies mainly in the guidance from the Court on how to determine substantial similarities between literary works, including differentiating ideas from expressions in terms of plot selection, the arrangement of the structure and the logical development of the plots, etc.

8- Blizzard Entertainment Co., Ltd., Shanghai NetEase Network Technology Co., Ltd. v Chengdu Qiyou Technology Co., Ltd. et al (Interim Injunction; Guangzhou IP Court)

Blizzard, the developer of the game “World of Warcraft”, claimed that Qiyou’s online game “Everyone WarCraft: War of Draenor” copied, inter alia, the storyline, names and images of the characters from “World of Warcraft”, and also claimed that it was promoted as the mobile version of “World of Warcraft”. Blizzard therefore filed for an interim injunction, and brought, at the same time, a copyright infringement and unfair competition procedure on the merits against Qiyou. The Guangzhou IP Court granted the interim injunction because it held that Blizzard was likely to win on the merits and because the dissemination and commercialization of the disputed game would cause irreparable harm to Blizzard due to the short lifetime, fast dissemination, and broad circulation of internet games. This injunction is the first preliminary injunction ever granted by the Guangzhou IP Court, and preliminary injunctions are generally rare in China. The fact that the SPC chose this case as one of its 10 top IP cases seems to imply that the SPC encourages the Courts to grant more preliminary injunctions – as long as the requirements are met. The procedure on the merits is still pending at the time of publication of this article.

9- Warner-lambert LLC v Patent Re-examination Board (“PRB”) (Administrative patent invalidation, SPC)

Warner-Lambert owns an invention patent covering, inter alia, crystalized atorvastatin. A third party, Jia Lin, filed an invalidation action against this patent, which resulted in an invalidation decision by the PRB. Upon appeal and re-trial, the SPC upheld the PRB’s decision and overturned the Beijing Higher People’s Court’s finding that the patent was valid. In particular, the SPC invalidated the patent because it did not disclose the invention sufficiently, as the specifications failed to explicitly and completely disclose the water element in the “I” crystalized atorvastatin compound. The court held that the person skilled in the art would neither be able to determine from the specifications whether the “I” crystalized atorvastatin compound containing water with a molar ratio of 1:8 had the same XPRD as the patent claimed, nor could the person skilled in the art confirm whether the “I” crystalized atorvastatin compound indeed contains water with the molar ratio of 1:8. Additionally, the person skilled in the art would not, on the basis of the specifications of the patent, be able to rely on the patent to obtain the “I” crystalized atorvastatin compound. The invalidation decision was therefore confirmed by the SPC. The significance of this case lies mainly in the SPC’s guidance on the sufficient disclosure requirement for chemical compounds. Another point to note is that the SPC also confirmed the logical correlation between the technical issues to be solved by the invention and the sufficiency of the disclosure in the patent specifications.

10- Zhang Sheng, Zou Li et al (Criminal trademark infringement, Hubei Higher People’s Court)

Defendants Zhang Sheng and Zou Li purchased about 10,000 bags bearing “南街村”, registered for flavoring products, as well as 25,000 bags bearing “莲花”, registered for gourmet powder, from another defendant Wang Baowei. These were used by Zhang Sheng and Zou Li to sell counterfeit flavoring and gourmet powder. Their turnover from selling such counterfeit products was estimated at RMB 115,565. The court held that this conduct constituted the crime of counterfeiting and furthermore held that Wang Baowei committed the crime of selling illegal representations of registered trademarks. The significance of this case lies in that it differentiates between suspects guilty of counterfeiting registered trademarks on the one hand (i.e. Zhang Sheng and Zou Li) , and suspects guilty of the independent crime of selling illegal representations of registered trademarks on the other hand (i.e. Wang Baowei).