Full review of the opinions from the Supreme People's Court of China on giving full play to the functional role of intellectual property trials (issued Dec 2011)

Opinions from the Supreme People's Court of China

On 16 December 2011, the Supreme People's Court of China released Opinions of the Supreme People's Court on Giving Full Play to the Functional Role of Intellectual Property Trials in Advancing the Great Development and Prosperity of Socialist Culture and Promoting Independent and Coordinated Economic Development (the "Opinions"). The Opinions include six aspects with 30 specific comments covering various IP issues, including trademark, copyright, patent, trade secrets and unfair competition. How this will be implemented and considered is yet to be seen, but the initiatives will be welcomed by IP owners.  

Below are some highlights:  

NEW OPINIONS FROM THE SUPREME PEOPLE'S COURT OF CHINA:

A BIRDS' EYE VIEW OF THE PRINCIPLES

1. ON TRADEMARK

Part 4 of the Opinions contain specific comments on trademarks. These are listed in summary as follows:

1. Bad faith trademark application/registration

The Opinions emphasize the importance of curbing bad faith registrations and make apparent that the Court is aware of this persistent issue, with the intention for it to be considered more thoroughly in adjudication.  

2. Similarity of trademarks and commodities

Commenting on determination of the trademark similarity, the Opinions outlined the principles as mentioned below to determine the similarity of trademarks:

1. Generally, the court can determine the similarity of the trademarks by comparing the elements of the trademarks as a whole;
2. Where the trademarks as a whole are not similar, and the reputation of the trademark requesting protection is much higher than the alleged infringing trademark, the court can determine the similarity of the trademarks by comparing the main elements of the trademarks;
3. Where both trademarks enjoy a high reputation or the co-existence of the trademarks was formed under special circumstances, the court should not simply compare the elements of the trademarks but should consider various factors, namely, actual use, past use, recognition among the corresponding public, and more.

Compared to the previous Supreme Court interpretation¹, the Opinions request the courts consider the reputation of the alleged infringing trademark, respect the existing market pattern, and encourage the inclusive developments.  

Looking in greater detail at the first instruction noted above, it will be difficult to argue infringement if an alleged infringing trademark has earned some reputation or recognition in the market. This view is quite similar to what case law has indicated recently.  

As for the similarity of commodities, the Opinions are generally consistent with the prior Supreme Court's Interpretation. That is, in determining the similarity of the commodities, the court can refer to the classification form of the similar commodities, but should give more consideration to the actual market situation. The Opinions further stipulate that if the trademark requesting protection is actually put into use and gains some reputation, the court should give full consideration to the correlation between the commodities.  

3. Well-known trademark

The Opinions clarify that recognition of well-known trademark is not "for the purpose of granting an honorary title". The Opinions indicate that, for the trademarks that are well-known to the public, the court can lower the burden of proof on trademark owners concerning trademark reputation. The level of protection afforded to the well-known trademarks shall be consistent with the distinctiveness and reputation of the trademarks.  

The Opinions reiterate that appropriate recognition of wellknown trademark must be standardized and assist in protecting trademarks that have high popularity. In practice, courts shall provide a wider scope of trans-category protection, especially for marks that are highly distinctive. This is likely due to the wide spread inconsistency in examinations of the well-known trademark recognition cases.  

Additionally, the Opinions comment that courts should carefully examine evidence in support of a well-known claim to prevent companies from deliberately creating trademark disputes as a means to seek the recognition of well-known trademark.  

4. Defense of bad faith trademark registration

The Opinions also introduced the concept of defense of bad faith trademark registration to the trademark infringement cases. That is, a defendant can defend alleged trademark infringement by claiming the trademark requesting protection was registered in bad faith. Specifically, the defendant can raise a defense based on the following grounds:  

1. Plaintiff’s registered trademark is a copy, imitation or translation of the defendant’s prior unregistered wellknown trademark;
2. Plaintiff preemptively registered the trademark of the defendant for whom the plaintiff is an agent/representative;
3. Plaintiff registered the trademark which had been previously used by the defendant by unfair means.  

The above three grounds are also the grounds of cancelling bad faith trademark registrations stipulated in Trademark Law. In practice, some trademark hijackers initiate civil proceedings against the true owner of the hijacked trademarks claiming trademark infringement. Prior to the release of the Opinions, the general practice was that the defendant had to file a cancellation proceeding with TRAB to cancel the trademark and requests the court to suspend the case pending the cancellation. According to the Opinions, the defendant now can raise the defense of the bad faith trademark registration directly with the court.  

This is one of the most promising aspects of the Opinions.  

2. ON COPYRIGHT

Part 2 of the Opinions also emphasised protection of copyright and also covers Internet Service Providers (ISPs) liability.

Among others, the Opinions emphasised that stronger copyright protection should be given to the industries of publications, film and TV productions, advertisements, stage productions, entertainment and design, especially in connection with the issues arising with rapid technological advancement and internet development within China. While protecting the rights and interests of copyright owners, courts should also promote and encourage the development of this new formed information technology industry and to improve China's IT infrastructure construction level.  

1. Scope of Copyright Protection

The Opinions elaborate on how Courts shall properly deal with the relationship between originality and degree of creativity. One may independently create the artworks, but the artworks may not enjoy a high degree of creativity. While applying the general standard, courts should also adjust the degree of protection enjoyed based on the degree of creativity of artworks. Further, courts should pay attention to the difference between ideas and expression, in order to define the scope of protection.  

2. Liability of Internet Service Provider

The Opinions specifically refer to the liability of Internet Service Provider (ISP) when copyright infringement occurs online.  

Opinions emphasises that the court should balance the interests of copyright owners, ISP and general public. Courts should differentiate actions providing works, performances and recording products (Internet Content Provider - ICP) and actions of providing Internet service. Courts should also properly deal with ISP liability, their safe harbour and exceptions, rule of "notice and removal" ("通知与移除"规则) and fault liability attribution. Key is the concept of active and direct participation versus passive participation.  

ISP liability and liability exceptions are stated in the Regulation of Information Network Dissemination Right Protection (信息网络传播权保护条例). The Opinions seem to indicate that courts could be more cautious when considering ISP liability as follows:  

1. If a statutory liability exception applies, the ISP should not be liable to compensation for the infringement.
2. Even if an ISP only partially meets the statutory exception, but it has no fault, the ISP should also not be held liable for compensation.
3. Courts should properly identify ISP infringement activities, and identify faults to exempt the ISP from the general obligation of censorship and high standard of care for the infringement.
4. Unless there are clear facts and evidence showing the ISP knows or should have known the infringement, courts should firstly apply the "notice and removal" rule when determining imposing compensation liability on ISP.  

It should be noted that shortly after the release of the Opinions, the Supreme Court issued the following comments concerning the recent case below involving ISP liability, which seems to coincide with the principles therein.

Case Study – Universal Music Group (UMG), Warner Music and Sony Music v. Baidu

The referred case is the Appeal by the joint plaintiffs Universal Music Group (UMG), Warner Music and Sony Music against Baidu Netcom Science and Technology Co., Ltd. (Baidu). The first instance court ruled in favour of Baidu on the grounds that the services Baidu provides, namely, search functionality based on user commands and establishing temporary hyperlinks, is automatic and passive. In other words, even if with caution and care, based on the capability, Baidu would not able to know the information revealed via its services was infringing. Therefore, the provision of the search engine for users to search songs and set up rankings was not evidence to show Baidu knew or should have known the recording product directed by the hyperlink was infringing upon a copyright owner. Three music companies appealed to Beijing Higher People's Court. The parties ultimately settled under the mediation of the court and the China Internet Committee. As a result of the settlement, Baidu now pays copyright royalty fees to music companies, and the companies authorise Baidu to upload music online. Users can download genuine music from Baidu thereafter.  

According to Supreme Court's comments, the success of settlement between the parties is a demonstration of balance between copyright owner rights and interests on one side and, on the other, encouraging developments of Internet infrastructure construction and the interests of general public.  

3. Technology Neutrality and Infringement Identification

The Opinions state that courts should properly deal with the relationship between technology neutrality and infringement identification. A typical example of technology neutrality is "peer to peer" download and upload software. Courts should not unconditionally hold the technology provider liable for the infringement consequences caused by the technology, nor simply adopt technology neutrality as a defence.  

For technologies with substantial non-infringement commercial purposes, courts cannot assume the technology provider should have known the existence of direct infringement. Technology provider will only be held jointly liable with the direct infringer if there are activities of assistance or instigation.  

For technologies without substantial non-infringement commercial purposes, courts can presume technology providers should have known of the existence of direct infringement, so should be jointly liable.  

4. Reasonable Use

The Opinions held that reasonable use of a copyright exists if the use does not affect the normal use of the works or cause unreasonable damage to authors' legitimate interests, as related to the nature and utilisation of works, nature of works in use, number and quality of works in use, and impact of use on potential market or value of works.  

Imitating, drawing, photographing or video recording of artworks placed or displayed in the outdoor public places, regardless whether for business purposes, any reuse of the achievement in reasonable ways and within reasonable scope should be considered as reasonable use.  

Accordingly, the doctrine of reasonable use seems to cover a wide range of re-use situations. Accordingly, doctrine of reasonable use seems to cover a wide range of reuse situations. This may limit such copyright protection and strengthen arguments in defence of an infringement.  

3. ON PATENTS

Part 3 of the Opinions calls for strengthening of protection for patents, new plant varieties and integrated circuit layout designs.

1. Manufacturing process patents

In the Opinions, the most notable provision on patents relate to proving infringement of manufacturing process patents. In China - because of a heavy burden on the plaintiff to prove patent infringement, a lack of discovery procedure, and certain weaknesses in court-assisted evidence gathering mechanisms - gathering enough evidence to prove infringement of a patent relating to a manufacturing process can often be extremely difficult. The Patent Law provides burden shifting if the manufacturing process is used for making a "new product" and the defendant is making the same product.² However, this is a rare exception that helps few patentees.  

The Opinions in Article 15 specifies that in cases involving manufacturing process patents, courts may shift the burden of proof for "old products" as well, if certain criteria are met.  

These criteria include:  

1. Patentee shows reasonable efforts to prove infringement;
2. Patentee proves that the infringer manufactures the same product; and
3. Patentee shows a high likelihood of infringement.  

Unfortunately, the Opinions do not clarify what the plaintiff has to do to show a "high likelihood of infringement". It leaves courts with some discretion to decide in which cases the criteria is fulfilled, to allow for the shifting of the burden. Plaintiffs should be prepared to prove the use of at least more than half of the elements in the process patent claim by the defendant, or some other circumstances which make infringement more likely. For example, if the defendant is a former licensee of the manufacturing process patent, then the court will more likely shift the burden of proof to the defendant.  

Recognizing the difficulty for patentees to collect evidence to prove infringement of manufacturing process patents, the Opinions in Article 15 also emphasize that courts shall conduct evidence preservations in accordance with the law to appropriately alleviate plaintiffs' burden. However, it also states that evidence preservations should not be abused by the plaintiff as a way to obtain defendant's trade secrets. Also, when examining evidence provided by the defendant (to show that it does not use the patented process), courts should take measures to protect the confidentiality of the information provided.  

2. "Innovation level" and patent scope

Another notable provision is Article 13, which relates to courts' determination of the scope of patent protection. It states that when applying the doctrine of equivalents, courts shall take into consideration the "innovation level" of the patent, and shall give the patent a relatively broader scope of protection if the patent represents one of the following:  

1. a highly innovative invention;
2. an invention produced with large R&D investments; or
3. a pioneer invention that has a significant effect on economic development.  

This provision is of course inherently vague because there is little guidance on how to evaluate and quantify the "innovation level" of inventions. At this stage it is difficult to predict how this provision would affect the Chinese courts. One possibility is that inventions relating to new drugs will receive stronger protection, because it is generally easy for pharmaceutical companies to show that their drug related inventions were developed with large R&D investments.  

3. Other provisions

Other patent-related provisions in the Opinions are generally in line with common understandings of the Patent Law and common practice. Some of the more notable provisions include:  

1. Scope of a patent is limited by the purpose of the invention. For example, a technical scheme that still possesses the technical problem to be solved by the invention shall not be included in the scope of protection. (Article 13.)
2. When raising a prior art defense, the defendant may assert that accused technical scheme is an "obvious combination" of a prior art reference and common knowledge. (Article 14.) In the context of raising a prior art defense, Article 14 also expands the notion of a prior art reference to include a patent application filed before but published after the priority date of the asserted patent.
3. Courts shall not grant preliminary injunctions easily. For a preliminary injunction, patentee must show clear facts and obvious infringement. Preliminary injunction is not appropriate when infringement determination requires complicated technical comparison, or when an invalidity proceeding has been initiated. (Article 16.)
4. Patentee cannot send warning letters to innocent parties when it is known to the patentee that the patented technical scheme or design belongs to the prior art. Such bad faith actions may result in damages to be paid to the wronged parties. (Article 16.)  

4. ON TRADE SECRETS

Part 5 of the Opinions relates to unfair competition law in China.

Article 25 of the Opinions is aimed at strengthening trade secret protection, while Article 26 cautions that trade secret regulations should not be abused to harm a person's legitimate interests in seeking new career opportunities.  

1. Burden shifting for proving infringement

Among other things, Article 25 is intended to alleviate plaintiff's burden of proving trade secret infringement. In China, a plaintiff in a trade secret infringement civil litigation must prove the following three elements3:  

1. Existence and ownership of a trade secret, which includes:

1. Specific content of the secret and the medium that carries the secret;
2. Commercial value of the secret; and
3. Protective measures taken by the owner of the secret.  

2. Defendant possesses information that is identical or substantially identical to the trade secret; and
3. Defendant used improper means to obtain the trade secret.

Regarding element c) above, the majority view among Chinese judges is that the burden of proof may shift to the defendant if the plaintiff presented evidence showing that the defendant had access to the secret in addition to evidence on other elements. Therefore, in many cases where the plaintiff showed that defendant is (or has hired) a former employee of the plaintiff who had access to the trade secret at issue, if the plaintiff can also show the other elements of trade secret infringement, the courts would shift the burden to the defendant to prove that it did not use improper means to obtain the trade secret. However, at least until recently, a minority of Chinese judges consider that there should be no burden shifting with respect to element c) above, making it difficult for plaintiffs to prove trade secret infringement.  

The Opinions sided with the majority view, and stated in Article 25 that:  

"Where an owner of trade secrets provides evidence proving that the information of the respondent is the same or substantially the same as its trade secrets and the respondent is capable to access or illegally obtain such trade secrets, if it can be presumed that the respondent is likely to have resorted to illegal means in light of specific situations of the case or the known facts and daily life experience, courts can presume that the respondent actually obtained the trade secrets by illegal means, unless the respondent can prove that it obtained such information by legal means."  

2. Protection of trade secrets during court adjudication

Article 25 also provides that courts shall take measures to protect trade secrets of parties when adjudicating trade secret cases. Specifically, courts shall explore the following protection measures:  

1. Only allow lawyers to review or examine evidence containing confidential information;
2. Require the execution of confidentiality agreements; or
3. Disclosure of confidential information in different stages.  

This note has highlighted the issues raised in the Opinions and some of the comments have already been reflected in recent case law, the State Intellectual Property Office's recent comments as well as the draft Copyright law released end of March 2012. A separate update will follow. We will continue to update you on further developments.