Introduction
Legislative changes
Procedural changes
Jurisdictional changes
Jurisprudence evolution
Administrative control over registration of rights
Comment


Introduction

The number of decisions rendered by the Chinese courts in IP-related civil litigation has been on the rise since 2008: 23,518 domestic cases and 1,139 foreign-related cases were concluded in 2008, compared with 512,999 domestic cases and 6,419 foreign-related cases in 2021 (with the percentage of foreign-related cases only slightly above 1%). By comparison, the number of administrative cases, which had reached 26,465 in 2020, began to decrease in 2021 (21,829, down 17.5% year-on-year). The statistics relating to 2022 are not yet available but will likely not represent a significant departure from this trend.

The recent increase in civil litigation and the beginning of a decline in administrative litigation might result from the coordinated efforts of the judiciary and the administrative authority. Against a backdrop of legislative change, the judiciary is aiming to improve its jurisdictional and procedural environment – hence the rise in civil cases. At the same time, the administrative authority is increasingly taking action against the filing of illegitimate IP rights, which might explain the slight decrease in the number of administrative cases.

Legislative changes

It appears that negotiations between China and the United States have fuelled China's legislative changes in the IP field, among other sectors. Challenging as it may be for those living, travelling or returning to China, covid-19 has not slowed down the efforts made by China in the field of intellectual property: in 2019 and 2021, China reviewed some of its IP legislation.

Trademark Law
The Trademark Law was quickly amended in 2019. The main change was that article 4 now provides that applications for the registration of a trademark which are filed "in bad faith without intention to use" the mark should be refused. The words "in bad faith" were added to the initial draft after stakeholders argued that certain "defensive" trademarks may be registered to strengthen the protection of other legitimate trademarks that are in full use, rather than in bad faith.

Patent Law
The concept of "patent linkage" was introduced by the fourth revision of the Patent Law. This concept provides that where a generic drug producer requests authorisation from the Food and Drug Administration to put a drug on the market, a verification should be made as to whether the drug might be infringing a valid patent. The Supreme People's Court (SPC) also clarified the situations in which the courts may award punitive damages and introduced a new and more user-friendly regime for the submission of foreign evidence.

Procedural changes

On 12 December 2021, in order to cope with the increase in litigation (and the rise in cases of covid-19), various aspects of the Civil Procedure Law were revised. For example, hearings can now be held online, subject to an agreement between the litigating parties. Simple cases can also be adjudicated by a single judge and even without a formal hearing, which can be replaced by a "court talk" (ie, a less formal type of hearing).

Jurisdictional changes

The jurisdictional rules expounding the geographical range covered by the Chinese courts or tribunals and the jurisdiction thresholds over object of action (in terms of civil proceedings) had become extremely complicated and were not easily accessible to practitioners. The occasional inconsistency and ambiguity of the rules – particularly those concerning the basic level courts – further complicated the nation's IP jurisdiction landscape.

On 20 April 2022, the SPC issued Several Provisions on the Jurisdiction over First-instance Civil and Administrative IP Cases (the new judicial interpretation) and the Jurisdiction Thresholds of Basic Level People's Court over First-instance Civil and Administrative IP Cases to streamline the jurisdiction rules.

The new judicial interpretation breaks down all IP proceedings into three categories:

  • highly technical proceedings (ie, relating to invention patents, utility model patents, new varieties of plants, layout design of integrated circuits, technical secrets and computer software);
  • less technical proceedings (ie, relating to design patents and the recognition of well-known trademarks) and proceedings pertinent to certain administrative authorities (ie, administrative actions involving the ministries, institutions and departments affiliated to the state council, governments at or above country level or customs); and
  • proceedings of a general nature (ie, "other civil and administrative IP disputes").

The first two categories of cases are to be adjudicated by the more experienced judges in the specialised IP courts and competent intermediate courts, while cases of a general nature can be delegated to and decided by basic level courts sanctioned by the SPC.

This reorganisation of the judiciary has important consequences for all cases involving "other civil and administrative IP disputes" – that is, trademark or copyright infringement and unfair competition. It lowers their first-instance level, which means that the intermediate courts will adjudicate any appeals and the provincial high court will decide on any re-adjudication cases (ie, "retrials"). As a result, the SPC is normally off limits for such cases.

The advantage of this reorganisation is that the SPC can ensure a coherent and unified solution to important and complex cases – in particular, through its specialised IP tribunal. However, it will be more difficult to seek a unified adjudication at the SPC level over important issues concerning trademarks, unfair competition or copyright. This might result in discrepancies between provinces.

Jurisprudence evolution

Regarding cases involving claims of unfair competition, the SPC has officially endorsed the evolution of its jurisprudence – which began several years ago – through its Interpretation of the Anti-Unfair Competition Law, which was adopted on 20 January 2022 and entered into effect on 20 March 2022. In the past, the courts had maintained a rather narrow interpretation of the law. For example, if a plaintiff complained about a defendant's unfair behaviour without making reference to a specific product being copied, the courts were reluctant to issue a judgment based solely on article 2 of the law, which provides for general principles of fairness and business ethics. This has progressively changed.

In recent years, some high-profile cases involving substantial amounts of damages have been rendered by Chinese courts on the sole basis of a violation of article 2 of the law. This evolution is fully supported by the SPC in the interpretation mentioned above:

When the acts of an operator, disrupting the market competition order and damaging other operators' legitimate rights or the consumers' interests, are not specifically described in Chapter II of the Anti-Unfair Competition Law, in the Patent Law, in the Trademark Law or in the Copyright Law, the People's Court may apply Article 2 of the Anti-Unfair Competition Law.

Administrative control over registration of rights

On the administrative side, China's efforts are also noteworthy.

In 2018, all IP-related administrative agencies were merged into one: the China National Intellectual Property Administration (CNIPA). The CNIPA is subordinate to the State Administration for Market Regulation (SAMR). More specifically, CNIPA regroups:

  • the new Trademark Office (CTMO), which includes the Trademark Review and Adjudication Department, for trademarks; and
  • the new Patent Office (CPO), which includes the Patent Re-examination and Invalidation Department, for patents.

The CNIPA is now the only administrative authority that supervises the CTMO and the CPO and is in charge of researching any revisions of the laws drafted and executed by these two offices. The consequence is a clear evolution toward a concerted assessment of what can be protected by an IP right.

Utility models
This applies, in particular, to utility models, which are rights that, in principle, are granted without a substantial examination. There was no verification under previous practice and subventions were generously offered to encourage the filing of utility models, a policy that lasted for many years and was partly responsible for the multiplication of so-called "junk patents". These days seem to be over. There are no more subventions for the filing of utility models and examiners are requested to carefully check new applications and refuse those that appear to be obviously "abnormal". This is moving in the right direction. The business community hopes for further improvement, such as the possibility to obtain the reimbursement of legal costs where the invalidation of a "junk" IP right occurs after a long administrative lawsuit.

Trademarks
Trademarks have suffered from a similar problem to utility models. The number of trademark applications reached nearly 10 million in 2021, and it finally became obvious to the authority that this was not a healthy sign. On the contrary, a large percentage of these trademarks are never put into use. They are viewed by their owners as pure commodities that can generate profit whenever an opportunity arises to resell them. Until recently, the administration had only focused on lowering the filing fee (down to 300 yuan) and accelerating the registration procedure.

The CNIPA has begun to resolve this situation and instructions have been given to CTMO examiners to scrutinise the context surrounding trademark applications. For example, if an operator files a substantial number of marks (ie, approximately 30), the examiner will send a notice requesting explanations or evidence of the intention to use the trademarks in question. It is also becoming obvious that many trademarks are being refused ex officio on absolute grounds or relative grounds.

As a result of this policy change, it is becoming increasingly difficult to obtain registrations for bad-faith trademark applications.

The CNIPA has announced a new draft for a fifth revision of the Trademark Law to be released by the end of 2022. Some clues as to what the draft might include can be found in the CNIPA's official response to a proposal tabled by 15 members of the fifth session of the 13th National Committee of the Chinese People's Political Consultative Conference entitled "Expedition of the Amendment to Trademark Law and the Regulations for the Implementation of the Trademark Law" in August 2022. It seems that changes could strengthen the obligation to use a registered trademark, such as a declaration of intent and possible periodical checks. It may also be possible to file a claim to obtain the assignment of a trademark registered in bad faith.

Most of these proposed changes will be welcome, but perhaps not all. For example, a particular issue of concern for trademark holders is that they must go through the lengthy and costly procedure of invalidating another registered trademark before they can finally lodge a civil litigation. At this stage, they may find out that the court refuses to award damages for the period of use before the invalidation decision unless evidence of bad faith is produced. Such a requirement is obviously inconsistent with the law, which does not condition the award of damages on the proof of bad faith (this is only the case for punitive damages).

Comment

By moving in the direction of a more efficient civil litigation system and, at the same time, tightening the conditions required for the registration of IP rights, China is entering a stabilising phase of its development. There will be fewer "junk" IP rights, and legitimate IP rights will be better protected.

For further information on this topic please contact Gang Bai or Paul Ranjard at Wanhuida Intellectual Property by telephone (+86 10 6892 1000) or email ([email protected] or [email protected]). The Wanhuida Intellectual Property website can be accessed at www.wanhuida.com.

This article was first published by The Legal 500.