On April 21, 2009, the Supreme People’s Court of China (SPC) issued an official report regarding a selection of 10 more-or-less typical intellectual property cases adjudicated by various courts in 2008. One of the cases concerned damage compensation as a result of a wrongfully issued preliminary injunction (PI). The SPC agreed with the second instance court’s holding that if a party has wrongfully requested a PI, the injured party should receive adequate compensation from the requesting party. The SPC further noted that this remedy is necessary to prevent misuse of patent rights and should be made clear so that the holders of IP rights can evaluate their legal risks prior to requesting a PI. Given the few judicial cases contemplating compensation for the injured party resulting from a wrongfully issued PI in the past, the case—Jiangsu Baite Import & Export Trading Co., Ltd, Huaian Kangbaite Carpet Co., Ltd v. Xuzanyou (Individual), (2008) Su Minsan Zhongzi No. 0071, Jiangsu High People’s Court—represents a large step toward imposing rationality in the decision making process on those requesting a PI in the future.

Facts

In April 2004, Xuzanyou initiated two litigations against Jiangsu Baite Import & Export Trading Co., Ltd (Baite) and HuaianKangbaite Carpet Co., Ltd (Kangbaite) for infringing a design patent. In the first litigation, the Nanjing Intermediate People’s Court (Nanjing Court) imposed a freeze on $40,000 (USD) of Kangbaite assets. In the second litigation, upon the request of Xuzanyou, the Nanjing Court granted a PI ordering Baite and Kangbaite to immediately cease production of the sale of products that were the same as or similar to the patented design.

Subsequently, Baite ignored the PI and proceeded to export a batch of allegedly infringing goods to Hong Kong in performance of one of its contracts. However, the goods were seized by Nanjing customs as infringements. Later at Xuzanyou’s request, the goods were seized by Nanjing Court pending further proceedings. The Nanjing Court subsequently ordered Kangbaite, in the first litigation, to compensate Xuzanyou in the amount of $25,000 (USD) and to cease and desist from further acts of infringement. Later the Nanjing Court ruled in the second litigation that Baite and Kangbaite must pay Xuzanyou damages in the amount of $170,000 (USD).

While these rulings were on appeal, in a separate invalidation proceeding, the design patent was held invalid by the State Intellectual Property Office (SIPO). As a result of the invalidation, the appellate court, Jiangsu High People’s Court (Jiangsu Court), reversed the rulings made by Nanjing Court in both cases and dismissed Xuzanyou’s claims. Baite and Kangbaite then sued Xuzanyou in Nanjing Court claiming various damages in the amount of $280, 000 (USD).

Judgement Summary

Nanjing Court ruled that where a party requesting PI loses the litigation, the PI shall be considered as having been wrongfully requested and the losing party must compensate the injured party for its reasonable losses. However, losses resulting from disobeying the PI will not be compensated. Thus, Baite’s and Kangbaite’s claims for compensation were only partially upheld. The appellate court affirmed this ruling.

Practice Note: Patent right holders should more seriously weigh both the benefits of requesting a PI and legal risks of losing the litigation in Chinese courts. Since the injured party is only entitled to “reasonable losses” incurred as a result of the granted PI if the patent infringement allegations fail to stand, consideration should be given to seeking relief that will minimize potential damage to the enjoined party if the case on the merits fails.