China: IP Report: Another Year Wiser

Last Updated: 24 February 2012
Article by Xu Jing


On April 20, 2011, the Supreme People's Court of the People's Republic of China (the "SPC") promulgated the Annual Report on Intellectual Property Cases (2010) (the "Annual Report"), which comprises the SPC's 43 pieces of brief comments on 36 IP cases adjudicated by the same court in 2010. Based upon the nature of the disputes, the Annual Report is categorized into seven main categories, including: (1) Patent Cases, (2) Copyright Cases, (3) Trademark Cases, (4) Unfair Competition Cases, (5) IP Related Contract Cases, (6) IP Infringement Liability, and (7) IP Litigation Evidence and Procedures.

This Annual Report is issued by the SPC following the 2008 and 2009 reports, through which the SPC provides guidance to the judicial practice of the courts nationwide. Though China is not a case law system country, these cases selected by the SPC and the associated comments made by the SPC, however, do have the reference value equivalent to "precedents" in the case law system and the courts nationwide will follow in its adjudications. This article will discuss the SPC's opinions or interpretations disclosed in this year's Annual Report. As the full text of most cases are not yet available, the comments made in this article are only based on the Annual Report, without referencing the full text of the cases.

  1. Patent Cases

In this section, the patent cases were further divided into two categories: patent infringement cases and patent administrative cases.

  1. Patent Infringement Cases

    The SPC made 7 sets of comments on patent infringement cases and addressed the following four issues: claim construction, doctrine of estoppel, doctrine of equivalence, and the extended protection scope of the method patent. As per the comments of the Annual Report, the first three issues primarily emphasized the prior pertinent judicial interpretations.

    However, the comments made on the extended protection scope of method patent is worth noting as it further clarifies the definition of "the product directly obtained from the performance of the patented method" as defined in Article 13 of the Interpretation on Issues Relating to Application of Law in Patent Infringement Trials (the "2009 Interpretation").

    In the comment on the Zhang Xitian vs. Ouyi Company case, the SPC further clarifies that the product directly obtained from the performance of the patented method refers to the "original product" by performing the patented method, and any "subsequent product" obtained from the further process of said original product shall be excluded.

    The difference between the "original product" and the "subsequent product" is very important when taking the monopoly rights of the patent into consideration. If a product is determined as an "original product", it means that the manufacture, use, sale, offer to sell, and import of the product is prohibited. However, if a product is a "subsequent product", only using the "original product" to process the "subsequent product" is prohibited, the other acts, for instance, the use, sale, offer to sell, or import of the "subsequent product" will not be prohibited.

    The remaining issue is how to interpret the term "further processing" in the SPC's comments. Without a precise definition of "further processing", it is difficult to determine whether the assembling, furbishing, or even packaging of the original product will constitute "further processing" as described in the comment. In the Zhang Xitian vs. Ouyi Company case, as the accused product is a compound synthesized from the original product, the SPC rejected the plaintiff's claim that the accused product is the product directly obtained from the performing of the patented method. Based upon the judgment of the SPC and the widely accepted doctrine, it can be understood that, to determine the existence of "further processing", certain chemical or physical changes must be introduced on the original product; the subsequent product should possess substantial chemical or physical differences from the original product.

    We believe that it will remain a disputing point as to how to determine the existence of "further processing" until the SPC issues explicit interpretation in this regard.

  1. Patent Administrative Cases

    The SPC made 3 sets of comments on patent administrative cases and addressed two issues: how to examine the support of the specification to the claim and how to evaluate the similarity of the prior art to the design patent.

    When addressing the similarity criteria in design patents, the SPC pointed out that the common designs of the associated products shall cast less visual impact in comparison to design between the patent and the variation of other features which may attract the attention of ordinary customers shall be paid more attention to. (see Honda Corporation vs. Patent Reexamination Board)

    As per the logic and methodology of the SPC's comment, it is advisable for the patentee to produce evidence regarding the common designs of the same type of product so as to disprove the similarity of the patented design and the design in the prior art.

    Although this comment is introduced by the SPC on an administrative case, the same logic and methodology shall also applicable in civil patent disputes. We believe that it may also be a valuable defense for defendants to argue that the similarity of its design to the patented design is determined by the common design of this type of product. Therefore, the differences existing in alleged infringing products are more attractive to consumers and should be taken into consideration by the court in its infringement findings.

  1. Copyright Cases

In this section, 5 sets of comments are made on various issues, among which, the comment made on the Zoke vs. Shuimu Nihua Internet Cafe case is particularly valuable for foreign copyright owners. In the above noted case, the SPC explains that the copyright of foreign rights owners will not be limited by the administrative approval of disputed works. As such, the lack of administrative approval for importation of foreign films or TV programs is not a barrier for the foreign copyright owners to protect the copyright for such films and programs in China.

The above-noted SPC comments can be viewed as echoing the latest revision of the P.R.C. Copyright Law. The newly revised Copyright Law has deleted the clause which excluded the protection of copyright for works that are prohibited from publication or distribution by law. Considering the serious pirating situation in China, in particular for popular foreign movies and TV series, this is an encouraging development for foreign copyright owners seeking to enforce their rights nationwide.

  1. Trademark Cases

Similar to the section on patent cases, this section is further divided into two categories: trademark infringement cases and trademark administrative cases.

  1. Trademark Infringement Cases

    In this part, when commenting on the criteria of determination of similarity between the registered trademark and the infringing trademark, the SPC emphasizes the importance of determining the level of "confusion". As per the comment, the SPC appears to have established that the sufficiency to cause confusion in the market is the key and final factor to determine similarity between the marks.

    In addition to the trademark similarity issue, the SPC also addressed the proper liability to be found against trade names infringing on registered trademarks. The SPC further pointed out that prohibiting the defendant from using infringing trade names and ordering the defendant to use the trade name properly are actually two different types of liabilities. These two different types of liabilities are be applied to different types of cases (see Li Huiting vs. Da Lian King Company). As the full text of the case is not yet available, how the SPC draws the line between the two situations is to be further confirmed by reference to the above-noted case.

  1. Trademark Administrative Cases
  1. The prior registration of similar trademarks is a crucial element to determine whether a trademark is a copy of another party's famous trademark.

    In the comment on the trademark administrative case, the SPC states that, if the opposed trademark is more like the opposed party's prior registered trademarks in the same category compared with the referenced famous trademark, it should not be recognized as a copy of the referenced famous trademark.

    The SPC's comment on this case confirmed that the prior registration of trademark is a proper reason for the trademark owner to register similar trademarks in the same category. As such, once the party acquires a trademark registration in a category, it will be a major obstacle for others to oppose the further registration of other similar trademarks in the same category. Therefore, if a party intends to oppose other's trademarks on the basis of a famous trademark, it should try to cancel the prior registered trademark of the opposed party before filing any opposition to the latter trademark applications.

  1. The initiative and actual use of the disputed marks or name by the right claimer is the necessary basis for any claim of legal protection thereof.

    In the comment on the Sony-Ericsson trademark administrative case, the SPC declares that the actual use of the unregistered trademark, company name, or product name is the necessary basis for Sony-Ericsson" before it filed the trademark cancellation, mere news reports by the media were not sufficient to establish its lawful rights to the mark. to claim any legal protection thereof. As Sony-Ericsson did not have any intention or action to use the trademark "

    This case reflects the SPC's continuous opinion regarding the establishment of unregistered rights by active use, and that one may not claim rights incurred from passive use. To avoid any unfavorable results caused by squatting, it is advisable to preemptively register those marks widely used by the public to obtain full protection of the same.

  1. Unfair Competition

In this section, the SPC confirms that trade name rights can be inherited (see Welsun vs. Shunde Zhengye), and further clarifies the criteria for application of article two, the principal article of the Anti-Unfair Competition Law. The SPC also addressed the trade dress issue which is discussed in detail below.

  1. The criteria of principal article of the Anti-Unfair Competition Law is further clarified

    In the comment on the "Seaweed Ration" unfair competition case, the SPC established the criteria for application of article two to evaluate the infringement. To establish the infringement under article two, the following three elements are to be met:

  1. Not belonging to the specific infringement acts stipulated under other articles in unfair competition law;
  2. Actual losses are suffered by the infringement; and
  3. The act is improper and inconsistent with publicly-accepted commercial ethics.

Throughout this case, the SPC emphasized prudence in the application of article two and indicated its inclination to protect employees. In this case, the SPC commented that absent non-competition obligations, the employee's act of planning to establish a competing company before resignation is not necessarily an improper act which should be blamed under unfair competition laws. In addition, competing with a prior employer for dealing opportunities are also allowable unless illegal acts are contemplated. The SPC further commented that the employee has the freedom to use his/her knowledge, experience, and techniques obtained from his/her previous work. It is advisable that non-competition agreements between the employer and employees are entered into if the employer desires to prevent its former employees from serving competitors. Absent such an agreement, it will be extremely difficult for the employer to prohibit employees from participating in competing activities.

  1. The expiration of design patent rights will not effect the protection of the product on the basis of specific package and decoration of the famous product

    In the comment on the Chenguang Specific Decoration unfair competition case, the SPC found that the specific package or decoration of a famous product can be protected by the Anti Unfair Competition Law after the expiration of the design patent rights on the product.

    The SPC's comment on this case has resolved the longstanding debate on the impact of design patent rights expirations. The expiration of the patent right does not necessarily mean the design of the product enters the public domain. The design owner can still protect its right to the specific packaging or decoration of famous products under the Anti Unfair Competition Law.

    It is also worth noting that for the same case, the SPC further confirms that the shape of a famous product can be protected if it has features different from the common design and has gained the second meaning. Such definition is very similar to the trade dress protection in other countries and further clarifies the criteria for the shape of a product protectable under unfair competition laws.

  1. IP Related Contract Cases

In the comments on the Guangxi High People's Court Consulting case, the SPC clarified that the mandatory rules of the administrative regulations can be categorized into two types: mandatory rules for administration and mandatory rules for effectiveness. The violation of the mandatory rules for administration will not necessarily jeopardize the effectiveness of the IP contract. However, the violation of the mandatory rules for effectiveness will directly cause the invalidation of the IP contract.

The mandatory rules for administration are generally those rules for the administration of business operations stipulated in the administrative regulations. On the other hand, the mandatory rules for effectiveness are usually those rules related to the eligibility of parties.

Said categorization by the SPC will make the enforceability of a contract more foreseeable, and therefore, advantageous for the contracting party to estimate the associated legal risks.

  1. Infringement Liabilities

In this section, the SPC clarifies some issues relating to the damages claimed in IP-related cases. Comments made in this section reflect that the SPC deems that the damages awarded shall be consistent with the infringement committed. Therefore, when multiple infringers are sued, their respective infringement liabilities, in particular, damages, shall be evaluated and determined corresponding to the acts committed.

  1. Evidence and other Procedural Issues

For the evidence part, the case pertaining to copyright infringement is worth noting. In the Getty Image vs. Chongqing Foreign Transportation Ltd. case, the SPC deems that, without any substantial counter evidence, photographs downloaded from the internet can be used as evidence to prove the release of photographic works. The person signing the signature on these downloaded photographs shall be recognized as the author of the works.

The SPC's opinion in this case will greatly alleviate the plaintiff's burden of proof in the claim of copyright infringement disputes. As the internet is a very convenient and fast channel to obtain all kinds information, the SPC's recognition of the evidence obtained from the internet will provide the plaintiff more alternatives in proving rights when claiming infringement.

The Annual Report from the SPC has reflected the development of China's IP laws in 2010. The comments in this report have provided the participant of IP practices with a more vivid image of the P.R.C. IP laws and judicial practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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