China: Declaratory Judgment Of Non-Infringement In China

The declaratory judgment of non-infringement is a relatively new type of intellectual property related actions in China. Since 2002, the People's Courts have handled a number of cases involving declaratory judgment of non-infringement of IP rights, including patents, trademarks, copyright, and unfair competition. This article summarizes the state of such actions in China, including conditions for acceptance, jurisdiction issues, and the interaction between declaratory judgment action and the related infringement action.

State of IP Declaratory Judgment Actions in China

1. The legal basis for declaratory judgment of non-infringement in China

There is no direct provision regarding declaratory judgment of non-infringement in the Chinese law. The legal basis for such cases is generally considered as being provided by the Supreme People's Court in a 2002 Written Reply concerning a patent dispute between Suzhou Longbao Bioengineering Co. (Longbao) and Suzhou Langlifu Health Food Co. (Langlifu). In that case, Langlifu, the patent owner, had sent a warning letter to Longbao, alleging infringement of its patent by Longbao's products. Langlifu also sent letters to Longbao's distributors, warning them about the alleged infringement. While many of the distributors stopped carrying Longbao's product, Langlifu did not file infringement action against Longbao. Under such circumstances, Longbao decided to file a complaint, with the Nanjing Intermediate People's Court in Jiangsu province, asking the court to declare that Longbao's product does not infringe Langlifu's patent.

The Nanjing Intermediate Court, realizing the potential legal issue involved in the case, asked the Jiangsu High People's Court for guidance. While the majority of the Jiangsu High Court's IP tribunal agreed that Longbao had satisfied the legal requirement for bring a civil action, the court decided to request the Supreme People's Court for a written opinion concerning the issue.

The Third Civil Tribunal, responsible for IP related cases, of the Supreme People's Court (hereinafter referred to as the Third Tribunal) issued its Written Reply on July 12, 2002, affirming Longbao's standing and legal basis for bring the declaratory judgment of non-infringement action1. In the reply, the Third Tribunal states that this case has met the requirements for bring civil actions set forth in Article 108 of the Chinese Civil Procedure Law, i.e., "the plaintiff as a direct interest in the case; there is a definite defendant; there are specific claims and causes of action for the suit; and the suit is within the scope of acceptance for civil actions by the people's court and under the jurisdiction of the people's court where the suit is entertained." The Third Tribunal makes it clear in the reply that the cause of action in the case is based upon declaratory judgment: "The plaintiff brought the action to the people's court solely for the purpose of requesting the court to confirm its non-infringement in response to the defendant's letter accusing it of having committed an act of infringement. The plaintiff did not claim that the act of the defendant constituted any infringement, nor did it seek investigation of the defendant's liability for infringement. Therefore, the establishment of the "Request for Judgment of Non-Infringement" as the cause of action can more directly reflect the substance of the dispute, the claims of the parties, and the core of the matter judged by the court."

2. Types of declaratory judgment actions handled by the courts

According the current Chinese law and practice, the Written Reply in the Longbao case should be binding only for the specific case involved because it is not a formal Judicial Interpretation issued by the entire Supreme Court, but a Written Reply by the Third Tribunal in a specific case. However, the reply has been generally accepted as confirming the legal basis for declaratory judgment in China. Following the case, the people's courts at different levels in China have accepted and adjudicated many cases involving declaratory judgment of non-infringement as the cause of action in different IP fields, including patent, trademark, copyright and misappropriation of trade secret. The guidelines provided in the Written Reply have been relied upon in those later cases. The declaratory judgment of non-infringement supplements the Chinese IP litigation system and provides another option, sometimes necessary, for an accused infringer.

Conditions for Acceptance of Declaratory Judgment Actions

In accordance with relevant Written Replies issued by the Third Tribunal following the Longbao case, the conditions for acceptance of declaratory judgment actions are those set forth in Articles 108 and 111 of the Civil Procedure Law, i.e., "the plaintiff has a direct interest in the case; there is a definite defendant; there are specific claims and causes for the suit; and the suit is within the scope of acceptance for civil actions by the people's court and under the jurisdiction of the people's court where the suit is entertained". In other words, the Third Tribunal is of the opinion that a declaratory judgment action is not different from an ordinary civil action. Among these conditions, the determination that "the plaintiff has a direct interest in the case" is of most importance in deciding acceptance of declaratory judgment cases. In the Longbao case, the Third Tribunal stated that the plaintiff, Longbao, had a direct interest in the case because the warning letter by the defendant, Langlifu, sent to the distributors of Longbao's products had caused the distributors to cease selling the products and thus harming the interests of the plaintiff.

In determining whether a plaintiff has a direct interest in a specific case, the majority of the cases seem to have focused on whether or not there exists an actual and substantive controversy between the plaintiff and the defendant. If the controversy exists, then it can usually be determined that the plaintiff has a direct interest in the case. In this regard, the Beijing No. 1 Intermediate People's Court provided some specific guidelines in the so-called "Peter Rabbit Case." In that case, the British publishing company Frederick Warne, the owner of eleven Chinese trademarks related to the famed Peter Rabbit, brought an administrative action based on some of the trademarks before a local Administration of Industry and Commerce (AIC) in Beijing against China Social Science Press (CSSP) for trademark infringement. The AIC ruled in favor of Frederick Warne and levied a relatively high administrative fine against CSSP, which appealed the decision to the Administrative Tribunal of the Beijing No. 1 Court. CSSP also filed a declaratory judgment action against Frederick Warne with the IP Tribunal of the Beijing No. 1 Court, asking the court to declare its non-infringement of any of the eleven Peter Rabbit related trademarks of Frederick Warne.

The IP Tribunal of the Beijing No. 1 Court, recognizing that it would be the first declaratory judgment case for non-infringement of a trademark, provided a detailed guideline for the standard of acceptance for such cases. The court makes it clear in the judgment that the following three points must be proved or clarified by the person who has been warned if he wants to prove that his rights and interests have been affected and that he is qualified as a plaintiff for bringing a declaratory judgment action of non-infringement2:

  1. The owner of an IP right has sent a warning of infringement, but the warned person does not admit that his act constitutes infringement. If the letter sent by the owner only makes an offer to license the IP right, notifies the existence of the IP right, or makes an inquiry for the purpose of investigating an infringer, without indicating an intention of promptly bringing an action of infringement, then there exists no substantive controversy between the IP owner and the recipient of the warning and the recipient is not yet qualified for filing a declaratory judgment action of non-infringement.
  1. The IP owner delays, without justified reason, bringing an action to the people's court or making a complaint to the intellectual property administrative department concerned. The purpose of the declaratory judgment of non-infringement is to settle an undetermined legal relationship between the IP owner and the warned person. If the person who has been warned disregards the warning and the IP owner promptly brings an infringement action or makes a complaint to the intellectual property administrative department concerned, then the warned person is no longer qualified for bringing a declaratory judgment action of non-infringement.
  1. The act of delay by the owner is likely to harm the rights and interests of the accused infringer. It can usually be concluded that this condition is satisfied so long as the aforementioned two conditions are met. The formation and circulation of an IP product involve the interests of many parties. For example, a patent product involves the interests of its manufacture, sellers, users and importers. It is certain that the business of the warned person will be affected if the determination as to whether or not the infringement is justified is not made in time.

Jurisdiction Issues in Declaratory Judgment Actions

The jurisdiction issue in declaratory judgment actions centers on how courts in China regard the nature of these actions. In practice, most courts regard a declaratory judgment action of non-infringement as an action of determining infringement in nature and should be under the jurisdiction of a court of the place where the defendant (the IP owner, in this case) has his domicile or where the act of infringement is committed. It seems that, based on this understanding, the available jurisdictions for a declaratory judgment action are rather broad because they would typically include jurisdictions where the accused infringing acts occurred, where the plaintiff/accused infringer resides (usually it would be a place of an accused infringing act), and where the defendant/IP owner resides.

The Beijing High People's Court in the Peter Rabbit Case provides a representative court opinion in this regard. Frederick Warne Co., the defendant in the case, disputed Beijing No. 1 Intermediate Court's jurisdiction over the case. After the No. 1 Court rejected its opposition, Frederick Warne appealed to the Beijing High Court. The Beijing High Court affirmed the No. 1 Court's decision and stated that:

The declaratory judgment action of non-infringement is essentially a request that is filed by the plaintiff with the court for determining whether or not one of its acts constitutes an infringement of a right of the defendant. The laws applied to this type of disputes are consistent with those applied to civil infringement disputes. Therefore, the declaratory judgment actions of non-infringement belong to civil infringement disputes, and their jurisdiction shall be subject to the Civil Procedure Law of the People's Republic of China and the judicial interpretations of the Supreme People's Court.

Declaratory Judgment and the Related Infringement Actions

In practice, the situation arises where a warned person brings a declaratory judgment action against a right owner, which in turn brings an action of infringement, often with a different court. Current opinions seem differ on how to deal with these two actions. The majority of the courts holds the opinion that these two actions, although separate, arise from the same facts and therefore should be tried in combination, i.e., they should be joined for trial by the court which has accepted the case first. The Third Tribunal of the Supreme Court seems to give support to this view in its Written Reply in Shijiazhuang Shuanghuan Automobile Co. (Shuanghuan) v. Honda Motor Co. (Honda). In the case, Honda sent warning letters to Shuanghuan accusing Shuanghuan's small SUV model, SRV, infringes Honda's design patent covering its popular model C-RV. Shuanghuan filed a declaratory judgment action with the Shijiazhuang Intermediate People's Court, asking the court to declare its non-infringement of Honda's patent. Honda, within a month of the filing by Shuanghuan, filed an infringement action against Shuanghuan with the Beijing High Court, adding two additional design patents in the case.

Both parties also raised jurisdiction issues in the cases, with Shuanghuan wanting to litigate in Shijiazhuang, and Honda in Beijing. The jurisdiction dispute went to the Supreme Court's Third Tribunal, which issued its Written Reply in June 20043. The Third Tribunal stated that declaratory judgment action and infringement action are independent legal actions brought by the accused infringer and the IP owner to protect their respective rights provided under the Chinese law. Declaratory judgment brought by one party should not be "absorbed" because the other party filed a separate infringement action. However, the Third Tribunal further stated that, to avoid situations wherein different courts adjudicate the same dispute, courts should joint the cases involving determining the same facts according to applicable law and procedures. For the case, the Third Tribunal specifically instructed that the Shijiazhuang court should hear the combined case involving the patent first raised by Shuanghuan in its declaratory judgment action and the Beijing court should hear the combined case involving the two additional patents first raised by Honda in its infringement case.

The Written Reply in the Shuanghuan case seems to provide the following guidelines regarding jurisdiction and venue issues: (1) declaratory judgment action and infringement action are independent legal actions that should not be joined automatically; (2) if such actions handled by different courts involve the same facts, they should be joined with one of the courts; and in that situation, (3) the court which first accepted the case should hear the combined case.

Summary

The declaratory judgment action in China has seen rapid developments since its recognition a few years ago. It is increasingly being used as an effective tool in certain IP disputes. Opinions by the Supreme People's Court and cases adjudicated by the lower level courts have provided guidance regarding its legal basis, standard for acceptance, jurisdiction issues, and its interactions with the related infringement action. Declaratory judgment action have played an increasingly important role in safeguarding the exercise of rights by IP owners in accordance with the law, preventing abuse of rights, and ensuring fair competition. Meanwhile, it is expected that court opinions and possibly new legislations will provide more specific and clearer guidelines in this regard to prevent it from becoming a barrier to the exercise of rights by the IP owner, or becoming a tool by which an infringer threatens the owner.

Footnotes

1 Judgment (2001) Min-San-Ta-Zi No. 4 by the Third Civil Tribunal of the Supreme People's Court

2 The other courts have taken similar criteria in handling this kind of disputes. See, e.g., the civil judgment Gui-Min-San-Zhong-Zi No. 4 by the higher people's court of Guangxi Zhuang autonomous region concerning the declaratory judgment of non-infringement of trademark between the appellant, Zhongshan Zhujiang drink Co., and the appellee, T.C. Pharmaceutical Healthcare Co., Redbull Vitamin Drink Co., and Lan jizhu.

3 Judgment (2004) Min-San-Ta-Zi No. 4 by the Third Civil Tribunal of the Supreme People's Court

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