China: Applications for injunctive orders in IP arbitration

Last Updated: 4 September 2014
Article by He Wei and Wang Yaxi

Introduction

As China's cross-border technology trade develops, the number of disputes arising from international Intellectual Property contracts gradually increases. Many parties involved in international business prefer arbitration as their dispute resolution mechanism, because arbitration is confidential and its decisions can be enforced in different jurisdictions. Loads of international technology license agreements contain arbitration provisions whereby the parties agree on how to settle IP related disputes. IP disputes that will be arbitrated usually include: whether the licensee's use exceeds the licensed scope; issues concerning the licensee's disclosure of the licensor's technology; and the licensee's unauthorized sub-license of the licensor's technology. The value of an IP right, as an intangible property right, lies in a right owner's exclusive right to use the technology or business resources which constitute the subject matter of the right. Therefore it is essential for a right owner to maintain his IP right by prohibiting unauthorized use by others. Accordingly the use of injunctions plays a vital role in IP cases. China's IP legislation now provides pre-action and interlocutory injunctions to give right owners provisional remedies, in the form of injunctions before and during the trial. In this way an owner can stop damage from occurring or escalating.

However, when it comes to IP arbitration, parties cannot get injunctive relief because there is no clear code for injunctive orders in arbitration law, nor do arbitral courts have the power to issue or enforce injunctions. Here, we discuss the use of injunctions in arbitration, the legal basis and its problems.

  1. Injunctive order: basis in PRC law

The idea of injunctive orders derives from the English common law system. Important precedents were set in 1975 by two rulings by the U.K. Court of Appeal. These decisions said that a plaintiff could, before the court made its final decision, request the court to issue an injunction to prohibit the defendant from disposing of any property, so that the verdict might later be sufficiently executed.1 Under PRC law, though the term "injunctive order" is not explicitly used, a court may order certain conduct by a party or prohibit a party from certain conduct before and during a trial, to avoid the occurrence or the escalation of damage to the other party. This serves as an injunctive order in essence.

Before the Amendment of the Civil Procedure Law in 2012, injunctions were only provided for in three IP laws: Patent Law, Trademark Law and Copyright Law. China introduced these rules for the first time after joining the WTO, so it could give interim relief in the protection of IP rights as was required by the TRIPs Agreement. Being one of the Appendixes to WTO's Protocol on Accession of the PRC, the TRIPs Agreement specifically stipulates that for the protection of IP rights, members must provide provisional relief measures to IP owners including injunctions.2 Accordingly, Article 66 of the Patent Law of China, Article 65 of the Trademark Law and Article 50 of the Copyright Law all provide that where a right owner or an interested party has evidence that another party is committing or will commit an infringement of its IP right, and irreparable damage will be caused to its lawful rights and interests if the infringement is not ceased in a timely manner, it may apply to a people's court for an interim injunction before instituting an action in the people's court. These were the first pre-action injunction rules in China.

In due course the use of the injunction rules was extended to the court trial process itself. The legal basis for interim injunctions was the Interpretations of law issued by the Supreme People's Court, including Certain Provisions of the Supreme People's Court on Issues Concerning Application of Law to Pre-Litigation Cessation of Patent Right Infringement, Interpretation of Supreme People's Court on Issues Concerning the Application of Law in Pre-Litigation Cessation of Infringement of the Exclusive Right to Use a Registered Trademark and Evidence Preservation, and Reply of the Supreme People's Court on Property Preservation and Enforcement of, and Other Issues Related to, the Exclusive Right to Use a Registered Trademark. According to the aforesaid Interpretations, the Peoples Court may hear an application from a right owner or interested person requesting advance suspension of the infringement where the owner is claiming its right to the exclusive use of a registered trademark or a patent has been infringed. This procedure can also apply by analogy to copyright infringement cases. However, it was commonly believed that the power to make injunctive orders was available only in Patent Law, Trademark Law, and Copyright Law and relevant interpretations, and could only be used in those IP related disputes. It was not considered available in trade secret disputes and other unfair competition cases.

The situation changed with the 2012 Amendment to the Civil Procedure Law. According to Article 100 of the amended law, "for a case where, because of the conduct of a party or for other reasons, it may be difficult to execute a judgment or other damage may be caused to a party, a people's court may, upon application of the opposing party, issue a ruling on preservation of the party's property, order certain conduct by the party or prohibit the party from certain conduct; and if no party applies, the people's court may, when necessary, issue a ruling to take a preservative measure". This amendment introduces a third type of preservative measure—preservation of conduct in Chinese law on top of preservation of property and preservation of evidence.

It is not hard to see that: preservation of conduct and the injunctive order, if compared, are almost identical in respect of their application conditions, subject matter and legal effect. Preservation of conduct is, by its nature, provisional relief, i.e., a type of interim injunctive order. In this respect, the amended civil procedure law has expanded the application of injunctions from just IP infringement litigation to the whole territory of civil litigation. Besides, it is worth noticing that some courts, when giving rulings on preservative measures, have applied Article 162 of Opinions of the Supreme People's Court on Several Issues concerning the Implementation of the General Principles of the Civil Law of the People's Republic of China (For Trial Implementation),3 which states that "[u]pon the application of a party concerning or based upon the court's powers, a people's court may first render a decision for cessation of infringement, removal of obstruction or elimination of danger when necessary during the course of an action".

After the implementation of the Civil Procedure Law (2012 Amendment) ("Civil Procedure Law"), people's courts have made certain rulings on conduct preservation in unfair competition disputes. These include the ruling of conduct preservation made by Shanghai No.1 Intermediate People's Court in Eli Lilly & Co. of U.S.A. etc. vs. Huang Mengwei (a dispute on infringement of a technical secret), which is the first conduct preservation ruling made in China in a trade secret infringement dispute. And the conduct preservation ruling made by Guangzhou Intermediate People's Court to stop the defendant from using a disputed advertising slogan in Guangzhou Pharmaceutical Group Co., Ltd vs. Guangdong Jiaduobao Beverage & Food Co., Ltd. and Peng Bijuan (A false advertising and unfair competition dispute).

  1. Application of injunction orders in arbitration

According to the Arbitration Law of PRC ("Arbitration Law"), if a party applies for preservation of evidence or preservation of property, the arbitration commission shall apply to the people's court under the Civil Procedure Law, and the people's court will decide the issue. The Arbitration Law does not say that a party can apply for preservation of conduct or an injunction and this leads to uncertainty around the use of injunctions in arbitrations.

Nevertheless, in recent years, there is a trend among domestic arbitral institutes to expand the application of injunctions in China through revising their arbitration rules or publishing new rules.

For instance, CIETAC revised and published the 2012 CIETAC Arbitration Rules (CIETAC Arbitration Rules) on February 3, 2012. Article 21 "Preservation and Interim Measures" states: "1. [w]here the parties apply for preservation in accordance with the provisions of Chinese law, the CIETAC Secretariat shall forward such application to the competent court designated by the parties; and 2. Upon the application of a party, the arbitral tribunal may, pursuant to the applicable law, decide to adopt such interim measures as it deems necessary or proper, and has the authority to order the party applying for interim measures to provide proper security. The decision adopting interim measures by the arbitral tribunal may be delivered by means of procedural order or interim ruling." The term "preservation" in the foregoing provision, according to the Civil Procedure Law, includes the preservation of property and evidence as well as conduct. It seems that the CIETAC Arbitration Rules deliberately separate "preservation" from "temporary measures" on the basis that the term "interim measures" is not used anywhere in current PRC laws. But as explained before, preservation by nature is obviously a type of interim measure.

Another illustration is the China (Shanghai) Pilot Free Trade Zone Arbitration Rules ("FTZ Arbitration Rules") published by SHIAC on May 1, 2014. The FTZ Arbitration Rules contains a separate chapter entitled "Interim Measures", in which SHIAC sets out respectively: interim measures; pre-arbitration interim measures; interim measures during arbitration; emergency tribunal; and the rendering, amendment to and compliance with decisions on interim measures in 7 separate articles. The FTZ Arbitration Rules have made three major breakthroughs:

Firstly, it contains interim measures, i.e., provisional measures expressly "requesting and/or prohibiting a party to perform", i.e., an injunctive order;

Secondly, the Rules make it clear that an applicant can apply for interim measures either before filing an arbitration application or after the case is accepted; and,

Finally, a party, according to the Rules, may choose to seek interim measures to a court with jurisdiction over the case or SHIAC, in accordance with the relevant laws of the jurisdiction where the interim measure(s) is carried out.

Both the CIETAC Arbitration Rules and the FTZ Arbitration Rules have provided parties with the right to seek injunctive order(s) at arbitration. However, if the injunction is to be rendered in a Chinese court, these arbitrations and orders must be carried out in accordance with relevant Chinese laws addressing injunctions. According to Article 101 of the Civil Procedure Law, an interested party may, before applying for arbitration, apply to the people's court for preservative measures. Yet, as there is no clear provision regarding the process of applying for injunctions to an arbitrator, and the Arbitration Law fails to include any provision regarding injunctions, there is in fact no clear rule governing an application for an injunction in the arbitral process.

In addition, people's courts have the sole power to issue an injunction order under PRC law. But when it comes to an arbitration case, as the court does not hear the case, it is hard for it to thoroughly investigate the facts and reasons on which an application for an injunction is brought. As a result, a party has little chance persuading a court if it submits an application for injunction in an arbitral case.

  1. Conclusion

Injunctive orders have a significant practical meaning to a party in IP arbitration. For example, preservation of property and preservation of evidence are not sufficient to protect intangible property. In addition, the arbitration of technology contract disputes usually involves non-patent techniques which may be legitimately protected as trade secrets. In these cases, secrecy is the core interest of the owner of a disputed technique, a loss of which would cause irretrievable damage to the owner. Therefore, injunctive orders play a role in IP arbitration that no other remedy can replace. What's worse, the development of arbitration, whose huge advantages have been shown in international business disputes and should be enjoyed in IP disputes, is severely hampered by the absence of strong injunctive remedies.

To sum up, in relation to remedies the Arbitration Law is currently unsatisfactory compared with Civil Procedure Law. The ability to preserve conduct set out in the Civil Procedure Law is not included in the Arbitration Law, and no relevant judicial interpretation has been promulgated addressing the execution of this preservation measure. A possible solution to such problem is to amend the Arbitration Law, or to make relevant interpretations of the law, so as to give a clear basis for injunctive orders to be made in arbitral cases. On the top of that, arbitral tribunals might assist the people's courts in investigating and providing the facts in decision making on applications for injunctions or perhaps arbitrators could even make recommendations to the court. Arbitrators are well placed to make judgments on whether the status quo needs preserving in the interests of justice until IP ownership rights have been definitively established.

Footnotes

1See Nippon Yusen Kaisa v. Karagrorgis([1975]2Lloyd's Rep.137) and Mareva Compagnia Naviera S v. International Bulk Carrier ([1975]2Lloyd's Rep.509)

2See TRIPs Agreement Section 3 Article 50.

3(2012) Sui Min Si Chu Zi No.263, Decision of Reconsideration by Guangzhou Intermediate People's Court in Guangzhou Pharmaceutical Group Co., Ltd vs. Guangdong Jiaduobao Beverage & Food Co., Ltd.and Peng Bijuan( involving a dispute on false propaganda and unfair competition).

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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