China: Enforcement: the last mile of intellectual property litigation

Last Updated: 23 July 2015
Article by Chen Changhui

Civil enforcement is the last step of civil litigation (incl. intellectual property (IP) litigation), which plays a key role to realise civil rights. Whether or not it operates smoothly tends to be a weighted indicator to a nation's legal development.

Enforcement constitutes the last yet crucial step of the protection of IP right holders' interests. However, similar to other civil disputes, arduous enforcement has always perplexed IP right holders, which may cause that they cannot get the full extent of compensation (or even no compensation at all). Given that, how to avoid such a problem has become an intractable issue for both IP right holders and their attorneys.

  1. Present: enforcement in PRC

Civil enforcement is a crucial method for creditors (right holders) to realise their rights as well as an important indicator to rule of law approaches[i]. However, some difficulties in enforcement can be witnessed in PRC which ties closely to the social and factual background. Whilst property declaration system, social credibility system and jointly enforcement workflow still need to be improved. In fact, some court executives may face challenges when coping with problems in enforcement as infringing parties may escape, obstruct or even resist enforcements with violence, which cause unfavorable difficulties. In terms of localism de facto, some officials tend to align with their local infringing party, which may also obstruct the enforcement. Under such circumstances, a strategic approach to enforce shall be planned with prudence and concern.

  1. Several common ways to evade enforcement

After receiving the notice of enforcement delivered from the People's Court, an enforcee usually states falsely on his/her financial conditions and even hides the property deemed as enforceable. Some people even prepare to transfer their asset and evade the enforcement before the infringement happens. Many of them are good at taking advantage of the defects of current enforcement system so that the courts are not able to find enough property to enforce. The method of evasion varies and most of them are summarised as the following:

  • Before the application of enforcement or judgment or even before the litigation, the enforcee use false debts to compensate for others and transfer the assets by repeated mortgage, multiple mortgages, changing the name of property or even selling the property by signing a long-term lease.
  • Enforcee would transfer assets and profits of the company (infringing party) to the person's own account by faking transactions. Some of them have no intention for a long-time operation, which will not participate in the statutory annual inspection or the business will dissolve maliciously.
  • Vacant debts: by dividing or reconstructing of the enterprise, the enforcee will transfer most assets to a new company, and leave no or just a little profit right but all debts to the old one.
  • The enforcee tries to get some effective judgments, mediation agreements or certificated debt documents by false litigations. The party will enforce them quickly so that the assets can be transferred.
  • Suggest a third party to bring the "objection to enforcement by a third party who is not involved in the original case" to obstruct the enforcement.
  1. Solutions

In order to cope with the malicious evasion by the infringing party, right holders should make careful plans before lawsuits start, try to lock the assets by virtue of legal methods and pay attention to the movement of infringing parties and their assets. Owners should also actively communicate with people's courts and coordinate with their work, which is likely to acquire a better result.

  1. Optimise litigation strategy

For a right holder, a valid legal instrument is the key factor in enforcing. But how to get a favourable legal instrument is vital while enforcing it.

  • Proper defendants and court-shopping

IP litigation often involves multiple infringing bodies. So right defendants and courts would not only affect the trail but also have impact on holders' realisation of rights.

Generally it is a productive way to accuse big corporations or public companies as defendants, of which usually exist brand awareness and legal risk consciousness. Meanwhile the plaintiff shall bring lawsuits against defendants within Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong, Shandong or other areas where economically developed. With a less favourable condition where a defendant is from a less developed area, it should rather select a court with higher efficiency, such as "court with excellence of no accumulative cases".

Especially when multiple infringing parties involve, well-regulated courts and defendants with strong legal awareness are helpful in acquiring objective and fair legal instruments which are easier to be enforced. These valid legal instruments and their enforcement results have huge deterrence effect to other infringers and potential litigations.

  • A proper way to close the case

Whether a case is closed by trial, mediation, arbitration or certificated debt instrument always affects the enforcement. In practice, in consideration of feasibility, a right holder shall firstly choose civil mediation, because a mediation agreement is a result of both parties' compromise (except for the malicious mediation) and the infringing party usually takes his enforceable ability into consideration. There will be less emotion of restrict and even if the infringer fails to actively conduct the agreement, he is likely to cooperate when it comes to a mandatory enforcement.

  • Preservation measures

Because of high risks in IP litigations, generally, right holders and courts are not likely to take preservation measures. According to the statistic from Guangdong high court[ii], the percentage of fully enforcement, partial enforcement and conciliation of enforcement in the cases where parties apply for preservation measures are all higher than those in the cases without preservation. The likelihood of non-enforcement in cases without preservation measures is twice higher than those take measures. Therefore in order to guarantee the enforcement can run smoothly, right holders shall positively adopt preservation measures when the evidence is clear and the probability to win is high.

  • Focus on the details

The defects in legal instruments sometimes become the reasons for enforcement difficulty. For example, some civil mediation agreements are so informal that courts or enforcees are reluctant to execute them. According to Article 97 of PRC Civil Procedure Law, after the mediation, the people's court shall make the mediation agreement and the agreement shall involve the claim, fact, result, signature of mediators and clerks, and seal of people's court, and service to both parties. After signing by both parties, the mediation document shall be legally effective. But in reality, because both subjective and objective reasons, there are lots of mistakes occurring such as partial signature, no seals and that the party rejects to receive or sign on the document. Some documents have even more serious problems, such as names or damages errors. Therefore, in order to make sure that there will be no obstructions for enforcement in the legal documents, right holders shall pay attention to details and try to avoid the patent mistakes.

  1. On time and accuracy

Some right holders do not have proper time awareness. They believe that a valid legal instrument is the end of story and no longer hire lawyers for enforcement. In practice, few right holders will assist courts in enforcement of the asset, because most of them believe that enforcement is within the scope of courts' job and attribute the bad results to injustice. Actually, for both courts and lawyers, enforcement is a complex job involving lots of procedural work, investigation, social communication and relevant difficult legal issues. Not only need lawyers to be involved in, but right holders also shall actively provide information about the enforced people and assets, which will create a better environment for courts to finish their job.

  1. Actively communicate and cooperate with the court

Because China's legal environment is still immature and the cost for illegal activities is relatively low, many enforcees do not have proper view of credit and always negatively deal with the enforcement by falsely state their financial condition or even just run away. Also, many cases need to deal with the complex social relation and the courts are always in a helpless position. In reality, some local governments, finical agencies, regulatory departments or departments of industry, commercial or tax will set up obstacles and reject to cooperate with courts. As a result, courts cannot figure out the condition of enforcees and assets. In the situation that there are many cases waiting to be executed in courts, it is unrealistic to rely on courts to spend their resource to find out the conditions of enforcee.

Therefore, rather than complain about the courts, right holders had better active coordinate with court, investigate assets and property by themselves and keep communicate with courts about the information. Never attribute all faults to the courts or even stand in the opposite side to the executing staffs.

If a huge amount of money was involved in the case, the right holder shall hire an investigation company and closely follow the enforcee and his assets because on one hand, the right holder can get a professional investigating report. On the other hand, it could avoid any illegal conducts during the self-investigation.

  1. Exploit rights of revocation, objection and reconsideration

It is common that the enforcee sells the asset free or with an obviously unreasonable price, or gives up the matured credit. When this happens, the right holder can assert his revocation right according to Article 74 and Article 75 of PRC Contact Law.

Also, sometimes the enforcee will have false legal instruments with the help of a third party or by false litigations or collude with the relevant executing people, which may all lead to an unfair result to the right holder. As to these problems, right holders shall take full advantage of their rights of objection and reconsideration under Article 225 of PRC Civil Procedure Law and the objection right under Article 25 of Supreme People's Court's Interpretation of PRC Civil Procedure Law Relating to Enforcement Procedure (No 13. 2008).

  1. Be careful to the objection by a third party

Article 227 of PRC Civil Procedure Law authorises a third party to bring claims related to the enforceable asset during the process. Nowadays, the objection by third parties has become an increasingly important battleground for creditors and debtors.

If enforcee and third parties collude with each other and apply for mandatory enforcement by false certificated credit document, judgment, mediation agreement or other legal instrument through false lawsuits, right holders should assert their objection right as third parties, in order to avoid loss of assets.

Some parties will ask a third party to bring an objection claim during the enforcement process in order to stop the enforcement and achieve their illegal purpose. In this process, it is very likely that the third party and the party will jointly make up some evidence. Obviously, right holder should pay much more attention to this kind of objection by third parties.

  1. Focus on the details and carefully treat security of enforcement and conciliation of enforcement

During the enforcement, since the enforce party would avoid, deny and obstruct the enforcement. Sometimes, enforcee shall provide guarantee to the courts (with accordance with Article 231 of Civil Procedure Law) and suggest right holders to agree so that they could have more time to transfer their assets. In fact, many securities finally fail to work well.

Moreover, in the consideration of cases-closing ranking, court sometimes will ask both parties to reach a conciliation of enforcement in accordance with Article 230 of PRC Civil Procedure Law. Nonetheless right holders should keep clear mind, consider all aspects and carefully deal with these proposals. Even if agree to reconcile, right holders shall ask the court clerk to keep the reconciliation terms into record and sign the documents by both parties.

Courts sometimes submit enforcement cases to upper-level courts and ask them to assign these long-standing cases to other courts. In reality, in order to increase their cases-close rate, some original court will deliberately throw unenforceable cases to other courts, while new courts need plenty of time to review the cases, which cause significant delay and make it easier for infringing parties to transfer their assets. Thus, unless no further choice, applicants shall try to object cases assignment.

  1. Use the supervision system of courts

Nowadays, executives have most powers from the beginning to the end, including the rights to change and supplement enforcee, review of third party's objection determination and etc. Some unfavourable situations could be happened. Even some executives abuse their power and collude with parties. In such circumstance, it is necessary to resort to courts' internal supervision system or even supervisory power from outside.

According to Article 7 of Regulations about People's Courts Accepting Supervision from Parties In The Process Of Trial and Enforcement issued by the Supreme People's Court (No. 13(2014)), during or after the enforcement, applicants can submit a supervision card together with his opinion to the supervision department in courts. Or they can use phone calls or website to make a compliant according to the Article 2 of the regulation. However, in practice, applicants need to carefully consider the truth reason for enforcement difficulties, and never make such a complaint unless the evidence shows clearly. Or it may make enforcement to be harder.

The external supervision includes supervisions by the Party committee, National People's Congress, Political Consultative Conference, public, procuratorate and etc.[iii] However, external supervision should be used only after the internal supervision since the courts are likely to disregard such supervision (even from the procuratorate) with limited courts would accept.

  1. Conclusion

Civil enforcement is the last step of a civil litigation including the IP litigation, and is also the key factor for the realization of rights.[i] Whether or not it operates smoothly is an important indicator for a country's legal development. If a right holder wants to avoid the "win the case but lose money" situations, he should pay attention to the enforcement procedure, make the plan and strategy based on how to obtain damages and positively cooperate with courts' work.

Footnotes

i Ma Dengke, Modern Transformation and Institutional Innovation of Civil Execution, Xiamen University Press;

ii Hu Zhichao, et.al., Study on Situation and Countermeasures of Failure of Execution;

iii Sun Jiarui, New Theory of Procuratorial System of Execution, China Procuratorial Press



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