China: Q & A On Patent Litigation In China (Part I - The Court)

1. How is the Chinese judicial system?

The Chinese judicial system is called the People's court system and is a two instance court system. It is divided into four levels:

  • The Supreme People's Court
  • The High People's Courts
  • The Intermediate People's Courts (handling most of the first instance of patent trials)
  • The District People's Courts

The Supreme People's Court is the highest court in China. Each province, as well as the municipalities directly under the central government, has a High People's Court. As of now, there are 376 Intermediate People's Courts. The District People's Courts are comprised of more than 3,000 courts at the county level.

As of last year, China has established three Intellectual Property Courts located in Beijing, Shanghai, and Guangzhou. Those three courts are at the level of intermediate courts.

Additionally, there are a number of specialized courts, for example those dealing with railway transportation, forest affairs, the People's Liberation Army (PLA) and maritime issues.

2. Is the Chinese court system also a two-instance judicial system?

Yes. China has a two instance judicial system.

3. Is a warning letter sufficient to stop infringing activities?

A warning letter is always the least expensive way to stop an infringement. The effectiveness of a warning letter entirely depends on the receptiveness of the infringing party.

Generally speaking, a warning letter is most effective when the infringement is due to negligence. For intentional infringements, warning letters will likely be ignored. Based on our past experiences, a third of warning letters are effective, whereby the recipient expresses a willingness to remedy the situation. For warning letters to be effective, following-up is a must.

In addition, issuing a warning letter is a prerequisite for bringing a lawsuit for Declaratory Judgment for Non-Infringement.

4. Is Declaratory Judgment available under Chinese civil procedure?

Yes, according to the Article 18 of Interpretation of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases:

  • When the right holder warns another party for patent infringement, the warned party or an interested party reminds in writing to the right holder for the right to sue.
  • The right holder shall either withdraw the warning letter or file a patent infringement lawsuit within: a) one month after receipt of reminder or

b) two months after the reminder is sent;

  • If neither of the above happens, the warned party or the interested party has the right to file a lawsuit for declaratory judgment for Non-Infringement.

5. What are the advantages of a civil case?

Court proceedings have the following advantages:

  1. The judgment is very stable (finality of second instance compared to administrative enforce-ment), and is unlikely to be over turned.
  2. Offers stronger penalties, and thus is a stronger deterrent.
  3. Provides right holders with the opportunity to claim monetary damages for lost revenue caused by the infringement, or to claim monetary gain obtained by the infringer.
  4. For civil cases, a win for the plaintiff could mean compensation for the reasonable costs of litigation (including but not limited to legal fees, investigation fees, court costs, and evidence collection).
  5. The court system is better able to resolve complex technical issues because it has more technical means and professionals.
  6. The court system's procedures for collecting, presenting, discussing, and weighing evidence also make it better suited for handling complex cases.

6. In which court should I file a patent infringement case?

Patent infringement cases can be filed in around 90 designated Intermediate People's Courts. By the end of 2014, a total of three specialized Intellectual Property Courts (IP Courts) in Beijing, Guangzhou and Shanghai had been established. Like the Intermediate People's Courts, these three IP Courts can also accept first-instance patent infringement cases.

Additionally, there are four District People's Courts appointed by the Supreme People's Court to handle intellectual property cases. These are the Yiwu, Haidian, Kunshan, and Chaoyang District People's Court, with patent related cases being limited to design patents, and utility model patents.

The High People's Courts could also be the first instance court, if the amount of the object of action is large enough, whereby:

  1. if both parties have domiciles under same provincial jurisdiction, the amount is 20 billion RMB; or
  2. if two parties located in different jurisdictions, the amount is 10 billion RMB.

7. Which cases do these three IP Courts hear?

The IP Courts may hear the following cases:

  1. first instance civil and administrative cases related to patents, new plant varieties, layout design of integrated circuit, technological secrets and computer software;
  2. first instance judicial appeals against administrative decisions, such as those from the Trademark Review and Adjudication Board and the Patent Review Board;
  3. first instance civil cases regarding the recognition of well-known trademarks; and
  4. second instance civil and administrative cases regarding copyright, trademark and unfair competition heard at first instance by the District People's Courts.

Decisions taken by the IP courts can be further appealed in the High People's Court based in the city where the IP court is located, i.e. the High People's Courts in Beijing, Guangzhou and Shanghai.

8. Are the IP Courts in China similar to the Federal Patent Court (Bundespatentgericht) in Germany?

No, they are different. The Federal Patent Court (Bundespatentgericht) in Germany decides on the validity of patents. The Chinese IP Courts are responsible for both administrative and civil IP cases. For administrative cases, the IP Court judges the legality of administrative decisions. For civil cases, the IP Court determines the existence and remedy of an infringement. In either case, the court does not decide on the validity of the patent itself.

The IP Court is also the second instance court for the appeal of IP cases handled by the District People's Courts in the jurisdiction.

9. Do the IP Courts have jurisdiction over the whole of China?

No. The jurisdictions of the IP Courts in Beijing and Shanghai are limited to the cities of Beijing and Shanghai respectively, while the IP Court in Guangzhou has the authority over Guangdong Province.

Specifically, the Beijing IP Court has exclusive jurisdiction over the administrative litigation against the Patent Reexamination Board, and the Trademark Review and Adjudication Board.

10. How to determine the place of jurisdiction?

For civil cases, jurisdiction is held by the court where the defendant resides or where the infringement activity occurs (that includes the location of manufacturing, transportation, storage, distribution, selling of the infringement product).

For administrative cases, the Beijing IP Court has exclusive jurisdiction over the administrative litigation against the Patent Re-examination Board and the Trademark Review and Adjudication Board.

11. Is it possible to choose court by "forum shopping"?

Yes. As stated in the previous answer, this is possible for infringement activities including the making, offering for sale, selling or importing of the patented product, or using the patented process, and offering for sale, selling or importing the product directly obtained by the patented process, for production or business purposes. The jurisdiction of a case may be predicated on the location of manufacture, transportation, storage, distribution, or sales of the infringement product. The plaintiff may choose any of the courts at the above mentioned locations.

For the cases where multiple jurisdictions are available for the plaintiff to choose, one might choose the court that is most advantageous for the case. In general, the IP Courts in Beijing, Guangzhou and Shanghai have considerable experience in handling patent infringe-ment disputes compared to other courts around the country. Their judges are most experienced and less dependent on local government. Hence, we recommend our clients to file their infringement suit in those courts, especially in the Beijing IP Court.

12. Is any "precedent" concept applied in Chinese case law?

China has a civil law system. However, the Chinese Supreme People's Court publishes guiding cases, which provide guidance for lower courts to operate. If the lower court does not follow the judgments of the guide cases, the higher court will likely reverse the ruling accordingly and follow the judgment of the guiding cases. In 2010, the Supreme People's Court issued a regulation regarding the guiding cases, and in 2015 issued implementation rules for the regulation. Accordingly, all judges must search the guiding cases before delivering the verdict.

Also in practice, the rulings and judgments issued by the Beijing, Shanghai or Guangdong People's High Court are also intensely studied, by both the judicial system and the IP professional alike.

13. Are the Supreme People's Court's decisions and the judicial interpretation legally binding?

Of course, the Supreme People's Court is the highest judicial organ in mainland China: its decisions are very influential, but only the decisions for the guiding cases are legally binding. The judicial interpretation of the Supreme People's Court has the same legal effect as the Law.

14. Is the judicial interpretation of the Supreme People's Court based on one specific case?

No, a judicial interpretation is a supplement to the law. It interprets the law, and improves the operability of the law, as well as unifying the operational standards.

15. What educations do the judges of the IP Courts usually have?

Most of the judges of the IP Courts have a graduate degree. Some have double degrees in law as well as in science or engineering.

16. Are Chinese patent attorneys allowed to plead IP infringement cases in court?

A select few may. Specifically, only those Chinese patent attorneys who have been approved by the Supreme People's Court are allowed to plead cases in court (Patent matters only). The latest approval of granting was in May 2014 where 1,178 patent attorneys were approved.

17. If a foreign party is involved in the infringement case, will it be at a disadvantage compared to a Chinese company?

In terms of bias, Chinese courts treat the foreign party without prejudice. According to statistics, foreign parties have better records in winning their cases compared to their domestic counterparts.

The only difference when a foreign party is involved in an infringement case is the time limit on the litigation. Generally, the first instance takes no more than six month, and the second instance takes no more than three months. However, for the convenience of the foreign party (collecting evidence, translating the documents), such a limit does not apply.

18. Does a non-Chinese party have to leave a security deposit?

No. However, if the plaintiff (regardless of nationality) requests a preliminary injunction or pre-trial preservation of evidence / property, then a guarantee (akin to a security deposit) will be required by the court for taking such an action. The guarantee should be equivalent to the value of the seized goods or the cost in lost business for the subject of the preliminary injunction or pre-trial preservation of evidence / property.

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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