China: New Judicial Interpretation Of China Civil Procedure Law Is Implemented —How About Its Influence On Jurisdiction Over Patent Infringement Cases?

Last Updated: 18 February 2016
Article by Steve Song

Regarding jurisdiction of patent infringement cases, Clause 5 of the Various Regulations on Law Application in Dealing with Patent Disputes issued by the Supreme People's Court of the People's Republic of China states the following: "Lawsuits instituted against acts of patent infringement shall be under the jurisdiction of the court of the place of the defendant's residence or of the place where the infringing acts take place. Places where acts of infringement take place include: places where acts of manufacturing, using, offering for sale, selling or importing products accused of infringing a patent for invention or utility model are conducted; places where the acts of using a patented process are conducted and where acts of using, offering for sale, selling or importing products acquired directly according to the patented process are conducted; places where acts of manufacturing, selling or importing products of patented designs are conducted; places where acts of counterfeiting patents of other persons are conducted; and places where results of the preceding infringing acts arise."

The above provision classifies places related to jurisdiction into two categories: the place at which the infringing act is carried out; and the place of result of infringement due to the abovementioned infringing act. If the meaning of the former can be said to be clear-cut in a general sense, that of the latter could only be said to be vague at best. For example, if a Plaintiff orders an infringing product online from a Defendant, and the Defendant hands over the infringing product to a courier company for delivery, how would the place at which the result of infringement occurs be determined — would it be considered the place at which the courier company receives such goods, or the place of the Plaintiff's reception? Furthermore, if the Plaintiff were to bring the infringing product to his/her office or home, would such a place be considered "the place at which the infringing result occurred"?

In current practice, there have indeed been plaintiffs who established points of jurisdiction through online orders for door-to-door delivery, thus enabling them to select the court of jurisdiction to their advantage. An example would be instituting litigation in the place where infringing product was received. In this situation, does the court at the place of reception of goods have jurisdiction? In fact, different courts have issued different rulings leading to completely different results.

An example can be found from a case heard by the Courts in Guangdong. The Courts ruled that the Defendant's place of residence was not in Shenzhen, Guangdong; the place of manufacturing and selling the infringing product and the place of infringement result were also ruled by the Court to be not in Shenzhen. The seller also did not have any point of sale in Shenzhen, and the Plaintiff's sole basis of claim was that the alleged infringing product was mailed and delivered to Shenzhen, while the notary public's certificate for the website in question was issued by a Shenzhen Notary Public Office. Thus, according to Article 28 of the Civil Procedure Law of the People's Republic of China and Clause 5 of the Various Regulations on Law Application in Dealing with Patent Disputes issued by the Supreme People's Court, the court in question had no jurisdiction to hear the case even though the Plaintiff had claimed that Shenzhen was the place of infringement. (See the civil judgment of Guangdong Province Shenzhen Intermediate People's Court under (2012) Shen-Zhong-Fa-Zhi-Min-Chi-Zi-1189, and the civil judgment of Guangdong Province High People's Court under (2013) Yue-Gao-Fa-Li-Min-Zhong-Zi-323). In another case under similar circumstances, the Anhui Court took an entirely opposite position: A computer operator placed an order in Anqing in Anhui Province through the "T-Mall Shop" website and made payment using Alipay. The seller was responsible for postage. The Plaintiff initiated notarization to be made with respect to the entire process of online purchase of the infringing product and even sealed the product. The above facts were taken as proof that Anqing City was the place in which the result of the infringing act took place. As a result, Anhui Province Hefei Intermediate People's Court ruled that it had jurisdiction over the case. (See the civil judgment of Anhui Province Hefei Intermediate People's Court under (2014) He-Min-San-Chu-Zi-00071-1 and the civil judgment of Anhui Province Hefei High People's Court under (2014) Wan-Min-San-Zhong-Zi-00039).

The primary reason that the above courts arrived at different conclusions about the question of jurisdiction over the place of reception of goods was due to their differing understanding of what is "the place at which the result of infringement took place".

In fact, the Supreme People's Court as early as 1998 pointed out the following in its Summary of Work Seminar on Hearing of Intellectual Property Cases by Some of Our Courts: "It is evident from legal precedents that some courts had some confusion with respect to the understanding of the Judicial Interpretation of the Supreme People's Court on the place of occurrence of infringement result; in infringement cases, some courts even considered the place at which infringement result occurs to be the place of residence of the plaintiff whose right was infringed, or the place at which the infringing product was delivered. It is a widely held belief by our colleagues in the courts that, in the case of IP infringement cases, the place of infringement result should be taken to mean the place at which the result directly produced by the infringing act took place, and cannot be taken to mean the place at which the plaintiff resides by reason of the plaintiff suffering from infringement."

It can be seen that the general consensus of most judges is that a broad interpretation could not be given to the place of occurrence of infringement result. In other words, one could not establish jurisdiction by reason of a delivery at any destination of the alleged infringing product. However, it is worth noting that use of the Internet was not as widespread back in 1998, let alone online shopping. Thus the above Summary did not address the question of whether the place of reception of alleged infringing product could be said to be the place of occurrence of infringement result.

But the place of occurrence of infringement result was not alone. In fact, the question of the place of performance for online contracts was also a highly disputed issue which troubled the industry for several years. Nevertheless, Clause 20 of the Interpretation of the Supreme People's Court on Civil Procedure Law of the People's Republic of China, which came into effect on February 4, 2015, expressly stipulates the following: "In the case of sale and purchase contract entered by way of information network and for which the contractual subject matter is delivered through information network, the place of performance of such contract shall be the place of residence of the purchaser; where the contractual subject matter is delivered through other means, the place of reception of goods shall be the place of performance of such contract. Where there is a provision in such contract with respect to place of performance, such provision shall prevail."

In other words, in the case of online contracts, the place of their performance should be determined as a matter of priority by the place agreed between the parties concerned. In the absence of such agreement — for example, if the contractual subject matter is an intangible item which needs to be delivered over the web — the place of performance would be the recipient's place of residence. If the contractual subject matter is a physical item which needs to be delivered in other means (such as courier or self-collection), the place of performance would be the place of reception of goods. With regard to the above, A judge had the view that: There will be significant changes to a large number of online sale and purchase contracts with respect to their rules on jurisdiction. One predictable result of Clause 20 of the New Interpretation on Civil Procedure Law would be that the disputes for online contracts involving IP would be dispersed to courts all over the country which have jurisdiction over the recipient's address, instead of being concentrated in that having jurisdiction over the defendant's place of residence as is currently the case (see "Understanding the Impact of the Longest Judicial Interpretation on IP Litigation", its author Pu Xiang being a former Assistant Chief Judge in the IP Tribunal of Chaoyang People's Court in Beijing; http://www.zhichanli.com/article/4535, accessed on March 5, 2015).

Soon after the implementation of the new judicial interpretation on civil Procedure Law, Suzhou Intermediate Court gave its first ruling on objections to jurisdiction in relation to an online shopping contract dispute: The place of the recipient was the place of contractual performance; and the case should be heard by the first instance court ("Suzhou Intermediate Court Applies New Civil Procedure Law Interpretation in Its First Case of Objection to Jurisdiction in Online Shopping Case", Legal Daily, http://www.legaldaily.com.cn/index/content/2015-03/03/content_5984662.htm?node=20908, accessed on March 5, 2015).

There used to be uncertainties for place of contractual performance and place of occurrence of infringement result which belong to breach of contract and infringement of rights. Now that the Judicial Interpretation has given an expanded interpretation on the place of performance for online shipping contract, will this open a Pandora's Box for the industry? After all, consistency in the legal system will give certainty to some concepts or provided reference implications for contractual provisions. The question, therefore, is whether the implications for place of occurrence of infringement result remain uncertain after Clause 20 of the New Interpretation on Civil Procedure Lawis implemented, or whether the place will be dispersed under its influence?

Experts in the IP industry hold different views: The progressives support the broad understanding while the conservatives are on the opposite side.

The progressives have two main arguments. Firstly, an act of sale is part of patent infringement acts and it often requires a sale and purchase contract to be achieved. Thus even if the place of contractual performance and that of sale are different in wording, their actual subjects are consistent. The performance of contract itself belongs to an act of sale; in substance there is significant overlap for place of contractual performance and place of sale. Indeed, they are merely observations of the same thing from two different angles (one being from the angle of contract law and the other from the angle of tort law). Secondly, civil procedure law is a Basic Law, whereas patent law is a Special Law. Accordingly, judicial interpretation of civil procedure law should outrank that of patent law. Litigation regarding breach of contract and that regarding infringement are parallel under the civil law system; as such there is considerable uncertainty with respect to their respective place of contractual performance and place of occurrence of infringement result, although both have strong reference implications for each other. Now that the judicial interpretation for civil procedure law has given an expanded interpretation for place of contractual performance such as to cover place of receipt of goods, similarly, the place of reception of goods should also be considered the place of occurrence of infringement result, as patent infringement is a type of civil tort (infringement).

The conservatives argue on the opposite side. Firstly, litigation involving breach of contract and that involving tort (infringement) are parallel and exclusive to each other in the civil law system; one cannot have both. There is considerable uncertainty for the place of contractual performance and place at which the infringement result occurs. Since the judicial interpretation for civil procedure law only makes special regulations for online contracts, it would be an indication of the fact that the Supreme Court did not intend to change the original understanding for place of occurrence of infringement result. One cannot therefore make a similar inference and treat the place of reception of goods as the place of occurrence of infringement result pursuant to an act of sale. Furthermore, from its context Clause 20 of the Judicial Interpretation on Civil Procedure Law only sets out the rules for determining place of contractual performance of an online sale and purchase contract. As such it should only be applicable to disputes involving sale and purchase contracts. Even if patent infringement disputes also involve online sale and purchase, once the litigation is instituted based on infringement dispute, it would no longer be possible to invoke Clause 20 of the Judicial Interpretation. Secondly, unlike ordinary civil cases, patent cases require a high degree of professionalism. China adopts a format of jurisdiction by the combination of territory, level and designation (subject to conformity with jurisdiction by level and designation by the Supreme People's Court, the court's jurisdiction is based on the defendant's place of residence or the place at which the infringing act is carried out) in order to ensure restraint and stability of the court with jurisdiction, thus ensuring consistency and predictability of judgments as much as possible. It should therefore not be permissible for each court to have jurisdiction. Indeed, the establishment of the IP courts in Beijing, Shanghai, and Guangzhou provide ample proof in support of this point — an ideal situation would be to have jurisdiction over patent litigation concentrated in the courts which have greater professional ability, and not have other courts in the land deciding the merits of their respective cases.

The divergence between both schools of thought is considerable, and at present a consensus has yet to be reached. Follow up and further monitor should be made with regard to establishment of jurisdiction over patent infringement lawsuits involving online orders and door-to-door delivery of goods.

Originally published 30th March 2015

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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