China: Key Aspects And Changes To China's New Regulations On Interim Injunctions In IP Cases

Last Updated: 15 July 2019
Article by Kirwin Lee

The new judicial interpretation regarding injunctions in IP disputes in China officially came into effect on 1 January 2019. The new rules, herein referred to as "the Provisions", provide some clarification on the existing procedures for applications for interim injunctions in IP cases. Since the establishment of the specialised IP Courts and Tribunals in China the courts seem to be increasingly willing to use injunctions as a remedy for protecting IP rights. The newly implemented Provisions are therefore important in shedding light on the existing procedures and standards. In this article we aim to summarise a number of noteworthy aspects and changes of the Provisions.

Types of Rights Holder who may File for a Preliminary Injunction

In the new Provisions, a licensee's standing in terms of interim injunction applications is clarified. Exclusive licensees are allowed to independently file for an interim injunction before a judgment, ruling, or arbitral award takes effect through submission to a court. A licensee under a sole licensing contract may submit an application for an interim injunction on its own, provided that the licensor does not submit such an application. Finally, those that are granted a normal non-exclusive licensing contract may, upon being expressly authorised by the rights holder to file a lawsuit in its name, submit an application to the court on its own for an injunction.

The "Urgency" Requirement

The Provisions provides for circumstances that are classified as "urgent situations" where the absence of an immediate interim injunction will significantly impact on the interests of the IP owner. These include: imminent illegal disclosure of the applicant's trade secret, imminent harm to the personal rights of the applicant, the disputed IP rights are about to be disposed of illegally, existing or imminent infringement in time sensitive situations, existing or imminent

infringement of time-sensitive popular TV/ radio programmes or movies, and other situations which require an immediate interim injunction to prevent substantial harm to the applicant's interests. The last situation essentially provides the courts discretion to accept any circumstances which compels an applicant to apply for an interim injunction. Nonetheless, it is still crucial to submit the application as early as possible, considering the strict interpretation of the "urgency" requirement by the courts.

Factors Considered by the Court in Granting a Preliminary Injunction

The factors outlined the Regulations appear to be similar to the test generally applied by US courts in determining whether to issue a preliminary injunction.

These factors are:

  • The factual and legal basis for a preliminary injunction, including the stability of the applicant's underlying IP rights. In practice, in assessing the validity of the IP rights, the courts would consider the type of IP rights, whether the IP rights have undergone substantive examination before grant, whether the IP rights are challenged, and whether the ownership of the IP rights is in dispute, etc.
  • Whether the absence of an interim injunction will cause irreparable harm to the legitimate interests and rights of the applicant. "Irreparable harm" is a key factor in granting injunctions. Compared to US courts, which typically conclude that the requirement of "irreparable harm" is met once "likelihood of success on the merits" is established in IP cases, the threshold for establishing irreparable harm in China is traditionally higher.

    Circumstances that constitute such "irreparable harm" include the defendant's conduct causing unrecoverable harm to business reputation or personal rights, the defendant's conduct causing "uncontrollable infringement" and causing significant increase to the damage to the applicant, and the defendant's conduct resulting in evident decrease of market share in the relevant market.
  • Whether the harm suffered by the applicant as a result of the absence will exceed the injury suffered by the respondent as a result of enforcement of injunction.
  • Whether implementation of the injunction will compromise the public interests. For example, for pharmaceutical patents, public access to drugs and drug safety

would be the primary determinants in this aspect.

The Requisite Bond Amount

The applicant must post a bond in an amount that is equivalent to the loss which the defendant could suffer as a result of the implementation of the interim injunction, including reasonable loss of sales proceeds, storage expenses of the products, and other justifiable expenses. Moreover, if the bond amount is found to be inadequate during the enforcement of the interim injunction, the court may order for additional security to be paid by the applicant or limit the injunction.

Previously, different Chinese courts may apply different rules with regard to the amount of bond. For example, some courts in China may require only 20% of the amount of damages claimed in the litigation depending on circumstances. Article 11 of the Provisions is therefore significant in bringing about consistency in terms of the amount of bond required across courts and judges in China, as well as with many other jurisdictions (e.g. Germany).

Wrongful Application for Interim Injunction

The Provisions introduced the concept of "wrongful application" where the preliminary injunction will be found to have been granted in error. An example of a "wrongful application" situation is when the court ultimately finds that the defendant's conduct does not constitute IP infringement. If a wrongful application was filed, the defendant can file a lawsuit to claim compensation. It appears that this concept was likely to be introduced so as to encourage the courts to adopt a less stringent attitude in their assessment of interim injunction applications, and to disincentivise IP owners from applying for interim injunctions without carefully assessing the stability of the asserted IP rights and the likelihood of infringement.

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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