In October 2019, the Shanghai Pudong People’s Court handed down judgments on the merits in two trademark infringement and unfair competition cases (see the court report under "Related Materials" in the right column), in which it sided with the plaintiffs, subsidiaries of the US entertainment company Metro-Goldwyn-Mayer Studios Inc. ("MGM"). Apart from these judgments on the merits, the court also issued two interim injunctions, per the plaintiff’s request. The interim injunctions ordered the defendant to cease any on-going infringement and to change its company name, before the judgements on the merits came into effect.
These interim injunctions are remarkable, as they substantially limit the risk and extent of further infringements, and timely protect the IP owner's rights, even if the defendant is entitled to file appeals against the judgments on the merits. The case was selected and published by the Shanghai Pudong People's Court as a notable case.
We would like to share some strategic considerations and tips regarding applications for interim injunctions in this article.
Legal base and judicial practice for filing applications for injunctions
In Chinese judicial practice, it is not uncommon for a plaintiff to apply for "interim injunctions" (i.e. during litigation/arbitration on the merits) or "preliminary injunctions" (i.e. before litigation/arbitration on the merits). Particularly in recent years, intellectual property right ("IPR") owners and other parties with legal standing increasingly tend to protect their rights in a timely manner through applying for such injunctions. The relevant legal basis is either Article 100 (interim injunctions) or article 101 (preliminary injunctions) of China's Civil Procedure Law. Article 100 stipulates: "for a case where, for the conduct of a party or for other reasons, it may be difficult to execute a judgment, or any 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 of the party or prohibit the party from certain conduct. A People's Court may order the applicant to provide security for taking a preservative measure and, if the applicant fails to provide security, shall issue a ruling to dismiss the application. After accepting an application, a People's Court must, if the circumstances are urgent, issue a ruling within 48 hours; and if it rules to take a preservative measure, the measure shall be executed immediately".
More specific provisions on the procedural and substantive issues of applying for such injunctions can be found in the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in Cases Involving the Review of Act Preservation in Intellectual Property Disputes (hereinafter referred to as "Provisions", see our article here) which came into force on January 1, 2019. For instance, Article 7 of the Provisions stipulates that the following five factors must be taken into consideration when a People's Court examines injunction applications:
- whether the applicant's request has a sufficient factual and legal basis, including whether the intellectual property right(s) on which the request is based are prima facie valid (also referred to as "stability of the rights");
- whether the applicant will suffer irreparable damage in the absence of an injunction , or whether the absence of an injunction will cause difficulty in the enforcement of the judgment, or cause other damage;
- whether the damage caused by the failure to take act preservation measures exceeds the damage caused by act preservation measures to the respondent;
- whether taking act preservation measures harms public interests; and
- other factors that shall be considered.
Effect of this precedent and filing strategy to be considered in practice
In this case, the plaintiff used the facts and various elements of the case to its advantage, by strategically selecting and tailoring the following elements in its applications: the irreparable damage to its legitimate rights and interests, the particular stage of the proceedings at which the application was filed (i.e. after the hearing on the merits), the method of providing the bond, and the carefully tailored scope of the requested injunction. These elements, taken together, convinced the court to issue the requested injunction, and can serve as a good reference for similar cases in the future.
Injunctions are increasingly favored by IPR owners, and the Chinese courts are gradually abandoning their reluctance in issuing such injunctions. Nevertheless, in order to successfully obtain injunctions, IPR owners must still be well-prepared, and strategize every aspect of the application in order to bring a strong case. In our experience, thorough strategic planning of the below aspects is essential.
1. Choose the appropriate timing to file the applications
Most IPR owners tend to request an injunction at the early stages of an infringement case, aiming to obtain an order prohibiting the infringement as early as possible. However, the Chinese courts are generally reluctant to issue injunctions at such early stage, before substantive analysis has taken place, to avoid unfair treatment of the defendant. Therefore, from the plaintiff’s point of view, the timing to file for an injunction is an essential strategic element to be considered. The saying "the sooner the better" does not always apply to these situations.
In the present case, at the time of the filing of the lawsuits, the defendant's infringements had already lasted for a while. Therefore, if the applications for the injunctions were filed at the same time as the cases on the merits, there would have been a larger risk that the court would consider them not urgent, or not causing irreparable damage. However, in the course of the proceedings on the merits, the right circumstances to apply for interim injunctions presented themselves again. Firstly, it became clear that the defendant had no intention to voluntarily cease its infringement, and even expanded its scope of infringing activities. Moreover, it was unclear when the judgments on the merits would be issued (noting that the case involved a foreign party and that the standard deadlines for judgments therefore did not apply), and whether an appeal against the judgments would be filed by the defendant. The plaintiff therefore broke with the standard practice of applying for interim injunctions at the moment of filing the litigation on the merits. Instead, the plaintiff filed the application after the court hearing. This has helped in convincing the court to issue the requested injunctions, and has substantially reduced the risk of continuous infringement by the defendant.
2. Ensure the enforceability of the injunction
From the perspective of IPR owners, injunctions with a large scope are often favored. However, this approach can backfire, as the courts will generally adopt a more cautious attitude when dealing with applications for far-reaching injunctions. After all, once an injunction order is issued, it will often have substantial impact on the defendant's business.
Except for the purely legal considerations, the courts will also consider the practical enforceability of their order when reviewing an applicant’s request. For instance, in this case, the defendant's company name itself contained the infringing mark, but there were only few precedents where defendants were ordered to change their company name in an injunction (such remedy is, by contrast, not rare at all in a judgment on the merits). In addition, the specific process of the company name modification is also a factor to be taken into account by the court, i.e. if it issues an injunction which cannot be enforced, it would damage its authority. It is therefore important for the applicant of an injunction to verify the process required for the remedies it is requesting, and confirm with the relevant authority (e.g. through active follow-up with the local market supervision authority) whether the injunction it is seeking will be enforceable.
3. Reduce the litigation cost
Reducing the overall litigation cost is also an important element for IPR owners to consider. In injunction cases, the requirement to provide a guarantee often constitutes a significant cost for IPR owners. In practice, such guarantee is most often provided by IPR owners through posting a bond in cash on a blocked court account. However, this is often expensive and cumbersome to IPR owners, as bonds are regularly substantial amounts of money.
After the entry into force of the Provisions of the Supreme People's Court on Several Issues concerning the Handling of Property Preservation Cases by the People's Courts in 2016, it became possible for financial institutions (usually insurance companies) to provide guarantee letters as an alternative to posting a bond, which has been widely accepted by the courts. However, such guarantee letters are most often used in evidence and property preservation procedures, and are not commonly used in injunction cases.
In practice, insurance companies are often reluctant to provide a guarantee letter for injunction applications, as the risk in such procedures is relatively higher than that for evidence and property preservation cases. Therefore, since the courts grant injunctions on the condition that the applicant provides an appropriate guarantee, the IPR owners should be prepared in advance to plan for an adequate guarantee method, to avoid jeopardizing the Court's timely issuance of the injunction orders.
In conclusion, injunctions are a robust and crucial weapon to protect IPR owners' rights. Over time, the Chinese courts have become increasingly willing to grant such injunctions, provided that they are presented by the IPR owner with a compelling case to do so. Nevertheless, the bar for obtaining a preliminary or interim injunction in China generally remains high. Therefore, in order to maximize their chances of success in obtaining injunctions, IPR owners must be well-prepared, and strategize every aspect of their application in order to bring a strong case. Moreover, since every case is unique, the plaintiff must map out a practical strategy on a case-by-case basis, and prepare its approach thoroughly to take advantage of this weapon to effectively protect its rights.
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.