IP Enforcement

Partial Judgments and Interim Injunctions in Tandem in China – A Potential Strategy for Frustrated Victims of IP Infringement

SIPSIP Enforcement, Knowledge

Speaking generally (and almost axiomatically), civil litigation is time consuming. In that regard, China is no exception, particularly where foreign parties are involved. On average, foreign-related intellectual property (IP) cases take 1.5 years to resolve to a first-instance judgment in Beijing and Shanghai IP courts, for example.[1] Given that, and for intellectual property owners eager to halt infringement during this period or to prevent an imminent infringement, even before initiating civil proceedings, obtaining some sort of interim judicial assistance is of particular importance.

Judicial injunctions of most Western countries generally come in three forms – ex parte injunctions, interim injunctions and permanent injunctions.[2] Ex parte injunctions are issued in emergency situations, without notice to the other party or a hearing, and usually last for only a short period of time (at least before the enjoined party has had a chance to formally reply). Permanent injunctions typically come hand in hand with final judgments. In contrast, preliminary injunctions are issued before or during a trial, and generally remain in effect for the length of the trial. The requirements for issuance of any injunction naturally vary from jurisdiction to jurisdiction, but broadly speaking usually entail something near the following measures: (i) the plaintiff is likely to succeed on the merits; (ii) the plaintiff is likely to suffer irreparable harm in the absence of the requested relief; (iii) the balance of equities tips in the plaintiff’s favor; and (iv) an injunction is in the public interest.[3]

For IP-related issues in particular, the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) expressly requires member states to adopt judicial mechanisms that allow temporary relief to IP right owners in the form of provisional measures.[4] Member states may require that, to qualify for a provisional restraining order, judicial authorities of the member states shall have the authority to require evidence with a sufficient degree of certainty that (a) the applicant is the rights holder; and (b) the applicant’s IP right is being infringed or infringement is imminent. Courts may also order the applicant to provide security sufficient to protect the defendant in case of abuse of any provisional measure.

When joining the World Trade Organization (WTO) in 2001, China fulfilled its TRIPS requirement by amending its IP law (patent law, trade mark law and copyright law). For example, the Trademark Law of the People’s Republic of China (PRC) 2001 provides a mechanism for trade mark owners and interested persons to apply for a court order to stop acts of ongoing or imminent infringement, including before a lawsuit is even lodged. Consistent with the TRIPS Agreement, it requires proof of ownership of IP rights and showing of a high probability of irreparable damages.[5] In 2013, interim injunctions were also introduced into the PRC Civil Procedure Law[6], so it now applies to all civil proceedings. Finally, in 2018, the Supreme People’s Court (SPC) issued 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 (the SPC Provisions on IP Act Preservation), a binding judicial interpretation in the Chinese legal system.

Another mechanism that has the potential to afford protection against continuous infringement during protracted court proceedings is the partial judgment. This unique tool will be discussed first, with a discussion on preliminary injunctions to follow.

A. Partial judgments

The concept of partial judgments was first introduced into the PRC Civil Procedure Law[7] in 1991. In China, when a number of the facts and issues of a case are complicated but a certain portion of them is clear, the people’s court has the discretion to issue a partial judgment on the “easy” portion during the trial. For IP owners, this can be a useful and powerful weapon. For example, and once the IP owner proves the existence of infringement, the people’s court may at its discretion issue a partial judgment that requires the infringer to immediately halt the infringement as soon as the partial judgment becomes effective. The partial judgment also has the potential to facilitate dispute settlement of the unsolved portion of the case, where a partial judgment clearly affirming the existence of infringement (and thus an underlying liability for damages stemming from the same), the defendant may be inclined to negotiate to resolve the issue of damages, ending the dispute sooner.

Up until 2013, and in spite of the promise offered by this long-standing mechanism, it was rarely used by PRC courts. Since then, however, the courts appear much less hesitant to issue partial judgments, at least in non-IP-related civil cases, with up to around 1,000 partial judgments now being issued each year. That being said, partial judgments for IP cases remain rare – as of the date of this article, only 16 partial judgments in IP cases were identified in public case databases where plaintiffs requested the relief.  Among those, partial judgments were granted in 10 of the cases.

To further promote the use of partial judgments in IP cases, the IP Division within the SPC, established in January 2019, has been encouraging lower courts to issue partial judgments in IP cases. In its very first issued judgment – the Valeo Systèmes d’Essuyage case (discussed below), the SPC clarified the relationship between partial judgments and interim injunctions.

B. Interim injunction / act preservation

Interim injunctions, formally known as “act preservations” in early Chinese statutes[8], are an interlocutory injunctive relief issued by people’s courts.

Theoretically, a court has authority to spontaneously issue interim injunctions, but speaking practically, courts rarely if ever issue such injunctions without an application from a party to the action.

As discussed, and in compliance with the TRIPS Agreement, the PRC Trademark Law requires the IP rights owner to prove that the other party is committing or will commit an infringement, and irreparable damage will be caused if the infringement is not timely halted. The same requirements apply to the provisions for interim injunctions under the Patent Law and Copyright Law, basically mirroring the Trade Mark Law’s provisions.

Although Chinese courts are still hesitant to issue interim injunctions in IP civil cases, a number of applications for that relief have been granted, primarily in cases involving time-sensitive or time-limited events such as exhibitions or TV broadcasts. For example, from 2014 to 2018, and according to SPC statistics, people’s courts at all levels accepted 157 applications for pre-trial interim injunctions for review in IP cases, and granted those requests in 98.5% of them. They also accepted 75 applications during the trial, though only supported the requests in 64.8% of those cases.[9] While the grant rate seems rather high among the cases whose application for interim injunctions was accepted, actually, most applications for interim injunctions were not accepted by the courts, and are thus not included as a part of the statistics for calculating the success rate of interim injunctions.  Therefore, the overwhelming majority of the IP cases are unlikely to qualify for interim injunctions, which can be confirmed by comparing the number of civil IP cases accepted in 2018 (around 137,000 cases[10]) vs the accepted applications for interim injunctions from 2014 and 2018 mentioned above (232 cases in total).

Therefore, it is clear that Chinese courts remain incredibly hesitant to issue interim injunctions prior to the substantial trial in the underlying case. In additions, the articles in the three IP laws are insufficiently detailed to provide clear guidance to people’s courts when reviewing applications for interim injunctions, and people’s courts are usually overly conservative when they are determining whether the requirements for granting interim injunctions have been met. As a means of encouraging people’s courts to be more liberal in their acceptance and granting of applications for interim injunctions, the SPC issued its Provisions on IP Act Preservation, effective from January 1, 2019.

Notably, the SPC Provisions on IP Act Preservation require the applicant to post security equivalent to the potential loss of the respondent, including any reasonable loss of sales proceeds and incurring of storage [custody] expenses. If during the enforcement of the interim injunction, the amount of potential losses exceeds the amount of the security, the applicant may be ordered to increase the security amount.

In addition, for pre-trial interim injunction applications, that is, applications filed in advance of the formal issuance of civil proceedings or arbitration proceedings, once the injunction is granted, the applicant must initiate civil proceedings [or if available,] arbitration, within 30 days. Failing to do so will cause the previously-granted injunction measures to be dismissed, with the plaintiff being ordered to compensate the respondent for any attendant loss. Foreign IP owners are advised to take the 30-day time limit into consideration before filing for pre-trial interim injunctions and have the issuing documents ready in advance.

When reviewing an application for act preservation, a range of factors will be considered comprehensively by people’s courts, including: (i) whether the application is supported by facts and legal grounds, including the validity of the IP right (meaning that if the IP right involved is the subject of  invalidation or cancellation procedures, or there is a dispute over the ownership of the right, then it probably doesn’t qualify for protection of act preservation measures); (ii) whether failure to order act preservation measures would cause irreparable damage or difficulty in the enforcement of the case; (iii) balancing the damage done to the applicant caused by the failure to order act preservation and to the contrary, the damage to the respondent‘s interests caused by act preservation; (iv) public interest; and (v) other factors.[11]

In determining “irreparable damage”, people’s courts will also consider various factors, such as a significant reduction in the relevant market share of the applicant. Another example is a significant increase in the damage to the applicant or the risk that the infringement will grow out of the court’s control. Damage to the applicant’s goodwill, rights of publication, or right of privacy may also be found to lead to irreparable outcomes, and therefore belong to the class of damages deemed to be sufficiently “irreparable” and thus particularly worthy of protection by interim measures, such as an act preservation order.

“Urgent situations”[12] will also be considered by people’s courts when deciding whether to grant interim injunctions. While there is a catch-all provision, the Injunction Provisions specifically provide that the following situations shall be considered per se urgent: (a) a trade secret is about to be disclosed; (b) a right of publication or privacy are to be infringed; (c) the IP in dispute is at risk of being illegally disposed of; and (d) time-sensitive events, such as trade exhibitions and broadcasting of TV programs.

C. Differences between the two methods

Both partial judgments and interim injunction achieve the effect of halting an alleged infringement before the issuance by the court of a final judgment. Still, there are some key differences between these two mechanisms.

Firstly, an interim injunction can be applied for up to 30 days before a lawsuit or an arbitration is filed as a precautionary procedural measure. In fact, as discussed, courts are more likely to issue a pre-trial injunction than an injunction during the trial. To the contrary, a partial judgment only becomes available after a substantive trial on merits, which could be months after filing in civil proceedings. Secondly, they both undergo different appellate procedures.

For a partial judgment, the unsatisfied party may appeal to a higher people’s court[13] within 15 days of receipt of that decision. That judgment, however, does not take effect until the appellate court issues its final decision on the adjudged issue (which can take months), or at the expiration of 15 days from when the party receives the decision, assuming the other party chose not to appeal.

In contrast, an interim injunction takes effect as soon as it is granted. As well, parties are not allowed to appeal the injunction order to a higher people’s court. Instead, they can only apply to the same people’s court that issued the injunction for a reconsideration. During the reconsideration procedure, the interim injunction measures remain in effect.

Thirdly, once it becomes effective, a partial judgment has a permanent effect like any final judgment, whereas an interim injunction typically only lasts until the ruling for the whole case takes effect, if it has not been relieved sooner.

Last but not least, interim injunctions require the applicants to provide sufficient security when filing for applications. The money will not be returned in full amount until the applicant wins the lawsuit. This exerts an addition financial burden on the applicants.

D. Best Practice: File for both applications

An effective partial judgment has the effect of permanently prohibiting infringement, along with a number of other unique advantages over interim injunctions: it settles an essential dispute between the parties, accelerates litigation, facilitates settlement of the unresolved portion of the case, requires no security to be provided by the plaintiff, and is more likely to find support by a people’s court.

Still, the authors suggest IP owners file applications for BOTH forms of interim relief. This is primarily due to the existence of a time gap between the issuance of a partial judgment by the court of first instance and the time when the judgment takes effect, and the risk that infringement that can readily occur during that intervening period. This is because, the infringer does not have to immediately halt infringement as long as he staves off the decision’s finality appealing the partial judgment. As a result, a partial judgment, if granted on its own, i.e., without an interim injunction, could actually spur a bad-faith infringer to exhaust both appeal available to it, namely, one for the partial judgment, and one for the final judgment. This could drag the proceedings out for some time, perhaps even longer than if the partial judgment not been issued.

That being said, a simultaneous interim injunction, obtained in conjunction with a partial judgment, can effectively fill in this gap, as it takes immediate effect on the defendant when it is issued, and is NOT affected by any appeals or even the reconsideration procedure for the interim injunction. This effectively eliminates the strategic benefit of appealing the case to prolong issuance of a final, enforceable judgment.

E. Recent landmark cases involving partial judgments and interim injunctions

The Valeo Case (2019)[14]

The Valeo case is a landmark case for several reasons: (i) it represents the first partial judgment issued by the Shanghai IP Court since its establishment on December 28, 2014; (ii) it is the first case for the IP Division of the SPC since its establishment; (iii) it is a Guiding Case published by the SPC, and all lower courts are therefore required to follow it when facts and issues are similar; and (iv) for the first time, the SPC court explained the relationship between partial judgments and interim injunctions.

The plaintiff in this case, a French company, owned a patent that was valid and extant during the proceeding. It claimed that the defendants manufactured, sold, and offered to sell a product that fell into the scope of protection of its patent right, demanding compensation of RMB 6 million. During the proceeding, the plaintiff asked the court to issue a partial judgment against the defendants to immediately halt the ongoing infringement of the patent right. Valeo also sought an interim injunction.

The Shanghai IP Court issued a partial judgment against the defendants on January 22, 2019. The defendants appealed the case to the SPC. The SPC held a public hearing on March 27, 2019, during which it ruled on the case and pronounced its decision, dismissing the appeal and upholding the partial judgment.

In its judgment, and in addition to the application of relevant provisions of the Patent Law, the SPC specifically explained jurisdiction over applications for act preservation. In that regard, and if the application is filed in advance of the people’s court of second instance (i.e., the initial appellate body) formally receiving the case documents, the first-instance court reviews the application. If the case file has already been physically transferred to the appellate court, then the appellate court reviews the application. In this case, as the appellate court, namely the SPC had received the case documents, the application for the interim injunction was also to be tried by the SPC.

The SPC also explained how a people’s court of second instance should handle an application for act preservation when reviewing a partial judgment. In that regard, where the situation is urgent or other damages may be caused and if the patentee files a request for act preservation, where the second-instance people’s court is unable to render a final judgment within the time limit for processing the application for an interim injunction, the court shall deal with the interim injunction separately and make a timely ruling. The plaintiff is not required to provide security under these circumstances. If, however, the people’s court of second instance is able to make a final judgment within the time limit, it may timely render a judgment and reject the application for act preservation.

In this case, the SPC rejected the application for an act preservation on the grounds that it rendered a timely judgment, meaning the plaintiff no longer needed an act preservation order. In spite of that, the case is meaningful due to the SPC’s articulation of the different procedural functions of partial judgment and act preservation, clearly supporting the strategy of seeking both as a means of immediately and effectively halting infringement.

The Shanghai Kaiying Case[15]

Soon after the SPC released its decision of the Valeo Case, on April 26, 2019, the Hangzhou Intermediate People’s Court in the Shanghai Kaiying Case granted both an application for preliminary injunction and for act preservation, the first time this occurred in China. This case related to allegations of both copyright infringement and unfair competition. The plaintiffs had developed a gaming app and claimed that the defendant’s competing gaming app infringed the copyright in the plaintiff’s.

The plaintiffs argued that the amount of damages should be determined based on the defendant’s illegal gains from the infringement and calculated until at least April 2020, which by their reckoning, amounted to RMB 30 million. The defendant argued that only the income before December 2018 counted as illegal income because the appellate court in the partial judgment (regarding the infringement issue) confirmed that the alleged infringing gaming versions were the pre-obtained versions or versions updated prior to December 2018, with the income coming from the later versions being irrelevant to this case. The parties submitted financial statements and audited reports regarding industry licensing fees, research and development expenses, income from the games, commissions paid to the platforms, etc. As the trial proceeded, the defendant failed to submit its financial statements for three months. In response, the court issued nearly a dozen investigation orders and a decision in writing, requiring the defendant to submit statistics related to the alleged-infringing gaming app and its bank statements.

The Hangzhou Intermediate Court determined that the case involved two issues (1) whether an infringement had occurred; and (2) the amount of compensation to be paid if it had. After noting that both these two issues were very complicated, the court nevertheless issued a partial judgment on the first issue on April 26, 2019, together with an act preservation order that required the defendant to immediately halt copying or circulating the infringing gaming app. The text of partial judgment is long, exceeding 50,000 Chinese characters. The defendant subsequently appealed the case to the Zhejiang Higher People’s Court.

In the meantime, the defendant did not halt its infringement until two months later, which resulted in its being fined RMB 1 million by the court. The Zhejiang Higher People’s Court dismissed the defendant’s appeal on the first issue on March 2, 2020.

On July 29, 2020, the Hangzhou Intermediate People’s Court rendered its judgment, which mainly concerned the issue of damages. In the judgment, the court held that the income before June 2019 shall be counted as illegal income because any version prior to that date infringed the copyright of the plaintiff, but the version dated June 21, 2019 and later versions belong to different works after a comparison with the plaintiff’s copyright-protected work. Due to lack of evidence needed to prove the defendant’s illegal income, the court ordered the defendant to pay compensation in the amount or RMB 10 million at its discretion.

The timing of the orders in this case, and their impact on the defendant’s conduct – and the plaintiff’s success – in the Shanghai Kaiying Case perfectly illustrate why a combination of partial judgment and interim injunction provide the plaintiff a better option.

Here, it took over 10 months for the court of the second instance court to finally review the partial judgment in plaintiff’s favour. In addition, the very aggressive defendant blatantly continued its infringing activities during the two months it took for the appellate decision to issue, even with an effective interim injunction in place. With that interim injunction in place, the court had a final, unappealable mechanism to effectively halt that ongoing infringement or at least issue a punishment for it (via the RMB 1 million fine). Had there been no partial judgment or interim injunction issued here by the court of first instance, the entire litigation proceeding would likely have taken much longer and the plaintiff’s damage likely would have been much more significant.

While the landmark cases are encouraging, given the currently limited number of reported cases where people’s courts issue partial judgments and interim injunctions, it remains to be seen how receptive local courts may be to such requests from IP rights owners. Nonetheless, given the favourable support each from of relief has recently received from the SPC and its IP chamber, IP rights owners are still encouraged to consider requesting both partial judgment and interim injunction in cases where infringement appears beyond question and the scale and impact of any ongoing infringement occurring during the proceedings could be significant.  This will leave the damages component of the case to be dealt with later, of course.  But in China, where lack of effective discovery mechanisms in litigation and the conservatism of judges generally limit the size of damages awards, the ability to quickly halt ongoing infringement is generally viewed as “real” goal of IP litigation.


Endnotes:

[1] http://www.iprdaily.cn/article_20724.html
[2] Different countries may adopt different terminology.
[3] Winter v. NRDC, Inc., 555 U.S. 7 (2008).
[4] See Part III, Section 3, Article 50 of the TRIPS Agreement.
[5] Article 57 of the PRC Trademark Law of 2001 (abolished), preserved as Article 65 in the current Trademark Law of 2014 and the latest amendment in 2019.
[6] Article 100 of the PRC Civil Procedure Law of 2013 (abolished), preserved as Article 100 in the current Civil Procedure Law of 2017.
[7] Article 153 of the PRC Civil Procedure Law of 2017.
[8] See e.g., Article 100 of the PRC Civil Procedure Law
[9] http://www.court.gov.cn/zixun-xiangqing-135361.html
[10] http://finance.sina.com.cn/roll/2019-04-22/doc-ihvhiewr7632749.shtml
[11] Article 7 of the SPC Provisions on IP Act Preservation
[12] Id. Article 7.
[13] For patent cases except design patents, the court of second instance is the SPC. http://www.court.gov.cn/zixun-xiangqing-125391.html
[14] VALEO SYSTEMES D’ESSUYAGE v. Xiamen Lukasi Automobile Parts Co., Ltd., Xiamen Fuke Automobile Parts Co., Ltd., and Chen Shaoqiang, (2019) SPC IP Court Civil Final No. 2.
[15] Shanghai Kaiying Network Technology Co., Ltd. and Zhejiang Shenghe Network Technology Co., Ltd. v. Suzhou Xianfeng Network Technology Co., Ltd., (2018) Zhejiang 01 Civil First-Instance No. 3728 – 01.