A guide to patent litigation

Transcription

1 China A guide to patent litigation Freshfields Bruckhaus Deringer Freshfields Bruckhaus Deringer llp llp A guide to patent litigation in China a

2 Acting in an unfamiliar legal system Patent litigation looks like becoming the next legal battleground in China s economy and its re-orientation towards higher-value sectors based on domestic innovation. Patent and utility model applications in the PRC have increased around 25 per cent annually in recent years, with domestic PRC companies making most of these applications. In step with the growth in filings, the specialised patent courts in China already handle more patent litigation each year than in the US. Chinese civil procedure places high demands on external legal advisors and company counsel in the devising of litigation strategies. This guide will help you understand the basics of patent proceedings under the PRC legal system, plan strategies and allocate resources effectively. We hope you find it useful. Richard Bird Counsel

3 Contents Chapter 1 Executive summary Chapter 2 The Chinese patent litigation system Chapter 3 Court process and procedure p2 p4 p11 Contact Richard Bird Counsel T / E richard.bird@freshfields.com 11/F, Two Exchange Square Central, Hong Kong 34/F, Jinmao Tower 88 Century Boulevard , Shanghai Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 1

4 Chapter 1 Executive summary The most important features of PRC patent proceedings Court proceedings in the Chinese civil law system differ a great deal from those of other major centres for patent litigation, particularly in terms of the evidence that is admissible and the reluctance of the courts to give weight to party-produced expert testimony. Understanding the effect of the these differences can be instrumental to the success of the case. This list highlights some of the distinctive features of PRC patent litigation. Specialised courts There are specialised courts for patent litigation in the PRC. Only some 76 out of 395 Intermediate People s Courts are appointed to hear first-instance infringement cases. These specialist courts, with specialist patent judges, are in the Tier 1 cities, Beijing, Shanghai and Guangzhou, in the provincial capitals, including Tianjin and Chongqing, and in some of the more developed secondary-level cities. Quick and effective proceedings The trial of a straightforward patent infringement action can be expected to come on within six months. An appeal usually takes around another six months or longer. Streamlined procedural rules lead to efficient and short hearings that also entail participation from the judge. Interim relief is in practice difficult to obtain in patent cases, but final injunctions are more readily available The threshold for the grant of preliminary injunctions in patent infringement cases involving substantive issues to be tried is high, and the criteria are applied strictly. Relief can only be expected to be granted sparingly in patent cases for the foreseeable future. However, the relative speed to trial and the willingness of courts to grant final injunctions means that this is less of an issue than it would otherwise be. Limited disclosure rights; little reliance on oral evidence There is no formal disclosure process in the PRC, although evidence preservation orders may be available in exceptional circumstances. Oral (non-expert) evidence is given less weight in civil proceedings in the PRC than in common law countries and is not crossexamined. Original documentary evidence, on the other hand, is given high evidentiary value. Thorough evidence preparation taking into account the onerous procedural formalities (notarisation, legalisation and chain of custody, etc). 2 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

5 Remedies The procedural formalities for evidencegathering create difficulties for patent holders seeking to prove actual loss. Compensation on the basis of a notional licence royalty is provided for in the newly revised Patent Law, but practice in the courts is inconsistent. As a result, patent holders can often only claim default statutory damages. Statutory damages are capped at RMB1m (approximately US$150,000). The amount awarded depends on various factors, including the scale and period of the infringement and the value and importance of the patented features to the product or process. Proper compensation for market disruption can therefore be difficult to obtain, and in practice it is rarely worth litigating patents in the PRC only with a view to recovering damages. A final injunction is a more valuable goal. However, damages awards are trending upwards. Court-appointed expert Although admissible, parties own expert evidence that the parties present has historically been given little weight. Courtappointed experts or reports from judicial appraisal centres are used to deal with disputed technical issues. Parties are given the opportunity to choose from an approved list, but if they cannot agree, the court will appoint the expert. It is possible to recommend to the judge that a recognised expert in the field is added to the court s list, but there is no guarantee that the court will go along. Reasonable litigation costs; some attorney fees recoverable By international standards, court fees and legal costs are fairly low. Court fees are usually recoverable in full from the losing party. On the other hand, only a small proportion of attorney costs are typically awarded. Separate proceedings for validity and infringement (a bifurcated system) Validity and infringement issues are dealt with in separate proceedings by separate tribunals. Patent infringement proceedings will typically not be stayed pending the outcome of revocation actions, but equally a patent holder will not automatically face a counterclaim for invalidity. The bifurcated system also means that patent claims cannot be amended during court proceedings (only during revocation proceedings before the Patent Re-examination Board (PRB) of the State Intellectual Property Office (SIPO)). There is greater scope for obtaining a stay in infringement proceedings of a utility model if a parallel revocation action has been begun, because utility models in the PRC are not substantively examined during prosecution. Two-year limitation period The primary limitation period for civil claims in the PRC, including patent claims, is two years from the date on which the claimant first became aware, or should have become aware, of the infringement. Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 3

6 Chapter 2 The Chinese patent litigation system The Chinese court system A civil law system The PRC has a civil law system. It differs from a common law system in that earlier decisions do not bind other courts. However, in practice lower courts will follow a decision of the Supreme People s Court (SPC) on a comparable issue. The SPC has also issued useful Interpretations (in 2001 and 2009) reviewing the application of the Patent Law in many important areas. The 2009 Interpretation dealt with patent claim interpretation (including functional limitations), the calculation of damages and prosecution history estoppel, among other things. The SPC has also issued opinions in other more discrete areas of patent law and practice, including several opinions concerning the grant of interim injunctions. The Chinese court system is based on a four-tier model. The four tiers are the Primary People s Courts (of which there are approximately 3,135), the Intermediate People s Courts (395), the Higher People s Courts (32 in the provincial capitals) and the SPC in Beijing. Two levels of appeal in the PRC court system Second-level appeal Supreme People s Court First-level appeal Higher People s Court First instance (Competent) Intermediate People s Court Separate courts for proceedings on validity and infringement Bifurcation: separate proceedings for validity and infringement In the PRC, specialised bodies deal with validity and infringement issues in separate proceedings (a bifurcated system). Infringement proceedings Two levels of appeal Patent infringement claims must be started before the relevant designated Intermediate People s Courts competent to hear patent disputes. Only around 76 Intermediate People s Courts are authorised to hear patent disputes (compared with approximately 368 Intermediate People s Courts that are authorised to hear trade mark and copyright disputes). These specialised patent courts are in the Tier 1 cities, Beijing, Shanghai and Guangzhou, in each of the provincial capitals, including Tianjin and Chongqing, and in certain other developed second-tier cities, such as Shenzhen. There is an automatic right of appeal to the Higher People s Courts against a decision of an Intermediate People s Court. The SPC provides a final avenue of appeal if leave to appeal is granted. The Higher People s Courts and SPC also both have specialist divisions or tribunals, of which the intellectual property courts are the third civil division. The first-level appeal at the competent Higher People s Court allows for the introduction of new facts and evidence and is not limited to only legal issues. The Supreme Court appeal, however, focuses on matters of law rather than facts. The Higher People s Courts and the SPC can hear first-instance proceedings in high-value cases (exceeding RMB100m (approximately US$15m)) or in cases of particular public importance, respectively. They can order the lower courts to transfer such important 4 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

7 first-instance cases up to them. This occurs only in exceptional cases, however. Cases that are begun in a Higher People s Court attract an automatic right of appeal to the Supreme People s Court. The specialised patents courts in China attract some of the best legal talent, with many intellectual property judges having studied abroad and gained familiarity with foreign legal principles. As a result, the patent judiciary is showing increased aptitude for dealing impartially, efficiently and effectively with more advanced cases involving complex technical and legal issues. The intellectual property courts are often held out as an example to other Chinese courts of model practices within the court system, although quality does vary outside the major cities, where fewer patent judges are likely to have technical backgrounds or international experience. Jurisdiction for infringement proceedings An applicant may start proceedings in an Intermediate People s Court in the capital city of the province where the defendant is based or where an infringing act has taken place. Other than the patentee (or joint patentee), standing to sue is limited to an exclusive licensee recorded under the patent at SIPO. Infringing acts include making patented products, using the invention, selling or authorising others to sell patented products or products obtained directly through the patented process, and using a patented process. If the allegedly infringing products are distributed nationally, the claimant is likely to have a choice of forum. The courts of Beijing, Shanghai and Shenzhen have a good all-round reputation for handling a broad spectrum of intellectual property cases, including patent litigation, and are typically preferred. The Beijing courts have issued some of the largest damages awards in recent years. However, the courts of industrial areas such as Wuhan and Zhejiang are also considered to be strong for patents. And the courts in trading areas such as Guangdong province handle a high volume of trade mark cases. It is therefore always appropriate to consider what options exist. The PRC Tort Law, which came into effect on 1 July 2010, provides for the first time a firm statutory basis for an action of contributory infringement of intellectual property. Under the Tort Law, two or more parties that infringe together are jointly liable, and a party that helps another to infringe is also jointly liable with him. Validity proceedings The PRB in Beijing deals with challenges to patent validity. PRB decisions in oppositions or revocation actions can be appealed to the Intermediate People s Courts in Beijing and from there to the Beijing Higher People s Court. Although the proceedings are separate, the SPC is the final court of appeal for both validity and infringement proceedings. The grounds for invalidation will be generally familiar to patent owners and practitioners from the US and European Patent Convention (EPC) countries. But invalidation also includes grounds that are specific to China, including that the patented invention incorporates improperly obtained genetic resources or where the source of genetic resources is not duly disclosed in the application. During inter partes patent revocation proceedings, the proprietor can apply to amend the claims (but not any other part of the patent). Amendment will be considered at the discretion of the presiding PRC panel. Amendment is not permitted during court infringement proceedings, however. Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 5

8 The SPC is the final level for validity and infringement Validity proceedings Infringement proceedings First instance Patent Reexamination Board First instance Intermediate People s Court First-level appeal Intermediate People s Court First instance Higher People s Court Second-level appeal Higher People s Court Final appeal Supreme People s Court Judges take an active role and hearings are public Generally, a panel of three judges will be appointed to hear a patent infringement case. Judges in China are much more active than in common law courts and use an inquisitorial approach in proceedings. For instance, Chinese judges will often call informal pre-hearings with legal counsel. They can also request and challenge evidence, question witnesses and consult court-appointed experts or judicial appraisal centres of their choice. All hearings are public, and there are limited opportunities to make parts of the proceedings confidential. Some Chinese commercial courts have earned a reputation, rightly or wrongly, for protecting the interests of Chinese parties over foreign litigants. However, these issues are generally not thought to affect the specialised patent courts to any great degree. Foreign litigants, in fact, have a strong record of success in intellectual property litigation in China, wining some per cent of reported cases on average across all courts. This is higher than the win rate for all claimants in intellectual property cases taken together. The high number reflects better case preparation and litigation strategy and picking the right cases to litigate. Nevertheless, a carefully planned and executed media and PR strategy can be a vital complement to litigation in China. Several recent cases have shown that popular sentiment can be easily turned against a foreign competitor that sues a domestic PRC company, especially at a local level in areas where the PRC company is a significant employer. Unless effectively counteracted, the adverse publicity can damage the foreign litigant s market reputation, regardless of the outcome in the case. Representation Only lawyers who are qualified and registered in China may appear before a Chinese court. In-house lawyers are not entitled to represent their own case in court. Foreign lawyers may attend hearings with leave of the court, but may not appear on the record for their clients. Chinese lawyers from Beijing and Shanghai tend to be the most experienced in patent matters. It is common for them to appear in the provincial courts as well. Typically, an overseas party s patent litigation team will include international patent counsel, based in Hong Kong or China, to act as the focal point and to guide the strategic decisions on the case and monitor the day-to-day conduct of the action. The team will work closely with PRC-registered lawyers, who will be on the court record and who will appear before the judges. Evidence preparation tasks can be shared between the international counsel and local PRC counsel, depending on factors such as the location and nature of the evidence. This division of labour can result in cost savings. Since the court will appoint its own expert(s) in cases where technical matters remain in dispute, the parties own technical advisors need not be independent and so may be provided in-house. 6 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

9 Progressing a patent infringement case a step-by-step guide Filing Actions are begun by filing a statement of claim with the court. The statement of claim is more detailed than in many other countries and must specify all supporting facts, the evidence that will be relied on (and its source), and the names and addresses of witnesses, as well as the legal cause of action. Infringements on the internet can pose problems where a Chinese seller targets export sales using the English version of its name. The distinctive parts of Chinese company names are rarely capable of being directly translated. There is no central company registry in the PRC, and provincial-level registries do not have an online interface. So it can be necessary to hand search company registries to try to identify the infringing company or to carry out an on-the-ground investigation (if you have an address). The court registry must first formally accept the case. It will examine the statement of claim to make sure all formalities have been met and may refuse to accept a claim on a technicality. If accepted, a notice of acceptance will be issued together with a notification of the appointment of the panel of judges. Exclusive licensees may independently bring claims for infringement of the licensed patent, but other licensees may only apply if the patent owner is joined. Statement of defence The court will copy the statement of claim and the above two notifications to the defendant. The defendant will then have 15 days (or 30 days in a case involving a foreign-related party) to file a defence. The defendant can request an extension of time and will normally be granted up to a further 30 days on a first request. Active case management After the court receives the defence and serves it on the claimant, the court will review the pleadings and may conduct its own investigation. The parties may agree a timetable to submit and exchange evidence, and the timetable must be approved by the court. If agreement is not reached, the court will set a timetable itself, and will usually allow 30 days to submit evidence to the court from the later of the service of the defence or the formal acceptance of the case. The amended PRC Civil Procedure Law, which came into effect in January 2013, does however allow for greater flexibility in the treatment of evidence filed after the deadline than was the case before. The court serves evidence on the other party, and one of the judges panel supervises the exchange of evidence. There will usually be pre-trial evidence-exchange hearings (during which each party can challenge the admissibility of evidence presented by the other side on technical procedural grounds) before the main hearing. All the facts a party relies on, including relevant technical aspects, must be presented and supported by suitable means of proof, such as notarised reports of product purchase and testing. The applicant must submit evidence of its rights in the patent. This can require, for instance, producing the original patent certificate, the patent specification and claims, the receipt for payment of annual patent fees and, where appropriate, any relevant licence agreement and the original certificate of recordal of the licence at SIPO. Clear evidence of the identity of the applicant (such as a certificate of incorporation) and the respondent (such as business registration records) must also be provided. Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 7

10 These procedural hearings are meant to be restricted to evidential matters, but the judges often use these informal meetings to explore preliminary issues and to gain familiarity with the technology concerned. The timetable for cases involving foreignrelated parties after filing the defence is not prescribed by the rules and is a matter on which submissions can be made. A foreignrelated party does not include a WFOE (a wholly foreign-owned entity in the PRC), nor a Sino-Foreign JV, since both are constituted under PRC law. In practice, very little patent litigation in China involves non-chinese parties. Conduct of the main hearing Once the court has completed its investigations, it will set a date for the main hearing. Non-expert oral evidence is given little weight and is not cross-examined. Infringement cases are largely decided on documentary evidence alone. Chinese courts place little reliance on statements or evidence put forward by a party to the proceedings and, in fact, display a notable scepticism towards the party s own evidence. As a general rule, courts will give less weight to statements made by officers and employees or business associates of the litigants and greater weight to the evidence of unrelated third parties. The parties and the judge are each entitled to cross-examine expert witnesses. The burden of proof is strictly on the claimant to prove infringement. The standard of proof is high and is applied strictly, with few inferences being drawn from evidence. The standard approximates to the common law criminal standard of proof beyond reasonable doubt. That remains the case even where a defendant does not put in a defence or any evidence of its own. The burden of proof is, however, reversed by statute in the case of a patent for production of a new product by a patented process. In that case, it is for the defendant to prove that its manufacturing process differs from the patented process. Thorough evidence preparation is therefore essential for success in court, and all formalities must be attended to (see page 11 Evidence for the formalities). Quick proceedings A straightforward patent infringement action in most courts in China will generally take six to 12 months, but can be longer in the more popular courts such as Beijing. For purely domestic cases, the judges are under pressure internally from the court to conclude cases within the prescribed time limits. There is no fixed time frame for foreign-related cases. Appeal Appeals must be filed within 15 days (30 days for a foreign-related party) of the judgment. This deadline is fixed. The appellant must substantiate its grounds for appeal within two months of the judgment. The appeal proceedings usually take six months or less. A measure of recovery of attorney fees A measure of the costs of the litigation will generally be awarded to the successful party. The court will usually determine attorney fees based on domestic, non-specialist Chinese lawyers rates. The actual amount recovered for attorney fees in China is therefore usually low compared with international standards. Disbursements, on the other hand, such as investigator s and expert s fees, are usually recoverable in full if proper evidence of payment is submitted. Court fees are also usually awarded in full to the winning party. 8 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

11 Implications of the bifurcated system on infringement proceedings As a result of the bifurcated system, a patent s invalidity cannot be used as a defence or counterclaim in infringement proceedings. Where infringement and invalidity proceedings are concurrent, the defendant in the infringement proceedings can apply for a stay, but in practice a stay is unlikely to be granted owing to the substantive examination process already undertaken during prosecution. A court will more readily stay proceedings for infringement of utility models, however, because utility models are only summarily examined during prosecution. That said, the utility model holder is entitled to obtain a preliminary search report from SIPO before starting the infringement proceedings. Submission of a preliminary search report to the infringement court will increase the chances of avoiding a stay of proceedings if the validity of the utility model is challenged. Despite this, the amended Patent Law has introduced a statutory squeeze or Gilette - type defence to infringement (known in China as the prior art defence). A claim of infringement will not be upheld if the defendant can show that all the features of the technology or design it is using that are within the claims of the asserted patent are disclosed within the prior art. The defence is available without the alleged infringer being required to separately seek invalidation of the patent-insuit for lack of novelty. Under an SPC Opinion from December 2011, the prior art defence extends to obvious combinations of a prior art reference and common knowledge. Patent applications filed before the priority date of the asserted patent but published after it have also been included as prior art references. Revocation actions generally take from 12 to 24 months at the PRB, and a further six to 12 months on appeal to court. Infringement claims will therefore typically come to trial before revocation actions that are filed in response have been resolved. This is almost unavoidable given the scope for the patentee to appeal an adverse finding on invalidity. The time lag creates a particular problem in infringement cases involving utility models if a stay is not granted. Many utility models have been found to be of questionable validity, having never undergone substantive examination. The scope to invalidate utility models has now been increased further with the introduction of an absolute global novelty standard in the Third Revision to the Patent Law in Although the problem will now be partly alleviated by the prior art defence, the need to conduct thorough freedom to operate searches before entering the Chinese market or contracting to make goods in China remains paramount. Under the Patent Law, a decision to revoke a patent does not have retroactive effect on an infringement decision that has already been rendered. The defendant is entitled to apply for damages against the former patent holder in this situation if the original proceedings had been brought in bad faith or in obvious violation of the principle of equity. In preliminary proceedings, the infringement court will review the facts and grounds raised by a respondent in any related proceedings for invalidity and this might be a further reason to deny the application. Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 9

12 Typical patent litigation timeline Statement of claim Statement of claim and notifications served on defendant by the court. Notification of acceptance of the case appointment of panel of three judges Case must be formally accepted by the court (ie all procedural requirements met). Within 30 days of service of claim. Defence Served on claimant by the court. Within 15 days of service of claim by court (or 30 days for a foreign-related defendant). Submission of evidence Timetable for submission and exchange usually agreed between the parties, subject to approval by the court. If no agreement, 30 days from later of notification of acceptance of case or defence. Exchange of evidence The process of exchange of evidence will be supervised by the court. Informal pre-hearing(s) on evidence Meant to be only for challenging admissibility of evidence. In practice, judges regularly question parties and assess the strength of their cases. Appointment of court expert A report on technical issues is usually prepared by court-appointed expert(s). Final oral hearing Normally within 6-12 months of filing statement of claim. Judgment Usually within two months of the final hearing. Appeal Must be lodged within 15 days (or 30 days for foreign-related parties) of the date of judgment. 10 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

13 Chapter 3 Court process and procedure Evidence Evidence preservation orders are only available in exceptional circumstances Chinese civil procedure does not provide for any pre-trial discovery of documents. The parties may choose the documents they wish to produce. However, if a party has a relevant document at the time of the evidenceexchange hearing and fails to produce it, it will generally be prevented from relying on the contents of the document at trial. Chinese courts generally take an active, inquisitorial role in proceedings and may themselves request (but usually not compel) the production of documents and articles. They may also inspect premises. Where a party is able to identify the existence, relevance and location of documents held by the other side, it can ask the court to request their production by grant of an evidence preservation order. In practice, however, such orders are rare, unless the court is also persuaded that the order can be successfully implemented (see page 15 Enforcement of judgments and court orders for discussion). The application is made to the Intermediate People s Court on an ex parte basis, and the judge must decide within 48 hours. Thorough evidence preparation taking into account the many procedural formalities is therefore essential for success in court. Procedural formalities Original evidence should be produced wherever it is available, although copies will be accepted where good reasons are given. If evidentiary documents are in a foreign language, Chinese translations must also be provided to the court. Physical evidence obtained within China should be notarised at source to make it more difficult to challenge. Sample purchases, for example, should be made on site at the defendant s premises and before a notary. The notary s report will set out the source of the evidence and notaries will sometimes even be willing to notarise video capture of the purchase. Downloads of internet evidence, or documents extracted from a computer hard drive, are also notarisable. In the latter case, this will require the notary to witness the entire chain of custody of the hard drive all the way back to the defendant s premises. Evidence that is not in documentary form, such as an or catalogue or physical object, must be accompanied by a declaration made by the relevant individual/entity that sets out the provenance or source of the evidence, together with a statement of its authenticity. In many other cases, a document will need to be accompanied by an explanation of its origin or meaning to give it probative value, which would also be supplied under a declaration or affidavit. The declaration will need to be notarised. Evidence from outside China will in practice often also need to be presented under a declaration. China Attesting Officers stationed outside China are not authorised to attend on-site investigations, meetings, trade fairs or the like to witness and notarise evidence. Attesting Officers will only notarise evidence provided to them in documentary form, including as a declaration. A notarised declaration or other document from outside China will also need to be legalised at the relevant Chinese consulate in the jurisdiction from which the evidence originates and be affixed with an apostille. Failure to attend to the proper evidencevalidation requirements will risk the evidence effectively being disregarded by the court. Once notarised and legalised, however, some overseas evidence can carry much greater weight in China than might be given to similar material in other jurisdictions. Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 11

14 Evidence obtained during administrative enforcement action can be used in subsequent court proceedings. Raids of manufacturing facilities or warehouses are frequently a useful means of obtaining relevant documents from a defendant. Where stock is seized, this can also provide relevant evidence of the scale of infringing activities to compensate for the difficulties of proving actual loss or the defendant s profit from the infringing activity. It is also important to remember that investigators must be accompanied by a notary for evidence gathered by them to be admissible in court. Using testimony from live witnesses in court is a relatively new development in China and is still given less weight, as previously noted. It is now a rule that evidence from a witness must be provided to the court in person for it to be admissible (unless there is an acceptable reason why the witness cannot attend). An interesting aspect of Chinese civil procedure law is that the court may allow witnesses to cross-examine each other, including party-appointed expert witnesses. Expert evidence The court can appoint one or more experts or commission a technical report from a judicial appraisal centre. Expert evidence presented by the parties themselves, although admissible, has historically been given little weight. The amended PRC Civil Procedure Law appears to soften the stance to parties own expert evidence, although it remains to be seen whether in practice courts will show greater willingness to take account of differing expert testimony. Parties are given the opportunity to choose experts from a court-approved list. Some jurisdictions are more developed than others and have pre-selected panels of available experts. Beijing, for example, has panels established for eight technology sectors, with numerous experts on each panel. The usual procedure is for the parties to be given the opportunity to agree the choice of expert, but in the event that the parties do not agree, the court will make the appointment albeit that the parties may veto an expert on grounds of connections to the other party, or known or presumed bias, etc. The experts will produce a single joint technical report for the court. It is possible to recommend to the judge that a recognised expert in the field is added to the court s list, but there is no guarantee that the court will accept the recommendation. If technical issues remain unclear, the court may adjourn the main hearing and order further technical tests. Be prepared These rules of evidence often make evidence collection time-consuming. The time needed to legalise documents at Chinese consulates in particular should not be underestimated. This means that it is vital to monitor the market for infringements in an active and structured manner. Reports of possible infringements should ideally be centralised to a dedicated officer so that decisions can be taken quickly in terms of going in and obtaining evidence in the necessary form. It is important also that all recordals (of changes of ownership and name) are kept up to date and that copies of important documents for enforcement, such as registration certificates, certificates of incorporation and powers of attorney, that are not in Chinese are translated into Chinese in advance and kept on file with your lawyers. Where rights are held under an exclusive licence, the agreement should be recorded in advance and will need to be translated into Chinese. These documents will all need to be notarised and, where applicable, legalised before they can be submitted to the court. 12 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

15 Interim relief, preliminary issues and summary judgment Requirements for the grant of a preliminary injunction Interim injunctive relief was introduced in 2001 to comply with the Agreement on Trade Related Aspects of Intellectual Property on China s entry to the World Trade Organization. Chinese courts, however, exercise their power to grant interim (or pre-trial) injunctions in patent matters cautiously, and have limited grant of pre-trial injunctions to cases where irreparable harm to the claimant s interests would result if the alleged infringing act is not immediately enjoined. The threshold for the grant of preliminary injunctions in patent infringement cases that involve substantive issues to be tried is high and the criteria are applied strictly. The patentee must show clear facts pointing to a demonstrable infringement. The SPC has directed that preliminary injunctions are not appropriate when the determination of infringement involves complicated technical issues or if an invalidity proceeding is ongoing. The relief can therefore only be expected to be granted sparingly in patent cases for the foreseeable future. However, the relative speed to trial and the normal willingness of courts to grant final injunctions means that this is less of an issue practically than it would otherwise be. Yet where alternative trade mark, copyright or design claims are available, consideration should be given to focusing on collecting evidence to support an application for a pre-trial injunction on the basis of those rights, even if the associated patent claim might ultimately be the stronger. The willingness of courts to grant pre-trial injunctions varies from jurisdiction to jurisdiction within China (within a range of 50 per cent to 100 per cent success rate in published decisions in which a pre-trial injunction had been applied for) and so forum selection can again be important. Preliminary injunction decisions may take only a few days As with an application for evidence preservation, the Intermediate People s Court is required to decide on a preliminary injunction application within 48 hours of accepting the application. However, the court will take longer if it needs to verify facts or hear further submissions. In practice, a ruling can therefore typically take anything from 48 hours to three or four weeks. One week is usually considered swift. Preliminary injunctions must present a solid case All the facts of the case, including relevant technical issues, must be presented and supported by suitable evidence, such as affidavits, written expert opinions and/or product samples, even at the preliminary stage. The facts and grounds a respondent raises in any related claim for a declaration of noninfringement or in invalidity proceedings will also be reviewed and might be a reason to deny the application. Claimants must apply quickly Chinese regulations do not state the time within which an application ought to be made, but a delay on the applicant s part may be taken by the court to signify that any damage will not be serious enough to warrant an injunction. Security An applicant must provide security or the application will be denied. The amount of security required will be assessed by the court and is meant to cover the direct losses that the defendant is likely to suffer from complying with the preliminary injunction up to trial. Security can be provided in cash or as a guarantee, mortgage, lien or deposit. Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 13

16 Appeal No appeal of rulings on preliminary applications is available to a higher court. An application for a review may be submitted to a specially commissioned board within 10 days of receipt of the ruling. This is not usually recommended in foreign-related cases, however, as the judges can be expected to have conferred internally and reached a prior consensus where an overseas party is involved. Claimant must sue after grant of preliminary injunction A successful applicant for pre-trial relief must start infringement proceedings against the defendant within 15 days of the ruling or the court will lift the pre-trial injunction. Remedies, damages and enforceability Injunctive relief normally means an order to cease and desist A losing defendant will usually be ordered to stop carrying out infringing acts under the patent by a grant of a final injunction. The injunction will remain in place for the remaining life of the patent and also will not be stayed pending an appeal. According to recent guidance from the SPC issued in the now widely disregarded Opinion on certain issues with respect to intellectual property adjudication during the current economic situation (April 2009), where an injunction may cause significant imbalance between the rights and interests of the owner and the infringer, is contrary to the public interest or is in practical terms unenforceable, then rather than ordering the defendant to cease the infringement, an order requiring the defendant to compensate the claimant in damages may be made. As noted above, the status of this direction is now unclear. Determination of damages The court may assess damages on the following basis, in descending order of preference: compensatory damages; an account of the profits obtained by the infringement; an (unspecified) multiple over a reasonable royalty fee; and if all the above are difficult to assess, an award of statutory damages. In practice, because there is no discovery of documents, statutory damages are the usual basis of assessment. In exercising its discretion to award statutory damages, the court will consider factors such as the period of trading, the price at which the infringing product was sold and the production capacity of the defendant. An award of statutory damages may range from RMB10,000 to RMB1m (approximately US$1,500 to US$150,000). The actual amount awarded will depend on various factors, including the scale and the period of the infringement, as well as the value and technical importance of the patented features to the overall product or process. Article 16 of the SPC s 2009 Interpretation on several issues concerning the application of law in the trial of patent infringement clarifies that the determination of profits obtained from an infringement is to be limited to the profits directly obtained from the infringement, excluding profits attributable to other rights (eg a recognisable brand) or other non-patented matter. The amount of damage awards in patent cases in China is gradually increasing. Recent decisions have shown that the Chinese courts will make substantial awards in appropriate circumstances. The recent amendment to the PRC Patent Law is a clear statement by the government that it wishes to focus on strengthening patent protection. 14 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

17 Recall and destruction of goods It is possible to apply for orders for recall and destruction of infringing goods or production equipment. However, in practice such orders can be difficult to enforce if not complied with voluntarily, as noted below. Enforcement of judgments and court orders If the defendant fails to comply with a judgment made against it within the prescribed period in the court order, the claimant is entitled to apply for compulsory enforcement. The defendant may apply for enforcement at any time within two years of the deadline for compliance. The application for compulsory enforcement must be made to the same court that heard the original trial. The defendant will be required to disclose all its assets for the one-year period before the date of receipt of the enforcement notice. If the defendant fails to disclose its assets, the court may impose a fine or detain the defendant or its representative. Monetary judgments become subject to payment of interest if not paid by the time stipulated in the judgment. Any other failure to perform in line with the judgment will subject the defendant to a surcharge. The court also has the power to inquire into, seize and transfer any money the defendant may have deposited with the banks or financial institutions. The court may also issue a search warrant and restrain the defendant from leaving the country. Other measures that the court may take include recording the defendant s non-compliance in the credit system, publicising the non-compliance in local and (less often) national media, and any other measures stipulated by law. There is a possibility, in theory, of a finding of contempt of court in China. However, courts are in practice cautious about invoking criminal sanctions in intellectual property cases and so a finding of contempt of court is rare. The penalty where a defendant is found to be in contempt of court for non-compliance is detention for up to 15 days. Enforcement of orders for seisure or destruction of property is more problematic as a practical matter. The presiding judge is personally responsible for supervising enforcement of the order. Judges can be reluctant to travel long distances or to remote parts of the country to execute the order, especially as they typically will not qualify for security protection and will therefore be accompanied by only a single court clerk. The judge has no power of arrest, and if factory or warehouse gates are locked, the judge will not usually try to force entry. The effectiveness of an evidence preservation order is also limited in the case of more involved evidence-gathering tasks, given that it is again the presiding judge himself that has to carry out the order, and again usually with only a single court clerk. The judge will not have the means to test or measure production equipment. The defendant is also not obliged to permit the claimant s own representatives on to his premises. Statute of limitations The claimant must bring his claim within two years of the date when the patentee or any interested party obtains knowledge of the infringement or the date when they should reasonably have obtained knowledge of the facts that give rise to the claim. The General Principles of Civil Law allow the limitation period to be stopped (or in effect re-started) by sending a letter before action to the defendant, although letters before action are generally not recommended where evidence-gathering tasks remain to be completed. Freshfields Bruckhaus Deringer llp A guide to patent litigation in China 15

18 Under the terms of the 2001 SPC Guidance, PRC courts will also not usually time-bar claims where the alleged infringement is continuing, although damages will be limited to compensation for loss suffered during the two years before the date on which the claim is made. Regardless of the claimant s knowledge, any claim must be brought within 20 years of the cause of action arising. Further procedures Action for declaration of non-infringement A potential defendant has standing to file an action for a declaration of non-infringement if he can prove enough legal interest in establishing non-infringement. The SPC 2009 Interpretation confirmed that a defendant or other interested party warned of patent infringement can require the claimant to withdraw the allegation or to start proceedings within one month, failing which it will be entitled to bring an application for a declaration of non-infringement. Filing a declaratory judgment action in the PRC can also be used to try to seize jurisdiction in an advantageous court. Detention of infringing goods by Chinese Customs Border control measures can be an important additional tool to protect a patentee s position. The Customs Administration in China (GAC) is responsible for stopping both the import and, usefully, export of infringing goods. Recording intellectual property with the GAC allows the GAC to input all your IPR information into a database that is shared by all customs authorities at the local level. Customs will monitor shipments of goods for possible infringements. To be effective against infringements of patented goods, customs will need to be given information to put it in a position to identify infringements and is normally willing to meet with the rights-holder s legal representatives for that purpose. Incorporation of productidentification features into authorised products manufactured in China for export markets will help customs identify infringing goods. The owner bears the costs of destroying detained goods and storage costs for the time the goods are detained. If customs discovers a case of suspected criminal infringement, it will hand over the case to the Public Security Authority in line with the law. In addition, the GAC is empowered to impose a fine on the infringer of up to 30 per cent of the value of the infringing goods. 16 Freshfields Bruckhaus Deringer llp A guide to patent litigation in China

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