21 Dec
2017

Litigation procedures and strategies: China

King & Wood Mallesons

King & Wood Mallesons

In China, the paramount law applicable to trademarks is the Trademark Law. It entered into force in 1983, and has gone through three amendments (1993, 2001 and 2013). The Implementing Regulations of the Trademark Law set out detailed implementing provisions of the Trademark Law, and came into effect together with the most recent amended Trademark Law in 2014.

Legislative framework and causes of action

Trademark law, rules and regulations

In China, the paramount law applicable to trademarks is the Trademark Law. It entered into force in 1983, and has gone through three amendments (1993, 2001 and 2013). The Implementing Regulations of the Trademark Law set out detailed implementing provisions of the Trademark Law, and came into effect together with the most recent amended Trademark Law in 2014.

According to the Trademark Law, the State Administration for Industry and Commerce (SAIC) administers trademark-related matters. The Trademark Office (TMO) under the SAIC is responsible for trademark registrations, oppositions and administration. The Trademark Review and Adjudication Board (TRAB) deals with trademark invalidations and a variety of appeals of TMO decisions.

The SAIC has promulgated regulations and guidelines covering trademark administration and registration, along with the associated dispute resolution. For example, the Standards for Reviewing Trademark Applications and Hearing Trademark Cases provide the rules that the TMO and the TRAB must follow when reviewing and approving trademark registrations, and hearing dispute cases. The Regulations for Recognising and Protecting Well-Known Trademarks are intended to improve the administration and protection of well-known trademarks. Besides these, the SAIC has promulgated regulations covering issues such as trademark registration agencies, international trademark registrations and the registration of collective marks and verification marks.

In addition, the Supreme People’s Court has issued judicial interpretations regarding various issues in trademark-related administrative and civil litigation, including jurisdiction, the application of laws, conflicts of rights, preliminary injunctions and evidence preservation.

Aside from the laws and regulations that solely and specifically address trademark issues, certain other laws, such as the Criminal Law, contain provisions pertinent to trademark matters.

Causes of action

According to the Interpretations of the Supreme People’s Court on Issues Relating to Jurisdiction and Application of Laws for Trademark Cases following Implementation of the Revised Trademark Law (2014), a court will hear the following types of trademark-related administrative or civil case:

  • administrative cases brought against review decisions or rulings rendered by the TRAB;
  • cases brought against other trademark-related specific administrative acts carried out by the SAIC;
  • trademark ownership disputes;
  • disputes over infringement on exclusive rights to use a trademark;
  • requests for a declaratory judgment of non-infringement of exclusive rights to use a trademark;
  • trademark transfer contract disputes;
  • trademark licensing contract disputes;
  • trademark agency contract disputes;
  • applications for pre-trial cessation of infringement of exclusive rights to use a trademark;
  • cases involving damage liability arising from wrong applications for cessation of infringement of exclusive rights to use a trademark;
  • applications for pre-trial asset preservation in trademark disputes;
  • applications for pre-trial evidence preservation in trademark disputes; and
  • any other trademark cases.

According to the Criminal Law, a court will hear cases involving the following trademark-related criminal acts:

  • passing off of registered trademarks;
  • selling goods with counterfeit registered trademarks; or
  • illegally manufacturing the labels of others’ registered trademarks or selling such illegally manufactured labels.

Alternative dispute resolution

Trademark disputes can be resolved through mediation in China, although it usually happens in the context of civil litigation. Privately facilitated mediation is uncommon, if not unheard of. The Civil Procedure Law provides that a court shall carry out mediation if both parties to the dispute are willing to attend the procedure. The parties may reach a settlement agreement containing terms such as an acknowledgement of infringement, payment of damages and a public apology. As a result of the settlement, the plaintiff will usually withdraw the complaint. Alternatively, the court may issue a verdict on the parties’ settlement and close the case.

Arbitration, too, serves as a way to resolve civil trademark disputes. However, this is only feasible if both parties agree to submit the dispute to arbitration, either before or after the dispute arises. Infringement cases are rarely settled through arbitration, since the parties rarely have an agreement to arbitrate before disputes arise and rarely agree to do so after they have arisen.

Mediation and arbitration are generally not employed in trademark administrative and criminal litigation cases, except when a civil claim such as for damage compensation is raised by a party in a combined criminal-civil proceeding and the parties choose to settle the claim through the court’s mediation procedure (as in the above civil proceeding).

Litigation venue and formats

The court system and litigation venues explained

There are four levels of court in China: the Supreme People’s Court, the high people’s courts, the intermediate people’s courts and the district and county people’s courts.

The Supreme People’s Court is the highest court and rarely hears first-instance cases. It hears appeals of first-instance judgments by high people’s courts and (most often) retrials of cases heard by high people’s courts, either at first or second instance.

The high people’s courts are the highest-level courts in each province, autonomous region and directly governed municipality. They usually hear first-instance civil cases in which the claimed damages have reached a certain threshold. They also hear appeals of first-instance judgments of intermediate people’s courts and retrials of cases heard by intermediate people’s courts, either at first or second instance.

At least one intermediate people’s court is established in each city; certain big cities (eg, Beijing, Shanghai and Chongqing) have several. Generally speaking, first-instance civil trademark cases are heard by intermediate people’s courts, unless the Supreme People’s Court has designated a district or county court within the intermediate people’s court’s jurisdiction to hear such cases. Cases involving recognition of a well-known trademark can be accepted only by an intermediate people’s court located in the capital city of a province or autonomous region, or otherwise in accordance with the Supreme People’s Court’s specific designation.

District and county courts are at the lowest level in the court system in China. They do not hear trademark cases unless designated by the Supreme People’s Court.

In addition, three IP courts have been established, located in Beijing, Shanghai and Guangzhou respectively. The IP courts are ranked at the intermediate level and are responsible for hearing civil and administrative lawsuits involving patents, new varieties of plants, integrated circuit layout design, technical secrets and computer software. Regarding trademark-related cases, IP courts deal only with administrative lawsuits against state council departments or the people’s government at county level or above for administrative acts which involve trademarks, as well as civil lawsuits involving recognition of well-known trademarks.

Appeals against TRAB decisions in trademark disputes can be accepted only by the Beijing IP Court in the first instance; this judgment is subject to appeal before the Beijing High People’s Court.

The Supreme People’s Court has set up several IP case tribunals within established intermediate people’s courts in certain big cities (eg, Chengdu, Wuhan, Suzhou and Nanjing). These tribunals usually hear trademark cases within their jurisdiction in which the claimed damages have reached a certain amount (eg, Rmb500,000 in Chengdu and Rmb3 million in Nanjing and Suzhou).

Forum shopping

According to Article 6 of the Interpretation of the Supreme People’s Court regarding the Application of Laws in the Trial of Civil Trademark Cases (2002), a civil action instituted on the ground that the exclusive right to use a registered trademark has been infringed shall be subject to the jurisdiction of the people’s court where:

  • the infringing act is carried out;
  • the infringing commodities are stored or sealed up and detained; or
  • the defendant has his or her domicile.

The place where infringing commodities are stored refers to the place where large quantities of infringing commodities are stored or hidden, or where infringing commodities are regularly stored or hidden. The place of sealing up and detention refers to the place where the relevant administrative department (eg, Customs or the SAIC) seals up or detains the infringing commodities by operation of its lawful duties.

Based on the types of infringing activity which are provided for by the Trademark Law, the Implementing Regulations of the Trademark Law and the judicial interpretations, a trademark owner may file an infringement case with the court where:

  • the alleged infringing goods are sold or the alleged infringing activity is conducted;
  • the alleged infringing goods are:
    • manufactured;
    • stored; or
    • sealed up or detained by government organs;
  • the alleged infringing labels are manufactured or sold;
  • the computer equipment used by the alleged infringer for conducting the infringement online is located;
  • any other trademark infringement (eg, providing help by transferring and mailing the alleged infringing goods or offering a place to sell them) is conducted; or
  • any of the defendants are domiciled.

As a trademark owner has many choices for forum shopping, it is general practice for the plaintiff to avoid filing a lawsuit with the court where any of the defendants are domiciled, especially when the defendant operates a large-scale business and contributes significantly to the local economy.

Jury versus bench

In China, trademark litigation cases are usually heard by a collegiate bench consisting of three (most frequently) or five members. In the first instance, the collegiate bench may comprise judges only, or judges together with one or two people’s jurors. According to the relevant law, if people’s jurors are present, their number shall make up no less than one-third of the total number of the members of the bench. The court hearing should be presided over by a judge rather than a people’s juror. A collegiate bench which hears an appeal case may not include people’s jurors.

Damages and remedies

Available remedies

The following remedies are available in trademark infringement actions:

  • injunctive relief (both interim and permanent);
  • damages; and
  • public declarations counteracting the negative influence of the infringement.

According to the Trademark Law, the amount of damages in a trademark infringement case can be determined:

  • based on the actual losses suffered by the trademark owner from the infringement. The losses incurred from infringement may be calculated as the product of the lost sales volume of the infringed commodities and the per-unit profit of the same;
  • based on the benefits acquired by the infringer from the infringement. According to the judicial interpretation, the benefits obtained from infringement may be calculated as the product of the sales volume of the infringing commodities and the per-unit profit of the same. Where it is impossible to know the per-unit profit of the infringing commodities, the per-unit profit of the infringed commodities shall be used; or
  • by a reasonable multiple of the royalties.

Further, if the infringement is committed in bad faith and with serious circumstances, the amount of damages shall be up to three times the amount determined using one of the above methods.

Where it is difficult to determine the amount of damages through one of the three ways described above, a people’s court may award damages of no more than Rmb3 million, based on the circumstances of the infringement, including:

  • the nature, duration and adverse effects of the infringing act;
  • the reputation of the trademark;
  • the amount of royalties for licensing the trademark;
  • the type, time and scope of the licence of the trademark; and
  • the reasonable expenses incurred by the rights holder in stopping the infringing acts.
Injunctive relief

Injunctive relief can be an interim or preliminary injunction or a permanent injunction. Once trademark infringement is established, the court usually grants a permanent injunction. Interim injunctions, on the other hand, are not easy to obtain and courts have only rarely issued them so far.

In granting an interim injunction, the court will consider:

  • whether the trademark at issue is valid and stable;
  • the likelihood of the alleged infringement being established;
  • whether the trademark owner would be irreparably damaged if no injunction were granted;
  • whether the loss incurred by the trademark owner without an injunction would outweigh or equal the loss incurred to the respondent;
  • whether the injunction would harm the public interest; and
  • whether the trademark owner has submitted an effective and proper bond.

Evidencing the case

Investigations and first steps

An investigation is necessary to obtain basic information before initiating a lawsuit against a trademark infringer. Publicly available information (eg, basic information about infringing companies and their products, advertisements and sales activities) can be obtained through internet searches.

It is also general practice for a trademark owner to engage a professional investigator, especially for onsite investigations. Further and detailed information and materials may be obtained from the investigation, including:

  • information on the target’s manufacturing activities;
  • brochures and leaflets; and
  • evidence of the specific ways in which the infringed trademark is being used.

When carrying out an investigation, relevant evidence (eg, infringing goods, websites and transaction documents) must be preserved through notarisation. According to the Notarisation Law: “A notarised civil legal act, fact and document of legal significance shall be taken as the basis for establishing a fact, except where there is contrary evidence which is strong enough to reverse the notarisation.”

Survey evidence

Survey evidence is not required by the law or court practice in trademark infringement cases. Whether to carry out a survey is solely at the discretion of the parties. Surveys are not frequently accepted by courts, since survey results usually depend on many factors and it is difficult to determine whether they are objective and correct. However, the Supreme People’s Court has accepted a survey report as evidence in a retrial case.

Use of expert witnesses

Although Chinese law does not contain the concept of an ‘expert witness’, in practice expert witnesses can participate in trademark infringement cases. The opinion of an expert witness is not admissible as evidence; it can serve only as a point of reference for the judges determining the case.

Available defences

When facing an accusation of trademark infringement, defences can be based on many grounds, including the following:

  • The alleged infringed trademark is invalid or shall be declared invalid due to its non-compliance with the Trademark Law;
  • The alleged infringing trademark is not identical or similar to the registered trademark;
  • The designated products or services of the alleged infringing trademark are not similar or identical to those of the registered trademark;
  • The alleged infringing mark is not used as a trademark or in a trademark sense and such usage by the accused will not cause confusion;
  • The user has another legal and prior right over the mark (eg, a design right);
  • The alleged infringing trademark was in use before the application date of the registered trademark;
  • The alleged infringing trademark contains a generic term, or is merely descriptive or functional;
  • Where the defendant is an original equipment manufacturer, all requirements have been satisfied for establishing non-infringement (eg, all goods are exported to a foreign country where the mark used on the goods is duly registered);
  • The alleged infringed trademark right is exhausted; or
  • Where the defendant is a seller of allegedly infringing goods, it was unaware of the infringement and can prove that its goods were purchased through legal channels. Under these circumstances, it shall not be liable for any damages.

Appeals process

Any party can appeal before a higher-level court if it is unsatisfied with a first-instance judgment or certain other types of decision (eg, a court’s refusal to accept the case, a rejection of a trademark filing or an objection to jurisdiction). The limitation period for appealing a first-instance judgment is 15 days for a domestic party or 30 days for a foreign party. Other first-instance decisions must be appealed within 10 days for a domestic party or 30 days for a foreign party.

King & Wood Mallesons

20th Floor, East Tower, World Financial Centre

1 Dongsanhuan Zhonglu, Chaoyang District

Beijing 100020

China

Tel +86 10 5878 5588

Fax +86 10 5878 5599

Web www.kwm.com

Hongbin Jiao
Partner
jiaohongbin@cn.kwm.com

Hongbin Jiao is a partner in the King & Wood Mallesons (KWM) Beijing office and specialises in IP litigation. Ms Jiao has 15 years’ rich experience in this practice area and has handled IP-related disputes for many well-known domestic and international enterprises. She represents clients in IP litigation cases in China, including those involving trademarks, copyright (including software), domain names, patents and anti-unfair competition (including trade secrets).

Ms Jiao has handled many high-profile cases, including several disputes involving the world-famous online game World of Warcraft, the dispute regarding the ownership of the well-known trademark IPAD and the dispute regarding the specific packaging and decoration of the famous Wang Lao Ji herbal tea in China.

Fang He
Partner
fang.he@cn.kwm.com

Fang He specialises in IP litigation. He is a senior IP litigator and co-leads the IP litigation group in the KWM Shanghai office. Mr He has a solid theoretical foundation and rich practical experience in the field of intellectual property. He has substantial China litigation and enforcement experience, as well as significant advocacy experience in the Chinese courts. He is particularly strong in the areas of trademarks, trade dress and copyright, having successfully advocated for a number of clients in several high-profile and award-winning cases (including a series of Top IP Cases in China, as judged by the Supreme People’s Court). Among these, Mr He acted for Shanghai M&G Stationery Inc in winning an industrial design infringement dispute.