13 Dec
2016

Litigation procedures and strategies: China

All Chinese laws are written and passed by the Chinese People’s Congress or its Standing Committee, whereas the corresponding implementing regulations and judicial interpretations are made respectively by the State Council (ie, the central government) and by the Supreme People’s Court and the Supreme People’s Procuratorate. All these laws, regulations and interpretations are binding on the administrative bodies and the courts.

Legislative framework and causes of action

All Chinese laws are written and passed by the Chinese People’s Congress or its Standing Committee, whereas the corresponding implementing regulations and judicial interpretations are made respectively by the State Council (ie, the central government) and by the Supreme People’s Court and the Supreme People’s Procuratorate. All these laws, regulations and interpretations are binding on the administrative bodies and the courts.

Trademark laws, rules and regulations

The current Chinese Trademark Law was passed in 1982 and came into effect in 1983. It was amended in 1993, 2001 and 2013. The Trademark Law is the primary statute governing trademark-related issues. Other laws (eg, the Criminal Law, the Civil Law and the Civil Procedures Law) and corresponding implementing regulations and judicial interpretations focus on specific procedures and other substantial issues.

China is a signatory to the Paris Convention for the Protection of Industrial Property and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). These and other international treaties and agreements to which China is party have been implemented into a domestic law. International treaties and agreements signed by China but not yet implemented into domestic law are not directly applicable.

Causes of action

Under the Trademark Law, only registered trademarks shall be protected; unregistered trademarks (ie, marks for which registration is pending or for which no registration is sought) shall not be protected, unless they are well known in China. For unregistered trademarks and trademarks which are not well known, it is sometimes possible to get protection under other laws such as the Anti-unfair Competition Law or the Contract Law.

Article 57 of the Trademark Law provides seven actions for trademark infringement:

  • using a trademark that is identical to a registered trademark on identical goods without the registrant’s licence;
  • using a trademark similar to a registered trademark on identical goods, or a trademark that is identical or similar to a registered trademark on similar goods without the registrant’s licence, which is likely to cause confusion;
  • selling goods that infringe a registered trademark;
  • counterfeiting or producing without authorisation the labels of another party’s registered trademark, or selling any such labels;
  • altering a registered trademark without the registrant’s consent, and selling the goods bearing such replaced trademark in the market;
  • providing intentionally either the means to infringe a trademark or assistance to a third party’s infringement of a trademark; or
  • taking other actions that cause damage to a registered trademark.

The seventh action is all-inclusive, leaving room for other types of infringement to be covered. Additionally, Rules 75 and 76 of the Implementing Regulations provide for other infringing actions:

  • storing, transporting, delivering, printing, hiding or providing shopping facilities or internet business platforms to infringing products made by another party; and
  • using a sign that is identical or similar to another party’s registered trademark as the name of or decoration on the same or similar goods in a way that confuses the public.

The consumption or use of infringing goods or services shall not be deemed direct or indirect trademark infringement. Parallel imported goods cannot be deemed trademark infringement, so long as the goods are genuine with genuine trademarks, though this is possibly an issue of contractual breach. Use of the trademark of a value-added reseller on a product made by an original equipment manufacturer is somewhat controversial, although the Chinese courts tend to regard such use as non-infringing.

Articles 52 and 53 of the Trademark Law prohibit the use of the registration symbol ® with an unregistered trademark, and of the wording ‘well-known trademark’ in relation to any business activities. Breach of these provisions will incur administrative punishment.

Civil litigation: Trademark infringement can be the basis for a civil action. However, this chapter does not discuss trademark contractual or ownership disputes.

Administrative litigation: A number of government bodies, such as the administrations for industry and commerce (AIC) and Customs, may impose penalties on trademark infringers. The AICs may also punish the improper use of a trademark, such as attaching the registration symbol ® to an unregistered trademark and using the wording ‘well-known trademark’ in relation to any business activities. Any party that is dissatisfied with the administrative decision may initiate an administrative litigation before a local court.

Criminal litigation: Severe trademark infringement can lead to criminal litigation. Thus, three of the causes of action under Article 57 of the Trademarks Act may become criminal offences under Articles 213 to 215 of the Criminal Law if the infringement passes the threshold criteria outlined below, as set out by the judicial interpretation (the remaining four causes of actions under Article 57 cannot amount to crimes):

  • when using a registered trademark on identical goods, the infringer’s turnover is Rmb50,000 or more or its profit Rmb30,000 or more against a single trademark, or its turnover is Rmb30,000 or more or its profit Rmb20,000 or more against two or more trademarks;
  • when selling goods that infringe a registered trademark, the infringer’s turnover is Rmb50,000 or more; or
  • when counterfeiting and/or selling the labels of another’s registered trademark, the number of labels is 20,000 or more, the turnover Rmb50,000 or more or the profit Rmb30,000 or more against a single trademark, or the number of labels is 10,000 or more, the turnover Rmb30,000 or more or the profit Rmb20,000 or more against two or more trademarks.

Alternative dispute resolution

Arbitration and mediation are both available in trademark civil cases only. In civil lawsuits, the parties concerned are also allowed to settle the cases even after the court has issued its ruling.

Arbitration

Arbitration is available on the basis of a prior or later-reached agreement or clause for trademark-related civil disputes, which are usually contractual matters rather than trademark infringements.

Mediation

Mediation by a third party is uncommon in trademark cases, even though the courts routinely conduct mediation. Many civil lawsuits, not limited to trademark cases, end with a mediated settlement.

Litigation venue and formats

Court system and litigation venues

The Chinese court system is made up of:

  • the Supreme People’s Court at the national level;
  • the higher people’s courts at the provincial level (not including Hong Kong or Macau);
  • the city intermediate people’s courts at the city level; and
  • the county or district courts at the lowest county or district level.

Beijing, Shanghai and Guangzhou have specialised IP courts.

Lawsuits are usually decided at two instances; the decision of the second (appellate) instance is final and immediately enforceable. A decision of the Supreme People’s Court is final and immediately enforceable too. A retrial, after a decision has come into effect, is possible under very strict conditions.

Civil litigation: Civil litigation should be filed in either the infringer’s domicile or the place of the infringement (ie, where the infringement started, where the mark owner suffered harm as a result of the infringement or where the infringing goods are located). In general, the first instance of such litigation should be filed with the competent intermediate people’s court at the city level, including the IP courts in Beijing, Shanghai and Guangzhou. The Supreme People’s Court, however, granted a special authorisation to 90 county or district courts (the lowest judicial level) to hear trademark infringement civil litigation at first instance. Any litigation involving a well-known mark shall be tried by an intermediate people’s court at the city level. Very rare cases involving high monetary values may be initiated directly before a higher people’s court or the Supreme People’s Court.

Administrative litigation: A trademark administrative lawsuit shall be filed at the defendant’s domicile. If the contested administrative decision was issued by a government body below county level, the administrative lawsuit must be filed with a county or district court (ie, the lowest judicial level). Otherwise, it may be filed with a court of a higher level, including one of the three IP courts.

In addition, all administrative lawsuits in which Customs is a defendant or involving a well-known trademark shall be filed with the competent city intermediate people’s court.

Criminal litigation: A trademark criminal litigation shall be filed at the place where the crime started or resulted in harm to the mark owner, or the place where the criminal goods are located. In general, such litigation shall be filed with the county or district court at first instance. Depending on the monetary value of the infringement, the lawsuit may be filed with a city or provincial level court at first instance; it is rare for the Supreme People’s Court to hear a first-instance trademark case.

Forum shopping

Forum shopping is generally not possible for administrative or criminal litigation. It is possible for civil litigation, as it can be heard at either the infringer’s domicile or the place of infringement.

It is widely recognised that the judges in Beijing, Guangzhou, Shanghai, Shenzhen and other developed regions or cities (mainly the major cities of southeastern China) are more experienced in handling trademark infringement cases than those in other parts of the country and are not influenced by local protectionism. Local protectionism, by contrast, may influence the courts in remote regions, especially when the infringer is a large local taxpayer.

Jury versus bench

China has a special system of people assessors that is unlike a jury trial and a bench trial. Thus, while the jury in the US system can decide only on the facts, the people assessors in China can decide on both the facts and the application of the law. At first instance, a case can be tried by either a single judge or a panel made up of an odd number of:

  • judges; or
  • judges and people assessor(s) where the number of people assessor(s) should be no less than one-third.

A judge, rather than a people assessor, presides over a panel. People assessors cannot sit in second-instance and retrial proceedings.

Damages and remedies

Available remedies

The statutory remedies below are available against the infringement of registered trademarks:

  • a cease and desist order;
  • compensation for any loss (damage);
  • ‘elimination of influences’ – that is, publication by the infringer of statements acknowledging the infringement in order to counteract any negative effect that such infringement may have had on the mark’s goodwill;
  • fines;
  • seizure of infringing goods and counterfeit trademark labels; and
  • seizure of tools used mainly to manufacture the infringing goods and counterfeit trademark labels.

Damage shall be calculated on the basis of the following elements, in this order:

  • the mark owner’s actual loss;
  • the benefits gained by the infringer from the infringement;
  • a multiple of the royalty for a fictitious trademark licence; or
  • statutory damages of up to Rmb3 million.

The plaintiff’s reasonable expenses in stopping the infringement shall also be included.

Injunctive relief

Injunctive relief is available:

  • before and after litigation has been initiated;
  • against infringing activities or to secure important evidence; and
  • only in urgent cases – that is, where the infringing activities, if not stopped quickly, will cause irremediable losses to the mark owner’s or interested party’s lawful rights; or where, without the injunctive relief, the evidence will soon disappear or could not be collected in the future.

The other conditions listed below must also be satisfied:

  • The applicant must be the registered trademark owner or an interested party, such as a trademark licensee recorded with the Chinese Trademark Office or the trademark owner’s successor in title; and
  • a security deposit must be paid for injunctive relief before litigation is initiated, but is optional during the litigation procedure.

Where injunctive relief is requested before litigation is initiated, the court should make a decision within 48 hours of the application being filed and the decision is immediately enforceable. Where injunctive relief is requested after the litigation has been initiated, the court might take longer to examine the application.

Evidencing the case

Investigations and first steps

Criminal litigation: Where the trademark infringement constitutes a serious and obvious crime, the police may conduct an ex officio investigation and initiate criminal proceedings, with minimal or even no involvement from the rights holder. However, in many trademark infringement cases the rights holder will need to collect some evidence itself and then report the case to the police. Once the police have assessed whether the infringement might constitute a crime, they will take over responsibility for further investigation and criminal proceedings.

Civil litigation: In civil cases, an investigation is often a necessary step to learn more about the infringer, collect evidence of the infringement, assess the whole situation and then decide on the best steps to take, including (but not limited to) sending a cease and desist letter, initiating an administrative raid action and proceeding with a lawsuit. During the course of the investigation, it is sometimes advisable or even necessary to notarise any infringing webpages or other evidence that can prove the infringement but that the infringer might later easily delete and deny ever having. In some cases, it is advisable to conduct a test purchase and have the process notarised.

To initiate a civil trademark lawsuit, the plaintiff must:

  • find out the real identity of the infringer or defendant;
  • collect evidence of the infringement or dispute; and
  • provide evidence of its entitlement to file the lawsuit, such as power of attorney or a certificate of incorporation.

Foreign plaintiffs should have most of the paper documentation notarised, legalised and translated into Chinese by authorised translators. As the preparation of the documentation is potentially time and resource consuming, it is advisable to take action as early as possible. Where the filed documentation does not meet the courts’ requirements, the parties can file again as long as the prescribed time limit has not elapsed.

Survey evidence

The law does not stipulate survey evidence as a type of formal evidence. In practice, this type of evidence carries little weight and is often considered unconvincing, though it has been accepted in some limited cases. Accordingly, it is advisable to rely on other types of evidence.

Expert witnesses

Expert witnesses have long been accepted in litigation, mainly to clarify technical issues that are difficult for the judges to understand. However, expert witnesses are used far more often in patent cases than in trademark cases.

Unlike in the United States, where any party can choose its own expert with little limitation from the court, in China a party that wants to use an expert need the court’s prior approval. The court can also appoint an expert witness at its own initiative whenever necessary. Expert witnesses must come from judicial expert agencies or institutions. Usually, the evidence given by expert witnesses has greater weight than other types of evidence; it is often accepted without challenge or cross-examination.

The Beijing IP Court set up an office of technology research and investigation in 2015 and the first group of experts for the office has been selected. This is a new way to strengthen the important role of expert witnesses in IP litigation.

Available defences

The first defence available against a claim of trademark infringement is to argue dissimilarity or absence of confusion relating to the trademarks or goods. In addition, the defences below are possible:

  • fair use without bad faith;
  • prior and continued use of the trademark within its original scope;
  • use by an original equipment manufacturer without local sales; and
  • procedural defects such as expired deadlines and objection to the jurisdiction of the courts.

In the following cases, although the nature of the infringement is to be ascertained, damage can be avoided:

  • The plaintiff suffered no loss or damage as its trademark has not been used during the preceding three years; or
  • The defendant only sold the infringing goods and had no knowledge of any infringement, as long as the defendant can provide evidence of the legitimate source of the disputed goods.

Appeals process

As mentioned above, if any party is dissatisfied with the first-instance ruling, it is entitled to appeal to a higher court, unless the first-instance ruling was issued by the Supreme People’s Court. In addition, a retrial after a decision has come into effect is possible under very strict conditions.

Chofn Intellectual Property

B316 Guangyi Plaza

5 Guangyi Street, Xicheng

Beijing 100053

China

Tel +86 10 6213 9699

Fax +86 10 6213 1230

Web www.chofn.com

Haoyu Feng
Partner

[email protected]

Haoyu Feng is a trademark attorney, attorney at law and partner of Chofn Intellectual Property. She has been focusing her practice on IP law since 2010, following her graduation from the law school of Renmin University. She represents many international companies (including Ford, Suncor, Metso, Kaufland and Medela) in trademark prosecution, enforcement and litigation, copyright and domain-related litigation. She joined the International Trademarks Association’s Famous and Well-Known Marks Committee in 2016. She speaks English and Chinese.

Xiaoming Liu
Partner

[email protected]

Xiaoming Liu is a trademark attorney, attorney at law and partner of Chofn Intellectual Property. His practice has focused on IP law since 2005. He has extensive knowledge of and deep experience in trademark prosecution, enforcement and litigation. This has won him the trust of many well-known companies – including Nokia, Tetra Pak, Petro-Canada, Premier League, the BBC, Roca, Syngenta, the European Aeronautic Defence and Space Company, Plastic Omnium, Nexans, Nice Group and Rio Tinto Group, to name a few. He joined the International Trademark Association’s Anti-counterfeiting Committee in 2014. He speaks English and Chinese.