China: trademark litigation

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Injunctions at a glance

Preliminary injunctions are an increasingly critical tool in litigation because an order on a preliminary injunction or property preservation (attachment of property), or both, helps the trademark owners to stop ongoing acts of infringement, avoid or minimise irreparable harm pending litigation, enforce the final verdicts and support claims for damages.

The courts will consider the following factors when granting such an order:

  • the plaintiff's likelihood of prevailing on the merits;
  • a demonstration of irreparable harm to the plaintiff if a preliminary injunction is not granted;
  • the balance of interest and hardship between the plaintiff and defendant; and
  • whether the injunction may harm the public interest.

According to the Civil Procedure Law, a motion for an order on a preliminary injunction or preservation of property, or both, can be filed both before and during litigation. When necessary, the courts may decide to issue such an order on their own initiative. When the courts decide to grant the order, the applicants for preliminary injunctions or preservation of property, or both, are required to provide a security. The courts shall dismiss the motion if the applicant fails to provide the security at the request of the courts. With regard to the pretrial injunction, the courts shall revoke the order if the applicant fails to file a lawsuit or arbitration within 30 days of the date on which the courts issued the order.

Legislative framework and causes of action

China has a comprehensive and integrated legal framework for trademark protection based on domestic legislation and international IP treaties and conventions. The Trademark Law and its implementing regulations are the primary sources of law on trademark protection in China.

In addition to the above, the following apply:

  • the Civil Code;
  • the Civil Procedure Law;
  • the Criminal Procedure Law;
  • the Anti-unfair Competition Law;
  • the Copyright Law;
  • the E-commerce Law;
  • judicial policies, interpretations and guidelines issued by the Supreme People’s Court (SPC);
  • rules, regulations or guidelines on trademark protection issued by the competent authorities;
  • guiding or typical cases published by the SPC; and
  • reference cases published by local high courts.

As a general rule, only registered trademarks are protected under the Trademark Law. To protect unregistered trademarks, the rights holders may:

  • seek well-known trademark recognition to stop the use of the infringing trademark on similar goods or services if the cited and infringed trademark has been used but not registered in China;
  • seek well-known trademark recognition to stop the use of the infringing trademark on dissimilar goods or services if the cited and infringed trademark has been registered in China;
  • file unfair competition litigation to stop the use of the infringing trademark, as the Anti-unfair Competition Law prohibits the use of influential trade dress and product, trade, institutional and personal names (including pen, stage and translated names) as well as distinctive elements in domain names, among others; and
  • file copyright litigation if the unregistered trademark is subject to copyright protection.

The courts have rendered verdicts holding that the sale of parallel imported goods constitutes trademark infringement if there are substantive changes in product packaging, or differences in terms of quality or trademark use, between the authorised goods and the parallel imports. The courts have also rendered verdicts that outline the criteria for determining infringement regarding trademark use related to original equipment manufacturer (OEM) goods that are produced in China and intended only for exportation without sale in China.

In recent years, trademark squatters have initiated litigation to compel real trademark owners to either pay damages or purchase back trademarks registered in bad faith at very high prices. The courts have gradually developed a consistent practice of dismissing those cases on the grounds that such litigation constitutes abuse of rights by trademark squatters.

The SPC has issued guidelines making it clear that if, in an IPR infringement lawsuit, the defendant submits evidence to prove that the lawsuit filed by the plaintiff constitutes abuse of rights and has damaged the defendant’s legitimate rights and interests as prescribed by law and the defendant requests the plaintiff to compensate for reasonable expenses, the court shall support the request. The defendant may also file a separate lawsuit to require the plaintiff to compensate for such reasonable expenses. Such SPC guidelines are aimed at deterring trademark litigation filed in bad faith.

Administrative and civil litigation

Trademark litigation falls into the following categories in terms of applicable laws, procedures, nature and objectives.

Administrative litigation involves the judicial review of:

  • decisions or rulings on official refusal, opposition, invalidation and non-use cancellation, among other things, rendered by the Chinese National Intellectual Property Administration (CNIPA);
  • other specific trademark-related administrative acts performed by the CNIPA and the State Administration for Market Regulation; and
  • decisions or rulings on trademark infringement rendered by the local administration for market regulation (AMR).

Civil litigation involves:

  • trademark disputes relating to:
    • infringement and unfair competition;
    • ownership; and
    • transfer, licensing and agency contracts;
  • before or during litigation, motions for:
    • preliminary injunctions;
    • property preservation; and
    • evidence preservation;
  • motions for non-infringement declaratory judgments; and
  • other trademark-related disputes.

Criminal litigation

The following acts carry criminal liabilities:

  • passing off registered trademarks;
  • selling goods on which registered trademarks owned by others are used; and
  • illegally manufacturing the labels of registered trademarks owned by others or selling such illegally manufactured labels.

Criminal litigation is usually filed by the procuratorates after the Public Security Bureau (PSB) has completed its criminal investigations and handed over files and evidence to the procuratorates. The PSB may open criminal investigations on its own initiative, or in response to complaints filed by the rights holder or after the cases have been handed over to them by the AMR.

The SPC urges local courts to hold three-in-one trials for judicial efficiency and consistency if trademark issues are simultaneously involved in pending administrative, civil and criminal lawsuits.

Alternative dispute resolution

Trademark disputes can be resolved through negotiation and mediation during civil litigation. The court may act as a mediator, or direct the parties to work with the court-designated external mediators or mediation centres. The SPC has been urging the courts to rely on alternative dispute resolution (ADR) mechanisms to deliver efficient and diversified in IP protection. During civil litigation, the courts will always ask the plaintiffs and defendants whether they want to settle disputes through ADR.

Arbitration serves to resolve civil trademark disputes, provided that the parties agree in writing to arbitration. Mediation and arbitration are generally not employed in administrative and criminal trademark litigation unless the rights holder files an incidental civil litigation in combined criminal and civil proceedings, and the parties choose to mediate a settlement agreement on the civil claims over damages.

Litigation venue and formats

The courts in China have four levels of hierarchy:

  • basic people’s courts (eg, the people’s courts at district or county level);
  • intermediate people’s courts, including the specialised IP courts in Beijing, Shanghai and Guangzhou;
  • high people’s courts in each province, autonomous region or municipality directly under the central government; and
  • the SPC.

Some basic people’s courts and intermediate people’s courts have cross-regional jurisdiction over IP-related cases according to SPC guidelines.

Forum shopping

Forum shopping is not available for administrative litigation.

Courts at the defendant’s domicile, the locations of occurrence of the infringing acts or the locations where the infringing products are stored, seized or detained by administrative authorities (eg, the AMR, customs office or PSB) have territorial jurisdiction over infringement cases. The locations of occurrence of the trademark-infringing acts are where infringing acts or the outcomes thereof take place.

Specialised IP courts and IP tribunals have more expertise and experience in handling IP disputes. Courts in more economically developed provinces and areas are more pro-IP and tend to grant higher damages. It is recommended that the plaintiff file the trademark litigation to the specialised IP courts or tribunals. It is also an effective strategy to identify every player involved in the trademark infringement and select the court most preferred by the plaintiff to file the litigation.

Internet courts in Beijing, Hangzhou and Guangzhou have jurisdiction over disputes arising from online infringement and transactions. Almost all proceedings at the internet courts are conducted online for the convenience of all parties involved.

The courts at the defendant’s domicile or the location of the server of the e-commerce trading platform have jurisdiction over litigation against an internet-based trademark infringement.

Jury versus bench

Trademark litigation is usually heard by a collegiate bench of three (most often) or five members. At the trial court, the collegiate bench may comprise judges only, or judges with one or two people’s jurors. People’s jurors are not included in a collegiate bench at the appellate courts.

Damages and remedies

The following remedies are available in trademark infringement litigation:

  • injunctions (preliminary and permanent);
  • damages (including punitive damages); and
  • public apologies or declarations aimed at undoing the negative effects of the infringing acts.

Damages for trademark infringement are calculated with reference to one of the following factors:

  • losses of the plaintiff;
  • profits of the defendant;
  • a reasonable multiple of the trademark licensing fees when it is difficult to determine the plaintiff’s losses or the defendant’s profits;
  • statutory damages of up to 5 million yuan when it is difficult to determine the plaintiff’s losses, the defendant’s profits or the trademark licensing fees; or
  • punitive damages for grave trademark infringement in the amount of one to five times the base amount damages determined with reference to plaintiff’s losses, the defendant’s profits or the trademark licensing fees.

Damages include reasonable expenses spent by the plaintiff on the trademark enforcement actions.

The SPC has directed the courts to use market value as a benchmark for determining damages in IP litigation. It has also directed the courts to award punitive damages to ensure that the damages in total are commensurate with the market value of the IP rights in dispute and the punitive damages in particular can deter trademark infringement. In response to requests from the plaintiff, the court may exercise discretion and impose punitive damages on defendants committing intentional and egregious trademark infringement and acts of unfair competition.

In light of present practice and the trend for courts to award substantial damages, as well as punitive damage in some cases, the rights holders should consider relying more on litigation to obtain stronger protection and seek damages in China.

Trademark litigation holds more of a deterrent power if it can hold individuals liable for trademark infringement. In recent years, the courts have rendered verdicts that have held legal representatives and shareholders jointly or severally liable for infringements perpetrated by their companies, defeating their attempts to evade trademark infringement penalties by abusing the independent legal person status of the company or the limited liabilities of shareholders.

In one case, the Chinese courts have rendered a verdict ruling that, as the co-defendant, a Chinese trademark agency providing assistance to the defendants in bad-faith trademark filings committed an act of unfair competition and should pay compensatory damages to the plaintiff. The courts’ verdict offers rights holders new tools in fighting bad-faith trademark filings and trademark-related infringement.

Evidencing the case

According to the Civil Procedure Law, motions for preservation of property can be filed to the courts during litigation if it is likely that the evidence may be destroyed or lost, or it will be difficult to obtain the evidence later. In an emergency, motions for preservation of property can be filed to the courts before litigation or arbitration if it is likely that the evidence may be destroyed or lost, or it will be difficult to obtain the evidence later.

Investigations and first steps

Investigations are necessary and can be vital. Investigations are conducted for multiple purposes, including:

  • collecting facts and evidence to support the litigation;
  • spotting the strengths and weaknesses of both the plaintiffs and the defendants to help the rights holder build a strong case, and an adequate and strong future trademark portfolio; and
  • formulating a well-informed trademark litigation strategy and tactics.

Legal counsel should always be closely involved when working with internal or external investigators by offering input into investigation plans and overseeing investigations to ensure that the evidence obtained complies with the rules of evidence. Relevant and particularly important evidence must be notarised. Legal counsel must review and ensure the legality of the evidence obtained during investigations because evidence procured through dubious or illegal means may be excluded or compromising.

Survey evidence

Survey evidence is not mandatory and is often challenged. In practice, survey evidence has been filed to the court in difficult cases for reference purposes. The SPC and local courts have accepted survey reports as evidence. The referential value of survey evidence for the judges to determine cases should not be ignored.

Use of expert witnesses

Expert witnesses are permitted in trademark litigation cases and are often engaged to provide expert opinions, especially in cases of first impression. Courts may also consult experts for their opinions on difficult issues. Economic experts can be helpful in ascertaining payable damages. Expert opinions may not be cited by judges.

Available defences

The following defences can be raised when facing trademark infringement charges:

  • no trademark infringement;
  • no likelihood of confusion because there are no similarities in terms of the trademarks, goods or services;
  • the plaintiff’s trademark is invalid or declared invalid owing to its non-compliance with the Trademark Law;
  • legitimate, fair, prior, authorised or licensed and prior rights (eg, use of prior trade names, copyrights or design rights) use;
  • legitimate product source and no knowledge of trademark infringement;
  • exhaustion of trademark rights;
  • laches or loss of statutory limitations;
  • no infringement in OEM cases where all the OEM products are exported only to a foreign country or region and the mark used on the goods is owned or duly registered by the party that has ordered the OEM products in the destined country or region;
  • safe harbour for internet service providers;
  • lack of standing to sue or be sued;
  • lack of jurisdiction; and
  • unclean hands or abuse of rights.

The SPC has dismissed trademark infringement lawsuits on the grounds of abuse of rights.

Appeals process

A domestic party may file an appeal within 15 days of receipt of a first instance judgment, while a foreign party may file an appeal within 30 days. Parties may still file new and supplementary evidence to the appellate court.

The appellate court will review both factual and legal issues. It usually takes six to nine months for the appellate court to render its judgment, which is final and effective. The timeframe for court proceedings will be longer if one of the parties is a foreign entity or national.

The plaintiffs or defendants may apply for a retrial of effective judgments within six months of the effective date of the judgments. The higher-level courts will review and decide whether to accept retrial applications. For a retrial application to be accepted, it usually requires new and substantial evidence that could overturn the effective judgment or clear mistakes in procedural issues, fact findings or applications of law.

In rare circumstances, the people’s procuratorates have powers to supervise the adjudication of civil cases and may do so ex officio or at request of the parties involved in the civil cases.

Any party can appeal before the appellate court.

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