China's evolving specialist courts
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China's evolving specialist courts

Guanyang Yao and Ran Wang of Liu Shen & Associates discuss the characteristics, judges and increasing caseload of China's three IP specialist courts

How many specialist courts are there and where?

Guanyang Yao: Three IP specialty courts are currently established in Beijing, Shanghai and Guangzhou as a pilot-project, with the aim of improving quality, professionalism, and uniformity in IP litigation in China.

Ran Wang: All of these three courts are intermediate courts, with local high courts serving as the appeal courts. All of these specialist IP courts were established at the end of 2014.

What types of cases do they hear?

Guanyang Yao: The Beijing IP Court, Shanghai IP Court and Guangzhou IP court hear different types of cases, but they still have a lot in common.

All three IP courts have the authority to hear the following cases: (1) civil infringement and administrative lawsuits regarding patents, new varieties of plants, trade secret and computer software; (2) administrative appeals against administrative decisions on copyright, trademark, unfair competition made by local government or State Council departments; (3) cases concerning recognition of a well-known trademark; and (4) all the IP appeals against judgments handled by first instance district courts on copyrights, trademark, technical contracts, unfair competition and so on.

The Beijing IP Court has special jurisdiction over the following cases: (1) administrative appeals related to patent application rejection decisions, patent invalidation decisions, patent application reexamination decisions, trademark review decisions, trademark invalidation decisions, trademark opposition decisions and decisions on new varieties of plants and layout-design of Integrated Circuits and (2) administrative appeals against rulings on compulsory licenses or fee arrangements concerning patents, new varieties of plants and layout-designs of Integrated Circuits.

The Guangzhou IP Court has jurisdiction over the whole Guangdong province on the above type (1) civil infringement and administrative lawsuits regarding patents, new varieties of plants, trade secret and computer software and the above type (2) cases concerning recognition of well-known trademarks.

Ran Wang: In short, these IP courts only hear the cases relating to IP issues, such as patent, trademark, copyright, trade secret, etc. Since the Reexamination Board of the Chinese Patent Office and Trademark Office is located in Beijing, the Beijing IP court has the power to hear the administrative cases against the Reexamination Board of Chinese Patent Office and Trademark Office brought for not satisfying the decisions made by these offices.

How many judges are there in each court?

Guanyang Yao: Although there are no official statistics about the numbers of judges in each court, we can make some estimation based on the judgments issued by each court.

As to the Beijing IP Court, around 60 judges including judge assistants have appeared in judgments. Of these judges, Judge Yong Chen was the leader of all the judges with 646 judgments. Judge Rui Songyan handled 437 cases from 2014 to 2016 including 114 copyright cases, 216 trademark cases, 70 patent cases and 4 unfair competition cases.

As to the Shanghai IP Court, around 20 judges have appeared in the judgments. Of these judges, Judge Hu Bi made 559 judgments from 2014 to 2016, including 445 copyright cases and 109 patent cases.

Regarding the Guangzhou IP Court, around 25 judges have appeared in the judgments. Of these judges, Judge Gong Lintian made 361 judgments, hearing the most of all the judges, including 212 copyright cases, 48 trademark cases and 75 patent cases.

Ran Wang: With so many cases, I am afraid that the judges in each IP court will be very busy, and it can be anticipated that the number of judges will be increased in the near future.

Are there any notable differences in procedures or practices?

Ran Wang: Countries with advanced law systems have their own solutions, such as technical judges in Germany, technical investigators and experts committees in Japan, technical examiners in Korea and technical witnesses or technical appraisal in the United States.

Guanyang Yao: In China, a new system called technical investigator was established in 2014. Technical investigators will be assigned by the court to civil and administrative cases requiring strong technical backgrounds such as patents, new plant variety, lay-out IC, trade secret, computer software, and so on.

The use of such technical investigators is designated as judicial assistance, and they are chosen by the courts from technical experts with special knowledge. Although the detailed standards of the investigators are not clearly regulated, as a practice, the courts prefer to choose those who have certain degrees on science, sensitive to technical developments, have technical experiences and are familiar with the common knowledge in the related field.

Ran Wang: The courts have special management of the technical investigators. There are two conditions to be simultaneously met for the technical investigators to participate in lawsuits. The first is that there is real need for the lawsuit and the second is that the technical investigators should be assigned by the court, with the purpose of reducing the influences from social networks or relationships.

It is mandatory for the investigator to be listed in the judgment with his/her identity and name, which is designed for encouragement and responsibility. The involvement of the technical investigators is open to challenge and such challenges are decided by the president of the court.

The purpose of the technical investigators is to help judges correctly understand and handle the technical issues related to the cases. The technical investigators have the authority to review documents and evidence, investigate technical details, interrogate the parties and attend court hearings. In all these legal proceedings, it is still the judges that are taking the leading role and the technical investigators should follow the judges' instructions. For example, during the court hearing, the technical investigators have the authority to ask questions to both parties under the permission from the courts. Such permission is oriented to avoid the possibility that the investigators would not fully understand legal procedure.

The technical investigators are not empowered to provide tendentious opinions. All that the technical investigators may do is help the courts to understand technical facts, and they may not lead the courts to one party to destroy the independence of the courts.

The most important difference between the technical investigators and the expert witness lies in the fact that the technical investigators are strictly chosen by the court to investigate with technical details to provide internal secondary references to the courts while the experts are hired by any parties to provide evidence to support their claims.

There are still problems in the system of technical investigators. For example, it is not clear that opinions from technical investigators are open to the public for the following reasons. One is to reduce the procedural burden of exchanging arguments and cross examining those opinions. The other is to avoid the damages to efficiency caused by the parties putting too much attention on the opinions from the technical investigators. Debates have arisen which discuss whether to mandatorily disclose such opinions from the technical investigators to the public. We will be expecting developments in the future.

Guanyang Yao: The first case in China to involve such technical investigators was in the Guangzhou IP Court on April 22, 2015 related to copyright disputes between the Guangzhou Happy Network Digital Technology and the China Unicom Guangdong subsidiary.

In the Beijing IP Court, the first case to involve the technical investigator is a patent administrative dispute. An examiner from the SIPO Beijing Center attended the court hearing for the first time. In total, 37 technical investigators are currently present in the Beijing IP Court, who are from technical institutes, universities such as Beida and Tsinghua and also the SIPO Beijing Center, covering technical fields such as telecommunication, medicine, bio-chemistry, materials, mechanics and computer science and so on.

Ran Wang: Besides the technical investigator, the court may also invite experienced technicians, university professors, etc. as a member of the panel, a so-called people jury, and who works as a judge.

What factors should IP owners consider when deciding to bring an action before one of the IP Courts?

Guanyang Yao: The IP owners should first consider whether his/her IP rights are stable enough to survive the challenges of IP rights. Take a patent right as an example. It is permissible for defendants to request patent invalidation when a patent infringement case is initiated. The Patent Reexamination Board will review the patent to provide opinions on patent validity. There would be some risks to the patent at issue being finally invalidated, bringing the patentee into an unfavorable situation. This is also true for trademark holders. For trade secret cases, it would be somewhat difficult to prove the alleged "trade secret" is the real trade secret. One obstacle would lie in how to prove what measures have already taken up to keep such information secret.

Then, IP owners will consider venue shopping issues. Some key issues will influence the results of the lawsuit, such as whether the judges are experienced in the related field, whether the judges are favorable to IP owners to issue injunction and award high damages, whether there are large case loads pending in the court and so on. Another important principle is to avoid lawsuits to be heard where the defendant is domiciled and where the defendant is influential in the local economy. A good strategy is to file the lawsuit before the court where they are is selling the infringing product and sue the seller plus the manufacturer since the place of the seller can often be Beijing, Shanghai or Guangzhou.

Ran Wang: Another factor for IP owners to consider is what the damages would be. The amount of the damages will be impacted by the court fee, social influences, the level of jurisdiction (intermediate court or high court) and so on. Claims for high damages, for example over 1 billion RMB, will definitely be put into spotlight.

Guanyang Yao: The IP owners shall also consider the way to discover evidence. Since there is no US-style discovery in China, the burden of proof is on the IP owners' side. Sometimes IP owners might send a cease and desist letter in advance, but this would not be a good legal practice in China because the cease and desist letter will alert the accused infringers to hide the infringing products, causing the IP owners great difficulties to have access to admissible evidence. It is the law that the parties have the right to request the court to preserve evidence, but such a request would not always be successful. As a proposal, it would be favorable for IP owners to prepare all the evidence before moving forward with the cease and desist letter or lawsuit. The evidence most difficult to collect is the evidence to prove damages. No infringers would agree to submit their profit reports. However, in April 2016 the Supreme Court released "Judicial Interpretation II on Patent Infringement Cases" to empower the courts to order accused infringers to provide evidence on damages in the situation that preliminary evidence on profits has been provided by the Patentee and accounting documents are controlled by accused infringers. Otherwise, damages shall be calculated based on evidence provided by the Patentee. This is a breakthrough from the traditional burden of proof, with the intention to deal with the low damages problem in legal practice.

What factors should defendants consider when defending actions in the IP Courts?

Guanyang Yao: One strategy of the defendants may be to try their best to postpone or delay the whole legal proceedings. Several ways can be used, such as requesting the court to involve a third party, filing an objection to jurisdiction, requesting the court to preserve evidence and make a technical appraisal.

If the third party is a foreign company, such a company could file identity documents, notarized and legalized, which will further delay the court examination for three more months. Any objection to jurisdiction will also extend the court pendency to over two months. During this period, especially for the patent cases, the Patentee may have enough time to search for prior art to request the invalidation.

Ran Wang: Particularly for patent cases, the Patentee also has the right to request a stay of the proceedings if the Patentee files such an invalidation request within a certain response deadline, generally 15 days from the receipt of complaints. The patentee has prior art defense, non-infringement defense, prior use defense, legitimate source defense and exhaustion of right defense. This would also be similar to trademark cases. As for trade secret cases, the holder of the trade secret has the right to request a non-public trial.

Are any trends emerging so far in the IP courts (e.g. volume of cases, outcomes, nature of trials)?

Guanyang Yao: Overall, the number of cases accepted by the IP courts is largely on the rise.

Ran Wang: Taking the Shanghai IP court as an example, in 2015, 1641 cases, including 823 civil first trial cases, 802 civil second trial cases, one civil retrial case, 14 injunction cases, and one administrative case were accepted by the court. Compared with 2014, the civil first trial cases increased by 90.51%, the civil second trial cases increased by 335.87%, and the lawsuit damages are increased in which there are 25 lawsuits with damages over 5 million RMB.

For the outcome, with respect to the civil IP cases in the Beijing and Guangzhou IP courts, about 70% cases are favorable to the plaintiff, while in the Shanghai IP courts, about 70% cases are favorable to the defendant. With respect to the administrative cases, more than 80% cases are decided to maintain the administrative decision.

Guanyang Yao: The nature of the trial, I believe, still focuses on the review of evidence. Strict requirements are set on the formality of the evidence. For example, the evidence should be submitted within a certain deadline, and evidence formed outside mainland China should be notarized and legalized. Furthermore, trials before the Guangzhou IP Court are broadcast live via the court's official website for almost all cases.

Are any changes expected in the IP courts in the near future?

Guanyang Yao: With the successful establishment and operation of the IP courts in Beijing, Shanghai, and Guangzhou, it can be expected that more and more IP courts will be established in the near future, especially in some "hot" districts like Nanjing, Shenzhen, Tianjin, Suzhou, etc. and the Supreme Court is planning to establish a IP appeal court to hear the second trial of the IP related cases.

Ran Wang: For the current IP courts themselves, as pilots and accompanied by the ongoing fourth amendment of Chinese Patent Law, some new changes can be anticipated: damages will be increased, punitive damages will be introduced, and indirect infringement cases will be accepted.

Guanyang Yao: In addition, improvements in the quality of justice, time and cost efficiencies of the proceedings, as well as consistency and uniformity, can also be anticipated. Moreover, all the IP case judgments will be published on the internet for the public to review, which improves the transparency of IP trials.

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