Enforcement strategy – litigation vs administrative actions
Guanyang Yao and Ran Wang of Liu, Shen & Associates weigh up the pros and cons of pursuing both civil litigation and administrative action when seeking IP protection in China
When it comes to enforcement strategy, most IP practitioners in China may recommend civil IP litigation. This would make sense, since there is one Supreme Court IP tribunal, 32 local high courts, four IP specialised courts and 27 local IP specialised tribunals nationwide to handle over 200,000 IP lawsuits annually. But in recent years, there has been another route attracting the attention of IP rights holders: administrative actions.
Litigation vs administrative actions
Civil litigation and administrative action both have their own characteristics. One of the critical differences is on the timeline and speed: it generally takes one and a half to two years for civil litigation to go through the first instance, and another six months to a year for the second instance which is final and effective for the injunction. Meanwhile, it takes four to six months for the administrative action to issue the injunction. However, the administrative injunction is still subject to judicial review from first instance to second instance before taking effect.
Even so, such an administrative injunction is still useful, especially when the accused products are being sold via online e-commerce platforms. Such online platforms are very cautious when facing administrative injunctions, since they shall bear the responsibility of being fined if they intentionally ignore the injunction. When they know the injunction has already been issued, no matter if it is effective or not, they generally will take down the products’ online links. Those links are precious to the sellers since accumulated sales amounts and good comments are shown on the webpages via those links.
There are multiple perspectives to understand why the administrative actions are much faster. Importantly, the core value of the administrative procedure is to pursue efficiency. Therefore, there generally would be only one-time hearings for the examiners in the administrative procedure to hear the entirety of the case. In civil litigation, there would be one or two pre-hearings for judges to exchange the evidence between the parties and briefly review all the evidence and arguments before the formal hearing.
All this originates from the core value of civil litigation, which is to pursue justice and fairness. Under this principle, both parties in the litigation are provided enough opportunities to present their opinions, and arguments from both parties should be listened to carefully before asking for responses. Therefore, the judgment is generally longer and more complicated than administrative decisions, which does not need to present sufficient reasonings and explain in detail the application of law based on technical facts and evidence.
Moreover, little chance is provided to the defendant in administrative actions to file an opposition to jurisdiction. Even if such opposition was filed, the speed of handling such opposition is very fast, within three to five business days. However, in civil litigation, it generally takes four to six months for the opposition to be adjudicated from first instance to second instance.
Another important point regarding administrative actions is that there is only the injunction available to be decided and issued, and no damages shall be assessed and awarded to the plaintiff. In this situation, evidence on damages shall not be submitted and examined, and no calculation shall be made. Only in civil litigation can the damages be decided. This may cause IP practitioners to believe that the administrative action is a good ‘venue’ to confirm the establishment of infringement. After the infringement is confirmed in the administrative action, which is faster than civil litigation, this good result can be incorporated into the civil litigation to pursue sizeable damages.
However, for the above strategy, parties should be careful to remember that the acts targeted in different routes should also be different. Otherwise, it would be considered as duplicated or overlapping claims, which shall be rejected by the courts or administrative authorities. For example, the civil litigation can choose to handle the acts of selling the infringing products and liability on the seller, while the administrative action handles the acts of manufacturing and the liability on the real manufacturers or original equipment manufacturers. This is reasonable since the damages can be high because the manufacturers are the sources of the infringement.
In fact, except for the speed, the detailed procedures of civil litigation and administrative actions are almost the same. The sequence is: filing of complaint and evidence with the court/administrative authority, docketing and service by the court/administrative authority, evidence exchanged between parties, pre-hearings or formal court hearings and then the issuing of decisions. However, there are some unique aspects of administrative actions since local IP authorities generally have their own thoughts on how to streamline work.
For example, the Beijing Local Patent Office established an innovative system with a ‘preparation hearing’, as a basis to combine with ‘adjudication based on record’ and ‘decision issued immediately after court hearing’. In a “preparation hearing”, the parties are asked about the evidence opinions and the main arguments on infringement. Then, based on this hearing, if the facts are clear and the legal issues are simple, there would be no more formal hearing and the case will be adjudicated simply based on the record in file. If the facts are clearly identified during the formal hearing, the examiners may discuss the case together immediately after the formal hearing to directly issue the decision. With help of the above system, the Beijing Local Patent Office said that the cycle is shortened to around two months.
Developments of administrative actions
In April 2022, the China Patent Office (CNIPA) released statistics showing that from 2019 to 2021, the number of patent infringement cases filed to pursue administrative actions rose, with around 38,600 cases in 2019, 42,400 cases in 2020 and 49,800 cases in 2021. Among these, 101,200 cases were related to online business platforms. Nearly 90% of cases were concluded based on infringement opinions and settlement or mediation negotiations. In the cases where the plaintiffs were companies, 71.5% were domestic private companies, and there were nearly 13,000 cases which related to patent infringement claims launched by foreign companies.
In addition to the statistics, CNIPA, as the top national authority to handle significant administrative actions, also released several representative decisions made since June 1 2021. Currently, almost all representative decisions are related to medicine patents. The so-called “significant administrative actions nationwide” covers significant matters of public interest, influential industry developments, major cases across provincial administrative regions and so on. Such cases shall be handled by the CNIPA in a centralised manner.
The latest significant administrative action is between Huawei and Xiaomi. On February 14 2023, it was published that Huawei, as the plaintiff, requested four administrative actions against Xiaomi based on four patents. Two cases are related to 4G/LTE SEP technologies and two cases are related to non-SEP technologies, mobile phone photography and unlocking. The involvement of high-profile high-tech domestic enterprises is attracting public attention but until now there is no further progress.
Choosing litigation or administrative actions
Although the trends surrounding administrative action are well underway, a question still remains as to the most appropriate route to take for specific cases. There are some elements which need to be considered when the enforcement strategy is being formulated. For example, one element could be the type of patent and the patented technology. If the patented technology is complicated and professional, the proposed route could be filing administrative actions in economically developed cities. Cities such as Beijing, Guangzhou and Suzhou could be options, since the local authorities there can get access to support from local patent examination centers and the examiners in these centers are technical experts in related fields.
These examiners can act as technical advisors in administrative actions to conduct the infringement mapping and provide help on the establishment of infringement. On the contrary, judges in courts generally do not have a scientific background, which makes them unable to understand the technology deeply. Although courts can also seek support from local patent examination centers, communication can be difficult as examiners and judges generally speak different technical languages.
Another consideration could be the purpose of enforcement action: injunction or damages? In most cases, it depends on the business plan and the other party’s position. If the business plan is to prevent the other party or competitor from launching new models, an injunction should be the first choice. The damages would not be that high since the sales amount for the new models would not be big. In this situation, administrative action would be preferred due to its fast speed. If the business plan is to obtain high damages due to long-time infringement of the other party causing sales of patented products to decrease, civil litigation would be the only choice since it can decide damages.
There are some other avenues to resolve disputes in the IP field.
The border protection mechanism is another battlefield for IP practitioners to fight against IP infringers. The official statistics show that in 2021, 63.79 million potentially infringing products were detained not to export and 8.02 million potentially infringing products were detained not to import by customs. Of these, 68.05 million products related to trademark infringement, 2.933 million products related to patent infringement and 815,000 products related to copyright infringement. Nearly two million products are sold through cross-border e-commerce platforms. Regarding the type of products detained, electrical devices (20.36 million pieces), tobacco products (18.48 million pieces) and clothing and shoes (6.454 million pieces) make up the top three.
There are also co-operations between customs and courts and administrative IP authorities. In 2021, the customs authorities co-operated with local administrative authorities to conduct enforcement over 400 times, and with courts on every level to retrieve records, preserve evidence and preserve assets over 200 times. The customs authorities reported 324 infringing clues to the police and transferred 71 infringing cases to the police.
The local customs are actively improving their own capabilities to enforce IP rights. Sixteen local customs authorities including Dalian, Shenyang, Changchun, Haerbin, Herfei and Xi’an invited IP rights holder associations to share infringement determination knowledge through online enforcement training programmes. Meanwhile, Nanjing Customs made an ‘online classroom series’ to spend spare time on training, and Shenzhen and Kunming Customs built IP protection training bases to develop interactive and realistic operational training.
All these initiatives have pushed border protection to a higher level, which is quite favorable to IP rights holders. IP rights holders are encouraged to register recordals for their IP rights in the Customs database, so that there would be initiatives for Customs to launch enforcement. Whether it is to collect evidence on infringing products and import/export records as damages evidence, or to directly prevent infringing products from import/export, Customs should be put on the priority list for strategic consideration.
Tradeshow complaints filing is also an alternative avenue for enforcing IP rights, especially for trademark rights and patent rights. It is regulated that, for a large-scale tradeshow over three days, IP protection offices should be established to receive complaints from IP right holders. The staff in such offices are officers from local IP authorities, which means they have the capabilities to check the infringement. The handling of such complaints is also fast and the taking down of the infringing products can usually be achieved the second day after the filing of the complaints. Especially for more mature tradeshows such as Canton fair, Shanghai International Import Expo and Beijing International Services Trade Fair, the professionalism of officers and strength of IP protection is at high levels, adding to the confidence in the Chinese IP protection system.
There is another potential avenue to handle IP enforcement: arbitration. The barrier arises as there should be a specific arbitration clause in the contract to handle IP infringement disputes between the parties. However, IP rights holders generally do not know the infringers in advance, so there would be no such contract, and they are more likely not to sign such a contract after the lawsuit is launched. But for SEP royalty-setting disputes, arbitration could be a good choice if the parties agree to take this route.