The number of decisions rendered by the Chinese Courts in IP related civil litigations has been on the rise since 2008: 23,518 domestic cases and 1,139 foreign related cases in 2008 vs. 512,999 domestic cases and 6,419 foreign related cases in 2021 (with the percentage of foreign related cases only slightly above 1%). By comparison, the number of administrative litigations, which had reached 26,465 in 2020, has begun to decrease in 2021 (21,829, down 17.5% year-on-year). 2022 statistics are not available yet, but they will probably not change course all of a sudden.

What do these figures and in particular the recent ones tell us? We could venture to say that the increase in civil litigation and the beginning of decrease in administrative litigation might ascribe to coordinated efforts of the Judiciary and the Administrative Authority. On a backdrop of legislative changes, the Judiciary aims to improve its jurisdictional and procedural environment, hence more civil cases, while the Administrative Authority takes initiatives against the filing of illegitimate IP rights, hence a slight diminution in the number of administrative cases.

Legislative changes

The negotiation between China and the United States seems to fuel the country’s legislative changes in IP and other spectrums. In 2019 and 2021, China reviewed some of its IP legislations.

The Trademark Law was quickly amended in 2019. The main change was seen in article 4 of the law, where it is provided that applications for the registration of a trademark that are filed in bad faith without intention to use the mark should be refused (the words in bad faith were added to the initial draft when stakeholders argued that certain “defensive” trademarks may be registered, not in bad faith, but in order to strengthen the protection of other legitimate trademarks that are, indeed, in full use).

The concept of patent linkage, which provides that where a generic drug producer requests the Food and Drug Administration for the authorization to put the drug in the market, a verification should be made as to whether the drug might be infringing a valid patent, was introduced by the fourth revision of the Patent Law. The Supreme People’s Court clarified the circumstances of cases where the courts may award punitive damages and introduced a new, and more user friendly, regime for the submission of foreign evidence.

Challenging as it may be for the daily lives of everyone living in China or for the conditions imposed on those who go (or return) to China, Covid-19 has not slowed down the efforts made by China in the field of intellectual property.

Procedural changes

On 12 December 2021, in order to cope with the increase of litigation (and the Covid), some aspects of the Civil Procedure Law were revised, for example, hearings could be held online, subject to the agreement of the litigating parties. Simple cases may also be adjudicated by a single judge, and even, without a formal hearing (which can be replaced by a “court talk”, a less formal type of hearing).

Jurisdictional changes

The jurisdictional rules expounding the geographical range covered by Chinese courts or tribunals and the jurisdiction thresholds over object of action (in terms of civil proceedings) had become extremely complicated and were not easily accessible to practitioners. Occasional inconsistency and ambiguity of the rules, in particular those concerning the basic level courts, further complicated the nation’s intellectual property jurisdiction landscape.

On 20 April 2022, the Supreme People’s Court (SPC), issued “Several Provisions on the Jurisdiction over First-instance Civil and Administrative IP Cases” (the new Judicial Interpretation) and the “Jurisdiction Thresholds of Basic Level People’s Court over First-instance Civil and Administrative IP Cases” to streamline the jurisdiction rules.

The new Judicial Interpretation breaks down all the intellectual property proceedings into three categories:  1) those highly technical (invention patents, utility model patents, new varieties of plants, layout design of integrated circuits, technical secrets and computer software), 2) those less technical (design patents and the recognition of well-known trademarks) or those pertinent to certain administrative authorities (Administrative actions involving the ministries, institutions, departments affiliated to the State Council, governments at or above country level or Customs ), and 3) those of general nature (“Other civil and administrative IP disputes “).

The rationale behind this is that the first two categories of cases are to be adjudicated by the more experienced judges in the specialized IP Courts and competent Intermediate Courts, while the cases of general nature could be delegated to and decided by basic level courts sanctioned by the SPC.

This reorganization of the Judiciary has important consequences for all the cases involving “other civil and administrative IP disputes”, i.e., trademarks or copyright infringement and unfair competition. It lowers their first instance level, which means that the appeal level shall be adjudicated by the intermediate courts and the re-adjudication (the “retrial”) shall only reach the provincial High Court. As a result, the SPC is normally off limits for all these cases. The good news is that the SPC can ensure a coherent and unified solution to important and complex cases, in particular through its specialized IP Tribunal set up inside the Court, the bad news is that it will be more difficult to seek a unified adjudication at the SPC level over important issues concerning trademarks, unfair competition or copyright. Therefore, there might be discrepancies between provinces.

Jurisprudence evolution

Regarding cases involving claims of unfair competition, the SPC has, by a new Interpretation of the Anti-Unfair Competition Law adopted on 20 January 2022 and entered into effect on 20 March 2022, officially endorsed the evolution of the jurisprudence started several years ago. In the past, the courts had been maintaining a rather narrow interpretation of the law. For example, when the plaintiff mainly complained about the unfair behavior of the defendant, without making reference to a specific product being copied, the courts were reluctant to issue a judgment only based on Article 2 of the law, which provides for the general principle of fairness and business ethics. This has progressively changed. Over the recent years, some high-profile cases, involving substantial amounts of damages, have been rendered by the courts of China, on the sole basis of violation of Article 2 of the law.  This evolution is fully supported by the SPC in the interpretation mention above : Article 1  When the acts of an operator, disrupting the market competition order and damaging other operators’ legitimate rights or the consumers’ interests, are not specifically described in Chapter II of the Anti-Unfair Competition Law, in the Patent Law, in the Trademark Law or in the Copyright Law, the People’s Court may apply Article 2 of the Anti-Unfair Competition Law”.

Administrative control over the registration of rights

On the administrative side, the efforts are also noteworthy.

In 2018, all the IP-related administrative agencies were merged into one, the China National Intellectual Property Administration (CNIPA), which is subordinate to the State Administration for Market Regulation (SAMR). More specifically, CNIPA regroups the new Trademark Office (CTMO), which includes the Trademark Review and Adjudication Department (TRAD), for the trademarks, and the new Patent Office (CPO), which includes the Patent Reexamination and Invalidation Department (PRID), for the patents. This is much more than a game of musical chairs where the same people, under a different name, continue to operate as before. Indeed, the CNIPA becomes the only administrative authority, who supervises the CTMO and the CPO, and is in charge of conducting research on the revision of the laws drafted and executed by these two offices. The consequence is a clear evolution toward a concerted assessment of what can be protected by an intellectual property right.

This applies, in particular, to utility models, which are rights that, in principle, are granted without a substantial examination. Not only there was no verification, but also, subventions were generously offered to encourage the filing of utility models, a policy that lasted for many years and was partly responsible for the multiplication of the so called “junk patents”. These days seem to be over. No more subventions for the filing of utility models and the examiners are requested to carefully check the new applications and refuse those that appear to be obviously “abnormal”. This is moving in the right direction. More improvement is hoped by the business community, such as the possibility to obtain the reimbursement of legal costs when the invalidation of such a “junk” IP right occurs after a long administrative litigation.

The trademark world has also suffered from a similar problem as the utility models. The number of trademark applications reached stratospheric levels of near 10 million in 2021, and it finally became obvious to the authority that this was not the healthy sign of a booming business activity. On the contrary, a large percentage of all these trademarks are never put into use. These trademarks are viewed by their owner as pure commodity that can generate a juicy profit whenever an opportunity arises to resell the mark. Until recently, the administration had only focused on lowering the filing fee (down to 300 RMB) and accelerating the registration procedure.

The CNIPA has already started to cope with this situation and instruction have been given to the CTMO examiners to scrutinize the context surrounding the application of trademarks. For example, if an operator files a substantial number of marks (this can be around 30), the examiner will send a notice requesting explanations, or evidence of the intention to use the trademarks in question. On another note, it is becoming obvious that many trademarks are refused ex officio on absolute grounds or relative grounds.

As a result of this policy change, it is becoming more and more difficult to obtain registration for bad faith trademark applications.

Now, the CNIPA is moving ahead and announced a new draft for a fifth revision of the Trademark Law to be released by the end of 2022.

Everyone tries to anticipate what is coming. The CNIPA offers some clues in its official response to a proposal tabled by 15 members of the fifth session of the 13th National Committee of the Chinese People’s Political Consultative Conference (C.P.P.C.C.) re the “Expedition of the Amendment to Trademark Law and the Regulations for the Implementation of the Trademark Law” in August 2022. It seems that changes could strengthen the obligation to use a registered trademark, such as a declaration of intent and possible periodical checks. We could also see the introduction of a claim to obtain the assignment of a trademark registered in bad faith. Most of these proposed changes will probably be welcome.  Maybe not all… for example, there is one particular issue of concern for those trademark holders who had to go through the lengthy (and costly) procedure of invalidation of another registered trademark and find out, when they can finally lodge a civil litigation, that the court refuses to award damages for the period of use before the decision of invalidation unless evidence of bad faith is produced. Such a requirement is obviously inconsistent with the law which does not condition the award of damages to the proof of bad faith (this is only the case for punitive damages).

In conclusion it maybe said that by moving into the direction of a more efficient system of civil litigation, and at the same time, moving to tighten the condition of registration of IP rights, China is entering a stabilizing phase of its development. There will be less and less “junk” IP rights and the legitimate ones will be better protected.

Authored by Bai Gang & Paul Ranjard