The Judicial Committee of the Supreme People’s Court in China recently issued a new judicial interpretation regarding injunctions in IP disputes, which officially came into effect on 1 January 2019. The new rules, which are officially titled “Provisions of The Supreme People’s Court on Several Issues Concerning the Application of Laws in Adjudication of Action Preservation Cases Involving IP Disputes” (herein referred to as “the Provisions”), provide some clarification on the existing procedures for applications for interim injunctions (including both preliminary and interlocutory injunctions) in IP cases.
Historically, Chinese courts are cautious in the issuance of interim injunctions, and there are few rulings showing how the courts assess the legal merits underlying the granted cases. Nevertheless, the courts seem to be increasingly willing to use injunctions as a remedy for protecting IP rights, especially since the establishment of the specialised IP Courts and Tribunals. For example, the Fuzhou Intermediate People’s Court recently issued a preliminary injunction against Apple in connection with two patents asserted by Qualcomm. The newly implemented Provisions are therefore important in shedding light on the existing procedure and standards, including when injunctions should be enacted and the relevant application requirements. This article aims to summarise a number of noteworthy aspects of the Provisions.
Types of Rights Holder who may File for a Preliminary Injunction
In the new Provisions, a licensee’s standing in terms of interim injunction applications is clarified. Exclusive licensees are allowed to independently file for an interim injunction before a judgment, ruling, or arbitral award takes effect through submission to a court. A licensee under a sole licensing contract may submit an application for an interim injunction on its own, provided that the licensor does not submit such an application. Finally, those that are granted a normal non-exclusive licensing contract may, upon being expressly authorised by the rights holder to file a lawsuit in its name, submit an application to the court on its own for an injunction.
The “Urgency” Requirement
Article 6 of the Provisions provides for circumstances that are classified as “urgent situations” under Articles 100 and 101 of the Civil Procedure Law as amended in 2017, where the absence of an immediate interim injunction will significantly impact on the interests of the IP owner. They include:
- Imminent illegal disclosure of the applicant’s trade secret
- Imminent harm to the personal rights of the applicant, e.g. the right to privacy
- The disputed IP rights are about to be disposed of illegally
- Existing or imminent infringement in time-sensitive situations such as trade fairs
- Existing or imminent infringement of time-sensitive popular TV/radio programmes or movies
- Other situations which require an immediate interim injunction to prevent substantial harm to the applicant’s interests
The last situation in the list provides the courts discretion to accept any circumstances which compel an applicant to apply for an interim injunction. Nonetheless, it is still crucial to submit the application as early as possible, considering the strict interpretation of the “urgency” requirement by the courts.
Factors Considered by the Court in Granting a Preliminary Injunction
The factors outlined the Regulations appear to be similar to the test generally applied by US courts in determining whether to issue preliminary injunctions. These factors are:
- The factual and legal basis for a preliminary injunction, including the stability of the applicant’s underlying IP rights
In practice, in assessing the validity of the IP rights, the courts would consider:
○ The type of IP rights
○ Whether the IP rights have undergone substantive examination before grant (e.g. invention patents compared with utility models and design patents)
○ Whether the IP rights are challenged, e.g. pending invalidation proceedings, and the likelihood of invalidity
○ Whether the ownership of the IP rights is in dispute, etc
- Whether the absence of an interim injunction will cause irreparable harm to the legitimate interests and rights of the applicant. “Irreparable harm” is a key factor in granting injunctions. Compared to US courts, which typically conclude that the requirement of “irreparable harm” is met once “likelihood of success on the merits” is established in IP cases, the threshold for establishing irreparable harm in China is traditionally higher
Circumstances that constitute such “irreparable harm” are provided in Article 10 of the Provisions, which include (*non-exhaustive):
○ The defendant’s conduct causing unrecoverable harm to business reputation or personal rights (e.g. the right of goodwill)
○ The defendant’s conduct causing “uncontrollable infringement” and causing significant increase to the damage to the applicant
○ The defendant’s conduct resulting in evident decrease of market share in the relevant market
- Whether the harm suffered by the applicant as a result of the absence will exceed the injury suffered by the respondent as a result of enforcement of injunction
- Whether implementation of the injunction will compromise the public interests. For example, for pharmaceutical patents, public access to drugs and drug safety would be the primary determinants in this aspect
The Requisite Bond Amount
As stated in Article 11 of the Provisions, the applicant must post a bond in an amount that is equivalent to the loss which the defendant could suffer as a result of the implementation of the interim injunction, including reasonable loss of sales proceeds, storage expenses of the products, and other justifiable expenses. Furthermore, if the bond amount is found to be inadequate during the enforcement of the interim injunction, the court may order for additional security to be paid by the applicant or limit the injunction.
Previously, different Chinese courts could apply different rules with regard to the amount of bond. For example, some courts in China may have only required 20% of the amount of damages claimed in the litigation depending on circumstances. Article 11 of the Provisions is therefore significant in bringing about consistency in terms of amount of bond required across courts and judges in China, as well as with many other jurisdictions (e.g. Germany).
Wrongful Application for Interim Injunction
Article 16 of the Provisions introduces the concept of “wrongful application” where the preliminary injunction will be found to have been granted in error. If a wrongful application was filed, the defendant can file a lawsuit to claim compensation. It appears that this concept was likely introduced so as to encourage the courts to adopt a less stringent attitude in their assessment of interim injunction applications, and to disincentivise IP owners from applying for interim injunctions without carefully assessing the stability of the asserted IP rights and the likelihood of infringement.
A number of “wrongful application” situations are set out in the Provisions, which include:
- The applicant fails to file a civil lawsuit on the merits within 30 days after the interim injunction is implemented
- The IP rights for which protection is sought are declared invalid
- The court ultimately finds that the defendant’s conduct does not constitute IP infringement or unfair competition
- Other circumstances where the applications were considered wrongful
Owing to the fact that IP litigation in China can be time consuming, the preliminary injunction procedure is becoming an increasingly popular tool for protecting the rights and interests of IP owners. The new Provisions are a significant step towards clearing uncertainty as they outline a more explicit legal basis for the courts to make decisions and for IP owners to manage their expectations on their injunction applications. Moreover, the issuance of the Provisions together with the high-profile Qualcomm court case in which two preliminary injunctions were granted against Apple demonstrate China’s effort to improve the efficiency and robustness of their juridical system by aligning their practice with international standards.