China Improves Rules on Injunctions in IP related Disputes

Chinese Supreme People’s Court (“SPC”) passed “Provisions on Several Issues in relation to Behavior Preservation Cases in Adjudicating Intellectual Property Disputes (最高人民法院关于审查知识产权纠纷行为保全案件适用法律若干问题的规定) (“Provisions”) on November 26, 2018 which entered into force on Jan. 1, 2019.

Behavior preservation, which is a term used by Chinese Civil Procedure Law, is the same as a preliminary injunction in common law system. Previously, rules connected to behavior preservation were scattered throughout several laws and judicial interpretations in China, such as Civil Procedural Law, Patent Law, Trademark Law, and their judicial interpretations issued by the SPC. Although the above laws and judicial interpretations provide for an injunction approach, they do not provide detailed guidelines on what factors a court should consider, and how a court should balance these factors in determining whether to grant an injunction. Aiming to unify the rules and judicial practices, and to maintain consistency across courts and judges at all levels, the Provisions have been passed to regulate behavior preservation for all IP related disputes in China.

Below are key points from the Provisions:
I.In addition to the right owners, the party who is solely entitled to file for a preliminary injunction includes exclusive licensees. A licensee under a sole license may submit an application on its own for an injunction if the rights holder does not file such application. A licensee under a normal license may also submit an application for an injunction if the licensee is specifically authorized by the right holder.
II.Application for an injunction shall be submitted to a competent court at the location of the respondent.
III.Prior to granting an injunction, the court shall, communicate with both the applicant and the respondent, except for an urgent situation.
IV.The factors the court should consider in granting an injunction include: 1. the factual and legal merits of the application including stability of the validity of the IP; 2. whether failure to grant an injunction would bring irreparable injury to the applicant or would make a judgment hard to be enforced; 3. whether the injury suffered by the applicant without granting an injunction will exceed the injury suffered by the respondent caused by an injunction; 4. whether the injunction would jeopardize the public interest.
V.One of the following circumstances will constitute “irreparable injury”: 1. the respondent’s behavior harms the applicant‘s business goodwill, right of privacy and etc., which would not be recovered; 2. the respondent’s behavior will make the infringement uncontrollable, which would substantially increase harm to the applicant; 3. the respondent’s infringement will cause a significant reduction in the market shares of the applicant.
VI.An applicant is required to provide security in an amount equivalent to the loss which may be incurred by the respondent as a result of the injunction, including reasonable loss of sales proceeds and warehouse expenses of the products to be caused by imposition of in injunction.
VII.If any party objects to the injunction order and applies for reconsideration, the court shall examine the application and make a ruling within 10 days from receipt of the application for reconsideration. The preliminary injunction will remain enforceable during reconsideration and any subsequent proceeding until final judgment.

Interestingly, these Rules have been illustrated in the Chinese court’s granting Qualcomm injunctions against Apple. On November 15, 2017, a court in Fuzhou city, Fujian province of China (‘Fuzhou Court”) accepted the lawsuit initiated by Qualcomm against Apple with respect to the dispute over infringement of invention patents, a part of a global patent dispute between the parties. During the legal proceeding, on July 10, 2018, Qualcomm applied to the Fuzhou court for two injunctions in relation to its two patents (Patent No.ZL201310491586.1 and Patent No. ZL200480042119.X). Upon the request of Qualcomm, the Fujian branch of Bank of China issued two guarantee letters, each of which amounts to RMB 300 million (approximately US$44 million) , for Qualcomm to secure Qualcomm’s applications for two injunctions.

Based on the copy of patent register of the invention patents involved and relevant prima facie documents, the Fuzhou Court first found that i) patent involved was currently valid and patents involved had been fully maintained valid in the invalidation procedure of the patents; ii) the technical features adopted in the technical solutions of certain iPhone products are same as certain patent claims in the patents owned by Qualcomm; iii) Apple sold the products which were suspected to infringe the patents of Qualcomm in China.

The Fuzhou Court then upheld Qualcomm’s assertion that Apple’s acts may cause irreparable injury to the legitimate rights and interests of Qualcomm if its acts were not stopped immediately on the ground that i) it will be difficult to calculate the amount of further potential damages; ii) If the infringement is not stopped at this phase, the injury suffered by Qualcomm will inevitably be further expanded as new models of iPhone products are introduced; iii) The infringement will result in irreparable injury on the competitiveness of other mobile phone manufacturers who have already established licensing relationships with Qualcomm in the Chinese market. This will further cause irreparable injury to the commercial cooperation between Qualcomm and these partners.

Finally, in light of the fact that the alleged acts had actually taken place and would be continued, and there is a certain amount of time until the final judgment is rendered, on November 30, 2018, the Fuzhou Court rendered two orders to enjoin Apple from importing, selling, or offering to sell certain iPhone models that were suspected to infringe those two Qualcomm patents. The orders will remain effective until the final judgment of the case come into force.

As IP litigation can be time consuming in China, the injunction mechanism is becoming an increasingly important remedy to protect IP owners' right and interests. The Provisions are an important step toward clearing uncertainty. They both provide a more specific legal basis for a court to make decisions and give legal certainty to business entities about what to reasonably expect from their applications for an injunction. Furthermore, the issuance of the Provisions together with the high -profile Qualcomm case indicates China’s effort to improve its judicial mechanism's efficiency and strengthen its IP protections by bringing its judicial practice in line with international practice.