Trademark Litigation – Trademark – China

Injunctions at a glance

Preliminary injunctions are an increasingly critical tool in
litigation because an order on a preliminary injunction or property
preservation (attachment of property), or both, helps the trademark
owners to stop ongoing acts of infringement, avoid or minimise
irreparable harm pending litigation, enforce the final verdicts and
support claims for damages.

The courts will consider the following factors when granting
such an order:

the plaintiff’s likelihood of
prevailing on the merits;

a demonstration of irreparable harm to the plaintiff if a
preliminary injunction is not granted;

the balance of interest and hardship between the plaintiff and
defendant; and

whether the injunction may harm the public interest.

According to the Civil Procedure Law, a motion for an order on a
preliminary injunction or preservation of property, or both, can be
filed both before and during litigation. When necessary, the courts
may decide to issue such an order on their own initiative. When the
courts decide to grant the order, the applicants for preliminary
injunctions or preservation of property, or both, are required to
provide a security. The courts shall dismiss the motion if the
applicant fails to provide the security at the request of the
courts. With regard to the pretrial injunction, the courts shall
revoke the order if the applicant fails to file a lawsuit or
arbitration within 30 days of the date on which the courts issued
the order.

Legislative framework and causes of action

China has a comprehensive and integrated legal framework for
trademark protection based on domestic legislation and
international IP treaties and conventions. The Trademark Law and
its implementing regulations are the primary sources of law on
trademark protection in China.

In addition to the above, the following apply:

the Civil Code;

the Civil Procedure Law;

the Criminal Procedure Law;

the Anti-unfair Competition Law;

the Copyright Law;

the E-commerce Law;

judicial policies, interpretations and guidelines issued by the
Supreme People’s Court (SPC);

rules, regulations or guidelines on trademark protection issued by
the competent authorities;

guiding or typical cases published by the SPC; and

reference cases published by local high courts.

As a general rule, only registered trademarks are protected
under the Trademark Law. To protect unregistered trademarks, the
rights holders may:

seek well-known trademark recognition
to stop the use of the infringing trademark on similar goods or
services if the cited and infringed trademark has been used but not
registered in China;

seek well-known trademark recognition to stop the use of the
infringing trademark on dissimilar goods or services if the cited
and infringed trademark has been registered in China;

file unfair competition litigation to stop the use of the
infringing trademark, as the Anti-unfair Competition Law prohibits
the use of influential trade dress and product, trade,
institutional and personal names (including pen, stage and
translated names) as well as distinctive elements in domain names,
among others; and

file copyright litigation if the unregistered trademark is subject
to copyright protection.

The courts have rendered verdicts holding that the sale of
parallel imported goods constitutes trademark infringement if there
are substantive changes in product packaging, or differences in
terms of quality or trademark use, between the authorised goods and
the parallel imports. The courts have also rendered verdicts that
outline the criteria for determining infringement regarding
trademark use related to original equipment manufacturer (OEM)
goods that are produced in China and intended only for exportation
without sale in China.

In recent years, trademark squatters have initiated litigation
to compel real trademark owners to either pay damages or purchase
back trademarks registered in bad faith at very high prices. The
courts have gradually developed a consistent practice of dismissing
those cases on the grounds that such litigation constitutes abuse
of rights by trademark squatters.

The SPC has issued guidelines making it clear that if, in an IPR
infringement lawsuit, the defendant submits evidence to prove that
the lawsuit filed by the plaintiff constitutes abuse of rights and
has damaged the defendant’s legitimate rights and interests as
prescribed by law and the defendant requests the plaintiff to
compensate for reasonable expenses, the court shall support the
request. The defendant may also file a separate lawsuit to require
the plaintiff to compensate for such reasonable expenses. Such SPC
guidelines are aimed at deterring trademark litigation filed in bad
faith.

Administrative and civil
litigation

Trademark litigation falls into the following categories in
terms of applicable laws, procedures, nature and objectives.

Administrative litigation involves the judicial review of:

decisions or rulings on official
refusal, opposition, invalidation and non-use cancellation, among
other things, rendered by the Chinese National Intellectual
Property Administration (CNIPA);

other specific trademark-related administrative acts performed by
the CNIPA and the State Administration for Market Regulation;
and

decisions or rulings on trademark infringement rendered by the
local administration for market regulation (AMR).

Civil litigation involves:

trademark disputes relating to:

infringement and unfair
competition;

ownership; and

transfer, licensing and agency contracts;

before or during litigation, motions for:

preliminary injunctions;

property preservation; and

evidence preservation;

motions for non-infringement declaratory judgments; and

other trademark-related disputes.

Criminal litigation

The following acts carry criminal liabilities:

passing off registered
trademarks;

selling goods on which registered trademarks owned by others are
used; and

illegally manufacturing the labels of registered trademarks owned
by others or selling such illegally manufactured labels.

Criminal litigation is usually filed by the procuratorates after
the Public Security Bureau (PSB) has completed its criminal
investigations and handed over files and evidence to the
procuratorates. The PSB may open criminal investigations on its own
initiative, or in response to complaints filed by the rights holder
or after the cases have been handed over to them by the AMR.

The SPC urges local courts to hold three-in-one trials for
judicial efficiency and consistency if trademark issues are
simultaneously involved in pending administrative, civil and
criminal lawsuits.

Alternative dispute resolution

Trademark disputes can be resolved through negotiation and
mediation during civil litigation. The court may act as a mediator,
or direct the parties to work with the court-designated external
mediators or mediation centres. The SPC has been urging the courts
to rely on alternative dispute resolution (ADR) mechanisms to
deliver efficient and diversified in IP protection. During civil
litigation, the courts will always ask the plaintiffs and
defendants whether they want to settle disputes through ADR.

Arbitration serves to resolve civil trademark disputes, provided
that the parties agree in writing to arbitration. Mediation and
arbitration are generally not employed in administrative and
criminal trademark litigation unless the rights holder files an
incidental civil litigation in combined criminal and civil
proceedings, and the parties choose to mediate a settlement
agreement on the civil claims over damages.

Litigation venue and formats

The courts in China have four levels of hierarchy:

basic people’s courts (eg, the
people’s courts at district or county level);

intermediate people’s courts, including the specialised IP
courts in Beijing, Shanghai and Guangzhou;

high people’s courts in each province, autonomous region or
municipality directly under the central government; and

the SPC.

Some basic people’s courts and intermediate people’s courts
have cross-regional jurisdiction over IP-related cases according to
SPC guidelines.

Forum shopping

Forum shopping is not available for administrative
litigation.

Courts at the defendant’s domicile, the locations of
occurrence of the infringing acts or the locations where the
infringing products are stored, seized or detained by
administrative authorities (eg, the AMR, customs office or PSB)
have territorial jurisdiction over infringement cases. The
locations of occurrence of the trademark-infringing acts are where
infringing acts or the outcomes thereof take place.

Specialised IP courts and IP tribunals have more expertise and
experience in handling IP disputes. Courts in more economically
developed provinces and areas are more pro-IP and tend to grant
higher damages. It is recommended that the plaintiff file the
trademark litigation to the specialised IP courts or tribunals. It
is also an effective strategy to identify every player involved in
the trademark infringement and select the court most preferred by
the plaintiff to file the litigation.

Internet courts in Beijing, Hangzhou and Guangzhou have
jurisdiction over disputes arising from online infringement and
transactions. Almost all proceedings at the internet courts are
conducted online for the convenience of all parties involved.

The courts at the defendant’s domicile or the location of
the server of the e-commerce trading platform have jurisdiction
over litigation against an internet-based trademark
infringement.

Jury versus bench

Trademark litigation is usually heard by a collegiate bench of
three (most often) or five members. At the trial court, the
collegiate bench may comprise judges only, or judges with one or
two people’s jurors. People’s jurors are not included in a
collegiate bench at the appellate courts.

Damages and remedies

The following remedies are available in trademark infringement
litigation:

injunctions (preliminary and
permanent);

damages (including punitive damages); and

public apologies or declarations aimed at undoing the negative
effects of the infringing acts.

Damages for trademark infringement are calculated with reference
to one of the following factors:

losses of the plaintiff;

profits of the defendant;

a reasonable multiple of the trademark licensing fees when it is
difficult to determine the plaintiff’s losses or the
defendant’s profits;

statutory damages of up to 5 million yuan when it is difficult to
determine the plaintiff’s losses, the defendant’s profits
or the trademark licensing fees; or

punitive damages for grave trademark infringement in the amount of
one to five times the base amount damages determined with reference
to plaintiff’s losses, the defendant’s profits or the
trademark licensing fees.

Damages include reasonable expenses spent by the plaintiff on
the trademark enforcement actions.

The SPC has directed the courts to use market value as a
benchmark for determining damages in IP litigation. It has also
directed the courts to award punitive damages to ensure that the
damages in total are commensurate with the market value of the IP
rights in dispute and the punitive damages in particular can deter
trademark infringement. In response to requests from the plaintiff,
the court may exercise discretion and impose punitive damages on
defendants committing intentional and egregious trademark
infringement and acts of unfair competition.

In light of present practice and the trend for courts to award
substantial damages, as well as punitive damage in some cases, the
rights holders should consider relying more on litigation to obtain
stronger protection and seek damages in China.

Trademark litigation holds more of a deterrent power if it can
hold individuals liable for trademark infringement. In recent
years, the courts have rendered verdicts that have held legal
representatives and shareholders jointly or severally liable for
infringements perpetrated by their companies, defeating their
attempts to evade trademark infringement penalties by abusing the
independent legal person status of the company or the limited
liabilities of shareholders.

In one case, the Chinese courts have rendered a verdict ruling
that, as the co-defendant, a Chinese trademark agency providing
assistance to the defendants in bad-faith trademark filings
committed an act of unfair competition and should pay compensatory
damages to the plaintiff. The courts’ verdict offers rights
holders new tools in fighting bad-faith trademark filings and
trademark-related infringement.

Evidencing the case

According to the Civil Procedure Law, motions for preservation
of property can be filed to the courts during litigation if it is
likely that the evidence may be destroyed or lost, or it will be
difficult to obtain the evidence later. In an emergency, motions
for preservation of property can be filed to the courts before
litigation or arbitration if it is likely that the evidence may be
destroyed or lost, or it will be difficult to obtain the evidence
later.

Investigations and first steps

Investigations are necessary and can be vital. Investigations
are conducted for multiple purposes, including:

collecting facts and evidence to
support the litigation;

spotting the strengths and weaknesses of both the plaintiffs and
the defendants to help the rights holder build a strong case, and
an adequate and strong future trademark portfolio; and

formulating a well-informed trademark litigation strategy and
tactics.

Legal counsel should always be closely involved when working
with internal or external investigators by offering input into
investigation plans and overseeing investigations to ensure that
the evidence obtained complies with the rules of evidence. Relevant
and particularly important evidence must be notarised. Legal
counsel must review and ensure the legality of the evidence
obtained during investigations because evidence procured through
dubious or illegal means may be excluded or compromising.

Survey evidence

Survey evidence is not mandatory and is often challenged. In
practice, survey evidence has been filed to the court in difficult
cases for reference purposes. The SPC and local courts have
accepted survey reports as evidence. The referential value of
survey evidence for the judges to determine cases should not be
ignored.

Use of expert witnesses

Expert witnesses are permitted in trademark litigation cases and
are often engaged to provide expert opinions, especially in cases
of first impression. Courts may also consult experts for their
opinions on difficult issues. Economic experts can be helpful in
ascertaining payable damages. Expert opinions may not be cited by
judges.

Available defences

The following defences can be raised when facing trademark
infringement charges:

no trademark infringement;

no likelihood of confusion because there are no similarities in
terms of the trademarks, goods or services;

the plaintiff’s trademark is invalid or declared invalid owing
to its non-compliance with the Trademark Law;

legitimate, fair, prior, authorised or licensed and prior rights
(eg, use of prior trade names, copyrights or design rights)
use;

legitimate product source and no knowledge of trademark
infringement;

exhaustion of trademark rights;

laches or loss of statutory limitations;

no infringement in OEM cases where all the OEM products are
exported only to a foreign country or region and the mark used on
the goods is owned or duly registered by the party that has ordered
the OEM products in the destined country or region;

safe harbour for internet service providers;

lack of standing to sue or be sued;

lack of jurisdiction; and

unclean hands or abuse of rights.

The SPC has dismissed trademark infringement lawsuits on the
grounds of abuse of rights.

Appeals process

A domestic party may file an appeal within 15 days of receipt of
a first instance judgment, while a foreign party may file an appeal
within 30 days. Parties may still file new and supplementary
evidence to the appellate court.

The appellate court will review both factual and legal issues.
It usually takes six to nine months for the appellate court to
render its judgment, which is final and effective. The timeframe
for court proceedings will be longer if one of the parties is a
foreign entity or national.

The plaintiffs or defendants may apply for a retrial of
effective judgments within six months of the effective date of the
judgments. The higher-level courts will review and decide whether
to accept retrial applications. For a retrial application to be
accepted, it usually requires new and substantial evidence that
could overturn the effective judgment or clear mistakes in
procedural issues, fact findings or applications of law.

In rare circumstances, the people’s procuratorates have
powers to supervise the adjudication of civil cases and may do so
ex officio or at request of the parties involved in the civil
cases.

Any party can appeal before the appellate court.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.