Chinese IP Protection: If You Don't Like It, Enjoin It
The other day, I was talking with a very sophisticated client about protecting his company's intellectual property in China. I went through the usual litany of options, starting with trademarks, copyrights, and patents, and then I started discussing the importance of not neglecting "less sexy" protections, such as non disclosure agreements (NDAs) and trade secret contracts.
I then talked about how we typically recommend the NDAs and trade secret agreements be in Chinese, call for application of Chinese law, and provide for jurisdiction in China courts, particularly for actions requiring injunctive relief. I also noted how we usually want to add a provision stating how protection of the confidential information requires more than just damages, so as to make it easier to seek injunctive relief. By way of very brief explanation, injunctive relief is when a court orders a party to do something other than pay damages. For example, if you have an ex employee who has taken your customer list upon termination from your company, you might seek injunctive relief to require this employee to return the list to you and destroy any copies. Our view is that if someone is stealing your IP in China, you do not have time to sue in the United States or in Europe and then take that judgment/award back to China for enforcement (assuming that would even be possible).
The client then commented how this was all well and good, but "everyone knows" the Chinese courts never grant injunctive relief. I told him I knew that not to be true because I personally was aware of cases where such relief had been granted and it was "my sense" that Chinese courts were becoming more comfortable with this sort of remedy. I also then talked about how even if the chances of injunctive relief were low, the cost-benefit analysis of putting in such provisions mandated we do so. He agreed on this.
Rouse & Company International's most recent China Intellectual Property Express newsletter (h/t to Duncan Bucknell's absolutely excellent IP Think Tank Blog which I pretty much read cover to cover this morning because I just could not stop) has a short piece entitled, "Use of injunctions on the increase in Chinese Courts" noting the following:
According to statistics from the Supreme People’s Court, 430 applications for preliminarily injunctions were accepted by Chinese Courts between 2002 and 2006. Of these, 83% resulted in the grant of a preliminarily injunction or similar remedy. During the same period, 642 applications for evidence preservation were accepted, with 607 of those being approved. Most cases were determined within 48 hours, thereby ensuring the effectiveness of provisional measures. These statistics show that Chinese Courts are now willing to make use of provisional measures in the protection of intellectual property.
Not huge numbers, but getting there.
This same issue of the Newsletter also has a short article on a recent trade secret case where the Xi'an Intermediate People's Court awarded General Electric approximately $120,000 in damages in a trade secret/unfair competition lawsuit against an ex-employee.
Comments
I'm often stunned by the IP judgments in China. Sure, the number seems a lot bigger when you multiply it by 7.5, but they don't seem to be big enough to serve a punitive or deterrent effect. Preliminary injunctions on the increase is nice, but preliminary injunctions rarely make good overall economic sense. When it comes down it, IP law is a tradeoff between incentive and access, with judgments seeking for the greatest economic good. Preliminary injunctions tend to create lots of waste. Damages don't properly recompense the rights holder. The most equitable result, pun intended, for the prevailing party will almost always come from compulsory licensing with retroactive effect. Of course, believing that litigation is pursued purely out of economic reason is naive, and preliminary injunctions serve a strong deterrent and punitive purpose.
Posted by: William Lewis | November 3, 2007 9:26 AM
Thanks Dan.
William, thanks for your thought provoking comments. With respect, I think the appropriate remedy depends so much on the circumstances that I'd have to politely disagree with your black and white statements. A party's overall commercial objectives may mean that a victory with even nominal damages is more than enough - even without an injunction - because of the global strategy being played out.
Posted by: Duncan | November 5, 2007 2:20 AM
Duncan, I disagree with my black and white statements, too, but I also think that they are the proper black and white way of looking at the issue. Preliminary injunctions, despite years of precedent and the stringent review, reek of a lack of due process and seem to be a sanctioned way of allowing the alleged infringed to fight dirty against against the alleged infringer, perhaps even drying up the alleged infringer's liquidity and the pool of lawyer's willing to represent a client without cash. If the alleged infringer is no infringer at all but is forced to shut down shop because of a preliminary injunction, then there is less gross economic benefit to society. And, part of the judge's job, under the common law in the US, has become to ensure greater economic benefit within the scope of the Constitution. Is this too much to ask of the 24-years olds Dan refers to in earlier posts?
Posted by: William Lewis | November 5, 2007 7:33 AM
William - perhaps we're in heated agreement.
Staying for a moment just on preliminary injunctions - I think we agree that they are unfair where the alleged infringer is unable to prove non-infringement at the injunction hearing due to lack of resources. Which is I think mostly what you were saying.
How about the small company that was lucky enough to get patent protection for its major product which is now being destroyed in the market by a much larger competitor selling infringing product at a fraction of the cost. The patent owner has to choose whether to eventually go under or seek a preliminary injunction to stop the carnage. Seems fair enough to me.
If the complaint is against the administration of the legal system and the advantage that is gained by the size fees you can afford to pay your lawyers - then that's another matter altogether.
Posted by: Duncan | November 6, 2007 10:33 PM