— Protecting Innovation in an Innovative Way: What are China’s IP Courts?
After decades of engagement between US and Chinese legal experts on reforming IP protection in mainland China, Chinese IP courts were first pioneered in 2014 in Beijing, Shanghai, and Guangzhou (see the National People’s Congress (NPC) Decision of Establishing Intellectual Property Courts in Beijing, Shanghai and Guangzhou, 关于在北京、上海、广州设立知识产权法院的决定). China’s IP court system has since grown rapidly, and today over 20 specialized IP courts and tribunals now exist across China. The most recent, and perhaps most significant milestone so far, is the introduction of an appellate IP Court intended to function very similarly to the US Court of Appeals for the Federal Circuit with national jurisdiction over civil IP appeals. In the words of Zhu Li, the reporting judge for the appellate IP Court’s maiden case, the process within these courts embodies the idea of “protecting innovation in an innovative way.”
In part due to the role of intellectual property within the US-China trade dispute, these courts have attracted considerable attention internationally. They have been acclaimed by many observers in large part because they are presided over by specialized IP judges. These judges have the reputation of being “amongst the best educated judges in China’s court system”; the majority of have a graduate degree or above and some have more than ten years of IP trial experience. However, to Western observers little is known about their effectiveness and even less is known about their procedure.
Using notes from the September 12, 2019 presentation given to Peking University graduate students by lawyer Ma Feng (马锋律师) and the Shenzhen legal team at Fangda Partners, this post seeks to provide an overview of the procedure governing these courts and the procedural rights available to parties involved. My thanks to Wei Yijun (卫倚君) for his generous help in preparing notes from this event, without which this memo would not have been possible.
— A Case at a Chinese IP Court: An Overview
China’s IP Courts retain the inquisitorial civil law approach of ordinary Chinese courts. Under this approach, the judge leads the fact-finding and is active in determining the applicable laws. China’s IP Courts consider caselaw precedent, but that caselaw is not controlling, as it would be in a common law country like the United States.
Nevertheless, the IP Court will follow the following process which shares multiple similarities with IP litigation in the US.
First, a plaintiff initiates the proceeding by filing a claim. The court must then within five days issue a copy of the claim to the defendant, who then has 15 days to file an answer（答辩）with the court（article 125 of the Civil Procedure Law, or 民事诉讼法）. This is followed by an evidence exchange (证据交换). After the evidence exchange, the case moves to trial(庭审). Before the trial, the parties may exercise their right to apply for a withdrawal (article 137 of the Civil Procedure Law) and they will usually have an opportunity to negotiate a settlement. If there is still no settlement, the trial will conclude with a ruling (判决).
Aside from the above procedural similarities, China’s IP Courts have not adopted many of the procedural mechanisms found in US District Courts. There is no opportunity for pre-answer motions, and there is nothing equivalent to discovery. Unlike a patent dispute in a US District Court, the IP Court will not hold a Markman Hearing or anything equivalent (in US patent cases, the findings of fact at a Markman Hearing usually lead to a settlement and result in the case being withdrawn). There is also nothing equivalent to a motion for summary judgment.
On the one hand, the lack of these things speeds up the trial and produces a faster outcome for the parties on the merits, with less room for procedural delays and out-of-control legal fees. On the other hand, the fewer guarantees for procedural fairness — especially discovery and Markman Hearings — may result in the parties bearing these same costs and delays, but at the appeals stage rather than at the first instance.
Damages: A ruling in favour of a plaintiff in an IP dispute usually brings a right to damages as compensation for the IP violation involved. By way of example, Article 65 of the Patent Law of the People’s Republic of China (PL PRC) governs the rules for calculating the quantum of damages awarded to the plaintiff for a patent violation.
There are four such approaches set out in Article 65. The first sets compensation based on the actual losses of the patent holder. If this is difficult to ascertain accurately, the court may instead apply the second approach and order disgorgement of the defendant’s gains from the patent violations. If the court is also unable to assess this amount, it may order (under the third approach) that the defendant pay royalties for each violation of the patent. If all of the above fail, the court retains a residual power to set the damages at any amount between 10,000 and 1,000,000 RMB. Compensation includes the reasonable legal expenses paid by the plaintiff.
Protective Order: A plaintiff may also apply for a pre-trial protective order against a patent violation. Under Article 66 of the PRC PL, if a patent holder has evidence that another person is committing or is about to commit a patent infringement that may cause irreparable harm if left unchecked, they may apply for a court order to stop the alleged violation from occurring. This requires, as a prerequisite, posting security with the court. If the application is in order, the court is required to then make a ruling on the merits within 48 hours or, under special circumstances, within 96 hours.
If the protective order is granted, the defendant must cease the alleged violation. Per Article 4 of the Law Interpretation  No. 21 of the Supreme People’s Court Regarding the Review of IPR Dispute Cases (关于审查知识产权纠纷行为保全案件, the 2018 Interpretation), where informing the defendant of the protective order may prejudice its execution, the court may wait up to five days before informing the defendant that the order is in effect. The defendant may apply for review of the court order, but the order will not be suspended during this review. If the defendant successfully reverses the protective order, the defendant may draw on the plaintiff’s court security to compensate for damages resulting from the protective order. Additionally, the protective order will be lifted if the plaintiff does not initiate a legal claim against the defendant within 15 days of it being handed down. For more details on the appeals process, see the 2018 Interpretation.
Appeals of these rulings go directly to the Intellectual Property Tribunal of the Supreme People’s Court (最高人民法院知识产权法庭, the IPT SPC) in Beijing. This is per the Decision of the Standing Committee of the NPC on Issues concerning Litigation Procedures for Intellectual Property and Other Cases, adopted at the 6th Session of the Standing Committee of the 13th NPC on October 26, 2018 (the Decision). According to the Decision, the IPT SPC will hear appeals from cases involving: “Patents for inventions, patents for utility models, new varieties of plants, layout-designs of integrated circuits, technological secrets, computer software, monopolies and other specialized and highly technical knowledge.” This process also governs administrative appeals, where the respondent is a government entity. Should it be deemed necessary, the IPT SPC may send an appeal to a lower court for retrial rather than hear an appeal.
Like in the US, China lawyers have a duty of confidentiality towards their clients, subject to some exceptions. This includes safeguarding commercial secrets, as set out in Article 83 of the Law of the People’s Republic of China on Lawyers. This means clients have a right for their commercial secrets to be kept confidential but there is an exception whereby the lawyer’s duty of confidentiality is suspended to prevent the client from committing a criminal offence or “endangering national or public security” (危害国家安全、公共安全). This last phrase, “endangering national or public security”, has a considerably broader meaning than in most Western countries. Endangering “public security” refers to Part 2, Chapter II of the Criminal Law of the People’s Republic of China (CLPRC), and refers to mainly violent acts like industrial sabotage, terrorism, and arson. Endangering “national” security, for its part, refers to Part 2, Chapter I of the CLPRC (articles 102–113) and includes offences against the state that are much wider in scope. See The Attorney-Client Privilege and Why It Really Really Matters When Doing Business Internationally, Especially in China These Days.