chinaipcourts
11 August 2015Copyright

China’s IP courts: A busy start

The Beijing Intellectual Property Court was formally opened in November 2014 to much fanfare, and was followed by courts established in Guangzhou and Shanghai in December and January respectively. Between November and April, 3,202 cases were filed at the Beijing court, of which 332 were decided. Overall, 400 cases dealt with patents.

The Shanghai IP Court, Beijing’s “little brother” according to Benjamin Bai, partner at law firm Allen & Overy, accepted 300 cases between January and the end of March. Guangzhou received 1,272 cases between December and April, with 800 of them being patent cases. Bai says that 199 cases were decided in Guangzhou, with most of them concerning trademarks.

He concludes that the IP courts are “going well” and are making strides towards addressing IP conflicts within China such as counterfeiting and trademark squatting. But he is concerned about the “crazy” number of cases filed in Beijing, which he fears may overwhelm the court.

“The Beijing IP court needs to do something immediately to ensure there isn’t a backlog. It needs to do it in the short term,” Bai says.

For a country as big as China, the three IP courts in operation may not seem like enough. With the country continuing its march towards being the world’s number one economy, the need for IP protection is only going to increase.

Bai says he wants to see a nationwide rollout of IP courts to reduce the backlog at the Beijing IP court, but introducing more courts relies on the existing three demonstrating that they can settle IP disputes effectively and efficiently.

“Hopefully, the courts will set an example for a potential nationwide rollout: that is the challenge for the Chinese judiciary.

“But so far, I’ve not seen any downsides to the courts,” he adds.

Drawing conclusions from the work of the courts in such a short period of time is hard to do, says Bai, but he notes some of the interesting steps taken. For instance, he supports the decision of the Shanghai IP court to employ 18 full-time technical consultants to deal with the more complex areas of patent law. The consultants will act as advisors to the court and help judges understand the technology at hand. Guangzhou and Beijing are employing people in similar roles which, Bai says, will “help with complex technology cases”.

Despite being in operation for only a few months, the IP courts have already heard some notable cases. In March, the Guangzhou court granted an injunction to video game company Blizzard Entertainment, which had filed claims of copyright infringement and unfair competition against three Chinese-based companies—Chengdu Qiyou, Beijing Fenbo Times Internet Technology and Guangzhou Dongjing Computer Technology—in relation to the game they produced called “Everyone WarCraft: War of Draenor”. Blizzard claimed the game is a copy of its own “World of Warcraft” franchise.

Eric Roeder, general counsel for Blizzard, was delighted with the court’s decision. Shortly after the injunction was granted, he said: “We welcome the efficient and timely injunction of the Guangzhou IP court based on Chinese law.

“It provides a fast and effective remedy and fully demonstrates the determination and power of the Chinese courts to protect IP, which is essential to encourage innovation and advance the further growth of the Chinese creative industry including games,” he added.

Such a ringing endorsement from a multinational gaming company for the speed and effectiveness of the courts in their nascent period may add to the case for a nationwide rollout. Blizzard’s experience of the IP courts may also encourage other parties, both foreign and domestic, to use the judicial system to resolve disputes, and such successes will embolden IP owners.

Not long after the creation of the Beijing IP court, Momo, a Chinese-based app maker, was hit with a lawsuit from a wedding planner with the same name. The case concerned Momo’s use of the Chinese translation of its name, to which its rival claimed the exclusive rights. Momo countered that both companies operate in different economic spheres and the name is therefore unlikely to cause confusion among consumers. In the lawsuit, filed on December 25, 2014, the wedding planner requested that the app maker pay RMB 11 million ($1.8 million) in damages.

A representative from Momo said publicly that the IP landscape in China is still “uncertain and evolving”, before adding that the company expects to be hit with more lawsuits in the jurisdiction in the future.

“As we face increasing competition and as litigation becomes a more common method for resolving commercial disputes in China, we face a higher risk of being the subject of IP infringement claims,” the company added.

"Blizzard’s experience of the IP courts may also encourage other parties, both foreign and domestic, to use the judicial system to resolve disputes."

Lily Zhou, partner at Chinese-based law firm AllBright Law Offices, identifies trademark squatting and counterfeiting as the biggest IP issues facing right owners in China. These issues particularly affect international companies as well as domestic ones, she said.

For instance, in the last five years big US companies such as Pfizer, Tesla and Apple have been involved in trademark cases, with varying results. In 2012, Apple handed over RMB 400 million to a company that had registered ‘iPad’ as a trademark. Tesla, last year, faced a trademark claim from a local Chinese businessman who owned the rights to both the English and Chinese translation of the word ‘Tesla’. The company was able to reach an agreement eventually, paying the local businessman an undisclosed fee, but this only came after numerous heated discussions.

On the issue of counterfeiting, e-commerce company Alibaba has been the subject of claims that counterfeiters use its platform to sell fake goods. Alibaba has attempted to counter this problem, and between January 2013 and December 2014 the company spent nearly RMB 1 billion combating counterfeiters.

But this has not stopped luxury brand Kering, the parent company of Gucci and Yves Saint Laurent, from launching a trademark lawsuit at the US District Court for the Southern District of New York. In May Kering alleged that the e-commerce company “facilitates and encourages the sale of an enormous number of counterfeit products” in the US, despite being based in China.

Anti-counterfeiting efforts

The Chinese authorities have attempted to tackle counterfeiting. In June, the State Administration for Industry & Commerce (SAIC) announced an anti-counterfeiting awareness campaign called “Red Shield Net Sword”. The campaign, which started in July 2015, will run until November 2015. Its focus is on the role retailers can play in stopping the sale of counterfeit products on their website.

Zhou says the authorities have made “great progress compared to past years in tackling the problem of counterfeiting and trademark squatting”.

“For example, the SAIC and the Public Service Bureau have been dealing with counterfeiting cases all the time, which has affected the infringers powerfully.

“The China Trademark Office, too, has introduced stricter standards in the trademark application process, meaning better standards for approval, objection, assignments and cancellations for non-use processes. This was done to avoid the bad effects caused by trademark squatting to IP owners,” she adds.

Zhou believes that alongside the enforcement process, an effective judicial system that tackles IP infringers is important.

“The IP courts established in Beijing, Shanghai and Guangzhou collected many excellent judges who are experts in the IP field. Cases under the jurisdiction of the IP courts include administrative cases involving copyright, trademarks and unfair competition.

“Thus, the administrative cases caused by trademark squatting would be handled well by IP courts due to their specialisation and high efficiency,” she adds.

One way the courts could deter trademark squatting and counterfeiting, Zhou says, is by introducing harsher punishment for infringers.

“More work needs to be done to tackle these problems,” she says. “For example, a more powerful compensation punishment needs to be handed to infringers.”

Stephen Yang, partner at law firm Peksung Intellectual Property, wrote in the November/December issue of WIPR that Chinese courts suffered from “inconsistent standards adopted in different courts”, “evidence of local protectionism”, and “multiple rounds of litigation”. All of these factors have made it difficult for IP owners to navigate disputes within China and arguably created an appetite for such specialised courts among right owners.

While it is not clear whether the courts will be the antidote to these problems, both Bai and Zhou are positive about the courts’ role in addressing major IP issues in China.

Successes such as Blizzard’s at tackling infringement may lead to an increase in popularity for the specialised IP courts, but Momo’s experience suggests businesses need to be prepared to defend themselves against litigation.

The recent actions of the SAIC and the bureau suggest that the issues of counterfeiting and trademark squatting remain a high priority for the authorities, and right owners should be confident that IP infringement is being taken seriously.

According to Bai, “nothing earth-shattering” has happened at the IP courts yet, but there have been mixed rulings so far. So to paraphrase another Benjamin (former UK Prime Minister Disraeli), right owners may hope for the best when using the IP courts, but must also prepare for the worst.

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