Shuhua (Mark) Zhang, first published by Chambers and Partners

2022 has been a challenging year for China’s IP practitioners, in particular litigating lawyers. The challenges are unprecedented. The stringent anti-Covid measures, the frequent and sometimes citywide lockdowns, the global economic slowdown, and the escalating geopolitical tensions all contribute to the uncertainties of 2022. Against the backdrop, Chinese courts and IP litigators are quickly adapting.

2022 is a quiet year in terms of IP legislation. In 2020 and 2021, China overhauled its IP legislations to meet the undertakings made during the trade negotiation with the United States, addressing concerns that had been raised in various fronts like patent linkage, punitive damages, trade secret protection, and evidence rules. With much of the heavy lifting having been done in the last two years, the legislator winds up what’s left in 2022. The most prominent legislative moves include: 1) amendment of the judicial interpretation on the application of the “Anti-Unfair Competition Law”, which incorporates the recent judicial practice on various new forms of unfair competition and underlines the “business ethics” of market entities; 2) amendment of the “Anti-Monopoly Law”, which puts IP abuse under scrutiny of the anti-monopoly watchdog. The fifth amendment of the Trademark Law seems to be well underway, yet the China National Intellectual Property Administration (CNIPA) is still tight-lipped about when the draft amendment will be on the horizon.

The CNIPA has been busy revamping administrative guidelines and policies in 2022, such as the “Criteria for Determination of General Trademark Violations”, notification on fight against bad faith trademark registration, and a series of “replies” to the inquiries arising from administrative actions tackling patent infringement disputes. New rules and initiatives of the CNIPA and the local AMR/IPOs pertaining to administrative enforcement will remain a key area to watch in 2023.

In comparison with the quiet lawmaking, IP enforcement is a hive of activity in 2022. Just to name a few that are reshaping the nation’s IP litigation landscape:

1. Punitive damages.

In March 2021 the Supreme People’s Court (SPC) promulgated the “Judicial Interpretation on Application of Punitive Damages in Adjudication of IP Infringement Civil Disputes” and later released 6 exemplary cases. Some local IP courts followed suit and issued their own guidelines in this regard. Consequentially, 2021 witnessed a surge of civil suits seeking punitive damages, with the trend continuing into 2022. IP practitioners are advised to identify those IP-friendly and pro-punitive damages court(s) before formulating their litigating strategy.

2. Trade secret protection.

In September 2020, the SPC’s promulgation of “Provisions on the Application of Law in the Trial of Civil Cases Involving Disputes over Infringements on Trade Secrets” looks to establish a unified jurisprudence in terms of adjudication criteria in trade secret civil infringement proceeding. In Jiaxing Zhonghua & Shanghai Xinchen v. Wanglong, a case relating to the manufacture of vanillin, a food flavoring, the SPC awarded the plaintiffs damages of RMB 159 million, the largest ever trade secret theft award. The case, which was selected as the SPC’s 10 exemplary IP cases of 2021, helps boost the confidence of local courts in aggressively protecting trade secrets and awarding enormous damages.

3. Patent linkage.

Following the issuance of the “Provisions on the Application of Law in the Trial of Civil Cases involving Patent Disputes Related to the Application for the Registration of Pharmaceuticals”, the SPC rendered in August 2022, a decision in the first appeal on patent linkage dispute. Key takeaways of the court decision: 1) the cause of action for patent linkage dispute should be “to confirm whether the technical solutions of the generic falls into the protection scope of patent at issue”; 2) the generic applicant may request that the case not be heard in public to protect its trade secrets; and 3) the CNIPA’s invalidation of the patent at issue may not necessarily lead to dismissal of the patent linkage lawsuit.

Statistics released by the SPC indicates that in 2021 Chinese courts accepted 550,263 civil IP suits in the first instance, of which patent infringement suits account for 5.75% and invention patent infringement suits only a small fraction of the figure. In the meantime, new types of IP litigations involving patent linkage, AI technology, anti-monopoly, actions against bad faith IP enforcement are on the rise.

The growing dockets and the anti-Covid measures have exacerbated the backlog in the specialised IP courts in Beijing, Shanghai and Guangzhou and some key IP tribunals in coastal regions. Taking the SPC for example, in 2021, it accepted 2,569 new civil appeals and 1,290 administrative appeals, up 31.8% and 92.5% year on year respectively. To cope with the backlog, the SPC issued in April 2022 “Several Provisions on the Jurisdiction over First-instance Civil and Administrative IP Cases” and the “Jurisdiction Thresholds of Basic Level People’s Court over First-instance Civil and Administrative IP Cases” to streamline the jurisdictional rules. The SPC is believed to be leveraging the opportunity to delegate the jurisdictional power over the first instance civil and administrative IP cases to a much bigger pool of courts, mandating that those highly technical cases (like invention patent or utility model patent disputes) are to be adjudicated by the more experienced judges in the specialised IP courts and certain intermediate courts, while those less technical cases (like design patent disputes) and cases of general nature could be delegated to, and decided by, a vast pool of intermediate courts and 556 basic level courts sanctioned by the SPC. The move will greatly alleviate the burden of the IP courts and IP tribunals. Also, by raising the threshold over the objects of civil action of intermediate and higher courts, the SPC further diverts some caseloads from the four specialized IP courts and the 27 IP tribunals.

It is worth mentioning that courts are experimenting an array of measures to speed up the procedures, including inter alia:

1. Pre-litigation mediation.

Some courts mandate that when filing a lawsuit, the plaintiff must specify whether it consents to pre-litigation mediation. If the plaintiff opts to go through the procedure, the case will be referred to a court-assigned mediator. The mediator may organize online mediation when necessary. If the parties agree on the settlement terms, the case will be closed quickly. Initially introduced to expediate the closure of straightforward suits or a batch of suits lodged against different tortfeasors engaged in the same torts, this mechanism has now become a standard procedure for many courts and in certain circumstances may help solve a sizable portion of the court’s newly filed lawsuits.

2. Collaboration with local IPOs.

There are courts in economically developed regions making arrangements with local IPOs to help process some patent infringement disputes. The IPO may organize evidence exchange, oral hearing and mediation, and have the court verify the results.

3. Summary procedure.

The court may assign one judge to quickly go through straightforward lawsuits, either civil, criminal or administrative.

In a nutshell, it is a booming yet a quickly evolving IP litigation market. With the lingering uncertainties well into 2023, rights owners and IP practitioners need to keep abreast of the developments in order to navigate through the complex and sometimes shifting landscape.