Provisions of the Supreme People’s Court on Issues Concerning the Application of Law in the Preservation of Conduct in Intellectual Property Disputes (Mainland China)

Karl Zhang

The Supreme People’s Court recently imposed certain requirements for preservation issues in intellectual property disputes by promulgating the Provisions of the Supreme People’s Court on Issues Concerning the Application of Law in Preservation of Conduct in Intellectual Property Disputes (the “Provisions”), which will go into effect on January 1, 2019. The Provisions primarily cover the jurisdiction of conduct preservation, the required submissions and security, the procedure and the review standards involved as detailed below:

1. Jurisdiction

Pursuant to the provisions, “intellectual property disputes” refer to disputes over intellectual property and competition under the Provisions on Causes of Action of Civil Cases, which also include unfair competition cases.

In addition, preservation of conduct in intellectual property disputes can be applied during or before the lawsuit, and it is available in both litigation and arbitration. For an application before litigation, it shall be filed with the court with jurisdiction over the respondent’s domicile.  Where the parties agree to arbitration, they shall apply to the aforementioned people’s court for conduct preservation; and for applications during arbitration, they shall be submitted to the people’s court through the arbitration institution.

If the licensee of an intellectual property licensing contract applies for a pre-litigation order to stop the infringement upon intellectual property rights, the Provisions stipulate different scenarios for the application based on types of licensing involved.

2. Submissions and security

Pursuant to the Provisions, a person applying to a people’s court for conduct preservation shall submit the application, corresponding materials as well as a security. The amount of the security provided by the applicant shall be equivalent to the potential loss of the respondent as a result of the conduct preservation measures, including reasonable lost profits and custodial costs from suspended sale of accused products.  If the respondent may suffer a loss in excess of the security provided by the applicant during the execution of the conduct preservation measures, the court may order the applicant to supplement the corresponding amount.  If the applicant refuses to comply, the preservation measures may be lifted in whole or in part.  The conduct preservation measures taken by the court are generally not lifted upon respondent’s payment of counter-security unless the applicant has consented.

3. Ruling procedure

Prior to enacting the conduct preservation measures, the court should question both the applicant and the respondent unless the circumstances are urgent or the inquiry may affect the implementation of the preservation measure. After deciding to approve or reject an application, the court should serve the ruling on the applicant and the respondent.  However, if the service of a ruling on the respondent may affect the execution of the preservation measures, the court may serve the ruling on the respondent at a time after the preservation measures, provided that the service should not be made more than five days later.

4. Review standards

The Provisions provide more detailed explanation about review issues involved in conduct preservation as follows:

With respect to the “urgent circumstances” under Articles 100 and 101 of the Civil Procedure Law, the Provisions put forward the following standards: (1) the applicant’s trade secret is about to be illegally disclosed; (2) the applicant’s personal rights, such as publishing rights and privacy rights, are about to be infringed; (3) the intellectual property rights at issue are about to be illegally disposed of; (4) the applicant’s intellectual property rights are being or will be infringed in time-sensitive occasions such as trade shows; (5) live broadcast programs with strong timeliness characteristics are being or about to be infringed; and (6) there is any other circumstance requiring immediate conduct preservation measures.

For “irreparable damage” under Article 101 of the Civil Procedure Law, the Provisions point out the following circumstances which may be regarded as such: (1) the respondent’s conduct will infringe the applicant’s goodwill or personal rights, such as publishing rights or privacy rights, and cause irreparable damage; (2) the respondent’s conduct will make it difficult to control infringement and significantly increase the applicant’s damage; (3) the respondent’s infringing act will result in a significant reduction in the applicant’s shares in the relevant markets; or (4) other irreparable damage to the applicant.

The Provisions further propose that when reviewing an application for conduct preservation, a people’s court should generally consider the following factors: (1) whether the applicant’s request has a factual basis and legal basis, including whether the validity of the intellectual property rights for which protection is sought is settled; (2) whether the failure to take conduct preservation measures would cause the applicant’s lawful rights and interests to be irreparably damaged or cause the ruling for the case to be difficult to enforce; (3) whether the damage to the applicant from the failure to take conduct preservation measures would be greater than the damage suffered by the respondent as a result of such measures; (4) whether the conduct preservation measures undermine social and public interest; and (5) other factors.

With regard to the “settled validity of intellectual property rights,” the Provisions state that the court should consider the following factors in its judgment: (1) the type or attribute of the rights involved; (2) whether the rights involved have been substantively examined; (3) whether the rights involved are subject to an invalidation or cancellation procedure or are likely to be invalidated or revoked; (4) whether there is a dispute over the rights involved; and (5) other factors that may cause the validity of the relevant rights to be unstable.

The Provisions have also clarified issues such as the duration of the preservation, the remedies for appealing a ruling, the lifting of the preservation measures, and the order of the various types of preservation measures. In general, the release of the Provisions has strengthened the protection of rights holders, and enterprises may keep an eye on this development in maintaining their intellectual property rights.