mardi, juin 14, 2011

China: Assured destruction? Rights holders' tactics against infringing goods and implements

Contributed by Wan Hui Da Law Firm & Intellectual Property Agency


In China, the destruction of infringing goods and their means of production can be vital to prevent repeat infringement. The damages awarded by Chinese courts are usually too small to serve as a deterrent and, despite recent efforts to address the issue, the enforcement of court injunctions remains problematic.

Article 46 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) addresses remedies for infringement. It provides that "the judicial authorities shall have the authority" to order the destruction of infringing goods and "materials and implements the predominant use of which has been in the creation of the infringing goods". Since China is a TRIPs signatory, the courts should have no difficulty in ordering the destruction of infringing goods and associated materials, but this has proved problematic in practice, with local courts taking divergent positions.

Many courts in China choose to avoid dealing with the issue directly. Instead, they simply order the infringer to "cease infringement" - the reasoning being that since the court has ordered the infringer to stop the infringement, this implies that the infringer can no longer market the infringing goods or use its materials and implements to produce more. If the infringer is found guilty of repeat infringement, the rights holder may apply to the court to enforce the injunction; alternatively, it may file a new civil suit based on evidence of the new infringing activities. However, such injunctions fail to address the reality of the situation: in some cases the amounts awarded in damages are so small as to make repeat infringement a reasonable choice for the infringer.

Beijing Intermediate Court No 1has taken inconsistent views on the issue. In decisions issued in 2001 and upheld by the Beijing Higher Court in 2003, an infringer was ordered to submit to the court all infringing products and the disks used in printing them, all of which were to be destroyed by court order.(1) However, in a 2005 decision the court held that a plaintiff's request for the destruction of stocks of infringing goods, plus promotional materials and implements, had been included in the claim for stopping the infringement; therefore, it did not grant the plaintiff's specific request for destruction.(2)

Some authorities consider that the seizure or destruction of goods and materials falls outside the legal provisions on civil liability, or that such powers may be exercised only by administrative agencies. For example, in a 2006 patent infringement decision the Ningbo Court rejected the rights holder's request for destruction on the grounds that this measure is not a civil penalty provided for by the law. Therefore, the plaintiff's claims were held to have no legal basis.
(3) In a more recent decision by the Changsha Court, the court rejected the patentee's request for destruction and advised it to file a petition with the relevant administrative agency (ie, the local branch of the China Intellectual Property Office).(4)

Despite these views, the Supreme Court has previously held that a court may order a defendant to destroy infringing articles and materials as a form of civil penalty.

The General Principles of Civil Law state that the courts are authorised to impose civil penalties. Article 134(3), on methods of assuming civil liabilities, states that:

"When trying a case, the court may… seize the property involved in any illegal activities and any illegally obtained income, and may also impose a fine or detain the person concerned in accordance with the provisions of the law."

In 2002 the Supreme Court issued a judicial interpretation on the application of the law in trademark disputes.(5) Article 21 states that in hearing trademark infringement cases, the local court may award civil penalties against the infringer by imposing a fine and confiscating infringing goods, false trademark labels, and materials and implements used solely for infringing activities. In 2009 the Supreme Court published a judicial opinion on IP rights trials.(6) Article 15 states that in ordering an infringer to cease infringement, the court may specifically order it to destroy materials and implements used solely for infringing activities. This guideline applies to all forms of IP infringement.

In recent years the courts of Guangdong Province have followed this approach consistently. For example, in a decision of the Guangzhou Court, the infringers were ordered:

"immediately to stop the patent infringement, and to destroy the stock of finished and part-finished infringing goods and the moulds specially used for production of the infringing goods within 30 days".(7)

Such decisions appear satisfactory for rights holders, but they are difficult to enforce unless the court takes control of the infringing goods and implements by having them seized by the court's agents or the administrative agencies in advance. Rights holders must consider the practicalities of enforcing such orders before submitting claims for destruction. If the goods and implements have not been seized before the court orders their destruction, the rights holder may wish to consider a settlement with the infringer that involves the destruction of the infringing goods and associated implements to prevent repeat infringement.

Although the courts have struggled with the destruction of infringing goods, China's IP legislation empowers administrative agencies to confiscate and destroy such goods, as well as the implements specifically used to produce them, and to impose fines. For example, Article 53 of the Trademark Law provides that:

"The administrative authority for industry and commerce may, upon finding infringement, order the infringer immediately to stop the infringing act... [It may] confiscate and destroy the infringing goods and any implements specifically used to manufacture the infringing goods and counterfeit representations of the registered trademark, and may impose a fine."

In some cases the destruction of infringing goods or materials is a far heavier blow than a court order and an order for damages - for patent infringers, a set of moulds may cost hundreds or thousands of renminbi. As an alternative to a civil lawsuit, a rights holder may be better advised to organise an administrative raid for the seizure and destruction of the infringing goods and associated materials.

Many jurisdictions suffer from gaps between the law on paper and in practice. The destruction of infringing goods and materials is one such problem area in China. A rights holder should first assess the potential advantages and disadvantages of administrative action or court action. If it chooses the path of court enforcement, it would be well advised to examine the court's previous decisions on the issue. Forum shopping and out-of-court agreements on the destruction of goods and materials are among the tactics to consider.

For further information on this topic please contact Zhang Shuhua at Wan Hui Da Law Firm & Intellectual Property Agency by telephone (+86 10 6892 1000), fax (+86 10 6894 8030) or email (zhangshuhua@wanhuida.com).

Endnotes

(1) ETS v New Oriental School, Court Files (2001) Yi Zhong Chu Zi 35 and (2003) Gao Min Zhong Zi 1393.

(2) Pfizer v Lianhuan (2005) Yi Zhong Min Chu Zi 11351.

(3) Shuaikang v Electrolux, Court File (2006) Yong Min Si Chu Zi 160.

(4) Panasonic v Hongji, Court File (2011) Chang Zhong Min Wu Chu Zi 0099.

(5) Judicial Interpretation 32/2002.

(6) Judicial Opinion 23/2009.

(7) SEB v Yun Huan, Court File (2010) Sui Zhong Fa Min San Chu Zi 94.