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Setting the right example: China’s Supreme People’s Court selects the top 10 IP cases of 2017

China’s Supreme People’s Court (“SPC”) has recently published its list of the “top 10 significant IP cases” for 2017, which it has done yearly since 2007. Although these cases are not strictly binding precedents under China’s civil law system, these cases are used as persuasive judicial guidance for China’s courts at all levels. In this post, we briefly summarize the top 10 cases, and highlight their significance or why they are noteworthy or groundbreaking. The list for 2017 includes two unfair competition cases, two patent cases, three trademark cases, two copyright cases and one plant variety case.

1) Jiaduobao v. Wanglaoji (Unfair competition and trade dress, SPC)

The first case concerns the latest battle in China’s protracted herbal tea IP war between famous soft drink companies Jiaduobao and Wanglaoji. This battle concerned the rights over the famous “red can-yellow characters” trade dress for their herbal tea drinks. Both Jiaduobao and Wanglaoji claimed the rights in the get-up, and the parties cross-claimed each other for infringement of trade dress. The final SPC judgement in this case is a brilliant example of pragmatism. The SPC held that both companies had used the trade dress for a long time, and that as such, the trade dress used by both companies had become famous. Taking into account all elements of the case, and in particular, the litigation history, the fact that both companies had played an active role in establishing the fame of the trade dress and the fact that consumers connected the trade dress with both companies, the SPC held that the trade dress belonged to both companies. The SPC therefore rejected the infringement claims by both companies. The SPC’s reasoning is remarkable in that it gave the principles of fairness and public interest the upper hand and that it reached a very pragmatic decision in this very controversial and high-profile case.

2) Longcheng v. Yulin IP Office et al. (Administrative patent enforcement procedure and rule of law, SPC)

This case concerns an administrative patent enforcement procedure initiated by Longcheng before the Yulin IP Office in Shaanxi Province. In the procedure, Longcheng requested the Yulin IP Office to enforce its utility patent protecting a type of coal decomposing equipment. The decision of the IP Office, rejecting the claim, was appealed all the way up to the SPC, on the basis of grave procedural flaws. In its final judgment, the SPC held that the statutory procedure was indeed violated because: (a) the decision of the Yulin Office was inter alia signed by a member of another IP Office who was not formally added to the bench of adjudicators in this procedure; (b) not all of the adjudicators signing the decision were present at all of the oral hearings; and (c) the Yulin IP Office did not follow the prescribed formalities for deploying law enforcement personnel from other IP Offices. The significance of this procedure lies mainly in that the SPC is reinforcing the rule of law in this decision, by requiring strict adherence to the prescribed legal procedures and procedural safeguards. This is an encouraging sign, because grassroots enforcement agencies are sometimes perceived to disregard some procedural rules.

3) Fuzhou Rice Mill v. Jinfutai Agricultural, et al. (Interrelation trademarks and plant variety rights, the SPC)

Fuzhou Rice Mill registered a trademark for “Daohuaxiang” (for Nice Class 30, rice) in 1999, and, in 2009, a plant variety right was obtained for the “Wuyoudao 4” rice variety under the name “Daohuaxiang 2”. The dispute revolved around whether third parties had the right to call their rice Daohuaxiang rice. According to the first instance court, Daohuaxiang is a registered trademark, which is not descriptive or generic, and hence the use of this sign by the defendant constituted trademark infringement. On appeal, the opposite conclusion was reached: the appeal court held that the use of Daohuaxiang referred to the type of rice (i.e. the variety) sold, and that such use could not be prevented by a trademark. In its final judgment, the SPC reversed the appeal judgment and held that there should be a clear distinction between a trademark and a plant variety name, even though they may at times overlap. The SPC held that “Daohuaxiang” was not a generic or descriptive name in the trademark sense for the rice variety in question and that this name was not a common name, and was registered as a trademark long before it was mentioned in the plant variety right application. The SPC underlined that the fact that a name is used in a plant variety registration does not automatically mean that the name can be used freely under the trademark law. The decision is important because it sheds light on the murky differences and overlaps between trademarks and the names of plant varieties.

4) PRB v. Wansheng et al. (Pharmaceutical patents, markush claims, the SPC)

This case concerns an invalidation procedure against a patent drafted in the “Markush- style”, protecting a chemical composition for treatment of hypertension. A Markush-claim is a claim with multiple “functionally equivalent” chemical compounds included in one or more parts of the compound claim. These functionally equivalent compounds are considered equivalent for the purposes of the invention, and make further claims for each and every equivalent compound superfluous (and hence the patent application could be cheaper as no extra fees would be payable for more than a standard amount of claims). In the case at hand, the SPC essentially approved of the use of this type of claims (blowing over from the USA) and set the standard for inventiveness of these claims. The SPC ruled essentially that these claims should follow the basic inventiveness test, i.e., “three-step process” as stipulated in Guidelines for Patent Examination.

5) Commercial Press International v. Sinolingua (Trademark Infringement and trade dress infringement, Beijing Intellectual Property Court)

Commercial Press accused Sinolingua of violating its unregistered well-known trademark “Xinhua Dictionary” through the production and sales of its identically named dictionary, while the use of its specific packaging and decoration was also claimed to be an act of unfair competition, i.e. trade dress infringement. Taking into account factors such as the long-standing use of the name “Xinhua Dictionary”, the scope of the advertisement campaigns, the dictionary’s fame and its sales numbers, the Beijing IP Court ruled that “Xinhua Dictionary” was indeed an unregistered well-known trademark, that was being infringed by Sinolingua. This case is significant, because it is one of the very rare applications of the recognition of unregistered signs as well-known marks in China. The judgment is noteworthy because it clearly sets out the categories of evidence that are relevant for such recognition.

6) Heirs Shen v. Nanjing Classic Auction Co., (Copyright Infringement, Copyright and Property right in physical work, Nanjing Intermediate People’s Court)

The Shen family are the legal heirs of writer Mao Dun, who published an article in brush-written calligraphic characters in 1958. The original physical manuscript of the article was later sold, and at the time of the case, held by an individual who wanted to sell the manuscript further at an auction. To this end, the auction house presented the full manuscript on its website and weibo blog in high-definition digital photos. The Shen family claimed that this violated the copyright in the manuscript, which they inherited from the original author, and brought a copyright infringement case against the auction house. The reasoning of the Nanjing court was as follows: if the physical work and the copyright are owned by different owners, the rights of the owners of both types of rights have to be balanced. The owner of the physical work has the right to sell it, and has the right to present the work as necessary for the work to be sold. However, this right is not unlimited, and may not result in significant violations of the copyrights in the work, which remains a distinct right. In this case, the court held that the full online reproduction of the work was disproportionate to the owner’s right to sell the work, and clearly violated the copyright owner’s right of reproduction and dissemination. The court therefore ruled that the auction house had violated the copyright in the manuscript and ordered it to publically apologize and pay RMB 100,000 in damages. This case is significant, because it is a rare case highlighting the complex balancing of the rights of, on the one hand, the owner of physical works protected by copyright, and on the other hand, the remaining rights of the copyright owner in those works.

7) Jaguar Land Rover Co., Ltd. v. Fenli Foods Co., Ltd., et al. (Trademark Infringement and squatting of a well-known mark, Guangdong Higher People’s Court)

Land Rover owns several marks in the signs LAND ROVER and路虎, covering, inter alia, Nice Class 12 (land motor vehicles etc.). Fenli Foods on the other hand had been advertising and selling “Land Rover Vitamin Beverages”, and had applied for trademarks for “LAND ROVER” and “路虎” for various non-automotive related classes of goods and services. Land Rover therefore sued Fenli Foods for trademark infringement. Both the first instance and the appeal courts held that Land Rover’s marks were well-known marks in China, and were therefore protected, even for goods and services for which it did not have registrations (“cross-class protection”). On the basis of this finding, the court held that Fenli Foods committed trademark infringement and trademark squatting and imposed damages of no less than RMB 1.2 million. The case is significant because it is a clear example of the cross-class protection of well-known trademarks in China, and how trademark owners of well-known trademarks can successfully act against trademark squatters.

8) Zhongzheng Science and Technology v. Agricultural Science Research Institute of Bobai County et al. (Plant Variety Infringement, Guangxi Zhuang Autonomous Region Higher People’s Court)

The Bobai Research Institute and its partners were the owners of a registered plant variety, and signed various agreements with Zhongsheng regarding licensing and transfer of exclusive variety use rights for further development covering the period from 2008 to 2012. After November 2nd, 2011 the authorization to produce and manage several plant varieties was terminated. Zhongzheng’s acts to continue to entrust others to produce the plant varieties was therefore seen as an infringement of the exclusive variety use rights. The Court confirmed this opinion, calculating the final damages on the basis of the following factors: acre yields, sales prices, the production area; losses caused by sudden termination of authorization to use the varieties; the duration of the infringement and the amount of the license fees. The damages were based both on (a) production and sales of reproductive material of protected varieties and (b) reuse of propagation materials for those varieties. The court imposed damages of RMB 400,000. This case is remarkable because it clearly sets out the grounds for infringement of plant variety rights and gives a clear overview on which factors matter when calculating damages in plant variety cases.

9) Hebi Reflective Material Co., Ltd. v. Junchao SONG et al. (Trade secrets theft, Henan Higher People’s Court)

Junchao Song was responsible for customer development and sales at Hebi Reflective Material, and therefore, had full access to his employer’s customer’s list, including the customer’s detailed needs and previous purchases. When his employer, Hebi Reflective Material, discovered that he was also working for another company during his employment, he was accused of stealing and selling business secrets of its employer, in violation of the non-compete and confidentiality clauses in his employment contract. The court held that the customers lists did constitute a trade secret as: (1) it was information that was not known to the public; (2) confidentiality measures were taken, i.e. the non-competition and confidentiality clauses in the employment contract; and (3) the information had commercial value as it led to economic benefits for a competitor company. Since the company buying the trade secrets had improperly used those business secrets to its own advantage, it was held jointly liable for trade secret infringement. This case is noteworthy, because it is generally hard for a trade secret owner to prove the conditions for the existence of a protectable trade secret (the evidence in this case was facilitated because the claimant seems to have had access to financial information including bank statements of the trade secret buyer). It is also significant that in this case, the acquirer of the trade secret was held jointly liable for trade secret theft.

10) PSB v Yicha Infinite Information Technology Co., Ltd. et al. (Criminal Copyright Infringement, Shanghai Pudong New Area People’s Court)

Yicha uses coding technology to turn Web novel pages into WAP pages that are easier for mobile phone users to read, search, and download. Upon investigations by the Public Security Bureau and local law enforcement, over 500 transcoded novels were found on Yicha’s hard drives, without permission of the copyright owners. Yicha stated that they were merely providing transcoding services rather than content providing services to customers. Acording to Yicha, their software merely transcoded the content when the user clicked the “read”-button. After the reader left the page, the cache would get automatically deleted. However, according to evidence found by the law enforcement agencies, so-called temporary copies would not be automatically deleted and could be shared with other users. According to the Court this exceeded the necessary technical procedures needed for transcoding only and constitutes copyright infringement. This case is significant because it shows how law enforcement agencies would handle new transformative technologies that might challenge the established boundaries of IP enforcement.

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