IP in China: Key cases from 2021 and the outlook for 2022

14 minute read
24 January 2022

Author(s):

In China, the vast majority of trademark and copyright cases are heard by courts below the provincial level (i.e. below the High People's Court level), with only a very limited number reaching the Supreme People's Court of China ("SPC") for final review or retrial. At the same time, as China is a civil law country and thus courts at all levels are not required to follow the precedents when hearing cases, the issue of uniformity in the application of law by courts across the country has therefore always been a matter of concern in the judiciary.

In recent years, the SPC, the provincial high people's courts and the specialised intellectual property courts (based in Beijing, Shanghai, and Guangzhou) have sought to guide and unify the application of the law at the lower courts by publishing guiding cases, typical cases, etc. Therefore, although these published cases are not a formal source of law, they are undoubtedly of strong guiding and reference significance to the judicial practice of the courts at all levels.

For this reason, the cases included in this article are landmark cases published by the SPC, local high courts and specialised IP courts in 2021 that are of high public interest.

We also look ahead to what 2022 could have in store.



Category 1: Trademark – the issue of parallel import

Unauthorised labelling of imported products with other labels can be considered as trademark infringement

In the case of Budweiser Investment (China) Co., Ltd. v. Xiamen Gulong Import & Export Co., Ltd., the Zhejiang High People's Court held that the imported products were genuine products manufactured by Budweiser overseas, therefore Gulong's import through legal channels should be considered as parallel import.

Budweiser China used the Chinese trademark "科罗娜" and English trademark "Coronita Extra" together for a period of time during the sale of the products in China. This made its Chinese trademark "科罗娜" very popular and resulted in close correspondence with the English trademark "Coronita Extra". The use of the Chinese phonetic mark "卡罗娜" by Gulong on the beer has sabotaged the correspondence between Budweiser's Chinese trademark "科罗娜" and the English trademark "Coronita Extra", and weakened the source identification of the "科罗娜" trademark. This constituted the infringement of Budweiser's Chinese trademark "科罗娜".

In this case, the court emphasised that importers should keep the imported products as original as possible, and that the unauthorised use of other marks on the products may amount to trademark infringement.

Non-infringement is the principle and infringement is the exception in the case of "original sale" by the importer with a legitimate purchase source

This principle of "original sale" is also reflected in the case of Budweiser Investment (China) Co., Ltd. v. Guangzhou Dongfang Keyuan Co., Ltd.  The court of first instance ruled that the importer's sale of the products has infringed upon the trademark "Franziskaner" owned by Budweiser China.

In April 2021, the Guangzhou Intellectual Property Court overturned the judgment of first instance and found that the importer's sale of the genuine products in the original form did not constitute trademark infringement.

Category 2: Copyright - the issue of identifying the author of copyright for artificial intelligence generated works

Artificial intelligence is only a tool to assist in the creation of a work, and not an author

In January 2021, the SPC published the case of Tencent Co., Ltd. v. Shanghai Yinxun Technology Co., Ltd., which is the first case of a copyright dispute over artificial intelligence-generated article works.

Artificial intelligence is no longer a laboratory technology in the distance. The rapid development of technology has posed new challenges to social ethics and the legal system, and the impact on the intellectual property legal system is particularly obvious and far-reaching.

Regarding the process of generating the article, the court rejected the plaintiff's claim that the plaintiff's AI writing tool "Dream Writer" should be deemed as the creator of the article, as the court affirmed that the creation process was not only the result of running established rules, algorithms and templates of "Dream Writer" but also involved the work from the plaintiff's creative team members.

The court further reaffirmed that the members of the plaintiff's creative team played a decisive role in the creation of the article, not the AI writing tool "Dream Writer". "Dream Writer" should therefore only be considered as an intelligent tool that assisted the plaintiff in the creation of the work, and not the genuine author of the work.

Only the legal subjects specified in the Chinese Copyright Law could be deemed as authors of the works

Unlike the earlier case of Beijing Film Law Firm v. Beijing Baidu Netcom Technology Co., Ltd.,  it seems that the court in the "Dream Writer'' case did not directly touch on the issue of whether AI can be identified as an author. In the case of Beijing Film Law Firm v. Beijing Baidu Netcom Technology Co., Ltd., the court clearly pointed out that only legal subjects specified in the Chinese Copyright Law, i.e. only a citizen, a legal entity or an organization can be the author of a work. In the current judicial practice, Chinese judges still tend to limit the scope of authorship to the subjects mentioned above.

Category 3: Punitive damage

The Wyeth case

On April 26, the court handed down the judgment of second instance for the case of WYETH LLC and WYETH (Shanghai) Trading Company v. Guangzhou Wyeth Baby Baby Products Co. LTD et al., ordering the defendants to pay the punitive damages of RMB 30 million (approximately USD 4.7 million) and the reasonable costs.

The court in this case clarified the criteria for determining the "intentional" and "serious" elements in granting punitive damages. The court further indicated that in the application of punitive damages, the amount of punitive damages can be determined by considering four aspects: the malice of the infringement, the degree of infringement, the base for calculating punitive damages and the multiplier of punitive damages.

The LEGO case

In March 2021, the Guangdong High People's Court issued a final judgment in the case of "LEGO" v. "Le Pin" (i.e. LEGO Juris A/S v. Guangdong Meizhi Zhijiao Technology Co., Ltd., Guangdong Meizhi Zhijiao Technology Co., Ltd. Second Branch, Shantou Zhilepin Toys Co., Ltd.). It found that "Le Pin" manufacturer Guangdong Meizhi Zhijiao Technology Co., Ltd. ("Meizhi") and others had constituted trademark infringement and unfair competition, and ordered the co-defendants to immediately cease the infringement and compensate the plaintiff for the economic loss and reasonable costs incurred in the total amount of RMB 30 million.

In the judgment of first instance, the Guangzhou Intellectual Property Court ruled that Meizhi et al. should compensate RMB 3 million for the economic loss and the reasonable costs incurred. In determining whether the amount of compensation was reasonable, Guangdong High People's Court found that Meizhi had been copying LEGO toys for four years, infringing on eight registered trademarks and one influential trade name of LEGO. The natural person Li, the head of the company, instructed others to register a series of infringing trademarks, organised large-scale manufacturing, promoted and sold the infringing products in large quantities via various channels such as emails, company's website, WeChat Official Account, etc.

According to a relevant prior criminal judgment, from 11 September 2017 to 23 April 2019 alone, Meizhi's illegal business turnover from the production and sales of infringing products reached RMB 330 million. And it can be reasonably calculated that the sales amount of infringing products has exceeded RMB 500 million based on the sales data of "Le Pin" provided by the e-platform Taobao.com, therefore a high amount of compensation was granted by the Guangdong High People's Court.

The Santak case

On 23 June 2021, the Hangzhou Intermediate People's Court ruled on a trademark dispute between Santak Electronic (Shenzhen) Co., Ltd. v. Hangzhou Lingguan Electronics Co., Ltd., in which Hangzhou Lingguan Electronics Co., Ltd. ("Lingguan") was awarded to compensate RMB 1 million for using the logos of "CSTK" and "Santak USA", which constituted the infringement of the Santak series trademarks.

In this case, Lingguan had previously signed a business contract with Santak on the purchase of UPS power supply products before the infringement. Lingguan therefore had a clear understanding that Santak enjoyed the trademark rights involved in the case but still infringed upon these trademark rights intentionally. Further, Lingguan proceeded to carry out the same infringement via the internet after being penalised by the Administration of Market Regulation. The above circumstances were in line with the Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Intellectual Property Infringement Civil Cases, which provided for the application of punitive damages. The court therefore supported Santak's claim for punitive damages.

The court finally granted that the punitive damages, which were double the profit determined, should be applied based on Lingguan's profits as a result of its infringment. The damages also consider the subjective malice of Lingguan's infringement, the nature, duration and scale of the infringement involved, and the prominence and popularity of Santak's trademark.

What's coming next in 2022

Regarding the punitive damages

The Chinese Patent Law and Copyright Law, which both came into force on 1 June 2021, as well as other existing IP laws such as the Trademark Law and the Anti-Unfair Competition Law, allow for the application of punitive damages in cases of "intentional infringement" and "serious circumstances" under the Chinese Civil Code.

In addition, it is expected that Chinese courts will be more active in applying punitive damages in intellectual property cases going forward. The newly effective Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Intellectual Property Infringement Civil Cases, which entered into force in March, sets out the elements of punitive damages to be applied.

Regarding the works of applied art

On 23 July 2021, the Supreme People's Court issued the Guiding Case No. 157 (copyright infringement dispute): Crosplus Furnishing (Shanghai) Co., Ltd. v. Beijing Zhongrong Hengsheng Wood Co., Ltd. and Nanjing Mengyang Furniture Sales Center. The court held: "An applied art of originality, artistry, applicability, and reproducibility, among which artistry and applicability can be separated from each other, shall be determined as a work of applied art and protected by the Copyright Law as a work of fine arts. A work of applied art protected by the Copyright Law must be of artistry, and what the Copyright Law protects is the artistry of the work of applied art rather than its applicability."

Previously, as China's Copyright Law itself had no explicit provisions on works of applied art, the main legal basis for the protection of foreign and Chinese works of applied art lies in the Berne Convention, the Provisions on the Implementation of International Copyright Treaties and the basic principles of the Copyright Law. Due to the lack of specific criteria, courts have wide discretion on evaluating the plaintiff's request for protection of works of applied art, and courts may have inconsistent judgments for the similar products. This guiding case has set out the specific criteria for determining the copyright case involving works of applied art, which will serve as a guideline for future cases of the same kind. With this clear guidance, it is foreseeable that the copyright case involving works of applied art will be a hot debate in the coming year.

Regarding the malicious litigation

On 29 October 2021, the SPC issued the Opinions of the Supreme People's Court on Strengthening Intellectual Property-related Trial Work to Provide Effective Judicial Services and Guarantee for Building an Intellectual Property Powerhouse (the "Opinion"), which mentions the need to "increase the regulation of false and malicious litigation on IP rights."

On 3 June 2021, the SPC issued the Official Reply of the Supreme People's Court on Issues Concerning the Claim of the Defendant for Compensation for Reasonable Expenses on the Ground (the "Reply"). This confirmed that in the case of plaintiff's abuse of rights in intellectual property litigation, the defendant may, in the same infringement litigation, claim reasonable expenses from the plaintiff, including attorney's fees and transportation costs. In previous judicial practice, an aggrieved party to an abuse of rights generally needed to file a separate action against the malicious litigation of an IP damage liability dispute to the court to claim damages.

On the other hand, in 2011, the SPC amended the Provisions on the Causes of Action for Civil Cases and included a cause of action for "disputes over liability for damages caused by malicious institution of IPR action." The aggrieved party, i.e. the defendant in the original IPR action, may bring a separate action for damages for malicious institution of an IPR action, against the "right holder".

In light of the above, it is expected that courts at all levels will hear more cases in relation to malicious IP litigation in the future.

If you have any questions, please contact Ivy Liang.


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