China Horror Story Vol. 3 - Why the IP Courts do not handle trademark infringements!

Small local courts are not always well-equipped to handle trademark infringement disputes

Introduction

Ten years ago, China reformed its judicial system by introducing specialized Intellectual Property Courts in Beijing, Shanghai, and Guangzhou. Following such reform, other important courts independently followed suit by adopting special IP chambers (Shenzhen, Suzhou Nanjing, etc.). This reform was hailed as a game changer for IP rights holders and aimed to quell critics from foreign countries by availing foreign rights holders of very specialized courts with good judges experienced in handling IP cases.

The institution of specialized IP courts has indeed improved the quality of IP enforcement and has seen an increase in damage compensation in critical patent infringement cases. However, this reform has not benefited trademark rights holders.

The IP courts, the best courts in China for deciding IP disputes are not accessible to trademark rights owners.

IP Courts have no exclusive jurisdiction over trademark infringement matters

The provisions establishing the IP Courts expressly excluded from these courts' jurisdiction the disputes on infringement of trademark rights and unfair competition. Therefore, most trademark infringement cases in China cannot be litigated before the best IP judges in the country. Even if an infringement occurs in Beijing or Shanghai, the plaintiff must sue the defendants before a local district court. Only in appeal, the parties can bring the case to the Beijing, Guangzhou, or Shanghai IP courts as second-instance courts if the case was litigated in these cities' territory.

This affects the quality of the judgments in trademark infringement cases and, most importantly, the amount of damage compensation.

From bad to worse

To make things worse was the abolition of the old jurisdictional rule that allowed IP infringement cases involving foreign parties to be in the exclusive functional jurisdiction of "Intermediate People's Courts". These are courts of second instance at the local level and, therefore staffed with better judges than grassroots People's Courts. Therefore, foreign trademark owners cannot file their lawsuits for trademark infringements before an IP court or before an Intermediate People's Court unless their case is of high economic value (e.g. 8 Million RMB in Zhejiang courts, 5 million RMB in Tianjin, etc). They must file their case with the local People's Court at the grassroots level at the place of the infringement or the domicile of the defendant with few exceptions.

The issue is that local People's Courts lack solid IP infringement experience and are susceptible to making decisions based on the influence of local factors rather than the rule of law. This results in untransparent proceedings with oral decision-making on all kinds of motions, difficulty in obtaining preliminary relief measures, and most of all very low damage awards.

If a more complicated legal issue emerges during the case, judges seem often at a loss for lack of experience and IP knowledge. Judges also tend to press plaintiffs into settlement, while court-led mediations are very unprofessional and practically useless.

The result is that infringers often remain undeterred by negative judgments as they do not see these as an obstacle to continuing infringing. It may take two to three lawsuits before an infringer starts running out of steam and feels some of the enforcement consequences on its ability to keep going.

Any Quick Fixes? Forum Shopping

Not all local People's Courts are bad. Those in large cities may have good experience and even an IP chamber. Also, People's Courts of First Instance in Beijing, Shanghai, and Guangzhou will allow appeals to the IP courts there. Therefore, forum shopping is the best way to improve the chances of a trademark infringement lawsuit in the first instance. To move a case away from its natural territorial jurisdiction the right holder will have to do a lot of good investigative and evidence collection work in the preparatory phase of the lawsuit. The lack of a discovery system will force right holders to invest a lot of energy and resources in building up their case. It is however in this phase and not later that the base for successful forum shopping will be laid down.

When forum shopping is not possible and we are stacked with a bad local court, especially away from the top-tier cities and at the domicile of a defendant, chances will depend on retaining experienced IP attorneys supported by a local counsel with strong local knowledge.

What an Anniversary!

In conclusion, 10 years after the grand reform of the IP courts, the reality for trademark owners in China has not much improved. There are some ways to overcome this problem. Also, not all grassroots are that bad. Those in big cities are of much better quality and you have a way to appeal to the IP courts as second-instance courts. Therefore, forum shopping is a must. Relying on an experienced team of attorneys is the only way to handle these situations properly.