Chinese Court Grants First-of-Its-Kind Preliminary Export Injunction for French Company

  • January 20, 2020
  • Category: Top Insight

Courts in China have historically been reluctant to grant preliminary injunctions (PIs) in patent cases, but in late 2018 the Supreme People’s Court of China released a new judicial interpretation designed to provide greater clarity and consistency in this area of the law. That interpretation, which took effect in January 2019, codifies and standardizes the substantive and procedural requirements for adjudicating requests for PIs. Now, the Tianjin Intellectual Property Tribunal has applied the interpretation in a new context, issuing a PI directing customs authorities to block the export of goods suspected of infringing an invention patent (analogous to a US utility patent)—reportedly the first time a court has ever issued such an injunction.

The judicial interpretation released by the Supreme People’s Court in November 2018, officially titled the “Provisions of The Supreme People’s Court on Several Issues Concerning the Application of Laws in Adjudication of Action Preservation Cases Involving IP Disputes” (the “Provisions”), [1] governs what Chinese law calls interim injunctions, a category that includes both preliminary and interlocutory injunctions. These Provisions are notable in both their attempt to clarify the applicable rules for the granting of a PI and the examples provided of appropriate circumstances where such relief is warranted. Among the rules detailed in the new Provisions are requirements dictating who has standing to file a request for a PI (establishing both that exclusive licensees may do so on their own and that a non-exclusive licensee may do so with permission of the patent holder) and others that define “urgent” situations where expedited consideration of a PI request is warranted. [2]

More broadly, the Provisions lay out the factors that courts must address in weighing a motion for a PI—factors that in some ways resemble the standard applied in the US but that in the Chinese context have been applied more stringently under prior understandings of the law. As explained in more detail below, these factors include 1) establishing whether there exists a sufficient “factual and legal basis” for the PI request, which requires the court to confirm that the patent right is considered sufficiently “stable”; 2) determining whether the PI applicant will suffer “irreparable” harm if the PI is denied; 3) performing a “balance of the hardships”-type test that weighs the harm to the applicant of denying the PI against the harm to the alleged infringer if the PI is granted; and 4) ascertaining whether the public interest would be harmed by granting the PI. The provisions also lay out new rules for determining the size of the bond that the PI applicant must pay, equal to the amount of damages that would be suffered by the defendant due to the PI’s implementation—an amount that the court may increase should those damages exceed expectations. The defendant may not provide a counter-bond to lift the PI unless the applicant agrees. [3]

The Litigation Below and the Tianjin Court’s Ruling

In the present case, plaintiff Babyzen—a French company based in Provence that has previously pursued both patent and counterfeit litigation in China—filed a motion with Tianjin Customs seeking to block the export of 1,930 collapsible strollers by Hebei Little Noble Children's Bicycle Co., Ltd. and Hebei New Speed ​​Company to Saudi Arabia, alleging that the strollers infringed its Chinese invention patent covering such products (200980125622). (This was not Babyzen’s first action against Hebei, as available litigation records show multiple other cases in which courts have issued or upheld infringement rulings against that defendant—including one in which the Shanghai IP Court awarded RMB 3M in damages for infringement of the same patent in August 2019.) Tianjin Customs issued an order blocking the export of the allegedly infringing strollers on November 11, 2019, with Babyzen providing an RMB 500K bond; the patent owner then filed a motion for a PI with the Tianjin Intellectual Property Tribunal (which hears IP disputes within the jurisdiction of the Tianjin Third Intermediate People’s Court) on November 28.

That court issued a ruling on Babyzen’s PI request in December, applying the factors laid out by the Supreme People’s Court’s November 2018 Provisions. As noted above, the first of those factors is whether the plaintiff’s request has a sound “factual and legal basis”, under which it must be determined if the asserted patent right is “stable” (including with respect to ownership and validity) and whether there has likely been infringement. Here, the court found that the patent right in question was sufficiently stable: having first determined that the invention patent certificate and ownership registration data show that Babyzen owns the patent right in question, the court then cited a third-party validity proceeding filed against the patent with the Patent Reexamination Board, which upheld the asserted claims, as confirmation of the patent’s validity. The court next addressed infringement (the standards for which are not detailed in the Provisions) through an examination of two representative strollers pulled from the blocked shipment: after comparing the products to the claims of the patent, the court determined that “the technical solutions implemented by the two randomly selected samples fall [within] the scope of patent protection claimed by the applicant”. The defendant’s attempt to export these goods constituted an infringing act, the court continued, because infringement is defined by law as the sale of patented goods without permission—and “[e]xports are actually sales of goods abroad”.

The court then proceeded to the second factor—whether the applicant would suffer “irreparable harm” if the injunction were not granted—citing the subfactors that may amount to such harm under Article 10 of the Provisions. Here, the court largely relied on two subfactors in particular: whether the defendant’s behavior may result in “uncontrollable infringement” (or infringement that is difficult to control) that will significantly increase damages suffered by the plaintiff, and whether the defendant’s conduct will cause a significant decrease in overseas market share for the plaintiff in the applicable market. Both subfactors were implicated here, the court explained: It would be “difficult to control” the distribution of the allegedly infringing products if they were to “flow abroad” after the Customs detention period expired, and this, in turn, would both harm the plaintiff’s market share abroad and hamper the enforcement of a subsequent judgment by the court.

Next, the court considered the balance of hardships under the third factor, weighing whether greater harm would be caused to the plaintiff by denying the injunction or to the defendant if injunctive relief were to issue. The court determined that the plaintiff stood to suffer the most if the injunction were denied, explaining that the aforementioned distribution of products abroad would make it difficult to limit the impact of this likely infringing conduct on the plaintiff’s “commercial interests”, further noting that the plaintiff would be paying a full bond within the scope of its request—while any damages to the defendant are “controllable”.

Finally, the court held that not only would the injunction not harm the public interest, it would in fact promote it—protecting both intellectual property rights as well as the rights and interests of both Chinese and foreign consumers.

The Road Ahead

Some practitioners have expressed the hope that the new rules issued by the Supreme People’s Court will lead courts to more liberally grant requests for PIs. [4] While it remains to be seen how courts will apply those rules—and, for that matter, how plaintiffs will weigh the potentially prohibitive bond requirements that those rules impose—these changes may further increase defendants’ patent risk, especially given that companies already face the threat of readily granted permanent injunctions, which also allow exports to be blocked.

See here for more information about China’s patent system, including the standards for injunctive relief and other available remedies in Chinese patent cases. Additionally, see here for a quantitative analysis of Chinese litigation data, including permanent injunction grant rates.

 


[2] See “China: Comments on the New Rules on Preliminary Injunction and Representative Precedents”, Kluwer Patent Blog (Feb. 19, 2019), available at http://patentblog.kluweriplaw.com/2019/02/19/china-comments-on-the-new-rules-on-preliminary-injunction-and-representative-precedents/; “Key Aspects And Changes To China's New Regulations On Interim Injunctions In IP Cases”, Haseltine Lake Kempner LLP (Mar. 28, 2019), available at https://www.haseltinelake.com/media-centre/news/2019/march/key-aspects-and-changes-to-china%E2%80%99s-new-regulations-on-interim-injunctions-in-ip-cases; and “What you need to know about China’s new Regulations on interim injunctions in IP cases”, Hogan Lovells (Mar. 4, 2019), available at https://www.engage.hoganlovells.com/knowledgeservices/news/what-you-need-to-know-about-chinas-new-regulations-on-interim-injunctions-in-ip-cases_2.

[3] Id.

[4] See, e.g., Hogan Lovells (supra note 2).

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