Preliminary injunction: the new favorable of IP litigation

By Jiang Liwei, Judge of Beijing Third Intermediate People’s Court,[Comprehensive Reports]

“Injunction,” a word rarely heard in judicial practice in China before, has become so popularly exposed as the word of the day. No wonder it is the new favorable in the IP cases, as it is widely used as demonstrated by the ten typical cases in 2013 published by the Supreme People’s Court.

Positive prejudgment attachment is an important mechanism under new Civil Procedure implemented in 2013. Prior to that, some kind of pretrial attachment, what was called “pretrial order” in the judicial practice, might be applicable in IP cases, as relevant judicial interpretations provided under the Patent Law, the Trademark Law, the Copyright Law, and the Supreme People’s Court. With the implementation of the new Civil Procedure, the scope of the application is widened, that is, not only defendants’ properties may be attached, but also acts may be enjoined, which indicates a shift of judicial considerations of injunctive relief from “active and careful” to “active and reasonable.”

There have been few precedents available to be used as reference for injunctive relief in judicial practice because it is a newly-established regime in China. Moreover, the legal issues related to IP act preservation have been highly advanced due to the rapid development of science and technology and cultural industries. Recently, the “Top Seminar on IP Preliminary Injunction” was sponsored by Beijing Third Intermediate People’s Court in order to have discussions on the issues of substantive conditions for preliminary injunctions, and damages for negligent application of injunction.

I. Substantive conditions for preliminary injunction

This is the core of preliminary injunction, on which all participants from courts in Beijing municipality, academic circles and legal practitioners presented different views at the seminar.

(i) Whether there is a difference between substantive conditions for preliminary and interlocutory injunctions?
There are different provisions for substantive conditions on preliminary and interlocutory injunctions under China’s Civil Procedure, according to which the substantive condition for the former is irreparable harm if injunction is not issued, while for the latter, difficulties in enforcement or other damages. Judge Zhou Xiang of the Supreme People’s Court explained that in the UK a temporary injunction may be sought only after the action is instituted and there is no such distinction between preliminary and interlocutory injunctions. There is no strict distinction between preliminary and interlocutory injunction in continental law countries either such as under einstweiligeverfugung (injunction). Before the implementation of the Civil Procedure in 1991 in China, there had also been oppositions against preliminary injunction, as, in the opinion of some scholars, there was no practical legal significance in such distinction because their substantive conditions were the same, and determination of interlocutory injunction would be relatively easier as the trial progress in the litigation.

Chief Judge Lin Ziying of Beijing Chaoyang District People’s Court was of the opinion that preliminary injunction must be made within 48 hours, the appropriate standard being actual dispute, but interlocutory injunctions are contemplated after the case has been tried on the substantial merits, thereby warranting the standard of likelihood of success.

He Yudong, associate professor of Beijing University of Chemical Technology, was of the opinion that it was unnecessary to distinguish between preliminary and interlocutory injunctions, but it was for ex parte and interpartes proceedings. The former should be hinged upon likelihood of success on the merits, plus “irreparable harm due to any delay;” while for the latter, the substantive conditions should be irreparable harm, likelihood of success on the merits, balancing of hardships and public interests. He Yudong adds that in the U.S., an ex parte temporary restraining order (TRO) is rarely used in practice although it may be issued where there exists a circumstance that a notification of the respondent is not beneficial to enforcement of the order. A respondent must be notified of either an ex parte TRO or a preliminary injunction, the latter requiring a more formal notification. The difference between them is that a TRO lasts no more than 10 days and may not be appealed, whereas the latter is made when a judgment goes into effect is appealable. In Germany, the ex parte requester must demonstrate why a delay of a few days for the hearing will result in irreparable harm. Article 50 (2) of TRIPs Agreement also mandates that “the judicial authorities shall have the authority to adopt provisional measures inauditaaltera parte where appropriate, in particular where any delay is likely to cause irreparable harm to the right holder, or where there is a demonstrable risk of evidence being destroyed.” He Yudong also suggested to introduce protective brief system from German law, under which the requester may petition the court for an exclusion order after his or its patent is granted and validated and before such patented products go to market or be put on exhibition or on other occasions if an injunction is expected to be applied for such patents.

However, in terms of how to understand and grasp the concept of irreparable harm, Judge Jiang Liwei of Beijing Third Intermediate People’s Court believes that irreparable harm and likelihood of success are two relatively independent factors, and irreparable harm needs to be determined case by case. In the design patent case of Abbott milk cans involving preliminary injunction, the court took into consideration that if the infringing acts were no immediately enjoined, the milk cans would be sold to milk manufacturers and reach end consumers through distributors, and in every subsequent retail process more infringements would occur, and more infringers would appear, with increased damages, and further costs for enforcement, and that milk can designs were frequently renewed, at a short patent life therefore. For this reason, the court concluded that irreparable harm was shown, given the considerations of distribution style, costs for enforcement, and patent life, etc.

Li Ying, the vice presiding judge of Zhongguancun tribunal of Beijing Haidian District People’s Court, was of the opinion that irreparable harm should include such damages to a plaintiff as loss of advertising cost if an injunction is not issued in cases of entertainment programs or blockbuster movies that are time sensitive or in the period of hit.

Dr. Li Sen of Beijing Jincheng Tongda Law Firm believes that irreparable harm means the changes of market conditions such as the number of competitors, market shares and market prices, etc., rather than the amount of damages.

It is generally acknowledged that extensive license, the involvement of patents in many products, the condition that the patentee does not exploit the patent and others are unfavorable factors to the determination of irreparable harm in patent cases. Where the patentee does not exploit the patent, but manufactures competing products, it will not be considered as nonuse.

Dr. Li Sen explains that in the UK and Germany the court orders for injunction may extend one beyond expiration of the patent to offset earlier entry into the market by the infringing product.

According to He Yudong, in the U.S. before 2006, irreparable harm may be presumed once infringement is found, for reason that any harm to the exclusive IP right is irreparable. Of course, the presumption bursts if the respondent has stopped or is about to stop the alleged infringing activities and negotiations for license have begun between the petitioner and the respondent, or if the petitioner has unreasonably delayed in initiating lawsuit.

In 2006, the U.S. Supreme Court modified the rule in eBay Inc. v. MercExchange, LLC holding that creation of a right does not mean the remedy of the right, thereby rejecting permanent injunction even when patent infringement was found. Subsequently, the eBay rule is extended to copyright and patent cases. However, courts still apply the presumptive rule in trademark cases on the grounds that, once infringed, the source indicating function will be hard to restore, and the damage to the goodwill difficult to repair, and public interest harmed due to increased cost for searching. Some American scholars disagreed, however, by pointing out that damage to goodwill has no special feature apart from other types of damages, and the exclusiveness of trademark rights is weaker relatively to patent and copyright. In 2008, the U.S. Supreme Court ruled in Winter v. Natural Resources Defense Council that irreparable harm must be likely, and not merely possible.

(ii) “Likelihood of success” or “substantial dispute”?

Most of the court in Beijing at intermediate and district levels follow the standard likelihood of success, but Chaoyang court adopts a different one of “substantial dispute” in assessing preliminary injunctions.

According to the Supreme People’s Court presiding judge Zhou Xiang, of the two different views currently in practice, the first stresses likelihood of success and preferably by preponderance, because injunction is a special kind of remedial measure susceptible to abuse if the standard is too much relaxed. In substantive conditions, likelihood of success and irreparable harm are closely connected, for the harm may be shown only when there is success on the merit. The other view holds that substantive condition standard ought to be adopted because the likelihood of success is difficult to determine before the case reaches the merits with prejudicial determination, for the reasons that: (1) comparatively, some state courts in the U.S. believe that likelihood of success exists when it is 50% or slightly less possible; a U.K. judge would uphold a TRO on the condition of arguability of the parties’ disputes; and in both common law and continental law countries, except France, a petitioner is not required to show likelihood of success in substantive conditions or einstweil ige Verfugung; (2) likelihood of success has not been defined in China’s Civil Procedure; (3) for remedies, any loss incurred to the respondent is compensable by the bond posted by the petitioner if the injunction is wrongly sought; and (4) by the nature of injunction, it is an emergency remedy which does not warrant overdue consideration of substantive conditions on the merit.

Liu Hui, a presiding judge at Beijing Higher People’s Court says that it is difficult to determine likelihood of success on the merits. However, injunctive relief may be granted if there is preponderance of evidence for the likelihood in current situation of social honesty and judicial environment.

Li Ying, a vice presiding judge of Zhongguancun tribunal of Beijing Haidian District People’s Court believes that the injunction scheme may be abused by plaintiffs for malicious competition and hence, more standard for likelihood of success should be adopted with prudence. An injunction is a doubleedged sword. Li tends to support the adoption of hearing to achieve procedural justice so that likelihood of success can be assured.

Professor Li Shichun, Deputy Editorin- chief of Chinese Legal Science, argues that more likelihood of success should be the substantive and primary standard in granting injunction for the protection of social wealth increase and maintenance of normal social order.

Associate professor Cui Guobin from Tsinghua University, associate professor He Yudong, and Dr. Li Sen all believe that there should be a comprehensive consideration of likelihood of success, balance of interest, security and other factors in determination of injunction, each should not be exhaustive; otherwise, the room for injunction scheme would be very small. A comprehensive consideration of these factors requires that one factor can make up the lack of the other factor and there should be no one rigid standard for each factor in balance of interest. If there is a less likelihood of success, there should be an unfavorable consideration in such balance and a requirement of a greater amount of security.

II. Liability for damage caused by negligent application

(i) Principle of attributive liability for compensation caused by negligent application.

Judge Lang Guimei of the Supreme People’s Court introduces that there are two judgment criteria in the U.S. for the identification of wrongful seeking of injunction. The first is the final instance standard, which means that the application can be deemed as wrong if the final judgment is in favor of the defendant. The other is that the defendant has no right to claim for compensation unless he or it can prove that he or it has the right to engage in prohibited acts. It is said that, after the injunction i s made and before the f i n a l judgment rendered in the UK, the respondent has the right to claim for compensation from the applicant if the right to patent is declared invalid. In China, there are two different opinions on the principle of attributive liability for compensation caused by wrong injunction. The first argues that intentional fault should be a constituent element, whereas the other disagrees. The grounds for the respondent’s right to claim for compensation from the applicant after the patent is declared invalid and before the final judgment of the case is rendered include: (1) the patentee is familiar with the technical condition in the relevant field and capable of knowing whether the patent will be declared invalid or not; (2) the applicant has the liability for compensation because the respondent has the r ight to engage in act that is “prohibited” by invalid patent even if according to the standard of what the respondent can do; (3) the patent system needs to balance the interests of all parties, including patentee, the public and competitors and it will be unreasonable for the respondent to bear the loss from wrong application if the patent is declared invalid; and (4) final judgment should be advocated as remedy to seek and injunction that is similar to substantive remedy should not be encouraged to seek at the early stages of procedure because injunction is a special remedial measure.

Cui Guobin holds that there should be no consideration of fault for the determination of liability for compensation caused by wrong injunction because the patentee knows more than all others whether patent is valid or not from the perspective of information symmetry, and if so, the patents will be more prudent on relevant risks when seeking such injunctive measures.

Professor Xiao Jianguo from Renmin University of China believes that the principle of attributive liability with fault under tort law cannot be simply applied to compensate for wrong injunction because of the intervention of judicial power, and the principle of attributive liability without fault should be applied on the basis of a reasonable interpretation of the negligent application. A negligent wrong application should be judged by a standard whether injunction meets the required substantive conditions instead of a standard whether the applicant prevails or not. If the applicant loses the case, the application for injunction is naturally not in conformity with the substantive conditions whereas it may not meet the required conditions if the applicant prevails. Xiao also believes that it is the court that makes an ex officio examination of whether the application meets the required conditions for injunction procedure. The applicant should not be responsible for a wrong application resulting from its inconformity with procedure and it should be resolved by state compensation.

He Yudong holds that if the act for injunction application is deemed as contract relationship that the applicant buys the injunction from the court with security, a wrong application will result in liability for breach of contract and strict liability as a consequence; if from the perspective of tort, it is a natural right to apply for injunction, and tortious act may be constituted when judicial organs are maliciously used for malicious litigation and only under such circumstance can a tort be found after taking into account subjective fault.

( i i ) A third party’s claim for liability for compensation caused by wrong injunction.

China’s judicial interpretation requires the third party claim damages to the applicant if he or it suffers loss from a wrong application for injunction. Xiao Jianguo supported a consistent interpretation for injunction regulation. That is to say, both the third party and the respondent should follow the same principle of attributive liability for compensation caused by wrong injunction.

According the introduction of Dr. Li Sen, a case in this regard was concluded in the UK, in which an insurance company claimed damage against the patentee for its application of injunction because it would be possible to buy cheaper drugs and unnecessary to pay a high insurance premium without such injunction. However, the verdict for such case has not yet been retrieved.

(iii) Whether the claim for compensation caused by negligent application constitutes a counterclaim against the principal claim.

Lang Guimei says that China’s judicial interpretations requires that the court handle defensive compensation claim for wrong application before the stop of infringement on trademark or patent. However, it is said that such handling method is difficult to operate in practice because such claim does not constitute a jurisprudential counterclaim in tort l itigation. Therefore, the majority opinion tends to cancel the above-mentioned judicial interpretations.

Professor Xiao Jianguo believes that the goal of counterclaim is to offset and annihilate the principal claim. If the principal claim seeks only to enjoin infringement, there will be no offsetting and annihilating relationship between the respondent’s counterclaim for compensation caused by the wrong application and the principal claim. The counterclaim can be deemed as having constituted if and only if there is a claim for compensation in principal claim and the respondent alleges a compensation for wrong application.

The characteristic of IP requires a systematic preliminary injunction for protection. Although there are some problems in practice in this regard, the courts in Beijing, Shanghai and other provincial jurisdictions in China have made active explorations in judicial application of prelitigation.

(Translated by Yuan Renhui)

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