Civil litigation can prove an effective form of dispute resolution for intellectual property (“IP”) owners whose rights are violated by the notorious pirates and counterfeiters operating in China. Indeed, IP owners are increasingly considering civil litigation to be a necessary part of their broader People’s Republic of China (“PRC”) enforcement campaigns, pursuing it in lieu of or as a parallel to/follow on from administrative and criminal enforcement actions.
China’s legal system offers a range of laws upon which an IP owner whose legitimate rights have been infringed may base a civil action. This includes not only the IP-specific laws (the Trademark Law, Copyright Law and the Patent Law) and their respective implementing regulations and judicial opinions, but also the Criminal Law, the Civil Law, the Tort Law, the 2019 E-Commerce Law, the Product Quality Law, and the Anti-Unfair Competition Law.
In general, these laws allow IP rights holders to bring a civil action against an infringer and demand compensation, injunctions halting further infringements, as well as other forms of civil relief. While the reasons for any given IP owner to pursue civil action vary, a significant consideration is clearly the deterrent impact a favourable court judgment can have – not only against the specific infringer and its related entities, but also potentially on other infringers. It sends a clear message to the market that the IP owner is determined to protect its valid rights, has succeeded in doing so, and is therefore that much more likely to take action against other infringements (ideally pushing the pirates to softer targets).
As well, and in some cases, favourable judgments provide just the right amount of demonstrated success to push large on-line platforms to step up their efforts protecting the IP owner’s rights from ongoing infringement on their platforms.
Before filing a lawsuit
A. Evidence collection and preservation
Unlike in most western jurisdictions, there is no formal discovery process in China. Given that, filing a civil action is very unlikely to lead to any disclosure of evidence by the infringer, particularly not incriminating evidence.
Accordingly, evidence collection and preservation by the IP owner is the crucial first step in any potential PRC civil litigation. In practice, this process necessarily begins with online and/or onsite investigations to identify infringement evidence and assets for possible freezing by the court, and to confirm the identity of potential targets for civil actions. That process is normally followed by notarisations to preserve infringement evidence for relevant legal actions.
IP rights owners facing multiple potential counterfeiters and infringers, say in an online counterfeiting context, would usually begin their work with non-notarised online sample purchases from a few selected targets of larger scale (who are more likely manufacturers or connected to manufacturers and/or have greater assets). Once purchased samples are confirmed to be fake or infringing, IP owners can then move on to a second round of purchases, this time in the presence of a Chinese notary public, to document process of ordering and receiving the infringing product for use in later legal actions.
Often, it makes sense to send investigators out in the field to conduct onsite investigations. Onsite investigations are more often directed against manufacturers or larger-scale sellers (where online pirates often do not have a brick-and-mortar operations or significant stocks on hand worth raiding). The notarisations conducted at onsite locations are designed to document as much of the counterfeiter’s operations as possible, lock in evidence of the pirate’s activities tied to the fakes and oral admission showing bad faith, along with, importantly, commercial receipts bearing the company’s seal or “chop” to legally tie them to the counterfeits. Payment of purchase costs to the pirate’s bank accounts can also be useful for obtaining the targets’ financial account information, key information for asset preservation requests to the court.
B. Jurisdiction and the possibility of forum shopping
Before filing the civil complaint, IP owners will need to consider which courts could potentially have jurisdiction over their civil action with a particular eye on avoiding jurisdictions and courts that may be “problematic”.
For example, for actions based on tort, jurisdiction resides with people’s courts in the place where either the infringing act was committed or where the defendant is domiciled. Given this, it is often possible for an IP owner to design their evidence collection process around the desired forum for their action. For instance, if the infringer is domiciled in a small city where the courts do not have much experience with IP infringement claims, would not be likely to award high damages, and may be inclined to favour a local defendant over a foreign plaintiff (technically referred to as “getting hometowned”), notarised purchases can be arranged (either online or offline) through the infringer’s distributor that is based in a city where the courts are more favourable or online through some major online e-commerce platforms. The latter will generally require naming the platform as a defendant, as well, but generally speaking, they are willing defendants, taking the infringing listing down immediately upon being served the complaint – and thus almost always absolving themselves of any liability for infringement due to their having acted when put on notice of legal proceedings.
C. Formality documents
This is often one of the most difficult parts of the civil litigation process – at least for brand owners themselves. In that regard, and in addition to a civil complaint (and of course notarised evidence supporting the claims therein), before a case may be formally accepted, the civil court will require the plaintiff to submit a set of legalised formality documents. These documents include:
- A Power of Attorney (“POA”). This document must be crafted to ensure that the attorney retained in China by the IP owner has sufficiently broad authority to fully prosecute the case – but should not be unnecessarily wide-ranging.
- A Certificate of Identity of Legal Representative (“CILR”). The CILR is a document confirming the company’s empowerment of the person signing the POA by designating them its “Legal Representative”, a term of art in China indicating an individual who is specifically authorised to execute documents legally binding the company. Often, the CILR must be supported by proof of its executor’s authority, perhaps in the form of a current company extract or via a board resolution.
- Certificate of Incorporation (“COI”) or Certificate of Good Standing (“COGS”) for companies, passport for individuals. These documents prove the legal existence and identity of the entity/individual owning the IP.
For foreign brand owners, the formality documents must be both notarised (save for government issued documents, such as original COIs and COGSs issued by a government body, which are deemed self-authenticating – copies of such documents must be notarised) and legalised. This means that, for example, for IP owners based in Australia, the CILR and POA must first be executed before a local notary public, then authenticated by the Department of Foreign Affairs and Trade, and then, verified by the Chinese embassy/consulate. This process in other countries, particularly the United States of America, can be quite cumbersome, and consular employees are known to often be quite picky when reviewing materials.
Filing of the civil action
Once preliminary evidence collection is completed and formality documents are completed and in hand, brand owners may formally initiate a lawsuit against the identified targets by filing a civil complaint with a people’s court.
Under the PRC Civil Procedure Law, a civil action may be properly instituted at a people’s court of competent jurisdiction and scope if it is brought by a plaintiff with a direct interest in the case against an identified defendant or defendants, stating specific claims, facts and reasons upon which the case is based.
The court must either formally accept the case (if properly instituted), or otherwise issue a decision not to do so within seven days of the case’s filing. The latter decision can be appealed.
Assuming the case is formally accepted by the court, it must then serve a copy of the complaint to the defendant within five days of the case’s acceptance. The defendant will then have 15 days in which to respond with its own answer and to challenge the court’s jurisdiction. Should the defendant provide an answer without raising a jurisdictional challenge, it is deemed to have waived its opportunity to challenge same, except for issues involving the appropriate level of the court or of exclusive jurisdictions.
The court receiving a jurisdictional challenge must then evaluate it, and transfer jurisdiction to a competent court if it determines jurisdiction is improper.
There are at least two ways in which a defendant can effectively delay the start of a case: by contesting jurisdiction, discussed above, and / or by evading service, discussed below.
Service of complaint
Similar to service of process in common law jurisdictions, in the PRC, service of the complaint may be effected in multiple ways. These include via direct service, by leaving the complaint at the defendant’s home/place of business (usually its registered address), by fax or email (with the consent of the party being served), by mail or by proxy. If the party to be served cannot be located, or where service cannot be effected by any other means, service of process may be completed via publication, and is considered completed 60 days after said publication.
Any service of litigation documents must be accompanied by a service receipt, which must be signed or stamped and dated by the party on whom it is served. This date starts the clock on the defendant’s time to provide an answer and any challenge to jurisdiction, discussed above.
Collection of evidence by the court and evidence preservation
To mitigate the lack of a formal discovery process in the PRC, provisions exist in law that can result in court-ordered and executed actions to preserve evidence of infringement, providing IP owners with two additional avenues to collect important information and evidence for use in civil actions.
Under the PRC Civil Procedure Law, the court is empowered to demand delivery up of evidence that cannot be obtained by the IP owner itself where the court is convinced, based on objective evidence, that a particular piece of evidence is particularly important to a case. This could include sales records from an online platform, or documents from the records of a government agency, such as the Market Supervision Bureau that conducted a raid action against the infringer.
As well, the court grant an “evidence preservation order” which can be used to seize and/or seal up evidence is at risk of being destroyed or cannot be obtained later. For example, this could include large quantities of infringing products and tooling to manufacture those products at the pirate’s factory, or perhaps financial and/or production records from the pirate’s offices.
In relation to the evidence preservation request, and if granted, the court will send Judges to seal the infringing products on-site. It is important to keep in mind that this sets up a bit of an adversarial situation, where the enforcing Judge is often pressured, lobbied and lied to by the defendant or its employees. Plaintiffs therefore need to dispatch competent and aggressive lawyers to the assist in and witness the execution of the order to facilitate the process and maximise odds of success.
Similar to the procedure for evidence preservation, an IP owner may also apply with the court to freeze the infringer’s assets before or at the time of initiating a civil suit. Asset preservation applications, made on an ex parte basis, are allowed where a plaintiff’s legitimate rights and interests would be irreparably damaged if the application were not granted. The IP owner may file such an application with a court in the place where the defendant’s assets are located, where the defendant is domiciled, or any other court with competent jurisdiction of the case. The successful applicant will need to supply a bond or guarantee (generally in the same amount as the damages sought) along with the application. The court is required to make a decision on the request within 48 hours of accepting the application, and once the application is approved, the asset shall be frozen immediately.
As to the bond, some locations require that it be made via cash payment. Others allow for the bond / guarantee to be posted by an insurance company. If the latter, the IP owner will need to work and directly arrange the posting of the bond with the insurance company. Generally speaking, asset preservation bonds are very affordable.
If no application has been made by the parties, the people’s court may also, when necessary, order the adoption of preservation measures on its own.
Dan Plane and Grace Chen