Strategy for Foreign Companies Entering IP Actions

2007/8/1By Harry Yang, China IP,[Comprehensive Reports]

Since China gained access to the WTO, courts nationwide have been accepting around 15,000 cases annually involving intellectual property (IP), among which, 3%-5% involve foreign companies. However, the increase in foreign IP cases has recently seen its proportion unchanged in comparison to the annual total number of IP cases accepted by Chinese courts. More than 95% of the companies' involved in IP litigation are local companies.

Meanwhile, the number of Chinese companies with foreign investments has kept on a stable and upward trend. According to Xinhua News, the total foreign direct investments (FDI) to China had exceeded US$ 665 billion by the end of September 2006. About 200 countries or regions have invested in China and 480 of the worlds' Top 500 companies have investment in China. China, as a developing country, has been attracting the most foreign capital for 15 years. From January until February 2007, nationally 5,716 foreign companies were approved and incorporated.

According to Jiang Zhipei, presiding judge of the IP Division of the Supreme People's Court, most multinational companies and foreign ventures have won their IP cases, with the winning percentage being 70%-80%. Those losing were sometimes sued as infringers or joint infringers. Disregarding which, foreign companies have a higher chance to prevail if they are active in protecting their interests.

Despite the high winning ratio, foreign companies remain reluctant to enter into litigation in China, or even reject the possibility at all. On the other hand, they have complained more often about IP infringements. What has caused foreign companies to be unwilling to enter into litigation? Should they take greater advantage of litigation to protect their legal interests? For this special report, we have visited legal advisors or IP managers from foreign companies, IP attorneys and judges from IP courts. Through our recommendations, we hope to assist foreign companies in formulating their litigation strategies in China. 

Administrative Actions or Civil Litigation

Representatives from some foreign companies, who would rather remain anonymous, say that foreign businesses encounter a number of obstacles with litigation, such as the long period of the proceedings; the difficulty in collecting evidence; the transfer of assets by defendants before a preservation order is sought; the low compensation awarded; and the difficulty of enforcing judgments, among others.

To be more specific, for example, Chinese courts require the notarization of all documents to be presented as evidence. Purchase orders, sales receipts, video and tape recordings, as well any other written documents must be notarized. Even the box in which the evidence is contained may require notarization. Unlike in the U.S., there are serious discovery limitations in China. In fact, you may not know what evidence your opponent will present until the actual hearing date. Damages in IP cases are difficult to prove in China. Chinese courts base their damage awards on either the amount of the infringer's profits or the IP owner's actual losses.

Both administrative agencies and courts of justice have a say in IP protection, which is a unique characteristic of China. Although foreign companies can use them, administrative actions are often insufficient to protect their rights on account of certain deficiencies, such as disorderly distribution, local protectionism or the narrow application of administrative agencies. In the opinion of the officials herein above, there are limitations on the effectiveness of administrative agencies in protecting IP as IP owners have limited ability to affect the operations of the bureaucrats, and infringees can only hope that the Administration for Industry and Commerce (AIC) do sufficient work in investigating IP infringement claims and enforcement. IP owners are often unable to get information as to the progress of investigations and the findings and the evidence gathered by the AIC may not be accessible to the infringee.

As to the effect of administrative agencies in IP protection, Zhang Yazhou from Unitalen Attorney At Law (Unitalen) thinks there may be some problems. "For example, in a trademark infringement case, you may complain to an AIC at the county level or above, requesting it to determine if the act of the complainee constitutes infringement and warrants an administrative punishment. The problem is that if the counterfeit trademark is visual, it is easy to handle; if it involves similar commodities, the lack of unified standards in determining counterfeiting would cause some obstacles."

It is also problematic when administrative agencies deal with patents. Local intellectual property offices (IPO) are responsible for investigation and solution of patent infringements. Unlike AICs which have a large enforcement force, local IPOs are limited in staffing and have real difficulties in that patent infringements are not as visual as trademark infringements.

In civil litigation, courts generally accept any application which satisfies Article 108 of the Civil Procedural Law. Administrative agencies are limited in this respect. Although the laws, regulations or rules have granted much power to administrative agencies, an IP infringement action is still a special case for an administrative agency. "We even found an IP agent in Beijing called ‘Bird Unitalen' and registered with the AIC. When we went to the AIC to complain about unfair competition, they recommended that we should go to a court," said Zhang from Unitalen.

As a matter of fact, after an administrative agency has done its work, the parties may also resort to other remedies. For example, after the county-level AIC has imposed its punishment, the punished party may appeal to a higher-level AIC for administrative reconsideration and thereafter initiate administrative proceedings for administrative reconsideration. We all feel that the administrative procedure is fast and straightforward. Coupled with administrative reconsideration, and the first instance and second instance trials in an administrative litigation, the administrative procedure may be no quicker than civil litigation. "Therefore, the administrative procedure has its advantages and disadvantages, as does the civil litigation. To choose which one requires a careful assessment. In cases involving similar trademarks, unfair competition claims, patent infringement, or copyright disputes, what I recommend would be the court – civil litigation," said Zhang from Unitalen.

Under the circumstances hereinabove mentioned, the officials from foreign companies generally agree that civil litigation is increasingly becoming the choice of foreign IP owners to fight against infringements. In addition to cracking down on infringers by seeking damages and stopping infringement, foreign companies also choose litigation to establish legal precedence and assert claims of rights. Litigation can also be used as leverage to help companies to reach settlements; however, one must ensure that the terms of the settlement are such that they will deter future infringement by the infringer.
Differences Between China and France with regard to IPR Litigation Procedures

Upon our request, Paul Ranjard, Chairperson of IPR Working Group, European Union Chamber of Commerce in China, talked of the differences between China and France with regard to IPR Litigation Procedures.

1. Commencement of a Lawsuit

In France, the manner in which litigation is commenced is more predictable than in China. In China, a party must first get the court to accept a case. If the court refuses to accept a case, there is no right for the plaintiff to appeal the court's decision. The French litigation system accepts all cases commenced by a given party. In France, for example, Party A, the plaintiff, starts a lawsuit by suing Party B. After Party A serves the complaint on the defendant, Party B, it files a copy of the complaint with the court, which puts the case on file. The court will hear the case, and make its decision based on the evidence submitted by the parties and the applicable law. If you start an action in the wrong court in France, the court will dismiss the complaint. However, there is no difficulty in getting the court to initially accept the case.  This is a huge difference with the Chinese system when it comes to commencing litigation. If the plaintiff in France wrongfully brings a lawsuit, the case will be heard by the court and then dismissed. The losing party may have to pay the defendant's litigation costs and damages for unreasonable litigation.

2.  Transparency

Another major difference involves transparency. In France, the court will make sure that all the evidence and arguments are presented and exchanged in writing between the parties prior to holding a trial. In China, the parties present evidence and make oral arguments at the trial. However, prior to the actual trial, one party does not know what evidence and arguments the other party will make.

In France, all evidence must be submitted in writing prior to the trial and the court will not conduct a trial until all evidence and written arguments have been submitted. The parties have the opportunity to review the other parties' evidence and arguments and are able to reply in writing prior to the trial.

3.  Timing of Hearings

In China, the judge determines the hearing time. Prior to the judge's notification of the time of a hearing, the parties do not know when the hearing will be held. The court just arbitrarily decides that the trial will be held in two weeks and the parties are expected to be ready for the hearing. A case may have been started 6 months ago and nothing happens in the case for six months and all of a sudden the court schedules a hearing.

In France, the court holds periodic hearings to check on the status of the case. Every two or three months the court holds a hearing to check on the progress of the case to see how the case has developed.  The parties know what procedures and actions they must take in advance and work as a team with the judge to ensure the smooth development of the case.

4.  Joining Multiple Parties in one IPR case

With respect to IPR cases, often the plaintiff will want to sue more than one party when fake products are involved, or one of the defendants may want to join another party in the case, which it will seek to hold responsible if it is found liable for counterfeiting. For example, a party may sue the retail shop selling a counterfeit item. The retail shop may reply that it bought the products from a distributor who should be responsible if the products are counterfeits. The distributor may then look to the factory which made the products to hold it ultimately responsible.

In China, it is very difficult to join multiple parties in one lawsuit. The plaintiff will sue the shop, but the shop cannot sue the distributor in the same lawsuit. They must start a totally separate action, which is uneconomical. In France, all the parties involved in the counterfeiting action can be joined in one action, which serves the interests of justice.

5. Enforcement

In China, after a judgment is rendered, the courts may or may not enforce the judgment.
Thus, even if you prevail in a case, the losing party may continue his illegal activity, and if the court doesn't enforce the judgment, nothing happens.

In France, there is an official person, known as the bailiff who is a private entrepreneur with power granted from the state to enforce judgments. After the court renders a judgment, the bailiff can enforce a judgment by seizing the assets of the losing party, including its bank accounts. The bailiff is independent and has the incentive to do a good job because the party seeking the enforcement of the judgment pays their fees according to law.

In France, after a judgment is obtained ordering the defendant to perform a certain act, such as to render a document, deliver goods or refrain form a certain action like selling infringing goods, the court will tell the losing party that if they do not perform the required act, they will be forced to pay a fine which will be increased so long as they do not comply. If the company does not comply, eventually they will be forced to go bankrupt.  The bailiff, not the court, enforces the judgment.

6. Evidence

France also has a unique system with the regard to the seizure of evidence and the role of the bailiff.  If a party believes that its trademark is being infringed, the lawyer will obtain evidence of the infringement and will go to see a judge with a copy of the certificate of trademark registration and present evidence. The lawyer will tell the court that a company is infringing its client's trademark and that it wants to prove the infringement. The court will appoint a bailiff to investigate and seize evidence. The bailiff can get a locksmith to visit the premises containing the infringing goods to open the location to investigate. The bailiff can also have the police cooperate in his investigation, hire auditors to review the infringers books, hire technical engineers in cases involving patents, etc. The bailiff can collect the evidence which cannot be challenged afterwards, and the plaintiff can use the evidence obtained to begin its lawsuit.

In China, it is difficult to prove infringement. The infringee can often obtain only one piece of evidence of the infringement and there is no supervision of the evidence gathering by the court. In France, the judge can authorize a bailiff to obtain evidence by looking at the infringers' accounts and past sales. In China, the Administration for Industry and Commerce (AIC) can investigate trademark infringements. It has an advantage because the employees of the AIC can enforce law. However, the Chinese system is more complicated because of the division between the bureaucratic administration and the courts. A party can ask the AIC to investigate and solve the infringement problem, but since the party involved does not pay them, there is no guarantee that they will do a good job. They are bureaucrats with limited powers and are under no obligation to provide the complaining party with information.

With civil litigation, the parties are able to act on their own behalf to protect their private interests. Therefore, it is more logical to have infringement matters supervised by the courts. However, in China, the courts do not have enough power and independence.
The split of responsibility between the AIC and the court makes it complicated for a party to protect their IP rights. While decisions of the AIC are subject to court review, enforcement is not under the authority of judges.


Litigation Strategy for Foreign Companies

Now that foreign companies have to pursue litigation to protect their intellectual property, they need to learn the proper litigation techniques under the existing legal environment in China. They should formulate a litigation strategy before entering into litigation; only in this way can they take the initiative in litigation and protect their intellectual property. Some foreign companies, which have experienced litigation in China, believe that a company has to first define its goals before commencing litigation. There are companies that have lost their IP cases, but still realized their goals. For example, in the trademark infringement case of Toyota vs. Geely, Toyota, the losing party, through media reports and exposure, was able to have the relevant public understand the relationship between Toyota and Geely; and Geely also changed its logo afterwards. This case shows that to prevail in an action is not the only aim of foreign companies. Therefore, foreign companies have to know well what result they want to achieve and then formulate relevant strategies before they go to the court.

Moreover, foreign companies still have some misconceptions about litigation in China. This is because they do not accustom themselves with Chinese laws, but rather base their actions on the laws and practices in their own countries; or they have not fully prepared themselves before initiating an action. These responses to litigation often lead to results contrary to their wishes. Last month, in its judgment, the No. 1 Intermediate People's Court of Beijing found that the "running horse" logo and trademark of Ferrari was not a famous trademark on the ground that Ferrari failed to produce evidence to prove how the trademark had been used and/or promoted in China.

Ferrari's only evidence was that the trademark had been registered in China and other countries, and this fact together with the product catalog for other countries besides China, was insufficient to prove that the trademark had been known by and enjoyed a good reputation among the relevant public in China. For a trademark "to be famous" requires that it has a certain influential power in a specific market, which cannot be forced on other markets. The case shows that although numerous Chinese young people have known or heard about the Ferrari sports car, which enjoys a certain influence worldwide, the court could only find that the Ferrari trademark was a common trademark because Ferrari did not produce evidence on its marketing promotion in China. Ferrari's loss can be mostly attributed to its poor preparation and failure to produce evidence according to Chinese law. It took for granted that the Ferrari trademark was known worldwide and thus must also be considered famous in China.

Advice from Lawyers

The following advices are from IP lawyers who have substantial experience in intellectual property litigation involving foreign parties. They have formed many unique ideas about how foreign companies should enter into litigation in China, and have also mastered some very operative litigation techniques. Under the current legal system, these techniques help foreign companies to legally protect their rights, and avoid unnecessary detours.

Michael Zhang, lawyer from Michael & L Law Office

1. When entering into litigation, foreign companies should first understand the procedures and the basic rules.

Once there was even a foreign company which paid the litigation fee in US dollars and the payment was refused. In such a case, the court would deem that the plaintiff had not paid the legal costs and thus had withdrawn its action or appeal. Therefore, before foreign companies bring an action, it is necessary for them to learn about the basic civil proceedings under Chinese law.

2. As to the place of lawsuit.

I would recommend a larger city: the larger, the better. Most foreign brand products are sold in the developed regions of China. If the infringing goods are manufactured in an underdeveloped region, the manufacturer should be added as an additional party. For example, if there is a manufacturer A, a wholesaler B and a retailer C you can bring an action against C, adding A and B as joint defendants. Note that there is a precondition -- you should know exactly where A and B are located to avoid repeated actions or being suspected of misusing the litigation process.  If the infringers include the manufacturer, wholesaler and retailer, make sure to sue the retailer. This has an advantage because both the plaintiff and the defendant are not local companies, the court will not be unnecessarily reluctant in rendering its judgment. As to the forum, I would recommend Beijing rather than Shanghai, if applicable. Since all administrative actions involving intellectual property are heard and decided in the courts of Beijing, these courts are more experienced in hearing such cases and more precise in applying the law than their local counterparts.

3. As for the technique to seek preservation.

Generally it is difficult to request preservation before the institution of an action, which has to be permitted by the chief justice of a court. However, the head of a court division may approve a preservation request, which is much easier to obtain. Moreover, it is better not to ask a local court to enforce preservation, instead you should request that it be directly enforced by the judge of the court which has accepted your case. If a Beijing court accepts the case, ask the judge of the court to directly enforce preservation. He can obtain information on the accounts and enterprise of the defendant through local banks or AICs. Also, he can freeze all the accounts a company has.

If you fear that the defendant may transfer its property, ask for preservation as soon as the case is filed. Try to obtain a ruling for preservation prior to the summons arriving at the defendant's domicile or before the defendant receives the summons. Arrive at the place of domicile of the defendant within the shortest possible time to have the ruling implemented. To enforce the ruling, the judge should take the easiest and fastest means of transportation, such as an airplane, and try to have the property preserved before the defendant respond.

Of course, it is possible that the accounts of the defendant, though quickly frozen, do not have any money. Also, the factory building and/or the equipment may be leased property. As a result, the defendant may not fear its accounts being frozen. However, it may have four shareholders, A, B, C and D, whose personal accounts receive remittances of millions every month. This is actually quite common. So, the court can readily rule that these personal accounts contain the company's money, and have all those personal accounts frozen. If the personal accounts are frozen, it may very easily lead to a settlement. The above is a flexible application of preservation.

4. In respect to enforcement, I suggest that foreign companies do not have blind faith in litigation.

Litigation often has only one function in China – to demand an official explanation – just as Qiuju does in the Movie "Qiuju Goes to Court"(秋菊打官司). To litigate is to demand an explanation. Foreign companies should not only wait for the court, but also rely on the AICs, to enforce a judgment. In China, both the court and the administrative agency have a say in enforcement. The enforcement division of a court has only a few officers and is not very efficient. As to the AICs nationwide, just the people from the enforcement teams and the economic inspection departments alone number in hundreds of thousands. As long as the court has found infringement, it becomes much less difficult for the AICs to enforce law according to your request. Moreover, AICs are very powerful, as it investigates not only whether an enterprise has engaged in any infringement, but also whether there is any false contribution, illegal advertisement or business bribery.

In case of local protectionism, you may file a complaint with the provincial AICs or the State Administration for Industry and Commerce (SAIC), or request reconsideration or initiate an administrative action.

The reason why we request administrative action is to stop the infringer from infringing our rights. The best result that foreign companies can expect is a fair trading environment, but not damages.

5. To enter into litigation, foreign companies must find the "key points".

If it is a large court, the judge would be better qualified and the legal process and substantive examination would be standard. Thus, choose a large city as the forum. Also, you must rely on a professional organization, for example, an investigation company, to collect evidence. As a litigation strategy, choose a reasonable standard for requesting compensation. You must have a definite purpose for the litigation. If your aim is to strike down the infringer, you must know its weaknesses or what is vital to it. For example, in a patent action, the patent technology is in the remote control of a car window and is not quite useful to an enterprise. However, the litigation contains many interlinks. If the capital account is closed or the downstream companies' goods are seized, it may lead to great troubles to an enterprise. If the goods of downstream manufacturers were seized during judicial proceedings, these manufacturers would "get even" with the infringer. If the infringer cannot pay for the goods because the capital account is sealed, the downstream companies would turn to others. The pressure from downstream companies would cause the infringer to decide on a quick settlement. Also, you can have the warehouse sealed, make announcements in newspapers or hold a press conference. The large downstream companies might care about the adverse impact suffered as a result of these measures and will impose pressure on the infringer. As the downstream companies care more about troubles from the upstream company, settlement is generally more efficient than judgment.

Zhang Yazhou, lawyer from Unitalen Attorneys At Law

1. The long period of litigation

Intellectual property is a complex area in itself. It is unrealistic to find a solution in just one or two months, since at the very least the right of the infringer to defend itself and produce evidence should be protected during judicial proceedings. A longer period of litigation may also result since the infringer may challenge the jurisdiction of the court; after the jurisdictional challenge, both parties will produce evidence which will be voluminous with respect to intellectual property; and finally the court will be in session, where a technical appraisal will be necessary if a technical dispute exists. Therefore, the legal process is easily extended unwittingly. For foreign companies, it is more difficult to determine how long the litigation will last, since the Civil Procedural Law does not provide for a time limit for concluding the trial of a civil case involving foreigners.

Also, take litigation involving patent designs as an example. Designs will not go through substantive examination in China. The relevant agency will approve any design as long as it is submitted. It might, before granting you a design, have already granted the same or similar designs to many others. Therefore, the design right is unstable. After the owner of a patent design files a complaint with a court, the court will give time to allow the complainee to reply to the charge. If within 15 days thereafter, the complainee applies to a patent reexamination board (PRB) to invalidate the patent design, the court may suspend the case (no time limit for the suspension). This is another cause of the long legal process. The PRB also needs time, which will finally lead to either of the two following outcomes. One is that the design is declared invalid, so that the litigation cannot continue. The other is that the invalidating application is untenable, i.e. the design is valid, so that we can return to the civil procedure. However, the civil proceedings can still be suspended. If a party disagrees with the ruling from the PRB, the infringer may initiate an administrative action with the No. 1 Intermediate People's Court of Beijing (first instance trial) and the High People's Court of Beijing (second instance trial). Until the Higher Court of Beijing has rendered a final judgment, the case will not return to the civil procedure. Since there is no time limit for the suspension of a civil infringement case, the court may suspend a case as long as it sees fit. If it believes that the plaintiff's right is unstable, the court may suspend the case and wait for the final ruling from the High People's Court of Beijing. It is also possible that the court may consider the plaintiff's right as being stable after the PRB has found the invalidating application as untenable.

In this case, it may continue with the hearing despite the administrative proceedings thereafter. However, this may lead to a contradiction – the civil proceedings may find the defendant is an infringer, but the administrative proceedings may invalidate the plaintiff's patent. Therefore, the court accepting civil actions and the court accepting administrative actions must coordinate with each other. But, which court should wait until the other has done its job? In judicial practice, this inconsistency is hard to reconcile.

2. Evidence collection

The difficulty in obtaining evidence is due to the particularity of intellectual property cases. In litigation, evidence can be divided into three parts. First, proof that you enjoy the rights; you need the patent register, for example, to prove you are the owner. Second, proof that your right has been infringed, which leads to preservation of the infringing goods.Third, proof of the losses resulted from the infringement. In practice, each part may give rise to a number of problems.

For example, in disputes involving copyrights, many of the works owned by foreign companies are developed in other countries, to which China automatically offers protection according to the Berne Convention. But, you also need to provide evidence. The evidence from another country has to be notarized, which must not be disregarded; otherwise, the foreign company to assert its right may probably be considered just a licensed user, rather than the original owner.

How to collect or preserve evidence for patent or trademark infringement? If it is just a consumer good for daily use, you may go to a department store or a supermarket to buy it. If it is a machine valued at more than one million dollars, and only two such machines are manufactured every year, and sold only to a military enterprise, how can you obtain evidence? Again, how can you obtain evidence on a production line which can only be bought by specific enterprises? To obtain evidence means to obtain evidence legally.

You cannot just sneak in and take photos without permission. Since the above case in reality is not rare, you have to ask the court to preserve evidence. This is also a problem. The court will ask why the plaintiff thinks the defendant is an infringer and if the defendant is not, who should be liable for the loss incurred by the plaintiff in the preservation. The defendant's enterprise, especially small enterprises, cannot be accessed very easily. Even an officer from the court needs to be careful about his personal security.

It is more troublesome to obtain evidence concerning loss. According to existing laws, you must produce evidence to prove either how much profit the defendant has received from the infringement or how much loss you have suffered as the result of the infringement. Both are difficult to prove. Take the latter case as an example. Although their rights have been infringed, some companies may see their sales increase rather than decrease. The defendant has infringed only one of the plaintiff's commodities, and the plaintiff has kept on producing other commodities, with its market share expanding and sales increasing. How can the plaintiff prove its losses? In case of patent infringement, if the patent of a component in a TV set, for instance, is infringed, you cannot use the whole price of the TV set to calculate the loss. How can you isolate the component or measure its value? This is difficult to deal with in practice.

3. Choice of forum

China is a large country. There are 400 intermediate courts nationwide which may hear cases involving trademarks or copyrights. Patent cases are generally tried by an intermediate court in a provincial capital or in a city directly under state planning designated by the Supreme People's Court. However, with so many courts, there are few judges who have had real experience with intellectual property cases. Sometimes, you may file an action with a competent court, and the case may be the first intellectual property case the court has ever handled since it was founded. However, in relatively developed cities, such as Beijing, Guangzhou, Shanghai, Shenzhen, Nanjing, or Foshan, judges have more opportunities to come into contact with intellectual property cases. They can better deal with the cases, as they know the relevant laws better and can form clear judgments on the case. Therefore, I suggest that foreign companies choose these regions for litigation.

According to Article 29 of the Civil Proceduel Law, the jurisdiction over an infringement case has two connecting points – the domicile of the defendant and the place of commission of the infringement. The former place is used less, since we all know about local protectionism. The latter place is mostly chosen for a lawsuit. Take a trademark infringement case as an example. As the commodity flows from A to B, from B to C and from C to D, one of the four places where the infringing commodity exists is the place of the commission of the infringement. You can just choose one of them. This is also true with patent infringements. You can also choose a suitable place of lawsuit by increasing the claims. Generally the provincial higher court hears cases where the claims are RMB 20 million – 30 million. Even if the infringer has caused you to lose RMB 100,000, you may increase the amount of the claims in order to avoid the jurisdiction of small local courts.

4. Preservation

The application of procedural preservation is case-specific. In fact, you may not need to win an intellectual property case; even if you win, you may obtain nothing of value. It is not essential whether you win or lose, but it is essential to know what goals you want to achieve through litigation. In our opinion, intellectual property is like an enterprise's makeweight in a game of chess. For example, in some infringement cases, the infringer is not a large enterprise, but manufactures inferior infringing products. These infringing products will leave a bad impression on consumers, who may mistakenly think the products of the infringee are inferior as well. It even occurs that since there are so many counterfeit products, consumers may decide not to buy authentic products. There are a lot of products on the market that they can choose from. If Product A is a good product but there are many counterfeits, consumers cannot tell the authentic product from the counterfeited ones. Therefore, they will not bother to notice the difference, and buy Product B without much thought. In the present example, what will your enterprise want? Compensation? No. You would want to eliminate the counterfeit manufacturers at whatever cost. This is called "market clearing". Preservation of property is less meaningful; a judgment on the infringement and a "game over" for the infringer will be sufficient. Some clients, however, have different ideas. As litigation costs are high, they want profits. They want the value realized for the property, be it a trademark or a patent. Thus, it is important for the lawyer to work with the clients to make clear what they want to achieve.

Some clients know that they will not win, and do not even want anything preserved. What they do want is to create pressure on the opposing party, so that they can talk with the opponent (mostly a competitor) about the transfer of trademarks or technology. It is a strategy that they use.

Now if you want compensation, you have to depend on the infringer. If it is a large company, compensation can be gained by executing against the assets of the company even if no property has been preserved. If it is a small company, the frozen account might be empty or the preserved property might be worthless. Thus your only aim should be to clear the market, as receipt of compensation is almost impossible.

There is also the circumstance where the decision to litigate reflects an attitude that an enterprise shows to a distributor. The distributor has worked hard to develop the market, and there are many counterfeits coming onto the market to compete against the authentic products. If the enterprise, as the owner, does not care about this, the distributor will be discouraged.

In fact, what foreign companies are mostly concerned with is not the indemnity amount, but market competition. The market is implicit. Even though the compensation awarded in a case is insufficient to pay for the attorney fees, the defendant would be "erased", no longer affecting you adversely and occupying a part of the market. How do you evaluate these intangibles? You cannot measure them in monetary terms, so in my opinion, the most essential aspect for an intellectual property case is to clear the market and maintain the authentic product's reputation.

5. Choice of a suitable attorney.

Firstly, and the most basically, a suitable attorney representing foreign companies should know the laws, regulations, administrative rules, judicial interpretations, and the guiding opinions of major local courts relating to intellectual property. For example, the guiding opinions of the High People's Court of Beijing are neither a law, nor a regulation, nor can they be generally applied. However, they are useful in some cases. As laws and regulations are not very specific and judicial interpretations are not all inclusive, often these guiding opinions may help judges adjudicate cases. Although China is not a case law country, the court will summarize the previous cases and reach conclusions. I feel it necessary that an attorney has some knowledge on those "guiding opinions", as well as the styles and ideas of some courts.

Secondly, a suitable attorney should at least have appeared in judicial proceedings for intellectual property. An intellectual property case will involve technical analyses and utilization of legal procedures. For example, to act for the plaintiff in a patent infringement case, the attorney should not only be focused on one side. He should consider not only the behavior at the place of infringement, but also what will occur if PRB invalidates the patent. If he does not know trademark or copyright cases well, the lawyer may pay attention to only one aspect instead of looking at the whole picture. He may know how to deal with infringement in patent litigation, but might not be aware of the procedure to invalidate a patent. Moreover, the Paris Convention or the Berne Convention is involved in cases involving foreign parties. For example, a foreign enterprise comes to develop products in China. It has no trademarks, patents and copyrights, nor has it engaged in any unfair competition. Will China offer protection to it? Yes, based on the Paris Convention. For example, there are some Japanese cartoon works that are created by individuals in Japan. When the author passes away, the right to those works remains in Japan. It raises the question about succession to the right. An attorney must know the Japanese laws in that respect.

Thirdly, judges in different regions may have developed different styles or ideas for the same kind of intellectual property cases. For example, after a patent is granted, someone goes to the patent reexamination board and has the patent invalidated. After the invalidation, it comes to administrative litigation, in the No.1 Intermediate People's Court of Beijing, of course. The No. 1 Intermediate Court has an administrative division and a civil division. In the same No. 1 Intermediate People's Court, the two divisions may arrive at totally different results in the same case. With trademarks, if an enterprise sues the trademark review board, the administrative division judges rule on the legality of the board's administrative behavior, instead of any substantive matter; the civil division considers more issues, such as whether the trademark is similar to the trademark allegedly being infringed, or whether the petition is based on tenable grounds. Obviously the chance is high that the civil division may disaffirm the previous decision of the TRB. How do you bring your case to the civil division? You have to meet several conditions. These conditions are not explicitly laid down, but established practices from court procedures. For example, the trademark review board accepts a case to annul a trademark and a previous civil dispute is connected with the case. For instance, I find another's trademark is similar to mine and sue him for trademark infringement. This is a civil dispute. Thereafter, he goes to the trademark review board to cancel my trademark, arguing that my trademark should not have been registered because it infringes his prior rights. TRB soon rules to either cancel or not cancel my trademark.

Whatever the ruling, the discontented party may bring it to the No. 1 Intermediate Court of Beijing. Now the trademark involved in the litigation is attached with a civil dispute. It is very possible that the civil division of the court adjudicates the case. Although the civil division tries the case in the name of the administrative division, the result can be very different from when the administrative division tries the case. An attorney can only gain this kind of experience through a long period of handling IP matters.

As I know, the judges from intellectual property tribunals are the elites of the courts. They are eager to learn and have written a lot of articles analyzing the jurisprudential ideas of various judges.

I think that an attorney who meets the above three conditions is a suitable attorney.

6. Amount of Damages

The amount of damages is dependent on the numerous investigations and analyses done before you initiate an action. If the data is full and accurate, I think the claims will probably be supported by the court, as in the Great Wall Wine case or the Yamaha case. Currently, if the plaintiff does not produce evidence to prove the amount of the loss, it is deemed to be no greater than RMB 500,000. As a matter of fact, in a majority of cases, the awarded amount is usually RMB 200,000 or 300,000. Judges base their award on a number of factors, including the fame of the trademark or the creativity of the plaintiff's patent; or any explicit malice in the infringing act of the defendant. At the recent conference in Wuxi (Jiangsu Province), the Supreme People's Court stressed that the awarded damages can exceed RMB 500,000 if the loss can be proven with evidence. Presently, the legal damages are less than RMB 500,000 for cases where the loss cannot be proven with evidence. They can be more than RMB 500,000 if there is the evidential proof for the loss. The court tends to encourage higher claims now.

7. Settlement

To compromise is good for the parties, but why settle? A company will not accept settlement unless it feels that it will only suffer from a continuation of litigation. Amon,g the foreign companies we have served, only a few have chosen to settle. They take a tough position and some are unwilling to settle. I have handled some cases involving settlement. It did happen that the defendant did not keep his promise after settlement. Therefore, the decision to settle or not varies with each case. Settlement can be deemed as an effective strategy. It is satisfactory if the defendant promises to eliminate the bad effects on the market, destroys all counterfeit goods, apologizes to the plaintiff, and compensates the plaintiff for its loss. Settlement has been successful in some cases. Sometimes, the plaintiff wishes to settle because his aim is not to "fight" with the defendant but to reach a settlement. He fights in order to reach a settlement, as in Sacon vs. Electrolux in Ningbo.

8. Execution

A lawyer should think of the difficulty in execution before he helps a client to initiate an action. He should know the defendant. If it is a publicly listed company, there should not be any problem with execution. If it is a small business, difficulty in execution does exist. For a small business, I think you should not sue it for compensation, but to clear the market, as the loss from the infringement is limited. For a corporation engaged in serious infringement, it is now necessary to claim for damages. Moreover, the execution on intellectual property can be flexible, as not only tangible assets can be executed. There was a case where the defendant, a large daily chemicals producer, owned a well-known trademark. He had nothing but the trademark after the plaintiff sued him. At last, the trademark was executed against, s,ince it was still influential and valuable. It is not complicated to execute against a trademark. With the judgment, the court only needs to send a letter to the trademark office for assistance in execution. Upon the letter, the trademark office will have the trademark altered.

Actually, I feel the problem with the execution of intellectual property is not as highlighted as in other civil cases. Once a judgment has been issued, you may distribute the written judgment in the market if the infringer does not stop the infringing behavior. As the infringing goods will ultimately enter the circulation channel and the market, you may issue lawyer's letters to the distributors, stating that the goods from the infringer have been judged as infringing and you desire that they withdraw the infringing goods as soon as practicable. The distributor is liable for indirect infringement if he has knowledge of the infringement but continues to sell the infringing goods. As a result, distributors will not take the risk of selling infringing goods for a small company. They will soon withdraw the infringing goods from the shelf. In this way, we close the circulation channel and provide a damaging bl,,ow to the infringing goods. As the infringing goods cannot enter the circulation channel, the infringer is unable to. This is a kind of execution in a disguised form. As the counterfeit goods have disappeared from the market, the aim of the litigation is achieved.

The deterrent effect of a court judgment on infringers varies with the parties involved. As in the Silk Street case, counterfeit goods successively continue to appear. there are always people who will take the risk as long as there is a room for profits. Of course, in cases like Yamaha or Starbucks, the court judgment does deter some potential infringers. Since China has made much more effort in cracking down on counterfeit goods recently, we feel that incidences of fake goods have decreased while imitations have increased. It is often hard to tell whether an imitation, which resembles the authentic product, constitutes infringement. As a result, it has become more complex to make determinations about intellectual property. Also, counterfeit goods are sold directly to foreign countries. In the past, infringers had their goods labeled before the goods were delivered through the customs to Africa, for example. After our efforts to crack down on these goods, things have changed. The goods for export are not labeled – and the "naked goods" are exported to a third country where they are labeled and then re-shipped to Africa. In this way, they are out of the control of China as the infringee does not have the trademark registered in Africa or even in the third country. It is worth noting that infringement upon intellectual property has become a more complicated issue crossing boundaries and regions.

Viewpoints of Judges

As they enter into intellectual property litigation in China, foreign companies certainly need to understand how Chinese judges employ the law to resolve disputes and render judgments. To hear and settle a case, Chinese judges take into consideration the entire picture, not simply basing their judgments on legal provisions. This is due to the fact that legal provisions are general principles, while judges also take into account the reality of Chinese society. In China, the modern legal system conflicts with the social legal consciousness. When the social convention and the civil awareness towards law has not developed as fast as the legal framework, and a large number of citizens have little or no sense of law, should a judge base his judgment simply on the provisions from a purely legal perspective, or go deep into the social situation and consider how the judgment would guide or affect society? Recently the movie "A Judge's Story" has been on show throughout China. It reflects how an intellectual property judge hears and settles cases and reveals what problems a Chinese judge will encounter in adjudication, including social problems, the weak appreciation of law among the citizens and the imbalances in economic development, among others. It contains a scene where the judge asks a party to produce evidence, and the party says "I have no evidence, and I decide on my conscience and you judge on yours". It is obvious that in his mind, the party relies on ethics instead of the law to resolve the dispute. Such a phenomenon has been not rare among Chinese citizens. Also in the movie, when the judge rules that the plaintiff has lost the suit due to providing insufficient evidence, the party commits suicide to protest. Finally, the government intervenes in the case and through administrative acts, finds a solution for the party's factory and work. Although she has complied with the law to rule on the case, the adjudication supervision department still questioned the judge because she has achieved a bad result. All of these are characteristic of the China's legal culture. To litigate in China, foreign companies should at least learn about these factors, as well as every aspect of Chinese society. In this era of social transition, Chinese judges should play a role not simply as an umpire between parties, but to adjudicate cases according to law and follow civil procedures. They should also, at least, take on the responsibility to publicize the law and develop a belief in the rule of law, in order to better eliminate social contradictions and gradually establish the public's faith in the legal system.

In respect to various litigation problems faced by foreign companies, we have solicited opinions from several judges. We hope that their viewpoints on intellectual property litigation will help provide foreign companies with reasonable suggestions to analyze their problems with litigation in China.

Jiang Zhipei, Head of Intellectual Property Division, Supreme People's Court

1. Foreign companies should comply with the legal procedures to solve problems involving intellectual property

In the seven to eight years before and after China's entry into the WTO, statistics show that the proportion of the cases involving foreigners has remained constant and been around 3% of the total intellectual property cases accepted by Chinese courts. However, foreign companies have raised a lot of complaints. When faced with infringement, they tend to press the Chinese government through various means, but do not instigate civil actions as they would do in their own countries.

To seek legal protection is a feature of intellectual property protection. However, when they encounter an infringement dispute in China, foreign companies do not resort to litigation as they would do according to international conventions or in their own countries. Instead, they choose to complain, to press the Chinese government and force it to strengthen administrative enforcement of law. They hope to solve the problem without paying litigation costs. It is a phenomenon today to deal with a private rights problem by transferring responsibility to the entire society.

Litigation, in and of itself, is not always a pleasant thing to deal with in all countries. For example, the United States has much higher litigation costs and attorney fees than China. Many enterprises have to abandon litigation because of the high costs, and settle with the defendant. Litigation is a means or a weapon to use, but I do not consider it the only way to achieve a solution. Certainly foreign companies should choose to litigate if their major interests are affected, or if they cannot find a better way to resolve the problem. According to Chinese law, it is the court rather than an administrative agency that adjudicates a case where the parties fail to negotiate an indemnity after infringement has been determined. Chinese administrative agencies enforce law by stopping the infringement, canceling the business license or imposing a penalty. Any of their mistakes may lead to counterclaims. Depending on the advantages, a party should choose either administrative agencies or the courts according to the circumstances of each case. Since the market economy remains imperfect in China, particularly since China has had a long period of planned economy and is in transition, foreign companies can choose from many administrative agencies to enforce law and solve their problems. They can choose either litigation or administrative enforcement in the interests of their business.

2. Foreign companies encounter difficulties with litigation in China

Litigation is tough in all countries. It is more difficult for Chinese companies to litigate in the Untied States than for American companies to litigate in China. In the United States, the court does not provide many conveniences for parties. China has many service centers where one can file an action, receive assistance or report an offence. In the United States, parties and attorneys have a short time to explain their ideas to the court. In China, attorneys for foreign companies have sufficient time to state their ideas.
Foreign companies have encountered litigation obstacles, sometimes because they do not fully understand Chinese law. For example, a case will not be accepted by a Chinese court unless it is accompanied by written authorization from the legal representative. However, some foreign companies come to court with only the lawyer's signature. This legislation was originally intended to prevent "briefcase companies" (which mean fundless companies engaged in speculation) or parties other than the owner from asserting their rights. Therefore, while in China, foreign companies should adapt to Chinese law. Multinational companies should act in consistency with the state acts of a country. The evidence that foreign companies obtain in a foreign country should be notarized and authenticated under the Civil Procedure Law. This is explicitly laid down. If a foreign company has not gone through the notarization procedure, a judge cannot authenticate the evidence in violation of law. Having been in China for many years, foreign companies have not actively accommodated themselves to Chinese law, but have always acted in their own business interests. Is it easier to change the law of a country or the actions of an enterprise? It is a process to advocate legislation, which takes time. As legislation has not been changed, it is more feasible to change the behavior of an enterprise and comply with the Chinese law currently in force. Never expect that Chinese legislation will try to suit foreign regulations or the practices of foreign companies.

As for foreign companies' trouble with notarization, I advice that if an enterprise residing in a foreign country needs to have the authorization of the legal representative notarized, why not set up an office in China so that the office can deliver the document directly to the Chinese court? In this way, foreign companies will no longer have trouble with notarization.

3. To litigate in China, foreign companies should understand Chinese culture

In fact, with litigation in China, foreign companies enjoy sufficient presentation time, lower costs and attentive judges. The collegiate bench considers many more factors than American judges do. Chinese judges consider not only the facts and legal basis, but also the situation in China, the environment for foreign investments, and the macro environment. Therefore, the collegiate bench procedure is sufficient, and most multinational companies or foreign ventures have won their intellectual property cases.

Also, foreign companies may encounter problems with language or custom. In terms of language and culture, Chinese people know foreigners better than foreigners know Chinese. Foreign companies in China should not use their own language or culture as a standard of measurement. Instead, they should be aware of the difference between China's legal system and legal culture and those of other countries. It is natural that Chinese companies follow local laws when they litigate in a foreign country. It is not proper for foreign companies to keep on thinking of the laws in their own countries when they litigate in China. Now that China is a common and essential market for foreign companies, they should delve deeply into Chinese culture to understand Chinese law and litigate according to Chinese law and culture. Moreover, they should know about the imperfections in Chinese society, such as those with the credit system, banking insurance system or accounting rules, which are still under development. They should recognize and heed these imperfections. If they are aware of these circumstances in China, they can avoid problems.

In judging individual cases, judges consider how to achieve the best result. The law mediates social contradictions. One case is but one drop of water. The truth in a niche may turn into a falsehood under the macro environment. Therefore, a judge can never render his judgment without having the slightest hesitancy. To reach a judgment, he not only applies Chinese law, but also considers the facts, the situation in China, social stability and/or how the judgment would influence the foreign investment environment. In some developed countries, except for a few senior judges, an ordinary judge seldom if ever takes these macro issues into account.

4. The difficulty with obtaining evidence

The problem with evidence not only concerns the courts, but the legislature and the entire society. That is, the evidentiary system is not restricted to the court, but is an issue concerning the state institutions and legal framework, including the credit system and accounting system. The perfection of the credit system and all the other economic systems is a process. As China has not promulgated a law of evidence, incomplete evidence rules are dispersed among the Civil Procedure Law and judicial interpretations. Some systems are absent for facilitating the production of evidence by the parties. For example, in piracy or counterfeiting cases, no intermediary organizations, such as investigation companies or private detectives, are available under the current regulations to supplement the government work force.

Judges do not go outside the court for investigation. The parties are forced to present all their evidence under a healthy evidentiary system in some foreign countries. They are required to deliver all the evidence to the court, and then the evidence is exchanged between the parties. After the evidence is fixed, no further evidence can be submitted unless due to force majeure. There are no Chinese laws or regulations so far in this respect. Under the imperfect Chinese evidentiary system, parties tend not to present all their evidence at the litigation stage. In addition, China does not provide a legal status for some investigative companies or private detectives, since in Chinese opinion; such intermediary services are harmful to social stability and security. I do not advocate lifting all of the control over such services, but do propose giving a legal status to some intermediary services or legal service middlemen, and in this way, helping them to obtain evidence for cracking down on counterfeiting. According to my knowledge, the Chinese legislators have no plans to draft a law of evidence, and the departments concerned do not attach much importance to it. Currently, the judicial interpretations on evidence are too weak to affect the ordinary behavior of the parties before litigation. It is simply impossible to force the parties to produce evidence.

Objectively speaking, the imperfect evidentiary system is another reason for the difficulty in obtaining evidence. However, instead of placing their efforts on evidence, some foreign companies often go to seek help from leaders, officials, superiors, public opinion, or grumble in private, which is inconsistent with the rule of law. They think that this is Chinese culture. In fact, China has very good lawyers who can produce evidence under the imperfect evidentiary rules. Also, as the evidentiary system is being improved, the judicial interpretations contain provision, which are advantageous to the parties and invert the burden of proof in terms of the substantive law, such as by requiring an infringer of a process patent to produce evidence; or requiring a seller of pirated products to produce evidence of authorization from the authentic products manufacturer. Therefore, foreign companies can obtain evidence through a qualified lawyer, by employing good judicial interpretations and legal provisions. Moreover, there are administrative law enforcement agencies in China. They can be used to find more clues if evidence is insufficient. When the evidence is sufficient, you can go to court. In the future, as the laws and rules of evidence are being improved, it will be more favorable for rights owners to litigate. Further, when judicial protection for intellectual property is operating smoothly, you can have confidence in the protection offered by the legal procedures. Do more work on obtaining evidence and the results will be obvious.


5. Legal means are the best solution for disputes

Foreign companies tend to use non-legal means to resolve disputes involving intellectual property. For example, they may lodge a complaint with the Chinese leadership through diplomatic channels, or create pressure from public opinion. I do not agree on these actions. In fact, it would be more effective if their methods were consistent with the rule of law. Those non-rule-of-law methods will not lead to real solutions. The state leaders will not deal with a problem directly, as it may result in a waste of time. For general-orientation issues, such as, investment policy, the perfection of evidentiary laws and rules, and other legislative issues, foreign companies should, in my opinion, present their recommendations to the state leaders, the National Peoples' Congress or legislatures, in ways other than the above. Foreign companies take non-rule-of-law measures only in China, but never in other countries. If they do so in the United States or Europe, they would be deemed to be interfering with the judiciary and affecting the judicial process. It is obvious that when they complain about the Chinese legal system and exert pressure on the Chinese government, foreign companies are undermining the judicial construction in China.

6. The indemnity amount

As far as I can see, foreign companies feel that they are less indemnified mainly because of the lack of hard evidence. If the evidence on losses is sufficient, the court will support your claims, as in the Yamaha case where the Supreme Peoples' Court awarded more than RMB 80 million in damages. However, if a foreign company has discovered 100 pirated CDs but requests compensation for 1,000 CDs, its claim cannot win the court's support. Under such a situation, it should not complain that the indemnity amount is small. The small amount of indemnity can also be attributed to the low "gold content" of some intellectual property. China has a good many utility models and designs which are less valuable. It is impossible for the court to award sky-high damages for them. Moreover, some countries implement punitive damages in intellectual property cases, and China grants compensation on the entire actual loss. Thus, the indemnity may be less in China than in other countries.

7. About the difficulty in execution

As to problems with execution, you should know about the credit worthiness of your opponent before you do business with him. If he has both bank accounts and fixed assets, execution may not be a problem. If your opponent is a small business about to go bankrupt, you can hardly expect to receive any compensation. This is a risk of doing transactions in a market economy, and you should be careful about it.

To protect your intellectual property, you should pursue the right strategy. I think you should sue infringers that affect your major interests, do the most harm to your business, and are strong and large companies, as they are capable of compensating for your loss. A small business is certainly incapable of making compensation, but you have achieved your aim by causing it to go bankrupt. In intellectual property cases, winning money is not the only aim of litigation, as some enterprises sue to stop the infringing acts. With a few civil actions for infringement and several criminal lawsuits in a year, an enterprise can create a momentum to bring the situation under control and reduce infringing acts.

The pre-litigation preservation of property or the procedural preservation of property is inalienable from the thoroughness and perfection of a society's accounting system, credit system and banking system. Similar to other issues, the execution of preserved assets is a comprehensive issue. China is now drafting an execution law to which all the concerned parties attach much importance. The proposed execution law will impose stricter punishments on the intentional concealment of property. Actually it will not only help in the execution for intellectual property cases, but also promote smooth execution of all civil judgments.

8. Settlement

Presently, parties tend to negotiate with each other in intellectual property cases. Sometimes the result of the execution is unsatisfactory for court judgments. However, with a settlement, the defendant automatically agrees to execute his performance. Also, the parties may reach agreements and become partners, so that the competitors can have a win-win result. I recommend that foreign companies negotiate as settlement is also encouraged in other countries. At present, 40%-50% of the intellectual property cases in China are settled, while the proportion is above 90% in the United States.

9. Attorney

Foreign companies should retain Chinese lawyers as their attorneys as some foreign lawyers do not fully understand Chinese law and will probably misrepresent some provisions. After losing their cases, some foreign lawyers do not account for their lack of understanding of Chinese law, but communicate a wrong message that some Chinese provisions are problematic. This is really harmful to a country as well as to individuals. Moreover, foreign companies should retain lawyers who have appeared in court and have practical experience and are versed in the theory of the law. An inexperienced lawyer who lacks litigation experience or has not achieved a complete understanding of law may not be able to meet litigious challenges.

10. Problems with intellectual property litigation are comprehensive

The problems with intellectual property litigation do not only involve the intellectual property field, but also comprehensively represent problems with civil legal proceedings, and society. As a matter of fact, in China, the legislation and judicial interpretation on intellectual property has been in the forefront. The pre-litigation injunction or the procedural preservation of evidence, for example, has not appeared in other proceedings. The support for pre-litigation preservation is above 80%. Unlike China, in Germany support is low for the provisional injunction prior to litigation. Therefore, foreign companies should see the entire landscape rather than a single point. It is still early to talk about premature issues since China has not readily solved employment or lifestyle problems in some regions, as well as problems involving the connection between entire systems, legal construction and economic development. Haste makes waste.

Liu Xiaojun, Judge of Intellectual Property Division, Beijing Intermediate People's Court

1. The long time period of intellectual property litigation

In fact, generally speaking, the period for intellectual property litigation in China is not long. It is even shorter in China than in other countries, especially developed countries. Under Chinese law, for civil intellectual property cases, the first instance trial is limited to six months and the second-instance trial is limited to three months; for patent invalidation or trademark disputes, the first-instance trial is limited to three months and the second-instance trial is limited to two months. The courts in Beijing, Shanghai, Guangzhou and other major cities can generally hear and decide intellectual property cases within the above time limit. Therefore, in general, the time period for adjudicating intellectual property cases is short.

Then, why do foreign parties feel that they spend a lot of time litigating intellectual property cases in China? In my opinion, the reasons are as follows: First, the service of process for foreign intellectual property cases takes much time. For fair and just litigation, the court must serve various materials or data to the parties, including foreign parties, in which the formalities are complex and time-consuming. Second, when the foreign party submits materials and data that were formed outside of China to the court in China, generally, such materials or data have to be notarized, authenticated and translated into Chinese. This will also take time. Third, institutionally it generally takes two to three years for a patent invalidation case to go from the patent reexamination board to the court of final judgment. If the patent reexamination board's decision was made by examining only a part of the invalidation reasons for the cancellation by the court, the case will be, in principle, sent back to the patent reexamination board for a retrial, in order to ensure procedural justice and the necessary instances of trial. As a result, a new trial round begins and the litigation period is extended. Last but not least, some judges disregard the time limit for adjudicating foreign cases, and many regions do not provide a time limit for trials of foreign cases. Under their heavy work pressure, judges tend to prioritize cases with a strict time limit in order to pass various internal examinations or checks..

Foreign parties may take the following measures to shorten the litigation time for foreign intellectual property cases. First, parties, particularly foreign ones, should cooperate with the court. Foreign parties should submit various materials and/or data that the court requires as soon as practicable. Also, they should have the materials notarized and authenticated, if applicable. There are many cases where foreign parties do not provide the materials that the court requires, for example, by not having them notarized, authenticated or translated into Chinese. As a result, some work has to be redone and the litigation time period is extended. Second, ensure that the court can contact you quickly if necessary. Some foreign parties fail to leave their proper contact information with the court, so that the latter is unable to serve various litigation materials in a timely manner. Make sure that you have provided the court with a free and clear means of contact. If you have several means of contact, leave them all with the court, with the safest and fastest means indicated. Third, give the court your correct contact information, even though you have retained a Chinese lawyer. During litigation, after they have retained a Chinese attorney, some foreign parties disappear, leaving all responsibility to the Chinese attorney. Sometimes the court cannot find the attorney or some matter is not for an attorney to decide. It is very necessary to retain a Chinese attorney and leave his correct contact information with the court.

In the long run, the lengthy litigation period for intellectual property cases should be dealt with institutionally, by perfecting the litigation suspension regulation and the rules of evidence, or for example, by establishing an intellectual property court, or providing explicitly that the court may declare a patent invalid under certain conditions. The long time period for intellectual property litigation is not unique to China but a worldwide challenge. The causes are various. All the parties involved in litigation, including the court, should try their best to find a solution.

2. Evidence obtainment in intellectual property cases

The difficulty in obtaining evidence exists not only in intellectual property litigation, but also in other types of litigation. Also, it is not unique to China, as the evidence for intellectual property is difficult to obtain in all countries. It is even more difficult in some developed countries than in China.

The reasons are mostly toile in the features of intellectual property, and are also related to basic theoretical research, which is also weak in intellectual property. The inherent characteristic of intellectual property determines the way for obtaining evidence, which is different from that for personal or property right infringement. As the infringing act for intellectual property is very secretive, it is very difficult to obtain evidence to prove the existence of the infringement, especially how the infringement has led to the loss of the owner, including the existence and size of the loss.

Currently, the requirements for admission of notarized evidence are strict for intellectual property cases, as they cannot be negated under the existing laws and regulations. The frequency of notarized evidence in intellectual property litigation is very high, perhaps the highest, in my opinion, among the various types of litigation. They can be seen in a large number of intellectual property cases, sometimes in multiple forms. They come from plaintiffs and defendants, and are mostly admitted. Therefore, evidence in cases involving foreign parties should be notarized, if applicable. If any original document cannot be submitted for whatever reason, its transcript may be submitted together with a notarization authenticating the transcript with the original. The notarized transcript often has the same legal force as the original.

3. Settlement in litigation

Settlement, which is often used now in civil litigation, is consistent with the traditional Chinese culture as well as the construction of a harmonious society in China. I would recommend that foreign parties, either as the plaintiff or the defendant in intellectual property cases, should seek settlement for disputes.

Settlement is advantageous in that it provides a peaceful and practical solution to disputes between the parties. With a judgment in your favor, you may encounter problems with execution. Through Settlement, however, the parties tend to perform the obligations initiatively, so that the interests of the parties, especially the owner, can be practically protected. More importantly, with settlement the parties may continue the good relationship between them. It means that each party may continue to possess and expand its market.

4. Indemnity amount

The indemnity awarded for intellectual property infringement is not low in China. However, the reason why owners feel it is low is they have not provided effective evidence to prove their claims.

Currently, there are four methods to determine the amount of indemnity for intellectual property infringement. First, the actual loss method, where the infringer shall be liable for all of the owner's actual losses if the owner can prove them. Second, the benefit method, in which the infringer shall deliver all the benefits from the infringement, which the owner can prove, to the owner as indemnity. Third, the negotiation method, where the indemnity amount is the amount that the owner and the infringer have negotiated and agreed to. Fourth, the discretion method, where if the above three methods cannot work, the court may, according to the circumstance of the infringement, determine the indemnity amount which shall be no more than RMB 500,000 under the law. This amount may not include other costs that the owner incurs in stopping the infringement.
Therefore, the issue whether the indemnity is low is not a problem if the amount is determined by any of the first three methods. It is essential that the parties produce evidence. The court will support a party's claims as long as he can prove them. It is mainly the amount determined with the fourth method that owners feel is low. I think that the upper limit of RMB 500,000 as the law provides is consistent with the situation in China. Judges, at their discretion, determine the amount of indemnity according to the circumstances of individual cases. This can hardly measure up to a problem of low indemnity. Note here that the recent draft amendment to the Patent Law raises the upper limit to RMB 1 million.

I would recommend, particularly, that owners should not rely on the court's discretion, but should seek to prove the existence and size of the loss. Even if the indemnity amount were up to the discretion of the court, the evidence that a party provides on the loss would be very useful. Some owners do not produce evidence on the amount of the loss, but rely on the court's discretion. The court will not determine a very high amount if the loss is not proven with preliminary evidence. In addition, if owners can prove the minimum loss instead of the actual amount of the loss, especially if the minimum loss is more than RMB 500,000, they should timely submit such proof to the court, so that the judge may, at his discretion, determine the indemnity amount on the basis of the minimum loss.

5. Principles for choosing a forum

It takes knowledge to choose a proper forum for intellectual property litigation. Intellectual property cases are concentrated in Europe, the United States and Japan. This trend has also emerged in China. Generally, the courts in the eastern regions, coastal regions, developed regions and major cities accept more intellectual property cases than courts in the middle or western regions, the hinterlands, the under-developed regions and small cities. Currently intellectual property cases are mostly concentrated in Beijing, Guangdong, Shanghai and Jiangsu, where judges have much more experience. Foreign owners tend to choose courts in these regions when they pursue intellectual property litigation.

To choose a forum is to choose a competent court, which reflects one's confidence in the courts willingness to accept the case. Currently, China's laws, regulations and judicial interpretations are still imperfect regarding how to choose a competent court for intellectual property cases. The traditional rules of the Civil Procedure Law, which are directly employed for intellectual property infringement litigation, have been shown to be incompatible in some ways. It requires skill and technique for either owners or infringers to choose a suitable forum, especially when complainants may bring an action with almost any of the courts with jurisdiction over intellectual property cases under the existing rules.

Foreign owners should choose courts in major cities, such as Beijing, since the courts in these places have had tens of years of experience and have a group of experienced professional judges. The courts are capable of protecting the interested parties and the legal interest of the owners in accordance with law.

Conclusion

To litigate in China, foreign companies not only need to be familiar with Chinese law, but also to know Chinese culture. In addition, knowing Chinese culture, they must also adapt to it. China's legal framework still needs to be perfected. The progress of the rule of law and the advances of society occur as a whole. When you learn that a seller of pork from a sick pig is generally fined a small amount of money and a seller of 500 pirated CDs is found guilty of a crime, do you feel the latter punishment is not harsh? In the thoughts of the Chinese people, selling pirated CDs causes much less harm than selling pork from a sick pig. If foreign companies ask China at this time to impose stricter punishments on the sellers of pirated CDs, a law containing stricter punishments would be seen as somewhat unfair in the eyes of common Chinese people. Under such a social circumstance, it would be harder to fight against piracy. Therefore, when foreign companies push or promote the construction of China's legal framework, they should not only consider their business interests, but also the macro legal environment, the legislative balance, and the synchronization of the rule of law and social progress.

Foreign companies should choose the best means possible to protect their interests under China's current legal environment. It is much easier to adapt to and find a solution under the current legal environment than to change it. Upon an infringement dispute, they need not "reproach" but to try "greater cooperation". Of course, their existence does help promote the perfection of Chinese laws with their legislative recommendations and supervision over judicial practice. Therefore, when foreign companies enter into litigation more often and through legitimate procedures, it strongly promotes China's legal construction.
                                                                                   (Translated by Ren Qingtao)

,g the foreign companies we have served, only a few have chosen to settle. They take a tough position and some are unwilling to settle. I have handled some cases involving settlement. It did happen that the defendant did not keep his promise after settlement. Therefore, the decision to settle or not varies with each case. Settlement can be deemed as an effective strategy. It is satisfactory if the defendant promises to eliminate the bad effects on the market, destroys all counterfeit goods, apologizes to the plaintiff, and compensates the plaintiff for its loss. Settlement has been successful in some cases. Sometimes, the plaintiff wishes to settle because his aim is not to "fight" with the defendant but to reach a settlement. He fights in order to reach a settlement, as in Sacon vs. Electrolux in Ningbo.

8. Execution

A lawyer should think of the difficulty in execution before he helps a client to initiate an action. He should know the defendant. If it is a publicly listed company, there should not be any problem with execution. If it is a small business, difficulty in execution does exist. For a small business, I think you should not sue it for compensation, but to clear the market, as the loss from the infringement is limited. For a corporation engaged in serious infringement, it is now necessary to claim for damages. Moreover, the execution on intellectual property can be flexible, as not only tangible assets can be executed. There was a case where the defendant, a large daily chemicals producer, owned a well-known trademark. He had nothing but the trademark after the plaintiff sued him. At last, the trademark was executed against, s,ince it was still influential and valuable. It is not complicated to execute against a trademark. With the judgment, the court only needs to send a letter to the trademark office for assistance in execution. Upon the letter, the trademark office will have the trademark altered.

Actually, I feel the problem with the execution of intellectual property is not as highlighted as in other civil cases. Once a judgment has been issued, you may distribute the written judgment in the market if the infringer does not stop the infringing behavior. As the infringing goods will ultimately enter the circulation channel and the market, you may issue lawyer's letters to the distributors, stating that the goods from the infringer have been judged as infringing and you desire that they withdraw the infringing goods as soon as practicable. The distributor is liable for indirect infringement if he has knowledge of the infringement but continues to sell the infringing goods. As a result, distributors will not take the risk of selling infringing goods for a small company. They will soon withdraw the infringing goods from the shelf. In this way, we close the circulation channel and provide a damaging blow to the infringing goods. As the infringing goods cannot enter the circulation channel, the infringer is unable to. This is a kind of execution in a disguised form. As the counterfeit goods have disappeared from the market, the aim of the litigation is achieved.

The deterrent effect of a court judgment on infringers varies with the parties involved. As in the Silk Street case, counterfeit goods successively continue to appear. there are always people who will take the risk as long as there is a room for profits. Of course, in cases like Yamaha or Starbucks, the court judgment does deter some potential infringers. Since China has made much more effort in cracking down on counterfeit goods recently, we feel that incidences of fake goods have decreased while imitations have increased. It is often hard to tell whether an imitation, which resembles the authentic product, constitutes infringement. As a result, it has become more complex to make determinations about intellectual property. Also, counterfeit goods are sold directly to foreign countries. In the past, infringers had their goods labeled before the goods were delivered through the customs to Africa, for example. After our efforts to crack down on these goods, things have changed. The goods for export are not labeled – and the "naked goods" are exported to a third country where they are labeled and then re-shipped to Africa. In this way, they are out of the control of China as the infringee does not have the trademark registered in Africa or even in the third country. It is worth noting that infringement upon intellectual property has become a more complicated issue crossing boundaries and regions.

Viewpoints of Judges

As they enter into intellectual property litigation in China, foreign companies certainly need to understand how Chinese judges employ the law to resolve disputes and render judgments. To hear and settle a case, Chinese judges take into consideration the entire picture, not simply basing their judgments on legal provisions. This is due to the fact that legal provisions are general principles, while judges also take into account the reality of Chinese society. In China, the modern legal system conflicts with the social legal consciousness. When the social convention and the civil awareness towards law has not developed as fast as the legal framework, and a large number of citizens have little or no sense of law, should a judge base his judgment simply on the provisions from a purely legal perspective, or go deep into the social situation and consider how the judgment would guide or affect society? Recently the movie "A Judge's Story" has been on show throughout China. It reflects how an intellectual property judge hears and settles cases and reveals what problems a Chinese judge will encounter in adjudication, including social problems, the weak appreciation of law among the citizens and the imbalances in economic development, among others. It contains a scene where the judge asks a party to produce evidence, and the party says "I have no evidence, and I decide on my conscience and you judge on yours". It is obvious that in his mind, the party relies on ethics instead of the law to resolve the dispute. Such a phenomenon has been not rare among Chinese citizens. Also in the movie, when the judge rules that the plaintiff has lost the suit due to providing insufficient evidence, the party commits suicide to protest. Finally, the government intervenes in the case and through administrative acts, finds a solution for the party's factory and work. Although she has complied with the law to rule on the case, the adjudication supervision department still questioned the judge because she has achieved a bad result. All of these are characteristic of the China's legal culture. To litigate in China, foreign companies should at least learn about these factors, as well as every aspect of Chinese society. In this era of social transition, Chinese judges should play a role not simply as an umpire between parties, but to adjudicate cases according to law and follow civil procedures. They should also, at least, take on the responsibility to publicize the law and develop a belief in the rule of law, in order to better eliminate social contradictions and gradually establish the public's faith in the legal system.

In respect to various litigation problems faced by foreign companies, we have solicited opinions from several judges. We hope that their viewpoints on intellectual property litigation will help provide foreign companies with reasonable suggestions to analyze their problems with litigation in China.

Jiang Zhipei, Head of Intellectual Property Division, Supreme People's Court

1. Foreign companies should comply with the legal procedures to solve problems involving intellectual property

In the seven to eight years before and after China's entry into the WTO, statistics show that the proportion of the cases involving foreigners has remained constant and been around 3% of the total intellectual property cases accepted by Chinese courts. However, foreign companies have raised a lot of complaints. When faced with infringement, they tend to press the Chinese government through various means, but do not instigate civil actions as they would do in their own countries.

To seek legal protection is a feature of intellectual property protection. However, when they encounter an infringement dispute in China, foreign companies do not resort to litigation as they would do according to international conventions or in their own countries. Instead, they choose to complain, to press the Chinese government and force it to strengthen administrative enforcement of law. They hope to solve the problem without paying litigation costs. It is a phenomenon today to deal with a private rights problem by transferring responsibility to the entire society.

Litigation, in and of itself, is not always a pleasant thing to deal with in all countries. For example, the United States has much higher litigation costs and attorney fees than China. Many enterprises have to abandon litigation because of the high costs, and settle with the defendant. Litigation is a means or a weapon to use, but I do not consider it the only way to achieve a solution. Certainly foreign companies should choose to litigate if their major interests are affected, or if they cannot find a better way to resolve the problem. According to Chinese law, it is the court rather than an administrative agency that adjudicates a case where the parties fail to negotiate an indemnity after infringement has been determined. Chinese administrative agencies enforce law by stopping the infringement, canceling the business license or imposing a penalty. Any of their mistakes may lead to counterclaims. Depending on the advantages, a party should choose either administrative agencies or the courts according to the circumstances of each case. Since the market economy remains imperfect in China, particularly since China has had a long per,i,od of planned economy and is in transition, foreign companies can choose from many administrative agencies to enforce law and solve their problems. They can choose either litigation or administrative enforcement in the interests of their business.

2. Foreign companies encounter difficulties with litigation in China

Litigation is tough in all countries. It is more difficult for Chinese companies to litigate in the Untied States than for American companies to litigate in China. In the United States, the court does not provide many conveniences for parties. China has many service centers where one can file an action, receive assistance or report an offence. In the United States, parties and attorneys have a short time to explain their ideas to the court. In China, attorneys for foreign companies have sufficient time to state their ideas.
Foreign companies have encountered litigation obstacles, sometimes because they do not fully understand Chinese law. For example, a case will not be accepted by a Chinese court unless it is accompanied by written authorization from the legal representative. However, some foreign companies come to court with only the lawyer's signature. This legislation was originally intended to prevent "briefcase companies" (which mean fundless companies engaged in speculation) or parties other than the owner from asserting their rights. Therefore, while in China, foreign companies should adapt to Chinese law. Multinational companies should act in consistency with the state acts of a country. The evidence that foreign companies obtain in a foreign country should be notarized and authenticated under the Civil Procedure Law. This is explicitly laid down. If a foreign company has not gone through the notarization procedure, a judge cannot authenticate the evidence in violation of law. Having been in China for many years, foreign companies have not actively accommodated themselves to Chinese law, but have always acted in their own business interests. Is it easier to change the law of a country or the actions of an enterprise? It is a process to advocate legislation, which takes time. As legislation has not been changed, it is more feasible to change the behavior of an enterprise and comply with the Chinese law currently in force. Never expect that Chinese legislation will try to suit foreign regulations or the practices of foreign companies.

As for foreign companies' trouble with notarization, I advice that if an enterprise residing in a foreign country needs to have the authorization of the legal representative notarized, why not set up an office in China so that the office can deliver the document directly to the Chinese court? In this way, foreign companies will no longer have trouble with notarization.

3. To litigate in China, foreign companies should understand Chinese culture

In fact, with litigation in China, foreign companies enjoy sufficient presentation time, lower costs and attentive judges. The collegiate bench considers many more factors than American judges do. Chinese judges consider not only the facts and legal basis, but also the situation in China, the environment for foreign investments, and the macro environment. Therefore, the collegiate bench procedure is sufficient, and most multinational companies or foreign ventures have won their intellectual property cases.

Also, foreign companies may encounter problems with language or custom. In terms of language and culture, Chinese people know foreigners better than foreigners know Chinese. Foreign companies in China should not use their own language or culture as a standard of measurement. Instead, they should be aware of the difference between China's legal system and legal culture and those of other countries. It is natural that Chinese companies follow local laws when they litigate in a foreign country. It is not proper for foreign companies to keep on thinking of the laws in their own countries when they litigate in China. Now that China is a common and essential market for foreign companies, they should delve deeply into Chinese culture to understand Chinese law and litigate according to Chinese law and culture. Moreover, they should know about the imperfections in Chinese society, such as those with the credit system, banking insurance system or accounting rules, which are still under development. They should recognize and heed these imperfections. If they are aware of these circumstances in China, they can avoid problems.

In judging individual cases, judges consider how to achieve the best result. The law mediates social contradictions. One case is but one drop of water. The truth in a niche may turn into a falsehood under the macro environment. Therefore, a judge can never render his judgment without having the slightest hesitancy. To reach a judgment, he not only applies Chinese law, but also considers the facts, the situation in China, social stability and/or how the judgment would influence the foreign investment environment. In some developed countries, except for a few senior judges, an ordinary judge seldom if ever takes these macro issues into account.

4. The difficulty with obtaining evidence

The problem with evidence not only concerns the courts, but the legislature and the entire society. That is, the evidentiary system is not restricted to the court, but is an issue concerning the state institutions and legal framework, including the credit system and accounting system. The perfection of the credit system and all the other economic systems is a process. As China has not promulgated a law of evidence, incomplete evidence rules are dispersed among the Civil Procedure Law and judicial interpretations. Some systems are absent for facilitating the production of evidence by the parties. For example, in piracy or counterfeiting cases, no intermediary organizations, such as investigation companies or private detectives, are available under the current regulations to supplement the government work force.

Judges do not go outside the court for investigation. The parties are forced to present all their evidence under a healthy evidentiary system in some foreign countries. They are required to deliver all the evidence to the court, and then the evidence is exchanged between the parties. After the evidence is fixed, no further evidence can be submitted unless due to force majeure. There are no Chinese laws or regulations so far in this respect. Under the imperfect Chinese evidentiary system, parties tend not to present all their evidence at the litigation stage. In addition, China does not provide a legal status for some investigative companies or private detectives, since in Chinese opinion; such intermediary services are harmful to social stability and security. I do not advocate lifting all of the control over such services, but do propose giving a legal status to some intermediary services or legal service middlemen, and in this way, helping them to obtain evidence for cracking down on counterfeiting. According to my knowledge, the Chinese legislators have no plans to draft a law of evidence, and the departments concerned do not attach much importance to it. Currently, the judicial interpretations on evidence are too weak to affect the ordinary behavior of the parties before litigation. It is simply impossible to force the parties to produce evidence.

Objectively speaking, the imperfect evidentiary system is another reason for the difficulty in obtaining evidence. However, instead of placing their efforts on evidence, some foreign companies often go to seek help from leaders, officials, superiors, public opinion, or grumble in private, which is inconsistent with the rule of law. They think that this is Chinese culture. In fact, China has very good lawyers who can produce evidence under the imperfect evidentiary rules. Also, as the evidentiary system is being improved, the judicial interpretations contain provision, which are advantageous to the parties and invert the burden of proof in terms of the substantive law, such as by requiring an infringer of a process patent to produce evidence; or requiring a seller of pirated products to produce evidence of authorization from the authentic products manufacturer. Therefore, foreign companies can obtain evidence through a qualified lawyer, by employing good judicial interpretations and legal provisions. Moreover, there are administrative law enforcement agencies in China. They can be used to find more clues if evidence is insufficient. When the evidence is sufficient, you can go to court. In the future, as the laws and rules of evidence are being improved, it will be more favorable for rights owners to litigate. Further, when judicial protection for intellectual property is operating smoothly, you can have confidence in the protection offered by the legal procedures. Do more work on obtaining evidence and the results will be obvious.


5. Legal means are the best solution for disputes

Foreign companies tend to use non-legal means to resolve disputes involving intellectual property. For example, they may lodge a complaint with the Chinese leadership through diplomatic channels, or create pressure from public opinion. I do not agree on these actions. In fact, it would be more effective if their methods were consistent with the rule of law. Those non-rule-of-law methods will not lead to real solutions. The state leaders will not deal with a problem directly, as it may result in a waste of time. For general-orientation issues, such as, investment policy, the perfection of evidentiary laws and rules, and other legislative issues, foreign companies should, in my opinion, present their recommendations to the state leaders, the National Peoples' Congress or legislatures, in ways other than the above. Foreign companies take non-rule-of-law measures only in China, but never in other countries. If they do so in the United States or Europe, they would be deemed to be interfering with the judiciary and affecting the judicial process. It is obvious that when they complain about the Chinese legal system and exert pressure on the Chinese government, foreign companies are undermining the judicial construction in China.

6. The indemnity amount

As far as I can see, foreign companies feel that they are less indemnified mainly because of the lack of hard evidence. If the evidence on losses is sufficient, the court will support your claims, as in the Yamaha case where the Supreme Peoples' Court awarded more than RMB 80 million in damages. However, if a foreign company has discovered 100 pirated CDs but requests compensation for 1,000 CDs, its claim cannot win the court's support. Under such a situation, it should not complain that the indemnity amount is small. The small amount of indemnity can also be attributed to the low "gold content" of some intellectual property. China has a good many utility models and designs which are less valuable. It is impossible for the court to award sky-high damages for them. Moreover, some countries implement punitive damages in intellectual property cases, and China grants compensation on the entire actual loss. Thus, the indemnity may be less in China than in other countries.

7. About the difficulty in execution

As to problems with execution, you should know about the credit worthiness of your opponent before you do business with him. If he has both bank accounts and fixed assets, execution may not be a problem. If your opponent is a small business about to go bankrupt, you can hardly expect to receive any compensation. This is a risk of doing transactions in a market economy, and you should be careful about it.

To protect your intellectual property, you should pursue the right strategy. I think you should sue infringers that affect your major interests, do the most harm to your business, and are strong and large companies, as they are capable of compensating for your loss. A small business is certainly incapable of making compensation, but you have achieved your aim by causing it to go bankrupt. In intellectual property cases, winning money is not the only aim of litigation, as some enterprises sue to stop the infringing acts. With a few civil actions for infringement and several criminal lawsuits in a year, an enterprise can create a momentum to bring the situation under control and reduce infringing acts.

The pre-litigation preservation of property or the procedural preservation of property is inalienable from the thoroughness and perfection of a society's accounting system, credit system and banking system. Similar to other issues, the execution of preserved assets is a comprehensive issue. China is now drafting an execution law to which all the concerned parties attach much importance. The proposed execution law will impose stricter punishments on the intentional concealment of property. Actually it will not only help in the execution for intellectual property cases, but also promote smooth execution of all civil judgments.

8. Settlement

Presently, parties tend to negotiate with each other in intellectual property cases. Sometimes the result of the execution is unsatisfactory for court judgments. However, with a settlement, the defendant automatically agrees to execute his performance. Also, the parties may reach agreements and become partners, so that the competitors can have a win-win result. I recommend that foreign companies negotiate as settlement is also encouraged in other countries. At present, 40%-50% of the intellectual property cases in China are settled, while the proportion is above 90% in the United States.

9. Attorney

Foreign companies should retain Chinese lawyers as their attorneys as some foreign lawyers do not fully understand Chinese law and will probably misrepresent some provisions. After losing their cases, some foreign lawyers do not account for their lack of understanding of Chinese law, but communicate a wrong message that some Chinese provisions are problematic. This is really harmful to a country as well as to individuals. Moreover, foreign companies should retain lawyers who have appeared in court and have practical experience and are versed in the theory of the law. An inexperienced lawyer who lacks litigation experience or has not achieved a complete understanding of law may not be able to meet litigious challenges.

10. Problems with intellectual property litigation are comprehensive

The problems with intellectual property litigation do not only involve the intellectual property field, but also comprehensively represent problems with civil legal proceedings, and society. As a matter of fact, in China, the legislation and judicial interpretation on intellectual property has been in the forefront. The pre-litigation injunction or the procedural preservation of evidence, for example, has not appeared in other proceedings. The support for pre-litigation preservation is above 80%. Unlike China, in Germany support is low for the provisional injunction prior to litigation. Therefore, foreign companies should see the entire landscape rather than a single point. It is still early to talk about premature issues since China has not readily solved employment or lifestyle problems in some regions, as well as problems involving the connection between entire systems, legal construction and economic development. Haste makes waste.

Liu Xiaojun, Judge of Intellectual Property Division, Beijing Intermediate People's Court

1. The long time period of intellectual property litigation

In fact, generally speaking, the period for intellectual property litigation in China is not long. It is even shorter in China than in other countries, especially developed countries. Under Chinese law, for civil intellectual property cases, the first instance trial is limited to six months and the second-instance trial is limited to three months; for patent invalidation or trademark disputes, the first-instance trial is limited to three months and the second-instance trial is limited to two months. The courts in Beijing, Shanghai, Guangzhou and other major cities can generally hear and decide intellectual property cases within the above time limit. Therefore, in general, the time period for adjudicating intellectual property cases is short.

Then, why do foreign parties feel that they spend a lot of time litigating intellectual property cases in China? In my opinion, the reasons are as follows: First, the service of process for foreign intellectual property cases takes much time. For fair and just litigation, the court must serve various materials or data to the parties, including foreign parties, in which the formalities are complex and time-consuming. Second, when the foreign party submits materials and data that were formed outside of China to the court in China, generally, such materials or data have to be notarized, authenticated and translated into Chinese. This will also take time. Third, institutionally it generally takes two to three years for a patent invalidation case to go from the patent reexamination board to the court of final judgment. If the patent reexamination board's decision was made by examining only a part of the invalidation reasons for the cancellation by the court, the case will be, in principle, sent back to the patent reexamination board for a retrial, in order to ensure procedural justice and the necessary instances of trial. As a result, a new trial round begins and the litigation period is extended. Last but not least, some judges disregard the time limit for adjudicating foreign cases, and many regions do not provide a time limit for trials of foreign cases. Under their heavy work pressure, judges tend to prioritize cases with a strict time limit in order to pass various internal examinations or checks..

Foreign parties may take the following measures to shorten the litigation time for foreign intellectual property cases. First, parties, particularly foreign ones, should cooperate with the court. Foreign parties should submit various materials and/or data that the court requires as soon as practicable. Also, they should have the materials notarized and authenticated, if applicable. There are many cases where foreign parties do not provide the materials that the court requires, for example, by not having them notarized, authenticated or translated into Chinese. As a result, some work has to be redone and the litigation time period is extended. Second, ensure that the court can contact you quickly if necessary. Some foreign parties fail to leave their proper contact information with the court, so that the latter is unable to serve various litigation materials in a timely manner. Make sure that you have provided the court with a free and clear means of contact. If you have several means of contact, leave them all with the court, with the safest and fastest means indicated. Third, give the court your correct contact information, even though you have retained a Chinese lawyer. During litigation, after they have retained a Chinese attorney, some foreign parties disappear, leaving all responsibility to the Chinese attorney. Sometimes the court cannot find the attorney or some matter is not for an attorney to decide. It is very necessary to retain a Chinese attorney and leave his correct contact information with the court.

In the long run, the lengthy litigation period for intellectual property cases should be dealt with institutionally, by perfecting the litigation suspension regulation and the rules of evidence, or for example, by establishing an intellectual property court, or providing explicitly that the court may declare a patent invalid under certain conditions. The long time period for intellectual property litigation is not unique to China but a worldwide challenge. The causes are various. All the parties involved in litigation, including the court, should try their best to find a solution.

2. Evidence obtainment in intellectual property cases

The difficulty in obtaining evidence exists not only in intellectual property litigation, but also in other types of litigation. Also, it is not unique to China, as the evidence for intellectual property is difficult to obtain in all countries. It is even more difficult in some developed countries than in China.

The reasons are mostly toile in the features of intellectual property, and are also related to basic theoretical research, which is also weak in intellectual property. The inherent characteristic of intellectual property determines the way for obtaining evidence, which is different from that for personal or property right infringement. As the infringing act for intellectual property is very secretive, it is very difficult to obtain evidence to prove the existence of the infringement, especially how the infringement has led to the loss of the owner, including the existence and size of the loss.

Currently, the requirements for admission of notarized evidence are strict for intellectual property cases, as they cannot be negated under the existing laws and regulations. The frequency of notarized evidence in intellectual property litigation is very high, perhaps the highest, in my opinion, among the various types of litigation. They can be seen in a large number of intellectual property cases, sometimes in multiple forms. They come from plaintiffs and defendants, and are mostly admitted. Therefore, evidence in cases involving foreign parties should be notarized, if applicable. If any original document cannot be submitted for whatever reason, its transcript may be submitted together with a notarization authenticating the transcript with the original. The notarized transcript often has the same legal force as the original.

3. Settlement in litigation

Settlement, which is often used now in civil litigation, is consistent with the traditional Chinese culture as well as the construction of a harmonious society in China. I would recommend that foreign parties, either as the plaintiff or the defendant in intellectual property cases, should seek settlement for disputes.

Settlement is advantageous in that it provides a peaceful and practical solution to disputes between the parties. With a judgment in your favor, you may encounter problems with execution. Through Settlement, however, the parties tend to perform the obligations initiatively, so that the interests of the parties, especially the owner, can be practically protected. More importantly, with settlement the parties may continue the good relationship between them. It means that each party may continue to possess and expand its market.

4. Indemnity amount

The indemnity awarded for intellectual property infringement is not low in China. However, the reason why owners feel it is low is they have not provided effective evidence to prove their claims.

Currently, there are four methods to determine the amount of indemnity for intellectual property infringement. First, the actual loss method, where the infringer shall be liable for all of the owner's actual losses if the owner can prove them. Second, the benefit method, in which the infringer shall deliver all the benefits from the infringement, which the owner can prove, to the owner as indemnity. Third, the negotiation method, where the indemnity amount is the amount that the owner and the infringer have negotiated and agreed to. Fourth, the discretion method, where if the above three methods cannot work, the court may, according to the circumstance of the infringement, determine the indemnity amount which shall be no more than RMB 500,000 under the law. This amount may not include other costs that the owner incurs in stopping the infringement.
Therefore, the issue whether the indemnity is low is not a problem if the amount is determined by any of the first three methods. It is essential that the parties produce evidence. The court will support a party's claims as long as he can prove them. It is mainly the amount determined with the fourth method that owners feel is low. I think that the upper limit of RMB 500,000 as the law provides is consistent with the situation in China. Judges, at their discretion, determine the amount of indemnity according to the circumstances of individual cases. This can hardly measure up to a problem of low indemnity. Note here that the recent draft amendment to the Patent Law raises the upper limit to RMB 1 million.

I would recommend, particularly, that owners should not rely on the court's discretion, but should seek to prove the existence and size of the loss. Even if the indemnity amount were up to the discretion of the court, the evidence that a party provides on the loss would be very useful. Some owners do not produce evidence on the amount of the loss, but rely on the court's discretion. The court will not determine a very high amount if the loss is not proven with preliminary evidence. In addition, if owners can prove the minimum loss instead of the actual amount of the loss, especially if the minimum loss is more than RMB 500,000, they should timely submit such proof to the court, so that the judge may, at his discretion, determine the indemnity amount on the basis of the minimum loss.

5. Principles for choosing a forum

It takes knowledge to choose a proper forum for intellectual property litigation. Intellectual property cases are concentrated in Europe, the United States and Japan. This trend has also emerged in China. Generally, the courts in the eastern regions, coastal regions, developed regions and major cities accept more intellectual property cases than courts in the middle or western regions, the hinterlands, the under-developed regions and small cities. Currently intellectual property cases are mostly concentrated in Beijing, Guangdong, Shanghai and Jiangsu, where judges have much more experience. Foreign owners tend to choose courts in these regions when they pursue intellectual property litigation.

To choose a forum is to choose a competent court, which reflects one's confidence in the courts willingness to accept the case. Currently, China's laws, regulations and judicial interpretations are still imperfect regarding how to choose a competent court for intellectual property cases. The traditional rules of the Civil Procedure Law, which are directly employed for intellectual property infringement litigation, have been shown to be incompatible in some ways. It requires skill and technique for either owners or infringers to choose a suitable forum, especially when complainants may bring an action with almost any of the courts with jurisdiction over intellectual property cases under the existing rules.

Foreign owners should choose courts in major cities, such as Beijing, since the courts in these places have had tens of years of experience and have a group of experienced professional judges. The courts are capable of protecting the interested parties and the legal interest of the owners in accordance with law.

Conclusion

To litigate in China, foreign companies not only need to be familiar with Chinese law, but also to know Chinese culture. In addition, knowing Chinese culture, they must also adapt to it. China's legal framework still needs to be perfected. The progress of the rule of law and the advances of society occur as a whole. When you learn that a seller of pork from a sick pig is generally fined a small amount of money and a seller of 500 pirated CDs is found guilty of a crime, do you feel the latter punishment is not harsh? In the thoughts of the Chinese people, selling pirated CDs causes much less harm than selling pork from a sick pig. If foreign companies ask China at this time to impose stricter punishments on the sellers of pirated CDs, a law containing stricter punishments would be seen as somewhat unfair in the eyes of common Chinese people. Under such a social circumstance, it would be harder to fight against piracy. Therefore, when foreign companies push or promote the construction of China's legal framework, they should not only consider their business interests, but also the macro legal environment, the legislative balance, and the synchronization of the rule of law and social progress.

Foreign companies should choose the best means possible to protect their interests under China's current legal environment. It is much easier to adapt to and find a solution under the current legal environment than to change it. Upon an infringement dispute, they need not "reproach" but to try "greater cooperation". Of course, their existence does help promote the perfection of Chinese laws with their legislative recommendations and supervision over judicial practice. Therefore, when foreign companies enter into litigation more often and through legitimate procedures, it strongly promotes China's legal construction.
                                                                                   (Translated by Ren Qingtao)

,g the foreign companies we have served, only a few have chosen to settle. They take a tough position and some are unwilling to settle. I have handled some cases involving settlement. It did happen that the defendant did not keep his promise after settlement. Therefore, the decision to settle or not varies with each case. Settlement can be deemed as an effective strategy. It is satisfactory if the defendant promises to eliminate the bad effects on the market, destroys all counterfeit goods, apologizes to the plaintiff, and compensates the plaintiff for its loss. Settlement has been successful in some cases. Sometimes, the plaintiff wishes to settle because his aim is not to "fight" with the defendant but to reach a settlement. He fights in order to reach a settlement, as in Sacon vs. Electrolux in Ningbo.

8. Execution

A lawyer should think of the difficulty in execution before he helps a client to initiate an action. He should know the defendant. If it is a publicly listed company, there should not be any problem with execution. If it is a small business, difficulty in execution does exist. For a small business, I think you should not sue it for compensation, but to clear the market, as the loss from the infringement is limited. For a corporation engaged in serious infringement, it is now necessary to claim for damages. Moreover, the execution on intellectual property can be flexible, as not only tangible assets can be executed. There was a case where the defendant, a large daily chemicals producer, owned a well-known trademark. He had nothing but the trademark after the plaintiff sued him. At last, the trademark was executed against, s,ince it was still influential and valuable. It is not complicated to execute against a trademark. With the judgment, the court only needs to send a letter to the trademark office for assistance in execution. Upon the letter, the trademark office will have the trademark altered.

Actually, I feel the problem with the execution of intellectual property is not as highlighted as in other civil cases. Once a judgment has been issued, you may distribute the written judgment in the market if the infringer does not stop the infringing behavior. As the infringing goods will ultimately enter the circulation channel and the market, you may issue lawyer's letters to the distributors, stating that the goods from the infringer have been judged as infringing and you desire that they withdraw the infringing goods as soon as practicable. The distributor is liable for indirect infringement if he has knowledge of the infringement but continues to sell the infringing goods. As a result, distributors will not take the risk of selling infringing goods for a small company. They will soon withdraw the infringing goods from the shelf. In this way, we close the circulation channel and provide a damaging blow to the infringing goods. As the infringing goods cannot enter the circulation channel, the infringer is unable to. This is a kind of execution in a disguised form. As the counterfeit goods have disappeared from the market, the aim of the litigation is achieved.

The deterrent effect of a court judgment on infringers varies with the parties involved. As in the Silk Street case, counterfeit goods successively continue to appear. there are always people who will take the risk as long as there is a room for profits. Of course, in cases like Yamaha or Starbucks, the court judgment does deter some potential infringers. Since China has made much more effort in cracking down on counterfeit goods recently, we feel that incidences of fake goods have decreased while imitations have increased. It is often hard to tell whether an imitation, which resembles the authentic product, constitutes infringement. As a result, it has become more complex to make determinations about intellectual property. Also, counterfeit goods are sold directly to foreign countries. In the past, infringers had their goods labeled before the goods were delivered through the customs to Africa, for example. After our efforts to crack down on these goods, things have changed. The goods for export are not labeled – and the "naked goods" are exported to a third country where they are labeled and then re-shipped to Africa. In this way, they are out of the control of China as the infringee does not have the trademark registered in Africa or even in the third country. It is worth noting that infringement upon intellectual property has become a more complicated issue crossing boundaries and regions.

Viewpoints of Judges

As they enter into intellectual property litigation in China, foreign companies certainly need to understand how Chinese judges employ the law to resolve disputes and render judgments. To hear and settle a case, Chinese judges take into consideration the entire picture, not simply basing their judgments on legal provisions. This is due to the fact that legal provisions are general principles, while judges also take into account the reality of Chinese society. In China, the modern legal system conflicts with the social legal consciousness. When the social convention and the civil awareness towards law has not developed as fast as the legal framework, and a large number of citizens have little or no sense of law, should a judge base his judgment simply on the provisions from a purely legal perspective, or go deep into the social situation and consider how the judgment would guide or affect society? Recently the movie "A Judge's Story" has been on show throughout China. It reflects how an intellectual property judge hears and settles cases and reveals what problems a Chinese judge will encounter in adjudication, including social problems, the weak appreciation of law among the citizens and the imbalances in economic development, among others. It contains a scene where the judge asks a party to produce evidence, and the party says "I have no evidence, and I decide on my conscience and you judge on yours". It is obvious that in his mind, the party relies on ethics instead of the law to resolve the dispute. Such a phenomenon has been not rare among Chinese citizens. Also in the movie, when the judge rules that the plaintiff has lost the suit due to providing insufficient evidence, the party commits suicide to protest. Finally, the government intervenes in the case and through administrative acts, finds a solution for the party's factory and work. Although she has complied with the law to rule on the case, the adjudication supervision department still questioned the judge because she has achieved a bad result. All of these are characteristic of the China's legal culture. To litigate in China, foreign companies should at least learn about these factors, as well as every aspect of Chinese society. In this era of social transition, Chinese judges should play a role not simply as an umpire between parties, but to adjudicate cases according to law and follow civil procedures. They should also, at least, take on the responsibility to publicize the law and develop a belief in the rule of law, in order to better eliminate social contradictions and gradually establish the public's faith in the legal system.

In respect to various litigation problems faced by foreign companies, we have solicited opinions from several judges. We hope that their viewpoints on intellectual property litigation will help provide foreign companies with reasonable suggestions to analyze their problems with litigation in China.

Jiang Zhipei, Head of Intellectual Property Division, Supreme People's Court

1. Foreign companies should comply with the legal procedures to solve problems involving intellectual property

In the seven to eight years before and after China's entry into the WTO, statistics show that the proportion of the cases involving foreigners has remained constant and been around 3% of the total intellectual property cases accepted by Chinese courts. However, foreign companies have raised a lot of complaints. When faced with infringement, they tend to press the Chinese government through various means, but do not instigate civil actions as they would do in their own countries.

To seek legal protection is a feature of intellectual property protection. However, when they encounter an infringement dispute in China, foreign companies do not resort to litigation as they would do according to international conventions or in their own countries. Instead, they choose to complain, to press the Chinese government and force it to strengthen administrative enforcement of law. They hope to solve the problem without paying litigation costs. It is a phenomenon today to deal with a private rights problem by transferring responsibility to the entire society.

Litigation, in and of itself, is not always a pleasant thing to deal with in all countries. For example, the United States has much higher litigation costs and attorney fees than China. Many enterprises have to abandon litigation because of the high costs, and settle with the defendant. Litigation is a means or a weapon to use, but I do not consider it the only way to achieve a solution. Certainly foreign companies should choose to litigate if their major interests are affected, or if they cannot find a better way to resolve the problem. According to Chinese law, it is the court rather than an administrative agency that adjudicates a case where the parties fail to negotiate an indemnity after infringement has been determined. Chinese administrative agencies enforce law by stopping the infringement, canceling the business license or imposing a penalty. Any of their mistakes may lead to counterclaims. Depending on the advantages, a party should choose either administrative agencies or the courts according to the circumstances of each case. Since the market economy remains imperfect in China, particularly since China has had a long period of planned economy and is in transition, foreign companies can choose from many administrative agencies to enforce law and solve their problems. They can choose either litigation or administrative enforcement in the interests of their business.

2. Foreign companies encounter difficulties with litigation in China

Litigation is tough in all countries. It is more difficult for Chinese companies to litigate in the Untied States than for American companies to litigate in China. In the United States, the court does not provide many conveniences for parties. China has many service centers where one can file an action, receive assistance or report an offence. In the United States, parties and attorneys have a short time to explain their ideas to the court. In China, attorneys for foreign companies have sufficient time to state their ideas.
Foreign companies have encountered litigation obstacles, sometimes because they do not fully understand Chinese law. For example, a case will not be accepted by a Chinese court unless it is accompanied by written authorization from the legal representative. However, some foreign companies come to court with only the lawyer's signature. This legislation was originally intended to prevent "briefcase companies" (which mean fundless companies engaged in speculation) or parties other than the owner from asserting their rights. Therefore, while in China, foreign companies should adapt to Chinese law. Multinational companies should act in consistency with the state acts of a country. The evidence that foreign companies obtain in a foreign country should be notarized and authenticated under the Civil Procedure Law. This is explicitly laid down. If a foreign company has not gone through the notarization procedure, a judge cannot authenticate the evidence in violation of law. Having been in China for many years, foreign companies have not actively accommodated themselves to Chinese law, but have always acted in their own business interests. Is it easier to change the law of a country or the actions of an enterprise? It is a process to advocate legislation, which takes time. As legislation has not been changed, it is more feasible to change the behavior of an enterprise and comply with the Chinese law currently in force. Never expect that Chinese legislation will try to suit foreign regulations or the practices of foreign companies.

As for foreign companies' trouble with notarization, I advice that if an enterprise residing in a foreign country needs to have the authorization of the legal representative notarized, why not set up an office in China so that the office can deliver the document directly to the Chinese court? In this way, foreign companies will no longer have trouble with notarization.

3. To litigate in China, foreign companies should understand Chinese culture

In fact, with litigation in China, foreign companies enjoy sufficient presentation time, lower costs and attentive judges. The collegiate bench considers many more factors than American judges do. Chinese judges consider not only the facts and legal basis, but also the situation in China, the environment for foreign investments, and the macro environment. Therefore, the collegiate bench procedure is sufficient, and most multinational companies or foreign ventures have won their intellectual property cases.

Also, foreign companies may encounter problems with language or custom. In terms of language and culture, Chinese people know foreigners better than foreigners know Chinese. Foreign companies in China should not use their own language or culture as a standard of measurement. Instead, they should be aware of the difference between China's legal system and legal culture and those of other countries. It is natural that Chinese companies follow local laws when they litigate in a foreign country. It is not proper for foreign companies to keep on thinking of the laws in their own countries when they litigate in China. Now that China is a common and essential market for foreign companies, they should delve deeply into Chinese culture to understand Chinese law and litigate according to Chinese law and culture. Moreover, they should know about the imperfections in Chinese society, such as those with the credit system, banking insurance system or accounting rules, which are still under development. They should recognize and heed these imperfections. If they are aware of these circumstances in China, they can avoid problems.

In judging individual cases, judges consider how to achieve the best result. The law mediates social contradictions. One case is but one drop of water. The truth in a niche may turn into a falsehood under the macro environment. Therefore, a judge can never render his judgment without having the slightest hesitancy. To reach a judgment, he not only applies Chinese law, but also considers the facts, the situation in China, social stability and/or how the judgment would influence the foreign investment environment. In some developed countries, except for a few senior judges, an ordinary judge seldom if ever takes these macro issues into account.

4. The difficulty with obtaining evidence

The problem with evidence not only concerns the courts, but the legislature and the entire society. That is, the evidentiary system is not restricted to the court, but is an issue concerning the state institutions and legal framework, including the credit system and accounting system. The perfection of the credit system and all the other economic systems is a process. As China has not promulgated a law of evidence, incomplete evidence rules are dispersed among the Civil Procedure Law and judicial interpretations. Some systems are absent for facilitating the production of evidence by the parties. For example, in piracy or counterfeiting cases, no intermediary organizations, such as investigation companies or private detectives, are available under the current regulations to supplement the government work force.

Judges do not go outside the court for investigation. The parties are forced to present all their evidence under a healthy evidentiary system in some foreign countries. They are required to deliver all the evidence to the court, and then the evidence is exchanged between the parties. After the evidence is fixed, no further evidence can be submitted unless due to force majeure. There are no Chinese laws or regulations so far in this respect. Under the imperfect Chinese evidentiary system, parties tend not to present all their evidence at the litigation stage. In addition, China does not provide a legal status for some investigative companies or private detectives, since in Chinese opinion; such intermediary services are harmful to social stability and security. I do not advocate lifting all of the control over such services, but do propose giving a legal status to some intermediary services or legal service middlemen, and in this way, helping them to obtain evidence ,fo,r cracking down on counterfeiting. According to my knowledge, the Chinese legislators have no plans to draft a law of evidence, and the departments concerned do not attach much importance to it. Currently, the judicial interpretations on evidence are too weak to affect the ordinary behavior of the parties before litigation. It is simply impossible to force the parties to produce evidence.

Objectively speaking, the imperfect evidentiary system is another reason for the difficulty in obtaining evidence. However, instead of placing their efforts on evidence, some foreign companies often go to seek help from leaders, officials, superiors, public opinion, or grumble in private, which is inconsistent with the rule of law. They think that this is Chinese culture. In fact, China has very good lawyers who can produce evidence under the imperfect evidentiary rules. Also, as the evidentiary system is being improved, the judicial interpretations contain provision, which are advantageous to the parties and invert the burden of proof in terms of the substantive law, such as by requiring an infringer of a process patent to produce evidence; or requiring a seller of pirated products to produce evidence of authorization from the authentic products manufacturer. Therefore, foreign companies can obtain evidence through a qualified lawyer, by employing good judicial interpretations and legal provisions. Moreover, there are administrative law enforcement agencies in China. They can be used to find more clues if evidence is insufficient. When the evidence is sufficient, you can go to court. In the future, as the laws and rules of evidence are being improved, it will be more favorable for rights owners to litigate. Further, when judicial protection for intellectual property is operating smoothly, you can have confidence in the protection offered by the legal procedures. Do more work on obtaining evidence and the results will be obvious.


5. Legal means are the best solution for disputes

Foreign companies tend to use non-legal means to resolve disputes involving intellectual property. For example, they may lodge a complaint with the Chinese leadership through diplomatic channels, or create pressure from public opinion. I do not agree on these actions. In fact, it would be more effective if their methods were consistent with the rule of law. Those non-rule-of-law methods will not lead to real solutions. The state leaders will not deal with a problem directly, as it may result in a waste of time. For general-orientation issues, such as, investment policy, the perfection of evidentiary laws and rules, and other legislative issues, foreign companies should, in my opinion, present their recommendations to the state leaders, the National Peoples' Congress or legislatures, in ways other than the above. Foreign companies take non-rule-of-law measures only in China, but never in other countries. If they do so in the United States or Europe, they would be deemed to be interfering with the judiciary and affecting the judicial process. It is obvious that when they complain about the Chinese legal system and exert pressure on the Chinese government, foreign companies are undermining the judicial construction in China.

6. The indemnity amount

As far as I can see, foreign companies feel that they are less indemnified mainly because of the lack of hard evidence. If the evidence on losses is sufficient, the court will support your claims, as in the Yamaha case where the Supreme Peoples' Court awarded more than RMB 80 million in damages. However, if a foreign company has discovered 100 pirated CDs but requests compensation for 1,000 CDs, its claim cannot win the court's support. Under such a situation, it should not complain that the indemnity amount is small. The small amount of indemnity can also be attributed to the low "gold content" of some intellectual property. China has a good many utility models and designs which are less valuable. It is impossible for the court to award sky-high damages for them. Moreover, some countries implement punitive damages in intellectual property cases, and China grants compensation on the entire actual loss. Thus, the indemnity may be less in China than in other countries.

7. About the difficulty in execution

As to problems with execution, you should know about the credit worthiness of your opponent before you do business with him. If he has both bank accounts and fixed assets, execution may not be a problem. If your opponent is a small business about to go bankrupt, you can hardly expect to receive any compensation. This is a risk of doing transactions in a market economy, and you should be careful about it.

To protect your intellectual property, you should pursue the right strategy. I think you should sue infringers that affect your major interests, do the most harm to your business, and are strong and large companies, as they are capable of compensating for your loss. A small business is certainly incapable of making compensation, but you have achieved your aim by causing it to go bankrupt. In intellectual property cases, winning money is not the only aim of litigation, as some enterprises sue to stop the infringing acts. With a few civil actions for infringement and several criminal lawsuits in a year, an enterprise can create a momentum to bring the situation under control and reduce infringing acts.

The pre-litigation preservation of property or the procedural preservation of property is inalienable from the thoroughness and perfection of a society's accounting system, credit system and banking system. Similar to other issues, the execution of preserved assets is a comprehensive issue. China is now drafting an execution law to which all the concerned parties attach much importance. The proposed execution law will impose stricter punishments on the intentional concealment of property. Actually it will not only help in the execution for intellectual property cases, but also promote smooth execution of all civil judgments.

8. Settlement

Presently, parties tend to negotiate with each other in intellectual property cases. Sometimes the result of the execution is unsatisfactory for court judgments. However, with a settlement, the defendant automatically agrees to execute his performance. Also, the parties may reach agreements and become partners, so that the competitors can have a win-win result. I recommend that foreign companies negotiate as settlement is also encouraged in other countries. At present, 40%-50% of the intellectual property cases in China are settled, while the proportion is above 90% in the United States.

9. Attorney

Foreign companies should retain Chinese lawyers as their attorneys as some foreign lawyers do not fully understand Chinese law and will probably misrepresent some provisions. After losing their cases, some foreign lawyers do not account for their lack of understanding of Chinese law, but communicate a wrong message that some Chinese provisions are problematic. This is really harmful to a country as well as to individuals. Moreover, foreign companies should retain lawyers who have appeared in court and have practical experience and are versed in the theory of the law. An inexperienced lawyer who lacks litigation experience or has not achieved a complete understanding of law may not be able to meet litigious challenges.

10. Problems with intellectual property litigation are comprehensive

The problems with intellectual property litigation do not only involve the intellectual property field, but also comprehensively represent problems with civil legal proceedings, and society. As a matter of fact, in China, the legislation and judicial interpretation on intellectual property has been in the forefront. The pre-litigation injunction or the procedural preservation of evidence, for example, has not appeared in other proceedings. The support for pre-litigation preservation is above 80%. Unlike China, in Germany support is low for the provisional injunction prior to litigation. Therefore, foreign companies should see the entire landscape rather than a single point. It is still early to talk about premature issues since China has not readily solved employment or lifestyle problems in some regions, as well as problems involving the connection between entire systems, legal construction and economic development. Haste makes waste.

Liu Xiaojun, Judge of Intellectual Property Division, Beijing Intermediate People's Court

1. The long time period of intellectual property litigation

In fact, generally speaking, the period for intellectual property litigation in China is not long. It is even shorter in China than in other countries, especially developed countries. Under Chinese law, for civil intellectual property cases, the first instance trial is limited to six months and the second-instance trial is limited to three months; for patent invalidation or trademark disputes, the first-instance trial is limited to three months and the second-instance trial is limited to two months. The courts in Beijing, Shanghai, Guangzhou and other major cities can generally hear and decide intellectual property cases within the above time limit. Therefore, in general, the time period for adjudicating intellectual property cases is short.

Then, why do foreign parties feel that they spend a lot of time litigating intellectual property cases in China? In my opinion, the reasons are as follows: First, the service of process for foreign intellectual property cases takes much time. For fair and just litigation, the court must serve various materials or data to the parties, including foreign parties, in which the formalities are complex and time-consuming. Second, when the foreign party submits materials and data that were formed outside of China to the court in China, generally, such materials or data have to be notarized, authenticated and translated into Chinese. This will also take time. Third, institutionally it generally takes two to three years for a patent invalidation case to go from the patent reexamination board to the court of final judgment. If the patent reexamination board's decision was made by examining only a part of the invalidation reasons for the cancellation by the court, the case will be, in principle, sent back to the patent reexamination board for a retrial, in order to ensure procedural justice and the necessary instances of trial. As a result, a new trial round begins and the litigation period is extended. Last but not least, some judges disregard the time limit for adjudicating foreign cases, and many regions do not provide a time limit for trials of foreign cases. Under their heavy work pressure, judges tend to prioritize cases with a strict time limit in order to pass various internal examinations or checks..

Foreign parties may take the following measures to shorten the litigation time for foreign intellectual property cases. First, parties, particularly foreign ones, should cooperate with the court. Foreign parties should submit various materials and/or data that the court requires as soon as practicable. Also, they should have the materials notarized and authenticated, if applicable. There are many cases where foreign parties do not provide the materials that the court requires, for example, by not having them notarized, authenticated or translated into Chinese. As a result, some work has to be redone and the litigation time period is extended. Second, ensure that the court can contact you quickly if necessary. Some foreign parties fail to leave their proper contact information with the court, so that the latter is unable to serve various litigation materials in a timely manner. Make sure that you have provided the court with a free and clear means of contact. If you have several means of contact, leave them all with the court, with the safest and fastest means indicated. Third, give the court your correct contact information, even though you have retained a Chinese lawyer. During litigation, after they have retained a Chinese attorney, some foreign parties disappear, leaving all responsibility to the Chinese attorney. Sometimes the court cannot find the attorney or some matter is not for an attorney to decide. It is very necessary to retain a Chinese attorney and leave his correct contact information with the court.

In the long run, the lengthy litigation period for intellectual property cases should be dealt with institutionally, by perfecting the litigation suspension regulation and the rules of evidence, or for example, by establishing an intellectual property court, or providing explicitly that the court may declare a patent invalid under certain conditions. The long time period for intellectual property litigation is not unique to China but a worldwide challenge. The causes are various. All the parties involved in litigation, including the court, should try their best to find a solution.

2. Evidence obtainment in intellectual property cases

The difficulty in obtaining evidence exists not only in intellectual property litigation, but also in other types of litigation. Also, it is not unique to China, as the evidence for intellectual property is difficult to obtain in all countries. It is even more difficult in some developed countries than in China.

The reasons are mostly toile in the features of intellectual property, and are also related to basic theoretical research, which is also weak in intellectual property. The inherent characteristic of intellectual property determines the way for obtaining evidence, which is different from that for personal or property right infringement. As the infringing act for intellectual property is very secretive, it is very difficult to obtain evidence to prove the existence of the infringement, especially how the infringement has led to the loss of the owner, including the existence and size of the loss.

Currently, the requirements for admission of notarized evidence are strict for intellectual property cases, as they cannot be negated under the existing laws and regulations. The frequency of notarized evidence in intellectual property litigation is very high, perhaps the highest, in my opinion, among the various types of litigation. They can be seen in a large number of intellectual property cases, sometimes in multiple forms. They come from plaintiffs and defendants, and are mostly admitted. Therefore, evidence in cases involving foreign parties should be notarized, if applicable. If any original document cannot be submitted for whatever reason, its transcript may be submitted together with a notarization authenticating the transcript with the original. The notarized transcript often has the same legal force as the original.

3. Settlement in litigation

Settlement, which is often used now in civil litigation, is consistent with the traditional Chinese culture as well as the construction of a harmonious society in China. I would recommend that foreign parties, either as the plaintiff or the defendant in intellectual property cases, should seek settlement for disputes.

Settlement is advantageous in that it provides a peaceful and practical solution to disputes between the parties. With a judgment in your favor, you may encounter problems with execution. Through Settlement, however, the parties tend to perform the obligations initiatively, so that the interests of the parties, especially the owner, can be practically protected. More importantly, with settlement the parties may continue the good relationship between them. It means that each party may continue to possess and expand its market.

4. Indemnity amount

The indemnity awarded for intellectual property infringement is not low in China. However, the reason why owners feel it is low is they have not provided effective evidence to prove their claims.

Currently, there are four methods to determine the amount of indemnity for intellectual property infringement. First, the actual loss method, where the infringer shall be liable for all of the owner's actual losses if the owner can prove them. Second, the benefit method, in which the infringer shall deliver all the benefits from the infringement, which the owner can prove, to the owner as indemnity. Third, the negotiation method, where the indemnity amount is the amount that the owner and the infringer have negotiated and agreed to. Fourth, the discretion method, where if the above three methods cannot work, the court may, according to the circumstance of the infringement, determine the indemnity amount which shall be no more than RMB 500,000 under the law. This amount may not include other costs that the owner incurs in stopping the infringement.
Therefore, the issue whether the indemnity is low is not a problem if the amount is determined by any of the first three methods. It is essential that the parties produce evidence. The court will support a party's claims as long as he can prove them. It is mainly the amount determined with the fourth method that owners feel is low. I think that the upper limit of RMB 500,000 as the law provides is consistent with the situation in China. Judges, at their discretion, determine the amount of indemnity according to the circumstances of individual cases. This can hardly measure up to a problem of low indemnity. Note here that the recent draft amendment to the Patent Law raises the upper limit to RMB 1 million.

I would recommend, particularly, that owners should not rely on the court's discretion, but should seek to prove the existence and size of the loss. Even if the indemnity amount were up to the discretion of the court, the evidence that a party provides on the loss would be very useful. Some owners do not produce evidence on the amount of the loss, but rely on the court's discretion. The court will not determine a very high amount if the loss is not proven with preliminary evidence. In addition, if owners can prove the minimum loss instead of the actual amount of the loss, especially if the minimum loss is more than RMB 500,000, they should timely submit such proof to the court, so that the judge may, at his discretion, determine the indemnity amount on the basis of the minimum loss.

5. Principles for choosing a forum

It takes knowledge to choose a proper forum for intellectual property litigation. Intellectual property cases are concentrated in Europe, the United States and Japan. This trend has also emerged in China. Generally, the courts in the eastern regions, coastal regions, developed regions and major cities accept more intellectual property cases than courts in the middle or western regions, the hinterlands, the under-developed regions and small cities. Currently intellectual property cases are mostly concentrated in Beijing, Guangdong, Shanghai and Jiangsu, where judges have much more experience. Foreign owners tend to choose courts in these regions when they pursue intellectual property litigation.

To choose a forum is to choose a competent court, which reflects one's confidence in the courts willingness to accept the case. Currently, China's laws, regulations and judicial interpretations are still imperfect regarding how to choose a competent court for intellectual property cases. The traditional rules of the Civil Procedure Law, which are directly employed for intellectual property infringement litigation, have been shown to be incompatible in some ways. It requires skill and technique for either owners or infringers to choose a suitable forum, especially when complainants may bring an action with almost any of the courts with jurisdiction over intellectual property cases under the existing rules.

Foreign owners should choose courts in major cities, such as Beijing, since the courts in these places have had tens of years of experience and have a group of experienced professional judges. The courts are capable of protecting the interested parties and the legal interest of the owners in accordance with law.

Conclusion

To litigate in China, foreign companies not only need to be familiar with Chinese law, but also to know Chinese culture. In addition, knowing Chinese culture, they must also adapt to it. China's legal framework still needs to be perfected. The progress of the rule of law and the advances of society occur as a whole. When you learn that a seller of pork from a sick pig is generally fined a small amount of money and a seller of 500 pirated CDs is found guilty of a crime, do you feel the latter punishment is not harsh? In the thoughts of the Chinese people, selling pirated CDs causes much less harm than selling pork from a sick pig. If foreign companies ask China at this time to impose stricter punishments on the sellers of pirated CDs, a law containing stricter punishments would be seen as somewhat unfair in the eyes of common Chinese people. Under such a social circumstance, it would be harder to fight against piracy. Therefore, when foreign companies push or promote the construction of China's legal framework, they should not only consider their business interests, but also the macro legal environment, the legislative balance, and the synchronization of the rule of law and social progress.

Foreign companies should choose the best means possible to protect their interests under China's current legal environment. It is much easier to adapt to and find a solution under the current legal environment than to change it. Upon an infringement dispute, they need not "reproach" but to try "greater cooperation". Of course, their existence does help promote the perfection of Chinese laws with their legislative recommendations and supervision over judicial practice. Therefore, when foreign companies enter into litigation more often and through legitimate procedures, it strongly promotes China's legal construction.
                                                                                   (Translated by Ren Qingtao)

,,ow to the infringing goods. As the infringing goods cannot enter the circulation channel, the infringer is unable to. This is a kind of execution in a disguised form. As the counterfeit goods have disappeared from the market, the aim of the litigation is achieved.

The deterrent effect of a court judgment on infringers varies with the parties involved. As in the Silk Street case, counterfeit goods successively continue to appear. there are always people who will take the risk as long as there is a room for profits. Of course, in cases like Yamaha or Starbucks, the court judgment does deter some potential infringers. Since China has made much more effort in cracking down on counterfeit goods recently, we feel that incidences of fake goods have decreased while imitations have increased. It is often hard to tell whether an imitation, which resembles the authentic product, constitutes infringement. As a result, it has become more complex to make determinations about intellectual property. Also, counterfeit goods are sold directly to foreign countries. In the past, infringers had their goods labeled before the goods were delivered through the customs to Africa, for example. After our efforts to crack down on these goods, things have changed. The goods for export are not labeled – and the "naked goods" are exported to a third country where they are labeled and then re-shipped to Africa. In this way, they are out of the control of China as the infringee does not have the trademark registered in Africa or even in the third country. It is worth noting that infringement upon intellectual property has become a more complicated issue crossing boundaries and regions.

Viewpoints of Judges

As they enter into intellectual property litigation in China, foreign companies certainly need to understand how Chinese judges employ the law to resolve disputes and render judgments. To hear and settle a case, Chinese judges take into consideration the entire picture, not simply basing their judgments on legal provisions. This is due to the fact that legal provisions are general principles, while judges also take into account the reality of Chinese society. In China, the modern legal system conflicts with the social legal consciousness. When the social convention and the civil awareness towards law has not developed as fast as the legal framework, and a large number of citizens have little or no sense of law, should a judge base his judgment simply on the provisions from a purely legal perspective, or go deep into the social situation and consider how the judgment would guide or affect society? Recently the movie "A Judge's Story" has been on show throughout China. It reflects how an intellectual property judge hears and settles cases and reveals what problems a Chinese judge will encounter in adjudication, including social problems, the weak appreciation of law among the citizens and the imbalances in economic development, among others. It contains a scene where the judge asks a party to produce evidence, and the party says "I have no evidence, and I decide on my conscience and you judge on yours". It is obvious that in his mind, the party relies on ethics instead of the law to resolve the dispute. Such a phenomenon has been not rare among Chinese citizens. Also in the movie, when the judge rules that the plaintiff has lost the suit due to providing insufficient evidence, the party commits suicide to protest. Finally, the government intervenes in the case and through administrative acts, finds a solution for the party's factory and work. Although she has complied with the law to rule on the case, the adjudication supervision department still questioned the judge because she has achieved a bad result. All of these are characteristic of the China's legal culture. To litigate in China, foreign companies should at least learn about these factors, as well as every aspect of Chinese society. In this era of social transition, Chinese judges should play a role not simply as an umpire between parties, but to adjudicate cases according to law and follow civil procedures. They should also, at least, take on the responsibility to publicize the law and develop a belief in the rule of law, in order to better eliminate social contradictions and gradually establish the public's faith in the legal system.

In respect to various litigation problems faced by foreign companies, we have solicited opinions from several judges. We hope that their viewpoints on intellectual property litigation will help provide foreign companies with reasonable suggestions to analyze their problems with litigation in China.

Jiang Zhipei, Head of Intellectual Property Division, Supreme People's Court

1. Foreign companies should comply with the legal procedures to solve problems involving intellectual property

In the seven to eight years before and after China's entry into the WTO, statistics show that the proportion of the cases involving foreigners has remained constant and been around 3% of the total intellectual property cases accepted by Chinese courts. However, foreign companies have raised a lot of complaints. When faced with infringement, they tend to press the Chinese government through various means, but do not instigate civil actions as they would do in their own countries.

To seek legal protection is a feature of intellectual property protection. However, when they encounter an infringement dispute in China, foreign companies do not resort to litigation as they would do according to international conventions or in their own countries. Instead, they choose to complain, to press the Chinese government and force it to strengthen administrative enforcement of law. They hope to solve the problem without paying litigation costs. It is a phenomenon today to deal with a private rights problem by transferring responsibility to the entire society.

Litigation, in and of itself, is not always a pleasant thing to deal with in all countries. For example, the United States has much higher litigation costs and attorney fees than China. Many enterprises have to abandon litigation because of the high costs, and settle with the defendant. Litigation is a means or a weapon to use, but I do not consider it the only way to achieve a solution. Certainly foreign companies should choose to litigate if their major interests are affected, or if they cannot find a better way to resolve the problem. According to Chinese law, it is the court rather than an administrative agency that adjudicates a case where the parties fail to negotiate an indemnity after infringement has been determined. Chinese administrative agencies enforce law by stopping the infringement, canceling the business license or imposing a penalty. Any of their mistakes may lead to counterclaims. Depending on the advantages, a party should choose either administrative agencies or the courts according to the circumstances of each case. Since the market economy remains imperfect in China, particularly since China has had a long period of planned economy and is in transition, foreign companies can choose from many administrative agencies to enforce law and solve their problems. They can choose either litigation or administrative enforcement in the interests of their business.

2. Foreign companies encounter difficulties with litigation in China

Litigation is tough in all countries. It is more difficult for Chinese companies to litigate in the Untied States than for American companies to litigate in China. In the United States, the court does not provide many conveniences for parties. China has many service centers where one can file an action, receive assistance or report an offence. In the United States, parties and attorneys have a short time to explain their ideas to the court. In China, attorneys for foreign companies have sufficient time to state their ideas.
Foreign companies have encountered litigation obstacles, sometimes because they do not fully understand Chinese law. For example, a case will not be accepted by a Chinese court unless it is accompanied by written authorization from the legal representative. However, some foreign companies come to court with only the lawyer's signature. This legislation was originally intended to prevent "briefcase companies" (which mean fundless companies engaged in speculation) or parties other than the owner from asserting their rights. Therefore, while in China, foreign companies should adapt to Chinese law. Multinational companies should act in consistency with the state acts of a country. The evidence that foreign companies obtain in a foreign country should be notarized and authenticated under the Civil Procedure Law. This is explicitly laid down. If a foreign company has not gone through the notarization procedure, a judge cannot authenticate the evidence in violation of law. Having been in China for many years, foreign companies have not actively accommodated themselves to Chinese law, but have always acted in their own business interests. Is it easier to change the law of a country or the actions of an enterprise? It is a process to advocate legislation, which takes time. As legislation has not been changed, it is more feasible to change the behavior of an enterprise and comply with the Chinese law currently in force. Never expect that Chinese legislation will try to suit foreign regulations or the practices of foreign companies.

As for foreign companies' trouble with notarization, I advice that if an enterprise residing in a foreign country needs to have the authorization of the legal representative notarized, why not set up an office in China so that the office can deliver the document directly to the Chinese court? In this way, foreign companies will no longer have trouble with notarization.

3. To litigate in China, foreign companies should understand Chinese culture

In fact, with litigation in China, foreign companies enjoy sufficient presentation time, lower costs and attentive judges. The collegiate bench considers many more factors than American judges do. Chinese judges consider not only the facts and legal basis, but also the situation in China, the environment for foreign investments, and the macro environment. Therefore, the collegiate bench procedure is sufficient, and most multinational companies or foreign ventures have won their intellectual property cases.

Also, foreign companies may encounter problems with language or custom. In terms of language and culture, Chinese people know foreigners better than foreigners know Chinese. Foreign companies in China should not use their own language or culture as a standard of measurement. Instead, they should be aware of the difference between China's legal system and legal culture and those of other countries. It is natural that Chinese companies follow local laws when they litigate in a foreign country. It is not proper for foreign companies to keep on thinking of the laws in their own countries when they litigate in China. Now that China is a common and essential market for foreign companies, they should delve deeply into Chinese culture to understand Chinese law and litigate according to Chinese law and culture. Moreover, they should know about the imperfections in Chinese society, such as those with the credit system, banking insurance system or accounting rules, which are still under development. They should recognize and heed these imperfections. If they are aware of these circumstances in China, they can avoid problems.

In judging individual cases, judges consider how to achieve the best result. The law mediates social contradictions. One case is but one drop of water. The truth in a niche may turn into a falsehood under the macro environment. Therefore, a judge can never render his judgment without having the slightest hesitancy. To reach a judgment, he not only applies Chinese law, but also considers the facts, the situation in China, social stability and/or how the judgment would influence the foreign investment environment. In some developed countries, except for a few senior judges, an ordinary judge seldom if ever takes these macro issues into account.

4. The difficulty with obtaining evidence

The problem with evidence not only concerns the courts, but the legislature and the entire society. That is, the evidentiary system is not restricted to the court, but is an issue concerning the state institutions and legal framework, including the credit system and accounting system. The perfection of the credit system and all the other economic systems is a process. As China has not promulgated a law of evidence, incomplete evidence rules are dispersed among the Civil Procedure Law and judicial interpretations. Some systems are absent for facilitating the production of evidence by the parties. For example, in piracy or counterfeiting cases, no intermediary organizations, such as investigation companies or private detectives, are available under the current regulations to supplement the government work force.

Judges do not go outside the court for investigation. The parties are forced to present all their evidence under a healthy evidentiary system in some foreign countries. They are required to deliver all the evidence to the court, and then the evidence is exchanged between the parties. After the evidence is fixed, no further evidence can be submitted unless due to force majeure. There are no Chinese laws or regulations so far in this respect. Under the imperfect Chinese evidentiary system, parties tend not to present all their evidence at the litigation stage. In addition, China does not provide a legal status for some investigative companies or private detectives, since in Chinese opinion; such intermediary services are harmful to social stability and security. I do not advocate lifting all of the control over such services, but do propose giving a legal status to some intermediary services or legal service middlemen, and in this way, helping them to obtain evidence for cracking down on counterfeiting. According to my knowledge, the Chinese legislators have no plans to draft a law of evidence, and the departments concerned do not attach much importance to it. Currently, the judicial interpretations on evidence are too weak to affect the ordinary behavior of the parties before litigation. It is simply impossible to force the parties to produce evidence.

Objectively speaking, the imperfect evidentiary system is another reason for the difficulty in obtaining evidence. However, instead of placing their efforts on evidence, some foreign companies often go to seek help from leaders, officials, superiors, public opinion, or grumble in private, which is inconsistent with the rule of law. They think that this is Chinese culture. In fact, China has very good lawyers who can produce evidence under the imperfect evidentiary rules. Also, as the evidentiary system is being improved, the judicial interpretations contain provision, which are advantageous to the parties and invert the burden of proof in terms of the substantive law, such as by requiring an infringer of a process patent to produce evidence; or requiring a seller of pirated products to produce evidence of authorization from the authentic products manufacturer. Therefore, foreign companies can obtain evidence through a qualified lawyer, by employing good judicial interpretations and legal provisions. Moreover, there are administrative law enforcement agencies in China. They can be used to find more clues if evidence is insufficient. When the evidence is sufficient, you can go to court. In the future, as the laws and rules of evidence are being improved, it will be more favorable for rights owners to litigate. Further, when judicial protection for intellectual property is operating smoothly, you can have confidence in the protection offered by the legal procedures. Do more work on obtaining evidence and the results will be obvious.


5. Legal means are the best solution for disputes

Foreign companies tend to use non-legal means to resolve disputes involving intellectual property. For example, they may lodge a complaint with the Chinese leadership through diplomatic channels, or create pressure from public opinion. I do not agree on these actions. In fact, it would be more effective if their methods were consistent with the rule of law. Those non-rule-of-law methods will not lead to real solutions. The state leaders will not deal with a problem directly, as it may result in a waste of time. For general-orientation issues, such as, investment policy, the perfection of evidentiary laws and rules, and other legislative issues, foreign companies should, in my opinion, present their recommendations to the state leaders, the National Peoples' Congress or legislatures, in ways other than the above. Foreign companies take non-rule-of-law measures only in China, but never in other countries. If they do so in the United States or Europe, they would be deemed to be interfering with the judiciary and affecting the judicial process. It is obvious that when they complain about the Chinese legal system and exert pressure on the Chinese government, foreign companies are undermining the judicial construction in China.

6. The indemnity amount

As far as I can see, foreign companies feel that they are less indemnified mainly because of the lack of hard evidence. If the evidence on losses is sufficient, the court will support your claims, as in the Yamaha case where the Supreme Peoples' Court awarded more than RMB 80 million in damages. However, if a foreign company has discovered 100 pirated CDs but requests compensation for 1,000 CDs, its claim cannot win the court's support. Under such a situation, it should not complain that the indemnity amount is small. The small amount of indemnity can also be attributed to the low "gold content" of some intellectual property. China has a good many utility models and designs which are less valuable. It is impossible for the court to award sky-high damages for them. Moreover, some countries implement punitive damages in intellectual property cases, and China grants compensation on the entire actual loss. Thus, the indemnity may be less in China than in other countries.

7. About the difficulty in execution

As to problems with execution, you should know about the credit worthiness of your opponent before you do business with him. If he has both bank accounts and fixed assets, execution may not be a problem. If your opponent is a small business about to go bankrupt, you can hardly expect to receive any compensation. This is a risk of doing transactions in a market economy, and you should be careful about it.

To protect your intellectual property, you should pursue the right strategy. I think you should sue infringers that affect your major interests, do the most harm to your business, and are strong and large companies, as they are capable of compensating for your loss. A small business is certainly incapable of making compensation, but you have achieved your aim by causing it to go bankrupt. In intellectual property cases, winning money is not the only aim of litigation, as some enterprises sue to stop the infringing acts. With a few civil actions for infringement and several criminal lawsuits in a year, an enterprise can create a momentum to bring the situation under control and reduce infringing acts.

The pre-litigation preservation of property or the procedural preservation of property is inalienable from the thoroughness and perfection of a society's accounting system, credit system and banking system. Similar to other issues, the execution of preserved assets is a comprehensive issue. China is now drafting an execution law to which all the concerned parties attach much importance. The proposed execution law will impose stricter punishments on the intentional concealment of property. Actually it will not only help in the execution for intellectual property cases, but also promote smooth execution of all civil judgments.

8. Settlement

Presently, parties tend to negotiate with each other in intellectual property cases. Sometimes the result of the execution is unsatisfactory for court judgments. However, with a settlement, the defendant automatically agrees to execute his performance. Also, the parties may reach agreements and become partners, so that the competitors can have a win-win result. I recommend that foreign companies negotiate as settlement is also encouraged in other countries. At present, 40%-50% of the intellectual property cases in China are settled, while the proportion is above 90% in the United States.

9. Attorney

Foreign companies should retain Chinese lawyers as their attorneys as some foreign lawyers do not fully understand Chinese law and will probably misrepresent some provisions. After losing their cases, some foreign lawyers do not account for their lack of understanding of Chinese law, but communicate a wrong message that some Chinese provisions are problematic. This is really harmful to a country as well as to individuals. Moreover, foreign companies should retain lawyers who have appeared in court and have practical experience and are versed in the theory of the law. An inexperienced lawyer who lacks litigation experience or has not achieved a complete understanding of law may not be able to meet litigious challenges.

10. Problems with intellectual property litigation are comprehensive

The problems with intellectual property litigation do not only involve the intellectual property field, but also comprehensively represent problems with civil legal proceedings, and society. As a matter of fact, in China, the legislation and judicial interpretation on intellectual property has been in the forefront. The pre-litigation injunction or the procedural preservation of evidence, for example, has not appeared in other proceedings. The support for pre-litigation preservation is above 80%. Unlike China, in Germany support is low for the provisional injunction prior to litigation. Therefore, foreign companies should see the entire landscape rather than a single point. It is still early to talk about premature issues since China has not readily solved employment or lifestyle problems in some regions, as well as problems involving the connection between entire systems, legal construction and economic development. Haste makes waste.

Liu Xiaojun, Judge of Intellectual Property Division, Beijing Intermediate People's Court

1. The long time period of intellectual property litigation

In fact, generally speaking, the period for intellectual property litigation in China is not long. It is even shorter in China than in other countries, especially developed countries. Under Chinese law, for civil intellectual property cases, the first instance trial is limited to six months and the second-instance trial is limited to three months; for patent invalidation or trademark disputes, the first-instance trial is limited to three months and the second-instance trial is limited to two months. The courts in Beijing, Shanghai, Guangzhou and other major cities can generally hear and decide intellectual property cases within the above time limit. Therefore, in general, the time period for adjudicating intellectual property cases is short.

Then, why do foreign parties feel that they spend a lot of time litigating intellectual property cases in China? In my opinion, the reasons are as follows: First, the service of process for foreign intellectual property cases takes much time. For fair and just litigation, the court must serve various materials or data to the parties, including foreign parties, in which the formalities are complex and time-consuming. Second, when the foreign party submits materials and data that were formed outside of China to the court in China, generally, such materials or data have to be notarized, authenticated and translated into Chinese. This will also take time. Third, institutionally it generally takes two to three years for a patent invalidation case to go from the patent reexamination board to the court of final judgment. If the patent reexamination board's decision was made by examining only a part of the invalidation reasons for the cancellation by the court, the case will be, in principle, sent back to the patent reexamination board for a retrial, in order to ensure procedural justice and the necessary instances of trial. As a result, a new trial round begins and the litigation period is extended. Last but not least, some judges disregard the time limit for adjudicating foreign cases, and many regions do not provide a time limit for trials of foreign cases. Under their heavy work pressure, judges tend to prioritize cases with a strict time limit in order to pass various internal examinations or checks..

Foreign parties may take the following measures to shorten the litigation time for foreign intellectual property cases. First, parties, particularly foreign ones, should cooperate with the court. Foreign parties should submit various materials and/or data that the court requires as soon as practicable. Also, they should have the materials notarized and authenticated, if applicable. There are many cases where foreign parties do not provide the materials that the court requires, for example, by not having them notarized, authenticated or translated into Chinese. As a result, some work has to be redone and the litigation time period is extended. Second, ensure that the court can contact you quickly if necessary. Some foreign parties fail to leave their proper contact information with the court, so that the latter is unable to serve various litigation materials in a timely manner. Make sure that you have provided the court with a free and clear means of contact. If you have several means of contact, leave them all with the court, with the safest and fastest means indicated. Third, give the court your correct contact information, even though you have retained a Chinese lawyer. During litigation, after they have retained a Chinese attorney, some foreign parties disappear, leaving all responsibility to the Chinese attorney. Sometimes the court cannot find the attorney or some matter is not for an attorney to decide. It is very necessary to retain a Chinese attorney and leave his correct contact information with the court.

In the long run, the lengthy litigation period for intellectual property cases should be dealt with institutionally, by perfecting the litigation suspension regulation and the rules of evidence, or for example, by establishing an intellectual property court, or providing explicitly that the court may declare a patent invalid under certain conditions. The long time period for intellectual property litigation is not unique to China but a worldwide challenge. The causes are various. All the parties involved in litigation, including the court, should try their best to find a solution.

2. Evidence obtainment in intellectual property cases

The difficulty in obtaining evidence exists not only in intellectual property litigation, but also in other types of litigation. Also, it is not unique to China, as the evidence for intellectual property is difficult to obtain in all countries. It is even more difficult in some developed countries than in China.

The reasons are mostly toile in the features of intellectual property, and are also related to basic theoretical research, which is also weak in intellectual property. The inherent characteristic of intellectual property determines the way for obtaining evidence, which is different from that for personal or property right infringement. As the infringing act for intellectual property is very secretive, it is very difficult to obtain evidence to prove the existence of the infringement, especially how the infringement has led to the loss of the owner, including the existence and size of the loss.

Currently, the requirements for admission of notarized evidence are strict for intellectual property cases, as they cannot be negated under the existing laws and regulations. The frequency of notarized evidence in intellectual property litigation is very high, perhaps the highest, in my opinion, among the various types of litigation. They can be seen in a large number of intellectual property cases, sometimes in multiple forms. They come from plaintiffs and defendants, and are mostly admitted. Therefore, evidence in cases involving foreign parties should be notarized, if applicable. If any original document cannot be submitted for whatever reason, its transcript may be submitted together with a notarization authenticating the transcript with the original. The notarized transcript often has the same legal force as the original.

3. Settlement in litigation

Settlement, which is often used now in civil litigation, is consistent with the traditional Chinese culture as well as the construction of a harmonious society in China. I would recommend that foreign parties, either as the plaintiff or the defendant in intellectual property cases, should seek settlement for disputes.

Settlement is advantageous in that it provides a peaceful and practical solution to disputes between the parties. With a judgment in your favor, you may encounter problems with execution. Through Settlement, however, the parties tend to perform the obligations initiatively, so that the interests of the parties, especially the owner, can be practically protected. More importantly, with settlement the parties may continue the good relationship between them. It means that each party may continue to possess and expand its market.

4. Indemnity amount

The indemnity awarded for intellectual property infringement is not low in China. However, the reason why owners feel it is low is they have not provided effective evidence to prove their claims.

Currently, there are four methods to determine the amount of indemnity for intellectual property infringement. First, the actual loss method, where the infringer shall be liable for all of the owner's actual losses if the owner can prove them. Second, the benefit method, in which the infringer shall deliver all the benefits from the infringement, which the owner can prove, to the owner as indemnity. Third, the negotiation method, where the indemnity amount is the amount that the owner and the infringer have negotiated and agreed to. Fourth, the discretion method, where if the above three methods cannot work, the court may, according to the circumstance of the infringement, determine the indemnity amount which shall be no more than RMB 500,000 under the law. This amount may not include other costs that the owner incurs in stopping the infringement.
Therefore, the issue whether the indemnity is low is not a problem if the amount is determined by any of the first three methods. It is essential that the parties produce evidence. The court will support a party's claims as long as he can prove them. It is mainly the amount determined with the fourth method that owners feel is low. I think that the upper limit of RMB 500,000 as the law provides is consistent with the situation in China. Judges, at their discretion, determine the amount of indemnity according to the circumstances of individual cases. This can hardly measure up to a problem of low indemnity. Note here that the recent draft amendment to the Patent Law raises the upper limit to RMB 1 million.

I would recommend, particularly, that owners should not rely on the court's discretion, but should seek to prove the existence and size of the loss. Even if the indemnity amount were up to the discretion of the court, the evidence that a party provides on the loss would be very useful. Some owners do not produce evidence on the amount of the loss, but rely on the court's discretion. The court will not determine a very high amount if the loss is not proven with preliminary evidence. In addition, if owners can prove the minimum loss instead of the actual amount of the loss, especially if the minimum loss is more than RMB 500,000, they should timely submit such proof to the court, so that the judge may, at his discretion, determine the indemnity amount on the basis of the minimum loss.

5. Principles for choosing a forum

It takes knowledge to choose a proper forum for intellectual property litigation. Intellectual property cases are concentrated in Europe, the United States and Japan. This trend has also emerged in China. Generally, the courts in the eastern regions, coastal regions, developed regions and major cities accept more intellectual property cases than courts in the middle or western regions, the hinterlands, the under-developed regions and small cities. Currently intellectual property cases are mostly concentrated in Beijing, Guangdong, Shanghai and Jiangsu, where judges have much more experience. Foreign owners tend to choose courts in these regions when they pursue intellectual property litigation.

To choose a forum is to choose a competent court, which reflects one's confidence in the courts willingness to accept the case. Currently, China's laws, regulations and judicial interpretations are still imperfect regarding how to choose a competent court for intellectual property cases. The traditional rules of the Civil Procedure Law, which are directly employed for intellectual property infringement litigation, have been shown to be incompatible in some ways. It requires skill and technique for either owners or infringers to choose a suitable forum, especially when complainants may bring an action with almost any of the courts with jurisdiction over intellectual property cases under the existing rules.

Foreign owners should choose courts in major cities, such as Beijing, since the courts in these places have had tens of years of experience and have a group of experienced professional judges. The courts are capable of protecting the interested parties and the legal interest of the owners in accordance with law.

Conclusion

To litigate in China, foreign companies not only need to be familiar with Chinese law, but also to know Chinese culture. In addition, knowing Chinese culture, they must also adapt to it. China's legal framework still needs to be perfected. The progress of the rule of law and the advances of society occur as a whole. When you learn that a seller of pork from a sick pig is generally fined a small amount of money and a seller of 500 pirated CDs is found guilty of a crime, do you feel the latter punishment is not harsh? In the thoughts of the Chinese people, selling pirated CDs causes much less harm than selling pork from a sick pig. If foreign companies ask China at this time to impose stricter punishments on the sellers of pirated CDs, a law containing stricter punishments would be seen as somewhat unfair in the eyes of common Chinese people. Under such a social circumstance, it would be harder to fight against piracy. Therefore, when foreign companies push or promote the construction of China's legal framework, they should not only consider their business interests, but also the macro legal environment, the legislative balance, and the synchronization of the rule of law and social progress.

Foreign companies should choose the best means possible to protect their interests under China's current legal environment. It is much easier to adapt to and find a solution under the current legal environment than to change it. Upon an infringement dispute, they need not "reproach" but to try "greater cooperation". Of course, their existence does help promote the perfection of Chinese laws with their legislative recommendations and supervision over judicial practice. Therefore, when foreign companies enter into litigation more often and through legitimate procedures, it strongly promotes China's legal construction.
                                                                                   (Translated by Ren Qingtao)

,g the foreign companies we have served, only a few have chosen to settle. They take a tough position and some are unwilling to settle. I have handled some cases involving settlement. It did happen that the defendant did not keep his promise after settlement. Therefore, the decision to settle or not varies with each case. Settlement can be deemed as an effective strategy. It is satisfactory if the defendant promises to eliminate the bad effects on the market, destroys all counterfeit goods, apologizes to the plaintiff, and compensates the plaintiff for its loss. Settlement has been successful in some cases. Sometimes, the plaintiff wishes to settle because his aim is not to "fight" with the defendant but to reach a settlement. He fights in order to reach a settlement, as in Sacon vs. Electrolux in Ningbo.

8. Execution

A lawyer should think of the difficulty in execution before he helps a client to initiate an action. He should know the defendant. If it is a publicly listed company, there should not be any problem with execution. If it is a small business, difficulty in execution does exist. For a small business, I think you should not sue it for compensation, but to clear the market, as the loss from the infringement is limited. For a corporation engaged in serious infringement, it is now necessary to claim for damages. Moreover, the execution on intellectual property can be flexible, as not only tangible assets can be executed. There was a case where the defendant, a large daily chemicals producer, owned a well-known trademark. He had nothing but the trademark after the plaintiff sued him. At last, the trademark was executed against, s,ince it was still influential and valuable. It is not complicated to execute against a trademark. With the judgment, the court only needs to send a letter to the trademark office for assistance in execution. Upon the letter, the trademark office will have the trademark altered.

Actually, I feel the problem with the execution of intellectual property is not as highlighted as in other civil cases. Once a judgment has been issued, you may distribute the written judgment in the market if the infringer does not stop the infringing behavior. As the infringing goods will ultimately enter the circulation channel and the market, you may issue lawyer's letters to the distributors, stating that the goods from the infringer have been judged as infringing and you desire that they withdraw the infringing goods as soon as practicable. The distributor is liable for indirect infringement if he has knowledge of the infringement but continues to sell the infringing goods. As a result, distributors will not take the risk of selling infringing goods for a small company. They will soon withdraw the infringing goods from the shelf. In this way, we close the circulation channel and provide a damaging blow to the infringing goods. As the infringing goods cannot enter the circulation channel, the infringer is unable to. This is a kind of execution in a disguised form. As the counterfeit goods have disappeared from the market, the aim of the litigation is achieved.

The deterrent effect of a court judgment on infringers varies with the parties involved. As in the Silk Street case, counterfeit goods successively continue to appear. there are always people who will take the risk as long as there is a room for profits. Of course, in cases like Yamaha or Starbucks, the court judgment does deter some potential infringers. Since China has made much more effort in cracking down on counterfeit goods recently, we feel that incidences of fake goods have decreased while imitations have increased. It is often hard to tell whether an imitation, which resembles the authentic product, constitutes infringement. As a result, it has become more complex to make determinations about intellectual property. Also, counterfeit goods are sold directly to foreign countries. In the past, infringers had their goods labeled before the goods were delivered through the customs to Africa, for example. After our efforts to crack down on these goods, things have changed. The goods for export are not labeled – and the "naked goods" are exported to a third country where they are labeled and then re-shipped to Africa. In this way, they are out of the control of China as the infringee does not have the trademark registered in Africa or even in the third country. It is worth noting that infringement upon intellectual property has become a more complicated issue crossing boundaries and regions.

Viewpoints of Judges

As they enter into intellectual property litigation in China, foreign companies certainly need to understand how Chinese judges employ the law to resolve disputes and render judgments. To hear and settle a case, Chinese judges take into consideration the entire picture, not simply basing their judgments on legal provisions. This is due to the fact that legal provisions are general principles, while judges also take into account the reality of Chinese society. In China, the modern legal system conflicts with the social legal consciousness. When the social convention and the civil awareness towards law has not developed as fast as the legal framework, and a large number of citizens have little or no sense of law, should a judge base his judgment simply on the provisions from a purely legal perspective, or go deep into the social situation and consider how the judgment would guide or affect society? Recently the movie "A Judge's Story" has been on show throughout China. It reflects how an intellectual property judge hears and settles cases and reveals what problems a Chinese judge will encounter in adjudication, including social problems, the weak appreciation of law among the citizens and the imbalances in economic development, among others. It contains a scene where the judge asks a party to produce evidence, and the party says "I have no evidence, and I decide on my conscience and you judge on yours". It is obvious that in his mind, the party relies on ethics instead of the law to resolve the dispute. Such a phenomenon has been not rare among Chinese citizens. Also in the movie, when the judge rules that the plaintiff has lost the suit due to providing insufficient evidence, the party commits suicide to protest. Finally, the government intervenes in the case and through administrative acts, finds a solution for the party's factory and work. Although she has complied with the law to rule on the case, the adjudication supervision department still questioned the judge because she has achieved a bad result. All of these are characteristic of the China's legal culture. To litigate in China, foreign companies should at least learn about these factors, as well as every aspect of Chinese society. In this era of social transition, Chinese judges should play a role not simply as an umpire between parties, but to adjudicate cases according to law and follow civil procedures. They should also, at least, take on the responsibility to publicize the law and develop a belief in the rule of law, in order to better eliminate social contradictions and gradually establish the public's faith in the legal system.

In respect to various litigation problems faced by foreign companies, we have solicited opinions from several judges. We hope that their viewpoints on intellectual property litigation will help provide foreign companies with reasonable suggestions to analyze their problems with litigation in China.

Jiang Zhipei, Head of Intellectual Property Division, Supreme People's Court

1. Foreign companies should comply with the legal procedures to solve problems involving intellectual property

In the seven to eight years before and after China's entry into the WTO, statistics show that the proportion of the cases involving foreigners has remained constant and been around 3% of the total intellectual property cases accepted by Chinese courts. However, foreign companies have raised a lot of complaints. When faced with infringement, they tend to press the Chinese government through various means, but do not instigate civil actions as they would do in their own countries.

To seek legal protection is a feature of intellectual property protection. However, when they encounter an infringement dispute in China, foreign companies do not resort to litigation as they would do according to international conventions or in their own countries. Instead, they choose to complain, to press the Chinese government and force it to strengthen administrative enforcement of law. They hope to solve the problem without paying litigation costs. It is a phenomenon today to deal with a private rights problem by transferring responsibility to the entire society.

Litigation, in and of itself, is not always a pleasant thing to deal with in all countries. For example, the United States has much higher litigation costs and attorney fees than China. Many enterprises have to abandon litigation because of the high costs, and settle with the defendant. Litigation is a means or a weapon to use, but I do not consider it the only way to achieve a solution. Certainly foreign companies should choose to litigate if their major interests are affected, or if they cannot find a better way to resolve the problem. According to Chinese law, it is the court rather than an administrative agency that adjudicates a case where the parties fail to negotiate an indemnity after infringement has been determined. Chinese administrative agencies enforce law by stopping the infringement, canceling the business license or imposing a penalty. Any of their mistakes may lead to counterclaims. Depending on the advantages, a party should choose either administrative agencies or the courts according to the circumstances of each case. Since the market economy remains imperfect in China, particularly since China has had a long per,i,od of planned economy and is in transition, foreign companies can choose from many administrative agencies to enforce law and solve their problems. They can choose either litigation or administrative enforcement in the interests of their business.

2. Foreign companies encounter difficulties with litigation in China

Litigation is tough in all countries. It is more difficult for Chinese companies to litigate in the Untied States than for American companies to litigate in China. In the United States, the court does not provide many conveniences for parties. China has many service centers where one can file an action, receive assistance or report an offence. In the United States, parties and attorneys have a short time to explain their ideas to the court. In China, attorneys for foreign companies have sufficient time to state their ideas.
Foreign companies have encountered litigation obstacles, sometimes because they do not fully understand Chinese law. For example, a case will not be accepted by a Chinese court unless it is accompanied by written authorization from the legal representative. However, some foreign companies come to court with only the lawyer's signature. This legislation was originally intended to prevent "briefcase companies" (which mean fundless companies engaged in speculation) or parties other than the owner from asserting their rights. Therefore, while in China, foreign companies should adapt to Chinese law. Multinational companies should act in consistency with the state acts of a country. The evidence that foreign companies obtain in a foreign country should be notarized and authenticated under the Civil Procedure Law. This is explicitly laid down. If a foreign company has not gone through the notarization procedure, a judge cannot authenticate the evidence in violation of law. Having been in China for many years, foreign companies have not actively accommodated themselves to Chinese law, but have always acted in their own business interests. Is it easier to change the law of a country or the actions of an enterprise? It is a process to advocate legislation, which takes time. As legislation has not been changed, it is more feasible to change the behavior of an enterprise and comply with the Chinese law currently in force. Never expect that Chinese legislation will try to suit foreign regulations or the practices of foreign companies.

As for foreign companies' trouble with notarization, I advice that if an enterprise residing in a foreign country needs to have the authorization of the legal representative notarized, why not set up an office in China so that the office can deliver the document directly to the Chinese court? In this way, foreign companies will no longer have trouble with notarization.

3. To litigate in China, foreign companies should understand Chinese culture

In fact, with litigation in China, foreign companies enjoy sufficient presentation time, lower costs and attentive judges. The collegiate bench considers many more factors than American judges do. Chinese judges consider not only the facts and legal basis, but also the situation in China, the environment for foreign investments, and the macro environment. Therefore, the collegiate bench procedure is sufficient, and most multinational companies or foreign ventures have won their intellectual property cases.

Also, foreign companies may encounter problems with language or custom. In terms of language and culture, Chinese people know foreigners better than foreigners know Chinese. Foreign companies in China should not use their own language or culture as a standard of measurement. Instead, they should be aware of the difference between China's legal system and legal culture and those of other countries. It is natural that Chinese companies follow local laws when they litigate in a foreign country. It is not proper for foreign companies to keep on thinking of the laws in their own countries when they litigate in China. Now that China is a common and essential market for foreign companies, they should delve deeply into Chinese culture to understand Chinese law and litigate according to Chinese law and culture. Moreover, they should know about the imperfections in Chinese society, such as those with the credit system, banking insurance system or accounting rules, which are still under development. They should recognize and heed these imperfections. If they are aware of these circumstances in China, they can avoid problems.

In judging individual cases, judges consider how to achieve the best result. The law mediates social contradictions. One case is but one drop of water. The truth in a niche may turn into a falsehood under the macro environment. Therefore, a judge can never render his judgment without having the slightest hesitancy. To reach a judgment, he not only applies Chinese law, but also considers the facts, the situation in China, social stability and/or how the judgment would influence the foreign investment environment. In some developed countries, except for a few senior judges, an ordinary judge seldom if ever takes these macro issues into account.

4. The difficulty with obtaining evidence

The problem with evidence not only concerns the courts, but the legislature and the entire society. That is, the evidentiary system is not restricted to the court, but is an issue concerning the state institutions and legal framework, including the credit system and accounting system. The perfection of the credit system and all the other economic systems is a process. As China has not promulgated a law of evidence, incomplete evidence rules are dispersed among the Civil Procedure Law and judicial interpretations. Some systems are absent for facilitating the production of evidence by the parties. For example, in piracy or counterfeiting cases, no intermediary organizations, such as investigation companies or private detectives, are available under the current regulations to supplement the government work force.

Judges do not go outside the court for investigation. The parties are forced to present all their evidence under a healthy evidentiary system in some foreign countries. They are required to deliver all the evidence to the court, and then the evidence is exchanged between the parties. After the evidence is fixed, no further evidence can be submitted unless due to force majeure. There are no Chinese laws or regulations so far in this respect. Under the imperfect Chinese evidentiary system, parties tend not to present all their evidence at the litigation stage. In addition, China does not provide a legal status for some investigative companies or private detectives, since in Chinese opinion; such intermediary services are harmful to social stability and security. I do not advocate lifting all of the control over such services, but do propose giving a legal status to some intermediary services or legal service middlemen, and in this way, helping them to obtain evidence for cracking down on counterfeiting. According to my knowledge, the Chinese legislators have no plans to draft a law of evidence, and the departments concerned do not attach much importance to it. Currently, the judicial interpretations on evidence are too weak to affect the ordinary behavior of the parties before litigation. It is simply impossible to force the parties to produce evidence.

Objectively speaking, the imperfect evidentiary system is another reason for the difficulty in obtaining evidence. However, instead of placing their efforts on evidence, some foreign companies often go to seek help from leaders, officials, superiors, public opinion, or grumble in private, which is inconsistent with the rule of law. They think that this is Chinese culture. In fact, China has very good lawyers who can produce evidence under the imperfect evidentiary rules. Also, as the evidentiary system is being improved, the judicial interpretations contain provision, which are advantageous to the parties and invert the burden of proof in terms of the substantive law, such as by requiring an infringer of a process patent to produce evidence; or requiring a seller of pirated products to produce evidence of authorization from the authentic products manufacturer. Therefore, foreign companies can obtain evidence through a qualified lawyer, by employing good judicial interpretations and legal provisions. Moreover, there are administrative law enforcement agencies in China. They can be used to find more clues if evidence is insufficient. When the evidence is sufficient, you can go to court. In the future, as the laws and rules of evidence are being improved, it will be more favorable for rights owners to litigate. Further, when judicial protection for intellectual property is operating smoothly, you can have confidence in the protection offered by the legal procedures. Do more work on obtaining evidence and the results will be obvious.


5. Legal means are the best solution for disputes

Foreign companies tend to use non-legal means to resolve disputes involving intellectual property. For example, they may lodge a complaint with the Chinese leadership through diplomatic channels, or create pressure from public opinion. I do not agree on these actions. In fact, it would be more effective if their methods were consistent with the rule of law. Those non-rule-of-law methods will not lead to real solutions. The state leaders will not deal with a problem directly, as it may result in a waste of time. For general-orientation issues, such as, investment policy, the perfection of evidentiary laws and rules, and other legislative issues, foreign companies should, in my opinion, present their recommendations to the state leaders, the National Peoples' Congress or legislatures, in ways other than the above. Foreign companies take non-rule-of-law measures only in China, but never in other countries. If they do so in the United States or Europe, they would be deemed to be interfering with the judiciary and affecting the judicial process. It is obvious that when they complain about the Chinese legal system and exert pressure on the Chinese government, foreign companies are undermining the judicial construction in China.

6. The indemnity amount

As far as I can see, foreign companies feel that they are less indemnified mainly because of the lack of hard evidence. If the evidence on losses is sufficient, the court will support your claims, as in the Yamaha case where the Supreme Peoples' Court awarded more than RMB 80 million in damages. However, if a foreign company has discovered 100 pirated CDs but requests compensation for 1,000 CDs, its claim cannot win the court's support. Under such a situation, it should not complain that the indemnity amount is small. The small amount of indemnity can also be attributed to the low "gold content" of some intellectual property. China has a good many utility models and designs which are less valuable. It is impossible for the court to award sky-high damages for them. Moreover, some countries implement punitive damages in intellectual property cases, and China grants compensation on the entire actual loss. Thus, the indemnity may be less in China than in other countries.

7. About the difficulty in execution

As to problems with execution, you should know about the credit worthiness of your opponent before you do business with him. If he has both bank accounts and fixed assets, execution may not be a problem. If your opponent is a small business about to go bankrupt, you can hardly expect to receive any compensation. This is a risk of doing transactions in a market economy, and you should be careful about it.

To protect your intellectual property, you should pursue the right strategy. I think you should sue infringers that affect your major interests, do the most harm to your business, and are strong and large companies, as they are capable of compensating for your loss. A small business is certainly incapable of making compensation, but you have achieved your aim by causing it to go bankrupt. In intellectual property cases, winning money is not the only aim of litigation, as some enterprises sue to stop the infringing acts. With a few civil actions for infringement and several criminal lawsuits in a year, an enterprise can create a momentum to bring the situation under control and reduce infringing acts.

The pre-litigation preservation of property or the procedural preservation of property is inalienable from the thoroughness and perfection of a society's accounting system, credit system and banking system. Similar to other issues, the execution of preserved assets is a comprehensive issue. China is now drafting an execution law to which all the concerned parties attach much importance. The proposed execution law will impose stricter punishments on the intentional concealment of property. Actually it will not only help in the execution for intellectual property cases, but also promote smooth execution of all civil judgments.

8. Settlement

Presently, parties tend to negotiate with each other in intellectual property cases. Sometimes the result of the execution is unsatisfactory for court judgments. However, with a settlement, the defendant automatically agrees to execute his performance. Also, the parties may reach agreements and become partners, so that the competitors can have a win-win result. I recommend that foreign companies negotiate as settlement is also encouraged in other countries. At present, 40%-50% of the intellectual property cases in China are settled, while the proportion is above 90% in the United States.

9. Attorney

Foreign companies should retain Chinese lawyers as their attorneys as some foreign lawyers do not fully understand Chinese law and will probably misrepresent some provisions. After losing their cases, some foreign lawyers do not account for their lack of understanding of Chinese law, but communicate a wrong message that some Chinese provisions are problematic. This is really harmful to a country as well as to individuals. Moreover, foreign companies should retain lawyers who have appeared in court and have practical experience and are versed in the theory of the law. An inexperienced lawyer who lacks litigation experience or has not achieved a complete understanding of law may not be able to meet litigious challenges.

10. Problems with intellectual property litigation are comprehensive

The problems with intellectual property litigation do not only involve the intellectual property field, but also comprehensively represent problems with civil legal proceedings, and society. As a matter of fact, in China, the legislation and judicial interpretation on intellectual property has been in the forefront. The pre-litigation injunction or the procedural preservation of evidence, for example, has not appeared in other proceedings. The support for pre-litigation preservation is above 80%. Unlike China, in Germany support is low for the provisional injunction prior to litigation. Therefore, foreign companies should see the entire landscape rather than a single point. It is still early to talk about premature issues since China has not readily solved employment or lifestyle problems in some regions, as well as problems involving the connection between entire systems, legal construction and economic development. Haste makes waste.

Liu Xiaojun, Judge of Intellectual Property Division, Beijing Intermediate People's Court

1. The long time period of intellectual property litigation

In fact, generally speaking, the period for intellectual property litigation in China is not long. It is even shorter in China than in other countries, especially developed countries. Under Chinese law, for civil intellectual property cases, the first instance trial is limited to six months and the second-instance trial is limited to three months; for patent invalidation or trademark disputes, the first-instance trial is limited to three months and the second-instance trial is limited to two months. The courts in Beijing, Shanghai, Guangzhou and other major cities can generally hear and decide intellectual property cases within the above time limit. Therefore, in general, the time period for adjudicating intellectual property cases is short.

Then, why do foreign parties feel that they spend a lot of time litigating intellectual property cases in China? In my opinion, the reasons are as follows: First, the service of process for foreign intellectual property cases takes much time. For fair and just litigation, the court must serve various materials or data to the parties, including foreign parties, in which the formalities are complex and time-consuming. Second, when the foreign party submits materials and data that were formed outside of China to the court in China, generally, such materials or data have to be notarized, authenticated and translated into Chinese. This will also take time. Third, institutionally it generally takes two to three years for a patent invalidation case to go from the patent reexamination board to the court of final judgment. If the patent reexamination board's decision was made by examining only a part of the invalidation reasons for the cancellation by the court, the case will be, in principle, sent back to the patent reexamination board for a retrial, in order to ensure procedural justice and the necessary instances of trial. As a result, a new trial round begins and the litigation period is extended. Last but not least, some judges disregard the time limit for adjudicating foreign cases, and many regions do not provide a time limit for trials of foreign cases. Under their heavy work pressure, judges tend to prioritize cases with a strict time limit in order to pass various internal examinations or checks..

Foreign parties may take the following measures to shorten the litigation time for foreign intellectual property cases. First, parties, particularly foreign ones, should cooperate with the court. Foreign parties should submit various materials and/or data that the court requires as soon as practicable. Also, they should have the materials notarized and authenticated, if applicable. There are many cases where foreign parties do not provide the materials that the court requires, for example, by not having them notarized, authenticated or translated into Chinese. As a result, some work has to be redone and the litigation time period is extended. Second, ensure that the court can contact you quickly if necessary. Some foreign parties fail to leave their proper contact information with the court, so that the latter is unable to serve various litigation materials in a timely manner. Make sure that you have provided the court with a free and clear means of contact. If you have several means of contact, leave them all with the court, with the safest and fastest means indicated. Third, give the court your correct contact information, even though you have retained a Chinese lawyer. During litigation, after they have retained a Chinese attorney, some foreign parties disappear, leaving all responsibility to the Chinese attorney. Sometimes the court cannot find the attorney or some matter is not for an attorney to decide. It is very necessary to retain a Chinese attorney and leave his correct contact information with the court.

In the long run, the lengthy litigation period for intellectual property cases should be dealt with institutionally, by perfecting the litigation suspension regulation and the rules of evidence, or for example, by establishing an intellectual property court, or providing explicitly that the court may declare a patent invalid under certain conditions. The long time period for intellectual property litigation is not unique to China but a worldwide challenge. The causes are various. All the parties involved in litigation, including the court, should try their best to find a solution.

2. Evidence obtainment in intellectual property cases

The difficulty in obtaining evidence exists not only in intellectual property litigation, but also in other types of litigation. Also, it is not unique to China, as the evidence for intellectual property is difficult to obtain in all countries. It is even more difficult in some developed countries than in China.

The reasons are mostly toile in the features of intellectual property, and are also related to basic theoretical research, which is also weak in intellectual property. The inherent characteristic of intellectual property determines the way for obtaining evidence, which is different from that for personal or property right infringement. As the infringing act for intellectual property is very secretive, it is very difficult to obtain evidence to prove the existence of the infringement, especially how the infringement has led to the loss of the owner, including the existence and size of the loss.

Currently, the requirements for admission of notarized evidence are strict for intellectual property cases, as they cannot be negated under the existing laws and regulations. The frequency of notarized evidence in intellectual property litigation is very high, perhaps the highest, in my opinion, among the various types of litigation. They can be seen in a large number of intellectual property cases, sometimes in multiple forms. They come from plaintiffs and defendants, and are mostly admitted. Therefore, evidence in cases involving foreign parties should be notarized, if applicable. If any original document cannot be submitted for whatever reason, its transcript may be submitted together with a notarization authenticating the transcript with the original. The notarized transcript often has the same legal force as the original.

3. Settlement in litigation

Settlement, which is often used now in civil litigation, is consistent with the traditional Chinese culture as well as the construction of a harmonious society in China. I would recommend that foreign parties, either as the plaintiff or the defendant in intellectual property cases, should seek settlement for disputes.

Settlement is advantageous in that it provides a peaceful and practical solution to disputes between the parties. With a judgment in your favor, you may encounter problems with execution. Through Settlement, however, the parties tend to perform the obligations initiatively, so that the interests of the parties, especially the owner, can be practically protected. More importantly, with settlement the parties may continue the good relationship between them. It means that each party may continue to possess and expand its market.

4. Indemnity amount

The indemnity awarded for intellectual property infringement is not low in China. However, the reason why owners feel it is low is they have not provided effective evidence to prove their claims.

Currently, there are four methods to determine the amount of indemnity for intellectual property infringement. First, the actual loss method, where the infringer shall be liable for all of the owner's actual losses if the owner can prove them. Second, the benefit method, in which the infringer shall deliver all the benefits from the infringement, which the owner can prove, to the owner as indemnity. Third, the negotiation method, where the indemnity amount is the amount that the owner and the infringer have negotiated and agreed to. Fourth, the discretion method, where if the above three methods cannot work, the court may, according to the circumstance of the infringement, determine the indemnity amount which shall be no more than RMB 500,000 under the law. This amount may not include other costs that the owner incurs in stopping the infringement.
Therefore, the issue whether the indemnity is low is not a problem if the amount is determined by any of the first three methods. It is essential that the parties produce evidence. The court will support a party's claims as long as he can prove them. It is mainly the amount determined with the fourth method that owners feel is low. I think that the upper limit of RMB 500,000 as the law provides is consistent with the situation in China. Judges, at their discretion, determine the amount of indemnity according to the circumstances of individual cases. This can hardly measure up to a problem of low indemnity. Note here that the recent draft amendment to the Patent Law raises the upper limit to RMB 1 million.

I would recommend, particularly, that owners should not rely on the court's discretion, but should seek to prove the existence and size of the loss. Even if the indemnity amount were up to the discretion of the court, the evidence that a party provides on the loss would be very useful. Some owners do not produce evidence on the amount of the loss, but rely on the court's discretion. The court will not determine a very high amount if the loss is not proven with preliminary evidence. In addition, if owners can prove the minimum loss instead of the actual amount of the loss, especially if the minimum loss is more than RMB 500,000, they should timely submit such proof to the court, so that the judge may, at his discretion, determine the indemnity amount on the basis of the minimum loss.

5. Principles for choosing a forum

It takes knowledge to choose a proper forum for intellectual property litigation. Intellectual property cases are concentrated in Europe, the United States and Japan. This trend has also emerged in China. Generally, the courts in the eastern regions, coastal regions, developed regions and major cities accept more intellectual property cases than courts in the middle or western regions, the hinterlands, the under-developed regions and small cities. Currently intellectual property cases are mostly concentrated in Beijing, Guangdong, Shanghai and Jiangsu, where judges have much more experience. Foreign owners tend to choose courts in these regions when they pursue intellectual property litigation.

To choose a forum is to choose a competent court, which reflects one's confidence in the courts willingness to accept the case. Currently, China's laws, regulations and judicial interpretations are still imperfect regarding how to choose a competent court for intellectual property cases. The traditional rules of the Civil Procedure Law, which are directly employed for intellectual property infringement litigation, have been shown to be incompatible in some ways. It requires skill and technique for either owners or infringers to choose a suitable forum, especially when complainants may bring an action with almost any of the courts with jurisdiction over intellectual property cases under the existing rules.

Foreign owners should choose courts in major cities, such as Beijing, since the courts in these places have had tens of years of experience and have a group of experienced professional judges. The courts are capable of protecting the interested parties and the legal interest of the owners in accordance with law.

Conclusion

To litigate in China, foreign companies not only need to be familiar with Chinese law, but also to know Chinese culture. In addition, knowing Chinese culture, they must also adapt to it. China's legal framework still needs to be perfected. The progress of the rule of law and the advances of society occur as a whole. When you learn that a seller of pork from a sick pig is generally fined a small amount of money and a seller of 500 pirated CDs is found guilty of a crime, do you feel the latter punishment is not harsh? In the thoughts of the Chinese people, selling pirated CDs causes much less harm than selling pork from a sick pig. If foreign companies ask China at this time to impose stricter punishments on the sellers of pirated CDs, a law containing stricter punishments would be seen as somewhat unfair in the eyes of common Chinese people. Under such a social circumstance, it would be harder to fight against piracy. Therefore, when foreign companies push or promote the construction of China's legal framework, they should not only consider their business interests, but also the macro legal environment, the legislative balance, and the synchronization of the rule of law and social progress.

Foreign companies should choose the best means possible to protect their interests under China's current legal environment. It is much easier to adapt to and find a solution under the current legal environment than to change it. Upon an infringement dispute, they need not "reproach" but to try "greater cooperation". Of course, their existence does help promote the perfection of Chinese laws with their legislative recommendations and supervision over judicial practice. Therefore, when foreign companies enter into litigation more often and through legitimate procedures, it strongly promotes China's legal construction.
                                                                                   (Translated by Ren Qingtao)

,g the foreign companies we have served, only a few have chosen to settle. They take a tough position and some are unwilling to settle. I have handled some cases involving settlement. It did happen that the defendant did not keep his promise after settlement. Therefore, the decision to settle or not varies with each case. Settlement can be deemed as an effective strategy. It is satisfactory if the defendant promises to eliminate the bad effects on the market, destroys all counterfeit goods, apologizes to the plaintiff, and compensates the plaintiff for its loss. Settlement has been successful in some cases. Sometimes, the plaintiff wishes to settle because his aim is not to "fight" with the defendant but to reach a settlement. He fights in order to reach a settlement, as in Sacon vs. Electrolux in Ningbo.

8. Execution

A lawyer should think of the difficulty in execution before he helps a client to initiate an action. He should know the defendant. If it is a publicly listed company, there should not be any problem with execution. If it is a small business, difficulty in execution does exist. For a small business, I think you should not sue it for compensation, but to clear the market, as the loss from the infringement is limited. For a corporation engaged in serious infringement, it is now necessary to claim for damages. Moreover, the execution on intellectual property can be flexible, as not only tangible assets can be executed. There was a case where the defendant, a large daily chemicals producer, owned a well-known trademark. He had nothing but the trademark after the plaintiff sued him. At last, the trademark was executed against, s,ince it was still influential and valuable. It is not complicated to execute against a trademark. With the judgment, the court only needs to send a letter to the trademark office for assistance in execution. Upon the letter, the trademark office will have the trademark altered.

Actually, I feel the problem with the execution of intellectual property is not as highlighted as in other civil cases. Once a judgment has been issued, you may distribute the written judgment in the market if the infringer does not stop the infringing behavior. As the infringing goods will ultimately enter the circulation channel and the market, you may issue lawyer's letters to the distributors, stating that the goods from the infringer have been judged as infringing and you desire that they withdraw the infringing goods as soon as practicable. The distributor is liable for indirect infringement if he has knowledge of the infringement but continues to sell the infringing goods. As a result, distributors will not take the risk of selling infringing goods for a small company. They will soon withdraw the infringing goods from the shelf. In this way, we close the circulation channel and provide a damaging blow to the infringing goods. As the infringing goods cannot enter the circulation channel, the infringer is unable to. This is a kind of execution in a disguised form. As the counterfeit goods have disappeared from the market, the aim of the litigation is achieved.

The deterrent effect of a court judgment on infringers varies with the parties involved. As in the Silk Street case, counterfeit goods successively continue to appear. there are always people who will take the risk as long as there is a room for profits. Of course, in cases like Yamaha or Starbucks, the court judgment does deter some potential infringers. Since China has made much more effort in cracking down on counterfeit goods recently, we feel that incidences of fake goods have decreased while imitations have increased. It is often hard to tell whether an imitation, which resembles the authentic product, constitutes infringement. As a result, it has become more complex to make determinations about intellectual property. Also, counterfeit goods are sold directly to foreign countries. In the past, infringers had their goods labeled before the goods were delivered through the customs to Africa, for example. After our efforts to crack down on these goods, things have changed. The goods for export are not labeled – and the "naked goods" are exported to a third country where they are labeled and then re-shipped to Africa. In this way, they are out of the control of China as the infringee does not have the trademark registered in Africa or even in the third country. It is worth noting that infringement upon intellectual property has become a more complicated issue crossing boundaries and regions.

Viewpoints of Judges

As they enter into intellectual property litigation in China, foreign companies certainly need to understand how Chinese judges employ the law to resolve disputes and render judgments. To hear and settle a case, Chinese judges take into consideration the entire picture, not simply basing their judgments on legal provisions. This is due to the fact that legal provisions are general principles, while judges also take into account the reality of Chinese society. In China, the modern legal system conflicts with the social legal consciousness. When the social convention and the civil awareness towards law has not developed as fast as the legal framework, and a large number of citizens have little or no sense of law, should a judge base his judgment simply on the provisions from a purely legal perspective, or go deep into the social situation and consider how the judgment would guide or affect society? Recently the movie "A Judge's Story" has been on show throughout China. It reflects how an intellectual property judge hears and settles cases and reveals what problems a Chinese judge will encounter in adjudication, including social problems, the weak appreciation of law among the citizens and the imbalances in economic development, among others. It contains a scene where the judge asks a party to produce evidence, and the party says "I have no evidence, and I decide on my conscience and you judge on yours". It is obvious that in his mind, the party relies on ethics instead of the law to resolve the dispute. Such a phenomenon has been not rare among Chinese citizens. Also in the movie, when the judge rules that the plaintiff has lost the suit due to providing insufficient evidence, the party commits suicide to protest. Finally, the government intervenes in the case and through administrative acts, finds a solution for the party's factory and work. Although she has complied with the law to rule on the case, the adjudication supervision department still questioned the judge because she has achieved a bad result. All of these are characteristic of the China's legal culture. To litigate in China, foreign companies should at least learn about these factors, as well as every aspect of Chinese society. In this era of social transition, Chinese judges should play a role not simply as an umpire between parties, but to adjudicate cases according to law and follow civil procedures. They should also, at least, take on the responsibility to publicize the law and develop a belief in the rule of law, in order to better eliminate social contradictions and gradually establish the public's faith in the legal system.

In respect to various litigation problems faced by foreign companies, we have solicited opinions from several judges. We hope that their viewpoints on intellectual property litigation will help provide foreign companies with reasonable suggestions to analyze their problems with litigation in China.

Jiang Zhipei, Head of Intellectual Property Division, Supreme People's Court

1. Foreign companies should comply with the legal procedures to solve problems involving intellectual property

In the seven to eight years before and after China's entry into the WTO, statistics show that the proportion of the cases involving foreigners has remained constant and been around 3% of the total intellectual property cases accepted by Chinese courts. However, foreign companies have raised a lot of complaints. When faced with infringement, they tend to press the Chinese government through various means, but do not instigate civil actions as they would do in their own countries.

To seek legal protection is a feature of intellectual property protection. However, when they encounter an infringement dispute in China, foreign companies do not resort to litigation as they would do according to international conventions or in their own countries. Instead, they choose to complain, to press the Chinese government and force it to strengthen administrative enforcement of law. They hope to solve the problem without paying litigation costs. It is a phenomenon today to deal with a private rights problem by transferring responsibility to the entire society.

Litigation, in and of itself, is not always a pleasant thing to deal with in all countries. For example, the United States has much higher litigation costs and attorney fees than China. Many enterprises have to abandon litigation because of the high costs, and settle with the defendant. Litigation is a means or a weapon to use, but I do not consider it the only way to achieve a solution. Certainly foreign companies should choose to litigate if their major interests are affected, or if they cannot find a better way to resolve the problem. According to Chinese law, it is the court rather than an administrative agency that adjudicates a case where the parties fail to negotiate an indemnity after infringement has been determined. Chinese administrative agencies enforce law by stopping the infringement, canceling the business license or imposing a penalty. Any of their mistakes may lead to counterclaims. Depending on the advantages, a party should choose either administrative agencies or the courts according to the circumstances of each case. Since the market economy remains imperfect in China, particularly since China has had a long period of planned economy and is in transition, foreign companies can choose from many administrative agencies to enforce law and solve their problems. They can choose either litigation or administrative enforcement in the interests of their business.

2. Foreign companies encounter difficulties with litigation in China

Litigation is tough in all countries. It is more difficult for Chinese companies to litigate in the Untied States than for American companies to litigate in China. In the United States, the court does not provide many conveniences for parties. China has many service centers where one can file an action, receive assistance or report an offence. In the United States, parties and attorneys have a short time to explain their ideas to the court. In China, attorneys for foreign companies have sufficient time to state their ideas.
Foreign companies have encountered litigation obstacles, sometimes because they do not fully understand Chinese law. For example, a case will not be accepted by a Chinese court unless it is accompanied by written authorization from the legal representative. However, some foreign companies come to court with only the lawyer's signature. This legislation was originally intended to prevent "briefcase companies" (which mean fundless companies engaged in speculation) or parties other than the owner from asserting their rights. Therefore, while in China, foreign companies should adapt to Chinese law. Multinational companies should act in consistency with the state acts of a country. The evidence that foreign companies obtain in a foreign country should be notarized and authenticated under the Civil Procedure Law. This is explicitly laid down. If a foreign company has not gone through the notarization procedure, a judge cannot authenticate the evidence in violation of law. Having been in China for many years, foreign companies have not actively accommodated themselves to Chinese law, but have always acted in their own business interests. Is it easier to change the law of a country or the actions of an enterprise? It is a process to advocate legislation, which takes time. As legislation has not been changed, it is more feasible to change the behavior of an enterprise and comply with the Chinese law currently in force. Never expect that Chinese legislation will try to suit foreign regulations or the practices of foreign companies.

As for foreign companies' trouble with notarization, I advice that if an enterprise residing in a foreign country needs to have the authorization of the legal representative notarized, why not set up an office in China so that the office can deliver the document directly to the Chinese court? In this way, foreign companies will no longer have trouble with notarization.

3. To litigate in China, foreign companies should understand Chinese culture

In fact, with litigation in China, foreign companies enjoy sufficient presentation time, lower costs and attentive judges. The collegiate bench considers many more factors than American judges do. Chinese judges consider not only the facts and legal basis, but also the situation in China, the environment for foreign investments, and the macro environment. Therefore, the collegiate bench procedure is sufficient, and most multinational companies or foreign ventures have won their intellectual property cases.

Also, foreign companies may encounter problems with language or custom. In terms of language and culture, Chinese people know foreigners better than foreigners know Chinese. Foreign companies in China should not use their own language or culture as a standard of measurement. Instead, they should be aware of the difference between China's legal system and legal culture and those of other countries. It is natural that Chinese companies follow local laws when they litigate in a foreign country. It is not proper for foreign companies to keep on thinking of the laws in their own countries when they litigate in China. Now that China is a common and essential market for foreign companies, they should delve deeply into Chinese culture to understand Chinese law and litigate according to Chinese law and culture. Moreover, they should know about the imperfections in Chinese society, such as those with the credit system, banking insurance system or accounting rules, which are still under development. They should recognize and heed these imperfections. If they are aware of these circumstances in China, they can avoid problems.

In judging individual cases, judges consider how to achieve the best result. The law mediates social contradictions. One case is but one drop of water. The truth in a niche may turn into a falsehood under the macro environment. Therefore, a judge can never render his judgment without having the slightest hesitancy. To reach a judgment, he not only applies Chinese law, but also considers the facts, the situation in China, social stability and/or how the judgment would influence the foreign investment environment. In some developed countries, except for a few senior judges, an ordinary judge seldom if ever takes these macro issues into account.

4. The difficulty with obtaining evidence

The problem with evidence not only concerns the courts, but the legislature and the entire society. That is, the evidentiary system is not restricted to the court, but is an issue concerning the state institutions and legal framework, including the credit system and accounting system. The perfection of the credit system and all the other economic systems is a process. As China has not promulgated a law of evidence, incomplete evidence rules are dispersed among the Civil Procedure Law and judicial interpretations. Some systems are absent for facilitating the production of evidence by the parties. For example, in piracy or counterfeiting cases, no intermediary organizations, such as investigation companies or private detectives, are available under the current regulations to supplement the government work force.

Judges do not go outside the court for investigation. The parties are forced to present all their evidence under a healthy evidentiary system in some foreign countries. They are required to deliver all the evidence to the court, and then the evidence is exchanged between the parties. After the evidence is fixed, no further evidence can be submitted unless due to force majeure. There are no Chinese laws or regulations so far in this respect. Under the imperfect Chinese evidentiary system, parties tend not to present all their evidence at the litigation stage. In addition, China does not provide a legal status for some investigative companies or private detectives, since in Chinese opinion; such intermediary services are harmful to social stability and security. I do not advocate lifting all of the control over such services, but do propose giving a legal status to some intermediary services or legal service middlemen, and in this way, helping them to obtain evidence ,fo,r cracking down on counterfeiting. According to my knowledge, the Chinese legislators have no plans to draft a law of evidence, and the departments concerned do not attach much importance to it. Currently, the judicial interpretations on evidence are too weak to affect the ordinary behavior of the parties before litigation. It is simply impossible to force the parties to produce evidence.

Objectively speaking, the imperfect evidentiary system is another reason for the difficulty in obtaining evidence. However, instead of placing their efforts on evidence, some foreign companies often go to seek help from leaders, officials, superiors, public opinion, or grumble in private, which is inconsistent with the rule of law. They think that this is Chinese culture. In fact, China has very good lawyers who can produce evidence under the imperfect evidentiary rules. Also, as the evidentiary system is being improved, the judicial interpretations contain provision, which are advantageous to the parties and invert the burden of proof in terms of the substantive law, such as by requiring an infringer of a process patent to produce evidence; or requiring a seller of pirated products to produce evidence of authorization from the authentic products manufacturer. Therefore, foreign companies can obtain evidence through a qualified lawyer, by employing good judicial interpretations and legal provisions. Moreover, there are administrative law enforcement agencies in China. They can be used to find more clues if evidence is insufficient. When the evidence is sufficient, you can go to court. In the future, as the laws and rules of evidence are being improved, it will be more favorable for rights owners to litigate. Further, when judicial protection for intellectual property is operating smoothly, you can have confidence in the protection offered by the legal procedures. Do more work on obtaining evidence and the results will be obvious.


5. Legal means are the best solution for disputes

Foreign companies tend to use non-legal means to resolve disputes involving intellectual property. For example, they may lodge a complaint with the Chinese leadership through diplomatic channels, or create pressure from public opinion. I do not agree on these actions. In fact, it would be more effective if their methods were consistent with the rule of law. Those non-rule-of-law methods will not lead to real solutions. The state leaders will not deal with a problem directly, as it may result in a waste of time. For general-orientation issues, such as, investment policy, the perfection of evidentiary laws and rules, and other legislative issues, foreign companies should, in my opinion, present their recommendations to the state leaders, the National Peoples' Congress or legislatures, in ways other than the above. Foreign companies take non-rule-of-law measures only in China, but never in other countries. If they do so in the United States or Europe, they would be deemed to be interfering with the judiciary and affecting the judicial process. It is obvious that when they complain about the Chinese legal system and exert pressure on the Chinese government, foreign companies are undermining the judicial construction in China.

6. The indemnity amount

As far as I can see, foreign companies feel that they are less indemnified mainly because of the lack of hard evidence. If the evidence on losses is sufficient, the court will support your claims, as in the Yamaha case where the Supreme Peoples' Court awarded more than RMB 80 million in damages. However, if a foreign company has discovered 100 pirated CDs but requests compensation for 1,000 CDs, its claim cannot win the court's support. Under such a situation, it should not complain that the indemnity amount is small. The small amount of indemnity can also be attributed to the low "gold content" of some intellectual property. China has a good many utility models and designs which are less valuable. It is impossible for the court to award sky-high damages for them. Moreover, some countries implement punitive damages in intellectual property cases, and China grants compensation on the entire actual loss. Thus, the indemnity may be less in China than in other countries.

7. About the difficulty in execution

As to problems with execution, you should know about the credit worthiness of your opponent before you do business with him. If he has both bank accounts and fixed assets, execution may not be a problem. If your opponent is a small business about to go bankrupt, you can hardly expect to receive any compensation. This is a risk of doing transactions in a market economy, and you should be careful about it.

To protect your intellectual property, you should pursue the right strategy. I think you should sue infringers that affect your major interests, do the most harm to your business, and are strong and large companies, as they are capable of compensating for your loss. A small business is certainly incapable of making compensation, but you have achieved your aim by causing it to go bankrupt. In intellectual property cases, winning money is not the only aim of litigation, as some enterprises sue to stop the infringing acts. With a few civil actions for infringement and several criminal lawsuits in a year, an enterprise can create a momentum to bring the situation under control and reduce infringing acts.

The pre-litigation preservation of property or the procedural preservation of property is inalienable from the thoroughness and perfection of a society's accounting system, credit system and banking system. Similar to other issues, the execution of preserved assets is a comprehensive issue. China is now drafting an execution law to which all the concerned parties attach much importance. The proposed execution law will impose stricter punishments on the intentional concealment of property. Actually it will not only help in the execution for intellectual property cases, but also promote smooth execution of all civil judgments.

8. Settlement

Presently, parties tend to negotiate with each other in intellectual property cases. Sometimes the result of the execution is unsatisfactory for court judgments. However, with a settlement, the defendant automatically agrees to execute his performance. Also, the parties may reach agreements and become partners, so that the competitors can have a win-win result. I recommend that foreign companies negotiate as settlement is also encouraged in other countries. At present, 40%-50% of the intellectual property cases in China are settled, while the proportion is above 90% in the United States.

9. Attorney

Foreign companies should retain Chinese lawyers as their attorneys as some foreign lawyers do not fully understand Chinese law and will probably misrepresent some provisions. After losing their cases, some foreign lawyers do not account for their lack of understanding of Chinese law, but communicate a wrong message that some Chinese provisions are problematic. This is really harmful to a country as well as to individuals. Moreover, foreign companies should retain lawyers who have appeared in court and have practical experience and are versed in the theory of the law. An inexperienced lawyer who lacks litigation experience or has not achieved a complete understanding of law may not be able to meet litigious challenges.

10. Problems with intellectual property litigation are comprehensive

The problems with intellectual property litigation do not only involve the intellectual property field, but also comprehensively represent problems with civil legal proceedings, and society. As a matter of fact, in China, the legislation and judicial interpretation on intellectual property has been in the forefront. The pre-litigation injunction or the procedural preservation of evidence, for example, has not appeared in other proceedings. The support for pre-litigation preservation is above 80%. Unlike China, in Germany support is low for the provisional injunction prior to litigation. Therefore, foreign companies should see the entire landscape rather than a single point. It is still early to talk about premature issues since China has not readily solved employment or lifestyle problems in some regions, as well as problems involving the connection between entire systems, legal construction and economic development. Haste makes waste.

Liu Xiaojun, Judge of Intellectual Property Division, Beijing Intermediate People's Court

1. The long time period of intellectual property litigation

In fact, generally speaking, the period for intellectual property litigation in China is not long. It is even shorter in China than in other countries, especially developed countries. Under Chinese law, for civil intellectual property cases, the first instance trial is limited to six months and the second-instance trial is limited to three months; for patent invalidation or trademark disputes, the first-instance trial is limited to three months and the second-instance trial is limited to two months. The courts in Beijing, Shanghai, Guangzhou and other major cities can generally hear and decide intellectual property cases within the above time limit. Therefore, in general, the time period for adjudicating intellectual property cases is short.

Then, why do foreign parties feel that they spend a lot of time litigating intellectual property cases in China? In my opinion, the reasons are as follows: First, the service of process for foreign intellectual property cases takes much time. For fair and just litigation, the court must serve various materials or data to the parties, including foreign parties, in which the formalities are complex and time-consuming. Second, when the foreign party submits materials and data that were formed outside of China to the court in China, generally, such materials or data have to be notarized, authenticated and translated into Chinese. This will also take time. Third, institutionally it generally takes two to three years for a patent invalidation case to go from the patent reexamination board to the court of final judgment. If the patent reexamination board's decision was made by examining only a part of the invalidation reasons for the cancellation by the court, the case will be, in principle, sent back to the patent reexamination board for a retrial, in order to ensure procedural justice and the necessary instances of trial. As a result, a new trial round begins and the litigation period is extended. Last but not least, some judges disregard the time limit for adjudicating foreign cases, and many regions do not provide a time limit for trials of foreign cases. Under their heavy work pressure, judges tend to prioritize cases with a strict time limit in order to pass various internal examinations or checks..

Foreign parties may take the following measures to shorten the litigation time for foreign intellectual property cases. First, parties, particularly foreign ones, should cooperate with the court. Foreign parties should submit various materials and/or data that the court requires as soon as practicable. Also, they should have the materials notarized and authenticated, if applicable. There are many cases where foreign parties do not provide the materials that the court requires, for example, by not having them notarized, authenticated or translated into Chinese. As a result, some work has to be redone and the litigation time period is extended. Second, ensure that the court can contact you quickly if necessary. Some foreign parties fail to leave their proper contact information with the court, so that the latter is unable to serve various litigation materials in a timely manner. Make sure that you have provided the court with a free and clear means of contact. If you have several means of contact, leave them all with the court, with the safest and fastest means indicated. Third, give the court your correct contact information, even though you have retained a Chinese lawyer. During litigation, after they have retained a Chinese attorney, some foreign parties disappear, leaving all responsibility to the Chinese attorney. Sometimes the court cannot find the attorney or some matter is not for an attorney to decide. It is very necessary to retain a Chinese attorney and leave his correct contact information with the court.

In the long run, the lengthy litigation period for intellectual property cases should be dealt with institutionally, by perfecting the litigation suspension regulation and the rules of evidence, or for example, by establishing an intellectual property court, or providing explicitly that the court may declare a patent invalid under certain conditions. The long time period for intellectual property litigation is not unique to China but a worldwide challenge. The causes are various. All the parties involved in litigation, including the court, should try their best to find a solution.

2. Evidence obtainment in intellectual property cases

The difficulty in obtaining evidence exists not only in intellectual property litigation, but also in other types of litigation. Also, it is not unique to China, as the evidence for intellectual property is difficult to obtain in all countries. It is even more difficult in some developed countries than in China.

The reasons are mostly toile in the features of intellectual property, and are also related to basic theoretical research, which is also weak in intellectual property. The inherent characteristic of intellectual property determines the way for obtaining evidence, which is different from that for personal or property right infringement. As the infringing act for intellectual property is very secretive, it is very difficult to obtain evidence to prove the existence of the infringement, especially how the infringement has led to the loss of the owner, including the existence and size of the loss.

Currently, the requirements for admission of notarized evidence are strict for intellectual property cases, as they cannot be negated under the existing laws and regulations. The frequency of notarized evidence in intellectual property litigation is very high, perhaps the highest, in my opinion, among the various types of litigation. They can be seen in a large number of intellectual property cases, sometimes in multiple forms. They come from plaintiffs and defendants, and are mostly admitted. Therefore, evidence in cases involving foreign parties should be notarized, if applicable. If any original document cannot be submitted for whatever reason, its transcript may be submitted together with a notarization authenticating the transcript with the original. The notarized transcript often has the same legal force as the original.

3. Settlement in litigation

Settlement, which is often used now in civil litigation, is consistent with the traditional Chinese culture as well as the construction of a harmonious society in China. I would recommend that foreign parties, either as the plaintiff or the defendant in intellectual property cases, should seek settlement for disputes.

Settlement is advantageous in that it provides a peaceful and practical solution to disputes between the parties. With a judgment in your favor, you may encounter problems with execution. Through Settlement, however, the parties tend to perform the obligations initiatively, so that the interests of the parties, especially the owner, can be practically protected. More importantly, with settlement the parties may continue the good relationship between them. It means that each party may continue to possess and expand its market.

4. Indemnity amount

The indemnity awarded for intellectual property infringement is not low in China. However, the reason why owners feel it is low is they have not provided effective evidence to prove their claims.

Currently, there are four methods to determine the amount of indemnity for intellectual property infringement. First, the actual loss method, where the infringer shall be liable for all of the owner's actual losses if the owner can prove them. Second, the benefit method, in which the infringer shall deliver all the benefits from the infringement, which the owner can prove, to the owner as indemnity. Third, the negotiation method, where the indemnity amount is the amount that the owner and the infringer have negotiated and agreed to. Fourth, the discretion method, where if the above three methods cannot work, the court may, according to the circumstance of the infringement, determine the indemnity amount which shall be no more than RMB 500,000 under the law. This amount may not include other costs that the owner incurs in stopping the infringement.
Therefore, the issue whether the indemnity is low is not a problem if the amount is determined by any of the first three methods. It is essential that the parties produce evidence. The court will support a party's claims as long as he can prove them. It is mainly the amount determined with the fourth method that owners feel is low. I think that the upper limit of RMB 500,000 as the law provides is consistent with the situation in China. Judges, at their discretion, determine the amount of indemnity according to the circumstances of individual cases. This can hardly measure up to a problem of low indemnity. Note here that the recent draft amendment to the Patent Law raises the upper limit to RMB 1 million.

I would recommend, particularly, that owners should not rely on the court's discretion, but should seek to prove the existence and size of the loss. Even if the indemnity amount were up to the discretion of the court, the evidence that a party provides on the loss would be very useful. Some owners do not produce evidence on the amount of the loss, but rely on the court's discretion. The court will not determine a very high amount if the loss is not proven with preliminary evidence. In addition, if owners can prove the minimum loss instead of the actual amount of the loss, especially if the minimum loss is more than RMB 500,000, they should timely submit such proof to the court, so that the judge may, at his discretion, determine the indemnity amount on the basis of the minimum loss.

5. Principles for choosing a forum

It takes knowledge to choose a proper forum for intellectual property litigation. Intellectual property cases are concentrated in Europe, the United States and Japan. This trend has also emerged in China. Generally, the courts in the eastern regions, coastal regions, developed regions and major cities accept more intellectual property cases than courts in the middle or western regions, the hinterlands, the under-developed regions and small cities. Currently intellectual property cases are mostly concentrated in Beijing, Guangdong, Shanghai and Jiangsu, where judges have much more experience. Foreign owners tend to choose courts in these regions when they pursue intellectual property litigation.

To choose a forum is to choose a competent court, which reflects one's confidence in the courts willingness to accept the case. Currently, China's laws, regulations and judicial interpretations are still imperfect regarding how to choose a competent court for intellectual property cases. The traditional rules of the Civil Procedure Law, which are directly employed for intellectual property infringement litigation, have been shown to be incompatible in some ways. It requires skill and technique for either owners or infringers to choose a suitable forum, especially when complainants may bring an action with almost any of the courts with jurisdiction over intellectual property cases under the existing rules.

Foreign owners should choose courts in major cities, such as Beijing, since the courts in these places have had tens of years of experience and have a group of experienced professional judges. The courts are capable of protecting the interested parties and the legal interest of the owners in accordance with law.

Conclusion

To litigate in China, foreign companies not only need to be familiar with Chinese law, but also to know Chinese culture. In addition, knowing Chinese culture, they must also adapt to it. China's legal framework still needs to be perfected. The progress of the rule of law and the advances of society occur as a whole. When you learn that a seller of pork from a sick pig is generally fined a small amount of money and a seller of 500 pirated CDs is found guilty of a crime, do you feel the latter punishment is not harsh? In the thoughts of the Chinese people, selling pirated CDs causes much less harm than selling pork from a sick pig. If foreign companies ask China at this time to impose stricter punishments on the sellers of pirated CDs, a law containing stricter punishments would be seen as somewhat unfair in the eyes of common Chinese people. Under such a social circumstance, it would be harder to fight against piracy. Therefore, when foreign companies push or promote the construction of China's legal framework, they should not only consider their business interests, but also the macro legal environment, the legislative balance, and the synchronization of the rule of law and social progress.

Foreign companies should choose the best means possible to protect their interests under China's current legal environment. It is much easier to adapt to and find a solution under the current legal environment than to change it. Upon an infringement dispute, they need not "reproach" but to try "greater cooperation". Of course, their existence does help promote the perfection of Chinese laws with their legislative recommendations and supervision over judicial practice. Therefore, when foreign companies enter into litigation more often and through legitimate procedures, it strongly promotes China's legal construction.
                                                                                   (Translated by Ren Qingtao)

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