Situation on the Trial of FTZ-related of Intellectual Property Cases by Shanghai Intellectual Property Court (2015-2017)

On September 29, 2013, China (Shanghai) Pilot Free Trade Zone (hereinafter referred to as “FTZ”) was officially established. At the end of April 2015, FTZ was formally expanded. With the rapid development of FTZ, the demand for IPR judicial protection in FTZ is growing. Since its establishment on December 28, 2014, Shanghai Intellectual Property Court has given full play to its functions, adhered to the judicial policies of “judicial leadership, strict protection, type-based tactics and harmonious proportion,” promoted the building of an international, legalized and facilitating business environment in FTZ and tried FTZ-related intellectual property cases, providing powerful judicial services and guarantees for optimizing the business environment in FTZ.

 

I. Basic Situation and Main Characteristics of FTZ-related Cases

From January 1, 2015 to December 31, 2017, Shanghai Intellectual Property Court accepted a total of 645 FTZ-related intellectual property cases (201 first-instance cases and 444 second-instance cases) and concluded 594 ones.

Seen from the types of cases, there are 279 cases involving copyright infringement, accounting for 43.26%; 151 cases involving trademark infringement and unfair competition, accounting for 23.41%; 85 cases involving computer software infringement, accounting for 13.18%; and 79 cases involving patent infringement, accounting for 12.25%. (see Figure 1)

Figure 1: Types of cases accepted

Cases involving copyright infringement

Cases involving trademark infringement and unfair competition

Cases involving computer software infringement

Cases involving patent infringement

Others

 

Seen from the perspective of the areasinvolved, there are 420 cases related to Zhangjiang Hi-tech Zone, accounting for 65.12%; 90 cases related to bonded area, 82 cases related to Lujiazui finance zone (including World Expo area) and 53 cases related to Jinqiao development zone, accounting for 13.95%, 12.71% and 8.22% respectively. (see Figure 2)

Figure 2: Distribution of the number of cases in each area

Zhangjiang Hi-tech Zone

Bonded area

Lujiazui finance zone (including World Expo area)

Jinqiao development zone

 

These cases have the following characteristics:

1. Cases were closely related to area industries. Under the policy encouraging interacted development of FTZ and national independent innovation demonstration zone, many information network-related platforms, such as Internet technology, mobile terminal product integration, etc., have been established in Zhangjiang High-tech Industrial Development Zone, giving birth to lots of intellectual property cases related to Internet communication and computer software as well as new types of cases concerning infringement on integrated circuit layout design, etc. In line with the characteristics of key financial and trade area and the needs of building a modern metropolis, Lujiazui finance zone related cases reflected that commerce, economy, trade, information and intermediary services were concentrated in the area. Bonded area related cases mainly involve technical service contract and market competition order, reflecting that international trade, modern logistics and microelectronics services were concentrated in the area. Jinqiao development zone related cases were mostly intellectual property cases involving export/processed goods, technology trade and cultural and creative industry. 

2. New characteristic has emerged in export-oriented economical cases. The integrated development of domestic and foreign trade realized by FTZ enterprises brought trademark infringement cases involving parallel import. With the development of cross-border e-commerce service industry, the judicial protection of intellectual property rights related to e-commerce platform is becoming increasingly prominent. For example, trademark owner claims that network platform bears the trademark infringement liability for similar texts appearing in the keyword search results.

3. The number of cases involving new online unfair competition practices increased. For example, plagiarism of the whole picture of online games, re-creation of online “fan works,” live broadcast of e-sports events, blocking of pre-video ads by software, use of information collected by other people, and disturbing other’s operation by virtue of software...all these competition behaviors have complex and enormous influence on the market order, and it’s necessary to evaluate and judge their legitimacy reasonably.

4. There’re many cases involving cultural and creative industry. Seen from the industrial fields reflected, these cases are related to games, animation, video and audio, etc.; from the perspective of legal approaches of protection, they mainly involve the Copyright Law and the Anti-unfair Competition Law; and from the perspective of objects to be protected, audiobooks, the whole picture of online games, and live broadcasting of e-sports, etc., emerged. Among them, there are various cases involving online games, including mobile phone games, online games and e-sports games, etc.; the value of subject matter involved in online game cases was high. For example, in the copyright licensing contract dispute - Hongwu Singapore Pte Ltd. v. Connect Co. Ltd. and Qifei International Development Co. Ltd. et al., the value of subject matter reached RMB 1 billion.

5. A number of well-known enterprises were involved, including Taobao, Tencent, Bridgestone Corporation, Chateau Lafite Rothschild, SAP, etc. Cases where Baidu used Dianping users’ comments frequently without permission, Shanghai Yilang International Trading Co., Ltd. committed trademark infringement by using the registered trademark “FENDI” on its shop signs, etc. have aroused wide concern in the industry.

 

II. Main Initiatives to Strengthen the IPR Judicial Protection in FTZ

(1) Improve the Working Mechanisms to Respond to the Demand for Specialized IPR Protection in FTZ

1. Establishing special trial mechanism. The Court established a special collegial panel for FTZ-related intellectual property cases, with the President, Division Heads and Senior Judges serving as the presiding judges, responsible for the centralized trial of civil and administrative FTZ-related intellectual property cases; formulated Opinions of Shanghai Intellectual Property Court on the Establishment of a Special Collegial Panel for FTZ-related Intellectual Property Cases, stipulating the scope of cases accepted, trial mechanism, extended work and other work standards; developed special management software for FTZ-related intellectual property cases and made full use of information technology to improve the trial quality and efficiency and to help try FTZ-related intellectual property cases in a specialized way; worked together with the FTZ Intellectual Property Division of Pudong New Area People’s Court of Shanghai to strengthen the analysis and study of application of laws and to unify the adjudication criteria. 2. Improving the “four-in-one” technical fact-finding mechanism. The Court invited technical investigators to participate in the proceedings as judicial assistants and established a technical fact-finding mechanism that integrates technical investigation, expert jury, technical appraisal and technical consultation to enhance the specialized trials of technology-related cases. 3. Perfecting the diversified dispute resolution mechanism that conforms tothe characteristics of FTZ-related cases. The Court signed cooperation agreements with 11 social mediation organizations and industry associations, invited mediators to conduct mediations regularly, promoted pre-trial mediation, court mediation and the link between litigation and mediation, and made full use of commercial and trade mediation organizations to resolve the disputes quickly and properly.

(2) Optimize the Judicial Ideas to Respond to the Demand of Building an International Business Environment in FTZ

1. Insisting on equal protection of the legitimate rights and interests of Chinese and foreign parties. The Court responded positively to the interest and judicial demands of global investors and traders in FTZ in terms of rights protection, competition order, and risk prevention and control, etc. It respects and equally protects the intellectual property rights of all market players. For example, SAP said in its thank-you letter to Shanghai Intellectual Property Court that “We were impressed by your unbiased respect for the intellectual property rights of multinational corporations and China’s determination to establish specialized intellectual property courts to protect the intellectual property rights.”2. Accurately grasping the characteristics of export-oriented economy in FTZ. When trying cases, the Court considered the special economic pattern in FTZ comprehensively and distinguished the boundaries of infringement accurately. For example, in cases where the overseas trademark owners entrust domestic enterprises to process the goods to be exported, should all these goods be exported, it won’t be deemed to infringe upon the exclusive right of domestic trademark owner to use the registered trademarks.       3. Promoting the international influence of judicial protection. The Court made full use of the International Exchange (Shanghai) Base for Judicial Protection of Intellectual Property to actively carry out high-level and high-quality international IPR judicial exchanges and cooperation, so as to expand the brand effects and demonstrate the achievements, thereby enhancing the international influence of China’s IPR judicial protection.  

(3) Strengthen Protection to Respond to the Demand of Building a Legalized Business Environment in FTZ

1. Clarifying the rules of judicial adjudication. When trying cases involving the new economic form, business model, industrial field and high technology in FTZ, the Court paid attention to the accumulation of typical cases, providing practical materials for the formation of trial ideas for similar cases. For example, in the appeal of dispute over trademark infringement and unfair competition field by FENDIADELES.R.L, the Court defined after the trial the reasonable scope and boundary of proper use of other’s trademarks by the genuine product seller, providing guidance for relevant operators to conduct business activities. In the appeal of dispute over infringement of the right of dissemination on information network filed by Shanghai Full Potato Culture Communication Co., Ltd., the Court defined after the trial the factors to be considered when determining whether the network service provider has subjective fault on the dissemination of infringing works on the platform, providing guidance for accurately determining the civil liability of network service providers. The Court also formulated Guidelines on the Trial of Disputes over Trade Secret Infringement, Guidelines on the Trial of Disputes over Design Patent Infringement, Operational Guidelines on the Judicial Authentication of Technical Facts in Civil Intellectual Property Cases and other guidance documents, providing reference and effective guidance for the trial of similar cases. 2. Actively using interim measures. The Court brought into full play the timeliness, convenience and effectiveness of judicial relief, and actively promoted the efficiency of preservation before and during litigation. For example, In the case of pre-litigation act preservation filed by Data Yes, the Court made the judgment in favor of the preservation on that very night and meanwhile took measures to control the defendant, preventing the disclosure of trade secrets timely and protecting the legitimate rights and interests of the right holder effectively. 3. Increasing the amount of compensation. With full consideration of the objectivity and uncertainty in the market value of intellectual property rights, the Court analyzed the factors that determine the statutory damages and gradually established a compensation mechanism based on the market value of intellectual property rights, degree of innovation, and degree of subjective bad faith, etc. For example, in China’s first case involving recognition of overall picture of online game as assimilated works expressed by a process analogous to cinematography, the Court made great efforts to solve the problems of “high cost” and “low compensation,” and ordered the infringer to compensate for the economic losses of RMB 4 million based on the licensing fee of the game involved and nature of the infringement, etc. 4. Severely punishing willful infringement. For serious violations of the principle of good faith, the Court imposed severe punishments to enhance the deterrent effect of IPR judicial protection. For example, in the case of dispute over trademark infringement and false advertising filed by HUGO BOSS, et al against Mr. &Mrs. Tang, the Court recognized that Mr. &Mrs. Tang committed joint infringement since they planned the registration of many companies and controlled them directly. It’s ordered that they shall compensate for the economic losses and reasonable expenses (including all attorney fees) totaling RMB 4.92 million, which effectively regulates and punishes their act of covering up large-scale trademark infringement and unfair competition.

(4) Strengthen Service Awareness to Respond to the Demand of Building a Facilitating Business Environment in FTZ

1. Taking the initiative to follow the judicial needs in FTZ. The Court signeda Memorandum of Cooperation with the Management Committee of Zhangjiang High-tech Industrial Development Zone, set up Office of Judge Chen Huizhen, National Adjudication Expert, and carried out surveys and legal publicity activities in FTZ Zhangjiang hi-tech zone, Lujiazui finance zone, and Jinqiao development zone, etc. Data show that the Court has paid visits, given lectures and organized enterprise representatives to attend the court sessions for 27 times. More than 1,500 enterprise representatives participated in these activities and two common intellectual property casebooks were issued. It also signed a cooperation agreement with Pudong Intellectual Property Administration, set up the Office of Judge Ding Wenlian, National Adjudication Expert, organized riding circuits and conducted dynamic investigations on the situation of intellectual property rights in the industry. Besides, the Court released white papers and put forward judicial suggestions to popularize laws and regulations, alert and prevent disputes, and extended the scope of trial work, thereby serving and safeguarding the building of innovation environment in FTZ. For example, in the appeal of unfair competition dispute - Shenzhen Fangjinsuo Company, et al v. Xinju Company, the false advertising of Xinju Company is sufficient to mislead relevant consumers about its background and strength, thereby underestimating the investment risk. Given this, the Court ordered Xinju Company to stop false advertising and meanwhile proposed relevant market supervision administration to handle the matter according to the Advertising Law. The market supervision administration made an investigation subsequently. 2. Promoting the “Internet+” trial mode actively. The Court improved online mediation and remote video hearings, etc. to ensure that FTZ-related intellectual property cases are heard conveniently and quickly. It further explores the speedy trial of simple cases and refined trial of complex cases to respond positively to the growing judicial needs in FZT. 3. Exploring the mechanism of service by entrusted notaries. The Court established a mechanism with Shanghai Oriental Notary Public Office. Litigation documents served unsuccessfully will be served by notaries in person, which makes service more standardized and efficient, alleviating the problem of difficult service of documents in FTZ-related intellectual property cases.

 

III. Suggestions on Strengthening IPR Protection in FTZ

(1) Further Strengthen Legal Publicity and Education on Intellectual Property Rights

In judicial practice, new types of intellectual property disputes are increasing, reflecting that innovation activities are becoming more and more intensive under the “first mover” policy of FTZ, which need more guidance and regulation. Therefore, it’s necessary to carry out intellectual property publicity and legal education deeply and persistently. We should innovate the forms, enrich the contents, and through media publicity, law dissemination, law lectures and publication of cases, etc., enhance the public awareness of intellectual property rights and form a social atmosphere of “respecting and protecting intellectual property rights.” We should also advocate the culture of innovation, carry forward the spirit of innovation, and encourage market players to set up brand consciousness and to create proprietary and competitive technology and products through independent innovation. We should also cooperate with colleges, universities and other educational institutions to promote the cultivation of high-end intellectual property personnel and international exchange and cooperation on intellectual property rights, thereby gathering versatile talents who know both the international intellectual property rules and Chinese intellectual property laws. 

(2) Further Enhance Enterprises’ Awareness of Intellectual Property Protection and Risk Prevention

During the trial of cases, we found that the IPR protection awareness of FTZ enterprises didn’t match with their development level. Some enterprises didn’t have internal intellectual property management system and risk examination mechanism, nor have dedicated person in charge of intellectual property work. A few employees had low legal awareness and professional integrity, resulting in the intellectual property rights of enterprises and employees being infringed or their infringement on others’ intellectual property rights. On one hand, some enterprises had weak management consciousness and lacked right protection consciousness. Their certificate of rights and technical data were under poor management and prone to infringement. Some paid attention to patent application but ignored the transformation of technological achievements. On the other hand, some enterprises attached no importance to the prevention of external infringement and ignored the examination of risk of IPR infringement when introducing technology and personnel, resulting in infringing upon others’ intellectual property rights. It’s suggested that enterprise should formulate rules and regulations during their IPR creation, protection and application; establish and implement the system of rewards and remuneration for service technical achievements, so as to allow technical innovators to have clear expectations of their benefits; take effective measures to promote the transformation of technological achievements; and strengthen the management of technological achievements and business information to prevent the disclosure of trade secrets, etc. They should not only protect their own innovative achievements, but also respect others’ intellectual property rights.

(3) Further Improve the IPR Public Service System

FTZ has attracted great attention from investors and traders at home and abroad. With the advancement of the national innovation-driven development strategy and the continuous development of intellectual property rights intensive industries in FTZ, the IPR public service system in FTZ is facing new requirements and challenges. At present, there’re several agencies in FTZ providing intellectual property law information services. However, the number of intellectual property appraisal, intellectual property evaluation and financial institutions that serve intellectual property trade and transformation directly is insufficient. To this end, we suggest that: 1. Strengthen policy support. Guide enterprises to strengthen the IPR creation, protection and application, expand the ways to transform IPR achievements, and attract more intellectual property owners and investors to transform IPR achievements in FTZ. 2. Promote information sharing. Further integrate the patent, trademark, copyright, trade and customs information, and improve the public service platform to make intellectual property services convenient and standardized. 3. Perfect service mechanism. Foster a diversified IPR service market, introduce various service agencies that provide such services as IPR value assessment, quality assessment and technical appraisal, etc., so as to make FTZ a preferred place for the creation, transfer, licensing and trading of international IPR achievements, promoting the establishment of an international intellectual property trading market and the transformation of IPR achievements.

 

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