SPC ISSUES PROVISIONS ON ACTION PRESERVATION IN IP RIGHTS DISPUTES

The Supreme People's Court of China (SPC) has released a new set of judicial interpretations concerning interim injunction applications for intellectual property rights (IP Rights)-related disputes. The Provisions on Application of Laws in Adjudication of Action Preservation Cases Involving Intellectual Property Disputes (Fa Shi [2018] No. 21) (Provisions) were published on 12 December 2018 and take effect on 1 January 2019. Prior to that, a consultation draft of the Provisions was released for public consultation on 26 February 2015.

The Provisions provide further guidance on interim injunctive relief (i.e. action preservation) applications made under Articles 100 and 101 of the Civil Procedure Law 2017 (2017 CPL) in cases concerning IP Rights and unfair competition, and clarify certain key concepts therein. (For more information on interim relief in the PRC, contact briana.young@hsf.com to request a copy of our guide "Interim Relief in Mainland China".)

Some important articles in the Provisions, which are covered in this post, are:

• Article 6, which provides for circumstances classified as "urgent circumstances" under Articles 100 and 101 of the 2017 CPL;
• Article 7, which lists the factors that the courts shall take into consideration in determining whether an action preservation order should be granted;
• Article 10, which elaborates on the concept of "irreparable harm" under Article 101 of the 2017 CPL in cases related to IP Rights or unfair competition. Risk of "irreparable harm" is an element that needs to be proved in any application for pre-litigation or pre-arbitration action preservation orders; and
• Article 16, which specifies circumstances under which applications for action preservation will be considered "wrongful".

Urgent Circumstances

Articles 100(3) and 101(1) of the 2017 CPL both refer to the concept of "urgent circumstances", without giving any further guidance on what are such "urgent circumstances". Article 6 of the Provisions provides five particular situations which would constitute "urgent circumstances". They include:

• imminent illegal disclosure of the applicant's commercial secrets;
• imminent harm to the personal rights of the applicant, such as right to privacy and publication right;
• disputed IP Rights will soon be disposed of illegally;
• imminent infringement of IP Rights in time-sensitive situations such as trade fairs;
• existing or imminent infringement on popular television/radio programmes with strong timeliness; and
• other circumstances which require immediate application for action preservations to prevent substantial harm to the applicant's interests. This is a catch-all provision in Article 6(6), which gives the courts discretion to grant an action preservation order under other circumstances which require immediate action by the courts.

Irreparable Harm

Article 101(1) of the 2017 CPL, which provides for pre-litigation and pre-arbitration preservation measures, specifies that action preservation shall be granted only if, amongst other things, the applicant is likely to suffer "irreparable harm". The Provisions provide further clarification on what is considered "irreparable harm" in cases concerning IP Rights and unfair competition.

Article 10 of the Provisions provides that "irreparable harm" refers to the following circumstances:

• where there is harm to the applicant's personal rights that cannot be repaired;
• where the respondent's infringing acts are likely to get out of hand and substantively increase the level of damage to the applicant's interests; and
• where the respondent's infringing act will cause a substantial drop in the applicant's market share.

Additionally, Article 6(4) sets out a catch-all provision which gives the courts discretion in granting a pre-litigation and pre-arbitration action preservation order. These enumerations will provide clearer guidance to the lower courts when approaching these issues.

A comprehensive consideration taking into account various factors

The Provisions also require that, when considering an interim action preservation application, the courts should take into account various factors in order to reach a comprehensive decision. Based on Article 7 of the Provisions, such factors include:

• whether the applicant has a strong factual and legal basis in the underlying action;
• whether the applicant will suffer irreparable harm if an action preservation order is not granted;
• whether the harm to be suffered by the applicant in case an order is not granted outweighs the harm to be suffered by the respondent if an order is granted;
• whether granting an order is against public interest; and
• other factors that the court should take into account.

This article adopts a similar rationale to that underpinning the tests of "arguable case" and "balance of convenience", which apply to the courts of Hong Kong, England, and other common law jurisdictions when handling applications for interim injunctive relief.

The specification of these factors demonstrates that an action preservation order can be a draconian measure, as it potentially entails a restraint of the respondents' rights prior to the detailed adjudication and final determination of the case. The court needs to take a preliminary view on the merits of the application and the potential impact on the parties before making a determination, although this is not an early determination of the merits of the case. The legal threshold the applicant needs to satisfy is therefore higher compared to applications for asset or evidence preservation. As with the usual Chinese practice, courts will also take into account public interests in granting an action preservation order.

Wrongful application

Under Article 105 of the 2017 CPL, parties against whom a preservation order is made can claim damages from the applicant if it later transpires that a preservation order ought not to have been made. Article 16 of the Provisions helpfully provides a number of "wrongful application" situations, which include:

• where the applicant fails to initiate litigation or arbitration proceeding within 30 days after the action preservation is imposed;
• where the IP Rights sought to be protected have been declared invalid;
• where the application requires the respondent to cease violation of IP Rights or acts of unfair competition, but the judge ultimately finds that the respondent's conduct does not constitute violation of IP Rights or unfair competition; and
• other circumstances where the applications were considered wrongful.

Conclusion

The Provisions represent a significant and long-awaited development in the PRC after the Civil Procedure Law amendments of 2013, when action preservation - both before and during the course of litigation and arbitration - was first introduced. The Provisions provide practical, and relatively detailed, guidance to PRC courts determining action preservation applications in cases concerning IP Rights and unfair competition acts. In a way, they would help to standardise the court's practice and provide more certainty to the parties.

While the Provisions are applicable to cases dealing with IP Rights and unfair competition acts only, they are likely to also shed some lights on action preservation applications for other types of disputes. They reflect the PRC courts' increasing support for action preservation and the courts' efforts to strengthen protection of IP Rights.

If you would like further information on interim relief in the PRC, please email briana.young@hsf.com to request our guide "Interim Relief in Mainland China", or contact one of our Greater China Disputes partners.