China legal update: SPC Clarifies the Establishment of SPC’s IP Court

I. Legal News

The Supreme People’s Court (SPC) issued an Announcement on Matters Concerning the Establishment of Intellectual Property Court (“SPC’s IP Court”) (the “Announcement”) as well as Provisions on Several Issues Related to the SPC’s IP Court (the « Provisions ») which came into force on January 1, 2019. The Announcement and the Provisions clarify the following:

1. The SPC’s IP Court officially starts the performance of its statutory duties as of January 1, 2019;

2. The SPC’s IP Court is a permanent judicial organ dispatched by the SPC and the judgement, rulings, mediations and decisions made by the SPC’s IP Court are those of the SPC.

3. The SPC’s IP Court is located in Beijing Fengtai District.¹

4. The SPC’s IP Court is empowered to hear the following cases:

(1) Appeals against judgments or rulings of civil cases of first instance on certain IP matters² made by higher people’s court, specialized IP courts and intermediate people’s courts.

(2) Appeals against judgments or rulings of administrative cases of first instance on invalidation and re-examination of certain IP matters³ made by the Beijing IP Court;

(3) Appeals against judgments or rulings of administrative cases of first instance regarding administrative decisions and penalties on certain IP matters⁴ made by higher people’s courts, specialized IP courts and intermediate people’s courts;

(4) Major and complicated civil and administrative cases of first instance provided in above item (1) (2) and (3) on a national scale. This implies that plaintiffs may bring IP lawsuits to SPC directly;

(5) Cases which are applied for retrial, protested by the procuratorate, or retried under the judicial supervision procedures against effective judgments, rulings or mediation documents of cases of first instance provided in item (1) (2) and (3);

(6) Cases regarding disputes over the jurisdiction of cases of first instance provided in item (1) (2) and (3), application for reconsideration of fine or detention decisions, and applications for extension of trial period and so on; and

(7) Other cases that SPC considers should be tried by the SPC’s IP Court.

5. For all aforementioned judgements, rulings, or decisions of first instance, if they were rendered before January 1, 2019, the previous rule that the courts at the next higher level to the courts of original trials shall try the case (for example, under the previous rule, they may appeal to high courts at the provincial level); If rendered after January 1, 2019, they shall be tried by the SPC’s IP Court.

6. If a party concerned intends to file an appeal to the SPC’s IP Court, it shall, as required by the Civil Procedure Law and other provisions, file its appeal petition through the court of the first instance that originally tried the case.

Zhou Qiang, chief justice and president of the SPC, attended the opening ceremony and visited the newly established SPC’s IP Court located in Beijing Fengtai District. He stressed that regulations on compensation for damages of intellectual property infringement must be optimized and a more intensified punishment for torts must be adopted.

The SPC’s IP Court is expected to deepen judicial reform, continue to improve the IP-related judicial system, implement judicial accountability and build a team of judges with professional IP knowledge.

(http://www.court.gov.cn/zixun-xiangqing-137821.html

http://www.court.gov.cn/fabu-xiangqing-137481.html

http://english.court.gov.cn/2019-01/03/content_37424088.htm)

The Draft Amendment of PRC Patent Law (“Amendment”) deliberated at the Seven Session of the Standing Committee of the 13th National People’s Congress (« NPC ») has been released for public opinion by February 3, 2019.

The current Patent Law was published in 1985 and was revised three times, respectively in 1992, 2000, 2008.  This new Amendment focuses on the protection of legal rights of patentee and promotion of patents in practice. The main changes are as follows:

(1) Internet service provider will assume joint responsibility for the increased part of damages of an Internet infringement due to its failure of adopting appropriate measures such as deleting, blocking and disconnecting hyperlinks on its platforms;

(2) Compensation amount for patent infringement raised when it is hard to calculated (from RMB 10,000 – RMB 1 million to RMB 100,000 – RMB 5 million);

(3) The employer will have the right to dispose the on-duty invention that is accomplished by its employee using materials or technical means of the employer;

(4) The duration of design is extended from 10 years to 15 years;

(5) Domestic priority rules can be applied on design application, as one more article is added that “In the event that within 6 months from the date on which an application for a design was first filed, if the applicant also files an application for a patent pertaining to the same drawings, it may enjoy a right of priority (first application date within China can be claimed in the latter application)”; and

(6) An open patent licensing system with detailed application procedures and payment standards is introduced.

(http://www.npc.gov.cn/npc/flcazqyj/2019-01/04/content_2070155.htm)

The full text of the Draft Amendments to PRC Land Administration Law (“Amendment”), deliberated at the Seventh Session of the Standing Committee of the 13th National People’s Congress, has been released for public consultation by February 3, 2019.

The Amendment mainly has the following features:

(1) Remove the legal barrier to the circulation of collective land for the construction use into the market (previously collective land can only be used for agricultural purpose);

(2) Narrow down the scope of land expropriation and standardize procedures for land expropriation;

(3) Enhance social security and higher housing compensation for farmers facing land expropriation;

(4) Strengthen the protection of Cultivated Land, especially permanent basic farmland; and

(5) Allow farmers who settle down in cities to voluntarily withdraw from their house sites.

(http://www.npc.gov.cn/npc/flcazqyj/2019-01/04/content_2070156.htm)

Full texts of the Civil Code: Part on Contracts (Draft) (Second Draft for Review) and the Civil Code: Part on Tort Liability (Draft) (Second Draft for Review), deliberated at the Seven Session of the Standing Committee of the 13th National People’s Congress (« NPC »), have recently been released for public consultation by February 3, 2019.

The Civil Code is one great legislative plan proposed in 2014 and is planned to be effective by 2020. The General Provisions of Civil Code, serving as the first move, already comes out in 2017, subsequently with the sub-provision parts being drafted and reviewed. The Draft Civil Code includes six parts, namely property rights, contracts, personality rights, marriage and family, inheritance and tort liability, totaling 1034 articles.

Compared to the current PRC Contract Law, PRC Tort Law and the first drafts for Review on Contracts and Tort Liabilities, the second drafts for Review on Contracts and Tort Liabilities have changes in the structures and articles respectively, while also add new regulations on former blank areas. As a whole, the second draft mainly features in the following aspects:

(1) Punitive compensation is introduced when suffering serious infringement on intellectual property rights (“IP Infringement”)

The second draft deems that compensating losses actually incurred by IP infringed is not sufficient to serve as a deterrent to potential IP infringers. To better protect IP rights, the second draft adds one more article: “For company who suffers intentional IP Infringement and where the circumstances are relatively serious, the company is entitled to claim a punitive compensation.”

(2) Ordinary guarantee prevails, when there is no agreement or there is unclear agreement on the modality of guarantee.

In the first draft on contracts for review, it regulates that the debtor and the guarantor shall assume joint guarantee responsibility under circumstances where the modality of guarantee is not clear based on the agreement between parties. This rule is also regulated in the current Guarantee Law. However, there are criticism that this rule will bring too burden on the guarantor, as joint guarantee responsibility means that the creditor may demand the guarantor to assume guarantee responsibility without demanding the debtor first. Concerning this dispute, the NPC gives their new opinion in this second draft, replacing joint guarantee responsibility by ordinary responsibility. Ordinary guarantee responsibility gives the guarantor a right of counterplea to refuse the creditor’s demand for assuming guarantee responsibility before the debtor fails to pay the debt. NPC holds that this can help preventing the spread of debt risk.

(3) One whole new chapter on factoring contract is added, for the purpose of easing the dilemma of financing for enterprises.

In factoring contract, the creditors transfer the account receivable to the factor, who provides financial support, accounts receivable management, collection and other services.

The factoring business has been developing fast and provides enterprises (especially for small and medium-sized business) one more means to financing. There have been no special rules on factoring contract in the current contract law; to better regulate this business, to help stimulate the healthy development of factoring services, and make financing more accessible and affordable for small and medium-sized business, NPC adds one more chapter on this in the second draft for review.

(4) The legitimacy of self-help acts is confirmed in the situation where it is too late to ask for protection of state organs.

It is regulated, in the second draft, that when legal rights are in an emergency of violation with no possibility of protection from state organs, the victim may take reasonable measures such as detaining the property of the infringer. A good example is that during a car accident, the injured person retains the driver’s key as the driver wants to escape, and he returns the key immediately upon the presence of the police.

(5) Principle of assumption of risk will apply when attending dangerous activity voluntarily.

For those who participate into confrontational sports activities full of dangers, they will be assumed to accept the risk and no others will be responsible for the potential harm they may confront with, unless the harm is caused by someone on purpose or by culpable negligence.

(6) Standards of compensation for mental distress are relaxed.

In the first draft on Tort, only those who “intentionally” destroy possessions which have strong emotional connection with someone else can be demanded for compensation for mental distress. Now, in this second draft, the standard of subjective awareness is relaxed, including not only “intentional” but also “culpably negligent”.

(http://www.npc.gov.cn/npc/flcazqyj/2019-01/04/content_2070151.htmhttp://www.npc.gov.cn/npc/flcazqyj/2019-01/04/content_2070152.htm)

II. Hot Topic

The National Development and Reform Commission of the People’s Republic of China and Ministry of Commerce of the People’s Republic of China released the new Market Access Negative List (2018 version) (“MANL”) on December 25, 2018.

MANL outlines sectors, fields and businesses off-limits for both domestic and foreign investors, including restricted items and forbidden items. For domestic investors, MANL is a unified and comprehensive table summarizing all prohibitions and restrictions for potential investments. Foreign investors, different from domestic investors, shall read MANL in conjunction with another Negative List named “Special Administrative Measures on Access of Foreign Investment (2018 version)”⁵ which came into force on July 28, 2018 (“SAMAFI”). That is to say, to enter the Chinese market, foreign investors shall examine both MANL as well as SAMAFI following the principle that the investment is permitted where the activities are not prohibited or restricted in both MANL and SAMAFI.

MANL consists 151 items and 581 specific rules, streamlining the requirements by deleting 177 items and 288 specific rules respectively compared with the previous version, which means market access is easier than before. It is a sign that China is expected to continue opening up market and improving its investment environment.

(http://tgs.ndrc.gov.cn/fmqd/qdsmjqw/)

① Different from Beijing IP Court which is incorporated in 2014 and located at Haidian District. Beijing IP Court is a specialized IP court in charge of the cases of first instance；

② Patents for invention, utility model patents, new varieties of plants, integrated circuit layout design, technical secrets, computer software and anti-trust;

③ Patents for inventions, utility model patents, appearance design patents, new varieties of plants and integrated circuit layout design;

④ Inventions, utility model patents, appearance design patents, new varieties of plants, integrated circuit layout design, technical secrets, computer software and administrative punishments for monopoly；

⑤ For details about “Special Administrative Measures on Access of Foreign Investment (2018 version)”, please refer to our previous article released on July 13, 2018 see:

(https://asiallians.com/china-legal-update-insurance-agency-
assessment-business-open-foreign-investments/)

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