Fordham Law

Chinese Courts Can Trip Up US Cos. Looking To Protect IP

Fordham Law School in Law360, April 11, 2012

Media Source

Law360, New York (April 11, 2012, 10:00 PM ET) -- China is becoming an increasingly important venue for intellectual property litigation, but its court system can present significant hurdles for foreign companies involved in cases there, experts said at a panel discussion Wednesday.

At a conference on IP enforcement in China at Fordham Law School in New York, Judge Zhu Li of the Supreme People’s Court of China's IP tribunal said that the number of IP-related lawsuits in China has significantly increased since the country joined the World Trade Organization in 2001.

That year, there were about 5,000 IP cases in Chinese courts, but that number had ballooned to 60,000 in 2011, he said. A decade ago, only 43 IP cases involved foreign companies, but in 2010, there were more than 1,300 such cases, he added.

The majority of IP cases in China are trademark and copyright cases, but 6,000 patent cases were filed in China in 2011, according to Benjamin Bai, head of the IP practice in Allen & Overy LLP's Shanghai office. That is about twice as many as in U.S., making China the most litigious country in the world for patents, he said.

"It's not easy to litigate in China. It's extremely painful to litigate in China," Bai said, noting that there is no discovery in the Chinese court system and that corruption, bias towards Chinese companies and protectionism are all concerns for foreign companies involved in litigation there.

Chinese courts generally tend to be plaintiff-friendly and to grant injunctions more frequently than American courts have since the U.S. Supreme Court's 2006 eBay decision made it more difficult to get an injunction, Bai said.

He said that guidelines released by the Supreme People's Court in December should increase transparency and judicial predictability and lower litigation costs. Among other things, the court created a private cause of action for the malicious assertion of invalid patents.

The guidelines "are offering a glimmer of hope in my mind for better IP enforcement in China," he said.

China has undertaken robust steps in recent years to combat IP infringement, including an ongoing revision of its copyright laws, said Fuli Chen, IP ombudsman for the Chinese Embassy in Washington, D.C.

In 2011, more than 1,400 websites dealing in counterfeit goods were shut down by Chinese authorities, hundreds of cases were referred to judicial authorities, and IP infringers were fined a total of 1.5 billion RMB ($238 million), he said.

Chief Judge Randall Rader of the Federal Circuit said that is important for U.S. judges to pay attention to litigation developments in China and other countries because patents, trademarks and copyrights are subject to international treaty obligations where the rules are similar across national borders.

"Technology knows no boundaries, products know no boundaries and information knows no boundaries," he said.

While some politicians and judges have argued that it is never appropriate for American courts to consider foreign law in making decisions, that argument "is completely irrelevant to the application of legal principles in commercial law," Rader said.

"Not to take cognizance of what is happening in other jurisdictions would be irresponsible," he said, since it is important to know whether foreign rulings may have implications for the U.S.

Judge Denny Chin of the Second Circuit, who was born in Hong Kong and moved to the U.S. at the age of two, visited Asia for the first time last month to speak at law schools in China and Korea. He said he was struck by the level of sophistication Chinese law students had about American courts and recalled that the first question he was asked concerned how survey evidence is treated in Daubert motions.

Chin cautioned U.S. practitioners against having an overly simplistic view of China's approach to intellectual property enforcement.

"China is having the same struggle we are over how to balance the rights of copyright holders with the rights of users," he said.