China Law Insight : China Business and Intellectual Property Lawyers & Attorneys : King & Wood Law Firm : IP, Arbitration, Litigation, Securities, Foreign Investment

In the Opinion, the Supreme People's Court notes that if, “[t]he injunctive order, if granted, would significantly harm the interests of one of the parties concerned; or is contrary to the public interest; or would be impractical to enforce, the Court may, after considering the specific circumstances of the particular case, not grant the injunctive relief, but instead settle the dispute by awarding sufficient compensation, economic damages or through other alternative means.”
 

Traditionally, injunctive relief was available in all cases where infringement is established. The abovementioned guidelines offered by the Opinion will likely change such commonly-accepted practices under the premise of economic stability. The Supreme People's Court also emphasized that the courts shall evaluate the losses suffered by the rights holder and award damages so as to sufficiently compensate for such losses. The Supreme People’s Court proposes to strike a balance between the public interest in economical stability and the private rights of Intellectual property right holders by suggesting that “sufficient compensation” is a viable alternative for injunctive relief.
 

As the Opinion is newly-issued, its implementation and its impact upon judicial practice in China will need to be further monitored.
 

在知识产权案件中可以经济补偿替代停止侵权
最高人民法院于2009年4月21日 发布《关于当前经济形势下知识产权审判服务大局若干问题的意见》（以下简称“意见”）。最高人民法院在该《意见》中首次明确，对于知识产权民事侵权案件，停止侵害不再是必须的救济方式。最高人民法院认为，在一定条件下，可以以合理的赔偿代替停止侵害的诉求。最高院在《意见》中指出，“如果停止有关行为可能造成当事人利益失衡，或有悖社会公共利益，或实际上无法执行，可以根据案件具体情况进行利益衡量，不判决停止有关行为，而采取更充分的赔偿或者经济补偿等替代性措施了断纠纷”。
在中国司法实践中，停止侵权通常被认为是认定侵权后必须适用的救济手段，该《意见》提出的上述指导原则很有可能突破这一传统观念，这显然与最高人民法院力图稳定既有的社会经济秩序的理念相契合。最高人民法院在该《意见》中也强调了综合评价权利人遭受的损失，并给予其足够赔偿的指导原则。通过同时运用上述原则，最高人民法院试图在维护经济秩序稳定这一公共利益和通过建议足够的经济赔偿保护权利人权益之间寻求一种平衡。
鉴于该指导意见刚刚发布，它在实践中的运用以及对具体案件的影响还有待于进一步观察。
 

B. Reinforced Administrative Protection

The New Patent Law elevates the powers previously granted to the administrative authority including the power to inquire, conduct site inspections, duplicate relevant documents, etc. Furthermore, the new article also grants new powers of attachment and seizure, which are expected to reinforce the administrative protection of patent rights.

C. Increased Responsibility of Indemnification

The maximum fine for patent counterfeiting has been raised from 3 times the value of the illegal proceeds to 4 times. In cases where there are no illegal proceeds, the maximum fine has been raised from RMB 50,000 to RMB 200,000. The New Patent Law includes a provision concerning statutory compensation between RMB 10,000 to RMB 1,000,000, which the current Patent Law does not have any provision for. According to the judicial interpretation issued by the Supreme People's Court, the maximum statutory compensation that can be granted at the court's discretion is RMB 500,000.

D. Further Perfected Judicial Protection

The New Patent Law stipulates the procedure for pre-trial injunction, which was not previously provided for in the current Patent Law nor the PRC Civil Procedure Law. The New Patent Law also stipulates the procedures for pre-trial asset preservation. Such provisions will provide clearer guidelines to courts on the relevant procedures in the future.

E. Two Newly Added Causes for Non-infringements

“Parallel Importation” is expressly permitted in the New Patent Law. The existing patent law, and also other intellectual property laws, was silent on the legality of parallel importation.

The New Patent Law also provides an exception for infringement similar to the BOLAR exception in the US, which exempts pharmaceutical companies from infringement for the manufacture, use, and import of patented drugs or medical devices for the purpose of seeking administrative approval.

Generally, the amendment of patent laws has reflected the government's efforts to curb patent infringement and to protect intellectual property. Meanwhile, the public interest and the need for a healthy and competitive market have also been taken into consideration. The enforcement of patent rights in China is has now taken a step forward in its efficiency.
 

Theoretically, the exhaustion of rights is equally applicable to software, which is a form of work. In practice, however, problems arise when the software is "licensed" to public users, since the "doctrine of exhaustion of rights" only applies to the distribution methods of "sale" or "gifting". Under such circumstances, software licensing will not trigger the exhaustion of distribution rights. However, the sale of software will inevitably involve licensing and is usually subject to software licensing agreements. Therefore, the key factor which determines whether the exhaustion of distribution rights occurs depends on when a sale of software constitutes "sale" and when it constitutes "license"; this factor also determines whether a resale of software constitutes copyright infringement. Different jurisdictions have developed their own approach towards this issue.

In the United States, for example, ProCD Corp. v. Zerdenberg, the United States Court of Appeals for the Seventh Circuit established three criteria on how to distinguish a sale activity from licensing:

1. Purchasers of mass-market software pay a single purchase price rather than a series of royalties;

2. The software publisher does not retain title to the "product" as a security interest; and

3. The rights of the licensee to the software copy are perpetual, like the rights of a purchaser pursuant to a sale

China has developed its own criteria for the applicability of the doctrine of exhaustion of rights with a reference to the theories and laws of other jurisdictions. Under Chinese criteria, the rights are exhausted if the software is distributed by way of transfer of ownership, otherwise, it should be deemed as "license" only.  On May 14, 2008, the Shanghai High People's Court rendered the final decision in respect of copyright infringement on Shanghai Shanjun Industrial Ltd., Zheng Feng v. Shanghai Jiliang Software Technology Ltd. In this case, a third party legally acquired a set of copyrighted software by Shanghai Jiliang Software Technology Ltd. ("Jiliang") and resold it to Shanghai Shanjun Industrial Ltd. ("Shanjun"). Shanjun later resold the software to another company, which is also a third party to the case. Jiliang sued Shanjun for copyright infringement.

The court held that "the copyright owner enjoys the right to distribute the original work or copies of such work by transferring proprietary rights to the public. However, once the copyrighted work or the copies are initially sold or gifted to the public under the license of the copyright owner, the copyright owner will no longer enjoy the right to control further resale of the work or its copies. In other words, the party that legally acquired the ownership of the original copyrighted work or its copies may resell or gift such work or copies or provide them to other parties without seeking further license from the copyright owner.”

The above analysis of the Court of the Second Instance has great significance for software related copyright matters in China. It not only defines the doctrine of exhaustion of distribution rights for the first time in China, but also confirms that the application of the doctrine should be determined by whether the distribution involves the change of the ownership of software. Instead of following the traditional method of merely distinguishing "sale" from ‘license", the Court instead uses a more pragmatic approach.

Perfect 10, the Plaintiff, is a publisher of an adult entertainment magazine and the owner of a pornographic website. The Plaintiff has created approximately 5,000 images of models for display on its website and magazine and holds registered copyrights for these images. However, the Plaintiff found that a large number of the images later appeared on the adult websites of its competitors.

CCBill LLC, the Defendant, and its affiliated companies, provides web hosting and online credit card payment services for such adult websites. For example, if a user wants to log-on to a particular adult website, he would need to provide his credit card number to the Defendant. Only after the Defendant contacts the credit card company on behalf of the website operator and a fee is paid will the Defendant connect the user to the gateway of the adult website.

The Defendant was found providing this service to many of the websites which posted copyrighted images. Therefore, the Plaintiff sued the Defendant and other infringing website owners ( collectively " Defendants " ) for contributory copyright infringement.

During the proceedings, the Defendant successfully argued that it only provided hyperlinks towards the infringing adult websites and, according to the Safe Harbor Principle under the Digital Millennium Copyright Act ("DMCA"), it was not liable for infringement as proper notice was not provided.

In China, a principle similar to the Safe Harbor Principle (the "Chinese Safe Harbor Principle") is established by Article 23(4) of the Regulations on the Protection of the Right of Information Network Dissemination of China (The “PRC Regulations”). Under this principle, an ISP is immune from liability if the ISP removes the links to the infringing work, performance, and audio or video products upon receiving notice from the right owner. Article 14(5) of the PRC Regulations requires the notice issued by the copyright owner to include the following information:

1) the right owner's name, contact information, and physical address;
2) the description and network address of the infringing work, performance and audio or video products that are required to be removed; and
3) the preliminary evidential materials that prove the alleged infringement.

The PRC National Copyright Administration (the "NCA") provides on its official website a standard format of the Notification for Requesting Removal or Disconnection of Internet Links which Containing Infringing Contents. This form requires information from the copyright owner such as the name, domain name and IP address of the infringing website.

Accordingly, it is clear that Chinese laws and regulations have also set forth a reasonably complete provision regarding the formality requirements of a notice by the owner. If a copyright owner fails to provide a notice that satisfies all the requirements, such notice will be regarded as ineffective. The ISP may refuse to remove or disconnect the links to the infringing content on the grounds that the information provided by the notice is incomplete.

The purpose of the Safe Harbor Principle, which defines clearly the rights and obligations of copyright owners and ISPs, is to balance the interests of the said two parties. The key point is that the Chinese courts should consider carefully whether effective notification is given by the copyright owner to the ISP, and whether the ISP removes the hyperlinks to the infringing contents promptly once the notification requirements are satisfied.

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