Perceptions (and Misperceptions) of IPR Lawsuits in the P.R.C.
There is no question that many foreign companies operating in the People’s Republic of China struggle with the protection of their intellectual property rights ("IPR"). The concerns of companies with protecting their valuable IPR in a developing country such as the P.R.C. are legitimate and serious. Though many of the executives and attorneys of these companies may view themselves as "old China hands" and have many years of experience in fighting to protect their IPR in the P.R.C., many more are relative newcomers to China and their views of IPR protection are shaped by not only their own experience, but by the perceptions of others, which may or may not be valid. For instance, some overseas business executives or legal counsel on occasion may voice their view that pursuing litigation as a foreign firm against a P.R.C. company over an alleged infringement in a P.R.C. court is a waste of time and money, as either they have little chance of prevailing, or, if they should prevail, the damages awarded will be so small as to not provide any substantive deterrent. Though every alleged infringement is case-specific, it is, however, useful to separate the perceptions (and misperceptions) from the realities of foreign-related IPR litigations in the P.R.C.
The Reality of Foreign-related IPR Lawsuits in the P.R.C.
As recently reported by Kong Xiangjun, President of the Intellectual Property Tribunal under the Supreme People’s Court of the P.R.C. (hereinafter also referred to as the "SPC"), in the first eleven (11) months of 2010, 1,057 foreign-related cases of IPR infringement (including cases where the plaintiff and/or the defendant were foreign entities) were handled by P.R.C. courts.1 To determine what this means to a foreign company with IPR issues in China, one must look deeper at this number. These 1,057 cases represent less than 3% of the 39,913 IPR cases heard during this time period.2 It is important for foreign companies to understand that the vast majority of IPR cases brought are done so by Chinese entities. If domestic entities did not perceive that P.R.C. courts would fairly and equitably mete out justice, it would be hard to explain such a large number of cases brought or the 64% year over year jump in the number of cases. 3
This still begs the question, however, of whether a foreign firm can obtain "justice" in a P.R.C. court with a claim of IPR infringement? In most cases, "justice" is in the form of winning the case and getting the relief sought or, alternatively, successfully defending oneself against perceived unfair claims. Statistics from the SPC note that “claims of foreign firms were given support or partial support in 55.2% of the 2,691 foreign-related IPR cases handled by the P.R.C. courts between 2006 and October 2010.4 These statistics would seem to indicate that foreign plaintiff "win rates" in China may often compare favorably with "win rates" in overseas jurisdictions. As claimed by Kong Xiangjun, “Chinese courts protect foreign enterprises as vigilantly as they do domestic businesses."5 As to whether such "vigilant"6 "protect[ion]"7 truly exists in P.R.C. courts for foreign entities in IPR lawsuits before said courts, the above "win rate" would seem to indicate that a "win" or a ‘loss" in a IPR case is far from a foregone conclusion and that the lawsuit will, as it should, be decided on its merits.
Beyond “win rates”, there is also the issue of damage awards. The average amount involved in the 2010 IPR cases noted above is the RMB equivalent of approximately $USD 24K.8 Larger damage awards in IPR cases are, however, becoming more common in the P.R.C, such as the recent award of the RMB equivalent of over $USD 300K to Microsoft, in its suit against Chinese insurance company, Dazhong Insurance 9 or the RMB equivalent of a multi-million dollar award to Chint (a Chinese company) in its suit against Schneider Electric (later settled) 10. The latter case has gained prominence because it not only signifies what some perceive as a shift towards larger damage awards in IPR cases in China, but also highlights the increasing number of cases brought by Chinese entities against foreign parties in IPR disputes before P.R.C. courts. In a world where, for instance, Oracle can receive a $USD 1.3 billion dollar jury award in U.S. court in a copyright infringement dispute 11, such levels of damage claims/awards as seen in the P.R.C. may seem small by comparison, but they do show that P.R.C. courts are willing to, when warranted, grant substantial damage awards. And, as seen in the Chint case noted above, those substantial damage awards may very well be awarded by P.R.C. courts against foreign, as well as domestic, entities.
It must be rightly noted that there do, under certain circumstances, exist challenges in the P.R.C. in having IPR court judgments enforced. Factors impacting the enforceability of a judgment will vary but are, in many cases, similar to challenges faced in enforcing judgments in other developing countries. In most IPR cases, it is injunctive relief, i.e. stopping the infringement, which is the primary concern and an infringer with nationwide operations, for instance, can present an enforcement challenge. The Enforcement Divisions of P.R.C. courts, however, upon final judgment stand ready to provide enforcement support in this regard, as well as in enforcing damage awards.
The numbers noted above as provided by the SPC indicate that foreign rights holders bringing suit in the P.R.C. can, depending on the strength of their specific cases, obtain positive rulings in IPR infringement cases before the P.R.C. courts. This is not to say that all perceptions as they pertain to IPR protection by the P.R.C. judicial system are incorrect (or correct, for that matter), but simply that looking at statistics associated with the many IPR cases before the P.R.C. courts may provide valuable insights into the overall reality of the system. As always, however, statistics on past cases only provide a part of the picture and each prospective case should be evaluated based upon its merits.
1.Zhang Yan and Wang Jingqioung, China Daily, “IPR cases jump as awareness increases”, December 15, 2010, pg. 1
9.Global Times, “Microsoft wins software piracy suit in China”, Apr. 23, 2010, found at http://business.globaltimes.cn/industries/2010-04/525352.html (last visited on December 27, 2010).
10.China Daily, “French electrical firm pay $23m for IPR violation”, Apr. 16, 2009, found at http://www.chinadaily.com.cn/cndy/2009-04/16/content_7681483.htm (last visited on Dec. 27, 2010).
11.Cari Tuna, Wall Street Journal, “Oracle wins $1.3 billion”., Nov. 25, 2010, found at http://online.wsj.com/article/SB30001424052748704369304575633150256505376.html (last visited on December 27, 2010).