Bo XING
Attorney-at-Law
Attorney-at-Law
According to the relevant provisions of China’s Regulations on Customs Protection on Intellectual Property Rights, the IP right holder may request the customs to detain the suspected infringing goods. After the customs detains the suspected infringing goods, if the customs cannot determine whether the detained suspected infringing goods infringe the IP rights, the IP right holders can apply to the court for preservation; otherwise, the customs will release the detained suspected infringing goods. If the court finally denies the establishment of the infringement, the right holder of the detained goods may file a lawsuit before the court with the cause of action of the dispute over damages resulted from the application for customs protective measures on IP, requesting that the IP right holder assume the liability for damages.
In the trial of such cases, the focus of dispute often lies in whether the IP right holder is at fault in applying for customs protective measures on IP. By referring to the relevant cases, this article aims to make a brief analysis on the determination of “fault” in the application for customs protective measures on IP in such cases.
I. The mainstream view of the courts is that the principle of liability for fault applies to the disputes over the liability for the damages resulted from the application for customs protective measures on IP
The Paragraph 2 of Article 28 of Regulations on Customs Protection on Intellectual Property Rights provides that, after the IP rights holder requests the customs to detain the suspected infringing goods, if the customs cannot determine that the detained suspected infringing goods infringe the IP rights of the rights owner or if the people’s court determines that the IP rights have not been infringed, the IP rights holder shall be liable for compensation.
Upon searching the relevant cases, it is found that most of the courts held that principle of liability for fault applies to the dispute over damages resulted from the application for customs protective measures on IP. In the judgment (2022) Zhejiang Civil Final No. 483, Zhejiang High People's Court held that the liability for damages is based on the principle of liability for fault. And the laws and regulations or relevant judicial interpretations involving the application for property preservation and customs protective measures do not explicitly specify that these two types of liability are no-fault liability, therefore, the principle of liability for fault prescribed in the first paragraph of Article 165 of the Civil Code of the People's Republic of China should be applied in the determination of whether the perpetrator shall bear the liability.
II. Adjudication thinking of the determination of whether there is “fault” in the application for customs protective measures on IP in judicial practice
In judicial practice, local courts hold different views in whether there is “fault” in the application for customs protective measures on IP, which can be summarized as the following two kinds of adjudication thinking:
Adjudication thinking A: The determination of fault in the IP right holder’s application depends on whether the detained goods are ultimately determined by either the customs or the court to constitute infringement. In the event that the detained goods are determined non-infringing, it shall be determined that the IP right holder is at fault for the application.
In the judgment (2021) Zhejiang 02 Civil Final No. 1792, the court of first instance, Beilun District People's Court of Ningbo City, Zhejiang Province, opined that the key to the determination of fault in the IP right holder’s application depends on whether the detained goods are ultimately determined by either the customs or the court to constitute infringement. If this is not the case, it signifies that the applicant lacks a valid legal basis, thereby rendering the application improper. The determination of improper application is subject to a delay, as it may not become evident at the time of filing the application, but rather when the customs or judicial authorities render a valid decision regarding trademark infringement. The applicant's perception of the risk of potential damages resulting from wrongful application has been expressly acknowledged and accepted at the time of application, as well as within the applicant's subjective awareness at the time of application. The subjective state of the applicant, who knowingly files the application despite being aware of the associated risks, cannot be deemed as subjectively negligent at this stage, subject to the objectively pending determination of the infringement. In the case where the claim of infringement is ultimately found to lack support in the judicial proceeding, it may be determined that the applicant is at fault. The court of second instance, The Ningbo Intermediate People's Court of Zhejiang Province, sided with the view of the court of first instance.
Adjudication thinking B: The evaluation of whether the IP right holder has fulfilled their duty of reasonable care in seeking the detention of the goods shall be conducted on a case-by-case basis, taking into account the specific circumstances. A comprehensive determination shall be made regarding whether the IP right holder is at fault in the matter.
In the case of Shenzhen Xinxinglong Plastic Products Co., Ltd v. Shenzhen Xinba Technology Co., Ltd, the court rendered its judgment (2020) Yue 03 Civil Final No. 6586. Shenzhen Xinba Technology Co., Ltd, alleged trademark infringement as the IP right owner in another case, but the court found that this allegation lacked support. Consequently, Shenzhen Xinxinglong Plastic Products Co., Ltd, as the owner of the goods, initiated the present lawsuit. In the present matter, the Shenzhen Intermediate People's Court, after duly considering the relevant circumstances, determined that Shenzhen Xinba Technology Co., Ltd. did not possess the subjective intent to infringe upon the lawful rights and interests of the respondent, nor did it exhibit gross negligence in this regard. Furthermore, the Court found that Shenzhen Xinba Technology Co., Ltd. objectively fulfilled the duty of care expected of ordinary individuals. Consequently, the Court concluded that Shenzhen Xinba Technology Co., Ltd. bears no fault and, in accordance with the law, is not liable for any damages.
In the judgment (2022) Zhejiang Civil Final No.483, the patent infringement allegations of the IP rights owner, Jia Bao Company, were not upheld by the court in another case, and the interested parties filed the present lawsuit. In present case, the Zhejiang High People's Court held that to determine whether the applicant is at fault, it should examine whether the applicant has fulfilled the duty of reasonable care based on the specific circumstances of each case. In particular, the interests of both the applicant and the respondent shall be duly and equitably weighed, ensuring that the applicant is not unduly burdened with an excessive duty of care in seeking the aforementioned measures to safeguard their lawful rights and interests. Furthermore, the applicant shall not be permitted to seek or exploit said measures to the detriment of the respondent. Generally speaking, the greater the potential impact on the respondent's interests, the higher the applicant's duty of care in the application process should be and the more prudent the application should be. In addition, in patent infringement disputes, the factors to be considered in determining whether the applicant for property preservation or customs protective measures has fulfilled the duty of reasonable care include: the stability of the patent right itself, whether the amount of the property applied for preservation or the scope of the goods applied for detention is reasonable, whether the specific measures applied for preservation are appropriate, etc.. Firstly, the patent owned by Jiabao Company is an invention patent, which has gone through the substantive examination in the grant procedure, and the validity has been upheld by the invalidation examination decision, which indicates a relatively strong stability of its rights. Secondly, the scope of objects and specific measures of property preservation and customs protective measures applied by Jiabao Company were not evidently improper. Therefore, in view of the limited influence of the property preservation and customs protective measures, the applicant cannot be inferred to be at fault for infringement merely because the applicant had a general awareness that its actions might cause damage to the other party at the time of application. It is difficult to find that Jiabao Company was at fault in the process of applying for property preservation and customs protective measures based on the evidence on file, therefore Jiabao Company cannot be held liable for any damages.
The dispute over damages resulted from the application for customs protective measures on IP mostly involves OEM or patent infringement and other more complex infringement determinations, the author believes that: in such cases, it is inappropriate to impose an excessively high standard of care upon the IP right holder. In determining whether there is a fault in the application of IP rights holder, a judgment of whether the right holder has fulfilled the duty of reasonable care should be made based on specific circumstances of the case.
III. Suggestions for IP right holders
The assessment and determination of potential infringement should be conducted by IP right holders in a prudent manner prior to applying for the customs detention of goods. In the event that the detained goods are ultimately determined by the customs or the court to not constitute the infringement, and if the right holder of the detained goods files a lawsuit against the IP right holder before the court, claiming that the IP right holder is liable for damages, the IP right holder may make the defense that it has fulfilled the duty of reasonable care when applying for the detention of the goods.
In the trial of such cases, the focus of dispute often lies in whether the IP right holder is at fault in applying for customs protective measures on IP. By referring to the relevant cases, this article aims to make a brief analysis on the determination of “fault” in the application for customs protective measures on IP in such cases.
I. The mainstream view of the courts is that the principle of liability for fault applies to the disputes over the liability for the damages resulted from the application for customs protective measures on IP
The Paragraph 2 of Article 28 of Regulations on Customs Protection on Intellectual Property Rights provides that, after the IP rights holder requests the customs to detain the suspected infringing goods, if the customs cannot determine that the detained suspected infringing goods infringe the IP rights of the rights owner or if the people’s court determines that the IP rights have not been infringed, the IP rights holder shall be liable for compensation.
Upon searching the relevant cases, it is found that most of the courts held that principle of liability for fault applies to the dispute over damages resulted from the application for customs protective measures on IP. In the judgment (2022) Zhejiang Civil Final No. 483, Zhejiang High People's Court held that the liability for damages is based on the principle of liability for fault. And the laws and regulations or relevant judicial interpretations involving the application for property preservation and customs protective measures do not explicitly specify that these two types of liability are no-fault liability, therefore, the principle of liability for fault prescribed in the first paragraph of Article 165 of the Civil Code of the People's Republic of China should be applied in the determination of whether the perpetrator shall bear the liability.
II. Adjudication thinking of the determination of whether there is “fault” in the application for customs protective measures on IP in judicial practice
In judicial practice, local courts hold different views in whether there is “fault” in the application for customs protective measures on IP, which can be summarized as the following two kinds of adjudication thinking:
Adjudication thinking A: The determination of fault in the IP right holder’s application depends on whether the detained goods are ultimately determined by either the customs or the court to constitute infringement. In the event that the detained goods are determined non-infringing, it shall be determined that the IP right holder is at fault for the application.
In the judgment (2021) Zhejiang 02 Civil Final No. 1792, the court of first instance, Beilun District People's Court of Ningbo City, Zhejiang Province, opined that the key to the determination of fault in the IP right holder’s application depends on whether the detained goods are ultimately determined by either the customs or the court to constitute infringement. If this is not the case, it signifies that the applicant lacks a valid legal basis, thereby rendering the application improper. The determination of improper application is subject to a delay, as it may not become evident at the time of filing the application, but rather when the customs or judicial authorities render a valid decision regarding trademark infringement. The applicant's perception of the risk of potential damages resulting from wrongful application has been expressly acknowledged and accepted at the time of application, as well as within the applicant's subjective awareness at the time of application. The subjective state of the applicant, who knowingly files the application despite being aware of the associated risks, cannot be deemed as subjectively negligent at this stage, subject to the objectively pending determination of the infringement. In the case where the claim of infringement is ultimately found to lack support in the judicial proceeding, it may be determined that the applicant is at fault. The court of second instance, The Ningbo Intermediate People's Court of Zhejiang Province, sided with the view of the court of first instance.
Adjudication thinking B: The evaluation of whether the IP right holder has fulfilled their duty of reasonable care in seeking the detention of the goods shall be conducted on a case-by-case basis, taking into account the specific circumstances. A comprehensive determination shall be made regarding whether the IP right holder is at fault in the matter.
In the case of Shenzhen Xinxinglong Plastic Products Co., Ltd v. Shenzhen Xinba Technology Co., Ltd, the court rendered its judgment (2020) Yue 03 Civil Final No. 6586. Shenzhen Xinba Technology Co., Ltd, alleged trademark infringement as the IP right owner in another case, but the court found that this allegation lacked support. Consequently, Shenzhen Xinxinglong Plastic Products Co., Ltd, as the owner of the goods, initiated the present lawsuit. In the present matter, the Shenzhen Intermediate People's Court, after duly considering the relevant circumstances, determined that Shenzhen Xinba Technology Co., Ltd. did not possess the subjective intent to infringe upon the lawful rights and interests of the respondent, nor did it exhibit gross negligence in this regard. Furthermore, the Court found that Shenzhen Xinba Technology Co., Ltd. objectively fulfilled the duty of care expected of ordinary individuals. Consequently, the Court concluded that Shenzhen Xinba Technology Co., Ltd. bears no fault and, in accordance with the law, is not liable for any damages.
In the judgment (2022) Zhejiang Civil Final No.483, the patent infringement allegations of the IP rights owner, Jia Bao Company, were not upheld by the court in another case, and the interested parties filed the present lawsuit. In present case, the Zhejiang High People's Court held that to determine whether the applicant is at fault, it should examine whether the applicant has fulfilled the duty of reasonable care based on the specific circumstances of each case. In particular, the interests of both the applicant and the respondent shall be duly and equitably weighed, ensuring that the applicant is not unduly burdened with an excessive duty of care in seeking the aforementioned measures to safeguard their lawful rights and interests. Furthermore, the applicant shall not be permitted to seek or exploit said measures to the detriment of the respondent. Generally speaking, the greater the potential impact on the respondent's interests, the higher the applicant's duty of care in the application process should be and the more prudent the application should be. In addition, in patent infringement disputes, the factors to be considered in determining whether the applicant for property preservation or customs protective measures has fulfilled the duty of reasonable care include: the stability of the patent right itself, whether the amount of the property applied for preservation or the scope of the goods applied for detention is reasonable, whether the specific measures applied for preservation are appropriate, etc.. Firstly, the patent owned by Jiabao Company is an invention patent, which has gone through the substantive examination in the grant procedure, and the validity has been upheld by the invalidation examination decision, which indicates a relatively strong stability of its rights. Secondly, the scope of objects and specific measures of property preservation and customs protective measures applied by Jiabao Company were not evidently improper. Therefore, in view of the limited influence of the property preservation and customs protective measures, the applicant cannot be inferred to be at fault for infringement merely because the applicant had a general awareness that its actions might cause damage to the other party at the time of application. It is difficult to find that Jiabao Company was at fault in the process of applying for property preservation and customs protective measures based on the evidence on file, therefore Jiabao Company cannot be held liable for any damages.
The dispute over damages resulted from the application for customs protective measures on IP mostly involves OEM or patent infringement and other more complex infringement determinations, the author believes that: in such cases, it is inappropriate to impose an excessively high standard of care upon the IP right holder. In determining whether there is a fault in the application of IP rights holder, a judgment of whether the right holder has fulfilled the duty of reasonable care should be made based on specific circumstances of the case.
III. Suggestions for IP right holders
The assessment and determination of potential infringement should be conducted by IP right holders in a prudent manner prior to applying for the customs detention of goods. In the event that the detained goods are ultimately determined by the customs or the court to not constitute the infringement, and if the right holder of the detained goods files a lawsuit against the IP right holder before the court, claiming that the IP right holder is liable for damages, the IP right holder may make the defense that it has fulfilled the duty of reasonable care when applying for the detention of the goods.