SPC Issues Judicial Interpretation of Evidence in Civil Intellectual Property Lawsuits
On 9 November 2020, the Judicial Committee of the PRC Supreme People’s Court adopted the Several Provisions of the Supreme People’s Court on Evidence for Civil Lawsuits Involving Intellectual Property (“Provisions”). The Provisions took effect on 18 November 2020.
Introduction
In recent years intellectual property (“IP”) protection has become a focus of legislature development in China in order to encourage creations and inventions and to reinforce protection of IP rights. In February 2018, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council (jointly the “General Offices”) issued the Opinions on Several Issues Concerning Strengthening Reform and Innovation in the Field of Intellectual Property Trials, requesting establishment of litigation evidence rules in line with the characteristics of intellectual property cases. In November 2019, the General Offices issued the Opinions on Strengthening the Protection of Intellectual Property Rights, requesting the establishment of judicial interpretations of IP related civil litigation evidence rules. Following the trend to improve evidence rules for IP litigations in China, the Supreme People’s Court promulgated the Provisions in order to alleviate the situation where IP right holders are confronted with “difficulties in burden of proof, lengthy process, high costs and low compensation” while seeking to defend their rights.
Key Aspects of the Provisions
The Provisions provide practical guidance on the following five key aspects:
- Adjusting the burden of proof between the parties;
- Improving the evidence preservation procedure;
- Elaborating the expert testification procedure;
- Intensifying the protection of trade secret or other confidential business information contained in evidence;
- Clarifying the reference for calculation of damages and royalty.
Adjusting the Burden of Proof between the Parties
The Provisions adjust the burden of proof between two parties by simplifying or alleviating the right holder’s burden of proof while intensifying the accused infringer’s burden of proof.
a) Special rules for shifting the burden of proof extended to cases involving a non-new product manufactured by a patented process
According to Article 64 of the PRC Civil Procedure Law, the general rule of burden of proof is that the party who makes a claim is responsible for proving the claim. Article 61 of the PRC Patent Law is an exception of this general evidence rule as it shifts the burden of proof to the accused infringer as long as the right holder renders preliminary proof of infringement, but such exception is only applicable to cases involving a patented process facilitating the manufacture of a new product.
Article 3 of the Provisions provides for an extension of the application scope of Article 61 of the PRC Patent Law. It stipulates that the shift of burden of proof is also applicable to non-new product patent infringement cases. Therefore, the Provisions intensify the burden of proof of the accused infringer for all infringing cases involving products manufactured by patented process. According to Article 3 of the Provisions, upon completion of the burden of proof by the plaintiff to prove the following facts, the People’s Court may require the defendant to provide evidence to prove that its product manufacturing process is different from the patented process:
- The product manufactured by the defendant and the product manufactured by using the patented process are the same product;
- The product manufactured by the defendant is more likely to be manufactured by using the patented process; and
- The plaintiff has made reasonable efforts to prove that the defendant uses the patented process.
b) Requirements on the defendant to provide detailed information to satisfy the burden of proof for legitimate source defense
According to Article 4 of the Provisions, the defendant shall provide evidence regarding the legitimate purchasing channel, reasonable price and direct suppliers, etc., if claiming the legitimate source defense. Article 70 of the PRC Patent Law, Article 64 of the PRC Trademark Law and Article 53 of the PRC Copyright Law all provide the legitimate source defense for the defendant, but do not make further interpretation of the evidence requirement for legitimate source defense. Therefore, the Provisions enhance the burden of proof of a defendant who raises the legitimate source defense and may help to detect further upstream infringers who knowingly sell the infringing products.
c) Admission of anonymously purchased infringing products as evidence
In IP infringement cases, the collection of infringement evidence is often difficult because many infringers are highly alert of right holders’ enforcement actions and would become more covert upon notice. Therefore, it is common practice for right holders to purchase or notarize the purchase of the infringing products in the name of an ordinary purchaser in order to discover or prove infringements.
The admission of such evidence previously was an unsettled issue. According to Article 106 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China (“Interpretation of Civil Procedure Law”), any evidence obtained by means which damage others’ legitimate rights, violate prohibitive provisions of laws or violate public morality principles would be inadmissible. Considering the anonymous purchase or notarization of such purchase is likely to infringe upon others’ privacy rights or violate public morality principles, the admission of such evidence was problematic.
Article 7 of the Provisions now recognizes the admission of anonymously purchased infringing products if the accused infringement is not solely based on the evidence aforesaid.
d) Exemption from notarization and certification procedures for extraterritorial evidence
According to Article 8 and Article 9 of the Provisions, the following specific evidence formed outside the territory of China (“Foreign Evidence”) is admissible without notarization or legalization:
- Evidence confirmed by an effective judgment of a People’s Court;
- Evidence confirmed by an effective arbitration award;
- Publications and patent documents which can be obtained through official or public channels;
- Evidence that can be verified by other evidence;
- Evidence the authenticity of which was clearly acknowledged by the party who raises the objection;
- Evidence the authenticity of which has been confirmed by a witness providing testimony and the witness clearly stated that he or she is willing to accept punishment in the event of perjury.
Regarding the current formality requirements for Foreign Evidence, Article 16 of the Several Provisions of the Supreme People's Court on Evidence in Civil Proceedings (“Provisions on Civil Procedure Evidence”) generally requires notarization of foreign evidence and specifically requires legalization for foreign evidence regarding identity. The Provisions exempt the above listed narrow types of Foreign Evidence from notarization or legalization requirements. Right holders shall follow the Provisions to submit Foreign Evidence because Article 33 of the Provisions stipulates that it shall prevail over the relevant judicial interpretations previously promulgated by the Supreme People’s Court.
e) Mandatory submission order of evidence controlled by the other party
Previously, according to Article 112 of the Interpretation of Civil Procedure Law, mandatory submission orders of relevant evidence was limited to documentary evidence. Article 24 of the Provisions enlarges the scope of mandatory submission orders of evidence controlled by the other party to include physical evidence, audio-visual recordings, electronic data, etc. This relieves the claiming party’s burden of evidence collection to some degree.
Improving the Evidence Preservation Procedure
a) Balancing the two parties’ interests when carrying out evidence preservation procedure
Article 11 of the Provisions provides the four factors to be taken into consideration for application of evidence preservation and emphasizes the necessity requirement and the possible negative effects on the evidence holder:
- Whether the applicant has provided preliminary evidence for its claim;
- Whether the evidence can be collected by the applicant on its own;
- The possibility of destruction of evidence, or the likelihood of unavailability in the future and the possible effects on the determination of key facts to be proved;
- The effect of the possible preservation measures on the evidence holders.
Article 12 of the Provisions further reflects the People’s Courts’ specific concern for evidence holders. It stipulates that the evidence preservation procedure shall minimize the damage to the value of the preserved items and disruption of the ordinary operation of the evidence holders’ businesses.
b) Discretional admission of preserved evidence in case waived by the applicant
Article 18 of the Provisions creatively gives the People’s Courts discretion to admit preserved evidence if the applicant waives the use of the preserved evidence, provided that the evidence is relevant to determine the basic facts of the case or any other parties concerned claim for use of the evidence. The rule is mainly designed to deter the applicant from abusing evidence preservation procedures, such as disrupting the other party’s ordinary operation of business.
c) Harsh punishment for violation of mandatory rules regarding evidence submission and evidence preservation
Generally, the Provisions establish basic punishment measures by reference to Article 111 of the PRC Civil Procedure Law, which prescribes various administrative or even criminal penalty for forging or destroying important evidence, etc.
In addition, Articles 13 and 14 of the Provisions stipulate that the party concerned shall bear the adverse consequences in the event of the party’s refusal to cooperate, obstruction of evidence preservation and destruction of preserved evidence. Similarly, according to Article 25 of the Provisions, if one party refuses to submit, submits false evidence or destroys the evidence under mandatory evidence submission order, the People’s Court may presume the claim of the other party as true regarding the specific evidence.
Elaborating the Expert Testification Procedure
a) Factual issues available for expert testification in IP cases
Articles 76 to 79 of the Provisions on Civil Procedure Evidence set up the general expert testification procedure in civil proceedings. However, more detailed clarification for the scope of expert testification is needed for IP cases due to the large amount of technical and professional issues involved.
Therefore, Article 19 of the Provisions provides that the following specific factual issues to be proved are available for expert testification:
- Similarities and differences in the corresponding technical features between the accused technical solution and the patented technical solution or the prior art in terms of means, function, effect, etc.;
- Similarities and differences between the accused work and the work for which the rights are claimed;
- Similarities and differences between the claimed trade secret and the information already known to the public in the relevant field, and the similarities and differences between the accused infringing information and the claimed trade secret;
- Similarities and differences in features and characteristics between the accused infringing item and the authorized variety, and whether such differences are caused by non-genetic variation;
- Similarities and differences between the accused infringing integrated circuit layout design and the integrated circuit for which protection is sought;
- Whether the technology involved in the contract is defective;
- Authenticity and completeness of the electronic data; and
- Other specialized issues for which the expert witness need to be entrusted.
b) Involvement of testing agencies in the expert testification procedure
The expert witnesses sometimes need advanced testing equipment or devices to solve complicated technical problems in order to perform the tests. Therefore, Article 20 of the Provisions is specially designed to allow the expert witnesses to entrust another testing agency (such as scientific research institutions, labs or universities, etc.) to carry out testing on relevant issues with the permission of the People’s Court or the consent of both parties.
c) Selection procedure of expert witnesses and agencies for specific fields
Considering the rapid development of technologies, there are no unified registration and management systems for expert testification in many fields. Under such circumstances, Article 21 of the Provisions incorporates the selection procedure of Article 32 of Provisions on Civil Procedure Evidence, i.e. the selection will be determined in accordance with the parties’ negotiation and if the negotiation fails, the People’s Court shall designate experts with appropriate qualifications.
Intensifying the Protection of Trade Secrets or Other Confidential Business Information Contained in Evidence
The Provisions intensify the protection of trade secrets in litigation from two aspects, i.e. the confidentiality measures that can be taken by the People’s Courts and the restriction on the scope of persons with access to relevant evidence.
According to Article 26 of the Provisions, the People’s Court shall order the relevant litigation participants to sign a confidentiality agreement or issue legally binding documents to order the participants not to disclose, use or allow others to use the confidential information involved in the evidence for any purpose other than the litigation before the participants have access to such confidential information during trial. Where the participants apply to restrict the scope of persons who may have access to the afore-mentioned evidence, the People’s Courts shall approve such application if it deems necessary to do so upon examination.
Any leakage of confidential evidence may be subject to the administrative or criminal penalty under Article 111 of the PRC Civil Procedure Law.
Clarifying the Reference for Calculation of Damages
a) Reliable reference for damages calculation
Article 31 of the Provisions provides detailed guidance on the reliable evidence for proof of damages, i.e.:
- Financial account books;
- Accounting vouchers;
- Sales contracts;
- Purchase and delivery documents;
- Listed companies’ annual reports;
- Prospectuses;
- Websites or brochures provided by the parties concerned;
- Transaction data stored in equipment systems;
- Commodity circulation data collected by third-party platforms;
- Evaluation reports;
- IP license contracts and records of market supervision, taxation and financial authorities, etc.
b) Practical factors for reviewing evidence regarding royalty of IP
According to Article 65 of the PRC Patent Law, Article 54 of the PRC Copyright Law and Article 63 of the PRC Trademark Law, the reasonable multiple of the royalty of the claimed IP is the back-up method of damages calculation if the loss suffered by the right holder or profit obtained by the infringer is hard to ascertain.
However, the biggest challenge of applying this method of damages calculation was to determine the reasonable royalty in practice, because there was no legal standard or guidance. Article 32 of the Provisions provides the following factors for evaluating the relevant evidence regarding royalty:
- Whether the royalty has been actually paid and the payment method;
- Whether the license contract has been performed or filed for record;
- The content, method, scope and term of the IP license;
- Whether there are other special relationships between the licensee and the licensor; and
- The general standards for licensing in the industry.
Conclusion
In summary, the Provisions provide practical and specific guidance for evidence rules in IP litigations, especially focusing on evidence submission, evidence preservation, deterrence from violation of evidence rule, experts testification, protection of confidential evidence and calculation of damages. We expect that the Provisions will be of great significance in practice, that they will alleviate the burden of proof of right holders and contribute to a more efficient and fair procedure for exchange of evidence in IP litigations.
