On 22 June 2016, the Guangzhou Intellectual Property Court granted a preliminary injunction to French designer brand Christian Louboutin as per its request, ordering Guangzhou Verteam Trade Co to stop manufacturing, selling and offering for sale nine infringing lipsticks, and ordering Guangzhou Benefit Cosmetics Co to stop manufacturing the infringing goods. This is the first preliminary injunction issued by the Guangzhou IP Court and also the first preliminary injunction issued with regard to patent infringement since the establishment of specialised IP courts in China in late 2014.
In issuing the injunction, the Guangzhou IP Court took the following six factors into consideration: (i) whether the patents at issue were valid and stable; (ii) whether the ongoing activities of the respondents were infringing the patents; (iii) whether the rights holder’s interests would be irreparably damaged if no injunction were issued; (iv) whether the loss incurred to the respondents by the issuance of the injunction would be smaller than or equivalent to the loss caused to the rights holder if no injunction is issued; (v) whether the injunction would harm public interests; and (vi) whether the rights holder afforded an effective and proper bond.
It is believed that this injunction from the Guangzhou IP Court will herald stronger protection for IP rights in China.
In 2015, Christian Louboutin was granted three Chinese design patents (ZL201430483611.7, ZL201430484500.8, ZL201430484638.8). The three designs relate to the same lipstick and are respectively designs of the lid, the tube and the whole lipstick. Christian Louboutin planned to enter the Chinese market in 2016. Unfortunately, earlier this year, before releasing its products in China, Christian Louboutin found that Verteam and Benefit were manufacturing, selling and offering for sale nine types of lipstick with identical designs protected by the above patents.
Christian Louboutin believed that Verteam and Benefit were manufacturing products that infringed its patent rights in large quantities and were planning to distribute them in China. Christian Louboutin would suffer irreparable damage if such activities were not stopped. As a result, Christian Louboutin requested the Guangzhou IP Court to order the respondents to stop the infringing activities immediately, before Christian Louboutin took legal action against the infringement.
The Guangzhou IP Court issued the injunction as per Christian Louboutin’s request, taking into consideration the following six aspects when deciding whether to issue the injunction or not.
Whether the patents at issue are valid and stable
A prerequisite for obtaining an injunction is that the patent at issue is valid and stable. Article 4 of the Supreme Court’s Judicial Interpretation on Preliminary Injunction (2001) provides that a patent owner seeking a preliminary injunction should supply evidence proving its patent’s validity, such as a patent certificate, claims and description of the patent, or receipts of annuity payment and so on. As for a design (or utility model) patent, as it is not examined substantively, the patent owner should also provide an evaluation report on patentability of the design patent issued by the Patent Reexamination Board (PRB) of the State IP Office, or a decision affirming the validity of the design patent issued by PRB or a court, so as to prove that the design patent is valid, stable and therefore enforceable.
In this case, Christian Louboutin submitted notifications of allowance, copies of patent register, and evaluation reports on the three design patents at issue. It was therefore proven that Christian Louboutin was the rights holder of the patents and eligible to request the injunction. Moreover, the validity of the patents was not challenged since their issuance, showing that the patents are valid and stable.
Whether the ongoing activities of the respondents were infringing the patent at issue
A court handling a request for injunction will order a respondent to stop its infringing activities only when it considers that there is the possibility that such activities will be infringing. On the other hand, in evaluating the ongoing or soon-to-be-performed activities of the infringer, as long as the court considers that infringement possibly exists, it can decide to issue an injunction.
In this case, both the alleged infringing products and the patents at issue belonged to the same product class and had the same or similar designs. Based on existing evidence, it was decided that it was likely that the respondents were infringing the patents at issue.
Whether the rights holder’s lawful rights interests will be irreparably damaged if no injunction is issued
Preliminary injunctions are considered a severely proactive remedy. Considering the nature of this, Chinese courts believe that there is no need to issue an injunction in the case that the reputation of a rights holder is not harmed, or that damages may be calculated precisely and a respondent has the ability to pay them, meaning that the losses incurred by the rights holders may be compensated after an effective decision is reached when the case is closed.
However, during patent enforcement, the rights holder’s interests will be irreparably damaged if no injunction is issued under the following circumstances: (i) the reputation of the rights holder is being harmed; (ii) the infringer is financially unable to pay the damages; and (iii) the damages cannot be determined.
It is considered impossible to determine damages if any of the following scenarios exist: (i) losses caused by a decrease in price and market share are difficult to calculate; (ii) damages to be borne by each infringer are difficult to calculate when there are several infringers; and (iii) a rights holder faces much difficulty in increasing a reduced price to an original level due to malicious competition from an infringer.
Generally, after winning a case, a rights holder should have its losses compensated. However, the rights holder might not get enough compensation if the infringer does not have enough compensating capability or not compensated at all if the infringer does not have a definite domicile. In these cases, if the infringer’s activities were not stopped, originally avoidable losses suffered by the rights holder would become irrecoverable. In this particular case, the respondents didn’t provide evidence to show their financial status and profitability as to make it possible to fully estimate the losses to the rights holder.
Moreover, the rights holder normally recovers expenses on research and development (R&D) by selling products. In this regards, the rights holder generally sells the patented product at a price higher than the infringing product, as the infringer affords no expenses on R&D. A higher price will cause market share loss to the rights holder. In this particular case, the infringer sold the infringing products at RMB 270 ($40) per piece, while the patented products were sold at about RMB 600 ($90) per piece in overseas markets. The respondents selling the infringing products at such a low price would undermine the rights holder’s market share.
If no injunction were issued at this point, once a stable market was formed, the rights holder would face much difficulty in implementing its regular pricing strategy when entering the Chinese market, which means that its due market share would be permanently reduced. It will be difficult to determine losses incurred, due to the lower price and lost market share, by the rights holder.
Moreover, the design patents relate to cosmetics, which enjoy much benefit from their novelty and popularity. Large quantity sales of the infringing products would make people less apt for purchasing the same products, thereby shortening the lifecycle of the products.
Considering the above facts, it is urgent to stop the infringing activities. It is noted that though Verteam indicated to the court that it was willing to stop the infringing activities during the oral hearing, it did not elucidate how it would effectively do so. Such promises take no part in impeding the issuing of the injunction. The rights holder would suffer irreparable damage if no injunction was issued.
Would the loss incurred by the respondent by the issuance of the injunction be smaller than or equivalent to the loss caused to the rights holder if no injunction is issued
As a preliminary injunction will affect the economic benefit, most of time significantly, of both parties, a court has to consider the effects upon the respondent as well on the rights holder when handling a request for injunction, so as to balance the interests of both parties. A scenario of protecting the minor interest of one party while causing much loss and waste of social resource should be prevented from happening, such that the interests of the whole society can be maximised. While the interests of the rights holder should be warranted, if the loss suffered by the rights holder is negligible compared to that of the respondent when an injunction is issued, it will be against the essence of law.
In consideration of the above, a request for injunction would be upheld in cases where losses to the respondent by the issuance of the injunction would be no smaller than losses caused to the rights holder if no injunction is issued.
On the other hand, an injunction should not be issued if much loss would be incurred to the respondent if the injunction is issued. Still, the rights holder would enjoy protection if the losses to both parties are equivalent when the injunction is issued.
In this case, if an injunction were to be issued, the respondent would lose money spent on molding, advertisement and manufacturing of the infringing product, as well as profit lost for not being able to manufacture or sell the infringing products.
On the other hand, the rights holder would suffer serious losses if no injunction is issued. Such losses would include R&D cost, advertisement cost, lower pricing, lost market share and competitive edge. Therefore, the loss to the rights holder would be much higher if no injunction were issued.
Whether the injunction would harm public interests
Judicial authorities bear the responsibility of guarding public interests. Courts should in no case make a decision that would harm the public interests, the same goes with an injunction if a patent at issue has significant impact on health, security, environment or other major public interests. Such interests should be considered in deciding whether to issue an injunction or not.
In this case, both the patented products and infringing products were cosmetics. The issuance of the injunction was related to the economic interests of the involved parties but not the public interests.
At the same time, as the design patent was quite remarkable and distinctive, an injunction would help to prevent confusion in the market. Instead of harming public interest, it would actually safeguard the public interest by helping to maintain a healthy market environment.
Whether the rights holder put forth an effective and proper bond
Article 66 of the Chinese Patent Law provides that a rights holder should put forth a bond when requesting a court to take measures to stop infringing activities. The request would be rejected if no bond is supplied.
A preliminary injunction serves the purpose of quickly stopping infringing activities. Therefore, the court would make a decision in a very short time. However, it is possible that the decision to issue an injunction would be contrary to the final decision. In light of the above, the rights holder is required to make a deposit when requesting an injunction. Such a requirement will in the first place make the rights holder cautious in requesting an injunction, and in the second place help to compensate losses to the respondent in case an injunction is issued incorrectly. The bond should be in a reasonable amount as to be enough to compensate possible losses to the respondent. At the same time, under the general consideration of improving enforcement, the cost for enforcing patent rights should not be too high. In this sense, the bond can be lowered to a certain extent.
In this case, the court asked both parties to negotiate on the bond amount during the oral hearing. The respondent indicated that the rights holder didn’t need to put forward a bond. At the same time, the court considered that the rights holder had a high chance of winning and it was quite unlikely that the injunction would be issued incorrectly. Moreover, the three design patents related to the same products. As a result, the court decided that the rights holder should pay a bond of RMB 1 million ($150,000) for injunctions for the three patents.
The rights holder paid the required amount. In the case that any further evidence would prove that the respondent would suffer more losses when the injunctions were in force, the rights holder would need to increase the bond.
The Guangzhou IP Court considered all of the above factors and granted injunctions on 22 June 2016. The injunctions came into force immediately and the respondents were ordered to stop infringing activities immediately.
Chinese courts are normally very cautious in granting injunctions. Actually, according to Judge Cao Liping from the IP Tribunal of the Beijing Haidian Court, only 2.5 percent of requests for injunctions were granted by courts, while 67.5 percent were rejected and 30 percent withdrawn. Together with damages, obtaining an effective injunction is considered an important remedy to rights holders. While Chinese courts are increasing awarded damages, hopefully they will be more willing to grant injunctions as well, such that stronger protection may be provided to rights holders.