*AI-generated translation, for reference only.

Keywords: 

Civil Litigation; Infringement of Utility Model Patent Right; Reverse Act Preservation; Amount of Security; Fixed Security Deposit; Dynamic Security Deposit

[Judgment Digest]

1.In intellectual property infringement disputes involving e-commerce platforms, where an alleged infringer applies to the people's court for act preservation, requesting an order that the e-commerce platform operator restore links or services, the people's court shall examine the application.

2.Where, after measures such as disconnection of links or suspension of services have been taken against an alleged infringer on suspicion of patent infringement, the patent right at issue has been declared invalid but the relevant administrative litigation concerning patent validity has not yet concluded, and the alleged infringer applies for act preservation measures to restore links or services, the people's court may rule to grant the application if the alleged infringer has preliminarily proved or reasonably explained that failure to restore the links or services will cause it irreparable damage, such as serious loss of market competitive advantage or business opportunities; that the damage likely to be caused to the right holder by taking act preservation measures to restore links or services will not exceed the damage caused to the alleged infringer by not taking such measures; and that such measures will not harm the public interest.

3.When taking the aforesaid act preservation measures, the people's court may order the alleged infringer not to withdraw, before the judgment in the case becomes effective, a certain amount of funds from the payment-receiving account through which it sells the accused infringing products on the e-commerce platform, so that such funds serve as security. The amount of security provided shall be reasonably determined by comprehensively considering factors such as the amount of compensation claimed by the right holder, the losses that may be caused to the right holder if the preservation measures are taken erroneously, and the profits available to the alleged infringer after the preservation measures are taken. The security deposit may take the form of a fixed security deposit plus a dynamic security deposit.

[Case Facts]

Cixi Bo [REDACTED] Plastic Products Co., Ltd. (hereinafter referred to as "Bo [REDACTED] Company") was the patentee of a utility model patent titled "Flat Mop Cleaning Tool Having a Novel Bucket Body Structure" (hereinafter referred to as the "Patent at Issue") and a utility model patent titled "A Mop Bucket for Wringing and Cleaning a Flat Mop" (hereinafter referred to as the "Patent No. 180.2"). Bo [REDACTED] Company held that the mop products sold by Yongkang Lian [REDACTED] Industry and Trade Co., Ltd. (hereinafter referred to as "Lian [REDACTED] Company") on the "Tian [REDACTED] Website" operated by Zhejiang Tian [REDACTED] Network Co., Ltd. (hereinafter referred to as "Tian [REDACTED] Company") infringed the aforesaid two patent rights. It therefore filed two lawsuits with the Intermediate People's Court of Ningbo, Zhejiang Province (hereinafter referred to as the "Ningbo Intermediate Court"), namely the present case and another case numbered (2019) Zhe 02 Zhi Min Chu No. 368 (hereinafter referred to as the "Case No. 368"). Upon Bo [REDACTED] Company's applications for property preservation, the Ningbo Intermediate Court froze, in each of the two cases, RMB 3.16 million in the balance of Lian [REDACTED] Company's Alipay account. Because Bo [REDACTED] Company filed a complaint with Tian [REDACTED] Company, Lian [REDACTED] Company lodged an appeal with Tian [REDACTED] Company and issued a "Letter of Undertaking on Intellectual Property Security Deposit," agreeing to deposit a security deposit of RMB 1 million in its Alipay account and agreeing that Alipay Company and Tian [REDACTED] Company would freeze all sales revenue of its online store from 22:00 on November 10, 2019.

The Ningbo Intermediate Court found in the first instance that infringement was established in this case, and ordered Lian [REDACTED] Company and others to cease infringement and bear joint and several liability for compensating losses, and ordered Tian [REDACTED] Company to immediately delete and disconnect the sales links for the accused infringing products. On the same day, Bo [REDACTED] Company again filed a complaint with Tian [REDACTED] Company concerning the accused infringing products. Subsequently, Tian [REDACTED] Company deleted the sales links for the accused infringing products on the "Tian [REDACTED] Website."

Lian [REDACTED] Company and others appealed to the Supreme People's Court. During the second instance, the Patent at Issue was declared wholly invalid by the China National Intellectual Property Administration, and Bo [REDACTED] Company stated that it would file administrative litigation in this regard. On November 5, 2020, Lian [REDACTED] Company filed an application for reverse act preservation with the Supreme People's Court, requesting the Court to order Tian [REDACTED] Company to immediately restore the applicant's product sales links on the "Tian [REDACTED] Website." It further stated that the accused infringing product was its "hit product," that "Double Eleven" was approaching, and that failure to restore the links would cause it irreparable losses. As of the date when the act preservation application was filed, Case No. 368 was still under trial in the first instance, and the Patent No. 180.2 involved therein remained valid. A total of RMB 15.6 million in the balance of Lian [REDACTED] Company's Alipay account had been frozen, of which RMB 8.28 million was all sales revenue of its online store from 22:00 on November 10, 2019, which Lian [REDACTED] Company had agreed to have frozen.

 [Judgment Result]

On November 6, 2020, the Supreme People's Court rendered (2020) SPC IP Civil Final 993:1. Tian [REDACTED] Company shall immediately restore the sales links for the accused infringing products of Lian [REDACTED] Company on the "Tian [REDACTED] Website" shopping platform; 2.RMB 6.32 million in the balance of the Alipay account under the name of Lian [REDACTED] Company shall be frozen until the date on which the judgment in this case becomes effective; 3.From the date of restoration of the sales links for the accused infringing products until the date on which the judgment in this case becomes effective, if 50% of the total sales amount of the accused infringing products after restoration of the links by Lian [REDACTED] Company exceeds RMB 6.32 million, 50% of the excess sales amount shall be retained in its Alipay account and shall not be withdrawn.

 [Judge's Opinion]

The Supreme People's Court held as follows:

1. Whether Lian [REDACTED] Company, as the alleged infringer, had standing to file an application for act preservation

When an e-commerce platform operator receives a notice from an intellectual property right holder containing prima facie evidence of infringement, it has a statutory obligation to take necessary measures such as deleting, blocking, disconnecting links, and terminating transactions and services. However, Chinese law contains no relevant provisions on the circumstances under which an e-commerce platform operator may, upon the application of an operator on the platform, take measures such as restoring links. The applicants for act preservation measures prescribed in Article 100 of the Civil Procedure Law are not limited to plaintiffs. In intellectual property infringement disputes involving e-commerce platforms, allowing an accused infringing operator on the platform to apply for act preservation under the conditions prescribed in Article 100 of the Civil Procedure Law, and requiring the e-commerce platform operator to take act preservation measures such as restoring links, is of great significance for reasonably balancing the lawful interests of intellectual property right holders, e-commerce platform operators, and operators on the platform, and for promoting the healthy development of the e-commerce market.

In the course of civil infringement litigation, intellectual property rights obtained through administrative grant, such as patent rights, may become uncertain due to procedures such as invalidation declaration and administrative litigation; meanwhile, the business conditions of an operator on the platform may also undergo major changes during litigation. In such circumstances, where, due to urgent circumstances, failure to restore links would cause irreparable damage to the lawful interests of the operator on the platform, and the operator applies to the people's court for act preservation, requesting that the e-commerce platform operator take act preservation measures such as restoring links, the people's court shall accept the application and examine it in accordance with Article 100 of the Civil Procedure Law and the relevant judicial interpretations. In this case, the Patent at Issue was declared invalid by the China National Intellectual Property Administration during the second instance, and its validity was in an uncertain state because the right holder was about to file administrative litigation. Lian [REDACTED] Company, whose product links had been deleted, had standing to file an application for act preservation to restore the links.

2. Whether act preservation measures to restore links should be taken in this case

In determining whether to take act preservation measures to restore links upon the application of the alleged infringer, the following factors shall mainly be considered: whether the applicant's request has a factual basis and legal basis; whether failure to restore the links will cause irreparable damage to the applicant; whether the damage that restoring the links may cause to the patentee will exceed the damage caused to the alleged infringer by failure to restore the links; whether restoring the links will harm the public interest; and whether there are other circumstances under which it would be inappropriate to restore the links. Specifically in this case:

(1) Whether Lian [REDACTED] Company's request had a factual basis and legal basis.This case is a dispute over infringement of a utility model patent right. In China, the grant of a utility model patent does not undergo substantive examination, and its stability is relatively weak. In order to balance the interests of the patentee with those of industry competitors and the public, and to maintain a normal and orderly online operating environment, where a patentee requests an e-commerce platform operator to delete sales links for products suspected of infringing a utility model patent right, the patentee shall submit a patent right evaluation report issued by the patent administration department. Where the patentee fails to submit such report without justified reasons, the e-commerce platform operator may refuse to delete the links, unless a court, after trial, determines that infringement is established. In this case, Tian [REDACTED] Company promptly deleted the sales links for the accused infringing products after the original trial court determined that infringement was established. However, during the second instance, the Patent at Issue had been declared wholly invalid by the China National Intellectual Property Administration for lack of novelty, Bo [REDACTED] Company was about to file administrative litigation, and the validity of the patent was in an uncertain state. Due to the litigation in this case and Case No. 368, as of November 5, 2020, a total of RMB 15.6 million in the balance of Lian [REDACTED] Company's Alipay account had been frozen, seriously affecting its normal production and business operations. Under these circumstances, Lian [REDACTED] Company's request that Tian [REDACTED] Company restore the product links had a factual and legal basis.

(2) Whether failure to restore the links would cause irreparable damage to the applicant

In intellectual property infringement disputes involving e-commerce platforms, deletion, blocking, and disconnection of commodity sales links not only make it impossible for the commodity to be sold on the e-commerce platform, but also affect the accumulated page views, search weight, and account rating of the commodity, thereby reducing the market competitive advantage of the operator on the platform. Therefore, in determining "irreparable damage," consideration should be given to whether either of the following circumstances exists:

a. Whether failure to take act preservation measures will cause irreparable damage to the applicant's personal rights and interests, such as business reputation;

b. Whether failure to take act preservation measures will result in serious loss of the applicant's market competitive advantage or business opportunities, such that even if monetary compensation may be claimed for erroneous deletion of links or similar circumstances, the loss would be so large or so complex that its amount cannot be accurately calculated.

In this case, the accused infringing products were mainly sold through the online store involved in the case operated by Lian [REDACTED] Company on the "Tian [REDACTED] Website." According to the facts ascertained in the original trial, as of November 13, 2019, cumulative sales of the accused infringing products were 283,693 pieces; as of December 4, 2019, when the original trial court organized the parties to exchange evidence, cumulative sales were 352,996 pieces; and as of January 13, 2020, when the original trial hearing was held, cumulative sales were 594,347 pieces. This shows, on the one hand, that the sales volume of the accused infringing products was large, and, on the other hand, that their accumulated page views and search weight were substantial, so that disconnection of the sales links would have a major impact on their online sales interests. Particularly at specific sales opportunities such as "Double Eleven," whether the links are restored would have a huge impact on the commercial interests of the alleged infringer. Where the validity of the Patent at Issue is in an uncertain state, enabling the operator on the platform to conduct normal online business operations at specific sales opportunities such as "Double Eleven" through act preservation measures restoring the links can prevent irreparable damage to its interests.

(3) Whether the damage that restoring the links may cause to the patentee would exceed the damage caused to the alleged infringer by failure to restore the links

Although the accused infringing products and the patented products at issue are products of the same type, there are many similar products on the market, and restoration of the links would not cause Bo [REDACTED] Company's patented products to be completely replaced. Moreover, the Court had already considered the losses that restoration of the links might cause to Bo [REDACTED] Company, and would freeze a corresponding amount in Lian [REDACTED] Company's Alipay account, as well as part of the profits available from continued sales after restoration of the links. Lian [REDACTED] Company also expressly agreed to this. Under these circumstances, compared with the impact of failure to restore the links on Lian [REDACTED] Company's normal business operations, the damage that restoring the links might cause to Bo [REDACTED] Company would be relatively small.

(4) Whether restoring the links would harm the public interest

In patent infringement disputes, public interest considerations generally concern public health, environmental protection, and other major social interests. The accused infringing product in this case is a mop bucket used in daily household life. An important factor to be considered when restoring the links is whether such restoration would affect public health or environmental protection, and in particular whether it would cause undue damage to consumers' personal or property interests. In this case, there was no evidence showing that the accused infringing products involved any circumstance that might harm the public interest as described above.

(5) Whether there were other circumstances under which it would be inappropriate to restore the links. In addition to being suspected of infringing the Patent at Issue, the accused infringing products in this case were also suspected, in Case No. 368, of infringing Bo [REDACTED] Company's Patent No. 180.2, which is currently still valid. However, first, Case No. 368 was still under trial in the first instance, and it remained uncertain whether the accused infringing products constituted infringement and whether the prior art defense was established. Second, Bo [REDACTED] Company's claim for compensation for losses in Case No. 368 had already been secured through property preservation measures freezing RMB 3.16 million in the balance of Lian [REDACTED] Company's Alipay account. Third, in determining the amount of security for act preservation in this case, the circumstances of Case No. 368 had already been taken into account, the amount of security to be provided by Lian [REDACTED] Company had been appropriately increased, and part of the profits available from Lian [REDACTED] Company's continued sales after restoration of the links would be frozen. Since the act preservation measures in this case were directed at the litigation in this case, and the amount of security would be frozen until the date on which the judgment in this case became effective, if Case No. 368 was still under trial at that time, Bo [REDACTED] Company could safeguard its lawful rights and interests in that case by applying for act preservation or other measures, and the court would decide whether to take act preservation measures according to the circumstances of that case. Therefore, there was no circumstance in which Bo [REDACTED] Company's rights under the Patent No. 180.2 would be difficult to protect. The fact that the accused infringing products were also involved in litigation for suspected infringement of the Patent No. 180.2 did not affect the taking of act preservation measures in this case.

3. Determination of the Amount of Security

The determination of the amount of security for act preservation must be both reasonable and effective. It is necessary both to consider the damage that the implementation of act preservation measures may cause to the respondent and to prevent an excessively high amount of security from unreasonably affecting the applicant's production and business operations. In patent infringement disputes involving e-commerce platforms, when determining the amount of security for act preservation measures restoring links, consideration should be given, on the one hand, to the damage that restoration of the links may cause to the right holder, so as to ensure that the right holder's right to separately claim compensation for such damage is fully protected; on the other hand, the profits available to the applicant after restoration of the links should also be reasonably determined, so as to avoid unreasonably affecting its recovery of funds and subsequent operations by freezing excessive sales revenue. In this case, Bo [REDACTED] Company claimed compensation for economic losses of RMB 3.16 million from the alleged infringers in both this case and Case No. 368, and the original trial court had already taken property preservation measures in both cases. However, considering such factors as the large sales amount of the accused infringing products before deletion of the links and the possibility that restoration of the links might cause Bo [REDACTED] Company's losses to expand, in order to protect the patentee's interests to the greatest extent, the amount of security would be determined at the Court's discretion by comprehensively considering factors such as Bo [REDACTED] Company's compensation claims in the two cases and Lian [REDACTED] Company's profits available after restoration of the links. Given that Lian [REDACTED] Company's available profits would continue to increase with product sales, in addition to a fixed security deposit, a dynamic security deposit would be added in this case. Since Lian [REDACTED] Company's sales revenue also included costs and administrative expenses, and in order to prevent an excessively high amount of security from unreasonably affecting Lian [REDACTED] Company's production and business operations, the dynamic security deposit was determined at the Court's discretion as 50% of Lian [REDACTED] Company's sales amount, taking into account the contribution rates of the patents involved in this case and Case No. 368.

Relevant Legal Provisions

Article 103 of the Civil Procedure Law of the People's Republic of China, as amended in 2023.
Article 100 of the Civil Procedure Law of the People's Republic of China, as amended in 2017, applied in this case.