*AI-generated translation, for reference only.

Recently, the Intellectual Property Court of the Supreme People's Court concluded an appeal case involving a dispute over liability for damages arising from an application for act preservation. In the second instance, the Court held that where an applicant files an application for preservation with the people's court in the name of property preservation, but its purpose is to prevent the accused infringer's export activities through preservation measures taken by the people's court, such application is, in substance, a request for the people's court to control the goods involved in the case so as to prevent their export, and its nature shall be determined as an application for act preservation.

On the grounds that the steel wire chain-link fence products declared for export by San [REDACTED] Company infringed the patent right at issue, Bu [REDACTED] Company first applied to the customs authority for inspection and control of the batch of goods, and later filed a lawsuit with the court, requesting an order that San [REDACTED] Company cease infringement and compensate for losses. At the same time, Bu [REDACTED] Company filed an application for property preservation, requesting the court to seal up and detain the aforesaid goods that had already been detained by the customs authority. Before Bu [REDACTED] Company filed the lawsuit, San [REDACTED] Company had paid a counter-security deposit to the customs authority for the detained goods. During the litigation, the patent right at issue was declared wholly invalid by the China National Intellectual Property Administration. Therefore, San [REDACTED] Company filed a lawsuit with the Court of First Instance on the grounds that Bu [REDACTED] Company had wrongfully applied for property preservation. The Court of First Instance rendered a judgment ordering Bu [REDACTED] Company to compensate San [REDACTED] Company for losses including payment for the goods.

The Court of First Instance held that Bu [REDACTED] Company knew during the litigation that it might face the risk of compensation if its application for property preservation was erroneous. Moreover, after San [REDACTED] Company had submitted a security deposit to the customs authority and stated during the litigation that it could provide equivalent property as counter-security, Bu [REDACTED] Company could have achieved the purpose of preservation by applying to preserve an equivalent amount of funds or other property. However, Bu [REDACTED] Company still insisted on refusing to agree to the lifting of the preservation measure detaining the goods, and stated that if the court lifted the preservation measure, San [REDACTED] Company would inevitably export the accused infringing products abroad, thereby causing Bu [REDACTED] Company greater losses. It could be seen from the aforesaid acts and claims of Bu [REDACTED] Company that its intention in applying for detention of the goods at issue went beyond the institutional purpose of property preservation, which is merely to secure performance of an effective judgment, and that Bu [REDACTED] Company was at fault.

Dissatisfied with the judgment, Bu [REDACTED] Company appealed. With respect to the characterization of the preservation application at issue, the Supreme People's Court held in the second instance that Bu [REDACTED] Company's preservation application concerning the goods at issue and the subsequent preservation measures taken by the people's court should be determined as having the nature of act preservation. The main reasons are as follows:

First, the customs authority detained the goods at issue upon the application of Bu [REDACTED] Company, detaining goods suspected of infringing its intellectual property rights. The purpose of such measure was to prevent the export of the relevant goods suspected of infringing intellectual property rights. Therefore, the relevant detention measure taken by the customs authority itself had the nature of act preservation.

Second, after Bu [REDACTED] Company filed a patent infringement lawsuit with the court, it filed an application for property preservation on the same day, requesting the sealing up and detention of the goods at issue that had already been detained by the customs authority. After the court rendered the preservation ruling, San [REDACTED] Company requested that the preservation measure detaining the goods be lifted by providing property security. Bu [REDACTED] Company twice submitted opinions disagreeing with the lifting of the preservation measure, and claimed that the provision allowing preservation to be lifted upon the provision of security was not applicable to this case. It argued that the property preserved in this case consisted of the accused infringing products, which not only had property attributes but also had infringing attributes; once the preservation measure was lifted, San [REDACTED] Company would export the accused infringing products, thereby causing Bu [REDACTED] Company greater damage. The aforesaid opinions show that Bu [REDACTED] Company's main intention in applying for preservation of the goods at issue was to prevent San [REDACTED] Company's export activities through the preservation measures taken by the people's court. The preservation application in fact continued its application for detention filed with the customs authority, and in substance, Bu [REDACTED] Company still hoped that the people's court would control the goods at issue so as to prevent their export. Moreover, property capable of securing effective enforcement of an effective judgment should be the debtor's lawful property. If the batch of goods were determined to be infringing products, such products would be unlawful products and could not, by virtue of their property attributes, serve to secure enforcement of an effective judgment. Therefore, Bu [REDACTED] Company's claim that its application was an application for property preservation was inherently inconsistent with its claim that the batch of goods were infringing products. Accordingly, although Bu [REDACTED] Company filed the preservation application in the name of property preservation, in substance, it should be deemed an application for act preservation.

Finally, laws and judicial interpretations prescribe different conditions for lifting property preservation measures and act preservation measures. In property dispute cases, where the person subject to preservation or a third party provides sufficient and effective security and requests that the preservation be lifted, the people's court shall rule to grant the request. By contrast, act preservation measures taken by the people's court are generally not lifted merely because the respondent provides security, unless the applicant consents. San [REDACTED] Company had already submitted a security deposit in full to the customs authority for the goods at issue, and, during the litigation procedure, applied to provide other property security in order to lift the preservation. However, based on its understanding that the goods at issue were both property and accused infringing products, Bu [REDACTED] Company insisted on preservation solely against the goods at issue and refused to agree to the lifting of the preservation. The Court of First Instance ultimately did not lift the preservation of the goods at issue. The aforesaid facts also confirm that the preservation application filed by Bu [REDACTED] Company and the subsequent preservation measures taken by the Court of First Instance were, in substance, act preservation.

Both act preservation and property preservation fall within the litigation preservation system and both serve the purpose of securing enforcement of future judgments. However, in addition to securing enforcement of judgments, act preservation also serves the purpose of avoiding losses or preventing losses from further expanding, whereas property preservation is mainly considered from the perspective of ensuring that a future judgment can be effectively enforced. Where an applicant files an application for preservation in the name of property preservation, but its purpose is to have the people's court order the other party to perform a certain act or prohibit the other party from performing a certain act through preservation measures, the nature of the application shall be determined as an application for act preservation. Accurately determining the nature of a preservation act is the basis for subsequent determination of liability for damages. When judging the nature of a preservation act, the people's court should not make the determination directly based on the name used by the party in applying for preservation, but should make the judgment according to the core purpose of the preservation application. This case has certain reference significance for the review of relevant preservation applications.