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27

APR

2020

The enforcement of the judgment on IP infringement in China

Sai CHEN

Chinese Attorney-at-Law

Beijing Wei Chixue Law Firm

In the practice of IP protection in China, in addition to the “the difficulty of producing evidence” and “low compensation”, “the complexity in enforcing the court decision” was also a headache for right holders. For the judgment of stopping infringement, many infringers continue to carry out the infringement in the name of other enterprises, although ostensibly they have stopped the infringement. For the judgment of damages, many infringers transferred the company's property early and left a shell company with no property. Therefore, some right holders once thought that it was meaningless to file the lawsuit of IP infringement in China. They spent a lot of time and money to carry out the litigation ofsafeguarding their rights. Even if they finally received the favorable judgment, they could not obtain compensation, and the infringers might use a different name to continue the infringement.

In recent years, the issue of “the complexity in enforcing the court decision” has been greatly tackled. In March 2016, the Supreme People's Court (hereinafter referred to as “SPC”) proposed at the Fourth Session of the 12th National People's Congress that “we aim to basically solve the issue of the complexity in enforcing the court decision in two to three years.” In June 2019, the SPC issued the opinions on deepening the enforcement reform and improving the long-term mechanism to solve the the complexity in enforcing the court decision, and put forward the goal of “practically solving the complexity in enforcing the court decision”. In the cases handled by the author in recent years, the author personally also experienced the improvement of the enforcement status. This article will introduce the situation of the enforcement of the judgment, and provide advice on how to enforce judgments more effectively.

I. Measures and current situation of Chinese courts to solve the issue of “the complexity in enforcing the court decision”

To solve “the complexity in enforcing the court decision”, maintain the authority of judicial judgment, legal system and the legitimate rights and interests of the parties, China has taken several measures in recent years, especially since 2013, striving to effectively solve the complexity in enforcing the court decision.

On the one hand, the courts carry out the informatization construction. For example, the SPC officially launched the online investigation system for enforcement in December 2014. In March 2018, the online investigation system connected with many other sectors, through which, searches for 17 kinds of information under 11 categories could be completed, such as the bank deposit, vehicle, ship, securities, identity card, exit and entry certificate, industrial and commercial registration, CNY settlement account, etc. Taking financial institutions as an example, the online investigation system connects 574 banks and is capble of invesigating the property of the party subject to enforcement in 220,000 banking outlets

nationwide. The online investigation has greatly improved the efficiency of enforcement. The data shows that the property that a judge currently enforces through the online investigation in one year is equivalent to the sum of the past ten years. In addition, the online judicial auction also greatly improves the efficiency of the property disposal of the party subject to enforcement. Since the online auction system was officially launched on March 1, 2017, as of February 19, 2020, 504,022 online auctions have been conducted, with a 103.07% premium, a total transaction amount of CNY 1062.589 billion, saving CNY 32.837 billion in commission.

On the other hand, the courts punished the dishonest parties subject to enforcement. In July 2013, the SPC issued Several Provisions on Announcement of the List of Dishonest Parties Subject to Enforcement. By February 19, 2020, a total of 5,706,321 people subject to enforcement have been included in the list of dishonest parties (that is, the number of dishonest parties in the state of dishonesty, excluding the situation in which the party has withdrawn from the list of dishonest parties due to the completion of the obligation and other reasons, as well as the situation in which the same party subjected to enforcement has been included in the list of dishonest parties for many times due to multiple enforcement cases). In 2015, the SPC revised Several Provisions on Restricting the High-level Consumption and Related Consumption of the Party Subject to Enforcement to further strengthen the punishment for dishonesty.

In addition, the initiation of criminal prosecution or judicial detention is more deterrent. According to the Article 313 of the Criminal Law of the People's Republic of China, where the person is capable of enforcement of a judgment or order of a people's court but refuses to do so, if the circumstances are serious, he/she will be sentenced to fixed-term imprisonment of not more than three years, criminal detention or fine; if the circumstances are especially serious, he/she will be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and will also be fined. But in the previous judicial practice, the criminal liability of the dishonest parties subject to enforcement was seldom investigated with the crime of refusal of enforcement, and judicial detention was not commonly used. In recent years, in order to strengthen the enforcement, the use of criminal means has gradually increased. From January 2015 to April 2018, the courts sentenced 8,687 defendants for the crime of refusal of enforcement.

Generally speaking, Chinese Courts have taken a number of measures to strengthen the enforcement and greatly improve the effectiveness of the enforcement. Moreover, on November 24, 2019, the State Council issued the Opinions on Strengthening the Protection of IP Rights, which put forward the goal of effectively curbing the frequent occurrence of infringement by 2022. For the enforcement, there is also a special reference to “strengthen the measures of enforcement of cases, establish and improve the judicial confirmation mechanism of IP dispute mediation agreement, establish and improve the blacklist system of credit record of market subjects, implement the classified supervision of credit of market subjects, establish the social publication system of the list of repeated and intentional infringement enterprises, and improve the joint punishment mechanism for dishonesty. Gradually establish a guidance mechanism for IPR protection cases in all areas and an open hearing mechanism for major cases. Strengthen the supervision and inspection of the enforcement of cases in different places, and promote the formation of a unified and fair environment for the rule of law,” etc. We believe that the situation of “the complexity in enforcing the court decision" will continue to improve in the future.

. Q&As and suggestions on enforcement

Judging from the current situation and trend, the general environment for effective enforcement of judgments is getting better and better, and when it comes to each case, how to effectively safeguard the legitimate rights and interests is the concern of each right holder.

Usually, the court will not take the initiative to supervise the enforcement of the judgment of the parties. After the judgment becomes effective, if the other party fails to perform its obligations according to the judgment, the obligee may apply to the court for compulsory enforcement. Afterapplying for compulsory enforcement, the court will carry out several steps, such as case filing review, notice of performance, preparation for compulsory enforcement and compulsory enforcement. In most cases, the applicant will receive feedback from the court on the enforcement in one to two months after applying for compulsory enforcement.

If the court discovers the full amount of enforceable property in the online investigation on the party subjected to enforcement, the enforcement will be completed quickly and smoothly. The court may seal up, distrain, freeze, dispose of the property of the party subjected to enforcement according to law. If no enforceable property is found, it is often necessary to go to the next step and take measures such as adding the party subjected to enforcement in the dishonest list and issuing a high-level consumption restriction order. The effect of these measures is usually significant, and the effective time varies according to the circumstances of the case. In one of the enforcement cases the author dealt with, theparty subjected to enforcement who was added in the list of dishonest parties proactively contacted the court to fully fulfill the obligations in less than a week.

In addition, as mentioned above, if the party subjected to enforcement is able to perform but refuses to perform, the court may detain and fine the party subjected to enforcement. In an enforcement case the author handled, the enforcement judge and bailiff came to the location of the party subjected to enforcement, sealed up the company's accounts, and detained the company's financial manager who was not cooperative. The company's legal representative quickly raise the enforcement money and rushed to the court for performance within a few hours.

The author sorted out the following problems that have drawn much attention in practice for reference.

1. What's the difference between “added in the list of dishonest parties subject to enforcement” and “restriction on high-level consumption”?

In the process of enforcement, the people's court may, in accordance with the law, take measures to restrict high-level consumption and include the party in the list of dishonest parties subject to enforcement. Restriction on high-level consumption is to restrict relevant personnel from the consumption that is high-level or unnecessary for living or operation. Adding into the list of dishonest parties subject to enforcement means that the court would identify the relevant person as the the dishonest parties subject to enforcement, record the his or her information into the database of dishonest parties subject to enforcement of the SPC, publish the list to the public, mark as bad credit, and punish the party subjected to enforcement with credit.

The restriction on high-level consumption and inclusion in the list of dishonest parties subject to enforcement are both the disciplinary measures taken by the people's court for the relevant responsible person based on the needs of the enforcement of the case, and the purpose is to urge the party subjected to enforcement to consciously fulfill the obligations determined by the effective legal documents. But there are many differences between the two measures.

First of all, they have different objects. Those who are restricted from high-level consumption include the party subjected to enforcement. If the company subjected to enforcement was restricted from high-level consumption, the legal representative, the main person in charge, the person who is directly responsible for affecting the performance of debts and the actual controller of the company will also be restricted from high-level consumption. Those who are added in the list of dishonest parties subject to enforcement can only be the party subjected to enforcement.

Secondly, the conditions are different. As long as the party subjected to enforcement fails to perform the obligation of performance determined by the effective legal document within the period specified in the notice of enforcement, his/its high-level consumption can be restricted. If the party subjected to enforcement fails to perform the obligations specified in the effective legal documents and is under one of the other six circumstances, he/its can be added in the list of dishonest parties subject to enforcement. Therefore, compared with the restriction of high-level consumption, the conditions for inclusion in the list of dishonest parties subject to enforcement are stricter. Those who are restricted from high-level consumption are not necessarily being added in the list of dishonest parties subject to enforcement, but those who are added in the list of dishonest parties subject to enforcement must be restricted from high-level consumption.

Moreover, the contents are different. Those who are restricted in consumption shall not conduct the following nine consumer behaviors such as when taking public transport, opt for second-class seat or above for airline, railway carriage with cushioned berth, cruise, etc; carry out high-level consumption in premises such as star-rated hotels, night clubs and golf courses; purchase real estate or build new housing property, expand housing property, or carry out extravagant housing renovation; lease premises such as high-grade offices, hotels and apartments, etc to be used as office premises; purchase automobile not essential for business operation; travelling and vacationing; enrol his/her child(ren) in private schools which charge high fees; pay high insurance premiums to purchase insurance and wealth management products; or take any class of seat in high-speed train or first class or above seat of other express train. And the party added in the list of dishonest parties subject to enforcement, shall be given credit punishment in government procurement, bidding, administrative approval, government support, financing credit, market access, qualification identification, personnel selection and employment, etc.

In addition, the duration is different. In principle, the period of restricting high-level consumption ends upon completion of performance of the obligation of the party subjected to enforcement. Generally, the time limit after being added in the list of dishonest parties subject to enforcement is two years. If the party subjected to enforcement resists the enforcement by means of violence, threat or has multiple dishonest acts, the time limit may be extended by one to three years.

2. If the property of the company subjected to enforcement is not found, can the property of its shareholders and legal representatives be enforced?

The property of the company is independent from the property of its shareholders and the property of its legal representative. When the subject of the obligation of the judgment is company, generally, only the property of the company can be enforced.

However, in the following three circumstances, the shareholders can be added into the list as the party subject to enforcement, so that the personal property of the shareholders can be enforced.

(1) The shareholder who fails to fully perform the obligation of capital contribution or fails to perform the obligation of capital contribution after the transfer of equity may be added as the party subject to enforcement: in the enforcement procedure, when the company is the party subject to enforcement and the property is not enough to pay off the debts determined by the effective legal documents, the applicant forenforcement may apply to add the original shareholder who fails to perform the obligation of capital contribution in accordance with law but transferred the equity as the party subject to enforcement to bear the liability within the scope of capital contribution that he did not performin accordance with the law, and may require the transferee of equity to bear joint and several liability.

(2) If the shareholder of one person limited liability company has a property mix, the shareholder may be added as the party subject to enforcement: one person limited liability company shall be financially independent. When a shareholder cannot prove that the company's property is independent of the shareholder's property, the shareholder shall be jointly and severally liable for the company's debts. In the enforcement procedure, the applicant for enforcement can directly add the shareholder of the one person limited liability company as the party subject to enforcement to bear joint and several liability.

(3) Shareholders who fail to perform liquidation obligations according to law may be added as the party subject to enforcement: If the company is deregistered without liquidation, the shareholder shall be responsible for the debts of the company. If this happens in the enforcement procedure, the applicant for enforcement can add the shareholders as the party subject to enforcement and request the shareholder to bear joint and several liabilities for the debts of the company.

As for the legal representative, although it is unable to directly enforce his personal property, as long as the company fails to perform the payment obligations determined by the effective legal documents within the period specified in the enforcement notice, the court may (on application or at its own discretion) take the aforesaid consumption restriction measures against its legal representative, main responsible person, directly responsible person affecting the performance of debt and actual controller, and the above-mentioned high-level consumption and the consumption behaviors of non-necessities of life and work shall not be implemented, so as to put pressure on the legal representative and urge the company to perform a non-necessary for s soon as possible.

3. What is the relationship between property preservation and compulsory enforcement? If property preservation is applied for, is there no need for compulsory enforcement?

Property preservation refers to the compulsory measures taken by the people's court to restrict the disposition of the party's property or the subject matter of the dispute in order to ensure the enforcement of the effective judgment in the future or to avoid the loss of property beforeor after filing the lawsuit of the interested party.

Property preservation may be instituted during or before the proceedings. Property preservation before litigation shall be applied to the people's court in the place where the property is located. The applicant shall provide guarantee and bring a suit before the court having jurisdiction within 15 days. The applicant shall apply to the court for property preservation or the court shall decide by its powers, and the court may require the applicant to provide guarantee.

To apply for property preservation, an application and guarantee materials shall be submitted. Generally, guarantee materials include guarantee documents and property certificates, such as house property certificate, bank passbook, vehicle driving license, etc., and the value of the guarantee property shall not be less than the amount applied for preservation. The guarantee property may be the applicant's or the third party's.

Property preservation measures play a positive role in protecting the legitimate rights and interests of the applicant and solving the complexity in enforcing the court decision, but property preservation can not replace the application of compulsory enforcement, and there are the following problems.

First, when applying for property preservation, the applicant is required to provide specific information of the property to be preserved, such as the bank account information of the defendant. But usually the right holder has no legal way to obtain these property information, which increases the difficulty of successful property preservation. In the enforcement, the court can check the property of the party subject to enforcement without the applicant providing bank account and other information.

Secondly, because the property preservation before and during litigation is made under the condition that the dispute is not clear, there is likely to be a difference between the amount of property preserved and the amount of property decided by the final court. If the applicant has made a mistake in applying for preservation, the applicant shall compensate the respondent for the loss incurred by the preservation.

Thirdly, as mentioned above, the application for property preservation needs to provide corresponding guarantee. Although the guarantee can be carried out by real estate, letter of guarantee and other ways that do not affect the cash flow of the enterprise, the handling of corresponding procedures is also a burden for the applicant.

Finally, even if property preservation is issued, after the judgment taking effect, the preserved property can not be automatically enforced. When the parties fail to perform the judgment, they still need to apply to the court for compulsory enforcement.

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Email: ipnews@lindaliugroup.com

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