“Haworth & Lexon Law Newsletter” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.
Latest Laws and Regulations
§ Latest Laws and Regulations
“The Labor Contract Law” is divided into eight chapters, namely, general provisions, execution of an labor contract, performance and modifications of a labor contract, dissolution and termination of a labor contract, special provisions, supervision and inspection, legal liabilities and supplementary provisions.
The Law has made many new provisions in respect of protecting the rights and interests of the employees, which will bring great adjustments to the labor contract regulations in different localities that have been implemented for many years, as well as the already decided legislative mode for employment relations.
Since its first deliberation in December, 2005, the legislation of “The Labor Contract Law” has experienced unprecedented discussions and controversies. Three were even foreign investors who have expressed their intention to withdraw the capital should such law be implemented. What contents the Labor Contract Law involve that arouse such attention and controversies? We will present a detailed analysis of the Law in our next newsletter.
Ⅰ The “Real Right Law” distinguishes the change of contract of real rights for security from that of real rights for security
According to the “Real Right Law”, the effectiveness of the contract of real rights for security shall be independent of the change of real rights for guarantee. Article 41 and Article 64 in the former “Guarantee Law” provides that “The mortgage contract goes into effect at the date of registration” and that “The pledge contract goes into effect upon the transfer of the pledge to the pledgee”. Such provisions equate the contract of the real rights for security with the change of real rights for security like registration and transfer.
Article 15 of the new “Real Right Law” explicitly provides the principles to distinguish the contract from the change of the real rights for security that “A contract concluded by the parties concerned on the creation, change, transfer or elimination of the real right of a real estate shall, otherwise is provided by laws, become effective upon the conclusion of the contract; and whether the real right has been registered does not affect the validity of the contract. Meanwhile, Article 14 of the “Real Right Law” also provides that “The change of the real right of a real estate shall become effective since the date when it is recorded in the real estate register, and Article 23 provides that “the creation and transfer of the real rights for chattels shall come into effect when they are delivered.” Therefore, the new regulations clarify that the effectiveness of the contract for real rights for security is independent from the change of real rights.
Ⅱ The effect of registration of a mortgage:
The “Real Right Law” divides the registration of mortgage into two circumstances: Mortgage is created upon registration; Mortgage is created upon the execution of the contract but may not challenge any bona fide third party without registration. The first circumstance is applicable to “buildings and other fixed objects on the ground, the right to use construction land, the right to contract management of barren land, etc. as obtained by means of bid invitation, auction and public consultation, and the buildings that are under construction.” The second circumstance is applicable to other collaterals that are not banned by the laws and regulations to be mortgaged.
In respect of public trust, the “Real Right Law” provides that the change of a real estate shall be consistent with those recorded in the register, except there is evidence to prove that it is wrong. Concerning chattels, the “Real Right Law” does not provide explicitly. However, according to the provision that mortgage is created upon the execution of the mortgage contract, the contents of the chattels as mortgage shall be consistent with the mortgage contract. The mortgage from the register that exceeds the range of the mortgage contract shall not have any counter force.
Ⅲ Other prominent changes include:
1. The applicable range and force of independent guarantee:
According to the Guarantee Law, the parties concerned can provide that the guarantee contract is independent to the principal contract, and the invalidity of the principal contract does not necessarily lead to the invalidity of the guarantee contract. However, Article 172 in Real Right Law defines that only under the conditions that stipulated by laws, can the guarantee contract be independent to the principal contract, which excludes the legality for the parties concerned to freely provide the independence of the guarantee contract.
2. Duration of the mortgage
The former Guarantee Law does not provide the duration of the mortgage, and the legal explanation of the Law explicitly defines that the guarantor can exercise the guarantee right within two years after the end of the limitation of action of the creditor’s rights secured by the collaterals. However, Article 202 in Real Right Law provides that “a mortgagee shall exercise the mortgage within the limitation of action for the principal creditor’s rights; otherwise, such rights will not be protected by the people’s court”.
3. Scope of the lien
According to the Guarantee Law, the creditor has the right of lien only for the creditor’s right incurred during the execution of storage contracts, transport contracts and processing contracts. While the Real Right Law provides that “In case an obligor fails to pay off its due debts, the creditor may take lien of the obligor’s chattels he/it has lawfully occupied”, which extend the range of lien to the creditor’s right incurred by contract or tort.
4. The establishment of the pledge with the shares of limited companies
The Guarantee Law provides that if a limited company pledge its shares, the pledge contract shall become effective upon the recording of the shares in the register of shareholders. However, Article 226 of the Real Right Law provides that the pledge shall be established after the administrative department for industry and commerce has registered the pledge.
Besides, the Real Right Law makes the following stipulations: whether the transfer of pledge is effective without the consent of the pledgor; whether the lien has a limitation of action; whether there is limitation on action of the lien; whether the priority of order for the mortgage can be given up; whether the pledge can be transferred separately from creditor’s right; whether the pledge of the chattels can be obtained with good faith; and the priority of force for the chattels’ mortgage and lien.
Ⅳ The Real Right Law also makes brand new stipulation based on the institution of real rights for security:
1. Creation of the floating charge system
Article 181 of the Real Right Law provides a brand new way of guarantee, i.e. the floating charge system: Through written agreement, the parties concerned can use the present or future chattels as mortgages. Of course, the above floating charge is different from that abroad in that: only chattels can be regarded as the subject matter of the floating charge, excluding real estate or rights (e.g. intellectual property rights).
2. Providing on the pledge of maximum amount
Article 222 of the Real Right Law provides that the pledger and the plegee may establish the pledge of maximum amount through negotiations.
3. Establish the amounts receivable as the pledge right
According to the Real Right Law, the account receivable can also be regarded as the subject matter for pledge with rights. If the account receivable is pledged, the written contract shall be concluded and the pledge shall be established after the credit collecting institution has registered the pledge. However, it is not stipulated in the Law whether the account receivable shall include the future credit, which is worth further research and discussion.
The Opinions provide on determining the nature for ten kinds of bribery. The first kind is “taking and accepting bribes by transactions”, which is relevantly complex in practice. According to the Opinions, any State functionary who, by taking advantage of his post, secures benefits for an entrusting person, and purchase or sell houses and cars etc. at a price obviously lower or higher than the market price, shall be regarded as guilty of acceptance of bribes. However, if a preferential condition for transactions does not aim at one specific person, it shall not be regarded as bribery. The Opinions do not give explicit provisions to define what is “obviously higher” or “obviously lower” and how to decide the proportion. As to the question whether taking and accepting gift shares constitutes bribes, there are few controversies; but the Opinions explicitly provide that as long as “there are relevant evidence proving the actual transfer of the gift shares”, the bribe is constituted whether the transfer has been registered or not; and the amount of the bribe shall be counted as the actual amount benefited.
The Opinions also explicitly provide that, any State functionary who has specific-relation-person to take the salary for a nominal post (without practice therein) or accept bribes shall also be regarded as bribery; and the range of the “specific-relation-person” covers close relatives, mistress(lover) and any other persons who share the same beneficial relationship with the State functionary.
As to the problem that the State functionary secures benefits for an entrusting person at his post and accept monies after leaving the post, the Supreme People’s Court made the “Reply on Issues concerning how to Deal with such Act that the State functionary who secures benefits for an entrusting person taking advantage of his post and accepts monies after retirement or leaving the post” (hereinafter, the “Reply”), which provided that the above acceptance is constituted on the condition that there is prior agreement when the State functionary still at post. According to the Opinions, if the State functionary, by taking advantage of his post, secures benefits for an entrusting person and agrees to accept monies from the entrusting person after leaving the post, and the acceptance really happens; or if the State functionary, after leaving the post, continually accept monies from the entrusting person, then this part of monies accepted shall be counted into the amount of bribery, which is in concordance with the Reply.
Besides, the Opinions also give provisions towards the following circumstances: accepting bribes in the name of cooperative investment such as establishing and running companies; accepting bribes by appointing the entrusting person to invest securities, options or in the name of entrusting wealth management; and accepting bribes in the form of gambling etc.
Ⅰ The background of adopting the “Interim Measures”
According to the relevant provisions by “Measures for the Administration of the Share-trading Reform of Listed Companies” (promulgated by China Securities Regulatory Commission on September 4, 2005), all the previous shareholders of non-tradable shares shall promise not to list or transfer their non-tradable shares within 12 months upon obtaining the listing and trading right; after the above promise period, the total amount of the previous non-tradable shares sold by the holders of more than 5% of such shares at the stock exchange shall not exceed 5% of the total company’s shares within 12 months and 10% within 24 months. Since the share-trading Reform in 2005, up to now there are more than 500 listing companies that are in the “ban-lifting period”, with a total tradable market price of more than 1 trillion Yuan. Under such circumstance, the timely promulgation of the “Interim Measures” may restrain the trend of reducing holding of state-owned shares and relive the market pressure.
Ⅱ Transfer through the trading system
The “Interim Measures” give provisions to the transfer through the trading system of state-owned shares of listing companies, which require the state holding shareholders who meet the following 2 conditions, to decide in accordance with the inner decision-making procedures, and within 7 working days after the completion of the transfer, to file with the State-owned Assets Supervision authorities that are or above provincial level: (1) As to the listing company that has a total share capital no more than 1 billion shares, the accumulated net transferred shares (the balance between the accumulated shares transferred and the accumulated holding of additional shares ) by the state holding shareholders within 3 consecutive fiscal years does not reach 5% of the total share capital of the listing company;? As to the listing company that has a share capital of more than 1 trillion shares, the accumulated net transferred shares by the domestic shareholders within 3 consecutive fiscal years does not reach 50 million shares or does not reach 3% of the total shares of the listing company. (2) The shares transferred by the domestic shareholders do not involve the transfer of controlling right of the listing company. If the transfer scheme does not meet the above conditions, it shall be reported level by level to the State-owned Assets Supervision and Administration Commission of the State Council for examination and approval. However, whether the above “5%” refers to “less than 5% in one trade” or “the accumulated amount less than 5% upon the end of the 3 consecutive years” has not been defined explicitly in the Interim Measures, which still arouse questions.
Ⅲ Transfer by Agreement
One prominent change in the Interim Measures is the transfer price of the state-owned shares under transfer by Agreement. Since the implementation of “Opinions of Regulating Act of Execution of Share by State-owned shareholders of Limited Joint Stock Corporations”, the state-owned shares are priced on the basis of the net value per share, however, after the Share-trading Reform, the previous non-tradable ordinary shares have obtained the right to be traded, and have become tradable shares that can be purchased or sold any time at the market, which formed the market-oriented pricing mechanism. Therefore, Article 24 of the Interim Measures provides that the transfer price shall be decided on the basis o f the arithmetic average value of the daily weighted average prices within 30 trading days prior to the date on which the announcement of the transfer is made by the listing company. If there needs discount on shares, the lowest price shall not be lower than 90% of the above arithmetic average value. However, under the circumstances such as integration or restructuring of resources, the share price of the listing company is an expectation of the restructuring of the company, rather than a reflection of the previous value of the asset. If the principles of the market pricing mechanism are still used under such circumstances, it will heavily increase the restructuring cost of the domestic shareholders and may even cause the failure of the restructuring. Therefore, the Interim Measures provide 2 exceptions to the market-oriented pricing mechanism: First, to integrate and or restructure resources, and the State-owned shareholders will purchase back all major assets of the listing company after the completion of share transfer; secondly, to integrate and restructure resources, the state-owned or state holding enterprises conduct inner agreement-based transfer and the rights and benefits or the state-owned rights and benefits of the listing company shall not be reduced because of that.
Another outstanding point of the Interim Measures is to introduce the issue of financial consultant, which requires the employment of a domestically registered, specific institution to be the financial consultant if the state holding shareholders transfer their shares in an agreement-based way and no longer have the share control right of the listing company.
The Interim Measures give different provisions to the acceptance of shares by stock exchange and agreement. If the accumulated net amount of accepted shares (the shares accepted deducting the shares assigned) by trading system of the stock exchanges does not reach 5% of the total share capital of the listing company during one fiscal year, the state-owned entity share decide in accordance with its inner management procedures, and every year before January 31, 2007, report and file the conditions of the last fiscal year’s acceptance of shares of the listing company through the stock exchange system, with the State-owned Assets Supervision and Administration authorities which are of or above provincial level; if it exceeds 5% of the total share capital of the listing company, the state-owned entity shall, before organizing the implementation, report and file its scheme of accepting shares of the listing company with the State-owned Assets Supervision and Administration authorities which are of or above provincial level.
If the state-owned entity does not gain the control right of the listing company after accepting the shares by agreement, or the state holding shareholders hold more shares of the listing company by agreement, the state-owned entity shall decide in accordance with its inner management procedures; for that who owns the control right, it shall report level by level to the State-owned Assets Supervision and Administration authorities which are of or above provincial level after the execution of the share transfer agreement with the transferor.
Besides, if the state-owned entity becomes the shareholder of the listing company by accepting shares by agreement, it shall employ a domestically registered, specific institution as its financial consultant.
The main contents of the amendment made by the new Measures concern the following respects:
Strengthen the verification of the authenticity of the application materials and samples and the examination of the production site. In order to ensure the safety of drugs from their sources, the Measures require the Drug Supervision and Administration organs to conduct on-spot inspection of the non-clinical study and clinical trials of drugs and to examine the production site before the drugs are marketed, so as to ensure the authenticity, correctness and completeness of the application materials.
Strengthen the public transparency of the examination and approval. Make reasonable adjustments and allocation of the supervisory resources. Maintain the examination and approval right of the State Bureau for certain amount of significant events while appoint the provincial bureaus to examine and approve major part of the supplementary application and make explicit the procedure for filing with the provincial bureaus regards the modification of some simple events; Place the registration work under the supervision of the public and eliminate under-table operation in order to show the openness, fairness and equity. The Measures provide that drug registration shall conduct the person-in-charge and group accountability system, the announcement and challenge system of related persons, and the system of fault responsibility ascertainment, and shall receive the public supervision during all procedures like acceptance, examination, evaluation, approval and delivery.
Raise the standard of examination and approval, encourage innovation and restrict low-standard repetition. Major methods are as follows: Conduct special examination and approval for innovative drugs to further promote the efficiency; reduce the range of new drugs and issue New Drug Certificate only for those drugs that are truly new; Separate the New Drug Certificate and Approval for New Drug Production; raise the standard of technology for the application for simple structured drugs and generic drugs.
Make explicit penalty provisions for the frauds in drug application and for the negligence of duty as well as the behavior of soliciting and accepting bribes of the persons in charge of the examination and approval.
Like the Provisions of 2001, the qualifications of enterprises in construction industry shall be classified into three sequences, namely, that for undertaking a whole ???construction project, that for undertaking a specialized contract and that for undertaking a labor service by subcontract. According to the Provisions of 2001, an enterprise that has obtained the qualification for undertaking a whole construction project “may subcontract the non-major part of the project or labor service to other enterprises in construction industry”, but the new provisions allow the legal subcontract of the specialized project and the labor service. Besides, the “Provisions of Qualification of Enterprises” give detailed provisions on the authorizing authorities, materials submitted and the requirements for adding or modifying the qualification, for the qualification of different kinds of enterprises in construction industry.
The “Provisions of Qualification for Survey and Design” is applicable to the application for the qualification for survey and design; and the supervision and administration for such qualification within the territory of People’s Republic of China. The qualifications for survey and design shall be classified into comprehensive qualification, specialized qualification and labor qualification for the survey of the project. Among them, the application for Grade A qualification for the survey of the project, Grade A qualification for the design of the project, and qualification for design involving railway, communications, water conservancy, information industry and civil aviation shall be examined and approved by the construction authorities of the State Council. Others shall be authorized by the construction authorities of the provincial people’s government.
After a period of trial, Shanghai Administration of Industry and Commerce promulgated on June 28, 2007, the Notice of Shanghai Administration of Industry and Commerce on Printing and Distributing the “Opinion on Regulating Registration of Contributions with Equity of Domestic Companies in Shanghai (trial)” (hereinafter, the “Trial Opinions”), and require all the administrations to observe, which give a clear direction to the investors who intend to make capital contributions in stock rights. However, the Trial Opinions do not involve capital contributions with the equity of foreign-invested enterprises.
First, to make capital contributions by stock rights shall meet the following conditions: (1) No flaw of right: The stock right shall be clear; its capacity is complete and is fully paid-in. The following stock rights cannot be used to make contributions: those that are not fully paid in, that are set as guaranty or frozen by the court, those of the bearer stocks issued by the joint stock limited corporation and those stipulated in the Articles of Association by the shareholders not to be transferred; (2) Evaluation; (3) The contributions made with the stock rights shall not be higher than 70% of the registered capital of the company invested; (4) If stock rights of a limited liability company are used to make capital contributions, it shall be agreed by more than half of the other shareholders of the company. The reason is that using stock rights as capital contributions is similar to share transfer, and thus the preemptive right of the other shareholders shall be protected.
The Trial Opinions allow the investors to make their contributions with their stock rights 2 years after the establishment of the company, however, if the company invested is a one-person limited liability company or a joint stock limited company established by fund-raising, then before the actual payment of the stock rights, the stock rights part of the contributions shall not be calculated into the registered capital and the paid up capital.
Whether the investors subscribe or pay up for shares with the stock rights, the shareholders of the target enterprise shall be modified by the investors into the “company invested”.
§ IP Cases
The judgment of the first instance ruled that the plaintiff YAMAHA Motor was the owner of the registered trademarks of “YAMAHA”, “雅马哈” and “FUTURE”. Zhejiang Huatian used the registered trademark “FUTURE” on its own motorcycles, which infringed the plaintiff’s right to the registered trademark. Meanwhile, as the plaintiff’s registered trademark enjoyed a rather high reputation and prominence, while “Nippon YAMAHA Co., Ltd.” had never been registered as a trademark or trade name in China or Japan and thus had no right to license other companies to use its name. The licensing behavior of Nippon YAMAHA Co., Ltd. may lead to misunderstanding by the relevant public of the source of the products and disrupt the market order; and Zhejiang Huatian’s prominent use of the characters “Nippon YAMAHA Co., Ltd.” may also cause confusion among the public. Besides, Li Shutong, the former chairman of the board of the Nippon YAMAHA Co., Ltd. was concurrently the largest shareholder of Zhejiang Huatian. As an insider of the motorcycle business, he should have known that the plaintiff’s “YAMAHA” was a famous trademark, but he still licensed Zhejiang Huatian and Taizhou Huatian to use “Nippon YAMAHA Co., Ltd.” through a Trademark License Agreement between Nippon YAMAHA Co., Ltd. and Zhejiang Huatian, which presented obvious intentional infringement. Therefore, the court affirmed that Zhejiang Huatian also infringed the plaintiff’s exclusive right to the registered trademark by using the characters of “Nippon YAMAHA Co., Ltd” on the motorcycles it produced and sold. Taizhou Jiaji and Taizhou Huatian, though clearly knew the infringement by Zhejiang Huatian, still sold the infringing products, which also constituted infringement. Nanjing Lianrun had already returned all the motorcycles purchased from Taizhou Huatian and there was no evidence to prove that it had sold any motorcycles alleged and thus did not constitute infringement. Concerning the amount of the compensation, due to the incompleteness of the financial materials provided by Zhejiang Huatian and the opposition from Taizhou Huatian and Taizhou Jiaji to providing the financial materials reflecting their business conditions, the court presumed the establishment of the amount of the compensation claimed and calculated by YAMAHA Motor Co., Ltd. in accordance with “Relevant Provisions of the Supreme People’s Court on Evidence in Civil Procedures” and ruled that the three defendants shall bear their liabilities for compensation according to the amount claimed by YAMAHA Motor Co., Ltd.
Zhejiang Huatian did not accept the judgment of the first instance and appealed. It alleged that the characters “Nippon YAMAHA Co., Ltd.” it used had been legally authorized and that the trademark “YAMAHA” of YAHMAHA Motor Co., Ltd. and “Nippon YAMAHA Co., Ltd.” it used shall not be mixed up with each other; besides, the amount of the compensation ruled by the original judgment was unreasonable.
The appellee YAMAHA Motor Co., Ltd. and Nanjing Lianrun responded that the facts were clear and the laws applied were correct in the original judgment and requested the court to maintain the judgment of the first instance.
The court of the second instance ruled that YAMAHA Motor Co., Ltd. was the owner of the registered trademarks “YAMAHA”, “雅马哈” and “FUTURE”. The three trademarks enjoyed a rather high prominence and reputation inside the industry. The words “Nippon YAMAHA Co., Ltd.” used by Zhejiang Huatian to mark the claimed products seemed like trade names or enterprise names, but had not been registered in Japan or China. Zhejiang Huatian counterfeited “Nippon YAMAHA Co., Ltd.”, seeming like a trade name or enterprise name, and comprising the registered trademark “YAMAHA” of YAMAH Motor Co., Ltd., which had a higher reputation in the relative market of motorcycles, into the name. Also Zhejiang Huatian used a larger character size to stress the character “YAMAHA”, which obviously presented its intention to mislead the relevant public to relate the infringing products with the registered trademark “YAMAHA”, and objectively may easily cause confusion of the source of the products in the relative market of motorcycles. Therefore, the court affirmed it constituted infringement on trademark. Concerning the amount of the compensation, the court of the second instance ruled that, according to the relevant judicial interpretations, the People’s Court can calculate the compensation by using the calculating method chosen by the obligee. The calculating method adopted by YAMAHA Motor Co., Ltd. was reasonable and thus was taken by the court. Therefore, the court of second instance rejected the claim and maintained the original judgment.
The court of first instance ruled that both of the two patents obtained by Aventis (Patent 93 and Patent 95) were production method patents for new products, while Hengrui, a company produced similar products failed to prove the difference between its production method of “docetaxel” and that of Aventis and thus Hengrui shall bear the responsibility of patent infringement. Meanwhile, in the brochures of “docetaxel” distributed by Hengrui, Hengrui compared its product with that of Aventis, and boasted the merits of its product while falsely degraded that of Aventis, the behavior of which constituted inventing and fabricating, spreading false facts, and conducting unfair competition that damaged the business credit and Aventis’ product’s reputation.
Hengrui did not accept the judgment of first instance and appealed.
Hengrui alleged that: First, the case referred to 3 actions, namely the action of Patent 93 infringement, the action of Patent 95 infringement and the action of fair competition. The court of first instance combined the above three actions, which violated the legal proceedings. Secondly, concerning Patent 93, Aventis brought the action basing on the independent claim No.2 , but it did not prove that Hengrui had used the chemical compound stated in the Independent Claims No.1 of the 93 Patent right as raw materials; also, the “Technological Authentication” had proved that the production method of “docetaxel” produced by Hengrui fell out of the protection range of Patent 93, and thus it shall not constitute an infringing behavior. Thirdly, concerning Patent 95, Aventis did not prove that the claimed infringing product was the same as the product using its patent method, and besides, the approval materials of the drug provided by Hengrui had proved that its production method of “docetaxel” did not refer to Patent 95, which also illustrated that the infringement was not constitute.
The court of the second instance held that, though the actions in the case were three different ones, and the court of the first instance had no jurisdiction over unfair competition, Hengrui did not raise objection towards jurisdiction according to laws, and the withdrawal of the original judgment shall impose unnecessary litigation exhaustion on the parties and waste judicial resources. Therefore, the combination of the three cases by the court of the first instance was reasonable. Also, concerning Patent 93, as during the disputes of infringement on production method for new products, the commercial secrets of the claimed infringer shall be considered while requiring it to prove the difference between its method and the Patent method——instead of requiring it to provide the whole details of its method, it was required only to the extent that the claimed infringer proved its method for production was different from the method of the patent holder. As the “Technological Authentication” had already contained the original records of the drug production method provided by Hengrui, and had confirmed that Hengrui’s method was different from the Patent. Hengrui shall not be considered as failure to fulfill the responsibility of providing evidences only because it did not provide operational specifications, and thus infringement shall not be affirmed for such reason. Therefore, the result of the “Technological Authentication” shall be taken, and the examination result issued by Tsinghua University, who was entrusted by Aventis and used the materials unilaterally offered by Aventis shall not demolish the “Technological Authentication”. Therefore, the court ruled that Hengrui’s behavior did not constitute infringement. Also, concerning Paten 95, Aventis failed to prove that Hengrui had produced the products directly follow its patent method, and therefore Hengrui did not infringe the patent right of Aventis. However, as the holder of “Import Drug Registration Certificate”, Aventis has interests and concerns related with the claimed product in the Chinese market and can be regarded as a litigation subject. Meanwhile Hengrui did not raise any objection to its improper competition in the appeal. Therefore, the court of the second instance determined that Hengrui’s behavior constituted the improper competition but did not constitute infringement on patent.
Xingfa alleged in the first trial that its company was the owner of the design patent No.ZL99338396. It considered that the materials produced by Yuma, and bought by Xinfa from Nangtong Nanhua Building Co., Ltd. infringed its patent right and thus lodged a lawsuit with Nantong Intermediate People’s Court.
The court of the first instance held that the claimed infringing product and the product involving the above patent were of the same kind. Though both of the two products shared an “H” shape from an overall look, the differences such as glass installation plug-ins shall not confuse the consumers. Therefore, the claimed infringing product did not constitute similarity with Xingfa’s patent, and thus the infringing behavior was not constituted.
Xingfa did not accept the judgment and appealed. It alleged that during the first trial, the definition of general consumers as well as the method and principles used to compare the patented product and the claimed product did not comply with the “Guidelines for Patent Examination”; and that the courts of other localities all affirmed the constitution of infringement by the same kind of product.
The court of the second instance held that the current design that already known before the patent application shall not belong to the protection contents and shall be excluded when determining the range of protection of the patent. In this case, if the current design was taken into the range of comparison, then the claimed product was similar to the involved design patent from an overall look; but if the current design was excluded, then the two products were visually distinct and the consumers who had general knowledge of the aluminum door & window materials shall not be misled. Therefore, the product produced by Yuma did not constitute infringement.
The plaintiff alleged that Red Dragonfly and Zhu Guoli signed a “Trademark Licensing Contract” and agreed that Zhu Guoli shall license her registered trademark No. 1286105 to Red Dragonfly for exclusive use within the territory of the Mainland of China, on trousers’ series. The contract had been registered and filed and Red Dragonfly had fulfilled its obligation of payment according to laws. However, Zhu Guoli breached the contract and assigned the claimed trademark, which Red Dragonfly had exclusive using right, to Fengshang. Then Fengshang signed a contract with Da Huzhou Fashion Factory of the West Mountain Region, Kunming (hereinafter, “Da Huzhou”), which licensed the factory to use the claimed trademark on Category No. 25, man’s pants and suit trousers, and authorized Kunming Sili Kadno (hereinafter, “sili”) to be its general agent in Yunnan Province. Therefore, the plaintiff held that the behavior of the two defendants constituted trademark infringement.
Zhu Guoli defended that she didn’t violate any law or conduct any fault in licensing Red Dragonfly with the exclusive right of the trademark while also assigning the trademark. The “Trademark Assignment Contract” signed between the two defendants explicitly stated that the assignor had already licensed others to use the claimed trademark on suit trousers. Though the contract did not explicitly provide that it was exclusive license, Fengshang shall bear the responsibility to inspect and manage with good faith during the authorization. Fengshang should have known the way of licensing while conducting license for the second time.
Fengshang defended that the license between Zhu Guoli and the Plaintiff belonged to ordinary license contracts and Red Dragonfly did not have the qualification as a litigation subject. Also, Fengshang only knew that Zhu Guoli had licensed the claimed trademark to others, but did not know to whom or the exclusiveness of the license. Meanwhile, the main purpose of Fengshang to obtain the claimed trademark was for the operation of T-shirt and cardigans and after the litigation, Fengshang had already notified the licensee to stop using the claimed trademark.
The court held that the “Trademark License Contract” had provided that Zhu Guoli shall not run business concerning commodities with the same or similar trademark within the effective territory and within the effective period, which complied with the judicial interpretation of the “exclusive license”. Therefore, Red Dragonfly enjoyed the exclusive using right of the claimed trademark on trousers. Under the circumstance without any forbidden agreement, Zhu Guoli did not violate the laws and regulations by assigning the claimed trademark to the legal representative of Fengshang and then to Fengshang; thus the contract was effective. However, Zhu Guoli only indicated that the trademark had been licensed to others for use, without pointing out the categories, using range, time and other information of the trademark, which had obviously fault. Then, Fengshang failed to fulfill its duty of management of the trademark, under the circumstance that the license of the claimed trademark had been filed, Fengshang licensed the claimed trademark to the third party without requiring Zhu Guoli to provide the License Contract or inquire at the Trademark Bureau; thus its behavior had already infringed the exclusive using right of Red Dragonfly. Comparing the two defendants’ behaviors, the fault of Zhu Guoli did not necessarily lead to the claimed infringing behavior, while Fengshang’s negligence of management and rash authorization was the direct reason for the dispute concerning the trademark. Therefore, the court determined that Fengshang’s behavior constituted infringement and shall bear corresponding civil liability for that.