Litigating IP in China: a word of advice regarding evidence and proof

No-one handed the corporate seal over, so he took
himself off to the sea-side for a little break

The importance of adequate preparation of one's evidence in IP or indeed any other litigation is so blindingly obvious that we should never need to be reminded of it.  However, the IPKat's talented friend Paul Jones (Jones & Co., Toronto) has just drawn his attention to the good news that the need to get one's evidence property sorted out has been recognised as far afield as China.  This is illustrated by a decision of the Beijing No.1 Intermediate People’s Court dated December 10, 2010 and posted online here on 29 January of this year, According to Paul, 

"The plaintiff was a Taiwanese company that had a trade mark, ZHENGLIN & Design, that it used in Taiwan. In the early nineties the principal of the Taiwanese company, Lin Ken, incorporated a company called Lanzhou Zhenglin Land Reclamation Food Co., Ltd. (兰州正林农垦食品有限公司 -- “Lanzhou Zhenglin”) with some local partners in Gansu Province, a poor province in the north west, along the route of the old silk road, in order the develop supplies for export and for the PRC market. The PRC company registered the mark in China.

There was a falling out and in August of 2007 the principal of the Taiwanese company, Lin Ken, was removed as President. He disputed that decision and refused to hand over the corporate seal. In China the corporate seal or “chop” is a very important indicator of the authority of the corporation, unlike in North America.

The plaintiff then claimed that the PRC company, Lanzhou Zhenglin, should not continue to use the marks. The plaintiff claimed that the right of Lanzhou Zhenglin to register the marks in the PRC was based on an “Authorization Letter” and Trademark License and Renewal Letters dated 1993, 1999, 2004 and 2008. He presented copies of the letters to the court. But he lost. 

Article 49 of a Supreme People’s Court rules on evidence of 2001 provides that the other party has the right to demand that the original document be submitted. But all Mr. Ken submitted was a photocopy notarized by a law firm in Taiwan in 2008. The Taiwanese law firm carefully limited its authentication to the signature and seal. It did not say that it had compared the copy to the original and that they were the same. It did not talk about the dates on the letters. Interestingly the letters were also stamped with the seal of Lanzhou Zhenglin, the seal that Lin Ken had refused to hands over in 2007.

The Plaintiff claimed that the originals of the letters were in the office of Lanzhou Zhenglin, to which it had no access. In the PRC courts there is no discovery as there is in North America and the defendant was under no obligation to produce evidence to help the Plaintiff. The plaintiff also claimed that a copy was in his home in Lanzhou (the capital of Gansu Province), but the documents there had been seized by the police as part of an action against him regarding misappropriation of the assets of Lanzhou Zhenglin. Interestingly the police records did not show that such letters were among the items seized.

Article 69(4) of the SPC rules on evidence states that photocopies may not be used as evidence if they cannot be verified as against the original. Mr. Ken lost his claim for the trade marks in the PRC.

Were there ever such  authorization letters? Certainly it is not uncommon for business people to forget about such details when setting up a company that they control. But even if the letter existed, the plaintiff did not take the necessary steps at the time that the letters were written to ensure that they would be effective evidence in court.  Remember that in China, as in many other civil law jurisdictions, there is no discovery in litigation. You have to collect your own evidence, usually before you start the lawsuit.

So when the agreements are entered into the parties should have them notarized in China. They should be careful to ensure that the “legal representative” (法定代表人) signs on behalf of the Chinese company. The legal representative can be held personally responsible for the actions of the corporation. There is no similar concept in North America. And use a seal. If your company does not have one – buy one.  Finally trade mark licences and other IP licences should be registered. That was obviously not done in this case.

In China litigation generally is all (or at least mostly) about the evidence. The court rely more on documents than they do on oral testimony. And the rules of evidence and the courts are stricter about documentary evidence than in North America. And there is no discovery to help you out.

So the rule in Chinese litigation is “Be Prepared.”

Says the IPKat, much has been said about the difficulties of enforcing IP rights in China -- but the usual story for a very long time has been that it's somehow always the fault of the Chinese and their system.  One rarely hears people saying that the reason why they lost was that they had failed to comply with local rules, gather the necessary documentary or other evidence etc.  Absence of a procedure for discovery may be thought to be a nuisance or a misfortune by some, but there are plenty of reputable jurisdictions that manage without it -- Germany, for one, is not exactly a paradise for those seeking discovery.  This little tale should be taken to heart; it contains some sound advice.

Seal recipes here and here