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shanghai putuo court issued white paper on the trial of cases over intellectual property contract disputestop ten cases
[2020-04-22]

 On April 22, 2020, the Shanghai Putuo District People's Court ("Shanghai Putuo Court") held a press conference online to release the White Paper on the Trial of Cases over Intellectual Property Contract Disputes and the Top Ten Cases on the Protection of the Intellectual Property Rights. Wang Fei, vice president of the Shanghai Putuo Court, reported the court’s handling of cases over intellectual property contract disputes in the past five years. Professor Xu Chunming, vice dean of the Law School and dean of the Intellectual Property School of Shanghai University, gave relevant interpretation at the conference, which was live-streamed simultaneously on several platforms including Xinmin.cn, Yangshipin and Kuaishou.

The White Paper gives a thorough review of the trial of cases over intellectual property contract disputes in the Shanghai Putuo Court over the past five years, analyzes problems and summarizes experience, so as to provide useful reference for promoting the healthy and orderly development of regional intellectual property transactions.

According to the White Paper, in recent years, the cases over intellectual property contract disputes handled by the Shanghai Putuo Court have the following six characteristics: 1. The significant rise in the number of cases in the last two years suggests a boom in intellectual property transactions. In the past five years, the court has accepted a total of 924 cases concerning various intellectual property contracts. With ever more efforts being made in regional industrial restructuring and innovation measures, intellectual property transactions have become increasingly active, leading to a large increase (as much as 59.1% for the last two years) in the number of cases concerning relevant contract disputes. 2. The rapid growth in the amount involved in the cases reflects an ever-increasing volume of intellectual property transactions. In the first three years, the total amount involved in the cases concluded was RMB 106 million, and it increased to RMB 130 million in the last two years. There were 18 cases involving an amount of more than RMB 5 million, 6 involving an amount of more than RMB 10 million, and the largest amount involved in a single case was RMB 50 million. Along with the growth in the number of intellectual property transactions, the volume of such transactions is also expanding. 3. The number of cases concluded through mediation or withdrawn increases year by year, and the efficiency of litigation is on steady rise. In 2019, the proportion of cases concluded through mediation or withdrawn was 75.27%, up from 48.2% in 2015, with an increase of nearly 27 percentage points. Meanwhile, the court has been following a standard trial process. 21% of the cases were concluded within three months. The trial period has been significantly shortened: from an average of 127.1 days in 2015 to 92.5 days in 2019, showing a steady improvement in the litigation efficiency. 4. The rise in the number of foreign-related cases reflects a continuous expansion of the trading scope of foreign-related business entities. The number of foreign-related cases increased from two in the first three years to 11 in the last two; the entities involved come from such countries as America, England, South Korea, Italy, and Switzerland; the types of cases expand from technology development and technology transfer to trademark licensing and copyright licensing contracts; and the foreign-related factors involved expand from foreign-related entities only to foreign sources of the rights involved. All those suggest continuously expanded intellectual property transactions of foreign-related business entities in China. 5. There are more cases featuring a collective request for rights protection, and the market credit system and administrative supervision mechanism of some industries need to be improved. 6. The contracts involved are becoming more specialized, making the trial more difficult. Cases on intellectual property contracts involve a lot of expertise. For example, in the case concerning a pharmaceutical technology transfer contract, the judge needs to make a specialized judgment on the correlation between pharmaceutical original atlas and electronic data and drug development; in the case concerning a commissioning contract for game development, the judge needs to decide whether the processes such as model-making, 2D drawing, and 3D rendering, meet the results agreed upon under the contract. A judge should possess sufficient technical expertise to cope with cases like those. Another difficult type involves a copyright licensing contract for a script: the judge should have some knowledge about the industry when judging the completeness of the main lines and of the script for each episode.

The White Paper outlines the following prominent problems in intellectual property contract disputes. 1. The right holders fail to disclose information about the right ownership and the business qualifications properly. In a dispute over a franchise contract, the franchisor conceals the important information related to the business qualifications. In the disputes over copyright licensing contracts, some transferors fail to disclose that the transferred works are special works such as commissioned works or works of duty, that the contracting parties do not have the right of sub-licensing, or that it goes beyond the term or territory in which the works can be licensed. In the disputes over trademark transfer contracts, the right holders fail to disclose such information as there is a prior licensing right for the trademark or the trademark is in the stage of invalidation. 2. The right holders transfer or license their rights for multiple times or to multiple people. Some trademark right holders transfer their trademarks repeatedly in violation of the principle of good faith; some right holders do not know the scope in which the licensing is permitted; the exclusive licensors would re-license; or the licensees sublicense beyond the scope permitted. 3. The contracting parties do not have a proper assessment of the risks in performance. In the disputes over franchise contracts, some franchisees fail to make sufficient policy analysis of the franchise industries which require qualifications, such as education and training, and they also fail to make proper evaluation on the value of the franchise brands and the development trend of the industry. In the disputes over copyright transfer contracts, some transferees, without making a thorough analysis of the market prospect, pour money in popular IP, online literary works or scripts. 4. The contracting parties are not aware that laws and policies outside China are different. For example, in determining the copyright owner of a film, some countries allow investors and distributors to form a consortium to enjoy the copyright, and one party alone can have its name under the copyright owner, and the consortium will exercise the rights collectively. That causes misunderstandings in reviewing the ownership of the film and the completeness of licensing under a contract. There are also differences in the scope of rights enjoyed by the copyright owners, and disputes may arise in the development of derivatives due to the product types and scope. In a dispute over a technology transfer contract, the transferee fails to do due diligence on the laws and policies on high-tech transfer in the country where the technology holder is located, causing the contractual risk of violating mandatory laws. 5. The agreements on the contents of and standards for the results are unclear. In a dispute over a technology development contract, both parties only agree on the standards for the result in the sense of framework. In a dispute over a commissioning contract for creation, there is a risk that the contracting party may interpret arbitrarily as there are no provisions about how the script and the trailer should look like after they come out. 6. The contracting parties lack the awareness to preserve evidence for contract modification and performance. When creating a film/television script, the creator fails to fix evidence in written form for the change in the result and remuneration; in a dispute over a franchise contract, the franchisee does not keep relevant written or electronic evidence when providing field guidance on operations. 7. The agreements on the methods of and the standards for settlement under contracts are unclear. In a dispute over a copyright licensing contract, both parties agree on a floating settlement based on the copyright; in a dispute over a commissioning contract for creation, it is unclear whether there is a corresponding relationship between the periodic remuneration and the workload completed; in a dispute over trademark licensing contracts, there are common settlement-related problems in goods supplies and returns, payments, and inventory count. 

The Ten Typical Cases over Intellectual Property Contract Disputes Handled by the Shanghai Putuo Court and the Top Ten Cases on the Protection of Intellectual Property Rights concluded by the court in the past five years were also released at the press conference.

*     White Paper on the Trial of Cases over Intellectual Property Contract Disputes by Shanghai Putuo District People’s Court (2015-2019). docx

*     Top Ten Cases on the Protection of Intellectual Property Rights Handled by Shanghai Putuo District People’s Court. docx

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