Recently, the Supreme People’s Court concluded a reconsideration case involving the infringement of the exclusive right of integrated circuit layout design and act preservation. In this case, the Court deemed that the act preservation request meets the conditions for approval based on the comprehensive consideration of whether the applicant’s request has factual and legal basis, whether irreparable damages will appear in the absence of the act preservation measures, and whether adopting act preservation measures will cause an imbalance of interests and damages to social public interests, among other factors. Particularly, the Court also gave consideration to the urgency of the case, as the accused infringing chips were set to be delivered soon, potentially leading to reduced trading opportunities, price erosion, and other harms to the right owner upon their market entry. This reconsideration ruling marks the first reconsideration ruling supporting act preservation of the accused infringement actions made by the IP Court of the Supreme People’s Court.
A Company alleged that B Company and C Company infringed its exclusive right of an integrated circuit layout design and thus filed a lawsuit with the first-instance court. After the case was put on record by the court, A Company requested the first-instance court to order B Company and C Company to cease the infringement of its exclusive right of the IC layout design. The first-instance court ruled B Company and C Company to stop producing and selling the accused infringing chips from the date of the ruling taking effect to the date when the judgment of this case takes effect. B Company and C Company both dissatisfied and filed a reconsideration application to the Supreme People’s Court.
The initial investigation revealed that 50 silicon slices (equivalent to about 500,000 chips) that B Company entrusted C Company to manufacture and process had been delivered by the chip manufacturer to the packaging enterprise.
In the reconsideration, the Supreme People’s Court determined that:
First, the layout design in which A Company claimed protection had been registered with the CNIPA, and the relevant evidence submitted by A Company when filing the lawsuit can initially indicate a high degree of similarity between the layout design of the accused infringing products and A Company’s layout design.
Second, the imminent delivery of chips by B Company and C Company posed urgency, as such chips entering the market may cause economic losses to A Company, as well as diminish trading opportunities and erode the price. Comparatively, act preservation can instantly prevent the accused infringing chips from entering the market and effectively prevent the further expansion of the accused infringement and its consequences.
Third, given that A Company’s request for act preservation had factual and legal basis and that A Company submitted corresponding guarantee, the potential harm to B Company and C Company from implementing act preservation measures would be relatively small compared to the damages that A Company might suffer without taking act preservation measures.
Lastly, as there are adequate alternatives in the market for the accused infringing chips and the case does not involve any major public interests such as public health or environmental protection, the decision on whether to implement act preservation measures does not raise issues of jeopardizing social public interests. Therefore, the Supreme People’s Court ruled to dismiss the reconsideration request of C Company and B Company.
This reconsideration ruling also explained the differences between the damages compensation mechanism and the act preservation mechanism in terms of protecting the right holder, strengthening the proactive prevention function of the act preservation mechanism. While the damages compensation mechanism aims to restore the infringed party as closely as possible to their pre-infringement status, it is usually difficult to fully offset losses suffered by the infringed party from market preemption and price erosion simply through compensating economic losses. Meanwhile, due to the influence of compensation scope, evidence situation, enforcement capability, and other various factors, even if the infringing party is ordered to compensate losses, it is sometimes hard to achieve full compensation. Therefore, as a proactive prevention mechanism, act preservation usually surpasses loss compensation in protecting the right holder, as the latter is an afterward remedial measure.
Act preservation, as a provisional civil remedial measure, aims to prevent the applicant from irreparable damages before the judgment. However, it may also cause certain effects to the requested party, interested parties and even public interests. The overly loose examination standard by the court for act preservation may cause right abuse, while the overly strict examination standard may curb the effectiveness of the mechanism. Therefore, it is essential to correctly understand and apply act preservation examination standards in practice. This case marks the first reconsideration ruling made by the IP Court of the Supreme People’s Court supporting act preservation, providing a practical case with value of reference for act preservation assessments.
(2024) Zui Gao Fa Zhi Min Fu No. 3
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