The China IP Blog Series: Overview of the Supreme People’s Court’s Latest Provisions on Evidence in Civil Proceedings Involving IP Disputes
By: Dr. Paolo Beconcini and Elisa Li* (please see the end for more on Ms. Li and her practice)
Overview of the Supreme People’s Court Provisions on Evidence in Civil Proceedings Involving IP Disputes
After the “Decision of the Supreme People’s Court on Revising the Several Provisions on Evidence in Civil Proceedings” became effective on May 1, 2020, the Supreme People’s Court (“SPC”) released for public comment the “SPC’s Provisions on Evidence in Civil Proceedings Involving IP Disputes” (the “Draft”) on June 15, 2020.
The Draft is of particular importance because it is the first intervention of the SPC since 2001 and addresses several critical issues. For example, the Draft regulates the admissibility of electronic evidence and the lightening of traditional formal hurdles and requirements for evidence admission by allowing evidence of infringement acquired via purchase test without notarization. The Draft also relieves the rights holder’s burden of legalizing evidence acquired outside of China under certain circumstances. The amendment also improves evidence exchange procedures and enhances the protection of trade secrets throughout the evidence exchange and cross-examination processes.
In this blog post, we will review some of the major changes in the Draft on Evidence in IP Disputes in China and assess their possible impact on litigation strategies.
The Rules of Evidence in China
When it comes to evidence, China relies more on a civil law rather than a common law system. Civil proceedings are divided into one or more hearings leading up to a court decision. The guiding principle is that the party who alleges a violation must prove that violation. Presumptions or shifting of the burden of proof are available in regulated circumstances.
As to the timing, evidence is mostly filed with the initial pleadings and defenses, although there are a number of exceptions for introducing new evidence at a later stage of the proceedings, or at the final hearing before the judgment. Most evidence will be filed in the form of documents, copies of documents, and affidavits. Factual witnesses and expert witnesses are admissible, but there are strict deadlines for their introduction. In IP infringement cases, the core evidence will be the proof of manufacturing, selling, and the offering for sale of an infringing product or service.
There is no discovery in China, and evidence is collected by the plaintiff before the case is filed with a court. Purchase tests are arranged to obtain the main evidence and proof of infringement. Purchase tests are also important to engineer forum shopping, where available. Forum shopping is beneficial, for example, to make sure the case is heard by a court that has experience in IP disputes or possibly to move away from the domicile of the defendant(s) in order to reduce the risk of local factors influencing the judges’ decisions. Several laws and regulations already provide for court intervention in evidence acquisition processes — i.e., a court’s investigation of facts and acquisition of evidence that is available to the defendant but not to the plaintiff (e.g., accounting records and other internal documents). Yet courts are reluctant to take action unless the requesting party has proved that they have made any objectively foreseeable effort to obtain such evidence. Even still, the required evidence must be detailed very precisely for the judge to go and find it. Even when a party requests the court to obtain public records, such as customs records for example, formal obstacles and administrative barriers may inhibit the court from obtaining such evidence. Judges will tend to push back any request as soon as they encounter any minimal obstacle. Therefore, the success of an IP enforcement proceeding is based on the parties taking the evidence acquisition process into their own hands.
Another hurdle for litigants is complying with formalities normally required to file admissible evidence. The hurdles are of two main types. For evidence formed abroad, the documentation must be notarized and legalized to be admitted before a Chinese court. Evidence filing deadlines are often very short, and this forces parties to race against time to provide such evidence in the required legalized form. Even when notarization and legalization are not required for admissibility, normally for evidence formed in China, the reality is that litigants tend to always use notaries to authenticate evidence. Unfortunately, it is common in China for parties to file forged evidence and to dispute the authenticity of the evidence of the other party. Given this culture of distrust in the other party and the likelihood of bad faith, notarization laws and regulations provide that notarization of evidence creates a presumption of authenticity. This has resulted in a series of special notarial and procedural rules that give notaries certain authentication powers that are not common in the U.S. and Europe. A typical task of a notary is validating a purchase test of the infringing product. Interestingly, the presence of the notary, even at an in-person negotiation and purchase will not be revealed, and the notary acts as a secret witness of the transaction. Notaries are also employed to notarize contractual negotiations via phone and email. Parties often will go to a notary office, use their computer and software, and conduct such calls and negotiation before the notary so that the notary can confirm that these activities took place. All this makes litigation preparation very complex and expensive.
It is also because of this distrust and the need to ensure authenticity, coupled with the limits of the notary to be able to prepare deeds when evidence is not immediately formed before his eyes, that has challenged the system before the new trend of using evidence formed and stored online, or of video materials online etc.
The new regulations in the Draft attempt to tackle some of these issues, making evidence acquisition, authentication, and admissibility less convoluted and burdensome for the parties in an IP dispute. Below we provide an overview of the major changes.
Self-Admission is Not Applicable to Ownership and Status of Rights in IP Disputes
This first group of amendments deals with limitations on the possibility of replacing evidence of facts with self-admissions. In particular, article 6 of the Draft expressly states that self-admission is not applicable to ownership and status of rights in IP disputes in China. Therefore, rights holders will still be required to submit valid proof of ownership by filing original trademark registration certificates issued by the China National IP Administration (CNIPA) or original trademark registration confirmation documents issued by the CNIPA. In the case that the registration certificates are not available, originals of patent certificates, patent assessment reports and payment receipts of patent annuities, originals of copyright registration certificates issued by the CPCC (if any), manuscripts, publications (if any), certifications issued by the certification body (if any), or contracts for obtaining rights (if any) should suffice.
If the rights holder is enforcing an international trademark, he will need to obtain and provide a special certified copy of the trademark registration confirmation from CNIPA because WIPO certificates will not be admitted by any Chinese court. It takes a couple of months to obtain this certificate, and this must be factored in when planning an enforcement timeline.
- Evidence Produced by the Parties
A. Evidence from Foreign Websites
It is common that a certain portion of infringement evidence includes printouts of the alleged infringers’ websites and/or their shops on e-commerce platforms, as well as email correspondence. With regards to pages on foreign websites that are not directly accessible from China, including but not limited to YouTube, Google, Facebook etc., foreign rights holders are normally required to notarize the webpages at their place of domicile. Rights holders must also provide the legalized version of these notarized videos to serve as effective evidence in IP infringement lawsuits in China, as these websites are not accessible in mainland China without a VPN, which China has prohibited by law. This can be a very burdensome process. Can the video itself be notarized directly from YouTube? Will a notary only notarize printouts of video sequences? Will such a notarization be available at all in the foreign country? All this must be answered from the standpoint of the involved foreign jurisdiction and then harmonized with the Chinese evidence standards in order to persuade a judge to admit that evidence.
Article 44.1 of the Draft provides that evidence from foreign websites can be admissible even though its collation method does not comply with the above administrative regulations on legalization. What this exactly means remains unclear, and further regulations will be needed. For example, does this mean that printouts of webpages of foreign websites which are obtained in mainland China by using a VPN service are now admissible in a Chinese courts? If the courts were indeed allowed to have such latitude in admitting this kind of evidence, we could even imagine that photos snapped from a Facebook or Google page could be printed and introduced as evidence without any further formalities, like any other page from a Chinese website. What an improvement that would be for the parties and their litigation strategy! However, we will need further clarifications, likely from the same Supreme People’s Court, on this point to see how this will really play out.
B. Purchase Test Without Notarization and the Entrapment Exception
Article 8 of the Draft provides that infringing products, instruments, and other evidence obtained by the IP rights holder or its agent from the alleged infringer under pretext and under a different name in order to discover and obtain evidence of the infringement can be admitted as evidence, except where the infringing act was generated from the IP rights holder’s evidence collection only.
This provision literally codifies the admissibility of a purchase test as evidenced in civil proceedings. This provision allows and recognizes the validity of such evidence acquisition, even if conducted under cover of a false identity and pretext. Therefore, there is now a presumption of validity of such an evidence acquisition test. The scope of this codification also implies the fact that there is no longer a need to support such a purchase test through notarization. This will help in reducing the cost and burden of having to involve notaries undercover, in what frequently may be a complex transaction. It will be down to the defendant to provide rebuttal and counterevidence in support of claims against the occurrence of such a purchase transaction or that the transaction was an entrapment.
In fact, this provision also codifies entrapment. If the alleged infringer does not openly offer the product for sale, and the plaintiff created the occasion of the infringement by asking the defendant to manufacture and sell the IP infringing products, such evidence cannot form a legitimate basis for an infringement claim. More details will be needed to determine the exact boundaries of this limitation, and we can expect the Supreme Peoples’ Court to intervene on this point soon.
C. Evidence Formed Outside China
Article 9 provides that, for evidence created outside of China, if the opposing party expressly acknowledges its authenticity or the producing party provides testimony indicating the authenticity of the evidence where the witness is under penalty of perjury, legalization is no longer required.
Under one of the following conditions, extraterritorial evidence would not need to be notarized and legalized where: 1) those that have been confirmed by an effective judgment made by a People’s Court or via an arbitration award; or 2) those belonging to publications, patent search documents, etc., that could be obtained from official or public sources abroad; or 3) those where authenticity could be verified through other legitimate means.
Foreign rights holders will benefit from article 9, as they may be relieved from conducting notarization and/or legalization for extraterritorial evidence, especially considering the current pandemic situation in most parts of the world. With regards to the effective arbitration award, the Draft does not specify whether it should only be the arbitration award issued by the Chinese arbitration centers like CIETAC, or whether arbitration awards made by foreign arbitration centers in China might also count.
D. Process Patents and the Shifting of the Burden of Proof
Article 3 of the Draft provides that the court may shift the burden of proof to the defendant(s) if the patent holder can prove that the alleged infringing products are the same type of product as those made through the patented process/method, there is a “high possibility” that the defendant uses the patented process/method, and therefore, the patent holder has made reasonable efforts to prove the accused infringing products use the patented process/method.
The problem with this provision is the lack of definition of several key elements like “high possibility” and “reasonable effort”. If not further defined and clarified, the risk is that the provision, which is indeed welcome for all patentees, may remain unapplied, especially given the latitude of discretion traditionally allowed to a civil judge in such circumstances.
E. Evidence Determining Damages Amount
Aside from the usual evidence in determining damages amounts, such as financial books, accounting vouchers, intellectual property licensing contracts, etc., article 5 of the Draft provides that annual reports of listed companies, company websites, brochures, industry reports, evaluation reports, records of administration of industry, as well as commerce, tax bureau, and financial regulators may also be used as admissible evidence to determine the damage amounts in IP infringement lawsuits.
Unfortunately, the Draft does not add expert witness testimony as an admissible proof of damages. Also, a party witness called to discuss the above documental evidence will not be admissible. China shies away from expert witnesses called upon by the parties. The general principle in this regard is that a statement provided by a person appointed by the party, or an employee of the party lacks objectiveness and credibility. Therefore, the only way to get damage evidence further assessed by an expert in China would be by having the parties apply to the court to appoint an independent expert.
In spite of the Draft not having changed direction of party appointed expert witnesses, it is still an improvement. Most importantly, it eliminates a judge’s discretion as to what type of documental evidence to admit in relation to damage compensation claims. In turn, this will allow plaintiffs to build much stronger cases, based on realistic damage demands, without having to rely on courts to determine statutory damages.
2. Preservation of Evidence, Court Investigations, and Court-Led Evidence Collection
As stated above, the current system allows courts to exercise substantial amounts of discretion when responding to a request of court-led evidence collection and investigations. High standards are normally required when filing such requests. Courts will always try to narrow the scope of their intervention and will refuse claims that cannot specify the exact document or fact they have to investigate and collect. Let’s see if the Draft has improved anything there.
A. Evidence Preservation
Article 12 of the Draft lists the factors to be considered for the approval of a request for the preservation of evidence and further requires that the court make a detailed when such a request is approved. The contents of the ruling shall be limited to the scope of the application and shall notify and explain to the applicant the reasoning or rationale for the court’s decision to deny or approve the request for evidence preservation. When the notification is made orally, a transcript thereof shall be made. This, alone, is a revolutionary provision. In normal practice courts would simply orally approve or refuse requests for evidence preservation without always specifying the scope or reasoning. In the best cases, if the plaintiff had filed a very detailed request, that served as the base to determine the scope of the preservation order. The lack of written orders also created problems if a party decided to oppose or appeal a grant or rejection. The Draft has now codified and thus requires that judges issue detailed, written decisions when ruling on motions to obtain evidence preservation prior to or in the course of civil proceedings.
The new requirements, especially the one requesting the court to pen down its reasoning in making a decision on a motion for evidence preservation, should also improve the quality and fairness of such decisions. Courts that were notoriously quick to dismiss such motions may now have to think twice before they do that. Although the court’s order will not be immediately appealable, it will be grounds for appeal later on.
In addition, and contrary to the current practice where courts conduct evidence preservation without inviting the party (parties) or their attorney(s) to be in attendance, article 17 of the Draft provides that the court may now invite the party (parties) and/or its attorney(s) to be present at the evidence preservation proceeding. Also, it provides that, in case the dispute requires a high-level of expertise, the court could also ask a person with relevant expertise to be present either according to the party’s application or ex officio or order a technical investigator to participate during the preservation activities. In this way, transparency and objectivity will be granted, eliminating the risk of foul play and corruption induced by intervention of external factors and interests. The problem remains that such an invitation is still not mandatory, and the final decision remains in the discretion of the court. However, if there is evidence of foul play, the lack of invitation could be part of a grounds for appeal against the judgment.
Article 19.2 further provides that if the other party alleges that the evidence to be preserved involves trade secrets, the court can still allow attorneys, patent agents, or other persons with special expertise to be present at the preservation proceeding. However, it will require them to sign a non-disclosure agreement. Articles 17 and 19 would give the rights holders opportunities to express their opinions or advice during the preservation and could guide the court in collecting and preserving the proper evidence – all while promoting efficiency as well. Again, the presence of parties at the preservation is still under discretion of the court; how to apply Articles 17 and 19.2 in practice remain to be seen.
Article 23 of the Draft provides that, for the following matters, the parties to an IP lawsuit can request the court to appoint an appraiser to evaluate the following: 1) the similarities and differences (i.e. equivalence) between the alleged infringing technical solution, the patented technical solution, and the corresponding technical features of the existing technical solution in terms of means, functions, and effects; or 2) the similarities and differences between the alleged infringing work and the corresponding part of the work claiming copyright; or 3) the similarities and differences between the technical secrets claimed by the parties and the technologies in the public domain, and the similarities and differences between the allegedly infringing technical information and commercial secrets; or 4) whether the involved technology has defects; 5) authenticity and completeness of electronic data; or 6) other special issues.
Article 38 provides that upon the party’s application or ex officio, the court may notify a person with expertise to address special issues before the court. Article 39 lists three of the circumstances where an expert shall not appear in court: a) when the issue to be explained solely involves the interpretation and application of law; b) when the person with specialized knowledge is an appraiser of the appraisal institution in this case or other experts of the same appraisal institution; or c) in other situations where it is not suitable to appear in court as a person with expertise. We may assume that the last provision could include the case of conflicts of interest with one or all the parties or their affiliates, although only further administrative elaborations or case law can confirm that.
Although the appointment of court selected experts was already functioning in practice, especially in patent cases, the direct regulation and codification of this practice is a welcomed and should again reduce the discretion of judges when responding to such requests for expert appointments.
C. Economic Analysis and Market Survey Reports in IP disputes
Article 28 provides that each party to an IP litigation dispute could apply with the court to appoint a professional institute or individual expert to issue an evaluation report, economic analysis report, or a market survey report with respect to a disputed issue in the case. Upon the consent of the court, both parties can agree on one professional institute or person to be appointed. If they reach no consensus, the court will appoint one ex officio.
Market survey reports nowadays play a very important role in many IP disputes, especially in trademark and unfair competition proceedings. In the 2016 trademark infringement lawsuit Michael Jordan v. Qiaodan, the Supreme People’s Court concluded that Qiaodan’s use and registration of the disputed mark would cause confusion based on the market survey report provided by Michael Jordan’s attorneys. Also, in the unfair competition dispute Yili v. Mengniu (both famous dairy brands in China), the Supreme People’s Court also concluded that Mengniu imitated Yili’s decoration of the famous commodities without authorization constituted unfair competition based on the market survey report provided by Yili. Article 28 is therefore a codification of the prevailing jurisprudence and introduces the only kind of expert testimony from a party that can be admitted and considered by a civil court.
3. Evidence Exchange and Cross Examination
A. Protection of Trade Secrets During Evidence Exchange and Cross Examination
Article 31 of the Draft provides specific clauses about the proper handling and protection of trade secrets contained in evidence filed for cross examination, including an equivalent to protective orders issued by U.S. courts. The Draft specifically limits the right to examine evidence containing trade secrets to the attorneys of the parties and their patent agents, if applicable, and court appointed experts. The court, in accordance with the application of the parties, or ex officio, may issue a protective order to ensure confidentiality and order those who have access to the foresaid evidence to sign confidentiality agreements.
Article 32 of the Draft provides guidelines on how to draft an application for a protective order. In part, the application must contain the name and description of the evidence containing trade secrets. The parties of this action shall be bound by the protective order, the confidentiality period, and all other relevant stipulations. Article 33 of the Draft provides that anyone who violates the confidentiality undertakings or confidential agreement may be reprimanded, ordered to leave the court, fined, or detained by the court.
While the draft adds useful improvements to the current state of the evidence rules, its overall impact, especially in some of the major changes highlighted above, remains unclear. Case law, as well as additional regulations, will be needed in order to fill in some of the gaps. That said, the Draft reflects China’s desire to keep up with its long-term policies of modernizing its IP law system and resonates with the current changes in IP legislation made by the Chinese government. We are confident that all this will be helpful for litigants, which will now avail themselves of more modern provisions that are similar to those they are familiar with in their country. The system remains particularly challenging for U.S. companies and practitioners because of the many conceptual differences between the Chinese and the U.S. legal system. The lack of discovery, the mistrust for party experts, the court’s discretion and flexibility over admission of evidence, even up and until the last hearing, and the non-appealable orders granting or denying evidence motions makes it more difficult for foreign litigants to digest, in spite of the mentioned improvement.
We will keep monitoring this draft and provide updates as they come along.
*About the Guest Author, Elisa Li: Elisa is a Chinese attorney and an associate within the Intellectual Property Services Practice, based in the Squire Patton Boggs Beijing office. She joined the Squire China IP team in 2012. Her practice focuses on trademark, copyright and design patent prosecution as well as anti-counterfeiting and IP enforcement litigation. Elisa has successfully litigated complex trademark prosecution cases obtaining recognition of notoriety decisions for several firm clients. For years she has managed the China portfolio of a number of fashion brands. Elisa has also strong familiarity with evidence acquisition and evidence rules in IP prosecution and litigation matters in China, which is a field of specialty of its own due to the many regulatory and cultural differences and complexities compared to Europe and the US. Elisa speaks Chinese Mandarin and is very fluent in English.
 Decision of the Sup. People’s Ct. on Revising the Several Provisions on Evidence in Civil Proceedings (promulgated by the Jud. Comm. of the Sup. People’s Ct. on Oct. 14, 2019, effective May 1, 2020), http://hk.lexiscn.com/law/law-english-1-3672491-T.html?eng=0 (China).
 (最高人民法院就《关于知识产权民事诉讼证据的若干规定（征求意见稿）》《关于加大知识产权侵权行为制裁力度的意见（征求意见稿）》公开征求意见) [Several Provisions on Evidence in Civil Litigation of Intellectual Property Rights (Draft for Comments) and Opinions on Increasing Sanctions for Intellectual Property Infringement (Draft for Comment)] (publ. for public comment June 15, 2020), http://www.court.gov.cn/zixun-xiangqing-236421.html.
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 Mengniu Future Star Design Patent Was Invalid (Full Text of First Instance Judgment), iprdaily.cn, http://m.iprdaily.cn/article_18130.html (last accessed Jan. 30, 2021).