(By Albert Chen) The hearing in the false advertising dispute between Guangzhou Pharmaceutical Holding Company (“GPHC”) (SSE: 600332) and Jia Duo Bao (“JDB”) was held in January of 2013 in the Guangzhou Intermediate People’s Court. In addition to the arguments over false advertising, the application for a litigation injunction has been hotly debated. Today, we would like to introduce you to the injunction, which is called “preliminary execution” in China’s Civil Procedure Law.
I. GPHC and JDB’s standpoints on the injunction
When filing an its application for a litigation injunction, GPHC claimed that advertisements such as “Wanglaoji has changed its name to Jia Duo Bao” and “The top selling red can herbal tea has changed its name to Jia Duo Bao” have infringed its trademark over Wang Lao Ji. Additionally, it claimed that the slogan “master work of national intangible cultural heritage” could constitute unfair competition by false advertising. Therefore, if JDB’s conduct is allowed, GPHC’s sales will suffer irrevocable losses and interference, which might even end in the loss or destruction of the brand. Based on this, GPHC applied for a litigation injunction to stop JDB and its sales agents from using the above slogans and to withdraw all the products marked with such advertising.
JDB countered with two claims. First, there is not a definite relationship of rights and obligations, so the litigation injunction cannot be used. Second, the litigation injunction only applies to the Trademark Law, Patent Law, and Copyright Law, and the false advertising is not regulated by the aforesaid laws. For these reasons, the applicant’s request for a litigation injunction must be refused.
II. Relevant regulation in Chinese law
Actually, the litigation injunction disputed by the parties is officially called “preliminary execution” under China’s Civil Procedure Law. The primary regulation for this concept comes from the Civil Procedure Law and the Opinions on Several Issues Concerning Application of the Civil Procedure Law (the “Opinions”).
According to Article 106 of the current Civil Procedure Law, preliminary execution can be mainly used in the following situations:
(1) Claims for alimony, support for children or elders, pension for the disabled or the family of a decedent, or expenses for medical care;
(2) Labor remuneration claims; and
(3) Urgent circumstances that require preliminary execution.
In terms of intellectual property cases, initiation of preliminary execution primarily relies on the third point, namely “urgent circumstances that require preliminary execution.” Furthermore, the Opinions break this clause into the following cases:
(1) Where it is necessary to immediately stop infringement or remove interference;
(2) Where it is necessary to immediately stop certain behavior;
(3) Where it is necessary to immediately return the funds to purchase raw materials or tools for production;
(4) To claim the urgent insurance compensation for the retrieval of the production or operations.
It could be easily concluded then, that in infringement cases, the first point above is the most prominent basis for injunction application. Of course, courts will not grant all preliminary execution applications, and they will consider the two following points in determining whether to grant the application:
(1) The relationship of rights and obligations between the parties is definite, and denial of preliminary execution would seriously affect the life or business of the applicant; and
(2) The person against whom the application is made is capable of fulfilling the obligations.
Once the application for preliminary execution has been approved, unless it is revoked by the approving court or a higher court, no other authority has the power to terminate the injunction. Furthermore, the injunction will last until the implementation of the final decision in the case. Of course, the law also grants the respondent a right to contest the injunction, namely the application for review, but implementation of the injunction does not stop during the review process.
But, it must be noted that unlike the temporary injunction, in which the court must make its decision within forty-eight hours of the application being filed, the Civil Procedure Law has no regulation concerning the time limit for the litigation injunction. This could also explain why there has still been no news on the court’s decision on GPHC’s injunction application even now, one month after the hearing.
III. The author’s opinions
Among the opinions put forth by both sides, the author tends to support the first argument made by JDB’s attorneys. This argument states that, considering the unsettled arbitration and lawsuit between the parties over the trademark and unfair competition, the facts require further investigation. Therefore, the relation of rights and obligations between the parties is not definite, so the conditions for the injunction have not been met. As to the second point made by JDB’s lawyers, however, the author thinks it a little strained. In reality, according to the Civil Procedure Law, preliminary execution can be applied for once a case for injunction application emerges regardless of whether it is a dispute about trademark or unfair competition.
To judge the issue from the perspective of judicial risk and the economic gains, however, the author believes that preliminary execution is currently not suitable for approval. Once it is approved and enforced, the impact it produces on business will be enormous. If GPHC’s application is ultimately found to have been made in error, it is very possible that the awkward situation will arise in which the losses cannot be recovered.