It is common practice in China that the parties to an international IP-related contract can choose a foreign dispute resolution forum. However, such clauses are not always unshakable before the Chinese courts. This article discusses two cases where the jurisdiction clause in an international IP contract was held invalid and would like to shed some light on avoiding such instances.
According to the statutory provisions and the judicial interpretations of the Supreme People’s Court (“SPC”), the dispute resolution forum chosen by the parties shall has actual connections with the dispute, such as the following localities:
SPC reiterated this rule in its ruling on the case (2009) Min San Zhong Zi No. 4, where the parties signed a license agreement, stipulating the related disputes shall be referred to Singaporean judicial authorities and be governed by Chinese laws. However, the plaintiff did not file legal actions in Singapore in accordance with the agreement but chose to sue in China. When the defendant raised objections to the Chinese court’s jurisdiction, SPC ruled that the validity of the jurisdiction clause shall be determined based on the laws of China, where the case was heard. For this reason and that Singapore did not meet the requirements on actual connections, SPC held the jurisdiction clause in this case invalid.
Occasionally, there are instances where the jurisdiction clause meets the above requirements but is held invalid due to practical reasons, such as resulting in stalemates when enforcing the foreign dispute resolutions in China. In the IP field, this kind of stalemate is particularly noteworthy because of the territoriality of the IPs.
Under the Chinese laws, the disputes on the ownership or infringement regarding an IP can only be governed by the laws of the country where the IP protection is sought, but the parties may choose the laws applicable to the assignment of IP by agreement, in the latter case, considering changing ownership of IP has to be brought up before the CNIPA for taking legal effect, this might cause enforcement problems therefore.
For example, in the case (2016) Jing 73 Min Chu No. 1155, the parties signed a contract where the defendant agreed to transfer a Chinese patent to the plaintiff, and the parties chose South Korean courts and laws to solve possible disputes. Prior to this suit, the plaintiff already sued in South Korea for the execution of the contract. Among the different views held by different courts, the Supreme Court of South Korea finally ruled that that suit did not involve establishing or granting/invalidating of an IP, and upheld the validity of the jurisdiction clause.
Although the Supreme Court of South Korea ordered the defendant to carry out the patent transfer, the defendant did not do so in China. Because South Korea and China are not joint-participants in an international convention regarding the recognizing and enforcing of each other’s judicial judgments, and have no bilateral treaty or established reciprocal conventions in that regard, the South Korean court ruling cannot be enforced in China either. The plaintiff had to file another lawsuit in Beijing.
The Beijing IP Court considered the purpose of civil court proceedings to be effectively solving disputes and protecting the parties’ interests. The same purpose should apply to disputes on overlapping national jurisdictions. If a court heard a case and rendered a ruling that was practically unenforceable, then such court proceedings would be failing such purpose and thus inappropriate. In this sense, the parties’ right to choose venues shall also be limited by the same purpose. In the spirit of solving disputes and better protecting the parties’ interest, the court ruled that as far as the Chinese patent is concerned, the parties’ jurisdiction clause is invalid. The court made an independent decision according to South Korean Law on its own, finally had the Chinese patent transferred.
Most disputes in China on jurisdictions over an IP-related contract revolve around actual connections. And the parties usually wish to solve their disputes in a third-party country as the neutral forum. To establish connections between that third-party country with the contract and avoid such arrangement be held invalid in the Chinese courts, it is recommended that the parties state explicitly in the contract that the contract was signed in such third-party country.
Another approach, and maybe the easier one, is to stipulate that the disputes arising from a contract be resolved through arbitration rather than court proceedings so as to circumvent the requirement that the forum has to be in actual connections with the dispute. However, considering that in addition to international treaties, international practices and general principles of law, arbitration could also apply specific domestic legislation and case law in accordance with the contract provision, once the Chinese law has been chosen to apply, there still exists possibilities to exam by arbitrator the validity of jurisdiction clause of the contract in accordance with the above requirements of Chinese law.
However, as brilliantly put by the Beijing IP Court, when the transfer of a Chinese trademark or patent is concerned, it could actually cause adverse effects on the parties if they choose a foreign dispute resolution forum. China is a party to the New York Convention and the Hague Convention but has made reservations on IP matters when joining the latter. Thus, enforcing foreign court’s judgment in China could be legally impossible unless that country has a bilateral treaty with China or has established reciprocity on recognition and enforcement. To avoid such problems, it is recommended that the disputes concerning the transferring of IP ownership be referred to the Chinese courts.
(Source: CCPIT PATENT AND TRADEMARK LAW OFFICE)