The Supreme People’s Court, in an appeal of disputes over liability for damages caused by a behavior preservation application, held that: While property preservation aims to ensure the effective enforcement of the judgment taken effect, behavior preservation aims to, in addition to safeguarding the judgment enforcement, avoid causing any losses or further expanding losses. In the case that the applicant files an application purported to be for property preservation, yet with the intention to restrain the alleged infringer’s export conduct through measures granted by the people’s court, such a preservation application shall be characterized, in essence, as an application for behavior preservation.
The case is related to a patent infringement dispute and is hereby introduced as follows:
Company C is the patentee of Invention Patent I and Invention Patent II (hereinafter referred to as “patents at issue”) and had licensed the two patents at issue to Company B in a manner of exclusive licensing.
Company A declared the export of 679 pieces of steel wire mesh. On the grounds that such steel wire meshes infringe the patents at issue, Company B first requested that Customs inspect and detain such products and then filed a lawsuit with the court requesting that Company A be ordered to stop infringing and compensate for the losses. Meanwhile, Company B filed an application for property preservation, requesting the court to confiscate and impound such products that had been detained by the Customs.
Company A paid a counter-guarantee deposit to the Customs for the aforementioned detained goods. Subsequently, Company B filed the lawsuit with the court requesting that Company A be ordered to stop infringing and compensate for the losses. In the lawsuit, the patents at issue were declared completely invalid by the CNIPA, and the invalidation decisions were upheld by the Supreme People’s Court in second trials.
Company A filed a lawsuit within the first-instance court on the grounds that Company B’s application for property preservation was incorrect. The first-instance court ruled that Company B compensate Company A for payment for goods and related losses.
The first-instance court held that the focus of the dispute in this case lies in whether the application for property preservation filed by Company B was incorrect and whether Company B should compensate for losses claimed by Company A. In the lawsuit, Company B already knew that an incorrect property preservation application may cause risks for compensation. In addition, when Company A proposed to pay the guarantee deposit to the Customs and later during the litigation, to pay the counter-guarantee deposit with property worth of equivalent amount, Company B could have achieve the purpose of preservation by applying for preserving the equivalent amount of money or other properties, but it still insisted on not agreeing to remove the preservation measures on the seized goods, claiming that if the court removed the preservation measures, Company A was bound to export the alleged infringing goods abroad causing greater losses to Company B. Based on Company B’s behaviors and claims mentioned above, its application for detaining the alleged goods contained more purposes than to solely ensure the enforcement of effective judgment, which is the systematic purpose of property preservation. Thus, Company B has made a mistake therein. Company B’s behavior of filing a preservation application also caused actual losses to Company A, and it shall bear the civil compensation liability correspondingly.
Company B, dissatisfied, appealed to the Supreme People’s Court.
The Supreme People’s Court rejected Company B’s appeal.
The Supreme People’s Court holds that the focus of the dispute over the second instance of this case is (I) the nature of the preservation application filed by Company B and (II) whether Company B’s preservation application was incorrect and whether it should compensate the losses claimed by Company A.
The Supreme People’s Court held in the second trial that Company B’s preservation application for the alleged goods and the preservation measures taken by the people’s court shall be deemed to conform to the nature of behavior preservation. Main reasons are as follows:
First, the Customs’ detention and seizure of the alleged goods was in accordance with Company B’s application, and the purpose of such measures of detaining the goods alleged to infringe the intellectual property rights was to prevent such alleged infringing goods from being exported. Therefore, the Customs’ detention measure in itself has a nature of behavior preservation.
Additionally, after filing the patent infringement lawsuit with the court, Company B filed the application for property preservation later on the same day, requesting to confiscate and impound the alleged goods that had been detained by the Customs. After the Court issued the preservation order, Company A applied to remove the preservation measures on the seized goods by providing other properties as a guarantee deposit, but Company B submitted twice, objecting to the removal of the preservation measures. Company B argued that the provisions of removing preservation measures by providing guarantees do not apply to this case as the preserved goods in this case are the alleged infringing goods, which not only have the property attribute, but also have an infringement attribute, and that once the preservation measures are lifted, Company A would export the alleged infringement goods causing greater damages to Company B. Such opinions indicate that Company B’s preservation application for the alleged goods mainly aimed to prevent Company A’s export through preservation measures taken by the people’s court. Such a preservation application is actually a continuation of its detention request filed within Customs and substantively aims to have the people’s court prevent the export of the alleged goods. Moreover, the property to guarantee effective enforcement of the valid judgment shall be the debtor’s legal properties. If such goods are identified as infringement products, they are illegal products and cannot serve the function of guaranteeing the effective enforcement of the valid judgment by their nature as property. Therefore, Company B’s claim that the preservation application it filed was a property preservation application conflicts with its claim that such goods are infringing products. Accordingly, although Company B filed the preservation application in the name of property preservation, substantively, such an application shall be a behavior preservation application.
Finally, laws and judicial interpretations all stipulate different conditions for removing the property preservation measures and behavior preservation measures. In a property dispute, if the party under preservation or a third party requests to remove the preservation measures by providing an abundant and effective guarantee, the people’s court shall rule to approve the request, whereas the behavior preservation measures taken by the people’s court generally wouldn’t be removed because of the guarantee provided by the respondent, unless the applicant agrees. Company A has submitted a sufficient guarantee deposit to Customs for the alleged goods and applied in the lawsuit to provide other properties in exchange for the removal of preservation measures. However, Company B, based on its cognition that the alleged goods are both property and the alleged infringing products, insisted on solely preserving the alleged goods and refusing to remove the preservation, resulting in the first-instance court not removing the preservation on the alleged goods. Such relevant facts also correspond to the preservation application filed by Company B and the preservation measures taken by the first-instance court thereafter, in their nature, were behavior preservation.
Behavior preservation and property preservation both belong to the litigation preservation system and have the purpose of safeguarding the enforcement of future judgments. Their difference lies in that, in addition to ensuring the enforcement of judgments, behavior preservation also serves the purpose of avoiding causing losses or expanding losses, whereas property preservation solely focuses on the smooth enforcement of a future judgment. Where the applicant files a preservation application under the name of property preservation with the intention to request the counterparty to do or not do something by the court’s measures, such an application shall be deemed as behavior preservation. The accurate determination of the nature of the preservation is a prerequisite for the subsequent division of liabilities for damages. The court, in the trial, shall make the judgment in accordance with the core intention of the application, but not solely based on the name of the application. The examination approach in this case may provide references to similar applications.
(2024) Zui Gao Fa Zhi Min Zhong No. 917
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