Protecting Online Games in China
With the exponential growth of online gaming (particularly mobile gaming) in China, more and more western content providers are entering the Chinese gaming market and seeking to protect their businesses in China’s courts against Chinese copycats.
Since the life span of most online games, particularly mobile games, is relatively short compared to the time it takes for a lawsuit to work its way through the courts, obtaining a preliminary injunction can be a particularly efficient way for western content providers to stop the damage to their businesses caused by infringing online games. However, preliminary injunctions are seldom granted in online game infringement disputes compared with other types of IP infringement disputes. This article analyzes the challenges of obtaining a preliminary injunction from a Chinese court in online game infringement disputes and provides tips aimed at raising the success rate when seeking preliminary injunctions in spite of the challenges.
Preliminary Injunctions in General
Preliminary injunctions have been available as a remedy under Chinese law since the early 2000s. They were first introduced in the Copyright Law, the Trademark Law and the Patent Law, and were more generally codified in the new Civil Procedure Law, effective as of January 1, 2013.
As a high-level summary of the relevant provisions under the above-listed laws, a preliminary injunction is a court order issued prior to or in the early stage of a civil proceeding requiring the defendant to do or cease doing a specific action pending the final outcome of a lawsuit. A court may issue a preliminary injunction if it finds that a plaintiff’s lawful right has been damaged and may not be effectively remedied by an award of monetary damages.
In IP infringement cases, preliminary injunctions are usually used to stop the allegedly infringing activity in order to prevent further harm to the plaintiff before the issuance of final judicial determination. The grant of a preliminary injunction is also a strong indication that the court finds the plaintiff has a solid case, thus it is extremely helpful to enhance the plaintiff’s position in a settlement negotiation.
A plaintiff may apply for an injunction either prior to the commencement of a civil proceeding or during a civil proceeding. Once an application for pre-trial injunction has been accepted, the court must make a decision within 48 hours. If an applicant has been granted a pre-trial injunction, it must then file the lawsuit within 30 days following the date the injunction is granted. If such applicant fails to do so, the pre-trial injunction will be lifted by the court, and there is a chance that the counterparty may sue the applicant for losses caused from such injunction.
How Do Chinese Courts Decide Whether to Grant a Preliminary Injunction?
Chinese courts will generally consider the following factors to decide whether to grant a preliminary injunction in an online game infringement dispute (note that factors (1) and (2) only apply to pre-trial injunction applications).
(1) Whether the court has jurisdiction over the injunction application. Generally speaking, the court that has jurisdiction over the underlying dispute also has jurisdiction over granting a preliminary injunction. According to the Civil Procedure Law and applicable judicial interpretations, a court has jurisdiction over an online game infringement lawsuit if it has jurisdiction over the location: (a) where any infringer is domiciled; (b) where the infringing game servers are located; or (c) where the legitimate IP holder is domiciled. However, since it is more convenient for a court having jurisdiction by virtue of (a) or (b) to enforce the proposed injunction, it is recommended that plaintiffs file the injunction application with courts having jurisdiction under (a) or (b).
(2) Whether the applicant is qualified. The following parties are eligible to apply for a preliminary injunction in an online game infringement case according to Chinese law: (a) the owner of the allegedly infringed IP, which may be the game software owner or the relevant trademark or copyright owner; (b) the exclusive licensee of the relevant IP; and (c) a non-exclusive licensee of the relevant IP if specifically authorized by the IP owner to enforce the IP.
(3) The likelihood of success of the applicant’s claims. Since an online game infringement dispute usually involves multiple claims involving copyright, trademark, and/or unfair competition, the court is obligated to evaluate each claim on its merits and then make a decision on the substantial likelihood of the success of the plaintiff’s case as a whole. If the court is not convinced that plaintiff’s claims will prevail, the injunction application will be denied.
(4) Whether there is an imminent threat that the applicant’s rights will be irreparably injured without the preliminary injunction. The urgency of the specific situation is one of the most important aspects that directly determines whether an injunction will be granted. If, in the absence of an injunction, the plaintiff’s losses cannot be substantially compensated by monetary damages, or the plaintiff’s position in protecting its rights will be significantly endangered, the injunction is more likely to be granted.
(5) If the preliminary injunction is denied, whether the plaintiff’s potential loss outweighs the harm to the defendant that will result if the injunction is granted. When deciding whether to grant a preliminary injunction, the court will balance the interests of both parties. For example, when evaluating the plaintiff’s potential losses resulting from the allegedly infringing game’s continued operation against the harm to the defendant if the defendant is required to cease operations, the court might consider the existing daily or monthly active users and revenue of the game(s) at issue. If it appears that the plaintiff will suffer more without the injunction, the court may approve the plaintiff’s injunction application.
(6) Whether granting the injunction will harm users of the online game, and if so, how to minimize such damage. If the allegedly infringing game has not been officially launched (e.g., only a beta version has been released), or only a small number of users have installed or played the game, it is more likely that the injunction will be granted. If the court deems it necessary to issue the injunction despite the fact that the defendant’s game has a large number of active users, the court may order the defendant to cease its game operations and refund to its users the fees paid within the applicable period.
(7) Whether the applicant has posted a sufficient bond. Under the Civil Procedure Law, if the plaintiff fully or substantially loses the underlying lawsuit, the preliminary injunction may be considered a mistake, and the plaintiff will be solely responsible for the defendant’s losses due to the issuance of the injunction. For that reason, the law requires the plaintiff to post a bond in cash or in some other form acceptable to the court prior to the grant of the injunction. The amount of the bond will be decided by the court primarily based upon the potential losses to be suffered by the defendant from the time the injunction was granted until the final judgement takes effect.
Convincing the Courts of the Necessity of Granting Preliminary Injunctions
Preliminary injunctions can be difficult to obtain, especially when they entail the temporary shutdown of an online game. A preliminary injunction is considered to be an extraordinary remedy that courts are often reluctant to grant. In addition, plaintiffs must be able to demonstrate the reasonableness and necessity of a preliminary injunction when there is limited evidence and when under time pressure. Despite these challenges, we have found a few instances where applicants succeeded in obtaining a preliminary injunction in online gaming infringement disputes, and from those, we have developed some guidelines listed below on how to make a convincing application for preliminary injunctions before Chinese courts:
(1) Present a prima facie case of IP infringement and demonstrate the likelihood of success on the merits of its infringement claims. The plaintiff must provide evidence that: (a) it is the owner or duly authorized licensee of the subject IP; and (b) the online game produced, published, or operated by the defendant infringes the plaintiff’s IP. In practice, to avoid erroneously granting an injunction, Chinese courts tend to approve the injunction application only if: (i) the plaintiff’s title or right to the subject IP is undisputed; and (ii) the defendant’s infringement is clearly-defined, straightforward, blatant, and conducted on a large-scale.
If the court believes that there should be more evidence or stronger legal analysis to determine the defendant’s infringement, the probability of the grant of a preliminary injunction will be greatly reduced. For example, if a court anticipates that it may have to engage an expert witness to compare the plaintiff’s game source code with defendant’s game code, the court may be inclined to reject the injunction application.
We recommend raising any potential affirmative defenses in the injunction application and arguing why those defenses lack legal or factual ground in order to demonstrate the greater likelihood that the plaintiff will succeed on the merits of the case. Although in theory it is the defendant’s obligation to raise any available defenses and provide evidence to support them (such as fair use in a copyright dispute or non-trademark use in a trademark dispute), in practice it is often the court that will proactively assert and evaluate the merits of potential affirmative defenses when reviewing a plaintiff’s injunction application. If it appears that such a defense might be tenable, the injunction application might be denied.
In addition, when preparing a pre-trial injunction application, consider selectively assembling the most unambiguous facts supported by relevant evidence and avoid raising any controversial issues that might be brought up during the trial. This increases the likelihood that the court will be able to reach a decision quickly and decreases the chances of the court being distracted by extraneous issues.
(2) Demonstrate the urgency of the situation. The plaintiff’s situation will be deemed to be urgent if it can demonstrate its irreparable injury without an injunction. There is no judicial interpretation or implementation rule specifying the elements required to show irreparable injury; instead, such a finding is subject to the court’s discretion based on its analysis of the facts of the particular circumstances.
In practice, as long as the plaintiff can show the anticipated damages awarded by a court will not adequately compensate the plaintiff for its losses caused by the defendant’s infringement, the requirement of urgency is satisfied. For example, a court may find the requirement of urgency to be satisfied in the following circumstances:
(a) the defendant is about to officially launch its game or has just commenced the commercial launch of the game;
(b) the defendant is about to aggressively promote its game or it has just begun a campaign promoting its game; or
(c) the defendant’s game has significantly damaged the value or competitive advantage of the plaintiff’s subject IP or its derivatives.
However, if the defendant is at a critical stage in its business when the application for preliminary injunction is filed, such as launching an IPO or implementing a significant financing or restructuring plan, the court will evaluate the elements establishing urgency with extra caution to avoid the risk of the plaintiff abusing the process and using the injunction as a tool to sabotage its competitor’s business.
(3) Narrowly tailor the scope and form of the requested injunction to the scope of the alleged infringement. There is a tendency for plaintiffs to seek injunctions that are as broad as possible to completely bar the defendant from engaging in any ongoing or potentially infringing activity. However, there is a risk that the defendant will oppose the injunction or that the court may decline to issue the injunction if the scope is unnecessarily broad.
In particular, if the defendant argues that it has invested substantial resources in its game and the cessation of game operations will be devastating to its overall business, the court will limit the scope of the injunction to the actions necessary to stop the defendant’s infringing activity. For example, if the defendant is copying the characters of a plaintiff’s game or using the plaintiff’s trademarked game name or icon, the court may request that the defendant submit plans to modify or replace only the infringing elements in its game. If such plans are reasonable and acceptable to the plaintiff, the court may order the defendant to implement such plans on the modification of its game instead of requiring the defendant to cease game operations.
(4) For pre-trial applications, prepare in advance to move quickly. As mentioned above, given the urgent situation associated with the injunction application and the tight timeline required by the law for the court’s decision, the applicant must submit all supporting documents and evidence with its application and must quickly respond to the court’s request to post a bond.
With the increasing awareness of online games’ significant economic value, courts are often requiring larger and larger amounts as a security in order to safeguard the defendant’s interests. In an injunction issued by Guangzhou Intellectual Property Court in 2015, the court asked the plaintiffs to provide security in cash in the amount of RMB 10 million. In another example, in 2016, Shanghai Intellectual Property Court ordered a cash security of RMB 50 million in order to grant a preliminary injunction. It is important that a plaintiff ensure that it has sufficient funds readily available prior to applying for a preliminary injunction.
For non-Chinese IP holders, all required documentation for the trial, such as an incorporation certificate and a power of attorney notarized by a local notary public and legalized by a Chinese embassy/consulate (such formality usually takes a month or more), must be submitted to the court when filing the application for the preliminary injunction.
Any delay on the plaintiff’s behalf tends to undermine the plaintiff’s claims of urgency and increases the chances that the court will deny the injunction.
IP holders based outside of China that are interested in using preliminary injunctions as part of their litigation strategy should work closely with their local legal counsel to evaluate the probability an injunction will be granted and the effect it might have on the underlying dispute at trial. In most cases, obtaining a preliminary injunction can help to prevent further harm to the plaintiff’s business and stem losses in revenue.
It is also worth noting that there is little downside to applying for an injunction, even if the application is unsuccessful. On the contrary, in some cases, the fact that a preliminary injunction was denied may garner sympathy from the court or solidify an award of damages if there is evidence that the plaintiff’s losses could have been mitigated had the injunction been granted.
Tracey Tang is a partner of the Chinese law firm, Broad & Bright, focusing on IP litigation matters.