The Risks and Resolutions of Compensation Claim Form Trademark Confirmation Litigation Encountered by Foreign Enterprises in China

In the administrative litigation process of trademark authorization and confirmation, the trademark right will be in an unstable state for a relatively long period of time, which will cause some troubles for the trademark owner to exercise the rights normally. Does the trademark owner who wins the administrative litigation own the right to file a lawsuit for the losses suffered during this period? How to determine the "expert responsibility" in such cases? These practical issues reflect the theoretical controversy caused by the intersection of trademark law and civil law.

In a typical case that a worldwide prominent pharmaceuticals company and its Chinese affiliates defended by Beijing Wis & Weals Law Firm against their Chinese competitor in a subsequent huge amount compensation dispute after an administrative trademark confirmation dispute, the court gave a convincing argument and conclusion on the above issues. Based on this typical case, we discuss whether the trademark owner can file a lawsuit for damages in the progress of confirmation of the trademark right and the inversion of the burden of proof in "Expert Liability".

I. Do parties like the plaintiff in the typical case enjoy the right of action in the trademark right confirmation procedure?

Whether the plaintiff of a Chinese competitor of the worldwide prominent pharmaceuticals company enjoys the right of action following the completion of the trademark right confirmation procedure is a basic procedural dispute in the typical case.

As adequate opportunities for remedying the plaintiff's rights were provided in the trademark review stage, the plaintiff should not exercise the right of action on the basis of the same facts and grounds. The plaintiff's rights to cross-examine and refute the evidence and to obtain follow-up remedies have been fully guaranteed.

Given the adequate remedy opportunities mentioned above, the plaintiff's substantive and procedural rights were fully guaranteed in the original trademark dispute procedure, and the rulings thus made should be respected.

Even if the plaintiff neither actively and effectively exercised its rights in the trademark right confirmation procedure nor fully put forward the opinions and evidence of refutation, it should not and had no right to bring them forth again in the subsequent administrative procedure and should bear the corresponding consequences.

If the parties concerned like the plaintiff in the typical case are allowed to file lawsuits for doubtful evidence, the legal order will be impacted by endless circular lawsuits.

II. Should the losing party bear liability outside the case?

In the trademark right confirmation procedure, TRAB and courts may issue different decisions and judgments due to their different opinions on fact finding and application of law regarding the same dispute. In such circumstances, should the losing party bear the infringement liability outside the case to the winning party in addition to the consequences of the case? Does the winning party have the right to claim compensation for the adverse effects of the adverse rulings that occurred in the dispute resolution procedure?

The answer to these questions, in our opinion, is no, because:

1. The administrative organizations and courts exercise their administrative and judicial powers in accordance with the law. Holding of different opinions does not affect the legitimacy of the exercise of their powers. Therefore, the exercise of administrative and judicial powers by TRAB and the courts is not in violation of the law. Whether or not the ruling is beneficial to the parties, so long as the exercise of the ruling power is a lawful act, rather than an illegal act of damage, the result of the ruling should not lead to the consequences of illegal damage and subsequently to the right of action based on illegal damage.

2. The uncertainty of dispute results is determined by the nature of various social disputes and the procedure of dispute resolution. It is against the basic value orientation of the civil and administrative procedure systems to lodge complaints against the parties concerned because of the uncertainty of dispute resolution results.

3. In the trademark right confirmation procedure, the case handling process is dominated by TRAB and the courts which make the final decision on the acceptance of evidence, fact finding and the application of law, while the parties concerned can only lawfully exercise their rights and can by no means dominate and control the result of the case. Therefore, the conclusion of a result of a case is not a civil legal act between the parties concerned and should not produce civil legal liability between the parties concerned that’s both based and outside the result of the case, except when the rights of the parties are not fully protected.

4. However, even if some result of a case or the process of a case does have a negative impact on the parties concerned, this is the cost that the society ruled by law must bear.

Ⅲ. Is the reversion of burden of proof in the "professional liability" system applicable in the typical case?

The plaintiff held that in accordance with Article 4 of the Several Provisions of the Supreme People's Court on the Trial of Compensation Cases for Civil Infringement Involving Accounting Firms Engaging in the Audit Business: "Accounting firms shall bear the infringement liability if they cause losses to stakeholders for issuing false audit reports, except that they can prove that they are not in fault," the typical case should apply to the reversion of burden of proof, i.e., the defendant should produce evidence to prove that it was not in fault, for the typical case involves disputes over infringement of "professional liability".

We are of the opinion that the application of the "professional liability" system shall meet the following conditions:

1. Subject

Article 1 and Article 2 of the Several Provisions stipulate that the subject of infringement compensation lawsuits filed in accordance with the Several Provisions should be "natural persons, legal persons or other organizations who suffer losses due to reasonable trust in or use of false reports issued by accounting firms in trading with the audited units or engaging in trading activities related to stocks and bonds of the audited units". However, the plaintiff in the typical case obviously did not reasonably trust or use relevant reports when engaging in related transactions with Johnson & Johnson and Xian-Janssen Pharmaceutical Ltd, so the plaintiff did not meet the requirements for being a subject of litigation.

2. Behavior

According to the Several Provisions, these Several Provisions shall apply only when an accounting firm has issued "false reports". As far as the typical case is concerned, the plaintiff, however, had no factual or legal basis to prove the existence of the basic fact of "false reports".

3. Area

The legislative purpose of the Several Provisions is to regulate the issuance of audit reports to the non-specific public, especially in the case of inadequate contribution by shareholders. As for the legislative background, the Several Provisions take into consideration the influence of such reports on the public as they lack the necessary professional judgment and require the promulgation of the Several Provisions to protect the interests of the non-specific public, especially in the field of securities investment.

However, the audit reports involved in the typical case were only evidence in the dispute procedure of specific subjects. They were neither made accessible to, nor had any influence on, the non-specific public.

Even if the plaintiff applied the provisions of the Several Provisions, it should present the basic evidence to prove the existence of false audit reports. Only in this way should the audit agency bear the burden of proof in respect of its faults, rather than producing evidence to prove its innocence whenever anyone doubts the authenticity of any report without evidence.