Clifford Chance

The Ordinance

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (the "Ordinance") was published in the Hong Kong Gazette on 4 November 2022. The Ordinance implements a 2019 arrangement between Mainland China and Hong Kong, the text of which can be found here (the "2019 Arrangement"). The key impact on intellectual property ("IP") disputes is that judgments issued in IP infringement disputes and both monetary and non-monetary relief granted in judgments in IP contractual disputes may now – subject to certain conditions – be reciprocally recognised and enforced in Mainland China and Hong Kong through a simplified registration process. Contracts without an exclusive jurisdiction clause in favour of the Mainland (or Hong Kong) courts are not covered under the current reciprocal arrangement and hence IP infringement disputes involving third parties are currently out of scope. The current reciprocal arrangement does not cover non-monetary relief, either.

The Ordinance is scheduled to come into operation in about six to seven months. The Mainland will promulgate a Supreme People's Court judicial interpretation to enable the implementation of the 2019 Arrangement in the PRC before the effective date is announced by the two sides. The Ordinance will then apply to judgments made on or after its commencement date.

Coverage

The Ordinance covers the following types of Mainland judgments regarding disputes of IP rights:

• Judgments issued in contractual IP disputes relating to copyright or related rights, trade marks, geographical indications, industrial designs, patents¹, layout designs (topographies) of integrated circuits, rights enjoyed by persons in respect of new plant varieties and rights to protect undisclosed information² ("Specified IPR") including rulings on liability³ and granting either monetary damages⁴ or non-monetary relief (such as final injunctions, surrender of counterfeit or infringing products in stock, and confiscation of moulds and equipment used in the course of infringing activities⁵).
• Judgments issued in tortious IP infringement disputes relating to Specified IPR (excluding invention and utility model patents) and including rulings on liability⁶, but granting only monetary damages⁷.
• Judgments issued in trade secret disputes including rulings on liability⁸ and granting either monetary damages⁹ or non-monetary relief.
• Judgments issued in civil disputes relating to misrepresentation on the Mainland constituting unfair competition pursuant to Article 6 of the PRC Anti-Unfair Competition Law including rulings on liability¹⁰, but granting only monetary damages¹¹.

Note that, as indicated above, rulings on the validity, establishment or subsistence of Specified IPR; IPR going beyond Specified IPR; judgments in tortious disputes over infringement of invention and utility model patents; and decisions setting standard essential patent ("SEP") licence fee rates are not covered by the Ordinance. Similarly, interim measures and relief including anti-suit injunctions are excluded from reciprocal recognition and enforcement under the 2019 Arrangement. Nevertheless, the 2019 Arrangement expressly permits the parties to apply for asset preservation or other interim measures or relief at the place of enforcement pending the recognition and enforcement of the relevant judgment in the Mainland or Hong Kong.

Jurisdiction

Under the Ordinance, jurisdiction is subject to a connection with the Mainland at the time when the proceedings were brought / accepted. This connection is based on usual jurisdictional factors such as the infringer or defendant's residence, place of business, place of performance of the disputed contract, place of commitment of the tort or act of unfair competition, or a written exclusive or non-exclusive jurisdiction agreement in favour of the Mainland courts accompanied by, if the place of residence of all the parties is in Hong Kong, a connection with Hong Kong.

The Ordinance provides that the default in complying with the relevant Mainland judgment must have occurred within the two years prior to date of the application for registration, in other words, there is in effect a two-year limitation period.

Procedure

An application for registration of a Mainland judgment is normally dealt with ex parte, without the involvement of the judgment debtor. After having been served the notice of registration, the judgment debtor may contest it by applying to have it set aside within a prescribed period on certain mandatory and discretionary grounds relating to jurisdiction, procedural fairness and public policy.

Takeaways

The broadening of scope to include IP infringement-related judgments (even if it only applies to monetary relief) should help with litigation strategy against infringers. For example, the possibility of taking judicial action in Hong Kong and having the damages award enforced in Mainland China potentially means better prospects of recovery of monetary damages which would act as an economic deterrent against infringements.

In licensing agreements with Chinese parties, multinationals now have a new reason to consider specifying the Hong Kong courts instead of arbitration when considering their jurisdiction clauses and the prospect of enforcement in China. Whilst hybrid jurisdiction clauses i.e. providing for the Hong Kong courts or arbitration at the discretion of a party are enforceable under Hong Kong law, they are not enforceable under Mainland Chinese law. As with arbitral awards, judgments issued in contractual disputes including contractual IP disputes are enforceable under the 2019 Arrangement including where it grants non-monetary damages. Regarding rulings on the validity, establishment or subsistence of Specified IPR, the 2019 Arrangement does not cover the same. Similarly, in the context of arbitration, whilst such disputes and the resulting awards may, according to the relevant law at least, be arbitrable and enforceable reciprocally between the Mainland and Hong Kong, in practice, this is subject to questions of arbitrability and whether the award deals with questions considered administrative in nature and questions of public policy. Further, as arbitration is consensual in nature, it can only bind the parties to the dispute and not the whole world as rulings on validity, establishment or subsistence of IPR may. Jurisdiction by the Hong Kong courts is desirable in facilitating the development of jurisprudence in relation to new legal issues (such as those arising from crypto and the metaverse).

On the other hand, one advantage of arbitration is that a separate Mainland-Hong Kong arrangement provides for reciprocal recognition and enforcement of interim relief such as interim injunctions, in other words, interim relief from the Mainland Chinese courts in support of Hong Kong arbitration proceedings that are ongoing or to be commenced and vice versa is possible, whilst interim measures have been excluded from the scope of the 2019 Arrangement. Other advantages are that parties can select arbitrator(s) with relevant expertise, and confidentiality obligations in arbitration, which are particularly beneficial for tech-related disputes.

If you require assistance in your consideration of the practical effects of the 2019 Arrangement and the Ordinance and how it affects your dispute resolution options, please feel free to contact our Litigation & Dispute Resolution team.

Footnotes

¹ It is not entirely clear whether invention and utility model patent infringements in the context of contractual disputes are covered, but we believe that based on a reasonable interpretation they should be.
² Such as trade secrets and confidential information.
³ Rulings on liability based on subject rulings are covered, but not subject rulings themselves, which are rulings on the validity, establishment or subsistence of Specified IPR.
⁴ Excluding punitive or exemplary damages.
⁵ Interim measures and relief are excluded by the 2019 Arrangement and the Ordinance in all circumstances.
⁶ See footnote 3.
⁷ Including punitive or exemplary damages for infringement on the Mainland; punitive and exemplary damages are only covered by the Ordinance in certain circumstances.
⁸ See footnote 3.
⁹ Excluding punitive or exemplary damages.
¹⁰ See footnote 3.
¹¹ Including punitive or exemplary damages, which are only covered by the Ordinance in certain circumstances.