Objection to the Jurisdiction of PanAsia Aluminum Co., Ltd. and Baonalijin Company

——Jurisdiction over disputes over equity transfer agreements including patent rights transfer clauses

First trial case number: (2019) Yue 73 Zhiminchu No. 138

Second trial case number: (2019) Supreme People’s Court Zhiminxiazhong No. 158

【The main takeaway of the trial】

Disputes arising from equity transfer contracts that include patent rights transfer clauses are, in principle, equity transfer contract disputes, not patent rights transfer contract disputes, and should not be determined as a patent case.

【Case Introduction】

Appellant (defendant in the original trial): PanAsia Aluminum (China) Co., Ltd. (referred to as PanAsia Aluminum Co., Ltd.)

Appellee (plaintiff in the original trial): Baonalijin Door and Window System (Suzhou Industrial Park) Co., Ltd. (referred to as Bonalijin Company)

On June 17, 2015, Baonalijin Company and PanAsia Aluminum Co., Ltd. signed an Acquisition Agreement. Party A is PanAsia Aluminum Co., Ltd. and Party B is Baonalijin Company. The two parties agreed that PanAsia Aluminum Co., Ltd. will purchase 100% of the equity of Baonalijin Company for 15.8 million yuan. The second clause of the agreement stipulates: "Since the signing of the contract between Party A and Party B, all intellectual property rights owned by Party B including but not limited to registered trademarks, product patents, etc. belong to Party A. And Party B shall assist Party A to complete the relevant transfer procedures as soon as possible. "Article 6 of the contract stipulates: "Disputes related to this contract arising from the execution of this contract shall be resolved in accordance with the principle of friendly consultation. If the two parties cannot reach an agreement through negotiation, either party may sue to the people's court where Party A is located according to law." After that, the two parties had a dispute over the implementation of the Acquisition Agreement, and Baonalijin Company sued PanAsia Aluminum Co., Ltd. to the Guangzhou Intellectual Property Court. PanAsia Aluminum Co., Ltd. filed an objection to jurisdiction, and held that the case should be transferred to the People's Court of Zengcheng District, Guangzhou City, Guangdong Province for trial.

The original trial of the Guangzhou Intellectual Property Court held that this case was a dispute over a patent transfer contract. The domicile of PanAsia Aluminum Co., Ltd. is Guangzhou, Guangdong Province, which is under the jurisdiction of the Guangzhou Intellectual Property Court. Accordingly, the ruling dismissed PanAsia Aluminum Co., Ltd.'s objection to the jurisdiction of the case. PanAsia Aluminum Co., Ltd. refused to accept the ruling of the original trial court and appealed to the Supreme People's Court, requesting that the ruling of the original trial be revoked and the case be transferred to the Zengcheng District People's Court in Guangzhou City, Guangdong Province for trial.

The Supreme People's Court held that the grounds for appeal for jurisdiction objections filed by PanAsia Aluminum Co., Ltd. were established and should be supported. The wrong conclusion of the original judgment shall be corrected. The rulings are as follows: (1) The Guangzhou Intellectual Property Court (2019) Yue 73 Zhiminchu No. 138 Civil Ruling was revoked; (2) This case is under the jurisdiction of the People's Court of Zengcheng District, Guangzhou City, Guangdong Province.

【Typical meaning】

Article 34 of the Civil Procedure Law of the People's Republic of China stipulates that parties to a dispute over a contract or any other right or interest in property may, by a written agreement, choose the people's court at the place of domicile of the defendant, at the place where the contract is performed or signed, at the place of domicile of the plaintiff, at the place where the subject matter is located or at any other place actually connected to the dispute to have jurisdiction over the dispute, but the provisions of this Law regarding hierarchical jurisdiction and exclusive jurisdiction shall not be violated.

The Acquisition Agreement signed by both parties in this case is not an agreement only for the transfer of patent rights, but is based on the agreement between the parties on the matters related to the equity transfer of Baonalijin Company, and the equity transfer naturally includes all related transfer of assets and transfer of intellectual property rights such as patent rights. Therefore, as far as the jurisdictional objection in this case is concerned, the core issue is whether this case is a case of patent right transfer contract dispute or a general contract dispute case (equity transfer contract dispute). For disputes of different nature, different case jurisdiction rules apply. If the case is a patent dispute transfer contract dispute case, exclusive jurisdiction applies; if the case is an ordinary contract dispute case (equity transfer contract dispute case), the ordinary jurisdiction applies. In addition, for ordinary jurisdictions, the parties may agree in writing to the jurisdiction of the people’s court where the dispute is actually connected, without violating the provisions of level jurisdiction and exclusive jurisdiction.

The court of the first instance believed that the transfer of intellectual property rights should be the main content of this agreement, and from the evidence of Baonalijin Company, the reason why PanAsia Aluminum Co., Ltd. did not pay the rest was also because Baonalijin Company did not transfer the related patents to it, so this case is a patent dispute transfer contract dispute. The court of second instance held that the Acquisition Agreement signed by both parties involved in this case not only included the transfer of intellectual property rights, but also included equity transfer, financial settlement, personnel arrangements, etc., and should belong to the equity transfer contract including the transfer of intellectual property rights. The court of second instance thus defined the nature of the equity transfer agreement disputes that included a patent transfer clause. In principle, they were disputes over equity transfer contracts. It cannot be regarded as a patent right transfer contract dispute because of the inclusion of a patent transfer clause or a dispute caused by the patent transfer clause, and it is not appropriate to determine jurisdiction as a patent case.

This analysis is based on the case mentioned in Summary of the Judgment of the Intellectual Property Court of the Supreme People's Court (2019), you can referred to the original article through links below:

Link to the Part I: http://www.chinaiptoday.com/post.html?id=832

Link to the Part II: http://www.chinaiptoday.com/post.html?id=833

Link to the Part III: http://www.chinaiptoday.com/post.html?id=834

Link to the Part IV: http://www.chinaiptoday.com/post.html?id=837