CHANG TSI
Insights
In intellectual property disputes, challenges to a court's territorial or hierarchical jurisdiction are relatively common, but challenges to the court's authority to hear a case at all — known as 主管权异议, or jurisdictional objections in favor of arbitration (hereinafter "jurisdictional objections") — arise far less frequently. They tend to surface after a licensing or cooperation relationship has ended and infringement proceedings have been initiated, serving as a potential "first line of defense" to shift a dispute from the courts to arbitration.
A typical scenario: after the rights holder has asserted that a license agreement has been terminated, the counterparty continues to use the trademark or technology. The rights holder files suit, and the defendant produces the arbitration clause in the contract, arguing that the court has no authority to adjudicate the matter. At that point, the case enters a procedural contest — can an infringement action be "intercepted" by an arbitration clause?
This article begins with the foundational rules governing jurisdictional objections, and through two representative cases examines the adjudicative standards courts currently apply in such proceedings. It also draws out the litigation strategy implications for the parties involved.
In civil and commercial dispute resolution, litigation and arbitration are two independent and mutually exclusive tracks. Where a contract contains a valid arbitration clause, Article 26 of the Arbitration Law entitles a party to raise a jurisdictional objection before the first hearing, asserting that the dispute should be resolved by arbitration rather than the courts.
Unlike a challenge to territorial or hierarchical jurisdiction within the court system, a successful jurisdictional objection in favor of arbitration results in the dismissal of the plaintiff's claim — not a transfer of the case to another court. Where the objection is overruled, the court applies by analogy the rules governing unsuccessful jurisdictional challenges and issues a ruling dismissing the objection. Either ruling may be appealed to the next higher court within the statutory appeal period.
The essential distinction is this: a jurisdictional objection of this kind concerns the external allocation of authority — between the courts and another dispute resolution body (such as an arbitral institution) — while an ordinary jurisdictional challenge concerns the internal allocation of authority among courts of different levels or localities. If an ordinary jurisdictional challenge succeeds, the case is merely transferred; the plaintiff's right to litigate within the court system remains intact.
Unlike the straightforward jurisdictional disputes that an arbitration clause can trigger in ordinary contract cases, jurisdictional objections in IP infringement proceedings often entangle questions about the termination of licensing agreements and the scope of sublicensing rights. These issues bear directly or indirectly on the fact-finding required to establish infringement, and they give rise to patterns that are considerably more complex than those seen in pure contract disputes. The two cases below illustrate the analytical frameworks courts have applied and the practical standards that have emerged.
Case One: Where Infringement and Contract Are Inseparable, the Arbitration Clause Prevails
In Dalian Institute of Chemical Physics, Chinese Academy of Sciences v. Zhengda Energy Materials (Dalian) Co., Ltd. (Supreme People's Court, (2021) Zui Gao Fa Zhi Min Zhong No. 1934), the parties had entered into a Technology Transfer Agreement in 2005, which expired in 2019. The plaintiff (DICP) alleged that after the contract's expiry, the defendant continued to unlawfully disclose and use DICP's trade secrets, and brought suit seeking an injunction and damages. During the period for submitting a statement of defense in the first instance, the defendant raised a jurisdictional objection, arguing that the dispute had arisen from post-contractual breach and was therefore governed by the arbitration clause.
On appeal, the Supreme People's Court held that the courts lacked jurisdiction over the matter, and dismissed DICP's claim. Its reasoning was threefold. First, disputes involving infringement of proprietary rights such as trade secrets are not among the categories of non-arbitrable disputes expressly identified under the Arbitration Law. Second, adjudicating the alleged trade secret infringement would necessarily require examining the provisions and performance of the underlying contract and its supplemental agreements — placing the dispute squarely within the scope of "contract-related disputes" covered by the arbitration clause. Third, both parties to the litigation were parties to the contract, and no third-party or public interest considerations were present, so the dispute fell within the ambit of the contractual arbitration clause.
This case establishes that where the determination of infringement cannot be divorced from the interpretation and application of the contract's terms, the exclusive force of the arbitration clause will be upheld. The Supreme People's Court articulated a clear rule: even where a party frames its claim as one in tort, so long as the cause of action does not fall within a statutory exclusion from arbitrability, both parties are signatories to the contract, no third-party or public interests are implicated, and establishing the alleged infringement necessarily requires examining the rights and obligations under the underlying agreement, the dispute has a "substantive connection" to the contract and remains a "contract-related dispute" subject to the arbitration clause.
Case Two: Where Infringement Can Be Determined Independently of the Contract, the Arbitration Clause Does Not Apply
In Hui (Shanghai) Beverage Co., Ltd. v. Shanghai Huiyin Food Co., Ltd. et al. (Shanghai Higher People's Court, (2020) Hu Min Shen No. 967), the defendant contended that it was not infringing because the trademark license agreement had never been validly terminated, and simultaneously raised a jurisdictional objection based on the arbitration clause in that agreement, arguing that the court had no authority to hear the case.
The Shanghai Higher People's Court's analysis focused not on contract interpretation, but on ascertaining the objective facts: the defendant had committed in a subsequent agreement not to use the trademark freely; the rights holder had issued a written termination notice; and the parties' conduct was consistent with those documents, reflecting a genuine expression of common intent. On this basis, the court characterized the relevant inquiry as fact-finding in connection with the elements of infringement — not the resolution of a contractual dispute — and proceeded to the merits. The arbitration clause did not bar the litigation.
This case illustrates vividly how courts can use the "fact-finding" pathway to set aside an arbitration clause when a defendant raises it both as a jurisdictional objection and a substantive non-infringement defense, on the theory that the underlying license agreement was never terminated. The court first established its authority to examine the licensing facts as a necessary incident of ruling on the defendant's non-infringement defense. It then, on the basis of the evidence before it, characterized that examination as fact-finding on the elements of infringement — an exercise grounded in facts independent of the contract — rather than the resolution of an underlying contractual dispute, thereby excluding the original arbitration clause from application.
The cases above suggest that when courts examine jurisdictional objections in IP infringement proceedings, they typically focus on the following questions:
Under the current case-filing registration system, courts do not routinely screen for arbitration clauses at the time of filing. Defendants, however, retain the right to raise a jurisdictional objection before the first hearing. For rights holders, this means that where an infringement action touches on a licensing agreement that includes an arbitration clause, they should assess before filing whether the cause of action is truly independent of the contract's interpretation, and should prepare in advance evidence demonstrating that the licensee's "unauthorized use" has become an objective fact reflecting the parties' genuine common intent — including written notices of termination, terms in subsequent agreements, and records of the parties' conduct. This preparation allows rights holders to anticipate and respond to potential jurisdictional objections, and prevents the opposing party from using procedural tools to obstruct or delay the enforcement of their rights.
For defendants, conversely, where the facts of the alleged infringement are closely tied to the contract's terms, the arbitration clause should be actively deployed as a procedural defense — with care taken to preserve that right by raising the objection in a timely manner.
Jurisdictional objections in favor of arbitration are uncommon, but in IP infringement proceedings, whenever the underlying contract contains an arbitration clause, they can become a pivotal procedural turning point. Understanding how courts analyze these objections — and developing evidence and case-theory strategies in advance — is essential to securing the initiative at both the procedural and substantive levels.
In practice, counsel must not only assess the degree of connection between the infringement claim and the contractual terms, but also work with the client before initiating proceedings to anticipate the likely trajectory of the dispute, ensuring that the chosen litigation path serves the client's interests. Only then can a party face a jurisdictional objection without being caught off guard — and, when the situation calls for it, turn that same procedural weapon to its own advantage.
