China's biggest ever patent dispute comes to a multi-million dollar end

French company Schneider Electric has agreed to pay Chint Group around $23 million to end a three year patent dispute between the two. What makes it so noteworthy is that this has happened in China and is the direct result of a decision handed down by an intermediate people's court to impose damages to the equivalent of $45 million against Schneider. This followed a finding that the company had infringed Chint patents relating to miniature circuit breakers. It was by far the biggest award ever made in a patent case in China. I am not sure where the $23 milion fits in with regards to settlements, but my guess is that it is probably way up there as well - maybe a China-based reader could let me know.

Schneider had been intending to take the case to appeal, but clearly feels it is now best served bringing matters to an end. As a result, Chint will not get all that it might have hoped for, but will receive a very handy payment. Both companies will have absolute certainty as to the status of the patents in question and how they can be used in future. In other words, the case has worked out in a way that would be familiar to companies and practitioners operating in most jurisdctions in which patents are regularly litigated.

Last year Evalueserve took a look at patent litigation in China and among other things reviewed the Schneider v Chint spat. It concluded that the case taught a seres of valuabe lessons to companies seeking to do business in the country:

Damages relating to a patent litigation do not always have an upper limit: A popular myth about patent enforcement in China is that even if infringement has been established, damages are capped at CNY 500,000. In reality, damages are calculated based on a) losses incurred by the plaintiff and b) the profits made by the defendant from the sale of the infringing product. In the event that there is no evidence available to ascertain these two amounts, statutory damages within a compensation limit of CNY 500,000 can be awarded. However, patent license royalties can also be used as a reference to calculate damages. These damages could be between one and three times the amount of such royalties. Furthermore, the damages may also include expenses incurred by the plaintiff to investigate and prevent the said infringement. In summary, with increasing awareness of enforcement of patent rights in China, the amount of money paid by companies in out-of-court settlements and in patent license fees is bound to increase in the near future. …

Chinese prior art cannot be ignored: Given the exponential increase in the number of filings with the SIPO, it is prudent for every company operating in China to review Chinese patent prior art. One of the best practices may be to regularly review patent application filing activity in the country within a given field of interest. As always, forewarned is forearmed. Proactive measures towards invalidation of granted patents (especially 10-year patents) may also be a good way to avoid possible litigation.

The settlement the two companies have reached merely serves to emphasise these points. It is also worth noting that just over a year ago the vice-president of the People's Supreme Court in China signalled that damages in IP cases in the country were likely to rise. With China also attracting a growing number of patent applications, despite the general slowdown elsewhere, we can expect many more patent disputes before its courts in the future. All those operating in the country need to be very aware of this and of the potential costs involved should they end up on the wrong side of a decision.