If China is to become a prime patent litigation venue, damages need to be addressed

As this blog reported last week, China’s National People’s Congress (NPC) is weighing changes to the country’s patent law. In particular, He Zhimin, deputy commissioner of the State IP Office (SIPO) has floated the possibility of higher compensation for patent infringement. But recent conversations with both lawyers and corporates in China make clear that there is no legislative quick fix that will bring damages into line with other jurisdictions.

First, the status quo: successful plaintiffs can be awarded compensatory damages based on “actual losses suffered” or “illegal gains obtained”. But there is no equivalent to discovery and the burden of producing evidence is squarely on the plaintiff, so they often end up settling for statutory damages, which are capped at 1 million RMB (about $160,000). The upshot is that unless their only goal is an injunction, companies have little reason to invest in a lawsuit – and infringers have little to fear (financially, at least) from being taken to court.

What steps could the NPC realistically take to change things? For a clue, we might look to the revisions to the Trademark Law made in 2013. Statutory damages were raised from half a million to 3 million RMB, punitive damages were introduced to punish bad faith actors and repeat offenders and infringers were required to turn over their financial books in order to help the judge calculate compensatory damages. But when the most recent draft of the new patent law was circulated, some practitioners were dismayed to find that the maximum statutory award was left at 1 million RMB, though punitive damages did make an appearance. He Zhimin’s comments may be promising, but we will just have to wait and see what is in the final draft.

Still, practitioners say that the key to making the damages regime more effective is not legislation, but judicial action. William ‘Skip’ Fisher of Hogan Lovells in Shanghai told me that evidence preservation requests are already available and can be very effective. “The tools are out there, but they’re not widely used,” he says. “It’s a matter of getting individual courts to use these mechanisms more willingly. Of course, plaintiffs need to present a strong case, but courts can meet them halfway by just using the tools that already exist to uncover evidence that is in the possession of defendants.”

It is also evident that China’s top judicial authorities are giving thought to the issue. The Supreme People’s Court recently released an amendment of sorts to provisions on the application of patent law that were issued back in 2001. According to Fisher, the document “sheds a bit more light on calculating damages” based on factors such as the volume of infringing products sold and the infringer’s operating profits. In Fisher’s estimation: “The amendment helps in the sense that it gives the courts some guidance on calculating; but ultimately they need to get the information by which the calculations can be made - either by allowing the plaintiff to get it or by requiring the infringer to produce it.”

What no one is arguing for is a US-style discovery process. That could affect the relatively low cost of litigation. This, coupled with the potentially huge impact of securing an injunction here, already makes enforcing IP rights in China an enticing value proposition.

So no matter how the NPC ends up changing the patent law, keep an eye on China’s new specialised IP courts in Beijing, Shanghai and Guangzhou. The country’s best and most experienced IP judges are concentrated in these courts, and they are hearing the most technically complex patent cases. If they gain a reputation for aggressive evidence collection and awarding higher damages, these already in-demand courts could become a lot more popular – especially with the potential bargaining power the possibility of an enforceable, China-wide injunction can deliver. 

For more on the litigation calculus in China, look out for our feature in issue 72 of IAM.