Vivien Chan & Co - China
In a recent ruling in Wuxi Guowei v Changshu Linzhi, the Supreme People’s Court awarded Rmb9.4 million ($1.4 million) in damages to the plaintiff, reversing the Jiangsu High Court’s decision to dismiss Wuxi Guowei’s patent infringement claim.
The patent at issue was ZL200920230829.5, a utility model relating to a positive temperature co-efficient heater. The Supreme People’s Court ruling is another example of China’s increased damage awards in patent infringement suits, echoing the increased willingness of the Chinese judicial system to enforce IP rights. The decision also makes ZL200920230829.5 one of the most successfully asserted utility models in China (the Rmb335 million ($45 million) record set in Chint v Schneider in 2007 remains unbroken).
Apply for an investigation order and make full use of it
According to Chinese civil procedure laws and regulations, an investigation order is a legal document issued by the court to an attorney representing a party that is unable to obtain evidence necessary for the suit, requesting that someone who is not a party in the suit provide the necessary evidence.
The investigation order mitigates the lack of a discovery process in China. In Wuxi Guowei, Wuxi Guowei’s attorney collected abundant evidence from the defendant’s customer, Hisense, including:
- model numbers;
- delivery times; and
- the structure, quantity and price of the goods sold.
The defendant failed to provide contradictory evidence and the court admitted and relied on the evidence to reach its decision.
Damages assessment based on profit percentage and contribution rate
Article 65 of the Trademark Law provides that the amount of damages for patent rights infringement must be determined according to:
- the rights holder’s actual losses as a result of the infringement;
- the profits gained by the infringer through the infringement; or
- reasonable royalties for the patent.
If there is difficulty in determining these factors, then the court may – by considering factors such as the type of patent right, the nature of the infringement and seriousness of the case – determine the amount of damages to be between Rmb10,000 and Rmb1 million ($6,700 to $150,000). If the damages cannot be easily assessed, statutory damages will be imposed.
In this case, the Supreme People’s Court chose to use an assessment of the profits for the damages and based its calculation on the following formula: Infringer’s profit = sales of the infringing product × profit percentage × level of contribution of the patented technology due to the profitability of the infringing product.
The court considered:
- a report from an accounting firm showing that the infringing product has, among 12 different modules, a lowest profit percentage of 16.5% and a highest profit percentage of 32.4%; and
- the defendant’s statement during trial that its profit percentage ranges from 10% to 15%.
The court found the profit percentage to be 15%.
The court also found that the patented technology made significant contribution to the marketing appeal of the product and determined a contribution rate of 50%. The court did not explain how it reached this number and neither party produced evidence on the matter. Future court decisions are expected to provide more clarity on the standard for determining the patent contribution rate.
Ellen Li and Martin Lo assisted in the preparation of this article.