Liu, Shen & Associates - China
The design patent system is evolving rapidly in China. On 1 June 2021 the Patent Law was amended to introduce partial design, and the term for design patents has been extended to 15 years. More than 50% of all patent infringement cases nationwide (28,528 new patent infringement cases were filed in 2020) are based on design patents – and cases are rising annually. Infringing design patents are characteristically easy to detect and have been a favourite for customs protection and enforcement agencies to challenge through both judicial and administrative routes, as well as receiving high numbers of e-business platform complaints.
The fourth amended Patent Law entered into effect on 1 June 2021, strengthening the protection of designs in China. One of its key attractions is the ‘partial design’. Previously, parts of a product that would not be separated could not be protected individually. Protection for a partial design is particularly favourable to graphical user interface (GUI) designs, as without partial protection, GUIs can be protected only as a whole together with the product. Qihu v Jiangmin (2016) is one high-profile case related to a GUI. The Beijing IP Court decided that infringement could not be established since the design patent was named as “a computer with [a] GUI”, while the alleged infringing product was named “software” with a GUI. Such cases will no longer happen. In the draft version of the pending Examination Guidelines, GUIs can now be protected, either in an overall product or as a separate partial design.
How to show partial designs has become a hot topic. Solid and broken lines are permitted, with solid lines representing partial designs seeking protection and broken lines representing other parts. Alternative representations are also available, such as using a semi-transparent layer to cover the parts that are not to receive protection. The draft Examination Guidelines are open for public opinion until 22 September 2021, and it is highly likely that solid and broken lines may succeed as the Patent Office wishes to be consistent with international habits.
Test for design patent infringement
‘Overall observation and comprehensive assessment’ is the high-level governing principle for evaluating whether infringement can be proved. The target product should be compared with the design patent at issue to determine whether they are identical or similar to each other. This comparison should be conducted from the perspective of an ordinary observer. An ordinary observer is not an expert, but a common consumer. The court should exclude functional design elements because a design patent protects only ornamental or non-functional features. The comparison should be based on the context of a claimed design as a whole, not separate elements in isolation. Colour can be used to narrow the protection scope if a colour element is defined clearly in the design.
Design space is a concept that is also considered when determining infringement. If the design space is large, an ordinary consumer is unlikely to notice minor differences between the target and the design, while the opposite is likely to be the case if the design space is small. This is the basis from which to argue whether one or two specific features may significantly influence overall appearance, and whether other elements are easily observable by the ordinary consumer – for example:
- the position of the design feature in the overall design;
- dates or times of when a particular design feature appeared in earlier designs; and
- limitations to the design according to functionality, aesthetic perception or technology.
Simply replacing specific features, which appear not to influence the overall appearance of a product, may still constitute infringement.
Since partial design has just been added to the Patent Law, how to determine its protection scope is still pending. As the situation unfolds, new judgments and Supreme Court judicial interpretations are expected to clarify the issue.
Increase of damages in design cases
The newly amended Patent Law and recent Supreme Court Judicial Interpretations combine to provide a punitive damages system for wilful and serious infringement. This means that there is a significant chance of damages in design patent infringement cases, increasing further if solid and convincing evidence is available. Damages can be calculated in stages by levels:
- level one – the patentee’s economic loss or the infringer’s profits; and
- level two – the licensing fee.
In a punitive context, damages can be increased between one and five times. If none of the losses, profits or licensing fee can be proved, statutory damages of Rmb30,000 to Rmb5 million ($4,600 to $76,900) can be applied.
As support for fact-finding on damages, an evidence inference system can be applied, meaning that if a plaintiff has tried its best to collect preliminary evidence regarding financial materials (eg, sales statistics, an annual report or profit data) from public channels, the burden of proof for damages shifts to the accused infringer and the court may order the accused infringer to submit these documents. If the accused infringer refuses to do so, damages may be inferred based on evidence from the plaintiff.
The calculation of damages is becoming more and more accurate. The basic formula is the ‘sales amount of the infringing products x price x profit rate x patent contribution rate’. If high damages are pursued, all four elements must be proved. Moreover, each piece of evidence should corroborate to form a solid evidence chain.
Siemens v Shenzhen Lvmi (2019) involved an intelligent electrical switch. The sales amounts were retrieved from e-business platforms JD, Tmall, Xiaomi and Suning, based on which the Shanghai IP Court found that until 1 January 2019, 14,650 one-button switches were sold and 19,820 two-button switches. These sales figures were multiplied with the prices of the items to calculate the sales figure – Rmb42.5 million. This can be corroborated with the advertisement on Lvmi’s official website during China’s ‘Black Friday’ shopping deals in 2018, where 500,000 items were sold via the 115 offline shops nationwide in 2018. To decide the 40% profit rate, the court relied on Lvmi’s price discount, Bull Switch’s (a third-party company) initial public offering filings, and Chint Electronic’s annual report. For the contribution rate, the court considered that since the infringing product was an intelligent switch, the most important feature should be the ‘switching functions’, not the design. The court looked at the price differences between Siemens’ patented switch products and ordinary switches as the basis of how to decide on the 20% contribution rate. Damages were calculated at Rmb6 million ($923,100), higher than the damages awarded for invention patent infringement.
Design patent cases are increasingly using this calculation approach. The most difficult element should be the patent contribution rate, since it is subjective and difficult to calculate. The basic reason is that there should not be only one design patent on an infringing product when numerous elements contribute to profits (eg, internal quality management, technical improvements, advertisements and other IP rights). Therefore, in legal practice, the contribution rate for design patents is generally calculated at between 10% and 40%.
FOREO v Jindao involved a face-washing device. In this case, the court considered that the design contributed significantly to the appearance of the device, since there were large changes to designs on the overall body of the item, as well as specific parts based on the searched prior designs. The contribution rate was therefore calculated at 30%.
Reasonable costs include attorney fees, notarisation and translation fees and court fees. Such fees can be claimed; however, the full amount of attorney fees cannot be recovered. Judges are inclined to assess the effort that attorneys have put into their work to determine how much of the attorney fees should be compensated. This is at the court’s discretion and no detailed calculation method is applied. In high-damages cases, compensation for attorney fees is generally decided in the range of Rmb100,000 to Rmb300,000 ($14,000 to $42,000), much higher than the previous range of Rmb30,000 to Rmb50,000 ($4,200 to $7,700) before 2014.
Preliminary injunction for design cases
Preliminary injunctions – including pre-suit and in-suit injunctions – are available in China, especially for design patent infringement, since it is relatively easy to detect infringement. Based on unofficial statistics, compared with inventions and utility models, most preliminary injunctions are granted in design cases.
Strict requirements must be met for a preliminary injunction:
- obvious infringement by the accused infringing product;
- the patent must be valid (eg, it must have survived an invalidity challenge);
- there would be irreparable harm (eg, market loss) if a preliminary injunction was not issued;
- balance between the plaintiff’s and the defendant’s interests; and
- public interest will not be impaired by issuing a preliminary injunction.
Meanwhile, the plaintiff must deposit a bond to prevent possible losses of the defendant due to the preliminary injunction.
In November 2020 the Shenzhen IP Tribunal granted a preliminary injunction granted against Beijing Fimi based on DJI’s influential and high-profile tripod camera design patent. This case may help us to understand how the court evaluated irreparable harm and balanced the interests at issue. These points are largely objective and mostly at the court’s discretion.
Regarding irreparable harm, the court believed that since DJI’s patented products have a certain reputation, if the defendant Beijing Fimi’s accused infringing tripod cameras were placed on the market at lower prices, the market value and reputation of DJI products would be reduced and its competitive edge would be significantly weakened. Moreover, the tripod cameras have a short shelf-life cycle with fast technical iterations. The alleged infringing products would directly influence DJI’s market share when the products appear at the early market stage, causing irreparable economic loss. It is possible that the court paid too much attention to competition and market share when evaluating irreparable harm, as it may be subjective and difficult to prove with evidence. Timing and the early market stage in this case was critical, otherwise the claim for a preliminary injunction would have carried no sense of urgency.
Regarding the balance of interests issue, the court held that if the preliminary injunction was rejected, DJI’s profits and potential market share would be severely influenced, and a lack of input regarding technical developments by Beijing Fimi would leverage low prices and weaken DJI’s competitive edge. Further, the preliminary injunction on the alleged infringing tripod camera does not threaten Fimi’s majority business, and products with alternative design-around solutions can still be sold. Therefore, the court believed that the preliminary injunction causes no unbalance between DJI and Beijing Fimi.
A preliminary injunction is powerful, since it is effective directly from issue up to a second-instance judgment. The period taken to review and issue such a court ruling is, in practice, about one to two months, noticeably shorter than in the first-instance trial cycle. Although the defendant has the opportunity to file a request of reconsideration, the request will be reviewed by the same court and the same judge team, which means it is almost impossible to reverse. It is worth the plaintiff’s effort to pursue such a preliminary injunction.
Strategies to enforce design patents in China
To enforce a design patent and obtain a favourable judgment in China, the foremost thing is to select appropriate strategies according to specific case circumstances.
Choosing design patents
In general, designs are chosen based on patent validity and relevance to target products. Sometimes the validity of a design may be strong, while the relevance is not ideal, while at other times the potential target may look like the design patent but the strong prior art is already available. These two factors should provide balance. If a preliminary injunction is pursued based on a quick schedule, a design patent with high relevance may be used, since it is important to convince the judges of infringement when there is little time available to discuss patent validity. If a patent infringement action is set to launch formally, a design patent with strong validity is preferred, since the invalidity procedure takes only four to six months, much quicker than legal proceedings.
The burden of proof is mostly on the plaintiff in patent infringement litigation. The plaintiff must collect evidence to prove the infringement and damages. Since infringing products protected by designs are mainly in a business-to-customer scenario, proof of infringement can be conducted by purchasing the products via public business channels. The difficult part is regarding damages evidence, since it is controlled by the infringers. The best strategy is to make the most of the evidence inference system to try to convince the court to order the infringer to submit financial documents. It is necessary to acquire as much evidence as possible from public channels or third-party investigators regarding sales amounts and the infringer’s profits.
Forum shopping should be dealt with on a case-by-case basis, with the general principle of drawing the defendant away from its home court. Experience dictates that the courts along the east coast (eg, Shenzhen, Guangzhou, Fuzhou, Shanghai and Suzhou) are favourable choices. The Shenzhen IP Tribunal is especially pro-patentee, in which a fast-handling mechanism is applied to shorten the trial cycle of design infringement cases from six months to two months. More than 90% of cases have a judgment announced in court.
Combine actions to fight infringers
Except for filing patent infringement litigation, preliminary injunctions are recommended to enforce designs efficiently. A preliminary injunction should be able to be used as leverage to move forward legal proceedings. Customs protection is also an option when infringing items are being exported, since Customs has the authority to detain products. Complaints on e-business platforms can prove responsive, since these platforms will usually delete web links if there are complaints about infringement supported by solid evidence. As a successful strategy, these actions may be combined to fight against infringers. They should contribute to patent infringement litigation, since it is only through the judicial route that injunctions and damages can prove finally effective.