China: New Development Of Patent Infringement Compensation In China

Last Updated: 12 January 2018
Article by Chuanliang Lu

I. Attention received for low patent infringement compensation

In recent years, China's intellectual property legislation has been continuously improved, and protection of intellectual property rights has been constantly strengthened, which is particularly evident in patenting system that is most closely related to national policy for the promotion of innovation. At the legislative level, the State Intellectual Property Office of China is promoting the fourth revision of the Patent Law of the People's Republic of China. At the judicial level, the Supreme People's Court issued two judicial interpretations of patent infringement disputes in 2015 and 2016 respectively and related judicial guidance documents in response to the long-standing issue of "low compensation" in patent litigation.

II. Changes in legal norms for patent infringement compensation

Provisions for patent infringement compensation are set forth in Article 65 in the latest amendments to the patent law (draft). On the basis of the initial provisions, a punitive compensation system for intentional patent infringement is introduced. It is provided in Article 65 of the draft amendments that, "for the intentional Patent Infringement, the people's court may, according to such factors as the circumstances, scale and consequence of the infringement, the amount of compensation determined according to the previous two paragraphs shall be increased to two to three times". The punitive compensation to intentional infringement will serve as a further deterrent to such acts of intentional infringement as repeated infringement or the like.

In the "Regulations on the Application of Law in the Trial of Patent Dispute Cases" promulgated by the Supreme People's Court of the People's Republic of China in 2015, limitation over the amount of statutory compensation for patent infringement is deleted, and "generally from RMB5,000 to RMB300,000,with a maximum not exceeding RMB500,000" in the initial provisions of determining the amount of compensation was amended to "determining the amount of compensation in accordance with the provisions of Paragraph 2 of Article 65 of the Patent Law on the basis of such factors as the type of patent right, the nature and circumstances of the infringement".

The "Interpretation (II) on a number of Issues Regarding the Application of Law in the Trial of Patent Infringement Cases" promulgated by the Supreme People's Court in 2016 provides solution for difficult proof in patent infringement litigation as well as for low compensation. Article 27 of this judicial interpretation makes some improvement to the rules of proof for the amount of compensation in patent infringement litigation. According to the preliminary proof of the patentee and the relevant evidence possessed by the infringer, the burden of proof on profits obtained by the infringer is assigned to the infringer, and this shall be in line with the order of calculation of the amount of compensation provided in Article 65 of the Patent Law.

It is particularly indicated in the Outline of China's Intellectual Property Protection (2016-2020) issued by the Supreme People's Court in 2017 that, a scientific and rational intellectual property infringement compensation system shall be established, and a compensation system compatible with the value of the intellectual property shall be established, taking into consideration of the loss of the patentee, the profit obtained by the infringer, the license fee, the statutory compensation and costs in safeguarding the rights and interests.

III. Continuously increased amount of patent infringement compensation in judicial practice

By making a statistical analysis on the winning cases in patent infringement litigation in the past three years, it is found that the amount of compensation obtained by the patentees has shown a significant rising trend. The average amounts of compensation ruled in 2015, 2016 and the first half of 2017 are RMB350,000, RMB1,024,000 and RMB1,103,000, respectively.

The percentage of the amount of compensation ruled by the court to the amount of compensation claimed by the patentee is also increased year on year. The average percentages in 2015, 2016 and the first half of 2017 are 44.6%, 57.6% and 87.7%, respectively. In terms of the amount of compensation, the average amount of compensation obtained by patentees from abroad or from Hong Kong, Macao and Taiwan is RMB1,022,000, significantly more than the average amount of compensation of RMB757,000 obtained by patentees from the mainland China over the same period (Data Source: Beijing Intellectual Property Court official WeChat "Intellectual Property Beijing").

IV. Statutory compensation is still the mainstream in judicial practice, but the number of cases exceeding the amount of statutory compensation is gradually increased

According to the provisions of the Chinese Patent Law, the amount of patent infringement compensation shall be calculated by using the following methods, and these methods are in an applicable consecutive sequence as the following: (1) the losses suffered by patentee due to infringement; (2)the profits obtained by the infringer from the infringement; (3) a reasonable multiple of the patent license fee shall be referred to; (4) statutory compensation (RMB10,000-1,000,000). In judicial practice, the losses suffered by the patentee in the first consecutive place are often difficult to prove and rarely used. Submission of evidence of the profits of the infringer obtained from the infringement in the second consecutive place is usually necessary for obtaining a large amount of compensation. A reasonable multiple of patent license fee in the third consecutive place is not commonly seen in judicial practice. Where the specific amounts in the preceding three consecutive places cannot be proved according to the evidences of the case, the court may apply the statutory compensation according to the circumstances of the case. If the evidences provided by the parties concerned or the evidences collected in investigation can prove that the applicable statutory compensation is obviously unfair, an amount may be ruled by breaking the upper limit of the statutory compensation.

Evidence is obtained by preservation of evidence for the profits obtained by the alleged infringer. In the patent infringement case of Zhengtai Company v. Schneider Electric Low Voltage (Tianjin) Co., Ltd., Wenzhou City Intermediate People's Court of Zhejiang Province, determines a profit of RMB355 million obtained from the infringement by calculating an average operating profit of Schneider according to the financial material from the industrial and commercial administration and tax department, by preserving as evidence, sales documents of the allegedly infringing products.

Sales data for publicity on websites or other media, sales data from E-business platforms can be used as the preliminary basis for the amount of infringing sales. The industry's average profit margins can be used as the profit margins of the accused product. The alleged infringer's turnover for publicity can also be used as the preliminary evidence of the profits obtained from the infringement. Submission of these evidences are conducive to the judge to rule an amount of compensation within or beyond the amount of statutory compensation. In the patent infringement cases such as Stricker v. Fada, the court ruled that the defendant's financial account and so on shall be preserved as evidences, but the defendant refused to perform the ruling. However, the patentee submitted evidence to prove that the defendant's website proclaims an annual turnover of the infringing product of RMB50 Million to 100 million, and a monthly output of the infringing product of 600,000 sets. Thus, the court ruled on this basis that the defendant shall pay an amount of compensation of RMB2 million.

V. Conclusion

China's patent infringement compensation system is gradually established. Patent infringement costs increase year by year. Costs for safeguarding the patent rights are decreased. In the judicial practice, the patentee attaches importance to provide evidence to the infringement, but ignores provision of evidence for the infringement compensation, which leads to the application of the statutory compensation when the judge makes a judgment, i.e., ruling an amount of compensation from RMB10000 to RMB1,000,000, by considering comprehensively such factors as the type of patent right, the infringing circumstances and the infringing duration. However, regarding such cases for which the exact amount of losses or profits from the infringement is difficult to be proved, in order to break the amount of statutory compensation, the patentee may submit evidence to prove that the applied statuary compensation is obviously unfair, in which case, the court may synthesize all the evidences of the case, so as to determine an appropriate amount of compensation over the limit of the statuary compensation. Where it is impossible to obtain evidence for the infringement of the defendant, on the basis of submission of preliminary evidence to prove that the infringer obtains far more profits than the statuary compensation, the patentee may request the court to collect evidence for the profits obtained by the defendant from the infringement by making investigation as entitled. If the infringer refuses to provide the evidence, it or he shall bear unfavorable legal consequences. The system of punitive compensation for intentional infringement is currently only embodied in the draft legislation of the patent law, it still needs to be observed whether or not it can become a formal legal provision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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