China: Effective Approaches To Fight Against Patent Infringement In China

Last Updated: 27 May 2016
Article by Guoxu Yang

Patent infringement happens frequently because many people lack awareness of patent protection or are driven by the interest of high profits. In China, there are two alternative routes to stop patent infringement: the judicial route and the administrative route.

The administrative route may take less money and time than the judicial route. The administrative authority in the administrative route, however, does not have the power to award damages but only to issue an injunction order, so its ability to combat patent infringement is relatively weak. So, many patentees prefer to choose the judicial route to pursue infringers, i.e., request the court issue an injunction order and award damages, by which the patentee may be able to stop the infringement through increasing the cost of infringement to the infringer.

However, the judicial route may take a relatively long time. Though the law stipulates that the first instance should be completed within six months for a dispute between or among domestic parties, and that the second instance should be completed within three months, the actual situation is that a patent infringement case can rarely be concluded within the time limits. There is not even a time limit for cases where at least one party is a foreign entity or individual. A patent infringement case may take one year – or several years – from its start to be concluded.

In addition, even when the patentee wins the case and gets damages, the damages awarded by the courts are generally very low in China. According to some investigation on the damages of patent infringement cases, the average amount is just about Rmb80,000 (US$12,500). The main reason for this is that it is difficult for the patentee to collect evidence of actual damages without a discovery procedure. The courts normally would apply statutory damages based on the nature of the patent right, the scope of the patent infringement, etc. Moreover, some infringers may transfer their properties when they anticipate that they will lose the case. Sometimes, the patentee will not get a penny from the infringer even when he wins the case.

In spite of the above problems, to combat patent infringement effectively, some effective measures can still be taken based on sophisticated considerations.

Seeking a Preliminary Injunction

A preliminary injunction is one of the remedies available to patentees under the Chinese Patent Law. It may be requested prior to the filing of a lawsuit or at the time of filing a lawsuit. If the petition is allowed by the court, the infringer must stop the infringing activities immediately. An instant effect may be achieved.

The court would primarily consider factors such as the likelihood of infringement, the validity of the patent right, whether irreparable harm would be caused to the patentee if the infringement is not stopped timely, etc. In addition, the petitioner would also be requested to pay a certain bond or security fee in case damages are caused to the defendant if the preliminary injunction is made incorrectly. Lastly, the court needs to consider whether the granting of the preliminary injunction may affect the public interest.

Because the granting of a preliminary injunction against the Defendant would have a significant effect on the defendant, the Chinese courts are normally prudent in allowing the preliminary injunction petition filed by the patentee. In addition, the meaning of "irreparable harm" is not quite clear under Chinese patent law, which may also be a barrier to granting a preliminary injunction order for the courts.

In 2013, our firm successfully obtained a preliminary injunction order in a patent infringement case in the Beijing Third Intermediate Court on behalf one of our clients, because we successfully persuaded the court that an "irreparable harm" would be caused to our client if the infringing act of the infringer was not checked out timely. This is the first patent infringement case in Beijing in which a preliminary injunction order was granted.

Because the defendant was ordered to stop infringement immediately by the court, the defendant was anxious to reach a settlement with our client, due to the great pressure brought about by the preliminary injunction. The client got a very positive result for this case. The case was also listed by the Supreme People's Court as one of the five notable cases in 2014.

Requesting the Court Take a Property Preservation Measure

Where the probability the plaintiff would win the case is very high, to avoid the infringer from transferring property and to ensure that the judgment regarding damages could be enforced, the plaintiff may request the court to take a measure of property preservation, which is available under the civil procedure law of China. The most frequent property preservation measure is to partially freeze the account of the defendant. By doing so, after a court judgment takes effect, if the defendant refuses to follow the judgment and pay the damages, the plaintiff may request the court to transfer money from the account of the defendant as the damages awarded by the court. When the capital in the defendant's bank account is frozen, the defendant may have strong wishes to reach a settlement with the plaintiff due to the shortage of capital. The case could then be concluded swiftly. The efficiency of the protection of the patent right could be raised.

When the court grants a property preservation measure, the court would consider primarily the likelihood of infringement; the necessity of preserving the property, i.e., if there is a strong risk that the defendant may transfer his money to escape the damages liability; and whether the plaintiff provided the required bond, which is used to pay damages to the defendant if the plaintiff loses the case. In patent infringement cases, the success rate of getting an order from the court for property preservation measure is much higher than that of getting an order for preliminary injunction. This is a means that may be used by the patentee legitimately.

Requesting the Infringer to Sign an Agreement to Promise not to Infringe Again and Set a High Amount of Damage that the Infringer Needs to Pay if the Infringer Infringes Again

As stated beforehand, it is usually difficult for a patentee to collect the evidence of actual damages. In view of the general burden of proof allocation principle, which is "he who claims who will have the burden of proof," the court would apply the statutory damages according to the provision of the Chinese patent law if the patentee could not prove the profit loss, the illegal gain of the defendant and no reference of the royalty fees, i.e., the court may determine the statutory damages somewhere between Rmb10,000 to Rmb1million (US$1,560 to US$156,600). This is one of the biggest challenges for patentees in China.

China is considering adopting the punitive damages system similar to that of the US, but for the moment, Chinese courts do not support punitive damages for willful patent infringement. In a case where the infringer infringes repetitively, the patentee must once again use the procedure he has already used (a from which he could not get any punitive damages, which may be higher than actual damages). Because of the high cost for patent enforcement and the often unsatisfactory result, it is very hard to stop repetitive infringement, and threats of legal action have no frightening effect on the infringer of willful infringement. Normally, we are inclined to suggest that our client sign a reconciliation agreement with the infringer, prescribing that the infringer agrees to pay a damage of a relatively high amount once he infringes again. If the infringer infringes again, the patentee may ask the court to enforce the agreement and request the infringer to pay the damages as agreed in the reconciliation agreement.

In the retrial case between Zhongshan Longcheng Ltd. and Hubei Tongba Ltd. ((2013) MintiziNo. 116), the Supreme Court supported Zhongshan Longcheng's claim that Hubei Tongba should pay the damages of Rmb1 million (US$156,600) according to the reconciliation agreement entered between the two companies in the previous patent infringement litigation.

In this case, Zhongshan Longcheng sued Hubei Tongba for patent infringement for the first time in 2008. Zhongshan Longcheng won the case in the court of the first instance. Hubei Tongba appealed to the higher court; the appeal was settled through mediation organized by the higher court. The two parties entered into a reconciliation agreement providing that Hubei Tongba promised not to infringe Zhongshan Longcheng's patent in the future. Hubei Tongba agreed to pay Zhongshan Longcheng Rmb1 million as damages if it repeatedly infringed Zhongshan Longcheng's patent in the future.

In 2011, Zhongshan Longcheng found Hubei Tongba had infringed its patent again and sued the company for the second time. In the second lawsuit, Zhongshan Longcheng claimed that Hubei Tongba should pay Rmb1 million as the damages according to the reconciliation agreement. Unfortunately, neither the intermediate court nor the higher court supported Zhongshan Longcheng's claim but awarded Rmb140,000 (US$21,900) as statutory damages rather than Rmb1 million as provided in the reconciliation agreement. Zhongshan Longcheng filed a retrial request with the Supreme Court.

The Supreme Court reversed the previous decisions of the lower courts and supported Zhongshan Longcheng's claim for damages and held that the intrinsic nature of the agreement is a pre-concluded practical method to determine the actual loss of the patentee, or the profit of the infringer attributable to the patent infringement in the future. Considering the difficulties related to evidence collection and the heavy burden of lawsuit, the court reasoned, itwas legitimate for Zhongshan Longcheng and Hubei Tongba to enter into an agreement providing the method of determining damages, either prior to or after infringement.

Later, in the proposed Supreme Court Interpretation on patent infringement, there is also a provision reflecting the spirit of the case, i.e. "the agreement reached by parties on the amount or method of determining damages is legitimate and applicable." The proposed Supreme Court Interpretation on patent infringement is under the process of evaluation for approval.

In summary, a patentee may achieve a very good result by taking advantage of suitable legal measures in patent infringement litigation. Otherwise, even if the patentee wins the case, he may lose money and may not reach the expected result. Of course, a good legal measure may also be a double-edged sword, and a party may be hurt by the measure if it is not used well. For example, the patentee should be very careful when considering whether it will request the court grant a preliminary injunction order and property preservation measure. The patentee should assess the validity of the patent and the likelihood of infringement to avoid affording the liability of damages. However, this cannot be realized without the assistance and involvement of a patent attorney with extensive experience. It is highly recommended that the patentee retain a Chinese patent attorney involved in the enforcement of patent rights in China.

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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